<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1996
REGISTRATION NO. 333-09897
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
GULFSTREAM AEROSPACE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3721 13-3554834
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
</TABLE>
P.O. BOX 2206
500 GULFSTREAM ROAD
SAVANNAH, GEORGIA 31402-2206
(912) 965-3000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
CHRIS A. DAVIS
GULFSTREAM AEROSPACE CORPORATION
P.O. BOX 2206
500 GULFSTREAM ROAD
SAVANNAH, GEORGIA 31402-2206
(912) 965-3000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------
COPIES OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO AGENT FOR
SERVICE, SHOULD BE SENT TO:
<TABLE>
<S> <C>
Lois Herzeca, Esq. Robert W. Reeder, III, Esq.
FRIED, FRANK, HARRIS, SHRIVER & SULLIVAN & CROMWELL
JACOBSON 125 Broad Street
One New York Plaza New York, New York 10004-2498
New York, New York 10004-1980 (212) 558-4000
(212) 859-8000
</TABLE>
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE(2)
<S> <C> <C>
Common Stock, par value $.01 per share............... $850,000,000 $288,531(3)
</TABLE>
(1) A portion of the proposed maximum aggregate offering price represents shares
that are to be offered outside of the United States but that may be resold
from time to time in the United States. Such shares are not being registered
for the purpose of sales outside the United States.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
(3) Of this amount, $255,379 was paid on August 9, 1996 and $33,152 is being
paid herewith.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 8, 1996
28,000,000 SHARES
[LOGO]
GULFSTREAM AEROSPACE CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-------------------
Of the 28,000,000 shares of Common Stock offered, 22,400,000 shares are
being offered hereby in the United States and 5,600,000 shares are being offered
in a concurrent international offering outside the United States. The initial
public offering price and the aggregate underwriting discount per share will be
identical for both offerings. See "Underwriting".
Of the 28,000,000 shares of Common Stock offered, 4,782,600 shares are being
sold by the Company and 23,217,400 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders". The Company will not
receive any of the proceeds from the sale of the shares being sold by the
Selling Stockholders. The Company intends to use a portion of the proceeds it
receives from the sale of shares in the Offerings, together with other funds, to
repurchase all of the outstanding Series A 7% cumulative preferred stock of the
Company from a partnership formed by Forstmann Little & Co. for a purchase price
of $450 million, plus approximately $7.9 million of unpaid dividends.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently anticipated that the initial public offering
price per share will be between $22.00 and $24.00. For factors to be considered
in determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "GAC", subject to official notice of issuance.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
------------------ --------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total(3)...................... $ $ $ $
</TABLE>
- --------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Selling Stockholders have granted the U.S. Underwriters an option for 30
days to purchase up to an additional 3,360,000 shares at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments. Additionally, the Selling Stockholders have granted the
International Underwriters a similar option with respect to an additional
840,000 shares as part of a concurrent International Offering. If such
options are exercised in full, the total initial public offering price,
underwriting discount, proceeds to the Company and proceeds to the Selling
Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting".
-------------------
The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York, on or about
, 1996, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
--------------------------------------
The date of this Prospectus is , 1996.
<PAGE>
GULFSTREAM AIRCRAFT ARE THE CHOICE OF 40 WORLD GOVERNMENTS AND NINE OUT OF THE
TOP TEN FORTUNE 500 COMPANIES. SHOWN BELOW IS A GULFSTREAM IV-SP.
[PHOTO OF GULFSTREAM IV-SP]
The Company intends to furnish to its stockholders annual reports containing
audited financial statements for each fiscal year of the Company.
-------------------
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
[INSIDE FRONT COVER FOLD OUT]
THE ALL NEW 6,500 NM GULFSTREAM V. FIRST CUSTOMER DELIVERIES SCHEDULED FOR LATER
THIS YEAR.
[PHOTO OF GULFSTREAM V]
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE
DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS (I) GIVES EFFECT TO THE REPURCHASE OF ALL OF THE
OUTSTANDING PREFERRED STOCK AND THE EXCHANGE, REDESIGNATION AND 1.5-FOR-1 STOCK
SPLIT OF THE COMPANY'S COMMON STOCK, WHICH WILL OCCUR IMMEDIATELY PRIOR TO, OR
SIMULTANEOUSLY WITH, THE CLOSING OF THE OFFERINGS (COLLECTIVELY, THE "1996
RECAPITALIZATION") DESCRIBED UNDER "DESCRIPTION OF CAPITAL STOCK", (II) ASSUMES
THAT THE OVER-ALLOTMENT OPTIONS GRANTED TO THE UNDERWRITERS ARE NOT EXERCISED,
(III) ASSUMES THE ISSUANCE AND SALE OF COMMON STOCK IN THE OFFERINGS AT $23.00
PER SHARE (THE MID-POINT OF THE RANGE OF THE INITIAL PUBLIC OFFERING PRICES SET
FORTH ON THE COVER PAGE OF THIS PROSPECTUS) AND (IV) ASSUMES THE ISSUANCE OF
1,956,520 SHARES OF COMMON STOCK BY THE COMPANY TO CERTAIN SELLING STOCKHOLDERS
PURSUANT TO THE EXERCISE OF OUTSTANDING OPTIONS AND THE SALE OF SUCH SHARES IN
THE OFFERINGS (WHICH AMOUNTS ARE SUBJECT TO CHANGE PENDING FINAL CONFIRMATION OF
SELLING STOCKHOLDER PARTICIPATION IN THE OFFERINGS, PRIOR TO PRICING OF THE
OFFERINGS). UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES TO THE COMPANY OR
GULFSTREAM REFER TO GULFSTREAM AEROSPACE CORPORATION, ITS PREDECESSORS AND ITS
SUBSIDIARIES AND REFERENCES TO "COMMON STOCK" REFER TO THE COMMON STOCK, PAR
VALUE $0.01 PER SHARE, OF GULFSTREAM AEROSPACE CORPORATION AFTER GIVING EFFECT
TO THE 1996 RECAPITALIZATION. REFERENCES IN THIS PROSPECTUS TO (I) MILES ARE TO
NAUTICAL MILES; ONE NAUTICAL MILE IS EQUAL TO 1.15 STATUTE MILES; AND (II)
FISCAL YEARS ARE TO THE FISCAL YEAR OF THE COMPANY ENDED DECEMBER 31 OF THE YEAR
SPECIFIED (e.g., "FISCAL 1995" REFERS TO THE YEAR ENDED DECEMBER 31, 1995).
THE COMPANY
Gulfstream Aerospace Corporation is recognized worldwide as a leading
designer, developer, manufacturer and marketer of the most technologically
advanced intercontinental business jet aircraft. Since 1966, when the Company
created the large cabin business jet category with the introduction of the
Gulfstream II, the Company has dominated this market segment, capturing a
cumulative market share of 60%. The Company has manufactured and sold over 950
large business aircraft since the introduction of the Gulfstream product line in
1958. Since 1990, the Company has been owned by certain partnerships formed by
Forstmann Little & Co., a private investment firm ("Forstmann Little").
The Company has developed a broad range of aircraft products to meet the
aviation needs of its targeted customers (which include national and
multinational corporations, governments and governmental agencies, heads of
state and wealthy individuals). See "Business--Customers and Marketing". The
Company's current principal aircraft products are the Gulfstream IV-SP, the
Gulfstream V, Gulfstream Shares-TM- (fractional ownership interests in
Gulfstream IV-SPs) and pre-owned Gulfstream aircraft. As an integral part of its
aircraft product offerings, the Company offers aircraft completion (exterior
painting of the aircraft and installation of customer selected interiors and
optional avionics) and worldwide aircraft maintenance services and technical
support for all Gulfstream aircraft. In addition, the Company's financial
services subsidiary, Gulfstream Financial Services Corporation, through its
private label relationship with a third-party aircraft financing provider,
offers customized products to finance the worldwide sale of Gulfstream aircraft.
BUSINESS STRATEGY
Beginning in 1993, the Company implemented a major restructuring and
refocusing of its business in order to improve profitability, increase market
share and build backlog. Theodore J. Forstmann, who assumed the position of
Chairman of the Company in November 1993, recruited a new senior management team
(including over 20 senior executives with aviation and aerospace industry
experience) and established a five member Management Committee, chaired by Mr.
Forstmann and comprised of four other key executives who share responsibility
for strategic decisions, management and oversight of the Company's operations.
In addition, Mr. Forstmann assembled both a Board of Directors and an
International Advisory Board comprised of prominent business executives and
senior statesmen to counsel the Company and assist in its refocused sales and
operating initiatives.
Under the leadership of Mr. Forstmann and the new management team, the
Company (i) recapitalized its balance sheet, thereby reducing the Company's
annual interest expense by approximately $38 million, (ii) reduced the Company's
cost structure, yielding over $50 million in annual savings, while increasing
the Company's aircraft production rate, (iii) strengthened the Company's market
position and aircraft order growth, resulting in a contract backlog of
approximately $3.0 billion of revenues and executed contracts with financing
contingencies of approximately $295 million of potential revenues, representing
total revenues and potential revenues of approximately $3.3 billion at September
30, 1996, (iv) expanded and improved the Company's product offerings and (v)
increased the Company's completion order rate and expanded its worldwide service
and support business.
3
<PAGE>
The most significant aspects of the restructuring were:
RECAPITALIZATION AND SIGNIFICANT REDUCTION OF INTEREST EXPENSE
In late 1993, a partnership formed by Forstmann Little exchanged
approximately $469 million of the Company's subordinated debentures (including
accrued interest) for preferred stock, thereby reducing the Company's annual
interest expense by approximately $38 million. See "Certain Transactions -- The
Acquisition; Subsequent Events". This recapitalization and the resulting
increase in cash flow (together with the cost reductions and manufacturing
efficiencies discussed below) enabled the Company to dedicate additional
resources to significantly enhance the design of the Gulfstream V, the Company's
new ultra-long range business jet.
COST REDUCTIONS AND INCREASED PRODUCTION RATE
The Company initiated a restructuring that significantly reduced its cost
structure and product manufacturing cycle times. The restructuring program
included a voluntary reduction in the Company's work force of approximately 15%,
the outsourcing of certain manufacturing activities, the renegotiation of major
supplier contracts and the termination of certain leases, which, in the
aggregate, have yielded over $50 million in annual savings. Additionally, the
Company has reduced final assembly time of an aircraft by more than 50% from
over 67 days to approximately 30 days and has reduced aircraft completion time
from approximately 35 weeks to approximately 21 weeks. As a result of these
cycle time reductions, the use of common tooling and selected outsourcing, the
Company expects to increase its production rate from an average of 2.4 aircraft
per month in 1996 to an average of 3.5 to 4.0 aircraft per month in 1997.
NEW MARKETING INITIATIVES AND SIGNIFICANTLY INCREASED BACKLOG
The Company developed and implemented a new, proactive marketing strategy to
substantially broaden the markets for its products. In addition to the Company's
historical practice of targeting its existing customer base, the Company (a)
initiated an aggressive marketing campaign focused on companies and individuals
that have not previously owned Gulfstream aircraft, (b) significantly expanded
international sales activities, (c) introduced its Gulfstream Shares-TM- program
and (d) offered its customers access to customized financing to support the sale
of new and pre-owned Gulfstream aircraft. The Company has also redirected its
sales and marketing effort to focus on high level decision makers through
increased involvement of the Company's Board of Directors, International
Advisory Board and senior management in the selling process and restructured its
sales commission program to more effectively support the Company's strategic
goals.
As a result of these new marketing initiatives, the Company has experienced
strong growth in aircraft orders and backlog and believes that it has
substantially strengthened its market position. At September 30, 1996, the
Company had a contract backlog of approximately $3.0 billion of revenues plus
executed contracts with financing contingencies of approximately $295 million of
potential revenues, representing a total of 69 contracts for Gulfstream Vs and
30 contracts for Gulfstream IV-SPs. Contracts with financing contingencies are
converted to backlog upon receipt of financing by the purchaser, which generally
occurs within 120 days. In addition, at September 30, 1996, the Company had
letters of intent with deposits for a total of 1 Gulfstream V and 4 Gulfstream
IV-SPs, representing approximately $140 million of additional potential
revenues. In total, approximately 50% of the Gulfstream V contracts in backlog
have scheduled deliveries beyond 1997.
EXPANDED PRODUCT OFFERINGS
The Company expanded its product offerings to provide multiple aircraft
products in contrast to its historical strategy of offering only one new
aircraft model at a time. In addition, the Company began marketing its products
as an integrated whole, offering completion and worldwide maintenance services
and technical support for all Gulfstream aircraft. The Company's current product
offerings include the following:
GULFSTREAM V. The Company significantly enhanced the design and performance
characteristics of the Gulfstream V, which was in the early stage of development
in 1993, and accelerated the pace of its development. The Gulfstream V is
targeted at the market for ultra-long range business jet aircraft (6,500
nautical miles) which is a new market segment for the business jet industry. The
Gulfstream V is in the advanced stages of flight testing and is on schedule to
obtain certification by the Federal Aviation Administration ("FAA") in the last
quarter of 1996, at least
4
<PAGE>
12 months prior to the targeted certification date of any other ultra-long range
business jet aircraft. The Company believes the Gulfstream V provides the
longest range, fastest cruising speed and most technologically advanced avionics
of any ultra-long range business jet aircraft in operation.
GULFSTREAM IV-SP. In 1993, the Company introduced the Gulfstream IV-SP,
which offers significantly improved performance and upgraded avionics as
compared to its predecessor, the Gulfstream IV. The Company believes that the
Gulfstream IV-SP offers the best combination of large cabin size, long range
(4,220 nautical miles), fast cruising speed and technologically advanced
avionics of any large business jet aircraft currently available.
GULFSTREAM SHARES-TM-. In 1995, the Company introduced a Gulfstream IV-SP
fractional share ownership program (Gulfstream Shares-TM-) in conjunction with
Executive Jet International, Inc.'s ("EJI") NetJets-Registered Trademark-
Program. Gulfstream Shares-TM- provides customers with the benefits of
Gulfstream aircraft ownership at a substantially lower cost than full aircraft
ownership and significantly increases the Company's potential customer base. To
date, the Company has contracted to deliver 16 Gulfstream IV-SPs and 2
Gulfstream Vs to EJI in connection with this program, 8 of which have been
delivered and 10 of which will be delivered through 1999. EJI also has an option
to purchase 5 additional Gulfstream IV-SPs in 1998.
PRE-OWNED GULFSTREAM AIRCRAFT. The Company assembled a new, experienced
management team for its pre-owned aircraft sales operations and introduced a
number of initiatives that have enhanced the marketability of pre-owned
Gulfstream aircraft. See "Business--Principal Products--Premium Pre-Owned
Gulfstream Aircraft and Other Pre-Owned Aircraft". In addition, the Company has
been successful in using pre-owned Gulfstream aircraft as a significant tool to
expand the Company's potential market and to compete against other manufacturers
of lower priced, new aircraft products. As a result of the Company's competitive
success in marketing pre-owned aircraft, the Company has reduced its inventory
of pre-owned aircraft available for sale to approximately $23.6 million and
$35.0 million as of June 30, 1995 and 1996, respectively, as compared with
approximately $125.8 million at October 31, 1993.
IMPROVED COMPLETION, SERVICE AND SUPPORT
The Company's new marketing strategy has resulted in substantial
improvements in the Company's completion business. Gulfstream currently
completes approximately 95% of all new Gulfstream aircraft sold to customers as
compared to 70% in 1990. Further, the Company has significantly expanded its
worldwide maintenance services and technical support for Gulfstream aircraft,
including opening a new 200,000 square foot service center in 1996 to increase
its ability to provide high quality service to Gulfstream customers. These
service and support activities provide the Company with ongoing customer
contact, which the Company believes enhances its opportunity to sell new
aircraft to existing service and support customers.
SUCCESSFUL CO-PRODUCTION OF GULFSTREAM V AND GULFSTREAM IV-SP AIRCRAFT
The Company is currently manufacturing both the Gulfstream V and Gulfstream
IV-SP. Upon FAA certification of the Gulfstream V, which is expected to occur in
the last quarter of 1996, the Company will begin delivering Gulfstream V
aircraft to customers. Given the Company's increased manufacturing volume and
large backlog of orders, the Company expects to deliver aircraft in 1997 at
rates substantially in excess of those experienced in the recent past. Assuming
FAA certification in the last quarter of 1996, the Company expects to deliver
approximately 46 new aircraft in 1997, including 19 Gulfstream IV-SP and 27
Gulfstream V aircraft, representing a 59% increase over the Company's expected
deliveries in 1996.
Certain partnerships formed by Forstmann Little (the "Forstmann Little
Partnerships") own substantially all of the shares of the Company's currently
outstanding common stock (87.1% of the common stock on a fully diluted basis).
Shares of Common Stock to be sold pursuant to the Offerings will be sold by the
Company and by the Forstmann Little Partnerships, as well as by certain other
holders of the Company's common stock and certain option holders (collectively,
the Forstmann Little Partnerships and such holders of common stock and options
are the "Selling Stockholders"). After the consummation of the Offerings, the
Forstmann Little Partnerships will beneficially own approximately 61.1% of the
Common Stock (55.2% on a fully diluted basis) or 55.6% (50.6% on a fully diluted
basis), assuming that the Underwriters' over-allotment options are exercised in
full. See "Certain Transactions -- The Acquisition; Subsequent Events" and
"Principal and Selling Stockholders".
5
<PAGE>
THE OFFERINGS (1)
<TABLE>
<S> <C>
Common Stock offered by the
Company: (2)
United States Offering........ 3,826,100 shares
International Offering........ 956,500 shares
Total....................... 4,782,600 shares
Common Stock offered by the
Selling Stockholders: (2)
United States Offering........ 18,573,900 shares
International Offering........ 4,643,500 shares
Total....................... 23,217,400 shares
Common Stock to be outstanding
after the Offerings............ 71,963,882 shares (2)(3)
Use of proceeds by the Company.. Together with proceeds of $400 million from new bank borrowings,
proceeds of expected stock option exercises in connection with the
Offerings, and funds generated from operations, to repurchase the
outstanding Series A 7% cumulative preferred stock of the Company
(the "7% Cumulative Preferred Stock") at its stated value for a
purchase price of $450 million, plus approximately $7.9 million of
unpaid dividends, to repay outstanding indebtedness under existing
credit facilities (which was $119.8 million at June 30, 1996) and to
pay the fees and expenses incurred in connection with the Offerings
and the refinancing of the Company's indebtedness. The Company will
not receive any of the proceeds from the sale of shares by the
Selling Stockholders. See "Use of Proceeds".
Proposed NYSE symbol............ GAC
</TABLE>
- --------------
(1) The offering of 22,400,000 shares of Common Stock initially being offered in
the United States (the "U.S. Offering") and the offering of 5,600,000 shares
of Common Stock initially being offered outside the United States (the
"International Offering") are collectively referred to as the "Offerings".
The underwriters for the U.S. Offering (the "U.S. Underwriters") and the
underwriters for the International Offering (the "International
Underwriters") are collectively referred to as the "Underwriters".
(2) Assumes that the Underwriters' over-allotment options are not exercised. See
"Underwriting".
(3) Includes 1,956,520 shares of Common Stock to be issued simultaneously with
or immediately prior to the consummation of the Offerings upon exercise of
outstanding stock options, which shares will be sold in the Offerings. Does
not include 7,697,124 shares issuable upon the exercise of additional
outstanding stock options. See "Management -- Stock Options".
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
factors set forth under "Risk Factors" as well as the other information set
forth in this Prospectus.
6
<PAGE>
SUMMARY FINANCIAL DATA
The summary historical financial information presented below, except the pro
forma financial information, is derived from the Company's Financial Statements
as of the date and for the periods indicated. The summary historical financial
statements for the years ended December 31, 1993, 1994 and 1995 and the six
months ended June 30, 1995 and 1996 and pro forma financial information should
be read in conjunction with the Company's Consolidated Financial Statements and
the related notes thereto included elsewhere in this Prospectus,
"Capitalization", "Selected Financial Data", "Pro Forma Condensed Financial
Information", "Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Business -- Business Strategy -- Recapitalization and
Significant Reduction of Interest Expense" and "Description of Capital Stock".
In the six months ended June 30, 1996, 3 fewer green aircraft were delivered
than were in the same period in 1995 as a result of the delivery in early 1995
of 3 units which were produced in late 1994. In addition, beginning in the
fourth quarter of 1995, the Company dedicated a portion of its production
capacity to the manufacture of Gulfstream Vs which the Company will not begin
delivering to customers until after FAA certification, which is expected in the
fourth quarter of 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues.................................... $ 887,234 $ 900,419 $ 887,113 $ 901,638 $1,041,514 $ 474,884 $ 458,672
Gross profit.................................... 138,681 175,865 149,752 191,084 205,967 96,862 103,831
Restructuring charge............................ 203,911(1)
Interest expense................................ 72,679 61,235 48,940 20,686 18,704 9,945 7,166
Income (loss) from operations................... 21,254 9,528 (226,773) 43,883 42,090 16,358 14,932
Net income (loss)............................... (49,728) (49,572) (275,227) 23,564 28,894 7,839 15,359
Pro forma net income (loss) per share (2)....... $ .18 $ (.02) $ .08
Pro forma common shares outstanding (2)......... 78,194 78,194 78,194
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................. $ 248,974 $ 268,881 $ 302,369 $ 301,913 $ 356,976 $ 322,261 $ 232,508
Total assets.................................... 991,841 945,433 799,470 745,761 981,253 823,861 1,159,371
Total debt (3).................................. 719,500 670,258 206,145(4) 178,145 146,331 172,863 119,798
Total stockholders' equity (deficit) (3)........ (27,191) (26,700) 164,395 188,950 217,540 196,789 123,103
OTHER DATA:
Depreciation and amortization................... $ 49,687 $ 52,374 $ 47,866 $ 24,151 $ 23,094 $ 11,530 $ 12,242
Research and development expense................ 9,555 36,295 47,990 57,438 63,098 34,076 34,746
Stock option compensation expense............... 5,200
OPERATING DATA:
Units delivered during period:
Gulfstream IV/IV-SP........................... 28 25 26 22 26 14 11
Units ordered during period:
Gulfstream IV/IV-SP........................... 31 26 26 25 30 17 15
Gulfstream V.................................. 0 8 17 16 12 5 12
--------- --------- --------- ---------- ---------- ---------- ----------
Total orders.................................. 31 34 43 41 42 22 27
Units in backlog at end of period:
Gulfstream IV/IV-SP(5)........................ 5 3 3 3 7 6 11
Gulfstream V(6)............................... 0 8 24 40 50 45 62
--------- --------- --------- ---------- ---------- ---------- ----------
Total backlog (in units)(7)................... 5 11 27 43 57 51 73
Estimated backlog (in thousands) (7)(8)......... $ 124,225 $ 362,466 $ 897,747 $1,473,772 $1,938,315 $1,731,532 $2,496,061
</TABLE>
- ------------------
(1) The Company recorded a charge for a restructuring plan based upon the
Company's reassessment of its business plan and its products from which it
has realized improved operating efficiencies, reduced costs, and increased
overall profitability. See Note 2 to the Company's Consolidated Financial
Statements included elsewhere in this Prospectus.
(2) Pro forma net income (loss) per share amounts are calculated based on the
pro forma net income, after giving effect to the 1996 Recapitalization and
the Offerings, divided by the pro forma weighted average number of common
and common equivalent shares outstanding assuming the 1996 Recapitalization
shares and the shares sold in the Offerings were outstanding for all periods
reported. For information regarding the pro forma data, see "Pro Forma
Condensed Financial Information" on pages 18 and 19 and "Capitalization" on
page 16. Due to the change in the Company's capital structure to be effected
with the 1996 Recapitalization, historical share and per share data for all
periods is not relevant and therefore is not presented.
(3) Total debt and stockholders' equity (deficit) does not include the impact of
the 1996 Recapitalization of the Company to be effected immediately prior to
or simultaneously with the consummation of the Offerings. See
"Capitalization".
7
<PAGE>
(4) During November 1993, the Company converted $469 million of subordinated
debentures (including accrued interest) to 7% Cumulative Preferred Stock in
connection with the 1993 recapitalization. See "Business -- Business
Strategy -- Recapitalization and Significant Reduction of Interest Expense"
and "Certain Transactions -- The Acquisition; Subsequent Events".
(5) Net of 3 cancellations in each of 1992 and 1994, which generally relate to
orders placed in prior years.
(6) Net of cancellations of 1 and 2 in 1993 and 1995, respectively, which
generally relate to orders placed in prior years. As of June 30, 1996, only
3 Gulfstream V contracts had been cancelled, 2 of which were the result of
declines in the business performance of the customer and one of which was
the result of adverse economic conditions in a foreign country.
(7) At September 30, 1996, the Company had a contract backlog of approximately
$3.0 billion of revenues plus executed contracts with financing
contingencies of approximately $295 million of potential revenues,
representing a total of 69 contracts for Gulfstream Vs (2 with financing
contingencies) and 30 contracts for Gulfstream IV-SPs (8 with financing
contingencies). In addition, at September 30, 1996, the Company had letters
of intent with deposits for a total of 1 Gulfstream V and 4 Gulfstream
IV-SPs, representing approximately $140 million of additional potential
revenues.
(8) Backlog includes only those orders for which the Company has entered into a
purchase contract with a customer and has received a significant (generally
non-refundable) deposit from the customer. Not included in backlog are
executed contracts subject to financing contingencies, options and letters
of intent for which definitive agreements have not yet been executed, which,
at June 30, 1996, represented approximately $350 million of additional
potential revenues.
8
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY.
GULFSTREAM V CERTIFICATION AND PRODUCTION
The Gulfstream V is a new aircraft product that is still in the FAA
certification process. Neither the Gulfstream V nor its BMW Rolls Royce BR710
engines have yet been delivered to customers. The Gulfstream V has successfully
passed the FAA tests administered to date as part of its certification process.
The BR710 engine has been certified by the Joint Aviation Authorities and the
FAA. While the Company believes that the Gulfstream V is currently on schedule
to obtain FAA certification in the last quarter of 1996, no assurance can be
given that certification will occur as scheduled or that changes in FAA policies
or procedures will not delay certification.
An extended delay in the FAA certification process may have a near-term
adverse effect on the Company's results of operations. In addition, while the
Company generally receives non-refundable deposits in connection with each
order, an order may be cancelled (and the deposit returned) under certain
conditions if the delivery of the Gulfstream V is delayed more than six months
after a customer's scheduled delivery date. An extended delay in the FAA
certification process could cause an increase in the number of cancellations of
orders for Gulfstream Vs, which could have an adverse effect on the Company's
results of operations.
In contrast to its historical practice of discontinuing existing models, the
Company will continue to manufacture and sell Gulfstream IV-SPs at the same time
that it manufactures and sells Gulfstream Vs. Concurrently with its production
of Gulfstream IV-SPs, the Company had produced 6 Gulfstream Vs, and had 3
additional Gulfstream Vs in the final stage of production, as of September 30,
1996. The Company expects to increase its production rate from an average of 2.4
aircraft per month in 1996 to an average of 3.5 to 4.0 aircraft per month in
1997. No assurance can be given as to the extent to which the Company can
successfully increase its rate of production.
THE BUSINESS JET AIRCRAFT MARKET
The Company's principal business is the design, development, manufacture and
marketing of large and ultra-long range business jet aircraft. Because of the
high unit selling price of its aircraft products and the availability of
commercial airlines and charters as alternative means of business travel, a
downturn in general economic conditions could result in a reduction in the
orders received by the Company for its new and pre-owned aircraft. The Company
would not be able to rely on sales of other products to offset a reduction in
sales of its aircraft. If a potential purchaser is experiencing a business
downturn or is otherwise seeking to limit its capital expenditures, the high
unit selling price of a new Gulfstream aircraft could result in such potential
purchaser deferring its purchase or changing its operating requirements and
electing to purchase a competitor's lower priced aircraft. Since the Company
relies on the sales of a relatively small number of high unit selling price new
aircraft (42 new contracts signed, and 26 aircraft delivered, in 1995) to
provide approximately 55% to 65% of its revenues, small decreases in the number
of aircraft delivered in any year could have a material adverse effect on the
results of operations for that year.
The Company believes that its reputation and the exemplary safety record of
its aircraft are important selling points for new and pre-owned Gulfstream
aircraft. The Company designs its aircraft with back-up systems for major
functions and appropriate safety margins for structural components. However, if
one or a number of catastrophic events were to occur with the Gulfstream fleet,
Gulfstream's reputation and sales of Gulfstream aircraft could be adversely
affected.
In many cases, the Company has agreed to accept, at the customer's option,
the customer's pre-owned aircraft as a trade-in in connection with the purchase
of a Gulfstream V. In connection with orders for 28 Gulfstream V aircraft, the
Company has offered customers trade-in options (which may or may not be
exercised) pursuant to which the Company will accept trade-in aircraft
(primarily Gulfstream IVs and
9
<PAGE>
Gulfstream IV-SPs) at a guaranteed minimum trade-in price. See Note 14 to the
Company's Consolidated Financial Statements included elsewhere in this
Prospectus. Based on the current market for pre-owned aircraft, the Company
expects to continue to be able to resell such pre-owned aircraft, and does not
expect to suffer a loss with respect to the possible trade-in of such aircraft.
However, an increased level of pre-owned aircraft or changes in the market for
pre-owned aircraft may increase the Company's inventory costs and may result in
the Company receiving lower prices for its pre-owned aircraft.
The market for large cabin business jet aircraft is highly competitive. The
Gulfstream IV-SP competes in the large cabin business jet aircraft market
segment, principally with Dassault Aviation S.A. (which recently announced that
it will merge with Aerospatiale SA) and Bombardier Inc. ("Bombardier"). The
Gulfstream V competes in the ultra-long range business jet aircraft market
segment, primarily with the Global Express, which is being marketed by Canadair,
a subsidiary of Bombardier, and which is scheduled for certification at least 12
months after the anticipated initial delivery of the Gulfstream V. In addition,
in July 1996, The Boeing Company ("Boeing"), in partnership with General
Electric Co., publicly announced that it intends to begin to market a version of
the Boeing 737 into the ultra-long range business jet aircraft market segment.
Boeing has indicated that it expects that this aircraft could be available for
delivery in late 1998 or 1999. The Company's competitors may have access to
greater resources (including, in certain cases, governmental subsidies) than are
available to the Company. The Company believes, however, that it competes
favorably with its competitors on the basis of the performance characteristics
of its aircraft, the quality, range and timeliness of the service it provides
and its innovative marketing techniques, and that it has the leading market
share in both the large cabin and ultra-long range business jet aircraft market
segments.
The Company's ability to remain pre-eminent in the large business jet and
ultra-long range business jet aircraft markets over the long term requires
continued technological and performance enhancements to Gulfstream aircraft.
Although the Company believes that the Gulfstream IV-SP and the Gulfstream V are
currently the most advanced aircraft in the marketplace, no assurance can be
given that the Company's competitors will not be able to produce aircraft
capable of performance comparable or superior to Gulfstream aircraft in the
future.
PURCHASED MATERIALS AND EQUIPMENT
Approximately 70% of the production costs of both the Gulfstream IV-SP and
the Gulfstream V consist of materials and equipment purchased from other
manufacturers. While the Company's production activities have never been
materially affected by its inability to obtain components, and while the Company
maintains business interruption insurance in the event that such a disruption
should occur, the failure of the Company's suppliers to meet the Company's
performance specifications, quality standards, pricing terms or delivery
schedules could have a material adverse impact on the profitability of the
Company's new aircraft sales or the ability of the Company to timely deliver new
aircraft to customers. The Company works closely with its suppliers to procure
materials on a timely basis that meet Gulfstream's high quality standards. See
"Business -- Materials and Components".
POSSIBLE FLUCTUATIONS IN QUARTERLY AND ANNUAL RESULTS
The Company records revenue from the sale of a new "green" aircraft (i.e.,
before exterior painting and installation of customer selected interiors and
optional avionics) when that aircraft is delivered to the customer. As a result,
a delay or an acceleration in the delivery of new aircraft may affect the
Company's revenues for a particular quarter or year and may make
quarter-to-quarter or year-to-year comparisons difficult. In addition, the
Company's production schedule may be affected by many factors, including timing
of deliveries by suppliers. Accordingly, the prevailing market price of the
Common Stock could be subject to fluctuations in response to variations in the
Company's production and delivery schedules. See " -- Gulfstream V Certification
and Production", " -- Purchased Materials and Equipment" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Quarterly Results".
10
<PAGE>
PENDING TAX AUDIT
The Company is involved in a tax audit by the Internal Revenue Service
covering the years ended December 31, 1990 and 1991. The revenue agent's report
includes several proposed adjustments involving the deductibility of certain
compensation expense and items relating to the capitalization of the Company as
well as the allocation of the purchase price in connection with the Acquisition
(as defined below), including the treatment of advance payments with respect to
and the cost of aircraft that were in backlog at the time of the Acquisition and
the amortization of amounts allocated to intangible assets. The Company believes
that the ultimate resolution of these issues will not have a material adverse
effect on its financial statements because the financial statements already
reflect what the Company currently believes is the expected loss of benefit
arising from the resolution of these issues. However, because the revenue
agent's report is proposing adjustments in amounts materially in excess of what
the Company has reflected in its financial statements and because it may take
several years to resolve the disputed matters, the ultimate extent of the
Company's expected loss of benefit and liability with respect to these matters
cannot be predicted with certainty and no assurance can be given that the
Company's financial position or results of operations will not be adversely
affected.
LEVERAGE AND DEBT SERVICE; RESTRICTIONS ON PAYMENT OF DIVIDENDS
Pursuant to a commitment letter, dated August 9, 1996 (the "Commitment
Letter"), The Chase Manhattan Bank ("Chase") and Chase Securities, Inc., as the
arranger ("CSI"), have committed to provide a $650 million credit facility (the
"Bank Facility") to Gulfstream Delaware Corporation, the principal operating
subsidiary of the Company ("Gulfstream Delaware"), under a new credit agreement
(the "Credit Agreement") to be entered into simultaneously with the closing of
the Offerings. The facility under the Credit Agreement will consist of a $400
million term loan (the "Term Loan Facility") and a $250 million revolving credit
facility (the "Revolving Credit Facility"). Gulfstream Delaware expects to
borrow and use approximately $400 million under the Credit Agreement to fund,
along with the proceeds of the sale of shares of Common Stock by the Company in
the Offerings and funds generated by operations, (i) the repayment of
outstanding indebtedness under the Company's existing credit facilities (which
was $119.8 million at June 30, 1996), (ii) the payment of fees and expenses
incurred in connection with the Offerings and the refinancing of the Company's
indebtedness and (iii) the repurchase of all of the outstanding shares of the
Company's 7% Cumulative Preferred Stock for a purchase price of $450 million
(plus approximately $7.9 million of unpaid dividends). As a result, the Company
will be more leveraged after the Offerings. On a pro forma basis, after giving
effect to the Offerings, the borrowings under the Credit Agreement and the
application of the net proceeds thereof as described under "Use of Proceeds", at
June 30, 1996, the Company's long-term indebtedness (including current
maturities of $13.3 million) would have been $400 million. See "Capitalization"
and "Description of Credit Agreement".
The degree to which the Company is leveraged could have important
consequences to holders of Common Stock, including the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, product development, acquisitions, general
corporate purposes or other purposes may be impaired; (ii) a portion of the
Company's and its subsidiaries' cash flow from operations must be dedicated to
the payment of the principal of and interest on its indebtedness; (iii) the
Credit Agreement will contain certain restrictive financial and operating
covenants, including, among others, requirements that Gulfstream satisfy certain
financial ratios; (iv) a significant portion of Gulfstream's borrowings will be
at floating rates of interest, causing Gulfstream to be vulnerable to increases
in interest rates; (v) the Company's degree of leverage may make it more
vulnerable in a downturn in general economic conditions; and (vi) the Company's
financial position may limit its flexibility in responding to changing business
and economic conditions.
The Company is a holding company with no operations or assets other than the
stock of its subsidiaries. As a result, the Company's ability to pay dividends
on its Common Stock is dependent upon the ability of its subsidiaries to pay
cash dividends or make other distributions. The Credit Agreement will restrict
the ability of the Company's subsidiaries to pay cash dividends or to make other
11
<PAGE>
distributions and, accordingly, will limit the ability of the Company to pay
cash dividends to its stockholders. The borrowings under the Credit Agreement
will be guaranteed by the Company and certain of its subsidiaries and will be
secured by a pledge of the stock of certain of the Company's subsidiaries. See
"Dividend Policy" and "Description of Credit Agreement".
CONTROL BY PRINCIPAL STOCKHOLDERS; LIMITATIONS ON CHANGE OF CONTROL; BENEFITS TO
PRINCIPAL STOCKHOLDERS
After the consummation of the Offerings, the Forstmann Little Partnerships
will beneficially own approximately 61.1% of the Common Stock (55.2% on a fully
diluted basis) or 55.6% (50.6% on a fully diluted basis), assuming that the
Underwriters' over-allotment options are exercised in full. As long as the
Forstmann Little Partnerships continue to own in the aggregate more than 50% of
the Company's outstanding shares of Common Stock, they will collectively have
the power to elect the entire Board of Directors of the Company and, in general,
determine (without the consent of the Company's other stockholders) the outcome
of any corporate transaction or other matter submitted to the stockholders for
approval, including mergers, consolidations and the sale of all or substantially
all of the Company's assets, and to prevent or cause a change in control of the
Company. See "Management", "Principal and Selling Stockholders" and "Description
of Credit Agreement".
The Company's Restated Certificate of Incorporation and By-laws contain
provisions that may have the effect of discouraging a third party from making an
acquisition proposal for the Company. The Restated Certificate of Incorporation
and By-laws of the Company, among other things, (i) classify the Board of
Directors into three classes, with directors of each class serving for a
staggered three-year period, (ii) provide that directors may be removed only for
cause and only upon the affirmative vote of the holders of at least a majority
of the outstanding shares of Common Stock entitled to vote for such directors
and (iii) permit the Board of Directors (but not the Company's stockholders) to
fill vacancies and newly created directorships on the Board. Such provisions
would make the removal of incumbent directors more difficult and time-consuming
and may have the effect of discouraging a tender offer or other takeover attempt
not previously approved by the Board of Directors. Under the Company's Restated
Certificate of Incorporation, the Board of Directors of the Company also has the
authority to issue up to 20,000,000 shares of preferred stock in one or more
series and to fix the powers, preferences and rights of any such series without
stockholder approval. The Board of Directors could, therefore, issue, without
stockholder approval, preferred stock with voting and other rights that could
adversely affect the voting power of the holders of Common Stock and could make
it more difficult for a third party to gain control of the Company. See
"Description of Capital Stock".
The Company intends to use a portion of the proceeds it receives from the
sale of shares in the Offerings, together with borrowings under the Credit
Agreement and funds generated from operations, to repurchase all of the
outstanding 7% Cumulative Preferred Stock from one of the Forstmann Little
Partnerships for a purchase price of $450 million, plus approximately $7.9
million of unpaid dividends. See "Certain Transactions -- The Acquisition;
Subsequent Events". In connection with the Offerings, 1,956,520 shares of Common
Stock will be issued upon the exercise of outstanding stock options by
approximately 280 current and former employees, directors, advisors and
consultants of the Company for an aggregate exercise price of approximately $7.6
million, which shares will be sold in the Offerings for aggregate proceeds of
approximately $42.3 million (net of underwriting discounts), based on an assumed
initial public offering price of $23.00 per share (the mid-point of the range of
initial public offering prices set forth on the cover page of this Prospectus);
approximately one-half of such shares will be issued to and sold by current
directors and executive officers of the Company. See "Principal and Selling
Stockholders".
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock after the
consummation of the Offerings could adversely affect the prevailing market price
of the Common Stock. Upon the consummation of the Offerings, the Company will
have outstanding 71,963,882 shares of Common Stock, including 43,963,882
outstanding shares of Common Stock beneficially owned by existing stockholders.
Of these shares, the 28,000,000 shares sold in the Offerings (32,200,000 if the
Underwriters' over-allotment
12
<PAGE>
options are exercised in full) will be freely transferable in the public market
or otherwise without restriction or further registration under the Securities
Act of 1933, as amended (the "Securities Act"), unless purchased by an
"affiliate" of the Company as that term is defined in Rule 144 under the
Securities Act (an "Affiliate"). Shares purchased by Affiliates will be subject
to the resale limitations of Rule 144 under the Securities Act. The Company and
the Selling Stockholders (who will beneficially own 43,963,882 outstanding
shares immediately following the consummation of the Offerings) have agreed with
the Underwriters not to offer, sell or otherwise dispose of any shares of Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of the representatives of the Underwriters except, in the
case of such Selling Stockholders, for certain transfers to immediate family
members, trusts for the benefit of such Selling Stockholder and his or her
immediate family, charitable foundations and controlled entities so long as the
transferee agrees to be bound by the foregoing restrictions. Following
expiration or waiver of the foregoing restrictions on dispositions, 43,943,240
shares of Common Stock owned by the Forstmann Little Partnerships will be
available for sale into the public market pursuant to Rule 144 (including the
volume and other limitations set forth therein) and could impair the Company's
future ability to raise capital through an offering of equity securities. In
addition, pursuant to a registration rights agreement (the "Registration Rights
Agreement"), the Forstmann Little Partnerships have the right, under certain
circumstances and subject to certain conditions, to require the Company to
effect up to six registrations under the Securities Act, covering all or any
portion of the shares of Common Stock held by them. In addition, whenever the
Company proposes to register any of its securities under the Securities Act, the
Forstmann Little Partnerships and the holders of the Company's outstanding stock
options (pursuant to the stock option agreements under which such options were
granted) have the right, under certain circumstances and subject to certain
conditions, to include their shares (or any security convertible into or
exercisable or exchangeable for Common Stock) in such registration. The Company
is generally required to pay all the expenses (other than the expenses of
optionholders) associated with these offerings (other than underwriting
discounts and commissions). See "Principal and Selling Stockholders",
"Description of Capital Stock" and "Shares Eligible for Future Sale".
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the consummation of the Offerings, there has been no public market
for the Common Stock. There can be no assurance that market prices after the
consummation of the Offerings will equal or exceed the initial public offering
price set forth on the cover page of this Prospectus. The initial public
offering price will be determined by negotiation among the Company, the Selling
Stockholders and the Underwriters based upon several factors and may not be
indicative of the market price for the Common Stock following the consummation
of the Offerings. See "Underwriting".
DILUTION
Persons purchasing shares of Common Stock in the Offerings will incur
immediate and substantial dilution in net tangible book value per share.
Assuming an initial public offering price of $23.00 per share (the mid-point of
the range of initial public offering prices set forth on the cover page of this
Prospectus), purchasers of shares in the Offerings would experience dilution of
$27.62 per share. See "Dilution".
13
<PAGE>
THE COMPANY
GENERAL
Gulfstream is recognized worldwide as a leading designer, developer,
manufacturer and marketer of the most technologically advanced intercontinental
business jet aircraft. Since 1966, when the Company created the large cabin
business jet category with the introduction of the Gulfstream II, the Company
has dominated this market segment, capturing a cumulative market share of 60%.
The Company has manufactured and sold over 950 large business aircraft since the
introduction of the Gulfstream product line in 1958.
Gulfstream is the ultimate successor to a business (the "Predecessor
Business") established by Grumman Aerospace ("Grumman") in 1956. In 1978, the
Predecessor Business was acquired by a group of investors headed by Allen E.
Paulson, the then Chairman of the Predecessor Business. Chrysler Corporation
("Chrysler") acquired the Predecessor Business in 1985. In March 1990, the
Gulfstream business was acquired (the "Acquisition") from Chrysler by certain
partnerships formed by Forstmann Little.
The Company's product line originated in 1958, with the introduction of the
Gulfstream I, and continued with the introduction of the Gulfstream II in 1966,
the Gulfstream III in 1979, the Gulfstream IV in 1983, the Gulfstream IV-SP in
1993 and the Gulfstream V, deliveries of which are expected to begin in the last
quarter of 1996. Only the Gulfstream IV-SP and the Gulfstream V are currently in
production.
The Company was incorporated under the laws of the State of Delaware in
1990. The mailing address of the principal executive offices of the Company is
P.O. Box 2206, 500 Gulfstream Road, Savannah, Georgia 31402-2206, and the
telephone number of the Company is (912) 965-3000. The Company has operating
subsidiaries with facilities in Savannah, Georgia; Brunswick, Georgia; Bethany,
Oklahoma; Long Beach, California; and Mexicali, Mexico.
USE OF PROCEEDS
The net proceeds to be received by the Company from the Offerings are
estimated to be approximately $100 million, based on an assumed initial public
offering price of $23.00 per share (the mid-point of the range of the initial
public offering prices set forth on the cover page of this Prospectus) and after
deducting estimated underwriting discounts and other expenses. The Company
intends to use the net proceeds of the Offerings, together with $400 million of
borrowings under the Company's new Credit Agreement, proceeds of expected stock
option exercises in connection with the Offerings (discussed below), and funds
generated from operations, to repurchase all of the outstanding shares of the 7%
Cumulative Preferred Stock for a purchase price of $450 million, plus
approximately $7.9 million of unpaid dividends, to repay outstanding
indebtedness under the Company's existing credit facilities (which was $119.8
million at June 30, 1996) and to pay fees and expenses incurred in connection
with the Offerings and the refinancing of the Company's indebtedness. The
indebtedness to be repaid under the Company's existing facilities: (i) in the
case of the 1990 term loan portion of such facilities, is payable in quarterly
installments through March 1997 and at June 30, 1996 bore interest at 7.57% per
annum and (ii) in the case of the 1993 term loan, is payable in two equal
installments in September 1997 and March 1998 and at June 30, 1996 bore interest
at 8.69% per annum. No amounts were outstanding under the revolving credit
facility at June 30, 1996.
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders. In connection with the Offerings,
certain current and former directors and employees of, and advisors to, the
Company are expected to exercise stock options to purchase, in the aggregate,
approximately 1,956,520 shares of Common Stock from the Company for an aggregate
exercise price of approximately $7.6 million; all of such shares are expected to
be sold by such Selling Stockholders in the Offerings.
14
<PAGE>
The following summary table sets forth the estimated sources and uses of
funds in connection with the 1996 Recapitalization and the Offerings (based on
an assumed initial public offering price of $23.00 per share):
<TABLE>
<CAPTION>
SOURCES OF FUNDS: (IN THOUSANDS)
- ---------------------------------------------------------------------
<S> <C>
Credit Agreement..................................................... $ 400,000
Proceeds to the Company of the Offerings (net of estimated
underwriting discounts)............................................. 103,400
Proceeds from exercise of stock options.............................. 7,588
Available cash....................................................... 78,685
--------------
$ 589,673
--------------
--------------
USES OF FUNDS
- ---------------------------------------------------------------------
Repurchase of 7% Cumulative Preferred Stock.......................... $ 450,000
Payment of unpaid dividends on 7% Cumulative Preferred Stock......... 7,875(1)
Repayment of indebtedness under existing credit facilities........... 119,798(1)
Fees and expenses related to the Offerings and the refinancing of
indebtedness........................................................ 12,000
--------------
$ 589,673
--------------
--------------
</TABLE>
- ------------------
(1) On September 30, 1996, the Company paid accrued dividends of $7,875,000 on
the 7% Cumulative Preferred Stock and repaid approximately $13.3 million of
indebtedness under existing credit facilities, as scheduled. The outstanding
7% Cumulative Preferred Stock will continue to accrue dividends until it is
repurchased pursuant to the 1996 Recapitalization.
DIVIDEND POLICY
The Company has never paid cash dividends on its common stock and does not
anticipate paying such dividends in the foreseeable future. As a holding
company, the ability of the Company to pay dividends is dependent upon the
ability of its subsidiaries to pay cash dividends or to make other
distributions. The Credit Agreement will restrict the ability of the Company's
subsidiaries to pay cash dividends or to make other distributions to the Company
and, accordingly, will limit the ability of the Company to pay cash dividends to
its stockholders. See "Description of Credit Agreement". Any determination to
pay cash dividends in the future will be at the discretion of the Company's
Board of Directors and will depend upon the Company's results of operations,
financial condition, contractual restrictions and other factors deemed relevant
at that time by the Company's Board of Directors.
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and its subsidiaries as of June 30, 1996, (i) on an actual basis, (ii)
on a pro forma basis, for the 1996 Recapitalization, after giving effect to (a)
the borrowing of $400 million under the Term Loan Facility of the Credit
Agreement, (b) the repurchase of 7% Cumulative Preferred Stock for a purchase
price of $450 million, plus approximately $7.9 million of unpaid dividends, (c)
the repayment of the outstanding indebtedness under the existing credit
facilities of $119.8 million, (d) the write-off of approximately $2.4 million of
deferred financing costs associated with the repayment of the indebtedness under
the existing credit facilities, (e) the reduction of unamortized stock plan
expense of $0.2 million as a result of the accelerated vesting of certain stock
options (see "Management -- Stock Options") and (f) the sale of 1,956,520 shares
of Common Stock by the Company to certain of the Selling Stockholders pursuant
to existing option agreements for an aggregate option exercise price of $7.6
million, and (iii) on a pro forma basis, for the 1996 Recapitalization and the
Offerings, to reflect the sale of 4,782,600 shares of Common Stock by the
Company (assuming an initial public offering price of $23.00 per share (the
mid-point of the range of the initial public offering prices set forth on the
cover page of this Prospectus)). The information presented below should be read
in conjunction with the Company's Consolidated Financial Statements and the
related notes thereto, "Pro Forma Condensed Financial Information",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Description of Capital Stock" and "Certain Transactions" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------------------
PRO FORMA FOR
1996
RECAPITALIZATION
ACTUAL AND OFFERINGS
------------ PRO FORMA FOR ----------------
1996
RECAPITALIZATION
----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash............................................................ $ 213,268 $ 33,682 $ 134,582
------------ ---------------- ----------------
------------ ---------------- ----------------
Short-term debt:
Current portion of long-term debt............................. $ 39,798 $ 13,333 $ 13,333
------------ ---------------- ----------------
Total short-term debt....................................... 39,798 13,333 13,333
------------ ---------------- ----------------
Long-term debt (excluding current portion) (1):
Credit Facilities
Existing credit facilities.................................. 80,000 0 0
New Credit Agreement........................................ 386,667 386,667
------------ ---------------- ----------------
Total debt................................................ 119,798 400,000 400,000
------------ ---------------- ----------------
Stockholders' equity (deficit):
Preferred stock; Series A, 7%-cumulative $.01 par value;
10,000,000 shares authorized; 96 shares issued in 1996 and
20,000,000 shares authorized and none outstanding after the
1996 Recapitalization and Offerings.......................... 450,000 0 0
Common stock; $.01 par value; 109,273,000 shares authorized
and 52,406,166 shares issued and 300,000,000 shares
authorized and 83,926,981 shares issued after the 1996
Recapitalization and Offerings............................... 524 791 839
Additional paid-in capital...................................... 219,751 227,072 327,924
Accumulated deficit............................................. (491,390) (501,831) (501,831)
Minimum pension liability....................................... (1,450) (1,450) (1,450)
Unamortized stock plan expense.................................. (3,843) (3,687) (3,687)
Less: Treasury stock: 8,220,833 shares and 11,963,099 shares
after the 1996 Recapitalization and Offerings.................. (50,489) (50,489) (50,489)
------------ ---------------- ----------------
Total stockholders' equity (deficit)........................ 123,103 (329,594) (228,694)
------------ ---------------- ----------------
Total capitalization........................................ $ 242,901 $ 70,406 $ 171,306
------------ ---------------- ----------------
------------ ---------------- ----------------
</TABLE>
- ------------------
(1) See "Description of Credit Agreement" and Note 7 to the Company's
Consolidated Financial Statements included elsewhere in this Prospectus for
descriptions of the long-term debt instruments of the Company and its
subsidiaries.
16
<PAGE>
DILUTION
The tangible book value is the book value determined in accordance with
generally accepted accounting principles, less goodwill and other intangible
assets. At June 30, 1996, the pro forma, for 1996 Recapitalization, net tangible
book value of the Company was $(433.5) million or $(6.45) per share of Common
Stock, without giving effect to the Offerings. At June 30, 1996, after giving
effect to the Offerings, including the use of the estimated net proceeds
therefrom (assuming the Underwriters' over-allotment options are not exercised
and an initial public offering price of $23.00 per share (the mid-point of the
range of the initial public offering prices set forth on the cover page of this
Prospectus) and after deducting estimated underwriting discounts and expenses),
as described in "Use of Proceeds" but without taking into account any other
changes in such net tangible book value subsequent to June 30, 1996, the pro
forma, for 1996 Recapitalization and Offerings, net tangible book value of the
Company would have been $(332.6) million or $(4.62) per share. This represents
an immediate increase in the net tangible book value of $1.83 per share to
existing stockholders and an immediate dilution of $27.62 per share to investors
purchasing shares of Common Stock in the Offerings. The following table
illustrates this dilution:
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------
<S> <C> <C>
Assumed initial public offering price per share (1)...................................... $ 23.00
Pro forma, for 1996 Recapitalization, net tangible book value per share before the
Offerings (2)......................................................................... $ (6.45)
Increase in per share attributable to the Offerings.................................... 1.83
----------
Pro forma, for 1996 Recapitalization and Offerings, net tangible book value per share.... (4.62)
----------
Dilution per share to new investors (3).................................................. $ 27.62
----------
----------
</TABLE>
- --------------
(1) Before deduction of estimated underwriting discounts and expenses to be paid
by the Company.
(2) Pro forma, for 1996 Recapitalization, net tangible book value per share is
determined by dividing the net tangible book value of the Company after the
1996 Recapitalization (assets less liabilities, goodwill and other
intangible assets) by the number of shares of Common Stock outstanding after
the 1996 Recapitalization.
(3) Dilution is determined by subtracting the pro forma, for 1996
Recapitalization and Offerings, net tangible book value per share at June
30, 1996 from the assumed initial public offering price paid by a new
investor for a share of Common Stock.
The following table compares, on a pro forma basis as of June 30, 1996, the
number of shares of Common Stock purchased and the total consideration paid by
the existing stockholders when they purchased shares of the Company with the
number of shares of Common Stock purchased and the total consideration paid by
the new investors in the Offerings (assuming the Underwriters' over-allotment
options are not exercised and an initial public offering price of $23.00 per
share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- ----------- --------- ----------- -----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders..................................... 67.2 93.3% 227.9 67.4% 3.39
New investors............................................. 4.8 6.7 110.0 32.6 23.00
----------- ----- --------- -----
Total................................................. 72.0 100.0% $ 337.9 100.0%
----------- ----- --------- -----
----------- ----- --------- -----
</TABLE>
The foregoing tables assume the sale of 1,956,520 shares of Common Stock by
the Company to certain of the Selling Stockholders pursuant to existing option
agreements for an aggregate option exercise price of $7.6 million. The foregoing
tables do not assume the exercise of any other outstanding options to purchase
Common Stock after June 30, 1996. After exercise of such options, there were
outstanding options to purchase 7,697,124 shares of Common Stock at a weighted
average exercise price of approximately $3.90 per share. After giving effect to
the exercise of any remaining options to purchase Common Stock, there will be
further dilution in the aggregate to new investors. See "Management -- Stock
Options -- Stock Option Plan" and Note 11 to the Company's Consolidated
Financial Statements included elsewhere in this Prospectus.
17
<PAGE>
PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed financial information was
derived from the historical financial data of the Company included elsewhere in
this Prospectus. The unaudited pro forma statements of operations for the year
ended December 31, 1995 and the six months ended June 30, 1996 give effect to
(i) the 1996 Recapitalization as described under "Description of Capital Stock",
(ii) the new borrowings under the Credit Agreement, (iii) the sale of 1,956,520
shares of Common Stock by the Company to certain of the Selling Shareholders
pursuant to existing option agreements, and (iv) the issuance of the shares of
Common Stock offered by the Company pursuant to the Offerings and the
application of the estimated net proceeds as provided under "Use of Proceeds" as
if such transactions occurred at the beginning of the respective periods.
The pro forma financial data presented herein does not purport to represent
the results of operations of the Company that would have resulted had such
transactions in fact occurred at the beginning of such periods or to project the
Company's results of operations of any future period. The pro forma financial
information is based upon, and should be read in conjunction with, the Company's
Consolidated Financial Statements, including the notes thereto, included
elsewhere in this Prospectus.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------
PRO FORMA
FOR 1996
RECAPITALIZATION
ACTUAL ADJUSTMENTS AND OFFERINGS (1)
------------- ------------ -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenues..................................................... $ 1,041,514 $ 1,041,514
------------- -----------------
Costs and expenses:
Cost of sales.................................................. 835,547 835,547
Selling and administrative expenses............................ 93,239 93,239
Amortization of intangibles and deferred charges............... 7,540 7,540
Research and development....................................... 63,098 63,098
------------- -----------------
Total costs and expenses......................................... 999,424 999,424
-------------
Income from operations........................................... 42,090 42,090
Interest income.................................................. 5,508 5,508
Interest expense................................................. (18,704) $ (14,693)(2) (33,397)
------------- ------------ -----------------
Net income....................................................... $ 28,894 $ (14,693) $ 14,201
------------- ------------ -----------------
------------- ------------ -----------------
Pro forma net income per share (3)............................... $ .18
-----------------
-----------------
Pro forma common shares outstanding (3).......................... 78,194
-----------------
-----------------
</TABLE>
- ------------------
(1) The unaudited pro forma condensed consolidated statement of operations does
not include a one-time charge of approximately $3.1 million for write-off
of deferred financing charges associated with the repayment of amounts
outstanding under the existing credit facilities.
(2) Reflects the increase in interest expense due to the borrowings under the
new Credit Agreement and the repayment of amounts outstanding under the
existing credit facilities as described under "Use of Proceeds". The
assumed interest rate on the new $400.0 million Credit Agreement is 8.0%
per annum.
(3) Pro forma net income per share amount is calculated based on the pro forma
net income, after giving effect to the 1996 Recapitalization and the
Offerings, divided by the pro forma weighted average number of common and
common equivalent shares outstanding assuming the 1996 Recapitalization
shares and the shares sold in the Offerings were outstanding for all of the
period reported.
18
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------------------
PRO FORMA FOR 1996
RECAPITALIZATION
ACTUAL ADJUSTMENTS AND OFFERINGS (1)(2)
------------- ------------ --------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenues.................................................. $ 458,672 $ 458,672
------------- -----------
Costs and expenses:
Cost of sales............................................... 354,841 354,841
Selling and administrative expenses......................... 45,190 45,190
Stock option compensation expense........................... 5,200 5,200
Amortization of intangibles and deferred charges............ 3,763 3,763
Research and development.................................... 34,746 34,746
------------- -----------
Total costs and expenses...................................... 443,740 443,740
------------- -----------
Income from operations........................................ 14,932 14,932
Interest income............................................... 7,593 7,593
Interest expense.............................................. (7,166) $ (9,112)(3) (16,278)
------------- ------------ -----------
Net income.................................................... $ 15,359 $ (9,112) $ 6,247
------------- ------------ -----------
------------- ------------ -----------
Pro forma net income per share (4)............................ $ .08
-----------
-----------
Pro forma common shares outstanding (4)....................... 78,194
-----------
-----------
</TABLE>
- ------------------
(1) The unaudited pro forma condensed consolidated statement of operations does
not include a one-time charge of approximately $2.4 million for the
write-off of deferred financing charges associated with the repayment of
amounts outstanding under the existing credit facilities.
(2) The unaudited pro forma condensed consolidated statements of operations do
not include a one-time charge of approximately $0.2 million for non-cash
compensation expense associated with accelerated vesting of certain options
to purchase common stock upon consummation of the Offerings.
(3) Reflects the increase in interest expense due to the borrowings under the
new Credit Agreement and the repayment of amounts outstanding under the
existing credit facilities as described under "Use of Proceeds". The
assumed interest rate on the new $400.0 million Credit Agreement is 8.0%
per annum.
(4) Pro forma net income per share amount is calculated based on the pro forma
net income, after giving effect to the 1996 Recapitalization and the
Offerings, divided by the pro forma weighted average number of common and
common equivalent shares outstanding assuming the 1996 Recapitalization
shares and the shares sold in the Offerings were outstanding for all of the
period reported.
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected historical financial information should be read in
conjunction with the Company's Consolidated Financial Statements and the related
notes thereto included elsewhere in this Prospectus and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Business -- Business Strategy -- Recapitalization and Significant Reduction of
Interest Expense", and "Description of Capital Stock". The statement of
operations data set forth below with respect to the years ended December 31,
1993, 1994 and 1995 are derived from the audited financial statements included
elsewhere in this Prospectus. The statement of operations data set forth below
with respect to the years ended December 31, 1991 and 1992 are derived from
audited financial statements not included herein. The selected historical
financial information for the six months ended June 30, 1995 and 1996 are
derived from unaudited financial statements and reflect all adjustments
(consisting only of adjustments of a normal recurring nature) that in the
opinion of management of the Company are necessary for a fair presentation of
the results of such periods. The unaudited results of operations for the six
months ended June 30, 1996 are not necessarily indicative of results expected
for the year ending December 31, 1996. In the six months ended June 30, 1996, 3
fewer green aircraft were delivered than were in the same period in 1995 as a
result of the delivery in early 1995 of 3 units which were produced in late
1994. In addition, beginning in the fourth quarter of 1995, the Company
dedicated a portion of its production capacity to the manufacture of Gulfstream
Vs which the Company will not begin delivering to customers until after FAA
certification, which is expected in the fourth quarter of 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues $ 887,234 $ 900,419 $ 887,113 $ 901,638 $1,041,514 $ 474,884 $ 458,672
--------- --------- ---------- --------- ---------- --------- ---------
Costs and expenses:
Cost of sales.............................. 748,553 724,554 737,361 710,554 835,547 378,022 354,841
Selling and administrative expenses........ 77,800 98,187 97,011 82,180 93,239 42,651 45,190
Stock option compensation expense.......... 5,200
Research and development expense........... 9,555 36,295 47,990 57,438 63,098 34,076 34,746
Amortization of intangibles and deferred
charges................................... 30,072 31,855 27,613 7,583 7,540 3,777 3,763
Restructuring charge....................... 203,911(1)
--------- --------- ---------- --------- ---------- --------- ---------
Total costs and expenses..................... 865,980 890,891 1,113,886 857,755 999,424 458,526 443,740
--------- --------- ---------- --------- ---------- --------- ---------
Income (loss) from operations................ 21,254 9,528 (226,773) 43,883 42,090 16,358 14,932
Interest income............................ 1,697 2,135 486 367 5,508 1,426 7,593
Interest expense........................... (72,679) (61,235) (48,940) (20,686) (18,704) (9,945) (7,166)
--------- --------- ---------- --------- ---------- --------- ---------
Net income (loss)............................ $ (49,728) $ (49,572) $ (275,227) $ 23,564 $ 28,894 7,839 15,359
--------- --------- ---------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------- --------- ---------
Pro forma net income (loss) per share (2).... $ .18 $ (.02) $ .08
---------- --------- ---------
---------- --------- ---------
Pro forma common shares outstanding (2)...... 78,194 78,194 78,194
---------- --------- ---------
---------- --------- ---------
</TABLE>
- ------------------
(1) The Company recorded a charge for a restructuring plan based upon the
Company's reassessment of its business plan and its products from which it
has realized improved operating efficiencies, reduced costs, and increased
overall profitability. See Note 2 to the Company's Consolidated Financial
Statements included elsewhere in this Prospectus.
(2) Pro forma net income (loss) per share amounts are calculated based on the
pro forma net income, after giving effect to the 1996 Recapitalization and
the Offerings, divided by the pro forma weighted average number of common
and common equivalent shares outstanding assuming the 1996 Recapitalization
shares and the shares sold in the Offerings were outstanding for all
periods reported. For information regarding the pro forma data, see "Pro
Forma Condensed Financial Information" on pages 18 and 19 and
"Capitalization" on page 16. Due to the change in the Company's capital
structure to be effected with the 1996 Recapitalization, historical share
and per share data for all periods is not relevant and therefore is not
presented.
20
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
DECEMBER 31, 30,
------------------------------------------------------ ----------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital...................... $248,974 $268,881 $302,369 $ 301,913 $ 356,976 $ 322,261 $ 232,508
Total assets......................... 991,841 945,433 799,470 745,761 981,253 823,861 1,159,371
Total debt (1)....................... 719,500 670,258 206,145(2) 178,145 146,331 172,863 119,798
Total stockholders' equity (deficit)
(1)................................. (27,191) (26,700) 164,395 188,950 217,540 196,789 123,103
OTHER DATA:
Depreciation and amortization........ $ 49,687 $ 52,374 $ 47,866 $ 24,151 $ 23,094 $ 11,530 $ 12,242
OPERATING DATA:
Units delivered during period:
Gulfstream IV/IV-SP................ 28 25 26 22 26 14 11
Units ordered during period:
Gulfstream IV/IV-SP................ 31 26 26 25 30 17 15
Gulfstream V....................... 0 8 17 16 12 5 12
-------- -------- -------- ---------- ---------- ---------- ----------
Total orders....................... 31 34 43 41 42 22 27
Units in backlog at end of period:
Gulfstream IV/IV-SP (3)............ 5 3 3 3 7 6 11
Gulfstream V (4)................... 0 8 24 40 50 45 62
-------- -------- -------- ---------- ---------- ---------- ----------
Total backlog (in units) (5)....... 5 11 27 43 57 51 73
Estimated backlog (in thousands)
(5)(6)............................ $124,225 $362,466 $897,747 $1,473,772 $1,938,315 $1,731,532 $2,496,061
</TABLE>
- ------------------
(1) Total debt and stockholders' equity (deficit) does not include the impact
of the 1996 Recapitalization of the Company to be effected immediately
prior to or simultaneously with the consummation of the Offerings. See
"Capitalization".
(2) During November 1993, the Company converted $469 million of subordinated
debentures (including accrued interest) to 7% Cumulative Preferred Stock in
connection with the 1993 recapitalization. See "Business -- Business
Strategy -- Recapitalization and Significant Reduction of Interest Expense"
and "Certain Transactions -- The Acquisition; Subsequent Events".
(3) Net of 3 cancellations in each of 1992 and 1994, which generally relate to
orders placed in prior years.
(4) Net of cancellations of 1 and 2 in 1993 and 1995, respectively, which
generally relate to orders placed in prior years. As of June 30, 1996, only
3 Gulfstream V contracts had been cancelled, 2 of which were the result of
declines in the business performance of the customer and one of which was
the result of adverse economic conditions in a foreign country.
(5) At September 30, 1996, the Company had a contract backlog of approximately
$3.0 billion of revenues plus executed contracts with financing
contingencies of approximately $295 million of potential revenues,
representing a total of 69 contracts for Gulfstream Vs (2 with financing
contingencies) and 30 contracts for Gulfstream IV-SPs (8 with financing
contingencies). In addition, at September 30, 1996, the Company had letters
of intent with deposits for a total of 1 Gulfstream V and 4 Gulfstream
IV-SPs, representing approximately $140 million of additional potential
revenues.
(6) Backlog includes only those orders for which the Company has entered into a
purchase contract with a customer and has received a significant (generally
non-refundable) deposit from the customer. Not included in backlog are
executed contracts subject to financing contingencies, options and letters
of intent for which definitive agreements have not yet been executed,
which, at June 30, 1996, represented approximately $350 million of
additional potential revenues.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto contained elsewhere in this Prospectus.
GENERAL
Gulfstream is recognized worldwide as a leading designer, developer,
manufacturer and marketer of the most technologically advanced intercontinental
business jet aircraft. The Company's current principal aircraft products are the
Gulfstream IV-SP, the Gulfstream V, Gulfstream Shares-TM- (fractional ownership
interests in Gulfstream IV-SPs) and pre-owned Gulfstream aircraft. As an
integral part of its aircraft product offerings, the Company offers aircraft
completion and worldwide aircraft maintenance services and technical support for
all Gulfstream aircraft. In addition, the Company's financial services
subsidiary, Gulfstream Financial Services Corporation, through its private label
relationship with a third-party aircraft financing provider, offers customized
products to finance the worldwide sale of Gulfstream aircraft.
The Company recognizes revenue for the sale of a new "green" aircraft (i.e.,
before exterior painting and installation of customer selected interiors and
optional avionics) when that aircraft is delivered to the customer. Revenues
from completion services are recorded when the outfitted aircraft is delivered
to the customer. Revenues on all other products and services, including
pre-owned aircraft, are recognized when such products are delivered or such
services are performed. Generally, production of aircraft for delivery remains
relatively smooth throughout a year. However, deliveries of such aircraft can
vary significantly depending upon the timing of contract execution and final
customer acceptance. Accordingly, the Company's revenues can vary significantly
from quarter to quarter. In addition, beginning in the fourth quarter of 1995,
the Company dedicated a portion of its production capacity to the manufacture of
Gulfstream Vs which the Company will not begin delivering to customers until
after FAA certification, which is expected in the fourth quarter of 1996.
OPERATING DATA
The following sets forth certain statistical data concerning the Company's
deliveries, orders and backlog for new aircraft.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Units delivered during period:
Gulfstream IV/IV-SP.................... 28 25 26 22 26 14 11
Units ordered during period:
Gulfstream IV/IV-SP.................... 31 26 26 25 30 17 15
Gulfstream V........................... 0 8 17 16 12 5 12
--------- --------- --------- ---------- ---------- ---------- ----------
Total orders........................... 31 34 43 41 42 22 27
Units in backlog at end of period:
Gulfstream IV/IV-SP (1)................ 5 3 3 3 7 6 11
Gulfstream V (2)....................... 0 8 24 40 50 45 62
--------- --------- --------- ---------- ---------- ---------- ----------
Total backlog (in units) (3)........... 5 11 27 43 57 51 73
Estimated backlog (in thousands)
(3)(4)................................ $ 124,225 $ 362,466 $ 897,747 $1,473,772 $1,938,315 $1,731,532 $2,496,061
</TABLE>
- ------------------
(1) Net of 3 cancellations in each of 1992 and 1994, which generally relate to
orders placed in prior years.
(2) Net of cancellations of 1 and 2 in 1993 and 1995, respectively, which
generally relate to orders placed in prior years. As of June 30, 1996, only
3 Gulfstream V contracts had been cancelled, 2 of which were the result of
declines in the business performance of the customer and one of which was
the result of adverse economic conditions in a foreign country.
(3) At September 30, 1996, the Company had a contract backlog of approximately
$3.0 billion of revenues plus executed contracts with financing
contingencies of approximately $295 million of potential revenues,
representing a total of 69 contracts for Gulfstream Vs (2 with financing
contingencies) and 30 contracts for Gulfstream IV-SPs (8 with financing
contingencies). In addition, at September 30, 1996, the Company had letters
of intent with deposits for a total of 1 Gulfstream V and 4 Gulfstream
IV-SPs, representing approximately $140 million of additional potential
revenues.
(4) Backlog includes only those orders for which the Company has entered into a
purchase contract with a customer and has received a significant (generally
non-refundable) deposit from the customer. Not included in backlog are
executed contracts subject to financing contingencies, options and letters
of intent for which definitive agreements have not yet been executed,
which, at June 30, 1996, represented approximately $350 million of
additional potential revenues.
22
<PAGE>
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
NET REVENUES. During the six months ended June 30, 1996, the Company
received orders for 15 Gulfstream IV-SPs and 12 Gulfstream Vs as compared to
orders for 17 Gulfstream IV-SPs and 5 Gulfstream Vs during the six months ended
June 30, 1995. Total net revenues decreased by $16.2 million, or 3.4%, to $458.7
million for the six months ended June 30, 1996 from $474.9 million for the six
months ended June 30, 1995. In the six month period ended June 30, 1996, 3 fewer
green aircraft were delivered than in the same period in 1995, with associated
revenues decreasing $47.5 million, as a result of the delivery in early 1995 of
3 units which were produced in late 1994. In addition, beginning in the fourth
quarter of 1995, the Company dedicated a portion of its production capacity to
the manufacture of Gulfstream Vs which the Company will not begin delivering to
customers until after FAA certification, which is expected in the fourth quarter
of 1996. Other factors contributing to the overall revenue decline in 1996 were
a decrease in the sale of pre-owned aircraft ($9.7 million) resulting from a
reduced number of trade-ins requiring re-sales and the conclusion of a U.S.
Department of Defense logistical supply contract ($8.4 million). Offsetting
these declines were an increase in Gulfstream IV-SP average selling prices ($8.8
million), an increase in revenues from 5 additional completions ($32.9 million)
and increased international spares sales and service center volume primarily
attributable to the addition of the new service center ($12.4 million). See "--
Liquidity and Capital Resources".
COST OF SALES. Total cost of sales decreased by 6.1%, or $23.2 million, to
$354.8 million for the six months ended June 30, 1996 from $378.0 million for
the six months ended June 30, 1995. The decline in total cost was due to 3 fewer
green Gulfstream IV-SPs deliveries, partially offset by 5 additional completion
deliveries. Excluding pre-owned aircraft, which are generally sold at breakeven
levels and other nonrecurring items, the gross profit percentage increased to
26.9% for the six months ended June 30, 1996 from 25.7% for the comparable
period in 1995, primarily as a result of the Company's cost and cycle time
reduction initiatives and the price appreciation on Gulfstream IV-SP aircraft
sales.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense
increased by $2.5 million, or 5.9%, to $45.2 million for the six months ended
June 30, 1996, from $42.7 million for the six months ended June 30, 1995 and as
percentage of net revenues increased from 9.0% in 1995 to 9.9% in 1996. The
dollar increase principally resulted from increased advertising and marketing
expenses associated with the Gulfstream V program. The increase as a percentage
of sales was also attributable to lower net revenues stemming from the timing of
deliveries, as discussed above.
STOCK OPTION COMPENSATION EXPENSE. The issuance of options to purchase
Common Stock of the Company during the six months ended June 30, 1996 resulted
in a non-cash compensation charge of $5.2 million.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense of $34.7
million for the six months ended June 30, 1996 was comparable to such expense
for the six months ended June 30, 1995. Substantially all research and
development expense was associated with the Gulfstream V development program,
which the Company expects to be materially completed by the end of 1996.
AMORTIZATION OF INTANGIBLES AND DEFERRED CHARGES. This non-cash expense
includes amortization of goodwill and other intangible assets consisting of
after-market service and after-market product support, as well as deferred
financing charges related to the Company's existing bank credit facilities.
Amortization of intangibles and deferred charges of $3.8 million for the six
months ended June 30, 1996 remained essentially unchanged from the six months
ended June 30, 1995.
INTEREST INCOME AND EXPENSE. Interest income increased by $6.2 million to
$7.6 million for the six months ended June 30, 1996 from $1.4 million for the
six months ended June 30, 1995, as a result of the increase in cash generated
from operations. Interest expense decreased by $2.7 million to $7.2 million for
the six months ended June 30, 1996 from $9.9 million for the six months ended
June 30, 1995. This decrease was due to limited use of the revolving credit
facility and a reduction in borrowings under the existing term loans.
23
<PAGE>
INCOME TAXES. The Company had available at June 30, 1996 net operating loss
carryforwards for regular federal income tax purposes of approximately $150
million, which will begin expiring in 2006. Although the Company recorded net
income during the six months ended June 30, 1996 and the six months ended June
30, 1995, no provision for income taxes was recorded in either period
principally as a result of the utilization of net operating loss carryforwards.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NET REVENUES. During 1995, the Company received orders for 30 Gulfstream
IV-SPs and 12 Gulfstream Vs as compared to orders for 25 Gulfstream IV-SPs and
16 Gulfstream Vs during 1994. Gulfstream V orders for 1995 were lower as a
result of the delay into 1996 of a multiple aircraft order which was under a
letter of intent at year-end 1995 and which was executed in the first quarter of
1996. Total net revenues increased by $139.9 million, or 15.5%, to $1,041.5
million in 1995 from $901.6 million in 1994. Revenues from green Gulfstream
IV-SP aircraft increased $116.7 million in 1995 due to the delivery of 4 more
units and higher average selling prices. Three of the 4 additional units were
deliveries of aircraft in 1995 which were produced in 1994. In addition,
revenues from the sale of pre-owned aircraft increased $54.2 million in 1995 as
a result of the Company's initiatives to provide premium pre-owned products to
the large business jet market. Completion revenues increased by $8.1 million in
1995 as a result of the Company completing a higher percentage of new aircraft
in 1995 than in 1994. These increases were partially offset by declines in
revenues of (i) $30.9 million primarily due to the delivery of special aircraft
modifications on two contracts with governmental agencies in 1994 and (ii) a
decline of $11.0 million due to the early termination in 1994 of a wing
manufacturing contract with another aerospace manufacturer.
COST OF SALES. Total costs of sales increased $124.9 million, or 17.6%, to
$835.5 million in 1995 from $710.6 million in 1994 as a result of increased unit
deliveries in 1995 of both green Gulfstream IV-SP aircraft and completions.
Gross profit as a percentage of sales (excluding pre-owned aircraft and other
nonrecurring items) increased from 25.2% in 1994 to 25.8% in 1995 as a result of
the restructuring of the Company's manufacturing process to obtain cycle time
reductions and additional cost savings.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expenses
increased by $11.0 million, or 13.4%, to $93.2 million for 1995 from $82.2
million for 1994, but decreased as a percentage of net revenues to 8.9% in 1995
from 9.1% in 1994. The dollar increase was principally attributable to increases
in marketing programs centered around the Company's new marketing strategies,
including the roll out and first flight of the Gulfstream V, expansion of the
Company's international sales activities, and, as a result of successful Company
performance, higher payouts to employees under the Company's management and
employee incentive plans.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased by $5.7 million, or 9.9%, to $63.1 million in 1995 from $57.4 million
in 1994, which was 6.1% and 6.4%, respectively, of net revenues. This increase
was related to the Gulfstream V development program.
AMORTIZATION OF INTANGIBLES AND DEFERRED CHARGES. Amortization of
intangibles and deferred charges were $7.5 million in 1995 and $7.6 million in
1994.
INTEREST INCOME AND EXPENSE. Interest income increased by $5.1 million to
$5.5 million for 1995 from $0.4 million in 1994 as a result of the increased
cash generated from operations between the periods. Interest expense decreased
by $2.0 million, or 9.7%, to $18.7 million for 1995 from $20.7 million for 1994.
Interest expense consists almost entirely of interest paid on borrowings under
the Company's bank credit facilities. The decrease resulted principally from a
reduced level of average borrowings in 1995 compared to 1994. See "-- Liquidity
and Capital Resources". The weighted average interest rates on the Company's
bank credit facilities at December 31, 1995 and 1994 were 8.42% and 8.64%,
respectively, per annum.
INCOME TAXES. The Company had available at December 31, 1995 and 1994 net
operating loss carryforwards for regular federal income tax purposes of
approximately $150 million and $167 million,
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respectively, which will expire beginning in 2006. Although the Company recorded
net income during 1995 and 1994, no provision for income taxes was recorded in
either period principally as a result of the utilization of net operating loss
carryforwards.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1994 AND 1993
NET REVENUES. During 1994, the Company received orders for 25 Gulfstream
IV-SPs and 16 Gulfstream Vs as compared to orders for 26 Gulfstream IV-SPs and
17 Gulfstream Vs during 1993. Total net revenues increased by $14.5 million, or
1.6%, to $901.6 million in 1994 from $887.1 million in 1993. This increase in
revenues was primarily driven by (i) increased sales of pre-owned aircraft
($74.2 million due to 6 additional unit deliveries in 1994) as a result of the
new pre-owned sales and marketing strategy, (ii) delivery of special aircraft
modifications on two government aircraft and increased volume on logistics
support contracts with governmental agencies ($35.2 million) and (iii) 6
additional completion deliveries ($15.7 million). These increases in 1994
revenues were largely offset by four fewer Gulfstream IV/IV-SP deliveries
($114.1 million), 3 of which were produced in 1994 but not delivered until 1995.
COST OF SALES. Total cost of sales decreased $26.8 million, or 3.6%, to
$710.6 million in 1994 from $737.4 million in 1993. The decline was primarily
due to fewer deliveries of green Gulfstream IV/IV-SPs aircraft, as well as
reduced material costs of new Gulfstream IV-SP aircraft which resulted from
contract re-negotiations with certain suppliers of systems and components.
Additionally, during 1993 the Company incurred approximately $6.7 million in
non-recurring reversionary price penalties associated with supplier contracts
which are no longer in force. The gross profit percentage (excluding pre-owned
aircraft and other nonrecurring items) increased to 25.2% in 1994 from 21.6% in
1993 as a result of the Company's cost and cycle time reduction initiatives.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
decreased by $14.8 million, or 15.3%, to $82.2 million in 1994 from $97.0
million in 1993, and as a percentage of net revenues from 10.9% to 9.1%. This
decrease was the direct result of the restructuring plan implemented by the
Company in 1993. These changes are discussed below under "-- Restructuring
Charge".
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased by $9.4 million, or 19.6%, to $57.4 million in 1994 from $48.0 million
in 1993, or 6.4% and 5.4% of net revenues, respectively. Increased spending was
related to the development of the Gulfstream V.
AMORTIZATION OF INTANGIBLES AND DEFERRED CHARGES. Amortization of
intangibles and deferred charges decreased by $20.0 million, to $7.6 million for
1994. This decrease was due to the Company accelerating the amortization of
aircraft design intangibles during 1993, as part of the restructuring plan
discussed below.
RESTRUCTURING CHARGE. Based upon the Company's reassessment of its business
plan and its products, the Company recorded a $203.9 million charge in 1993 for
a restructuring plan from which it realized improved operating efficiencies,
reduced costs, and overall increased profitability of the Company. This charge
included, among other items, payments for severance or early retirement of
employees, acceleration of certain employee benefit programs, costs associated
with re-aligning manufacturing capacity through selected outsourcing, lease
terminations of administrative facilities, and the accelerated amortization of
aircraft design intangibles and related Gulfstream IV aircraft tooling. The
charge, determined in part based on expected future cash flows and net
realizable values, is comprised of $146.2 million of accelerated amortization
for aircraft design and related tooling, $24.8 million of special termination
benefits and $32.9 million of other items.
INTEREST EXPENSE. Interest expense decreased by $28.2 million, or 57.7% to
$20.7 million in 1994 from $48.9 million in 1993. This decrease was due to a
conversion in October 1993 of $450 million of subordinated debt, plus $18.9
million of accrued interest, into 7% Cumulative Preferred Stock. This conversion
reduced the Company's annual interest expense by approximately $38.0 million.
This reduction was partially offset by increases in interest rates on the
Company's floating rate debt during 1994. The weighted average interest rates on
the Company's bank credit facilities at December 31, 1994 and 1993 were 8.64%
and 6.17%, respectively, per annum.
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INCOME TAXES. The Company had available at December 31, 1994 net operating
loss carryforwards for regular federal income tax purposes of approximately $167
million. Although the Company recorded net income during 1994, no provision for
income taxes was recorded principally as a result of the utilization of net
operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from working capital requirements,
capital expenditures, principal and interest payments on long-term debt, and the
payment of dividends on the 7% Cumulative Preferred Stock (which will be
repurchased simultaneously with the consummation of the Offerings). During 1995
and the six months ended June 30, 1996, the Company relied on cash flows from
operations to finance these needs.
During the six months ended June 30, 1996, net cash generated by operating
activities was $139.9 million, a 48% increase over the same period in 1995. This
increase was primarily due to the increase in customer progress payments
associated with aircraft orders in backlog and deposits on new Gulfstream V
aircraft orders, a portion of which funds the temporary inventory build-up
associated with Gulfstream V production occurring prior to initial customer
aircraft deliveries. The Company expects to begin deliveries of Gulfstream V
aircraft in the fourth quarter of 1996 with 6 deliveries planned for 1996 and 27
deliveries planned for 1997.
Net cash provided by operating activities during 1995 and 1994 was $282.4
million and $69.0 million, respectively. This substantial increase is also
principally attributable to progress payments associated with aircraft orders in
backlog and deposits on new orders of Gulfstream IV-SP and Gulfstream V
aircraft. While the Company experienced higher net inventories during 1995
resulting from the commencement of Gulfstream V production, the Company
benefited from receipt of progress payments associated with Gulfstream V orders
in backlog.
The decrease in inventories from 1993 to 1994 resulted from both the
increase in pre-owned aircraft sales and new aircraft sales as previously
discussed under NET REVENUES for the years ended December 31, 1994 and 1993. The
decrease in accounts payable for the same period resulted from the timing of
payments to suppliers as well as the nonrecurrence of reversionary pricing
adjustments, described under COSTS OF SALES for the years ended December 31,
1994 and 1993.
During the six months ended June 30, 1996, additions to property and
equipment were $7.5 million, or approximately 44% of the total year forecasted
expenditures of $17.0 million for fiscal 1996. At June 30, 1996, the Company was
not committed to the purchase of a significant amount of property and equipment.
Additions to property and equipment were $25.2 million in 1995 and $9.9 million
in 1994. Spending in 1995 increased by $15.3 million primarily related to the
construction of a new $16.0 million, 200,000 square foot service center to
support the Company's strategic initiative of expanding the Company's market
share for servicing Gulfstream aircraft. The Company expects to make capital
expenditures of approximately $15.0 million in 1997 for the production,
completion and service of aircraft in the ordinary course of the Company's
business. Subsequent to 1997, the Company's capital expenditures may increase to
the extent the Company determines to expand its production capacity. The Company
continually monitors its capital spending in relation to current and anticipated
business needs. As circumstances dictate, facilities are added, consolidated, or
modernized.
For the six months ended June 30, 1996, capitalized tooling increased $0.9
million. As of June 30, 1996, the Company had expended an aggregate of $46.2
million in tooling associated with the Gulfstream V program and anticipates
incurring approximately $2.0 million of additional tooling during the remainder
of 1996. During 1995 and 1994, the Company invested $25.7 million and $17.3
million, respectively, for tooling associated with the Gulfstream V program.
Gulfstream V tooling will be amortized to cost of sales on a unit basis over the
first 200 units of the Gulfstream V program. Tooling associated with the
Gulfstream IV and IV-SP has been fully amortized to cost of sales.
At June 30, 1996 and December 31, 1995, borrowings under the Company's
existing bank credit facilities were $119.8 million and $146.3 million,
respectively. The Company made scheduled principal
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payments of $31.8 million during 1995 and $26.5 million and $5.3 million during
the six months ended June 30, 1996 and 1995, respectively. Of the scheduled
maturities totalling $119.8 million at June 30, 1996, $39.8 million is payable
over the next 12 months.
On June 30, 1996, the Company repurchased approximately four shares of 7%
Cumulative Preferred Stock at their stated value of $18.9 million, and paid
accumulated dividends of $96.1 million out of excess cash flow.
Pursuant to the Commitment Letter, The Chase Manhattan Bank and Chase
Securities, Inc. have severally agreed to provide a $650 million credit facility
to Gulfstream Delaware, a wholly owned subsidiary of the Company. The Bank
Facility will consist of a $400 million Term Loan Facility and a $250 million
Revolving Credit Facility. The Credit Agreement will contain customary
affirmative and negative covenants including restrictions on the ability of the
Company and its subsidiaries to pay cash dividends, as well as financial
covenants, under which the Company must operate. Scheduled repayments under the
new Term Loan Facility of $20 million in 1997, $75 million in each of the years
1998 through 2001 and $80 million in 2002 are expected to be repaid from cash
generated from operations. See "Description of Credit Agreement".
In connection with orders for 28 Gulfstream V aircraft in the backlog, the
Company has offered customers trade-in options (which may or may not be
exercised) under which the Company will accept trade-in aircraft, primarily
Gulfstream IVs and Gulfstream IV-SPs, at a guaranteed minimum trade-in price.
See Note 14 to the Company's Consolidated Financial Statements included
elsewhere in this Prospectus. In light of the current market for used Gulfstream
aircraft, management believes that the fair market value of such aircraft will
exceed the specified trade-in values. As such, Gulfstream does not believe the
existence of such commitments will have a material adverse effect on its results
of operations, cash flow or financial position.
The Company believes that the net proceeds of the Offerings, together with
cash generated from operating activities, including customer progress payments
and deposits on new aircraft orders, and borrowings available under the Bank
Facility, are sufficient for the Company to meet its working capital needs and
planned capital expenditures.
The Company is currently engaged in the monitoring and cleanup of certain
ground water at its Savannah facility under the oversight of the Georgia
Department of Natural Resources. Expenses incurred for cleanup have not been
significant. The Company received in 1992, at its Long Beach facility, two
inquiries from the U.S. Environmental Protection Agency and, in 1991, at its
Oklahoma facility, a soil contamination inquiry. The Company believes other
aspects of the Savannah facility, as well as other Gulfstream properties, are
being carefully monitored and are in substantial compliance with current
federal, state and local environmental regulations. The Company believes the
liabilities, if any, that will result from the above environmental matters will
not have a material adverse effect on its financial statements.
The Company has initiated discussions with the Pension Benefit Guaranty
Corporation (the "PBGC") concerning the Company's defined benefit pension plans
(one of which is currently underfunded for financial reporting purposes).
Although the Company and the PBGC have not yet agreed upon the amount by which
such plans may be underfunded using the PBGC's more conservative methodology,
and no assurances can be given as to the ultimate outcome of the discussions
with the PBGC, the Company does not believe that any arrangements with respect
to such plans will have a material adverse effect on the Company's financial
statements.
The Company is involved in a tax audit by the Internal Revenue Service
covering the years ended December 31, 1990 and 1991. See "Business -- Legal
Proceedings".
QUARTERLY RESULTS
The following table sets forth the unaudited consolidated statement of
operating data for each quarter of 1994 and 1995 and the first two quarters of
1996. This quarterly information has been prepared
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<PAGE>
on the same basis as annual consolidated financial statements and, in the
opinion of management, reflects all adjustments (consisting only of adjustments
of a normal recurring nature) necessary to state fairly the information set
forth therein.
Since revenues from sales of new aircraft are recorded as deliveries of
green aircraft are made and revenues from completion services are recorded as
completed aircraft are delivered to the customer, the Company's revenues can
vary significantly from quarter to quarter depending upon the timing of the
deliveries. The operating results for any quarter are not indicative of results
for any future period.
<TABLE>
<CAPTION>
1994
--------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT DELIVERIES DATA)
<S> <C> <C> <C> <C>
Net revenues................................................. $ 128,283 $ 235,502 $ 141,795 $ 396,058
Gross profit................................................. 26,840 34,132 35,831 94,281
Income (loss) from operations................................ (4,491) 169 (3,567) 51,772
Net income (loss)............................................ (8,922) (4,528) (8,944) 45,958
Aircraft deliveries (in units):
Green...................................................... 2 5 2 13
Completion................................................. 6 4 7 9
Pre-owned aircraft......................................... 2 8 2 5
<CAPTION>
1995
--------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT DELIVERIES DATA)
<S> <C> <C> <C> <C>
Net revenues................................................. $ 172,564 $ 302,320 $ 239,420 $ 327,210
Gross profit................................................. 39,072 57,790 44,207 64,898
Income (loss) from operations................................ (1,301) 17,659 5,172 20,560
Net income (loss)............................................ (5,569) 13,408 2,118 18,937
Aircraft deliveries (in units):
Green...................................................... 5 9 5 7
Completion................................................. 3 4 8 14
Pre-owned aircraft......................................... 3 6 5 7
<CAPTION>
1996
------------------------
FIRST SECOND
----------- -----------
(IN THOUSANDS, EXCEPT
DELIVERIES DATA)
<S> <C> <C> <C> <C>
Net revenues................................................. $ 215,063 $ 243,609
Gross profit................................................. 46,791 57,040
Income from operations....................................... 6,317 8,613
Net income................................................... 6,077 9,282
Aircraft deliveries (in units):
Green...................................................... 5 6
Completion................................................. 6 6
Pre-owned aircraft......................................... 3 4
</TABLE>
CONTRACTUAL BACKLOG
Typically, the Company begins taking orders and building backlog two to
three years prior to beginning production of a new aircraft model and receives a
significant number of orders prior to delivering its initial aircraft in a
program. At September 30, 1996, the Company had a contract backlog of
approximately $3.0 billion of revenues plus executed contracts with financing
contingencies of approximately $295 million of potential revenues, representing
a total of 69 contracts for Gulfstream Vs and 30 contracts for Gulfstream
IV-SPs. The Company includes an order in backlog only if the Company has entered
into a purchase contract (with no contingencies) with the customer and has
received a significant (generally non-refundable) deposit from the customer.
Contracts with financing contingencies are
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<PAGE>
converted to backlog upon receipt of financing by the purchaser, which generally
occurs within 120 days. In addition to excluding contracts with financing
contingencies, the Company's contract backlog excludes options and letters of
intent for which definitive contracts have not been executed. At September 30,
1996, the Company had letters of intent with deposits for a total of 1
Gulfstream V and 4 Gulfstream IV-SPs, representing approximately $140 million of
additional potential revenues. In total, approximately 50% of the Gulfstream V
contracts in backlog have scheduled deliveries beyond 1997. At December 31, 1994
and 1995 the Company had a contract backlog of approximately $1.5 billion and
$1.9 billion, respectively, representing 3 and 7 Gulfstream IV-SP units and 40
and 50 Gulfstream V units, respectively.
The Company continually monitors the condition of its backlog and believes,
based on the nature of its customers and its historical experience, that there
will not be a significant number of cancellations.
FOREIGN EXCHANGE
The Company does not have any significant assets located outside the United
States. All the Company's sales and contracts have historically been and
currently are denominated in U.S. dollars and, as a result, are not subject to
changes in exchange rates. In addition, substantially all of the Company's
material purchases are currently denominated in U.S. dollars.
INFLATION
The Company continually attempts to minimize any effect of inflation on
earnings by controlling its operating costs and selling prices. During the past
few years, the rate of inflation has been low and has not had a significant
impact on the results of the Company's operations.
A significant portion of the Company's Gulfstream V contracts contain an
adjustment in the purchase price to account for inflation. Such adjustments are
generally capped at an aggregate of 3% per year. These adjustments are intended
to minimize the Company's cost risk associated with the small portion of
material contracts which are not under long-term agreements.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF. SFAS No. 121 addresses issues surrounding the measurement and
recognition of losses when the value of certain assets has been deemed to be
permanently impaired. The Company adopted this Statement in 1996 and there was
no material effect on its financial position or results of operations from
adoption.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123 establishes a method
of accounting for stock compensation plans based on the fair value of employee
stock options and similar equity instruments. Adoption of the fair value method
of accounting is not required and the Company is continuing to account for
stock-based compensation using the method set forth in Accounting Principles
Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, which is based
on the intrinsic value of equity instruments. However, beginning in 1996, SFAS
No. 123 requires disclosure in annual financial statements of pro forma net
income and earnings per share as if a fair value method included in SFAS No. 123
had been used to measure compensation cost.
29
<PAGE>
BUSINESS
GENERAL
Gulfstream Aerospace Corporation is recognized worldwide as a leading
designer, developer, manufacturer and marketer of the most technologically
advanced intercontinental business jet aircraft. Since 1966, when the Company
created the large cabin business jet category with the introduction of the
Gulfstream II, the Company has dominated this market segment, capturing a
cumulative market share of 60%. The Company has manufactured and sold over 950
large business aircraft since the introduction of the Gulfstream product line in
1958. Since 1990, the Company has been owned by certain partnerships formed by
Forstmann Little.
The Company has developed a broad range of aircraft products to meet the
aviation needs of its targeted customers (which include national and
multinational corporations, governments and governmental agencies, heads of
state and wealthy individuals). See "-- Customers and Marketing". The Company's
current principal aircraft products are the Gulfstream IV-SP, the Gulfstream V,
Gulfstream Shares-TM- (fractional ownership interests in Gulfstream IV-SPs) and
pre-owned Gulfstream aircraft. As an integral part of its aircraft product
offerings, the Company offers aircraft completion (exterior painting of the
aircraft and installation of customer selected interiors and optional avionics)
and worldwide aircraft maintenance services and technical support for all
Gulfstream aircraft. In addition, the Company's financial services subsidiary,
Gulfstream Financial Services Corporation, through its private label
relationship with a third-party aircraft financing provider, offers customized
products to finance the worldwide sale of Gulfstream aircraft.
BUSINESS STRATEGY
Beginning in 1993, the Company implemented a major restructuring and
refocusing of its business in order to improve profitability, increase market
share and build backlog. Theodore J. Forstmann, who assumed the position of
Chairman of the Company in November 1993, recruited a new, senior management
team (including over 20 senior executives with aviation and aerospace industry
experience) and established a five member Management Committee, chaired by Mr.
Forstmann and comprised of four other key executives who share responsibility
for strategic decisions, management and oversight of the Company's operations.
In addition, Mr. Forstmann assembled both a Board of Directors and an
International Advisory Board comprised of prominent business executives and
senior statesmen to counsel the Company and to assist in its refocused sales and
operating initiatives.
Under the leadership of Mr. Forstmann and the new management team, the
Company (i) recapitalized its balance sheet, thereby reducing the Company's
annual interest expense by approximately $38 million, (ii) reduced the Company's
cost structure, yielding over $50 million in annual savings, while increasing
the Company's aircraft production rate, (iii) strengthened the Company's market
position and aircraft order growth, resulting in a contract backlog of
approximately $3.0 billion of revenues and executed contracts with financing
contingencies of approximately $295 million of potential revenues, representing
total revenues and potential revenues of approximately $3.3 billion at September
30, 1996, (iv) expanded and improved the Company's product offerings and (v)
increased the Company's completion order rate and expanded its worldwide service
and support business.
The most significant aspects of the restructuring were:
RECAPITALIZATION AND SIGNIFICANT REDUCTION OF INTEREST EXPENSE
In late 1993, a partnership formed by Forstmann Little exchanged
approximately $469 million of the Company's subordinated debentures (including
accrued interest) for preferred stock, thereby reducing the Company's annual
interest expense by approximately $38 million. See "Certain Transactions -- The
Acquisition; Subsequent Events". This recapitalization and the resulting
increase in cash flow (together with the cost reductions and manufacturing
efficiencies discussed below) enabled the Company to dedicate additional
resources to significantly enhance the design of the Gulfstream V, the Company's
new ultra-long range business jet.
30
<PAGE>
COST REDUCTIONS AND INCREASED PRODUCTION RATE
The Company initiated a restructuring that significantly reduced its cost
structure and product manufacturing cycle times. The restructuring program
included a voluntary reduction in the Company's work force by approximately 15%,
the outsourcing of certain manufacturing activities, the renegotiation of major
supplier contracts and the termination of certain leases, which, in the
aggregate, have yielded over $50 million in annual savings. Additionally, the
Company has reduced final assembly time of an aircraft by more than 50% from
over 67 days to approximately 30 days and has reduced aircraft completion time
from approximately 35 weeks to approximately 21 weeks. As a result of these
cycle time reductions, the use of common tooling and selected outsourcing, the
Company expects to increase its production rate from an average of 2.4 aircraft
per month in 1996 to an average of 3.5 to 4.0 aircraft per month in 1997.
NEW MARKETING INITIATIVES AND SIGNIFICANTLY INCREASED BACKLOG
The Company developed and implemented a new, proactive marketing strategy to
substantially broaden the markets for its products. In addition to the Company's
historical practice of targeting its existing customer base, the Company (a)
initiated an aggressive marketing campaign focused on companies and individuals
that have not previously owned Gulfstream aircraft, (b) significantly expanded
international sales activities, (c) introduced its Gulfstream Shares-TM- program
and (d) offered its customers access to customized financing to support the sale
of new and pre-owned Gulfstream aircraft. The Company has also redirected its
sales and marketing effort to focus on high level decision makers through
increased involvement of the Company's Board of Directors, International
Advisory Board and senior management in the selling process and restructured its
sales commission program to more effectively support the Company's strategic
goals.
As a result of these new marketing initiatives, the Company has experienced
strong growth in aircraft orders and backlog and believes that it has
substantially strengthened its market position. At September 30, 1996, the
Company had a contract backlog of approximately $3.0 billion of revenues plus
executed contracts with financing contingencies of approximately $295 million of
potential revenues, representing a total of 69 contracts for Gulfstream Vs and
30 contracts for Gulfstream IV-SPs. Contracts with financing contingencies are
converted to backlog upon receipt of financing by the purchaser, which generally
occurs within 120 days. In addition, at September 30, 1996, the Company had
letters of intent with deposits for a total of 1 Gulfstream V and 4 Gulfstream
IV-SPs, representing approximately $140 million of additional potential
revenues. In total, approximately 50% of the Gulfstream V contracts in backlog
have scheduled deliveries beyond 1997.
EXPANDED PRODUCT OFFERINGS
The Company expanded its product offerings to provide multiple aircraft
products in contrast to its historical strategy of offering only one new
aircraft model at a time. In addition, the Company began marketing its products
as an integrated whole, offering completion and worldwide maintenance services
and technical support for all Gulfstream aircraft. The Company's current product
offerings include the following:
GULFSTREAM V. The Company significantly enhanced the design and performance
characteristics of the Gulfstream V, which was in the early stage of development
in 1993, and accelerated the pace of its development. The Gulfstream V is
targeted at the market for ultra-long range business jet aircraft (6,500
nautical miles) which is a new market segment for the business jet industry. The
Gulfstream V is in the advanced stages of flight testing and is on schedule to
obtain certification by the FAA in the last quarter of 1996, at least 12 months
prior to the targeted certification date of any other ultra-long range business
jet aircraft. The Company believes the Gulfstream V provides the longest range,
fastest cruising speed and most technologically advanced avionics of any
ultra-long range business jet aircraft in operation.
GULFSTREAM IV-SP. In 1993, the Company introduced the Gulfstream IV-SP,
which offers significantly improved performance and upgraded avionics as
compared to its predecessor, the Gulfstream IV.
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<PAGE>
The Company believes that the Gulfstream IV-SP offers the best combination of
large cabin size, long range (4,220 nautical miles), fast cruising speed and
technologically advanced avionics of any large business jet aircraft currently
available.
GULFSTREAM SHARES-TM-. In 1995, the Company introduced a Gulfstream IV-SP
fractional share ownership program (Gulfstream Shares-TM-) in conjunction with
Executive Jet International, Inc.'s ("EJI") NetJets-Registered Trademark-
Program. Gulfstream Shares-TM- provides customers with the benefits of
Gulfstream aircraft ownership at a substantially lower cost than full aircraft
ownership and significantly increases the Company's potential customer base. To
date, the Company has contracted to deliver 16 Gulfstream IV-SPs and 2
Gulfstream Vs to EJI in connection with this program, 8 of which have been
delivered and 10 of which will be delivered through 1999. EJI also has an option
to purchase 5 additional Gulfstream IV-SPs in 1998.
PRE-OWNED GULFSTREAM AIRCRAFT. The Company assembled a new, experienced
management team for its pre-owned aircraft sales operations and introduced a
number of initiatives that have enhanced the marketability of pre-owned
Gulfstream aircraft. See "-- Principal Products -- Premium Pre-Owned Gulfsteam
Aircraft and Other Pre-Owned Aircraft". In addition, the Company has been
successful in using pre-owned Gulfstream aircraft as a significant tool to
expand the Company's potential market and to compete against other manufacturers
of lower priced, new aircraft products. As a result of the Company's competitive
success in marketing pre-owned aircraft, the Company has reduced its inventory
of pre-owned aircraft available for sale to approximately $23.6 million and
$35.0 million as of June 30, 1995 and 1996, respectively, as compared with
approximately $125.8 million at October 31, 1993.
IMPROVED COMPLETION, SERVICE AND SUPPORT
The Company's new marketing strategy has resulted in substantial
improvements in the Company's completion business. Gulfstream currently
completes approximately 95% of all new Gulfstream aircraft sold to customers as
compared to 70% in 1990. Further, the Company has significantly expanded its
worldwide maintenance services and technical support for Gulfstream aircraft,
including opening a new 200,000 square foot service center in 1996 to increase
its ability to provide high quality service to Gulfstream customers. These
service and support activities provide the Company with ongoing customer
contact, which the Company believes enhances its opportunity to sell new
aircraft to existing service and support customers.
SUCCESSFUL CO-PRODUCTION OF GULFSTREAM V AND GULFSTREAM IV-SP AIRCRAFT
The Company is currently manufacturing both the Gulfstream V and Gulfstream
IV-SP. Upon FAA certification of the Gulfstream V, which is expected to occur in
the last quarter of 1996, the Company will begin delivering Gulfstream V
aircraft to customers. Given the Company's increased manufacturing volume and
large backlog of orders, the Company expects to deliver aircraft in 1997 at
rates substantially in excess of those experienced in the recent past. Assuming
FAA certification in the last quarter of 1996, the Company expects to deliver
approximately 46 new aircraft in 1997, including 19 Gulfstream IV-SP and 27
Gulfstream V aircraft, representing a 59% increase over the Company's expected
deliveries in 1996.
INDUSTRY
The business jet aircraft market is generally divided into four segments --
light, medium, large and ultra-long range. These segments are defined on the
basis of range, cabin volume and gross operating weight. The Company considers
the large segment to currently consist of the Gulfstream IV-SP, Canadair
Challenger 604, and Dassault Falcon 900B and 900EX. The medium segment includes
a variety of business jet aircraft such as the Cessna Citation VII and X,
Dassault Falcon 50EX and 2000, Learjet 60 and Raytheon Hawker 800XP and 1000.
The light segment consists of a variety of aircraft such as the Learjet 31A and
45, Beechjet 400A and Cessna Citation V-Ultra and Bravo.
The ultra-long range market has evolved with the development by the Company
of the Gulfstream V. The first Gulfstream V deliveries are expected in the
fourth quarter of 1996. Bombardier, which is marketing the Global Express in the
ultra-long range market, has announced that it does not expect to
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receive certification for delivery of the first Global Express until the second
quarter of 1998. In July 1996, Boeing publicly announced that it would market,
in partnership with General Electric Co., a version of the Boeing 737 for the
ultra-long range business aircraft market. Boeing has indicated that it expects
this entry could be available for delivery in late 1998 or early 1999.
According to the newsletter, THE WEEKLY OF BUSINESS AVIATION, since 1982,
the annual unit growth rate for the total business jet fleet worldwide averaged
4.2%. During the same period, the annual unit growth rate for the large business
aircraft segment averaged 4.5%. Since 1966, when the Company created the large
cabin business jet category with the introduction of the Gulfstream II, the
Company has dominated this market segment, capturing a cumulative market share
of 60%.
The Company believes that the large and ultra-long range business jet
aircraft market will expand significantly in the future due to: (i) the
increasing business relationships in and between existing and emerging commerce
centers, including the Pacific Rim, Europe, the former Soviet states, and the
United States, (ii) the broader and increased utilization of business aircraft
as a result of the increased difficulty of, and safety and security concerns
with, commercial travel, (iii) the improved performance and extended range of
business aircraft, and (iv) the expansion of the fractional ownership concept in
the large business jet aircraft market which allows customers, whose aircraft
usage patterns or financial resources do not justify or permit the direct
purchase of a large aircraft, to purchase a fractional interest in a business
jet aircraft.
PRINCIPAL PRODUCTS
GULFSTREAM V
The Company's newest aircraft product is the Gulfstream V, which the Company
believes provides the longest range, fastest cruising speed and most
technologically advanced avionics of any ultra-long range business jet aircraft
currently in operation. The Gulfstream V is in the advanced stages of flight
testing and the Company expects it to be certified by the FAA in the last
quarter of 1996. As of September 30, 1996, the Company had produced 6 Gulfstream
Vs and had 3 additional Gulfstream Vs in the final stage of production. Of the 6
Gulfstream Vs already produced, 4 are currently in the flight testing process.
The Company expects to begin customer deliveries of the Gulfstream V in the last
quarter of 1996, at least 12 months prior to the announced delivery dates of any
other ultra-long range business jet aircraft. Assuming FAA certification by year
end, the Company expects to deliver approximately 27 Gulfstream V aircraft in
1997. See "Risk Factors -- Gulfstream V Certification and Production".
The Gulfstream V has a maximum operating speed of Mach .885. It can
accommodate up to 19 passengers and is expected to have a range of up to 6,500
nautical miles and a cruising speed of up to Mach .87. These capabilities will
permit routine intercontinental travel at cruising speeds comparable to
commercial airline cruising speeds, while operating efficiently at altitudes as
high as 51,000 feet, flying above most commercial airline traffic and adverse
weather. The Gulfstream V is versatile enough to fly long-range missions, such
as New York to Tokyo in approximately 14 hours, as well as high-speed missions,
such as New York to London, in approximately six hours.
The Gulfstream V design process combined modern technology with the
conservative design philosophy of all Gulfstream aircraft. The Gulfstream V
aircraft development was launched in September 1992 and significantly enhanced
in 1993 in response to extensive market research. Aerodynamic profiles were
developed and verified using computational fluid dynamics (CFD) and scale model
wind tunnel testing. Following systems definition, detailed designs were
prepared on both two dimensional (CADAM) and three dimensional (CATIA) digital
computer models, thereby eliminating the need to construct a physical prototype
of the new aircraft. The Company estimates that Gulfstream, its revenue share
partners and key suppliers will have invested over $800 million, in the
aggregate, in developing the Gulfstream V. The Company expects that the
Gulfstream V development program will be materially completed by the end of
1996.
The Gulfstream V is equipped with two 14,750-pound-thrust BR710 engines
built by BMW Rolls-Royce GmbH, which were specifically designed for use on the
Gulfstream V and for which Gulfstream
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was the launch customer. The sound levels of the Gulfstream V's engines are well
below FAA Stage 3 and ICAO/Chapter 3 regulatory requirements (the FAA's and
ICAO's most stringent noise abatement regulations). These engines, like the
Rolls-Royce Tay engines on the Gulfstream IV-SP (which are considered an
industry benchmark), are designed to operate 7,000 flight hours between major
overhauls and, due to fuel efficiency, are expected to operate at a lower cost
than the engines of the Gulfstream IV-SP. The BR710 engine has been certified by
the Joint Aviation Authorities and the FAA.
The aircraft utilizes dual cabin pressurization systems to minimize cabin
altitude. At a maximum altitude of 51,000 feet, the Gulfstream V cabin altitude
is designed to be pressurized to 6,000 feet, the lowest cabin altitude
pressurization of any business jet aircraft. This low cabin altitude, together
with a 100% fresh air ventilation system (instead of a recirculating air system)
is expected to significantly reduce passenger fatigue.
The advanced flight systems on the Gulfstream V include automatic throttle
systems, an integrated performance computer system, an engine information crew
advisory system, a dual global positioning system and independent inertial
reference systems. These systems provide accurate flight planning, as well as
automatic control, throughout the planned flight profile. For maximum safety, a
Traffic Collision Avoidance System, turbulence and wind shear-detecting radar
and an enhanced Ground Proximity Warning System are also standard. An additional
safety feature of the Gulfstream V is an optional head-up display ("HUD"). The
HUD optimizes pilot performance and improves flight safety, especially in low
visability conditions, by reducing the pilot's dependence on the instrument
panel, thus allowing the pilot to direct his vision outside the cockpit.
In order to reduce the business risk associated with the design and
manufacture of the Gulfstream V, the Company entered into revenue sharing
agreements with Vought Aircraft Company (a subsidiary of Northrop Grumman
Corporation) for the wing and Fokker Aviation B.V. for the empennage. Under
these agreements, the revenue share partner is responsible for the detailed
design, tooling and manufacture of the systems in exchange for a fixed
percentage of revenues of each Gulfstream V sold (which the Company records as a
cost of goods sold upon an aircraft delivery). Thus, in addition to financing
the development, manufacture and delivery of its components, each manufacturer
shares in the risk of fluctuations in demand and market price of the Gulfstream
V. See "-- Materials and Components" and "Risk Factors -- Purchased Materials
and Equipment".
The list price for a completed Gulfstream V is currently approximately
$37,750,000 (depending on escalation and selected options). The Company provides
a purchaser of a Gulfstream V with a 20 year or 20,000 flight hour (whichever
comes first) warranty on the airframe structure and a six-year warranty on
components (other than the engines). BMW Rolls-Royce GmbH provides a direct
five-year or 2,500 flight hour (whichever comes first) warranty on the engines
to purchasers of a Gulfstream V.
GULFSTREAM IV-SP
The Company's other principal aircraft product is the Gulfstream IV-SP, a
twin-engine fanjet aircraft which is an enhanced version of the Gulfstream IV
(which the Company no longer manufactures). See "-- Past Aircraft Product
Offerings." The Company believes that the Gulfstream IV-SP offers the best
combination of large cabin size, long range, fast cruising speed and
technologically advanced avionics of any large business jet aircraft currently
available. The Company has manufactured and sold 81 Gulfstream IV-SPs from its
introduction in 1993 through June 30, 1996. The Company intends to continue to
manufacture the Gulfstream IV-SP after the introduction of the Gulfstream V.
The Gulfstream IV-SP can accommodate up to 19 passengers, has a range of up
to 4,220 nautical miles and a cruising speed of up to approximately Mach .85.
These capabilities permit routine intercontinental travel at cruising speeds
comparable to commercial airline cruising speeds, while operating efficiently at
altitudes as high as 45,000 feet, flying above most commercial airline traffic
and adverse weather. The Gulfstream IV/IV-SP is the holder of 79 distance,
altitude and speed records for aircraft of its class including east-bound and
west-bound around-the-world speed records (36 hours and 8 minutes (east-bound)
and 45 hours and 25 minutes (west-bound)).
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The Company developed the SP (Special Performance) version of the Gulfstream
IV with enhanced avionics, increased interior cabin width and height, and
increased allowable landing weight, providing improved mission flexibility and
allowing the Gulfstream IV-SP to fly multiple-leg trips without refueling.
The Gulfstream IV-SP is equipped with two Rolls-Royce Tay fan jet engines
which have commercial airline-proven reliability and performance. The Tay
engines can operate 7,000 flight hours between major overhauls, producing
aircraft operating costs for the Gulfstream IV-SP that the Company believes are
comparable to those of its competitors. Additionally, the Gulfstream IV-SP,
together with the Gulfstream IV and the Gulfstream V, are the only business jet
aircraft combining an electronic "all glass cockpit" and an advanced avionics
suite consisting of a fully integrated computerized flight management system,
including a performance computer and automatic throttle systems.
The list price for a completed Gulfstream IV-SP is currently approximately
$28,200,000 (depending upon selected options). The Company provides a purchaser
of a Gulfstream IV-SP with a 15 year or 15,000 flight hour warranty (whichever
comes first) on the airframe structure and a 30 month warranty on most other
parts (other than the engines). Rolls-Royce provides a direct 5 year or 2,500
flight hour warranty (whichever comes first) on the engines to purchasers of a
new Gulfstream IV-SP. Since the first delivery of a Gulfstream IV in 1985,
warranty claims on the Gulfstream IV and Gulfstream IV-SP have aggregated less
than 1% of aggregate net revenues from the sales of Gulfstream IVs and
Gulfstream IV-SPs.
GULFSTREAM IV-MPA
The Company has designed and manufactured the Gulfstream IV-MPA, a multi
purpose derivative of the Gulfstream IV (designated C20-G) procured by and in
service for the United States Navy. The Gulfstream IV-MPA may be equipped with a
six-foot wide cargo door and/or high density seating (up to 26 passengers).
These aircraft have the capability to convert from a cargo configuration to a 26
passenger configuration in less than four hours. Depending upon the specific
configuration, the Gulfstream IV-MPA's list price ranges from $28,000,000 to
$32,000,000. There are currently 5 Gulfstream IV-MPAs in service with the United
States Navy with 3 additional units under contract for delivery to other
government agencies. The Company believes that the Gulfstream IV-MPA and other
special mission modifications of the Gulfstream IV-SP aircraft will be important
products for meeting the needs of government operators, military organizations,
civil authorities and intelligence gathering agencies.
GULFSTREAM SHARES-TM-
The Company offers customers fractional ownership in Gulfstream IV-SP
aircraft through a program established by the Company in 1995 in conjunction
with EJI's NetJets-Registered Trademark- program. This program is designed to
provide customers with the benefits of Gulfstream IV-SP aircraft ownership at a
substantially lower cost than the purchase of an entire aircraft. The program
significantly expands the market for Gulfstream IV-SP aircraft to include those
customers whose aircraft usage patterns or financial resources do not justify or
permit the direct purchase of a Gulfstream aircraft. The Gulfstream Shares-TM-
program, by teaming Gulfstream and EJI, has brought the Gulfstream name,
quality, reputation and marketing infrastructure together with the operational
experience and reputation of the founder and leader in the business jet aircraft
fractional ownership market.
The Gulfstream Shares-TM- program is marketed by the Company. EJI purchases
Gulfstream IV-SPs from the Company and then sells fractional ownership interests
in such aircraft generally in one-eighth or one-quarter increments for which the
customer receives 100 or 200 hours of flying time per year, respectively, with a
guaranteed response time for pick-up of 10 hours or 6 hours, respectively. The
customers enter into management and operating contracts with EJI which provide
guaranteed services and operating costs. EJI's agreement with its customers
provides for a term of 5 years with certain termination and renewal rights.
There is no recourse to the Company under the provisions of these agreements or
under the Company's contractual agreement with EJI.
The Gulfstream IV-SP aircraft are maintained by the Company under a
maintenance agreement with EJI. Further, under a lease arrangement, the Company
provides EJI up to 4 pre-owned Gulfstream IV
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aircraft (which are included in the Company's pre-owned aircraft inventory)
which make up EJI's core fleet and are used to facilitate EJI's meeting its
response time and service guarantees. The Company has a proprietary agreement
with EJI relating to the marketing activities and provision of the core fleet,
pursuant to which the Company is reimbursed for certain marketing expenses and
earns royalty fees on certain EJI revenues.
Under the terms of the agreements between the Company and EJI, the program
consists of EJI's purchase or option to purchase over 20 Gulfstream IV-SPs and 2
Gulfstream Vs. To date, the Company has contracted to deliver to EJI 16
Gulfstream IV-SPs and 2 Gulfstream Vs in connection with the Gulfstream
Shares-TM- program, 8 of which have been delivered and 10 of which will be
delivered through 1999. In addition, EJI has remaining an option to purchase 5
additional Gulfstream IV-SPs in 1998. The Company's marketing services agreement
for Gulfstream Shares-TM- has a term of three years which can be extended by
mutual agreement of the parties.
In addition to providing the Company with an incremental source of revenues,
the Company believes the Gulfstream Shares-TM- program represents an important
marketing tool. Fractional ownership provides the Company with a lower priced
product that allows it to broaden its potential market and to create an entry
level product for new Gulfstream customers. Fractional ownership also allows the
Company to offer an interim solution for customers who have an immediate need
for aircraft transportation and desire to purchase a whole aircraft, but must
wait for delivery due to the orders backlog.
The Company is currently conducting a feasibility study, which is expected
to be completed by early 1997, to determine whether to establish a pre-owned
Gulfstream Shares-TM- program internationally. Such a program could expand the
Company's presence in international markets and assist the Company in selling
pre-owned Gulfstream IV and Gulfstream IV-SP aircraft acquired by the Company
from trade-ins on Gulfstream V deliveries.
AIRCRAFT COMPLETION
When the Company sells a new Gulfstream V or Gulfstream IV-SP, it generally
contracts with its customer to deliver a green aircraft and a completed
interior. The Company's completion services include painting and installing
customer selected interiors and optional avionics. The Company believes that its
completion services improve customer satisfaction while enhancing the Company's
profitability. The Company is the only company possessing the technology and
specifications to complete the Gulfstream V. Although other companies offer
completion services for the Gulfstream IV-SP, the Company believes it has an
advantage over other suppliers due to Gulfstream's understanding of its own
aircraft and the interface requirements necessary for installation of
custom-designed interiors and optional avionics systems. The Company believes
that it also provides superior craftsmanship in designing and building
customized interiors.
Gulfstream has increased its completion order rate on new aircraft as a
percentage of green aircraft orders from 70% in 1990 to approximately 95% in
1995. In an effort to simplify the selling process and to capture completion
business, the Company currently markets its aircraft to customers on a completed
basis. As part of this effort, the Company has developed an aircraft completion
program that offers customers a customized interior using core standardized
design elements. The use of these standardized elements allows the Company to
more accurately predict and reduce costs, cut cycle times and increase
consistency of production. This, together with its integrated marketing
strategy, has allowed the Company to perform substantially all of the completion
services for its green aircraft since 1993.
The Company's completion centers, located in Savannah, Georgia; Brunswick,
Georgia; and Long Beach, California, offer full completion and refurbishing
services. The Company's completion centers located in Savannah, Long Beach and
Brunswick can accommodate an aggregate of up to 20 aircraft at one time.
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PREMIUM PRE-OWNED GULFSTREAM AIRCRAFT AND OTHER PRE-OWNED AIRCRAFT
Pre-owned aircraft are routinely accepted in trade to facilitate the sale of
new Gulfstream IV-SPs and Gulfstream Vs. The Company uses pre-owned Gulfstream
aircraft as a significant tool in expanding the Company's potential market and
competing with lower priced, new aircraft products.
The Company has assembled a new, experienced management team and has
introduced a number of initiatives which have enhanced the marketability of its
pre-owned aircraft. The Company refurbishes pre-owned Gulfstream aircraft and
markets these aircraft as a branded product of the Company. Pursuant to this
program, the Company backs pre-owned Gulfstream aircraft with a 5 year warranty
on the airframe structure and a 12 month warranty on virtually all other parts,
including the engines under a separate warranty from Rolls-Royce Commercial Aero
Engines Limited.
Recently, the Company obtained certification of Gulfstream IIIs, Gulfstream
IVs and Gulfstream IV-SPs for use in the Commonwealth of Independent States (the
former Soviet Union) as a part of the Company's efforts to develop select
international markets through the introduction of lower priced, pre-owned
Gulfstreams.
Trade-in values for pre-owned aircraft are based on estimated fair market
value ("FMV") at the time the trade-in will actually occur. If the trade-in time
is greater than twelve months into the future, the Company's current practice is
to reserve the right to determine FMV not more than six months prior to delivery
of the green aircraft. Trade-in aircraft are always entered into inventory at
the lower of cost or estimated realizable value. Any excess value offered to a
customer above estimated realizable value is recognized as a reduction in the
revenue received in the new aircraft sale transaction.
Through its trade-in agreements, the Company reserves the right to
pre-market the trade-in aircraft prior to acceptance of title from the customer.
Over the past several years, the Company has generally been successful in
entering sales agreements on trade-in aircraft prior to acceptance of title. If
market conditions change, however, no assurances can be made that the Company
can continue this practice even though the Company's strategy may remain the
same.
The Company has provided a portion of its Gulfstream V customers whose
contracts are currently in backlog with an option to trade in a Gulfstream
aircraft at the time of their Gulfstream V aircraft delivery. These options may
be at a specified dollar amount or at FMV "to be determined six months prior to
green delivery" of the Gulfstream V. The Company continues to assess those
options which are at a fixed dollar amount in light of market conditions and has
determined such fixed dollar options are no higher than the FMV estimated for
the time of Gulfstream V aircraft delivery. Although no assurance can be given
that the fixed dollar trade-in aircraft values will remain at or below FMV at
the time of trade, any adjustments required for values in excess of FMV will be
appropriately reflected in the new aircraft sales transaction and the pre-owned
inventory will be stated on the Company's books at the lower of cost or
estimated realizable value.
AIRCRAFT SERVICES, PARTS AND TECHNICAL SUPPORT
The Company is committed to supporting, servicing and expanding the
Gulfstream aircraft fleet as part of its refocused customer-oriented strategy.
The Company provides worldwide service and support by integrating a network of
Company-owned service centers, three levels of authorized third party service
providers, worldwide parts depots, worldwide service representatives and 24
hour-a-day technical/AOG (aircraft on the ground) support. The Company believes
that the service business offers potential for future expansion and growth as
the Gulfstream fleet grows and that the high level of service the Company
provides results in significant repeat business.
SERVICE CENTERS. The Company operates service centers in Savannah and
Brunswick, Georgia and Long Beach, California for aircraft maintenance
functions, including modifications and major repairs. In 1996, the Company
opened a new 200,000 square foot, state-of-the-art, service facility in
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Savannah, Georgia, with capacity for 12 to 20 Gulfstream Vs and Gulfstream IVs.
See "-- Properties". Training, level of service and business practices have been
significantly improved and standardized across the Company's service centers
since 1994.
Additionally, the Company has license agreements with Marshalls of Cambridge
(Cambridge, England), Chrysler's Pentastar Aviation subsidiary (Ypsilanti,
Michigan) and Jet Aviation (Singapore) to provide service, maintenance and
repairs for Gulfstream aircraft. The licensees provide additional geographic
service locations for the expanding Gulfstream fleet. Royalty fees are paid to
the Company by the licensees based on labor hours expended. In addition,
Associated Airlines (Melbourne, Australia) and Jet Aviation Business Jets
(Geneva and Basel, Switzerland) serve as authorized warranty centers.
PARTS. Parts are provided to aircraft owners through a network of five
Company parts depots. Proprietary initiatives (including cancellation of
discounts to third party outlets, a gradual adjustment of parts pricing for high
use items, and a gradual elimination of international price premiums) have been
undertaken in the last 18 months to develop, improve and sustain the Company's
competitive advantage in the fragmented parts market and to improve customer
service levels.
TECHNICAL INFORMATION. The Company markets aircraft support publications
and technical documents to its customers and to third party service facilities.
Additionally, a proprietary computerized maintenance program (CMP) is offered as
a subscription service to customers for the management and tracking of the
maintenance status of their aircraft. Approximately 90% of the Company's
customers utilize this service. Recently, the Company instituted a policy
requiring third party maintenance facilities to purchase factory technical
support for scheduled maintenance performed on customer aircraft. This is
expected to offset the cost of providing this technical support and further
strengthen the competitive position of the Company's own service centers.
The Company is in the process of establishing its ServiceCare program, the
first comprehensive airframe, engine and avionics maintenance program to be
offered in the business aircraft market, which will provide customers of new
Gulfstream IV-SPs with scheduled and unscheduled maintenance at guaranteed
costs. Coverage will be provided on a world-wide basis, with all work to be
accomplished at Gulfstream or Gulfstream authorized service centers. The program
is expected to be implemented by year-end 1996.
AIRCRAFT MAINTENANCE SERVICES. In 1995 the Company's estimated market share
(based on service center visits) of the maintenance services market for the
Gulfstream fleet was approximately 40%. The Company has assembled a new,
experienced management team for its maintenance services operations. Under this
new team, the Company has developed a proactive marketing and sales effort and
made investments in training and facilitates, which are expected to increase its
market share significantly by the end of 1998. During the first half of 1996,
the Company increased its revenues from maintenance, parts, services and
facilities by 21% over the comparable period in 1995.
TRAINING AND FACILITIES. The Company provides pilot and maintenance
training services to its customers as an integral component of the sale of new
Gulfstream IV-SP, Gulfstream V and pre-owned Gulfstream aircraft. The Company
has long-term agreements with FlightSafety International ("FSI") for the
provision of this high quality training service.
FSI maintains and operates training facilities co-located with the Company's
Savannah and Long Beach operations and has recently announced its intention to
build a new 86,000 square foot training facility adjacent to the recently
constructed Gulfstream Service Center in Savannah. This training center will be
fully funded by FSI and will house classrooms and simulators (including the new
Gulfstream V simulator) supporting the entire Gulfstream product line
(Gulfstream I through Gulfstream V). Gulfstream, in conjunction with FSI,
facilitates the operation of a Customer Training Advisory Board which provides
direct customer and original equipment manufacturer input to FSI's training
curriculums and course content.
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Additionally, pilot and maintenance training services are provided to
Gulfstream customers by SimuFlight Training International ("SimuFlight") located
at Dallas-Fort Worth International Airport, Texas. SimuFlight provides training
services for Gulfstream II, Gulfstream III and Gulfstream IV aircraft.
Gulfstream, in conjunction with SimuFlight, facilitates the operation of an
additional Customer Training Advisory Board which provides direct customer and
original equipment manufacturer input to SimuFlight training curriculums and
course content.
AIRCRAFT FINANCING ARRANGEMENTS
The Company, through its subsidiary Gulfstream Financial Services
Corporation ("GFSC"), provides customers with access to customized financial
products to support the worldwide sale of Gulfstream new and pre-owned aircraft.
GFSC representatives typically consult with potential customers to develop the
most effective means of financing the purchase of a Gulfstream jet for each such
customer's specialized needs.
The financial products (including capital and operating leases, loans, tax
advantaged leases, like-kind exchange options, and Export-Import Bank support)
are provided on a competitive basis through a proprietary, private label
relationship with a prominent provider of aircraft financing (the "Financing
Provider"), that has full credit review and approval rights and assumes all
credit risk with no recourse to the Company. Additionally, the Company and the
Financing Provider have entered into a re-marketing arrangement which enables
the Company to manage the resale of any Gulfstream aircraft whose lease
financing period has ended. This private label agreement has a term of five
years with a lending commitment of $250 million annually, and can be extended by
mutual agreement of the parties.
The Company believes that the access provided by GFSC to financing sources
for customers throughout the world serves to expedite and increase sales of new
and pre-owned aircraft and also enables the Company to effectively manage the
residual values of the Gulfstream fleet.
BACKLOG AND NEW ORDERS
Typically, the Company begins taking orders and building backlog two to
three years prior to beginning production of a new aircraft model and receives a
significant number of orders prior to delivering its initial aircraft in a
program. At September 30, 1996, the Company had a contract backlog of
approximately $3.0 billion of revenues plus executed contracts with financing
contingencies of approximately $295 million of potential revenues, representing
a total of 69 contracts for Gulfstream Vs and 30 contracts for Gulfstream
IV-SPs. The Company includes an order in backlog only if the Company has entered
into a purchase contract (with no contingencies) with the customer and has
received a significant (generally non-refundable) deposit from the customer.
Contracts with financing contingencies are converted to backlog upon receipt of
financing by the purchaser, which generally occurs within 120 days. In addition
to excluding contracts with financing contingencies, the Company's contract
backlog excludes options and letters of intent for which definitive contracts
have not been executed. At September 30, 1996, the Company had letters of intent
with deposits for a total of 1 Gulfstream V and 4 Gulfstream IV-SPs,
representing approximately $140 million of additional potential revenues. In
total, approximately 50% of the Gulfstream V contracts in backlog have scheduled
deliveries beyond 1997. At December 31, 1993, 1994 and 1995, the Company had a
contract backlog of approximately $0.9 billion, $1.5 billion and $1.9 billion,
respectively, representing 3, 3 and 7 Gulfstream IV-SP units and 24, 40 and 50
Gulfstream V units, respectively.
Generally, at the signing of a Gulfstream IV-SP or Gulfstream V contract, a
customer makes a non-refundable deposit with the Company. Subsequently, the
customer makes a series of significant progress payments, with the balance of
the purchase price due at delivery of the green aircraft. Since the Company
began taking orders for Gulfstream Vs in 1992, only 4 contracts have been
cancelled, 3 of which were the result of declines in the business performance of
the customer and one of which was a result of adverse economic conditions in a
foreign country.
New orders for the Gulfstream V and the Gulfstream IV-SP totaled 12 and 30,
respectively, in 1995, 16 and 25 in 1994 and 17 and 26 in 1993. Orders tend to
vary from year to year reflecting a number of
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factors, including competitive circumstances, worldwide economic and
geopolitical conditions and the timing of customer decisions in placing new
orders due to budget planning and specific transportation needs.
CUSTOMERS AND MARKETING
The majority of the Company's aircraft are sold to national and
multinational corporations and governments. Gulfstream's aircraft are operated
by customers in a wide spectrum of industries and customer groups, including:
pharmaceuticals, consumer goods, high technology, energy, industrial
manufacturing, finance, insurance, real estate, mining, transportation,
communications, public utilities, retail trade, the United States government,
other sovereign entities, and individuals. Seventy-eight percent of the
Gulfstream fleet is based in North America and 22% of the fleet is based in 45
countries worldwide. Current owners of Gulfstream aircraft include 25 of the
Fortune 50 companies and 115 of the Fortune 500 companies. In addition, the
United States government, including all branches of the United States military,
and 39 foreign governments operate Gulfstream aircraft. Gulfstream aircraft
provide air transportation for the President, Vice President and other senior
members of the United States government. Over 48 Gulfstream aircraft are
currently in operation with various United States government agencies, including
the FAA.
The diverse Gulfstream customer base combined with wide geographic
distribution requires an integrated marketing, communications and sales
approach. The Company's marketing and communications program is designed to
create general awareness of the Company, its products and services, while the
sales approach is highly personalized and focused on the key decision makers, as
well as flight departments and other managers within the customer's
organization.
In 1994, the Company fundamentally changed its sales and marketing processes
to include market segmentation, analysis of customer potential, prospect
tracking and weekly reviews of specific sales and pricing strategies with senior
management. Additionally, with the introduction of GFSC, the Company began
including strategic planning for sales transactions in order to better integrate
customer financing and budgeting requirements. The Company believes these
enhanced processes have been a major contributor to its success in obtaining
orders and growing backlog. Also in 1994, Gulfstream established an
International Advisory Board of 16 prominent international business executives
and senior statesmen to advise the Company on international activities in
support of the Company's strategic initiatives to further penetrate the
international markets. See "Management -- International Advisory Board".
In early 1995, to strengthen its overall position in the market and
effectively focus the resources of the Company on its customers, the Company
created Gulfstream Aircraft Incorporated ("GAI") as a wholly owned subsidiary of
the Company. GAI is responsible for all functions directly related to customers
including: marketing, sales, completions, service and product support. By
closely integrating these activities, customers are provided a high level of
personalized service on the schedule they require. This organization allows the
Company to respond appropriately to scheduled and unscheduled customer needs
while maintaining the engineering expertise and focused business environment
required for the development and manufacture of its high quality products in the
balance of the organization. In addition, it facilitates the direct involvement
of senior leadership in the sales and marketing process.
The Company's marketing and communications program is a carefully integrated
combination of business and trade advertising, direct mail, press coverage,
trade shows and special events. These activities are specifically developed and
executed through GAI to create personal selling opportunities for the sales team
and senior management with assistance from the Board of Directors and
International Advisory Board.
The Company has 22 sales executives located in: New York; New Jersey;
Washington, D.C.; Atlanta, Georgia; Dallas, Texas; Los Angeles, California;
Chicago, Illinois; Columbus, Ohio; Miami, Florida; Savannah, Georgia; London;
Cairo; Singapore; Monaco; and Hong Kong. In the case of international
operations, these executives are responsible for the Company's relationships
with 33 international agents who facilitate business transactions in selected
local markets. The Company's sales executives
40
<PAGE>
are compensated through a commission program which compliments the Company's
overall strategic objectives of maintaining the current customer base and
expanding market share. The program is based on annual orders and provides an
additional incentive for capturing orders from new customers, as well as a
reduction in potential compensation for orders lost to competitors.
The Company pursues government and special mission business opportunities
worldwide with a two person sales team located in Washington, D.C. These sales
executives are specifically suited by their background and experience to deal
with military and government customers. The Company's government relations
function also involves two people with experience in regulatory, legislative and
appropriations processes essential to the conduct of the Company's business with
the United States government.
No single customer accounted for more than 10% of sales revenues during the
year ended December 31, 1995.
The following table sets forth for the periods indicated information
concerning the Company's net revenues:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
----------------------------------------------- ----------------------
1994 1995 1996
---------------------- ----------------------- ----------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United States........................................ $ 778.8 86% $ 824.5 79% $ 365.1 80%
International........................................ 122.8 14 217.0 21 93.6 20
--------- --- ---------- --- --------- ---
Total net revenues............................... $ 901.6 100% $ 1,041.5 100% $ 458.7 100%
--------- --- ---------- --- --------- ---
--------- --- ---------- --- --------- ---
</TABLE>
For a description of the Company's export sales by geographical area, see
Note 15 to the Company's Consolidated Financial Statements included elsewhere in
this Prospectus.
COMPETITION
The business aircraft market generally is divided into four segments (light,
medium, large and ultra-long range) of aircraft either designed or converted for
business use.
The Gulfstream IV-SP competes in the large cabin business jet aircraft
market segment, principally with Dassault Aviation S.A. (which recently
announced that it will merge with Aerospatiale SA) and Bombardier. The
Gulfstream V competes in the ultra-long range business jet aircraft market
segment, primarily with the Global Express, which is being marketed by Canadair,
a subsidiary of Bombardier, and which is scheduled for certification at least 12
months after the anticipated initial delivery of the Gulfstream V. In addition,
in July 1996, Boeing, in partnership with General Electric Co., publicly
announced that it intends to begin to market a version of the Boeing 737 into
the ultra-long range business jet aircraft market segment. Boeing has indicated
that it expects that this aircraft could be available for delivery in late 1998
or 1999. The Company's competitors may have access to greater resources
(including, in certain cases, governmental subsidies) than are available to the
Company. The Company believes, however, that it competes favorably with its
competitors on the basis of the performance characteristics of its aircraft, the
quality, range and timeliness of the service it provides and its innovative
marketing techniques, and that it has the leading market share in both the large
cabin and ultra-long range business jet aircraft market segments. The Company
believes its aircraft's operating costs are comparable to or lower than those of
its competitors and that its products are competitively priced.
RESEARCH AND DEVELOPMENT
The Company conducts an internally funded research and development program
primarily for the enhancement of the existing Gulfstream aircraft fleet and for
the development of new aircraft. The Company's research and development
expenditures are cyclical and tend to be relatively high several years prior to
the introduction of a new aircraft model and to decrease significantly as that
product cycle matures. All amounts expended on research and development are
expensed as incurred.
The Company's research and development program is based on product and
process improvement to satisfy changing customer needs and changing regulatory
requirements. The Company's
41
<PAGE>
research and development efforts have focused on improving operating
efficiencies, performance, safety and reliability, reducing pilot workloads,
realizing environmental benefits, reducing weight and improving ease of
manufacture.
The Company believes that its emphasis on product improvements for aircraft
in the Gulfstream fleet has provided and will continue to provide added value
for the Gulfstream customer. For aircraft already produced and in service,
aircraft changes, which incorporate product improvements, are generally made
available for purchase by existing owners of Gulfstream aircraft.
In 1994 and 1995, the Company spent $57.4 million and $63.1 million,
respectively, on research and development primarily relating to the Gulfstream
V. As a result of the completion of the Gulfstream V development project, the
Company's total research and development expenditures are expected to decline to
$6.5 million in 1997 from an anticipated $59.3 million in 1996. Research and
development expenditures in 1997 and the near-term future will stem principally
from product and process improvements rather than new aircraft development.
MATERIALS AND COMPONENTS
Approximately 70% of the production costs of both the Gulfstream IV-SP and
the Gulfstream V consist of purchased materials and equipment. Many materials
and items of equipment used in the production of the Company's aircraft, such as
the engines, wings, landing gear and avionics systems, are purchased from other
manufacturers, generally pursuant to long-term purchase orders. For the
Gulfstream V, the Company has entered into revenue sharing agreements for the
wing and empennage. Under these agreements, the revenue share partner is
responsible for the detailed design, tooling and manufacture of the systems in
exchange for a fixed percentage of revenues of each Gulfstream V sold. As is
typical among general aviation aircraft manufacturers, the Company relies on
single source suppliers for complex aircraft components and systems. These
single sources are selected based on overall aircraft systems requirements,
quality and certification requirements and competitiveness in the market. The
Company's suppliers include Rolls-Royce Commercial Aero Engines Limited
(Gulfstream IV-SP engines), BMW Rolls-Royce GmbH (Gulfstream V engines),
Honeywell Incorporated (Gulfstream IV-SP and Gulfstream V flight management
systems/avionics), The Aerostructures Corporation (Gulfstream IV-SP wing),
Northrop Grumman Corporation (Gulfstream V wing revenue share partner through
its Vought Aircraft Company subsidiary and Gulfstream IV-SP nacelle supplier),
Fokker Aviation B.V. (Gulfstream V empennage revenue share partner), The B.F.
Goodrich Co. (Gulfstream IV-SP and Gulfstream V landing gears and air speed
sensors), Sundstrand Corp. (Gulfstream V electrical system and actuators) and
AlliedSignal, Inc. (Gulfstream IV-SP and Gulfstream V auxiliary power unit and
environmental control systems and Gulfstream IV-SP electrical systems). Fokker
Aviation B.V., the provider of the Gulfstream V empennage, was formed upon the
bankruptcy of Fokker Aerospace. To date, the Company has not suffered any
adverse impact from the Fokker reorganization and does not anticipate any future
adverse impact due to the announced Stork NV acquisition of Fokker Aviation B.V.
See "Risk Factors -- Purchased Materials and Equipment".
Suppliers are selected on the basis of their ability to produce high quality
systems and components at competitive prices on a timely basis. The Company has
had continuing relationships with most of its major suppliers since the
inception of the Gulfstream II program in 1966. Ongoing supplier relationships
are dependent on cooperation, performance and the maintenance of competitive
pricing. From time to time suppliers have been replaced as the quality of such
suppliers' products declined or the costs associated therewith failed to remain
competitive. While the Company's production activities have not been materially
affected by the inability to obtain essential components, and while it maintains
business interruption insurance in the event that such a disruption should
occur, the failure of certain suppliers or subcontractors to meet the Company's
performance specifications, quality standards or delivery schedules could
adversely impact the Company's operations. In addition, the Company's ability to
significantly increase its production rate could be limited by the ability or
willingness of its key suppliers to
42
<PAGE>
increase their delivery rates; however, in the past, the Company's ability to
maintain or increase production has not been significantly limited by suppliers'
performance. In addition, under many of its supply contracts, the Company is
permitted to increase or decrease the quantity of components or systems being
ordered at no cost on six months' notice.
The Company has negotiated multi-year agreements with its major Gulfstream
IV-SP suppliers, who account for approximately 70% of the purchased material
cost used in a Gulfstream IV-SP. All of the agreements allow schedule
flexibility and have no cost termination clauses at the Company's option,
subject to certain conditions and prior notification periods. In aggregate, the
terms of these agreements provide for what is anticipated to be slightly
deflationary pricing through 1999. Contracts are in place for over 95% of the
purchased material required for the Gulfstream V program. Supply arrangements
for all major components and systems are under long-term agreements, have annual
delivery commitments based on production requirements and allow schedule
flexibility. The terms of the revenue share agreements with Northrop Grumman
Corporation for the wing and Fokker Aviation B.V. for the empennage continue so
long as the Company is manufacturing the Gulfstream V. All other major supply
contracts have no cost termination clauses at the Company's option, subject to
certain conditions and notification periods.
PAST AIRCRAFT PRODUCT OFFERINGS
GULFSTREAM IV
The Gulfstream IV, launched in 1983, has a range of 4,220 nautical miles and
was the first truly intercontinental business jet aircraft. The Gulfstream IV
was designed and built to incorporate the most current technologies in
aerodynamics, propulsion, digital electronics and automated flight management
systems and represented a significant technological advancement over the
Gulfstream III and every other business jet aircraft available at the time. Like
the Gulfstream IV-SP, the Gulfstream IV is equipped with twin Rolls-Royce Tay
engines and an advanced avionics suite. The Gulfstream IV meets current FAA
Stage 3 and ICAO Chapter 3 noise limits. The Company produced 213 Gulfstream IVs
from 1985 through 1992, all of which are still in service.
GULFSTREAM III
In December 1979, the Company introduced the Gulfstream III, a twin-engine
fanjet aircraft powered by two Rolls-Royce Spey engines with a cabin
accommodating up to 19 passengers, a range of 3,600 nautical miles and a
cruising speed of Mach .80. The Gulfstream III incorporated an advanced design
utilizing NASA developed winglet technology to provide greater range and fuel
efficiency than the Gulfstream II. When production ended in January 1987, 202
Gulfstream IIIs had been built, 99% of which remain in service today.
GULFSTREAM II AND IIB
In 1966, the Company introduced the Gulfstream II, which was the first
business jet aircraft capable of carrying business passengers non-stop,
coast-to-coast. The Gulfstream II is a twin-engine fanjet aircraft powered by
two Rolls-Royce Spey engines with a range of 2,400 nautical miles and a cruising
speed of Mach .80. Beginning in 1981, the Company modified 43 Gulfstream IIs to
Gulfstream IIBs by retrofitting customers' Gulfstream II aircraft with the
Gulfstream III's advanced design wing which enhanced the range capability of the
aircraft to 3,400 nautical miles at Mach .80. When production of the Gulfstream
II ended in December 1979, 256 units had been produced, 95% of which remain in
service. Several specially modified Gulfstream IIs are still used regularly to
train NASA's space shuttle astronauts.
GULFSTREAM I
The Company's product line originated in 1958 with the introduction of the
Gulfstream I, a large twin-engine turboprop powered aircraft built by Grumman
which was the first aircraft of its size and type designed specifically for
business use. The Gulfstream I is powered by Rolls-Royce Dart engines and has a
range of more than 1,700 miles. When production of the Gulfstream I ended in
1966, 200 Gulfstream Is had been built, 72% of which remain in service today.
43
<PAGE>
Since the introduction in 1966 of the Company's first jet aircraft, the
Gulfstream II, Gulfstream jet aircraft have accumulated in excess of 4,000,000
hours of operation. No Gulfstream jet aircraft accident involving serious injury
or substantial aircraft damage has been attributed to aircraft design or
mechanical failure by any investigating government authority in over 20 years.
REGULATION
In order for an aircraft model to be manufactured for sale, the FAA must
issue a Type Certificate and a Production Certificate for the aircraft model
and, in order for an individual aircraft to be operated, an Airworthiness
Certificate. Type Certificates are issued by the FAA when an aircraft model is
determined to meet certain performance, environmental, safety and other
technical criteria. The Production Certificate ensures that the aircraft is
built to specifications approved under the Type Certificate. An Airworthiness
Certificate is issued for a particular aircraft when it is certified to have
been built in accordance with specifications approved under the Type Certificate
for that particular model aircraft. If the FAA were to suspend or rescind the
Type Certificate or the Production Certificate for an aircraft model, sales of
that aircraft model would be adversely affected or terminated. Gulfstream has
never had a Type Certificate or a Production Certificate suspended, nor had any
jet aircraft grounded as the result of regulatory action.
All of the Company's aircraft models comply with all currently applicable
federal laws and regulations pertaining to aircraft noise and engine emissions.
Due to their weight (under 75,000 pounds), all Gulfstream II, III, IV and IV-SP
aircraft are currently exempt from the FAA Stage 3 noise requirements.
Notwithstanding federal requirements, foreign and local jurisdictions and
airport authorities may establish more stringent restrictions pertaining to
aircraft noise. Such local and foreign regulations in several locations
currently restrict the operation of certain jet aircraft, including the
Gulfstream II, IIB and III and certain of their competitors from landing or
taking off during late evening and early morning hours. Each of the Gulfstream
IV, IV-SP and V aircraft produce noise levels below the FAA's Stage 3 and ICAO's
Chapter 3 noise ceilings. The extent to which regulations pertaining to aircraft
noise and engine emissions may continue to be adopted or modified and the effect
they may have on the operation of business jet aircraft cannot be predicted.
EMPLOYEES
The Company has a 29 year history of operation in Savannah, Georgia, and has
access to the skilled labor force from nearby military bases. The Company's
Bethany, Oklahoma and Long Beach, California facilities also attract a similar
quality work force. At June 30, 1996, the Company employed approximately 4,600
persons, of whom approximately 3,390 were employed at the Company's Savannah,
Georgia facility, 60 were employed at the Brunswick, Georgia facility, 580 were
employed at the Bethany, Oklahoma facility, 360 were employed at the Long Beach,
California facility and 210 were employed at the Mexicali, Mexico facility. None
of the workers at the Savannah, Brunswick, Long Beach, or Mexicali facilities
are unionized. On August 12, 1996, the Company entered into a new 5-year
contract with the International Union of United Automobile Aerospace &
Agricultural Implement Workers of America, which represents certain of the
Company's employees at its Bethany, Oklahoma plant. The Company considers its
overall employee relations to be good.
PROPERTIES
The Company's production and service facilities are located in Savannah and
Brunswick, Georgia; Bethany, Oklahoma; Long Beach, California; and Mexicali,
Mexico.
The Savannah facility occupies approximately 1,450,000 square feet,
including a new 200,000 square foot service center, and is the location of the
Company's executive offices. Functions performed at the Savannah complex include
Gulfstream IV-SP and Gulfstream V manufacturing, assembly and completion,
product support, service, repair and overhaul of customer-owned Gulfstream
aircraft and new product design, engineering and development. The Savannah
completion center, occupying approximately 120,000 square feet, is adjacent to
the aircraft production line and simultaneously accommodates completion of up to
10 Gulfstream IV-SP or 6 Gulfstream V aircraft. All of the land and buildings
constituting the Savannah facility are owned by the Company.
Any prolonged disruption in the use of the Savannah facility due to the
destruction of or material damage to such facility, or other reasons, could have
an adverse effect on the Company's operations.
44
<PAGE>
The Company maintains property and business interruption insurance to protect
against any such disruption, but there can be no assurance that the proceeds of
such insurance would be adequate to repair or rebuild its facilities in such
event or to compensate the Company for losses incurred during the period of any
such disruption.
The Company leases approximately 51,500 square feet of hangar and adjacent
office space in Brunswick, Georgia. The Brunswick facility is both a service
center facility and completion facility and has the capacity for four aircraft.
The lease term, which is renewable annually at Gulfstream's option, extends to
May 1998.
The Bethany facility occupies approximately 500,000 square feet, all of
which are in buildings leased under leases expiring in 2007. At the Bethany
facility, the Company manufactures over 17,000 different detail parts for each
of the Gulfstream IV-SP and the Gulfstream V.
The 250,000 square foot Long Beach facility consists of a completion
facility, which has capacity for 8 aircraft and a service center facility which
has capacity for 10 aircraft. The Long Beach facility also has facilities for
design and administrative functions. The Company owns the buildings and leases
the land at the Long Beach facility; the lease expires in 2014. The Company
recently expanded its completion capacity at the Long Beach facility through the
lease of an additional 22,000 square feet at an adjacent facility.
The Company's Mexicali, Mexico plant occupies approximately 50,000 square
feet of leased space under leases expiring in December 1998 and assembles
electrical products, including wire harnesses, used in Gulfstream production,
and performs repair and service operations, as well as other electrical
subcontracting.
During the last five and one half years (January 1, 1991 to June 30, 1996),
the Company has invested approximately $70 million in capital improvements at
its facilities. Such capital improvements are expected to enhance the Company's
ability to build and service its aircraft. The Company believes that its
facilities are adequate for its present requirements.
PATENTS AND TRADEMARKS
While the Company pursues an active policy of seeking patents for new
products and designs, it believes that its success is primarily dependent upon
the recognition of the quality of its aircraft and upon the Company's
management, technical knowledge, engineering skill, production techniques and
service capabilities. The Company does not believe that the expiration of any
patent would have a material adverse effect on its business.
The Company owns and uses a number of registered trademarks around the world
relating to the name GULFSTREAM (including Gulfstream Shares-TM-) which are used
in connection with its business. The Company believes such trademarks are widely
recognized as representing its advanced design and related technologies. The
Company is not aware of any actions against its trademarks and has not received
any notice or claims of infringement in respect of its trademarks.
ENVIRONMENT
The Company uses hazardous substances and generates solid and hazardous
waste in the ordinary course of its business. Consequently, the Company's
operations, in common with those of the industry generally, are subject to
various laws and regulations governing, among other things, the handling and
disposal of solid and hazardous materials, wastewater discharges and the
remediation of contamination associated with the use and disposal of hazardous
substances. Because of the nature of its business, the Company has incurred, and
will continue to incur, costs relating to compliance with such environmental
laws. Although the Company believes that it is in substantial compliance with
such environmental requirements, and has not in the past been required to incur
material costs in connection therewith, there can be no assurance that the
Company's costs to comply with such requirements will not increase in the
future. Although the Company is unable to predict what legislation or
regulations may be adopted in the future with respect to environmental
protection and waste disposal, compliance with existing legislation and
regulations has not had, and is not expected to have, a material adverse effect
on its capital expenditures, results of operations, or competitive position.
45
<PAGE>
For the year ended December 31, 1995, the Company's expenses for remedial
environmental matters and capital outlays for environmental compliance
aggregated less than $1.0 million.
The Company received in 1992, at its Long Beach facility, two inquiries from
the U. S. Environmental Protection Agency (the "EPA") regarding (i)
documentation errors subject to the Resource Conservation and Recovery Act, and
(ii) possible shipments of hazardous wastes to two storage facilities whose
operators are under EPA investigation pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act. The Company estimates
that potential fines regarding these inquires, and a 1991 soil contamination
inquiry at the Oklahoma facility, will not have a material adverse effect on the
Company's results of operations.
The Company has been named as a Potentially Responsible Party with respect
to two cleanup sites, one operated by the Mountaineer Refinery and the other
operated by Omega Chemical Company. Based on the Company's limited involvement
with such sites, the Company believes that it will not incur material costs in
respect of such cleanup sites.
The Company is currently engaged in the monitoring and cleanup of certain
groundwater at its Savannah facility under the oversight of the Georgia
Department of Natural Resources. The principal expenses for the cleanup have
been incurred. The Company believes other aspects of the Savannah facility, as
well as other Gulfstream properties, are being carefully monitored and are in
substantial compliance with current federal, state and local environmental
regulations.
Like the Savannah facility, certain of the Company's other facilities have
been in operation for a number of years and, over such time, these facilities
have used substances or generated and disposed of wastes which are or may be
considered hazardous. As a result, it is possible that the Company could become
subject to additional environmental liabilities in the future in connection with
these sites.
LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit instituted on December 12, 1992 and
pending in Oklahoma styled KMC LEASING, INC. ET AL. V. GULFSTREAM AEROSPACE
CORPORATION ET AL. (District Court, State of Oklahoma, Oklahoma County, Case No.
CJ 92 10313). This action, which may be certified as a class action on behalf of
twin-engine Commander aircraft owners, arises from claims relating to potential
damage from corrosion and fatigue fractures on wing spars and requirements to
inspect and possibly replace wing spars in those aircraft. While there are
currently more than 2,500 twin engine Commander aircraft owners, the Company
does not believe all of these owners would qualify as members of any such class.
This product line was discontinued in 1985 and sold during 1989. This lawsuit is
not an insured claim. Other than an allegation that the plaintiffs' damages
exceed jurisdictional requirements, the plaintiffs have not specified a dollar
value of the extent of their damages. The Company believes it has meritorious
defenses to all these claims based upon the facts and merits that underlie them.
The Company does not expect the results in this action to have a material
adverse effect on its financial condition or results of operations. Although
there are other lawsuits pending involving the Company's discontinued light
aircraft product lines, those claims are (i) covered by the General Aviation
Revitalization Act of 1994, which is a federal statute of repose, (ii) the
responsibility of the purchasers of those light aircraft product lines, or (iii)
covered by the Company's product liability insurance. There are no accident or
incident claims pending with respect to any Gulfstream jet aircraft.
The Company maintains product liability insurance coverage of $250 million
per occurrence and in the aggregate per year, subject to $10 million of
self-insurance retention. Management believes this coverage is adequate. The
Company has paid less than $100,000, other than claim expenses and insurance
premiums, with respect to product liability occurrences taking place since
January 1, 1991.
The Company is involved in a tax audit by the Internal Revenue Service
covering the years ended December 31, 1990 and 1991. The revenue agent's report
includes several proposed adjustments involving the deductibility of certain
compensation expense and items relating to the capitalization of the Company as
well as the allocation of the purchase price in connection with the Acquisition,
including the treatment of advance payments with respect to and the cost of
aircraft that were in backlog at the time of the Acquisition and the
amortization of amounts allocated to intangible assets. The Company believes
46
<PAGE>
that the ultimate resolution of these issues will not have a material adverse
effect on its financial statements because the financial statements already
reflect what the Company currently believes is the expected loss of benefit
arising from the resolution of these issues. However, because the revenue
agent's report is proposing adjustments in amounts materially in excess of what
the Company has reflected in its financial statements and because it may take
several years to resolve the disputed matters, the ultimate extent of the
Company's expected loss of benefit and liability with respect to these matters
cannot be predicted with certainty and no assurance can be given that the
Company's financial position or results of operations will not be adversely
affected.
The Company is also involved in other litigation, including product and
general liability matters, and governmental proceedings arising in the ordinary
course of its business, the ultimate disposition of which in the opinion of the
Company's management, will not have a material adverse effect on the financial
position or results of operations of the Company.
47
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the directors and executive officers of each of the
Company, GAI and GFSC as of the date hereof. The Company does not have a Chief
Executive Officer, but operates principally through a five-member management
committee (the "Management Committee") chaired by Theodore J. Forstmann and
comprised of four other key executives who share reponsibility for strategic
decisions, management and oversight of the Company's operations. Each Management
Committee member is also individually responsible for leadership of specific
organizations within the Company, such as engineering and manufacturing, finance
and information technology, sales and marketing and service. Officers serve at
the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ---------------------------------------------------------
<S> <C> <C>
Theodore J. Forstmann (a),(g),(h)............... 56 Chairman of the Board and Director of the Company;
Chairman of the Management Committee
Fred A. Breidenbach (a),(g)..................... 49 President, Chief Operating Officer and Director of the
Company;
Management Committee member
Bryan T. Moss (e)............................... 56 Vice Chairman of the Board and Director of the Company;
Vice Chairman and Chief Executive Officer of GAI;
Management Committee member
W.W. Boisture, Jr. (a),(f)...................... 51 Executive Vice President and Director of the Company;
President and Chief Operating Officer of GAI;
Management Committee member
Chris A. Davis.................................. 46 Executive Vice President, Chief Financial Officer and
Secretary of the Company;
Executive Vice President and Chief Financial Officer of
GAI;
President and Chief Operating Officer of GFSC;
Management Committee member
William R. Acquavella (f)....................... 58 Director
Robert Anderson (b),(g)......................... 75 Director
Charlotte L. Beers (e).......................... 61 Director
Thomas D. Bell, Jr. (e)......................... 46 Director
Nicholas C. Forstmann (d),(e),(h)............... 49 Director
Sandra J. Horbach (a),(c),(f)................... 36 Director
Drew Lewis (g).................................. 64 Director
Allen E. Paulson (f)............................ 74 Director
Roger S. Penske (b),(e)......................... 59 Director
Colin L. Powell (f)............................. 59 Director
Gerard Roche (c),(d),(g)........................ 65 Director
Donald H. Rumsfeld (b),(e)...................... 64 Director
George P. Shultz (f)............................ 75 Director
Robert S. Strauss (c),(d),(g)................... 77 Director
</TABLE>
- --------------
(a) Member of Executive Committee.
48
<PAGE>
(b) Member of Audit Committee.
(c) Member of Compensation Committee.
(d) Member of Employee Benefit Plan Committee.
(e) Class I director.
(f) Class II director.
(g) Class III director.
(h) Nicholas C. Forstmann and Theodore J. Forstmann are brothers.
Theodore J. Forstmann has served as Chairman of the Board of the Company
since November 1993. Mr. Forstmann has been a general partner of FLC
Partnership, L.P. since he co-founded Forstmann Little in 1978. He is also a
director of General Instrument Corporation ("General Instrument") and Department
56, Inc. ("Department 56").
Fred A. Breidenbach has served as President, Chief Operating Officer and a
director of the Company since April 1993. Prior to joining the Company, he was
Vice President and General Manager of General Electric Co.'s Electronics Systems
Division from 1991 to 1993. He is also a director of the Aerospace Industries
Association of America, Inc. and the Vice Chairman of the General Aviation
Manufacturing Association.
Bryan T. Moss has served as Vice Chairman of the Company and Chief Executive
Officer of GAI since March 1995. Prior to joining the Company, he was President
of Bombardier Business Aircraft Division where he was responsible for the
Challenger and Global Express business jet programs from 1989 to March 1995.
W.W. Boisture, Jr. has served as Executive Vice President since February
1994 and as a director of the Company since February 1995. He is also President
and Chief Operating Officer of GAI. Prior to joining the Company, he was
President and Chief Executive Officer of British Aerospace Corporate Jets from
October 1992 through 1993 where he was responsible for the "Hawker" business jet
product line and its worldwide marketing, sales and support organization. From
early 1990 to 1992, Mr. Boisture was Chairman, President and Chief Executive
Officer of Butler Aviation, a nationwide aviation services company.
Chris A. Davis has served as Executive Vice President and Chief Financial
Officer of the Company since July 1993 and Secretary of the Company since August
8, 1996. She is also President and Chief Operating Officer of GFSC. Prior to
joining the Company, she was Chief Financial Officer for General Electric Co.'s
Electronic Systems Division from 1990 to 1993.
William R. Acquavella has been a director of the Company since March 1990.
He has been the owner and operator of Acquavella Galleries, Inc. and Acquavella
Contemporary Art, Inc. since 1963 and the general partner of Acquavella Modern
Art since May 1990.
Robert Anderson has been a director of the Company since March 1990. He has
served as Chairman Emeritus of Rockwell Corporation since February 1990. Mr.
Anderson is also a director of Optical Data Systems, Inc. and the Timken
Company.
Charlotte L. Beers has been a director of the Company since July 1993. She
has been Chairman of Ogilvy & Mather Worldwide, Inc. ("Ogilvy & Mather") since
April 1992 and was Chief Executive Officer of Ogilvy & Mather from April 1992 to
September 1996. Ms. Beers was Chairman/Chief Executive Officer of Thatham RSCG
from 1982 to 1992.
Thomas D. Bell, Jr. has been a director of the Company since April 1994. Mr.
Bell has been President and Chief Executive Officer of Burson-Marsteller, a
division of Young & Rubicam Inc., since May 1995.
49
<PAGE>
Mr. Bell was Vice Chairman of the Company from April 1994 to April 1995. From
1991 to 1994, Mr. Bell served as Vice Chairman and Chief Operating Officer of
Burson-Marsteller. Mr. Bell is also a director of Lincoln National Corporation.
Nicholas C. Forstmann has been a director of the Company since March 1990.
He has been a general partner of FLC Partnership, L.P. since he co-founded
Forstmann Little in 1978. He is also a director of General Instrument and
Department 56.
Sandra J. Horbach has been a director of the Company since September 1994.
She has been a general partner of FLC Partnership, L.P. since January 1993. She
joined Forstmann Little in August 1987. She is also a director of Department 56.
Drew Lewis has been a director of the Company since March 1990. He has
served as Chairman and Chief Executive Officer of Union Pacific Corporation
since October 1, 1987. He is also a director of American Express Company,
Dal-Tile International Inc., Ford Motor Company, Lucent Technologies, FPL Group,
Inc., Gannett Co., Inc., Mafco Consolidated Group Inc., and Union Pacific
Resources Group, Inc.
Allen E. Paulson has been a director of the Company since March 1990. He
served as Chairman, Chief Executive Officer and a director of Gulfstream
Aerospace Corporation (a Georgia corporation and wholly owned indirect
subsidiary of the Company) and its predecessors from 1978, when he purchased the
corporate jet division of Grumman Aerospace and began Gulfstream American (a
predecessor of the Company), to 1992. He has also served as Chairman of the
Company from March 1990 and Chief Executive Officer of the Company from January
1992 to August 1992. He is also a director of Cardio-Dynamics International
Corp. and Full House Resorts, Inc.
Roger S. Penske has been a director of the Company since December 1993. Mr.
Penske has been Chairman, Chief Executive Officer, President and a director of
Penske Transportation, Inc. since 1969 and Chairman, Chief Executive Officer and
a director of Detroit Diesel Corporation since 1987. Mr. Penske is also a
director of Penske Mortorsports, Inc., Philip Morris Companies Inc. and General
Electric Co.
Colin L. Powell has been a director of the Company since May 1996. Mr.
Powell served as the Chairman of the Joint Chiefs of Staff from October 1989 to
September 1993. Prior to that, Mr. Powell served as the National Security
Adviser from December 1987 to January 1989. Since his retirement from military
service on September 30, 1993, Mr. Powell has written his autobiography, "My
American Journey".
Gerard Roche has been a director of the Company since January 1993. Mr.
Roche has been Chairman of Heidrick & Struggles, Inc. since 1981. Mr. Roche is
also a director of Morrison Knudsen Corporation.
Donald H. Rumsfeld has been a director of the Company since January 1993.
Mr. Rumsfeld has been in private business since August 1993. From October 1990
to August 1993, Mr. Rumsfeld served as Chairman, Chief Executive Officer and
President of General Instrument. Mr. Rumsfeld is also a director of ABB AB,
Gilead Sciences, Inc., Kellogg Company, Metricom, Inc. and Sears Roebuck & Co.
He is currently on leave of absence as a director of Tribune Company.
George P. Shultz has been a director of the Company since November 1991. Mr.
Shultz served as the United States Secretary of State from July 1983 until
January 1989 and is a Distinguished Fellow of the Hoover Institute. Mr. Shultz
is also a director of AirTouch Communications, Inc. and Gilead Sciences, Inc.
Robert S. Strauss has been a director of the Company since April 1993. Mr.
Strauss is a founder of and partner in the law firm of Akin, Gump, Strauss,
Hauer & Feld ("Akin Gump") and served as U.S. Ambassador to the Soviet Union,
and upon its dissolution, to the Russian Federation from August 1991 to November
1992. In November 1992, Mr. Strauss returned to Akin Gump. Mr. Strauss is also a
director of Archer-Daniels-Midland Co. and General Instrument.
50
<PAGE>
INTERNATIONAL ADVISORY BOARD
In 1994, the Company established an International Advisory Board of 16
prominent international business executives and senior statesmen to counsel the
Company and assist in its strategic initiatives to further penetrate
international markets. The International Advisory Board, which meets twice a
year, is comprised of the following individuals, representing the principal
geographic areas of the world:
<TABLE>
<CAPTION>
NAME PRINCIPAL AFFILIATION GEOGRAPHIC AREA
- ------------------------------------ --------------------------------------------- ----------------------------
<S> <C> <C>
George P. Shultz (Co-Chairman)...... Former U.S. Secretary of State; Distinguished USA
Fellow, Hoover Institute
Robert S. Strauss (Co-Chairman)..... Former Ambassador to the Soviet Union and USA
Russian Federation; Partner, Akin, Gump,
Strauss, Hauer & Feld
Theodore J. Forstmann............... Chairman of the Company and Co-founder of USA
Forstmann Little
Conrad M. Black..................... Chairman and Chief Executive Officer of Canada
Hollinger Inc.
Claudio X. Gonzalez................. Chairman and Chief Executive Officer of Mexico
Kimberly Clark de Mexico, S.A. de C.V.
Gustavo A. Cisneros................. President and Chief Executive Officer of South America
Cisneros Group of Companies
Julio Mario Santo Domingo........... Chairman of the Board of Bavaria, S.A. South America
Alex Wildenstein.................... Chief Executive Officer of Wildenstein & Co. Europe
Karl Otto Pohl...................... Former Head of The Bundesbank; Partner, Sal. Germany
Oppenheim Jr. & Cie
Henry H. Keswick.................... Chairman of Matheson & Co. Limited; Chairman United Kingdom/Europe
of The Hong Kong Association
Lord Jacob Rothschild............... Chairman of J. Rothschild Group United Kingdom/Europe
Fouad Said.......................... Chairman of Unifund Switzerland
Hiroshi Toyokawa.................... President of Okura & Co., Ltd. Japan
David K. P. Li...................... Director and Chief Executive of The Bank of Hong Kong/China
East Asia, Limited
Bernard Duc......................... Senior Partner, H.M.I. Ltd. Southeast Asia
Fouad M.T. Alghanim................. Chairman of Alghanim Group Saudi Arabia
</TABLE>
INFORMATION REGARDING THE BOARD OF DIRECTORS
The Restated Certificate of Incorporation provides for a classified Board of
Directors consisting of three classes. Each class will consist, as nearly as
possible, of one-third of the total number of directors constituting the entire
Board. The term of the initial Class I directors will terminate on the date of
the 1997 annual meeting of stockholders; the term of the initial Class II
directors will terminate on the date of the 1998 annual meeting of stockholders;
and the term of the initial Class III directors will terminate on the date of
the 1999 annual meeting of stockholders. Beginning in 1997, at each annual
meeting of stockholders, successors to the class of directors whose term expires
at that annual meeting will be elected for a three-year term and until their
respective successors are elected and qualified. A director may only be removed
with cause by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock entitled to vote in the election of
directors.
Directors who are neither executive officers of the Company nor general
partners in FLC Partnership, L.P. have been granted options to purchase Common
Stock in connection with their election to the Board. In addition, in 1996 each
of Theodore J. Forstmann and Sandra J. Horbach were granted options
51
<PAGE>
to purchase Common Stock in consideration of extraordinary service to the
Company. See "-- Compensation Committee Interlocks and Insider Participation".
Directors do not receive any fees for serving on the Company's Board, but are
reimbursed for their out-of-pocket expenses arising from attendance at meetings
of the Board and committees thereof.
EXECUTIVE COMPENSATION
The following table sets forth the compensation of each of the members of
the Company's Management Committee, which includes the Chairman of the Board and
the four most highly paid executive officers of the Company who were serving as
executive officers at December 31, 1995 (the "named executive officers") for
fiscal 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------
AWARDS
--------------
ANNUAL COMPENSATION SECURITIES
--------------------------------------- UNDERLYING
OTHER ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION BASE SALARY BONUS* COMPENSATION OPTIONS (#) COMPENSATION
- ---------------------------------------------- ------------ --------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Theodore J. Forstmann ........................ -- -- -- -- --
Chairman of the Board
Bryan T. Moss ................................ $ 619,432(1) $ 638,100(2) -- 675,000 $ 440,375(3)
Vice Chairman of the Board
Fred A. Breidenbach .......................... 500,011 312,500 $ 236,521(4) 19,304(5)
President and COO
W.W. Boisture, Jr. ........................... 274,056 171,875 225,000 2,433(6)
Executive Vice President
Chris A. Davis ............................... 274,056 171,875 187,500 3,000(6)
Executive Vice President and CFO
</TABLE>
- ------------------
* Bonuses were paid in January 1996 in respect of fiscal 1995 under a
management incentive plan.
(1) Represents base salary, plus commissions paid for 1995 sales of aircraft.
(2) Represents a management incentive plan bonus ($312,500) and a signing bonus
($325,600).
(3) Represents a nonrecurring payment in respect of the value of vested stock
options with previous employer ($437,375) and the Company's contribution to
the 401(k) plan ($3,000).
(4) Represents tax gross-up relating to vesting of annuity contract purchased
by the Company for Mr. Breidenbach in 1993.
(5) Represents the Company's contribution to an executive life insurance plan
($16,304) and the 401(k) plan ($3,000).
(6) Represents the Company's contribution to the 401(k) plan.
52
<PAGE>
The following table sets forth the stock option grants to each of the named
executive officers for fiscal 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE/ OPTION TERM(2)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% 10%
- --------------------------------- ------------ ---------------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Theodore J. Forstmann............ -- -- -- -- -- --
Bryan T. Moss.................... 675,000(3) 38.79% $ 4.10 03/14/2005 $1,740,466 $4,410,682
Fred A. Breidenbach.............. -- -- -- -- -- --
W.W. Boisture, Jr................ 150,000(4) 8.62% $ 4.10 02/06/2005 386,770 980,145
75,000(5) 4.31% $ 4.10 06/30/2005 193,385 490,073
Chris A. Davis................... 187,500(5) 10.78% $ 4.10 06/30/2005 483,463 1,225,181
</TABLE>
- ------------------
(1) All awards listed on table were in the form of option grants made pursuant
to the Company's Stock Option Plan.
(2) Sets forth potential option gains based on assumed annualized rates of
stock price appreciation from the exercise price at the date of grant of 5%
and 10% (compounded annually) over the full term of the grant with
appreciation determined as of the expiration date. The 5% and 10% assumed
rates of appreciation are mandated by the rules of the Securities and
Exchange Commission, and do not represent the Company's estimate or
projection of future Common Stock prices.
(3) This grant was made on March 14, 1995. One fourth of the total number of
options granted became exercisable immediately, another fourth became
exercisable on the first anniversary of the grant date, and an additional
fourth is exercisable on each of the second and third anniversaries of the
grant date.
(4) This grant was made on February 6, 1995. One third of the total number of
options granted became exercisable on the first anniversary of the grant
date; an additional one third is exercisable on each of the second and
third anniversary dates.
(5) This grant was made on June 30, 1995. One third of the total number of
options granted was exercisable on the first anniversary of the grant date;
an additional one third is exercisable on each of the second and third
anniversary dates.
53
<PAGE>
The following table sets forth the stock option exercises for the fiscal
year ended December 31, 1995 and the stock option values as of December 31,
1995, in each case, for each of the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND OPTION VALUES AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE (#) ($)*
EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ------------- ----------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Theodore J. Forstmann....... -- -- -- -- -- --
Bryan T. Moss............... -- -- 168,750 506,250 3,189,375 9,568,125
Fred A. Breidenbach......... -- -- 703,125 234,375 13,985,156 4,661,719
W.W. Boisture, Jr........... -- -- 187,500 412,500 3,543,750 7,796,250
Chris A. Davis.............. -- -- 196,875 253,125 3,915,844 4,849,031
</TABLE>
- --------------
* Sets forth values for "in the money" options that represent the positive
spread between the respective exercise/base prices of outstanding stock
options and the value of the Company's Common Stock as of December 31, 1995
based on an assumed initial public offering price of $23.00 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Theodore J. Forstmann, Sandra J. Horbach and Daniel F. Akerson administered
the Company's compensation program during 1995. Mr. Forstmann is the Chairman of
the Company and Ms. Horbach served as Vice President, Assistant Treasurer and
Assistant Secretary of the Company until August 8, 1996. Mr. Akerson resigned as
a director of the Company in March 1996. On August 8, 1996, the Company
appointed a new Compensation Committee to administer the cash portion of the
Company's compensation program, comprised of Sandra J. Horbach, Gerard Roche and
Robert S. Strauss, and a new Employee Benefit Plan Committee, to administer the
Company's employee benefit plans, comprised of Nicholas C. Forstmann, Gerard
Roche and Robert S. Strauss. Theodore J. Forstmann, Sandra J. Horbach and
Nicholas C. Forstmann are general partners of FLC Partnership, L.P. Daniel F.
Akerson was a general partner of FLC Partnership, L.P. until his withdrawal in
March 1996.
Under a usage agreement Gulfstream pays an affiliate of FLC Partnership,
L.P. for use of a Gulfstream IV in connection with sales demonstrations,
customer support and other Gulfstream business. Total payments for 1993, 1994
and 1995 and the first six months of 1996 were $4.6 million, $2.3 million, $2.3
million and $1.2 million, respectively. In August 1996, Gulfstream entered into
agreements with Mr. Theodore J. Forstmann pursuant to which Gulfstream will
provide Mr. Forstmann with the use of a Gulfstream V for a period of ten years.
Until the Gulfstream V becomes available, Gulfstream will make available to Mr.
Forstmann a Gulfstream IV (by purchasing at fair market value, or assuming a
lease at fair market value for, a Gulfstream IV from an affiliate of FLC
Partnership, L.P.). Mr. Forstmann has agreed to pay Gulfstream up to $1.0
million annually for non-Company use of the aircraft. If Mr. Forstmann is no
longer serving as a director or official of Gulfstream, he has agreed to
reimburse Gulfstream $1,800 per hour for all use of the aircraft, or other such
rate required so as not to exceed FAA regulatory requirements.
Gulfstream purchased approximately $1.7 million, $1.5 million and $1.8
million in inventory items relating to lighting from Grimes Aerospace Corp., an
affiliate of FLC Partnership, L.P., during 1993, 1994 and 1995 and has purchased
approximately $0.9 million in inventory in 1996 pursuant to existing purchase
orders. During 1994, Gulfstream sold three aircraft on normal commercial terms
for an aggregate purchase price totaling $58.6 million to two corporations whose
presidents are directors of the Company and also sold a Gulfstream II to an
affiliate of FLC Partnership, L.P., for $6.7 million. From time to time the
Company provides maintenance and support services, all on standard commercial
terms, to FL Aviation Corp., an affiliate of FLC Partnership, L.P. that operates
Gulfstream aircraft. For providing such services Gulfstream was paid
approximately $0.2 million, $0.5 million, $0.5 million and
54
<PAGE>
$0.1 million in 1993, 1994, 1995 and the first six months of 1996, respectively.
Moran Printing, a company owned by relatives of Theodore J. Forstmann and
Nicholas C. Forstmann, has a 3 year contract (which commenced in November 1995)
to provide printing services on standard commercial terms to the Company. For
the first six months of 1996, the Company received services and paid $633,458
therefor, under such contract. The Company believes the terms of the
transactions described in this paragraph are at least as favorable to the
Company as those which could be obtained from an unrelated third party.
The Forstmann Little Partnerships are entitled to the benefits of the
Registration Rights Agreement described under "Shares Eligible For Future Sale
- -- Registration Rights". Each director and officer who currently holds options
exercisable for Common Stock is entitled to the benefits of a stockholder's
agreement described under "-- Stock Options". In May 1996, in consideration of
extraordinary service to the Company, Theodore J. Forstmann and Sandra J.
Horbach received options to purchase 375,000 and 75,000 shares of Common Stock,
respectively, in each case at an exercise price of $4.10 per share.
STOCK OPTIONS
STOCK OPTION PLAN
GENERAL. The following summary description of the Gulfstream Aerospace
Corporation Stock Option Plan (the "Stock Option Plan") does not purport to be
complete and is qualified in its entirety by the full text of the Stock Option
Plan.
On September 12, 1990, the Board of Directors of the Company, and the
Company's stockholders, adopted the Stock Option Plan. The Stock Option Plan
provides for the granting of options to purchase shares of Common Stock to any
employee or director of, or consultant or advisor to, the Company or its
subsidiaries, which options are not intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). While all employees (approximately 4,600 persons) are eligible to
participate under the Stock Option Plan, the Company has historically granted
options to only a portion of its employees. Generally, the Company's current
practice is to limit option grants to members of management, directors and
advisors of the Company. No options may be granted under the Stock Option Plan
after September 12, 2010. The maximum number of shares of Common Stock which can
be granted under the Stock Option Plan is 8,218,104; at June 30, 1996, options
for approximately 7,485,166 shares of Common Stock were outstanding under the
Stock Option Plan. In the event that any option granted under the Stock Option
Plan is terminated and unexercised as to any shares of Common Stock covered by
the option (other than due to adjustments made by the Committee (as defined
below) because of merger, consolidation, reorganization, recapitalization, stock
dividend, stock split-up or other substitution of securities), such shares will
thereafter be available for the granting of future options under the Stock
Option Plan.
The purpose of the Stock Option Plan is to provide financial incentives to
key employees of the Company and its subsidiaries and such consultants, advisors
and members of the Board of Directors whose entrepreneurial and management
talents and commitments are essential for the continued growth and expansion of
the Company's business. The Stock Option Plan provides that options will be
granted by a committee appointed by the Company's Board of Directors (the
"Committee"). The Committee will determine the terms and conditions of options
granted pursuant to the Stock Option Plan, including the per share exercise
price and the time or times at which the options become exercisable. While the
terms of each option under the Stock Option Plan may differ from others granted
under the Stock Option Plan, in no event will the term of any option granted
under the Stock Option Plan exceed ten years and one day. Under the Stock Option
Plan, the options are exercisable during an optionee's lifetime only by the
optionee and are not transferable except, in certain cases, by will to certain
permitted transferees who agree to be bound by the Stock Option Agreements (as
defined below) or under the laws of descent and distribution of the state of
domicile of the optionee if the optionee dies intestate. Except as otherwise
provided in the Stock Option Agreement, the options are not exercisable after
the termination of the optionee's employment or directorship. To exercise an
option, the optionee must deliver payment in full for the shares with respect to
which the option is being
55
<PAGE>
exercised and a fully executed Stockholder's Agreement (as described below). The
Stock Option Plan is currently administered by the Employee Benefit Plan
Committee of the Board of Directors of the Company.
The Board of Directors of the Company may amend, suspend or terminate the
Stock Option Plan at any time provided that (except for adjustments due to
merger consolidation, reorganization, recapitalization, stock dividend, stock
split-up or other substitution of securities) no amendment may: (a) increase the
total number of shares which may be issued and sold pursuant to the exercise of
options granted under the Stock Option Plan, (b) extend the period for granting
or exercising any option, or (c) change the classes of persons eligible to
receive options, unless such amendment is made by or with the approval of a
majority of the outstanding shares of Common Stock. The rights of an optionee
under any option granted prior to an amendment, suspension or termination of the
Stock Option Plan may not be adversely affected by Board action without the
optionee's consent.
STOCK OPTION AGREEMENTS. The options which have been granted under the
Stock Option Plan have been granted pursuant to stock option agreements ("Stock
Option Agreements"), and each option is exercisable into one share of Common
Stock at a price set forth in each Stock Option Agreement. The options generally
vest and become exercisable in three equal amounts on each of the first, second
and third anniversaries of the grant date, or in four equal amounts on the grant
date and each of the first, second and third anniversaries of the grant date.
Certain of the options were fully vested and exercisable on the grant date.
Generally, the unvested portion of an option expires on the date of the
optionee's termination of employment, and vested options expire after the
termination of employment as described below.
Except as set forth in the individual Stock Option Agreements, an option may
not be exercised after termination of the optionee's employment. The Stock
Option Agreements generally provide for the redemption by the Company, at the
Company's option, of the vested portion of an option in the event of a
termination or permit the optionee to exercise such portion following the
termination within a period of time specified in such Stock Option Agreement.
The option expires at the end of such period of time.
The Stock Option Agreements provide that the Company will notify the
optionee within a specified number of days prior to a "Terminating Event" or a
"Partial Sale." A Terminating Event includes (a) the merger or consolidation of
the Company into another corporation (other than a merger or consolidation in
which the Company is the surviving corporation and which does not result in a
capital reorganization, reclassification or other change of the then outstanding
shares of Common Stock), (b) liquidation of the Company, (c) sale to a third
party of all or substantially all of the Company's assets or (d) sale to a third
party of Common Stock (including through one or more public offerings); but only
if, in the case of the events described in (a), (b) and (d), the Forstmann
Little Partnerships cease to own a specified percentage (ranging from zero to
51%, depending on the particular Stock Option Agreement) of the outstanding
shares of the voting stock of the Company. A Partial Sale means a sale by the
Forstmann Little Partnerships of all or a portion of their shares of Common
Stock (including through a public offering) to a third party (other than a
Terminating Event). Upon receipt of a notice of a Partial Sale, the optionee
may, within a specified period of time after receiving such notice, exercise his
or her options only for purposes of participating in the Partial Sale, whether
or not such options were otherwise exercisable, with respect to the excess, if
any, of (a) the number of shares with respect to which the optionee would be
entitled to participate in the Partial Sale under the Stockholder's Agreement,
which permits proportional participation with the Forstmann Little Partnerships
in a public offering or sale to a third party (as described below), over (b) the
number of shares previously issued upon exercise of such options and not
previously disposed of in a Partial Sale. Upon receipt of a notice of a
Terminating Event, the optionee may, within a specified period of time after
receiving such notice, exercise all or part of his or her options, whether or
not such options were otherwise exercisable. In connection with a Terminating
Event involving the merger, consolidation or liquidation of the Company or the
sale of Common Stock by the Forstmann Little Partnerships, the Company, in the
Committee's discretion, may redeem the unexercised portion of the options, in
lieu of permitting the optionee to exercise the options, for a price equal to
the price received per share of Common Stock in the Terminating Event, less the
exercise price of the options. Any
56
<PAGE>
unexercised portion of an option will terminate upon the consummation of a
Terminating Event, unless the Company provides for the continuation thereof. In
the event a Terminating Event or Partial Sale is not consummated, any option
which the optionee had exercised in connection with such Terminating Event or
Partial Sale will be deemed not to have been exercised and will be exercisable
thereafter only to the extent it would have been exercisable if notice of such
Terminating Event or Partial Sale had not been given to the optionee. The
optionee has no independent right to require the Company to register under the
Securities Act the shares of Common Stock subject to such options.
STOCKHOLDER'S AGREEMENT. Upon exercise of an option (or portion thereof)
under the Stock Option Plan, an optionee is required to enter into a
Stockholder's Agreement with the Company. The form of Stockholder's Agreement
currently contemplated to be used in connection with the Stock Option Plan
governs the optionee's rights and obligations as a stockholder (the
"Stockholder"). The Stockholder's Agreement provides that, generally, the shares
issued upon exercise of the options may not be sold, transferred, assigned,
exchanged, pledged, encumbered or otherwise disposed of, except as specifically
provided in the Stockholder's Agreement.
The Stockholder's Agreement provides that the Stockholder shall participate
proportionately in any sale by the Forstmann Little Partnerships of all or a
portion of their shares of Common Stock to any person who is not a partner or
affiliate thereof, and the Stockholder shall participate proportionately in a
public offering of shares of Common Stock by the Forstmann Little Partnerships,
by selling the same percentage of the Stockholder's shares that the Forstmann
Little Partnerships are selling of their shares. The sale of shares of Common
Stock in such a transaction must be for the same price and otherwise on the same
terms and conditions as the sale by the Forstmann Little Partnerships. If the
Forstmann Little Partnerships sell or exchange all of their Common Stock in a
bona fide arm's-length transaction, the Stockholder is required to sell all of
his, her or its shares for the same price and on the same terms and conditions
as the sale of Common Stock by the Forstmann Little Partnerships and, if
stockholder approval of the transaction is required, to vote his, her or its
shares in favor thereof. If, however, one or more public offerings result in the
Forstmann Little Partnerships owning, in the aggregate, less than 25% of the
then outstanding voting stock of the Company, the Stockholder is generally
entitled to sell, transfer or hold his shares of Common Stock free of the
restrictions and rights contained in the Stockholder's Agreement. It is
anticipated that immediately after the Offerings, the Forstmann Little
Partnerships, in the aggregate, will not own less than such percentage.
The following table sets forth the amount of shares of Common Stock subject
to outstanding options under the Stock Option Plan as of July 31, 1996 held by:
(a) each of the named executive officers; (b) current executive officers; (c)
current directors who are not executive officers; and (d) all current employees,
including all current officers who are not either current executive officers or
named executive officers. The Committee has not determined to grant any other
options under the Stock Option Plan.
57
<PAGE>
GULFSTREAM STOCK OPTION PLAN TABLE
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION UNDERLYING OPTIONS
- --------------------------------------------------------------------------------------------- -------------------
<S> <C>
Theodore J. Forstmann ....................................................................... 375,000
Chairman of the Board
Bryan T. Moss ............................................................................... 675,000
Vice Chairman of the Board
Fred A. Breidenbach ......................................................................... 937,500
President and COO
W. W. Boisture, Jr .......................................................................... 675,000
Executive Vice President
Chris A. Davis .............................................................................. 450,000
Executive Vice President and CFO
All executive officers as a group (5 persons) ............................................... 3,112,500
All current directors who are not executive officers as a group (13 persons) ................ 1,627,140
All employees, including all current officers who are not executive officers as a group (240
persons).................................................................................... 3,262,153
</TABLE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a brief summary of the principal United States
federal income tax consequences under current federal income tax laws relating
to options awarded under the Stock Option Plan. This summary is not intended to
be exhaustive and, among other things, does not describe state, local or foreign
income and other tax consequences.
An optionee will not recognize any taxable income upon the grant of a
nonqualified option and the Company will not be entitled to a tax deduction with
respect to such grant. Upon exercise of an option, the excess of the fair market
value of the Common Stock on the exercise date over the exercise price will be
taxable as compensation income to the optionee. Subject to the optionee
including such excess amount in income or the Company satisfying applicable
reporting requirements, the Company should be entitled to a tax deduction in the
amount of such compensation income. The optionee's tax basis for the Common
Stock received pursuant to the exercise of an option will equal the sum of the
compensation income recognized and the exercise price.
In the event of a sale of Common Stock received upon the exercise of a
nonqualified option, any appreciation or depreciation after the exercise date
generally will be taxed as capital gain or loss and will be long-term gain or
loss if the holding period for such Common Stock was more than one year.
Special rules may apply to optionees who are subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Under certain circumstances the accelerated vesting or exercise of options
in connection with a change of control of the Company might be deemed an "excess
parachute payment" for purposes of the golden parachute tax provisions of
Section 280G of the Code. To the extent it is so considered, the optionee may be
subject to a 20% excise tax and the Company may be denied a tax deduction.
Section 162(m) of the Code generally disallows a federal income tax
deduction to any publicly held corporation for compensation paid in excess of $1
million in any taxable year to the chief executive officer or any of the four
other most highly compensated executive officers who are employed by the Company
on the last day of the taxable year. Compensation attributable to options
granted under the Company's Stock Option Plan prior to the Company's first
stockholder meeting in which directors are elected in the year 2000 should not
be subject to the deduction limitation. The Employee Benefit Plan Committee will
determine whether or not to administer the Stock Option Plan so that
compensation attributable to options granted thereafter would not be subject to
such deduction limitation.
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OTHER OPTIONS
GENERAL. The Company has entered into individual stock option agreements
(the "Non-Plan Option Agreements") with certain of its current and former
directors, advisors and consultants (the "Non-Plan Optionees"). Currently,
Non-Plan Option Agreements exercisable for 2,168,478 shares of Common Stock are
in effect. The options granted pursuant to the Non-Plan Option Agreements are
not intended to qualify as incentive stock options under Section 422 of the Code
and were not issued pursuant to the Stock Option Plan.
Certain of the options were fully vested and exercisable on the date of
grant. The other options generally become exercisable in three equal amounts on
each of the first, second and third anniversaries of the date of grant. No
option may be exercised following the tenth anniversary or, under certain of the
Director Option Agreements, the day after the tenth anniversary of the date of
grant. Certain of the options are transferable during the Non-Plan Optionee's
lifetime to certain permitted transferees, who generally must agree in writing
to be bound by the Non-Plan Option Agreement.
The rights and obligations of the Company and the Non-Plan Optionees are
otherwise similar to those under the Stock Option Agreements, including with
respect to Terminating Events and Partial Sales. Upon exercise of the option,
the optionee is required to enter into a stockholder's agreement with the
Company upon terms substantially similar to the terms contained in the
Stockholder's Agreements.
STOCK APPRECIATION RIGHTS
The Company has granted an aggregate of 21,304 stock appreciation rights
("SARs") to certain employees of the Company ("Grantees") pursuant to SAR
agreements (the "SAR Agreements"). The SARs permit a Grantee whose employment
with the Company has terminated after a specified date (generally one year after
the grant of the SAR) as a result of death or disability, termination without
cause or retirement on or after reaching age 65 to receive with respect to each
vested reference share to which the SAR relates (the "Reference Shares") an
amount in cash (an "Appreciation Amount") equal to the difference between the
base price ($3.52 or $4.10) of the Reference Shares and the market price per
share of the Common Stock.
In the event that the Forstmann Little Partnerships sell all or a portion of
the shares of Common Stock owned by them to a Third Party (including in a public
offering), the Grantees may elect to receive payment in respect of that
percentage of the Grantees' Reference Shares outstanding immediately prior to
the closing of such transaction equal to the same percentage of Reference Shares
of the Grantee then outstanding as the shares of Common Stock the Forstmann
Little Partnerships propose to sell bears to the aggregate number of shares of
Common Stock owned by the Forstmann Little Partnerships. The amount of such
payment is based on the per share Common Stock price received in such
transaction over the SAR base price.
RETIREMENT PLAN
GULFSTREAM PENSION PLAN. The Gulfstream Aerospace Corporation Pension Plan
(the "Pension Plan") was amended and restated effective January 1, 1989. The
Pension Plan is a defined benefit plan maintained by Gulfstream Aerospace
Corporation (a Georgia corporation and wholly owned indirect subsidiary of the
Company) ("Gulfstream Georgia"), for the benefit of the employees of Gulfstream
Georgia and certain of its affiliates that have adopted the Pension Plan (each,
a "Participating Employer"). The Pension Plan covers full time employees who
have attained age 21 and have completed at least one year of service. Pension
costs are borne by the Participating Employer and determined from time to time
on an actuarial basis, with contributions made accordingly.
Participants' benefit accruals under the Pension Plan are based on their
gross amount of earnings, but exclude items such as overtime pay, bonuses and
commissions. Generally, a participant's accrued annual retirement benefit,
assuming retirement at or after age 65 and a minimum of five years of service,
is equal to the total of the benefit accrued for each year of benefit service,
which for each of the named executive officers will be determined for each such
year under the following benefit formula: the sum of (x) 2.65% of the first
$17,000 of the participant's wage base earnings as adjusted by the rate used to
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increase the taxable wage base for old age, survivors and disability insurance
(currently at $20,100) for such year and (y) 3% of the participant's earnings in
excess of such adjusted wage base earnings. Payments made under the Pension Plan
are not subject to any deduction for Social Security or other offset amounts.
Participants who have attained age 60 with at least 5 years of service or age 50
with at least 20 years of service may retire early with an actuarially reduced
retirement benefit. No benefits are payable under the Pension Plan with respect
to a participant who dies prior to commencement of his or her benefits
thereunder subject to certain specified exceptions. Benefits are paid, absent a
contrary election, in the form of a single life annuity or qualified joint and
survivor annuity depending on the marital status of the participant.
Participants vest 100% in their accrued benefits, which are non-forfeitable
except upon death or re-employment of the participant, after five years of
service. Each participant in the Pension Plan is subject to the maximum benefit
limitations provided for under the Code and pursuant to the Pension Plan.
As of December 31, 1995, the estimated annual benefits payable upon
retirement for W.W. Boisture, Jr., Fred A. Breidenbach, Chris A. Davis and Bryan
T. Moss, Jr. are $66,447, $79,738, $97,457 and $17,719, respectively, assuming
retirement at age 65 and the retiree's lifetime annuity payout option without
available modifications.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock (i) immediately prior to the
consummation of the Offerings, giving effect to the 1996 Recapitalization and
(ii) as adjusted to reflect the sale of the shares of Common Stock pursuant to
the Offerings by (a) each person who is known to the Company to be the
beneficial owner of more than five percent of the Company's Common Stock after
the Offerings, (b) each director of the Company, (c) each other named executive
officer, (d) all directors and executive officers of the Company as a group and
(e) each other Selling Stockholder participating in the Offerings. Except as
otherwise indicated, the persons or entities listed below have sole voting and
investment power with respect to all shares of Common Stock beneficially owned
by them, except to the extent such power may be shared with a spouse.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
SHARES BENEFICIALLY OWNED
PRIOR TO OFFERINGS (1) NUMBER OF AFTER OFFERINGS (1)
---------------------------- SHARES --------------------------
NAME NUMBER PERCENT (2) OFFERED (1) NUMBER PERCENT (2)
- ------------------------------------------ ------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
MBO-IV (3)................................ 39,054,596 59.9% 11,795,254 27,259,342 37.9%
Gulfstream Partners (3)................... 10,914,131 16.7% 3,817,588 7,096,543 9.9%
Gulfstream Partners II, L.P. (3).......... 15,234,375 23.4% 5,647,020 9,587,355 13.3%
DIRECTORS: (4)
William R. Acquavella .................... 55,410 * 12,379 43,031 *
Robert Anderson .......................... 111,660 * 24,946 86,714 *
Charlotte L. Beers ....................... 56,250 * 12,566 43,684 *
Thomas D. Bell, Jr. ...................... 225,000 * 50,266 174,734 *
W.W. Boisture, Jr. ....................... 356,250 * 134,042 222,208 *
Fred A. Breidenbach ...................... 937,500 1.4% 209,440 728,060 1.0%
Nicholas C. Forstmann (3)................. 65,203,102 99.9% 21,259,862 43,943,240 61.1%
Theodore J. Forstmann (3)................. 65,578,102 99.9% 21,259,862 44,318,240 61.3%
Sandra J. Horbach (3)..................... 15,309,375 23.4% 5,647,020 9,662,355 13.4%
Drew Lewis (3)............................ 55,410 * 12,379 43,031 *
Bryan T. Moss ............................ 337,500 * 150,797 186,703 *
Allen E. Paulson ......................... 600,000 * 134,042 465,958 *
Roger S. Penske .......................... 75,000 * 25,133 49,867 *
Colin L. Powell .......................... -- -- -- -- --
Gerard Roche ............................. 37,500 * 12,566 24,934 *
Donald H. Rumsfeld (5).................... 112,500 * 25,133 87,367 *
George P. Shultz ......................... 92,910 * 24,945 67,965 *
Robert S. Strauss ........................ 92,910 * 24,945 67,965 *
OTHER NAMED EXECUTIVE OFFICERS:
Chris A. Davis............................ 325,000 * 100,531 224,469 *
All Directors and Executive Officers as a
Group (19 persons) (3)................... 69,123,902 100.0% 22,213,972 46,909,930 62.6%
ADDITIONAL SELLING STOCKHOLDERS:
262 additional Selling Stockholders, each
of whom is selling less than 280,000
shares in the Offerings and will
beneficially own less than 1% of the
outstanding Common Stock after the
Offerings................................ 3,457,806 5.0% 1,003,428 2,454,378 3.3%
</TABLE>
- --------------
* The percentage of shares of Common Stock beneficially owned does not exceed
one percent of the outstanding shares of Common Stock.
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(1) For purposes of this table, information as to the shares of Common Stock
assumes that the Underwriters' over-allotment options are not exercised. For
purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days after the date of this Prospectus. For
purposes of computing the percentage of outstanding shares of Common Stock
held by each person or group of persons named above, any shares which such
person or persons has the right to acquire within 60 days after the date of
this Prospectus is deemed to be outstanding but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person. Each Selling Stockholder other than the Forstmann Little
Partnerships (an "Other Selling Stockholder") has the right to participate
with the Forstmann Little Partnerships in the Offerings. Other Selling
Stockholders may participate in the Offerings with respect to their options
regardless of whether they beneficially own the shares subject to such
options for purposes of this table. Information about the shares being
offered, beneficial ownership after the Offerings and the Selling
Stockholders is subject to change pending final confirmation of Selling
Stockholder participation in the Offerings, prior to pricing of the
Offerings.
(2) Based on 65,224,762 shares of Common Stock outstanding prior to the
consummation of the Offerings and 71,963,882 shares of Common Stock
outstanding after the consummation of the Offerings.
(3) Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership-IV ("MBO-IV"), Gulfstream Partners and Gulfstream Partners II,
L.P., c/o Forstmann Little & Co., 767 Fifth Avenue, New York, New York, are
the Forstmann Little Partnerships and are New York limited partnerships. The
general partner of MBO-IV is FLC Partnership, L.P., a limited partnership of
which Theodore J. Forstmann, Nicholas C. Forstmann, Steven B. Klinsky,
Sandra J. Horbach and Winston W. Hutchins are general partners. The general
partner of Gulfstream Partners is FLC XXI Partnership, a general partnership
of which Wm. Brian Little, Nicholas C. Forstmann, Steven B. Klinsky, Winston
W. Hutchins, John A. Sprague, Wm. Brian Little IRA, Winston W. Hutchins IRA,
John A. Sprague IRA and TJ/JA L.P., a Delaware limited partnership ("TJ/JA
L.P."), are general partners. The general partner of TJ/JA L.P. is Theodore
J. Forstmann. The general partner of Gulfstream Partners II, L.P. is FLC
XXIV Partnership, a general partnership of which Theodore J. Forstmann,
Nicholas C. Forstmann, Wm. Brian Little, John A. Sprague, Steven B. Klinsky,
Sandra J. Horbach and Winston W. Hutchins are general partners. Accordingly,
each of such individuals and partnerships may be deemed the beneficial
owners of shares owned by MBO-IV, Gulfstream Partners and/or Gulfstream
Partners II, L.P., in which such individual or partnership is a partner. For
the purposes of this table, such beneficial ownership is included. Ms.
Horbach does not have any voting or investment power with respect to, or any
economic interest in, the shares of Common Stock held by MBO-IV, and
accordingly, Ms. Horbach is not deemed to be the beneficial owner thereof.
William R. Acquavella, Drew Lewis and Roger S. Penske are limited partners
in Gulfstream Partners and William R. Acquavella and Roger S. Penske are
limited partners in Gulfstream Partners II, L.P. There are other limited
partners in each of MBO-IV, Gulfstream Partners and Gulfstream Partners II,
L.P., none of which is otherwise affiliated with the Company or FLC
Partnership, L.P. See "Certain Transactions".
(4) Except as discussed in note 3, no director or executive officer currently
owns shares of Common Stock; all shares beneficially owned by directors and
executive officers are attributable to options exercisable currently or
within 60 days of the date of this Prospectus. Not included in the table are
shares of Common Stock issuable upon the exercise of options that are not
exercisable within 60 days after the date of this Prospectus in the
following amounts: W.W. Boisture, Jr. -- 318,750 shares; Bryan T. Moss --
337,500 shares; Roger S. Penske -- 37,500 shares; Colin L. Powell -- 56,250
shares; Gerard Roche -- 18,750 shares; George P. Shultz -- 18,750 shares;
Robert S. Strauss -- 18,750 shares; and Chris A. Davis -- 125,000 shares.
(5) Shares are beneficially owned by an irrevocable trust for the benefit of
certain members of Mr. Rumsfeld's family. Mr. Rumsfeld disclaims beneficial
ownership of such shares.
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CERTAIN TRANSACTIONS
THE ACQUISITION; SUBSEQUENT EVENTS
On February 12, 1990, the Company, through its wholly owned subsidiary GA
Acquisition Corp. ("GA"), a corporation formed by an investor group led by
Forstmann Little, entered into a stock purchase agreement to acquire from
Chrysler the Predecessor Business, in the form of Gulfstream Delaware (then
Gulfstream Aerospace Corporation), for a cash purchase price of $850 million
(including acquisition costs of $25 million, $8.25 million of which represented
a fee payable to Forstmann Little). The Acquisition was consummated on March 19,
1990. The purchase price was funded by the issuance of 25,000,000 shares of
common stock (without giving effect to the 1996 Recapitalization), for an
aggregate purchase price of $100 million, and $300 million aggregate principal
amount of debentures (the "Original Debentures") in three series with maturity
dates, respectively, of March 31, 2001, March 31, 2002 and March 31, 2003, with
the balance of the purchase price supplied by bank borrowings. Gulfstream
Delaware was capitalized with $100 million of its common stock subscribed for by
the Company, a $300 million long-term note payable to the Company and bank
borrowings. Upon consummation of the Acquisition, GA was merged into Gulfstream
Delaware and Gulfstream Delaware became a wholly owned subsidiary of the
Company. The Company's only asset is its investment in Gulfstream Delaware.
On August 31, 1992, MBO-IV and Gulfstream Partners II, L.P. purchased
16,250,000 additional shares of common stock (without giving effect to the 1996
Recapitalization), for an aggregate purchase price of $100 million, and MBO-IV
purchased an additional $150 million aggregate principal amount of the Company's
debentures (the "Additional Debentures") at par. The Additional Debentures were
issued in three series with maturity dates, respectively, of September 30, 2003,
September 30, 2004 and September 30, 2005. Of the proceeds of these issuances,
$50 million was contributed to the capital of Gulfstream Delaware, $50 million
of the proceeds was used to repurchase the shares of common stock of the Company
held by Allen E. Paulson, and $150 million of the proceeds was loaned by the
Company to Gulfstream Delaware. This loan was evidenced by a long-term note
payable by Gulfstream Delaware to the Company.
On November 30, 1993, MBO-IV exchanged the Original Debentures and the
Additional Debentures, and all indebtedness represented thereby, including
accrued interest, for (i) 7% Cumulative Preferred Stock issued by the Company
with a stated value of $468,937,500 and 11,045,833 shares of Class B Common
Stock (without giving effect to the 1996 Recapitalization). The 7% Cumulative
Preferred has a liquidation preference equal to its stated value, plus all
accrued and unpaid dividends. The Company's Certificate of Incorporation was
amended to reclassify the Company's common stock outstanding prior to November
30, 1993 as Class A Common Stock. Each share of Class A Common Stock issued on
or after August 31, 1992 was designated as a share of Series A-1 Common Stock,
and each share of Class A Common Stock which was issued prior to August 31, 1992
was designated as a share of Series A-2 Common Stock. Also on November 30, 1993,
the long-term notes payable by Gulfstream Delaware to the Company in principal
amounts of $300 million and $150 million, respectively, were contributed to the
capital of Gulfstream Delaware. After providing for the 7% Cumulative Preferred
Stock, the Class A Common Stock has a preference with respect to dividends,
other distributions and in liquidation over all other classes of common stock of
the Company currently outstanding in the amount of approximately $186 million.
After providing for the 7% Cumulative Preferred Stock and the Class A Common
Stock preferences, the Class A Common Stock is entitled to 75% and the Class B
Common Stock is entitled to 25% of any dividends and other distributions or in
liquidation. On June 30, 1996, the Company repurchased approximately 4 shares of
7% Cumulative Preferred Stock at their stated value of $18,937,500, and paid
accumulated dividends of $96,135,587. Funds for the redemption and dividends
were provided by the Company's operations.
Immediately prior to, or simultaneously with, the closing of the Offerings,
(i) the Company will repurchase all of the remaining outstanding 7% Cumulative
Preferred Stock, (ii) all of the Class A Series A-2 Common Stock and Class B
Common Stock will be exchanged for shares of Class A Series A-1 Common Stock on
a 1.0308-for-1 and a 1.0183-for-1 basis, respectively, (iii) the Class A
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Series A-1 Common Stock will be redesignated as Common Stock and (iv) there will
be a 1.5-for-1 split of the Common Stock. The exchange ratios set forth in
clause (ii) above for the exchange of shares of Class A Series A-2 and Class B
Common Stock for shares of Class A Series A-1 Common Stock have been calculated
based on an assumed initial public offering price of $23.00 per share (the
mid-point of the range of the initial public offering prices set forth on the
cover of this Prospectus). The actual exchange ratios will be determined at the
time of pricing of the Offerings, based on the actual initial public offering
price. See "Description of Capital Stock".
RELATED PARTY TRANSACTIONS
Thomas D. Bell, a director and former Vice Chairman of the Company is
President and Chief Executive Officer of, and during 1994 and part of 1995
served as an executive officer of, Burson-Marstellar, an advertising and public
relations services firm. See "Management -- Directors and Executive Officers".
Gulfstream paid to Burson-Marstellar approximately $2.7, $3.8, and $1.0 million,
in 1994, 1995 and the first six months of 1996, respectively, for advertising
and public relations services. The Company believes the terms of such
transactions were at least as favorable to the Company as those which could have
been obtained from an unrelated third party.
Drew Lewis, Colin L. Powell, Donald H. Rumsfeld, George P. Shultz and Robert
S. Strauss, directors of the Company, are members of an advisory committee to
FLC Partnership, L.P.
Gulfstream leased from Allen E. Paulson, one of its directors, through
August 1993, an aircraft used for sales demonstrations and customer support
purposes. Total lease expense for 1993 was $834,000. The Company believes the
terms of such lease were at least as favorable to the Company as those which
could have been obtained from an unrelated third party.
See also "Management -- Compensation Committee Interlocks and Insider
Participation".
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Pursuant to the Company's Amended and Restated Certificate of Incorporation,
the Company's authorized capital stock currently consists of (i) 10,000,000
shares of preferred stock, par value $.01 per share ("Preferred Stock"),
approximately 96 shares of which are outstanding as of the date of this
Prospectus, (ii) 109,273,000 shares of common stock, par value $.01 per share,
of which 93,493,000 shares are designated Class A Common Stock, Series A-1 and
Series A-2, and 15,780,000 shares are designated Class B Common Stock. As of
June 30, 1996 (which is prior to the exchange and reclassification described
below), 33,139,500 and 11,045,833 shares of Class A Common Stock (Series A-1 and
Series A-2) and Class B Common Stock, respectively, were issued and outstanding
and held of record by an aggregate of 5 stockholders. Immediately prior to, or
simultaneous with, the closing of the Offerings (i) all of the outstanding
Preferred Stock will be repurchased, (ii) each outstanding share of Class A
Series A-2 Common Stock will be exchanged for 0.9701 shares of Class A Series
A-1 Common Stock and each outstanding share of Class B Common Stock will be
exchanged for 0.9820 shares of Class A Series A-1 Common Stock, (iii) the Class
A Series A-1 Common Stock will be redesignated as Common Stock and adjusted for
a stock split of the Common Stock on a 1.5-for-1 basis and the Certificate of
Incorporation will be amended and restated (the "Restated Certificate of
Incorporation") to reflect a single class of common stock, par value $.01 per
share (the "Common Stock"), and (iv) the number of authorized shares of Common
Stock and Preferred Stock will be increased (collectively, the "1996
Recapitalization").
Pursuant to the Restated Certificate of Incorporation, the Company's
authorized capital stock will consist of (i) 300,000,000 shares of Common Stock
of which 71,963,882 shares will be issued and outstanding upon the consummation
of the Offerings (assuming the Underwriters' over-allotment options are not
exercised) and (ii) 20,000,000 shares of Preferred Stock, none of which will be
issued and outstanding upon completion of the Offerings. All outstanding shares
of the Common Stock are, and the shares offered hereby will be, when issued and
sold, validly issued, fully paid and nonassessable.
After the consummation of the Offerings, the Forstmann Little Partnerships
will beneficially own approximately 61.1% of the Common Stock (55.2% on a fully
diluted basis) or 55.6% (50.6% on a fully diluted basis), assuming that the
Underwriters' over-allotment options are exercised in full. As long as the
Forstmann Little Partnerships continue to own in the aggregate more than 50% of
the Company's outstanding shares of Common Stock, they will collectively have
the power to elect the entire Board of Directors of the Company and, in general,
to determine (without the consent of the Company's other stockholders) the
outcome of any corporate transaction or other matter submitted to the
stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of the Company's assets, to prevent or cause a change in
control of the Company, and to approve substantially all amendments to the
Restated Certificate of Incorporation. See "Risk Factors -- Control by Principal
Stockholders; Limitations on Change of Control; Benefits to Principal
Stockholders".
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share owned of
record on all matters submitted to a vote of stockholders. There are no
cumulative voting rights. Accordingly, the holders of a majority of the shares
voting for the election of directors can elect all the directors if they choose
to do so, subject to any voting rights of holders of Preferred Stock to elect
directors. Subject to the preferential rights of any outstanding series of
Preferred Stock, and to the restrictions on payment of dividends imposed by the
Credit Agreement (as described in "Dividend Policy" and "Description of Credit
Agreement"), the holders of Common Stock will be entitled to such dividends as
may be declared from time to time by the Board of Directors from funds legally
available therefor, and will be entitled, after payment of all prior claims, to
receive pro rata all assets of the Company upon the liquidation, dissolution or
winding up of the Company. Holders of Common Stock have no redemption or
conversion rights or preemptive rights to purchase or subscribe for securities
of the Company.
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The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "GAC", subject to official notice of issuance.
PREFERRED STOCK
The authorized capital stock of the Company includes 20,000,000 shares of
Preferred Stock, none of which are currently issued or outstanding. The
Company's Board of Directors is authorized to divide the Preferred Stock into
series and, with respect to each series, to determine the preferences and rights
and the qualifications, limitations or restrictions thereof, including the
dividend rights, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking fund provisions, the number of shares
constituting the series and the designation of such series. The Board of
Directors could, without stockholder approval, issue Preferred Stock with voting
and other rights that could adversely affect the voting power of the holders of
Common Stock and which could have certain anti-takeover effects. The Company has
no present plans to issue any shares of Preferred Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Restated Certificate of Incorporation provides that a director of the
Company will not be personally liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty as a director, except in
certain cases where liability is mandated by the Delaware General Corporation
Law (the "DGCL"). The Restated Certificate of Incorporation and the By-Laws of
the Company provide for indemnification, to the fullest extent permitted by the
DGCL, of any person who is or was involved in any manner in any pending,
threatened or completed investigation, claim or other proceeding by reason of
the fact that such person is or was a director or officer of the Company or, at
the request of the Company, is or was serving as a director or officer of
another entity, against all expenses, liabilities, losses and claims actually
incurred or suffered by such person in connection with the investigation, claim
or other proceeding. The Company and Gulfstream Delaware have entered into, or
intend to enter into, agreements to provide indemnification for the Company's
directors and certain officers in addition to the indemnification provided for
in the Restated Certificate of Incorporation and the By-Laws. These agreements,
among other things, will indemnify the Company's directors and certain officers
to the fullest extent permitted by Delaware law for certain expenses (including
attorneys' fees) and all losses, claims, liabilities, judgments, fines and
settlement amounts incurred by such person arising out of or in connection with
such person's service as a director or officer of the Company or another entity
for which such person was serving as an officer or director at the request of
the Company. There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the Company or any other entity as to which
indemnification is being sought from the Company, and the Company is not aware
of any pending or threatened litigation that may result in claims for
indemnification by a director, officer, employee or other agent.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Upon completion of the Offerings, the Company will be subject to the
provisions of section 203 ("Section 203") of the DGCL. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or,
in certain cases, within three years prior, did own) 15% or more of the
corporation's voting stock. Under Section 203, a business combination between
the Company and an interested stockholder is prohibited unless it satisfies one
of the following conditions: (i) the Company's Board of Directors must have
previously approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder, or (ii) on
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the Company outstanding at the time the transaction commenced
(excluding, for purposes of determining the number of shares outstanding, shares
owned by (a) persons who are directors and also officers and (b) employee stock
plans, in certain instances) or (iii) the business combination is approved
66
<PAGE>
by the Board of Directors and authorized at an annual or special meeting of the
stockholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the interested stockholder.
The Restated Certificate of Incorporation provides for a classified Board of
Directors consisting of three classes. Each class will consist, as nearly as may
be possible, of one-third of the total number of directors constituting the
entire Board of Directors. The term of the initial Class I directors will
terminate on the date of the 1997 annual meeting of stockholders; the term of
the initial Class II directors will terminate on the date of the 1998 annual
meeting of stockholders; and the term of the initial Class III directors will
terminate on the date of the 1999 annual meeting of stockholders. Beginning in
1997, at each annual meeting of stockholders, successors to the class of
directors whose term expires at that annual meeting will be elected for a
three-year term and until their respective successors are elected and qualified.
A director may only be removed with cause by the affirmative vote of the holders
of a majority of the outstanding shares of capital stock entitled to vote in the
election of directors.
LIMITATIONS ON CHANGES IN CONTROL
The Restated Certificate of Incorporation provides for a classified Board of
Directors consisting of three classes serving staggered three-year terms. The
Restated Certificate of Incorporation also provides that a director may only be
removed for cause by the affirmative vote of the holders of a majority of the
shares entitled to vote for the election of directors. These provisions, when
coupled with the provisions in the Restated Certificate of Incorporation and the
Company's By-laws authorizing the Board of Directors to fill newly created
directorships and vacancies on the Board of Directors, will preclude
stockholders from removing incumbent directors without cause and simultaneously
gaining control of the Board of Directors by filling the vacancies created by
such removal with their nominees. The foregoing provisions, the provisions
authorizing the Board of Directors to issue Preferred Stock without stockholder
approval, and the provisions of Section 203 of the DGCL, could have the effect
of delaying, deferring or preventing a change in control of the Company or the
removal of existing management.
In addition, the Company's By-Laws establish advance notice procedures for
stockholders to make nominations of candidates for election as directors, or
bring other business before an annual meeting of stockholders of the Company
(the "Stockholder Notice Procedures").
The Stockholder Notice Procedures provide that only persons who are
nominated by or at the direction of the Company's Board of Directors, or by a
stockholder who has given timely written notice to the Secretary of the Company
prior to the meeting at which directors are to be elected, will be eligible for
election as directors of the Company. The Stockholder Notice Procedures also
provide that at an annual meeting only such business may be conducted as has
been specified in the notice of the meeting given by, or at the direction of,
the Company's Board of Directors (or any duly authorized committee thereof) or
by a stockholder who has given timely written notice to the Secretary of the
Company of such stockholder's intention to bring such business before such
meeting.
Under the Stockholder Notice Procedures, notice of stockholder nominations
to be made or business to be conducted at an annual meeting must be received by
the Company not less than 60 days nor more than 90 days prior to the date of the
annual meeting or, in the event that less than 70 days notice or prior public
disclosure of the date of the annual meeting is given or made to stockholders,
then notice must be received by the close of business on the tenth day following
the day on which such notice was mailed or such public disclosure was made,
whichever first occurs. Under the Stockholder Notice Procedures, notice of a
stockholder nomination to be made at a special meeting at which directors are to
be elected must be received by the Company not later than the close of business
on the tenth day following the day on which such notice of the date of the
special meeting was mailed or public disclosure of the date of the special
meeting was made, whichever first occurs.
TRANSFER AGENT
The transfer agent for the Common Stock will be ChaseMellon Shareholder
Services, L.L.C.
67
<PAGE>
DESCRIPTION OF CREDIT AGREEMENT
In connection with the Offerings, Gulfstream Delaware has received a
Commitment Letter pursuant to which Chase and CSI have agreed, subject to the
terms and conditions thereof, to provide the Bank Facility, consisting of the
$400 million Term Loan Facility and the $250 million Revolving Credit Facility.
The Commitment Letter provides that the closing of the funding under the Credit
Agreement is to be consummated concurrently with the consummation of the
Offerings. The commitments of Chase to provide the financing pursuant to the
Bank Facility expire on December 31, 1996, unless the closing thereunder has
previously occurred.
The following summary of the Credit Agreement, which is expected to be
entered into simultaneously with the closing of the Offerings, does not purport
to be complete and is qualified in its entirety by reference to the form of
Credit Agreement, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. Each capitalized term
used in this Section but not defined herein has the meaning ascribed to the term
in the Credit Agreement.
TERM LOAN
The Bank Facility will include a $400 million term loan. The term loan will
be repayable in consecutive quarterly installments commencing on June 30, 1997
with a final maturity of September 30, 2002, in aggregate amounts for each of
the following periods as follows (with the installments within each year being
equal):
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
1997.......................................................................... $ 20,000,000
1998.......................................................................... $ 75,000,000
1999.......................................................................... $ 75,000,000
2000.......................................................................... $ 75,000,000
2001.......................................................................... $ 75,000,000
2002.......................................................................... $ 80,000,000
</TABLE>
The Term Loans may be prepaid at any time, in whole or in part, without
premium or penalty. In addition, the Bank Facility provides for mandatory
prepayments, subject to certain exceptions, of the Term Loans out of the net
proceeds of the sale or disposition of certain assets.
REVOLVING CREDIT FACILITY
The Revolving Credit Facility is a $250 million revolving credit facility. A
portion of the Revolving Credit Facility, in an amount not to exceed $150
million, may be used (to the extent available) for standby and commercial
letters of credit, and up to $200 million of the Revolving Credit Facility will
be available to the Company for borrowings. In addition, up to $20 million of
the Revolving Credit Facility may be used pursuant to a swing line facility.
Revolving Credit Loans may be prepaid and commitments may be reduced by
Gulfstream Delaware in minimum amounts of $2,500,000 or whole multiples of
$1,000,000 in excess thereof.
USE OF PROCEEDS
The proceeds from the Term Loan Facility, together with the proceeds of the
Offerings, will be used to fund (i) the repurchase of all the Company's 7%
Cumulative Preferred Stock plus approximately $7.9 million of unpaid dividends,
(ii) the repayment of outstanding indebtedness under the Company's existing
credit facilities (which was $119.8 million at June 30, 1996) and (iii) the
payment of fees and expenses incurred in connection with the Offerings and
refinancing of the Company's indebtedness. Borrowings under the Revolving Credit
Facility will be used for the same purposes for which Term Loans may be used and
to finance the customary working capital needs of Gulfstream Delaware and for
other general corporate purposes.
INTEREST RATE
The Loans will bear interest at a rate equal to, at the Company's option,
(i) a base rate (the "ABR") equal to the greater of (A) the Chase prime or
reference rate and (B) the overnight federal funds rate plus
68
<PAGE>
.5% in effect from time to time plus the Applicable Margin for ABR Loans (the
"ABR Loans"); or (ii) the rate (adjusted for statutory reserve requirements for
euromoney liabilities) at which deposits for one, two, three or six months (as
selected by the Company) are offered to the Administrative Agent in the
interbank eurodollar market plus the Applicable Margin for Eurodollar Loans (the
"Eurodollar Loans"). All swing line loans will bear interest based upon the ABR
or money market rates quoted by Chase as the swing line lender (in each case
plus the Applicable Margin for ABR Loans). The Applicable Margin initially will
be set at 0.75% for ABR Loans and 1.75% for Eurodollar Loans, and will vary
depending upon the Company's ratio of Total Consolidated Debt to Consolidated
EBITDA (which, as defined in the Credit Agreement, adds back Gulfstream V
research and development expenses to Consolidated EBITDA) and whether such loan
is an ABR Loan or a Eurodollar Loan, as set forth below:
<TABLE>
<CAPTION>
RATIO OF TOTAL CONSOLIDATED EURODOLLAR
DEBT TO CONSOLIDATED EBITDA ABR LOANS LOANS
- --------------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Equal to or greater than 3.50 to 1........................................................... 1.00% 2.00%
Equal to or greater than 3.00 to 1 but less than 3.50 to 1................................... 0.75% 1.75%
Equal to or greater than 2.50 to 1 but less than 3.00 to 1................................... 0.50% 1.50%
Equal to or greater than 2.00 to 1 but less than 2.50 to 1................................... 0.25% 1.25%
Equal to or greater than 1.50 to 1 but less than 2.00 to 1................................... 0% 1.00%
Less than 1.50 to 1.......................................................................... 0% 0.75%
</TABLE>
Interest on ABR Loans will be payable quarterly in arrears. Interest on
Eurodollar Loans will be payable on the last day of each relevant interest
period and, in the case of any interest period of six months, on the date three
months after the first day of such interest period.
Overdue principal, interest, fees and other amounts shall bear interest at
2% above the rate otherwise applicable thereto (or the ABR Rate, in the case of
amounts other than principal).
FEES
Gulfstream Delaware will be required to pay commitment fees on the average
daily unutilized portion of the Term Loan Facility and the Revolving Credit
Facility, which will initially be set at .375% and which may range from .250% to
.500% per annum based on the Company's ratio of Total Consolidated Debt to
Consolidated EBITDA.
The Commitment Letter provides for additional customary fees and charges,
including (i) an arrangement fee on the aggregate amount of the Term Loan
Facility and Revolving Credit Facility payable on the Closing Date, (ii) a
commitment fee on the aggregate amount of the Term Loan Facility and Revolving
Credit Facility from the date of the initial syndication to the earlier of the
Closing Date or the termination of the commitments under the Commitment Letter
and (iii) an annual administrative agent's fee.
GUARANTEES
The Credit Agreement will be guaranteed by the Company and by each of the
Company's direct and indirect subsidiaries which have a total asset value which
exceeds $20 million (and the stock of such subsidiaries will be pledged in
support of such guarantee), other than foreign subsidiaries or other
subsidiaries if more than 65% of the assets of such subsidiaries are securities
of foreign subsidiaries. In addition, any subsidiary of the Company that becomes
a Material Subsidiary (as defined in the Credit Agreement) must guarantee
amounts owed under the Credit Agreement and the Company must pledge its stock in
such subsidiary in support of such obligations.
CONDITIONS
The initial funding by the Lenders under the Credit Agreement will be
subject to a number of conditions, including among other things, (a) the
repayment of outstanding indebtedness under the Company's existing credit
facilities, (b) the absence of any material adverse change in the business,
assets, operations, condition (financial or otherwise) or prospects of
Gulfstream Delaware and its subsidiaries taken as a whole, (c) the successful
consummation of the Offerings, including net proceeds to the Company of at least
$75 million and (d) other conditions customary for transactions similar to those
contemplated by the Credit Agreement.
69
<PAGE>
COVENANTS
The Credit Agreement will contain customary affirmative and negative
covenants, including limitations on the ability of the Company and its
subsidiaries to pay cash dividends, as well as financial covenants, under which
the Company must operate. Failure to comply with any of such covenants will
permit the Administrative Agent to accelerate, subject to the terms of the
Credit Agreement, the maturity of all amounts outstanding under the Credit
Agreement, and to terminate Gulfstream Delaware's ability to borrow under the
Revolving Credit Facility.
EVENTS OF DEFAULT
The Credit Agreement will contain customary events of default appropriate in
the context of the proposed transaction, including nonpayment of principal,
interest, fees or other amounts, violation of covenants, material inaccuracy of
representations and warranties, cross-default of indebtedness in excess of $10
million, bankruptcy, final judgment unpaid or not pending appeal in excess of
$10 million and not covered by insurance, certain ERISA liabilities, invalidity
of loan documents or security interests and change in control. The Credit
Agreement is expected to provide that a change in control will occur (i) if the
Company ceases to own 100% of the issued and outstanding capital stock of
Gulfstream Delaware, (ii) until the aggregate outstanding principal amount of
Term Loans has been reduced to $200 million or less or the Leverage Ratio is 1.5
to 1.0 or less, if the Forstmann Little Partnerships and their affiliates
beneficially own less than 25% of the outstanding voting stock of Gulfstream
Delaware, or (iii) if at any time that the Forstmann Little Partnerships and
their affiliates beneficially own less than a majority, but more than 25%, of
the outstanding voting stock of Gulfstream Delaware, any event occurs that would
result in any person or group acquiring beneficial ownership of a percentage of
the outstanding voting stock of Gulfstream Delaware or the Company greater than
the percentage beneficially owned by the Forstmann Little Partnerships and their
affiliates, or (iv) if at a time that the Forstmann Little Partnerships and
their affiliates beneficially own less than 25% of the outstanding voting stock
of Gulfstream Delaware, any event occurs that would result in any person or
group (other than the Forstmann Little Partnerships and their affiliates)
acquiring beneficial ownership of 25% or more of the outstanding voting stock of
Gulfstream Delaware or the Company, or (v) if any person or group (other than
the Forstmann Little Partnerships and their affiliates) at any time has the
right to designate or elect a majority of the Board of Directors of Gulfstream
Delaware or the Company. Upon the occurrence of any event of default under the
Credit Agreement, the lenders may terminate all of their lending commitments
under the Bank Facility and declare all amounts owing under the Credit Agreement
immediately due and payable.
70
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offerings, the Company will have outstanding
71,963,882 shares of Common Stock, including 43,963,882 outstanding shares of
Common Stock beneficially owned by existing stockholders. Of these shares, only
the 28,000,000 shares of Common Stock sold in the Offerings (32,200,000 if the
Underwriters' over-allotment options are exercised in full) will be freely
transferable in the public market or otherwise without registration under the
Securities Act and without restriction by persons other than "affiliates" of the
Company (as defined below). The 43,943,240 shares of Common Stock held by the
Forstmann Little Partnerships after the Offerings will be "restricted"
securities under the meaning of Rule 144 under the Securities Act ("Rule 144")
and may not be sold in the absence of registration under the Securities Act,
unless an exemption from registration is available, including exemptions
pursuant to Rule 144 or Rule 144A under the Securities Act.
In general, under Rule 144 as currently in effect, if two years have elapsed
since the later of the date of acquisition of restricted shares from the Company
or any affiliate of the Company, the acquiror or subsequent holder is entitled
to sell, within any three-month period, that number of shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock or the
average weekly trading volume of the shares of Common Stock on all exchanges
and/or reported through the automated quotation system of a registered
securities association during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission
(the "Commission"). Sales under Rule 144 are also subject to certain
restrictions relating to manner of sale, notice requirements and the
availability of current public information about the Company. If three years
have elapsed since the later of the date of acquisition of restricted shares
from the Company or from any affiliate of the Company, and the acquiror or
subsequent holder thereof is deemed not to have been an affiliate of the Company
at any time during the 90 days preceding a sale, such person would be entitled
to sell such shares in the public market under Rule 144(k) without regard to the
volume limitations, manner of sale provisions, public information requirements
or notice requirements. The Commission has proposed amendments to Rule 144,
including amendments to reduce the Rule 144 holding period from two years to one
year and the Rule 144(k) holding period from three years to two years. The
Company cannot predict whether or when any of the proposed amendments will be
adopted. As defined in Rule 144, an "affiliate" of an issuer is a person that
directly or indirectly controls, or is controlled by, or is under the common
control with, such issuer.
The Company has agreed, during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date of
this Prospectus, not to offer, sell, contract to sell or otherwise dispose of,
or file a registration statement (other than a registration statement on Form
S-8 with respect to an employee benefit plan) with respect to, any Common Stock,
or any securities of the Company (other than pursuant to employee stock option
and incentive plans and agreements, upon conversion of outstanding convertible
securities or grants of options to directors), which are substantially similar
to the Common Stock or any other securities which are exercisable or
exchangeable for, convertible into or whose exercise or settlement price is
derivable from the price of, Common Stock or any such securities substantially
similar to the Common Stock, without the prior written consent of the
representatives of the Underwriters.
The Selling Stockholders have agreed not to offer, sell or otherwise dispose
of any Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of the representatives of the Underwriters,
except for certain transfers to immediate family members, trusts for the benefit
of the Selling Stockholder and his or her immediate family, charitable
foundations and controlled entities so long as the transferee agrees to be bound
by the foregoing restrictions.
Pursuant to Rule 144 and after giving effect to the agreements described in
the immediately preceding paragraph, the 43,943,240 shares held by the Forstmann
Little Partnerships will be eligible for sale in the public market beginning 180
days after the date of this Prospectus, subject to the volume and other
limitations under Rule 144 described above.
71
<PAGE>
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the Forstmann Little
Partnerships have the right, under certain circumstances and subject to certain
conditions, to require the Company to effect up to six registrations under the
Securities Act covering all or a portion of the shares of Common Stock held by
them. Under the Registration Rights Agreement, the Company will pay all expenses
(other than underwriting discounts and commissions) in connection with such
registrations made at the request of the Forstmann Little Partnerships. In
addition, whenever the Company proposes to register any of its securities under
the Securities Act, the Forstmann Little Partnerships have the right to include
all or a portion of their shares in such registration. The Company will pay all
expenses in connection with such registrations. The Registration Rights
Agreement also provides that the Company will indemnify the Forstmann Little
Partnerships against certain liabilities, including liabilities under the
Securities Act, incurred in connection with such registrations. The Forstmann
Little Partnerships have informed the Company that they have no present
intention of exercising their registration rights after the Offerings, and they
have agreed not to exercise such rights for a period of 180 days after the date
of this Prospectus.
None of the Company's other stockholders or optionees has an independent
right to require the Company to register shares of Common Stock under the
Securities Act. Pursuant to agreements between the holders of stock or options
and the Company, such holders have, subject to certain conditions, the right to
participate in sales, including through registered public offerings, of shares
of Common Stock by the Forstmann Little Partnerships (and to have their expenses
paid on the same basis as the expenses of the Forstmann Little Partnerships).
See "Management -- Stock Options -- Stock Option Plan -- Stockholder's
Agreement".
Prior to the Offerings, there has been no public market for the Common
Stock. Trading of the Common Stock is expected to commence following the
consummation of the Offerings. No prediction can be made as to the effect, if
any, that future sales of shares, or the availability of shares for future sale,
will have on the market price prevailing from time to time. However, sales by
the Forstmann Little Partnerships of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices of the Common Stock and could impair the Company's future ability to
raise capital through an offering of its equity securities.
VALIDITY OF COMMON STOCK
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations), One New York Plaza, New York, New York
10004-1980, and for the Underwriters by Sullivan & Cromwell, 125 Broad Street,
New York, New York 10004-2498. Fried, Frank, Harris, Shriver & Jacobson renders
legal services to Forstmann Little on a regular basis.
EXPERTS
The financial statements as of December 31, 1994 and 1995 and for each of
the three years in the period ended December 31, 1995 included in this
Prospectus and the related financial statement schedules included elsewhere in
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the Registration Statement, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendments thereto) under the Securities Act with
respect to the securities offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Statements made in this
Prospectus as to the
72
<PAGE>
contents of any contract, agreement or other document referred to are not
necessarily complete; with respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
Upon completion of the Offerings, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file reports and other information with the Commission. The Registration
Statement, the exhibits and schedules forming a part thereof and the reports and
other information filed by the Company with the Commission in accordance with
the Exchange Act may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and will also be available for inspection and
copying at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Copies of such material will also be available for inspection at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
73
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and (Unaudited) June 30, 1996................. F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and (Unaudited)
for the six-month periods ended June 30, 1995 and 1996.................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1994 and 1995 and
(Unaudited) for the six-month period ended June 30, 1996.................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and (Unaudited)
for the six-months periods ended June 30, 1995 and 1996................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Gulfstream Aerospace Corporation:
We have audited the accompanying consolidated balance sheets of Gulfstream
Aerospace Corporation and its subsidiaries as of December 31, 1994 and 1995 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we 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.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and its
subsidiaries at December 31, 1994 and 1995 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 2, 1996
F-2
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- 1996
1994 1995 -------------
------------ -------------- (UNAUDITED)
(NOTE 1)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................................... $ 23,605 $ 223,312 $ 213,268
Accounts receivable (less allowance for doubtful accounts:-- $1,312,
$3,437 and $3,521)................................................ 176,936 82,613 99,247
Inventories......................................................... 289,331 393,125 567,706
Prepaids and other assets........................................... 3,130 2,362 2,496
------------ -------------- -------------
Total current assets............................................ 493,002 701,412 882,717
Property and equipment, net......................................... 117,621 127,151 126,118
Tooling............................................................. 20,719 46,412 47,311
Goodwill, net of accumulated amortization:--$5,166, $6,244 and
$6,783............................................................ 37,956 36,877 36,339
Other intangible assets, net........................................ 65,699 60,628 58,092
Other assets and deferred charges................................... 10,764 8,773 8,794
------------ -------------- -------------
Total Assets........................................................ $ 745,761 $ 981,253 $ 1,159,371
------------ -------------- -------------
------------ -------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt................................... $ 31,814 $ 53,065 $ 39,798
Accounts payable.................................................... 56,153 58,191 62,528
Accrued liabilities................................................. 69,974 79,911 87,420
Customer deposits--current portion.................................. 33,148 153,269 460,463
------------ -------------- -------------
Total current liabilities....................................... 191,089 344,436 650,209
Long-term debt...................................................... 146,331 93,266 80,000
Accrued postretirement benefit cost................................. 95,626 102,021 105,341
Customer deposits--long-term........................................ 60,512 158,325 136,400
Other long-term liabilities......................................... 63,253 65,665 64,318
Commitments and contingencies (Note 14)
Stockholders' equity
Preferred stock, Series A, 7%--cumulative; par value $.01; shares
authorized: 10,000,000; shares issued: 100 in 1994 and 1995 and 96
in 1996; Liquidation preference, $546,282,058 in 1995 and
$450,000,000 in 1996.............................................. 468,938 468,938 450,000
Common stock, Class A, Series A-1 and A-2, par value $.01; shares
authorized: 93,493,000; shares issued: 41,345,833 in 1994,
41,347,833 in 1995 and 41,360,333 in 1996......................... 413 413 414
Common stock, Class B, par value $.01; shares authorized:
15,780,000; shares issued: 11,045,833............................. 110 110 110
Additional paid-in capital.......................................... 210,621 210,631 219,751
Accumulated deficit................................................. (439,507) (410,613) (491,390)
Minimum pension liability........................................... (1,136) (1,450) (1,450)
Unamortized stock plan expense...................................... (3,843)
Treasury stock, Common stock, Class A, Series A-2, 8,220,833
shares............................................................ (50,489) (50,489) (50,489)
------------ -------------- -------------
Total stockholders' equity...................................... 188,950 217,540 123,103
------------ -------------- -------------
Total Liabilities and Stockholders' Equity.................. $ 745,761 $ 981,253 $ 1,159,371
------------ -------------- -------------
------------ -------------- -------------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
--------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
----------- ----------- ------------- ----------- -----------
(UNAUDITED)
Net Revenues................................. $ 887,113 $ 901,638 $ 1,041,514 $ 474,884 $ 458,672
Costs and Expenses
Cost of sales.............................. 737,361 710,554 835,547 378,022 354,841
Selling and administrative................. 97,011 82,180 93,239 42,651 45,190
Stock option compensation expense.......... 5,200
Research and development................... 47,990 57,438 63,098 34,076 34,746
Amortization of intangibles and deferred
charges.................................. 27,613 7,583 7,540 3,777 3,763
Restructuring charge....................... 203,911
----------- ----------- ------------- ----------- -----------
Total Costs and Expenses................. 1,113,886 857,755 999,424 458,526 443,740
----------- ----------- ------------- ----------- -----------
Income (Loss) From Operations........ (226,773) 43,883 42,090 16,358 14,932
Interest income.............................. 486 367 5,508 1,426 7,593
Interest expense............................. (48,940) (20,686) (18,704) (9,945) (7,166)
----------- ----------- ------------- ----------- -----------
Net Income (Loss).................... $ (275,227) $ 23,564 $ 28,894 $ 7,839 $ 15,359
----------- ----------- ------------- ----------- -----------
----------- ----------- ------------- ----------- -----------
Pro forma, for 1996 recapitalization and
offerings, net income (loss) per share
(Unaudited) (Note 1)....................... $ .18 $ (.02) $ .08
------------- ----------- -----------
------------- ----------- -----------
Pro forma, for 1996 recapitalization and
offerings, common shares outstanding
(Unaudited) (Note 1)....................... 78,194 78,194 78,194
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------- ADDITIONAL
PREFERRED STOCK CLASS A PAID-IN ACCUMULATED
SERIES A SERIES A-1 & A-2 CLASS B CAPITAL DEFICIT
---------------- ------------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF JANUARY 1, 1993........... $ 413 $ 210,621 $ (187,734)
Net Loss................................ (275,227)
Issuance of common stock................ $ 110 (110)
Purchase of treasury stock..............
Issuance of preferred stock............. $ 468,938
Minimum pension liability adjustment....
---------------- ----- ----- ----------- -------------
BALANCE AS OF DECEMBER 31, 1993......... 468,938 413 110 210,621 (463,071)
Net Income.............................. 23,564
Minimum pension liability adjustment....
---------------- ----- ----- ----------- -------------
BALANCE AS OF DECEMBER 31, 1994......... 468,938 413 110 210,621 (439,507)
Net Income.............................. 28,894
Minimum pension liability adjustment....
Issuance of stock pursuant to stock
options............................... 10
---------------- ----- ----- ----------- -------------
BALANCE AS OF DECEMBER 31, 1995......... 468,938 413 110 210,631 (410,613)
Net Income (Unaudited).................. 15,359
Issuance of stock pursuant to stock
options (Unaudited)................... 1 77
Repurchase of preferred stock
(Unaudited)........................... (18,938)
Preferred stock dividend (Unaudited).... (96,136)
Issuance of compensatory common stock
options (Unaudited)................... 9,043
........................................
---------------- ----- ----- ----------- -------------
BALANCE AS OF JUNE 30, 1996
(UNAUDITED)........................... $ 450,000 $ 414 $ 110 $ 219,751 $ (491,390)
---------------- ----- ----- ----------- -------------
---------------- ----- ----- ----------- -------------
<CAPTION>
MINIMUM UNAMORTIZED TOTAL
PENSION STOCK PLAN TREASURY STOCKHOLDERS'
LIABILITY EXPENSE STOCK EQUITY
----------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
BALANCE AS OF JANUARY 1, 1993........... $ (50,000) $ (26,700)
Net Loss................................ (275,227)
Issuance of common stock................ 0
Purchase of treasury stock.............. (489) (489)
Issuance of preferred stock............. 468,938
Minimum pension liability adjustment.... $ (2,127) (2,127)
----------- ------------- ----------- --------------
BALANCE AS OF DECEMBER 31, 1993......... (2,127) 0 (50,489) 164,395
Net Income.............................. 23,564
Minimum pension liability adjustment.... 991 991
----------- ------------- ----------- --------------
BALANCE AS OF DECEMBER 31, 1994......... (1,136) 0 (50,489) 188,950
Net Income.............................. 28,894
Minimum pension liability adjustment.... (314) (314)
Issuance of stock pursuant to stock
options............................... 10
----------- ------------- ----------- --------------
BALANCE AS OF DECEMBER 31, 1995......... (1,450) 0 (50,489) 217,540
Net Income (Unaudited).................. 15,359
Issuance of stock pursuant to stock
options (Unaudited)................... 78
Repurchase of preferred stock
(Unaudited)........................... (18,938)
Preferred stock dividend (Unaudited).... (96,136)
Issuance of compensatory common stock
options (Unaudited)................... $ (3,843) 5,200
........................................ 0
----------- ------------- ----------- --------------
BALANCE AS OF JUNE 30, 1996
(UNAUDITED)........................... $ (1,450) $ (3,843) $ (50,489) $ 123,103
----------- ------------- ----------- --------------
----------- ------------- ----------- --------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)....................................... $(275,227) $ 23,564 $ 28,894 $ 7,839 $ 15,359
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 47,866 24,151 23,094 11,530 12,242
Postretirement benefit cost........................... 17,086 6,624 6,395 3,220 3,320
Provision for loss on pre-owned aircraft.............. 6,100 208 2,050 1,450 800
Restructuring charge.................................. 203,911
Non-cash stock option compensation expense............ 5,200
All other operating activities........................ (1,652) 453 2,277 133 201
Change in assets and liabilities:
Accounts receivable................................. (9,443) (84,613) 91,817 5,945 (16,784)
Inventories......................................... (24,131) 155,009 (105,844) (6,868) (175,381)
Prepaids and other assets........................... 689 (48) 768 (1,288) (134)
Other assets and deferred charges................... (3,670) 1,179 600 360 (710)
Notes payable....................................... (10,490) (29,682)
Accounts payable.................................... 38,784 (32,303) 2,038 (2,704) 4,337
Accrued liabilities................................. (10,382) 2,099 9,937 5,586 7,508
Customer deposits................................... 48,688 (3,109) 217,934 76,232 285,269
Other long-term liabilities......................... 9,557 5,506 2,412 (6,791) (1,347)
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 37,686 69,038 282,372 94,644 139,880
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment..................... (10,685) (9,946) (25,186) (5,884) (7,518)
Dispositions of property and equipment.................. 79 447 18 19 22
Additions to tooling.................................... (4,560) (17,265) (25,693) (19,875) (899)
--------- --------- --------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES................... (15,166) (26,764) (50,861) (25,740) (8,395)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock.................. 10 78
Repurchase of preferred stock........................... (18,938)
Purchase of common stock................................ (489)
Proceeds from term loans................................ 80,000
Repayment of term loans................................. (114,113) (31,814) (5,282) (26,533)
Payment of dividends on preferred stock................. (96,136)
Proceeds from revolving credit loans.................... 612,000 432,000
Payments on revolving credit loans...................... (592,000) (460,000)
--------- --------- --------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES................... (14,602) (28,000) (31,804) (5,282) (141,529)
--------- --------- --------- --------- ---------
Increase in cash and cash equivalents................... 7,918 14,274 199,707 63,622 (10,044)
Cash and cash equivalents, beginning of year............ 1,413 9,331 23,605 23,605 223,312
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of year.................. $ 9,331 $ 23,605 $ 223,312 $ 87,227 $ 213,268
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Gulfstream Aerospace Corporation (the "Company") is primarily engaged in the
design, development, production, and sale of large business jet aircraft. The
Company is also engaged in a number of related businesses, including: product
support and services for customer-owned aircraft, which include maintenance
services and replacement parts for the Company's world-wide fleet; aircraft
completion services, which involve the installation of customized interiors and
optional avionics as well as exterior painting; and the sale of pre-owned
aircraft. The majority of the Company's aircraft are sold to domestic and
multinational corporations and domestic and foreign governments.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany transactions and balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions and
estimates that directly affect the amounts reported in the consolidated
financial statements. Significant estimates for which changes in the near term
are considered reasonably possible and that may have a material effect on the
financial statements are addressed in these notes to the consolidated financial
statements.
REVENUE RECOGNITION POLICY
Contracts for new aircraft are segmented between the manufacture of the
"green" aircraft (i.e., before exterior painting and installation of customer
selected interiors and optional avionics) and its completion. Sales of new
Gulfstream green aircraft are recorded as deliveries are made to the customer
prior to the aircraft entering the completion process. In connection with
recorded sales of new aircraft, at December 31, 1995, and June 30, 1996 the
Company has agreed to accept pre-owned aircraft totaling $19.4 million and $47.3
million, respectively. With respect to completed aircraft, any costs related to
parts to be installed and services to be performed under the contract, after the
delivery of the aircraft, which are not significant, are included as cost of
sales at the time of the sale of the new aircraft. Sales of all other products
and services, including pre-owned aircraft, are recognized when delivered or the
service is performed.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid financial instruments
which have maturities of less than three months upon purchase.
INVENTORIES
Inventories of work in process and finished goods for aircraft are stated at
the lower of cost (based on estimated average unit costs of the number of units
in a production lot) or market. Raw materials, material components of other work
in process and substantially all purchased parts inventories are stated at the
lower of cost (first-in, first-out method) or market.
Pre-owned aircraft acquired in connection with the sale of new aircraft are
recorded at the lower of the trade-in value or estimated net realizable value.
F-7
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated by the
straight-line method over their estimated useful lives ranging from 15 to 25
years for buildings and improvements and 4 to 12 years for all other property
and equipment. The cost of maintenance and repairs is charged to operations as
incurred; significant renewals and betterments are capitalized.
TOOLING
Tooling is stated at cost and represents primarily production tooling
relating to the Gulfstream V aircraft program. Tooling associated with the
Gulfstream V will be amortized to cost of sales on a unit basis over the first
200 units of the Gulfstream V program.
INTANGIBLES AND OTHER ASSETS
Goodwill is being amortized on a straight-line basis over 40 years. Other
intangible assets consisting of after market service and product support (i.e.,
customer lists) are being amortized on a straight-line basis over the expected
useful lives which range from 10 to 21 years. The Company periodically assesses
the recoverability of intangibles based on its expectations of future
profitability and undiscounted cash flow of the related operations. These
factors, along with management's plans with respect to the operations are
considered in assessing the recoverability of goodwill and other purchased
intangibles.
The costs of obtaining bank financing have been included in other assets and
deferred charges and are being amortized over the lives of the related bank
borrowings.
RESEARCH AND DEVELOPMENT
Research and development expenses are charged directly to operations as
incurred.
PRODUCT WARRANTIES
Product warranty expense is recorded as aircraft are delivered based upon
the estimated aggregate future warranty costs relating to the aircraft.
CUSTOMER DEPOSITS
Substantially all customer deposits represent advance payments for new
aircraft purchases. The deposits on aircraft that are expected to be delivered
in the following year are classified as current in the accompanying consolidated
balance sheets.
CONCENTRATIONS OF CREDIT
Financial instruments which may potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade and contract receivables. The Company places its temporary cash
investments with high credit quality financial institutions. Concentrations of
credit risk with respect to trade and contract receivables are limited due to
the Company's large number of customers and their dispersion across many
industries and geographic regions.
INCOME TAXES
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
109, Accounting for Income Taxes, effective January 1, 1993. SFAS No. 109 was
adopted on a prospective basis and prior periods were not restated. The
cumulative effect at the date of adoption was not material to the results of
operations or the financial position of the Company.
F-8
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company provides for deferred income taxes based on the difference
between the financial statement and the tax basis of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expected to reverse. A valuation allowance is provided against deferred tax
assets in accordance with the provisions of SFAS No. 109.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF. SFAS No. 121 addresses issues surrounding the measurement and
recognition of losses when the value of certain assets has been deemed to be
permanently impaired. The Company adopted the Statement as of January 1, 1996
and there was no material effect on its financial position or results of
operations from adoption.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123 establishes a method
of accounting for stock compensation plans based on fair value of employee stock
options and similar equity instruments. Adoption of a fair value method of
accounting is not required and the Company plans to continue accounting for
stock-based compensation using the method set forth in Accounting Principles
Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, which is based
on the intrinsic value of equity instruments. However, beginning in 1996, the
new Statement requires disclosure in annual financial statements of pro forma
net income and earnings per share as if a fair value method included in SFAS No.
123 had been used to measure compensation cost.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial statements as of June 30, 1996 and for the six months ended
June 30, 1995 and 1996 were prepared on the same basis as the audited
consolidated financial statements and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for these
periods. Operating results for the interim periods included herein are not
necessarily indicative of the results that may be expected for the entire year.
PRO FORMA PER SHARE INFORMATION (UNAUDITED)
Pro forma net income (loss) per share amounts are calculated for 1996
recapitalization and offerings (as discussed in Note 16) based upon pro forma
net income, after giving effect to the 1996 recapitalization and offerings,
divided by the pro forma weighted average number of common and common equivalent
shares outstanding assuming that all options to purchase common stock were
exercised (applying the treasury stock method assuming an initial public
offering price of $23.00 per share) and assuming the proposed 1996
recapitalization and the sale of shares in the offerings were completed at the
beginning of all periods. Options to purchase common stock issued or granted in
the twelve months ended June 30, 1996 were treated as outstanding for all
periods reported. Historical net income (loss) per common and common equivalent
share is not presented as it is not relevant.
NOTE 2. RESTRUCTURING
During 1993, the Company recorded a $203.9 million charge for a
restructuring plan based upon the Company's reassessment of its business plan
and its products from which it expected improved operating efficiencies, reduced
costs, and overall increased profitability of the Company. This charge included,
among other items, payments for severance or early retirement of employees,
acceleration of certain employee benefit programs, costs associated with
re-aligning manufacturing capacity through
F-9
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 2. RESTRUCTURING (CONTINUED)
selected outsourcing, lease terminations of administrative facilities, and the
accelerated amortization of aircraft design intangibles and related Gulfstream
IV aircraft tooling. The charge, determined in part based on expected future
cash flows and net realizable values, is comprised of $146.2 million of
accelerated amortization for aircraft design and related tooling, $24.8 million
of special termination benefits and $32.9 million of other items.
NOTE 3. INVENTORIES
Inventories consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ 1996
1994 1995 (UNAUDITED)
----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Finished goods....................................................... $ 60,800 $ 17,996 $ 33,146
Pre-owned aircraft................................................... 11,750 57,750 91,700
Work in process...................................................... 77,473 173,756 253,790
Raw materials........................................................ 72,975 75,768 85,859
Vendor progress payments............................................. 66,333 67,855 103,211
----------- ----------- ------------
$ 289,331 $ 393,125 $ 567,706
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
During December 1994, the Company amended the payment provisions pertaining
to one of its major supplier contracts. The amendment canceled $36.8 million of
notes payable associated with vendor progress payments. The Company leases
pre-owned aircraft under agreements which are short-term in nature to customers
who are purchasers of Gulfstream IV aircraft.
NOTE 4. PROPERTY AND EQUIPMENT
The major categories of property and equipment consisted of the following
at:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ 1996
1994 1995 (UNAUDITED)
----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land................................................................. $ 4,109 $ 4,109 $ 4,109
Buildings and improvements........................................... 76,926 78,445 94,369
Machinery and equipment.............................................. 86,337 97,405 101,685
Furniture and fixtures............................................... 9,653 9,729 10,296
Construction in progress............................................. 2,915 14,862 1,314
----------- ----------- ------------
Total................................................................ 179,940 204,550 211,773
Less accumulated depreciation........................................ (62,319) (77,399) (85,655)
----------- ----------- ------------
$ 117,621 $ 127,151 $ 126,118
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
F-10
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 5. OTHER INTANGIBLE ASSETS
Other intangible assets are comprised of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- 1996
1994 1995 (UNAUDITED)
---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
After market--Service Center.......................................... $ 15,000 $ 15,000 $ 15,000
After market--Product Support......................................... 75,000 75,000 75,000
---------- ---------- ------------
Total................................................................. 90,000 90,000 90,000
Less accumulated amortization......................................... (24,301) (29,372) (31,908)
---------- ---------- ------------
$ 65,699 $ 60,628 $ 58,092
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
NOTE 6. ACCRUED LIABILITIES
Accrued liabilities are comprised of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- 1996
1994 1995 (UNAUDITED)
--------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Employee compensation and benefits................................ $ 18,373 $ 18,732 $ 22,777
Uncompleted work on delivered aircraft............................ 8,645 12,655 19,685
Accrued warranty.................................................. 9,086 9,637 10,225
Deferred income................................................... 7,504 19,945 13,801
Other............................................................. 26,366 18,942 20,932
--------- -------------- ------------
$ 69,974 $ 79,911 $ 87,420
--------- -------------- ------------
--------- -------------- ------------
</TABLE>
NOTE 7. LONG-TERM DEBT
Long-term debt consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ 1996
1994 1995 (UNAUDITED)
----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Term loans........................................................... $ 178,145 $ 146,331 $ 119,798
Less current portion................................................. (31,814) (53,065) (39,798)
----------- ----------- ------------
$ 146,331 $ 93,266 $ 80,000
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
As of December 31, 1995 and June 30, 1996, the Company operated under two
credit agreements with a consortium of lenders. The initial credit agreement
provided the Company with term loans of $385.0 million and a revolving credit
commitment of up to $265.0 million including letters of credit. The term loans
are payable in quarterly installments in increasing amounts through March 1997.
The revolving credit loans are payable the earlier of March 31, 1998, or one
year following the date the term loans are paid in full. The credit agreement
provides for a commitment fee of 1/2 of 1% per year on the average daily amount
of unused revolving credit commitment. The revolving credit commitment available
at December 31, 1995 and June 30, 1996 was $240.6 million and $251.3 million,
respectively.
F-11
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 7. LONG-TERM DEBT (CONTINUED)
The initial credit agreement, as amended, generally provides that the
revolving credit loans and the term loans can be comprised of a combination of
domestic-sourced borrowings and Eurodollar borrowings. The interest rate for
domestic-sourced borrowings is 1% plus the greater of (i) the lead bank's
reference rate and (ii) the Federal funds rate plus 1/2%, and the interest rate
for Eurodollar borrowings is the Eurodollar Rate plus 2%. The Company is
required to enter into interest rate protection arrangements during periods when
certain interest rate environments exist. At December 31, 1995 and June 30,
1996, the rate environments were such that no interest rate protection
agreements were required.
In November 1993, the Company entered into an additional $80 million credit
agreement, with maturities of $40 million on September 30, 1997 and $40 million
on March 31, 1998. The proceeds of this credit agreement were used to prepay the
term loans under the initial credit agreement in the stated order of their
scheduled maturities.
The new credit agreement generally follows the same covenants, restrictions
and composition as the initial credit agreement. The interest rate for
domestic-sourced borrowings is 2% plus the greater of (i) the lead bank's
reference rate and (ii) the Federal funds rate plus 1/2%, and the interest rate
for Eurodollar borrowings is the Eurodollar Rate plus 3%.
Both credit agreements include restrictions as to, among other things, the
amount of additional indebtedness, capitalized lease obligations, contingent
obligations, capital expenditures, foreign exchange contracts and dividends
which can be incurred or paid by the Company. At December 31, 1995 and June 30,
1996, the Company and its subsidiaries were not permitted to pay any dividends
without the permission of the banks. The credit agreements also require
maintenance of minimum levels of net worth, interest coverage, and liquidity;
some of which are increasing minimum levels. Also, the net proceeds in excess of
$10 million received from sales of assets and businesses approved by the lending
banks (other than certain permitted sales) must be used to prepay the term
loans.
The common stock of the Company and its subsidiaries, as well as an
intercompany note between the Company and one of its subsidiaries, are pledged
as collateral for the borrowings under the credit agreements. The Company has
also guaranteed the obligations of its subsidiaries under the credit agreements.
At December 31, 1995, aggregate annual maturities for all long-term debt
maturing by calendar year were as follows (in thousands): 1996, $53.1 million;
1997, $53.3 million; 1998, $40 million.
The weighted average interest rates on both the revolving credit loans and
term loans at December 31, 1994 and 1995 were 8.64% and 8.42%, respectively, and
at June 30, 1995 and 1996 were 8.94% and 8.32%, respectively. Interest payments
were $41.8 million, $19.0 million, $19.4 million for 1993, 1994 and 1995, and
$10.6 million and $7.5 million for the six months ended June 30, 1995 and 1996,
respectively.
During November 1993, pursuant to a recapitalization of the Company, newly
issued shares of its 7% Cumulative Preferred Stock and Class B Common Stock were
exchanged for all of the $450 million of subordinated debentures, including
accrued interest of $18.9 million.
F-12
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 8. INCOME TAXES
The tax effects of significant items comprising the Company's deferred
income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
DEFERRED TAX ASSETS
Net operating loss carryforwards.......................................... $ 64,673 $ 61,066 $ 54,985
Postretirement benefits................................................... 28,928 35,037 37,381
Intangible assets......................................................... 30,780 24,789 18,764
Pension and other benefits................................................ 6,894 13,763 8,670
Inventory................................................................. 3,825 3,010 2,525
Restructuring charges..................................................... 11,175 2,238 811
Other..................................................................... 6,663 7,778 11,031
------------ ------------ ------------
Total..................................................................... 152,938 147,681 134,167
Less valuation allowance.................................................. (147,660) (138,492) (124,843)
------------ ------------ ------------
5,278 9,189 9,324
DEFERRED TAX LIABILITY
Property and equipment, principally due to basis difference............... (5,278) (9,189) (9,324)
------------ ------------ ------------
Net deferred tax asset.................................................... $ -0- $ -0- $ -0-
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
At December 31, 1995, the Company had available a net operating loss
carryforward for regular federal income tax purposes of approximately $150
million which will expire beginning in 2006. Although the Company recorded net
income during 1994 and 1995, no provision for income taxes was recorded,
principally as a result of utilization of net operting loss carryforwards. The
Company has recorded a full valuation allowance for its net deferred tax assets.
In estimating the realizability of its net deferred tax assets, the Company
considers both positive and negative evidence and gives greater weight to
evidence that is objectively verifiable. Due to the Company's cumulative losses
for federal income tax purposes, the Company currently believes that the
realization of its net deferred tax assets is uncertain. The Company will
continue to monitor the realizability of such deferred tax assets on a quarterly
basis.
The Company is involved in a tax audit by the Internal Revenue Service
covering the years ended December 31, 1990 and 1991. The revenue agent's report
includes several proposed adjustments involving the deductibility of certain
compensation expense and items relating to the capitalization of the Company as
well as the allocation of the purchase price in connection with the Acquisition,
including the treatment of advance payments with respect to and the cost of
aircraft that were in backlog at the time of the Acquisition and the
amortization of amounts allocated to intangible assets. The Company believes
that the ultimate resolution of these issues will not have a material adverse
effect on its financial statements because the financial statements already
reflect what the Company currently believes is the expected loss of benefit
arising from the resolution of these issues.
NOTE 9. LEASES
The Company has various operating leases for both real and personal property
including the Company's demonstrator aircraft. Rental expense for 1993, 1994 and
1995 was $22.4 million, $16.6
F-13
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 9. LEASES (CONTINUED)
million and $14.9 million, respectively. The Company also receives sub-lease
rental income under an operating lease, which the approximate annual future
minimum sub-rentals are $2.5 million through November 1999. Future minimum lease
payments for all noncancelable operating leases having a remaining term in
excess of one year at December 31, 1995 aggregated $51.5 million, and payments
during the next five years are: 1996, $8.2 million; 1997, $8.0 million; 1998,
$7.5 million; 1999, $6.9 million; 2000, $3.9 million.
NOTE 10. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company maintains three noncontributory plans covering substantially all
employees. Benefits paid to retirees are based primarily on age at retirement,
years of credited service, and compensation earned during employment. The
Company's funding policy complies with the requirements of Federal law and
regulations. The Company's total pension fund contributions were $800,000, $9.8
million and $14.3 million in 1993, 1994 and 1995, respectively. The Company's
contributions are made to a master trust and invested in a diversified portfolio
consisting primarily of equity and debt securities.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS, the Company has recorded
an additional minimum liability at December 31, 1994 and 1995 representing the
excess of the accumulated benefit obligation over the fair value of plan assets
and accrued pension liability. The additional liability has been offset by
intangible assets to the extent of previously unrecognized prior service cost.
Amounts in excess of previously unrecognized prior service cost are recorded as
a reduction of stockholders' equity of $2.1 million, $1.1 million and $1.5
million in 1993, 1994 and 1995, respectively.
Net periodic pension cost was as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the period....................... $ 8,290 $ 10,210 $ 9,232
Interest cost on projected benefit obligation......................... 10,997 12,533 13,158
Actual return on plan assets.......................................... (7,505) (5,384) (15,937)
Net amortization and deferral......................................... (1,237) (2,857) 5,570
----------- ----------- -----------
$ 10,545 $ 14,502 $ 12,023
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Actuarial assumptions used were:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Discount rate......................................................... 7.50% 8.50% 8.00%
Rate of increase in future compensation levels........................ 4.25% 5.00% 4.75%
Long-term rate of return on plan assets............................... 8.50% 9.00% 9.50%
</TABLE>
F-14
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status at December 31:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefits:
Vested.............................................................. $ 128,317 $ 115,424 $ 136,922
Nonvested........................................................... 12,362 12,498 16,597
----------- ----------- -----------
Accumulated benefit obligaton......................................... $ 140,679 $ 127,922 $ 153,519
----------- ----------- -----------
Projected benefit obligation.......................................... $ 172,371 $ 158,411 $ 190,858
Plan assets at fair value............................................. 106,965 112,527 136,582
----------- ----------- -----------
Projected benefit obligation in excess of plan assets................. 65,406 45,884 54,276
Unrecognized prior service cost....................................... (1,767) (1,627) (4,479)
Contributions......................................................... (1,420) (97)
Unamortized loss resulting from changes in plan experience and
actuarial assumptions............................................... (26,389) (121) (9,269)
Adjustment required to recognize additional minimum
liability........................................................... 2,119 1,305 1,511
----------- ----------- -----------
Accrued pension cost.................................................. $ 39,369 $ 44,021 $ 41,942
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
OTHER POSTRETIREMENT BENEFITS
In addition to pension benefits, the Company provides certain health care
insurance benefits to retired Company employees and their dependents. The
Company currently funds these plans on a pay-as-you-go basis. Substantially all
of the Company's salaried employees and certain hourly employees become eligible
for such benefits when they attain certain age and service requirements while
employed by the Company.
The following tables set forth the components of the accumulated
postretirement benefit obligation and the net periodic postretirement benefit
cost (in thousands):
F-15
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 10. EMPLOYEE BENEFIT PLANS (CONTINUED)
Net periodic postretirement benefit cost included the following at December
31:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.............................................................. $ 41,444 $ 34,181 $ 46,090
Full eligible active plan participants................................ 1,516 1,353 1,644
Other active plan participants........................................ 44,243 40,070 32,073
--------- --------- -----------
Accumulated postretirement benefit obligation in excess of plan
assets................................................................ 87,203 75,604 79,807
Unrecognized prior service cost......................................... 10,927 12,080 8,496
Accrued postretirement benefit cost..................................... (9,128) 7,942 13,718
--------- --------- -----------
$ 89,002 $ 95,626 $ 102,021
--------- --------- -----------
--------- --------- -----------
</TABLE>
Net postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits attributed to service during the period.......... $ 3,771 $ 4,413 $ 3,795
Interest cost of postretirement benefit obligation...................... 5,676 5,949 6,268
Other net amortization and deferral..................................... (823) (952) (1,139)
--------- --------- -----------
$ 8,624 $ 9,410 $ 8,924
--------- --------- -----------
--------- --------- -----------
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.50% in 1993, 8.50% in 1994 and 8.00% in
1995. The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation pre-age 65 is 13.0% in 1993, 10.75% in 1994
and 10.0% in 1995, declining annually .75% to a rate of 5.5%; and for post-age
65 is 11.0% in 1993, 8.75% in 1994 and 8.00% in 1995, declining annually .75% to
a rate of 5.0%. If the health care cost trend rate assumptions were increased by
1%, the accumulated postretirement benefit obligation as of December 31, 1995
would be increased by 14.5%. The effect of this change on the sum of the service
cost and interest cost components would be an increase of 16.6%.
INVESTMENT PLAN
The Company sponsors a voluntary 401(k) investment plan designed to enhance
existing retirement plans. The Company contributes amounts equal to 50% of the
employee's contributions, up to a maximum of 4% of the employee's base salary.
Total expense for the plan was $2.0 million, $1.9 million and $2.1 million for
1993, 1994 and 1995, respectively.
OTHER EMPLOYEE BENEFITS
The Company has supplemental benefit plans covering certain key executives.
These plans provide for benefits which supplement those provided by the
Company's other retirement plans. The Supplemental Executive Retirement Plans
are unfunded plans of deferred compensation for certain key executives. These
supplemental plans are non-qualified and are being provided for by charges to
operations sufficient to meet the projected benefit obligation. The Executive
Insurance Plan provides additional
F-16
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 10. EMPLOYEE BENEFIT PLANS (CONTINUED)
death benefits to certain key executives. The Company acquired life insurance
policies or annuity contracts to provide funding of the benefits. The costs for
these plans are based on substantially the same actuarial methods and economic
assumptions as those used for the defined benefit pension plans. The Company's
expense for these plans was $1.4 million in both 1993 and 1994 and $1.3 million
in 1995. The accumulated benefit obligation related to these plans totaled
approximately $3.9 million, $4.1 million and $4.4 million at December 31, 1993,
1994 and 1995, respectively, and is recorded in other long-term liabilities.
The Company has an Incentive Compensation Plan administered by the
Compensation Committee of the Board of Directors which provides for payment of
cash awards to officers and key employees based upon achievement of specific
goals by the Company and the participating employees. For the years ended 1993,
1994 and 1995, provisions of approximately $1.5 million, $4.0 million and $4.5
million, respectively, were charged against income related to the plan. Payouts
are based entirely on achievement of financial and business objectives.
NOTE 11. STOCKHOLDERS' EQUITY
In November 1993, the Company amended and restated its certificate of
incorporation to authorize the issuance of 93,493,000 shares of Class A Common
Stock, par value $.01 per share, consisting of 67,682,000 shares of Series A-1
and 25,811,000 shares of Series A-2, and 15,780,000 shares of Class B Common
Stock, par value $.01 per share, and 10,000,000 shares of Preferred Stock, par
value $.01 per share. The Class A and Class B Common Stock have equal voting
rights. Each common share issued immediately prior to the recapitalization was
designated as either Series A-1 shares (16,250,000) or Series A-2 shares
(25,095,833).
In November 1993, the Company issued 100 shares of 7% Series A Cumulative
Preferred Stock with a par value of $.01 per share (Series A Preferred Stock)
and 11,045,833 shares of Class B Common Stock with a par value of $.01 per share
(see Note 7). Accumulated deficit was charged with the par value of the Class B
Common Stock issued of $110,458. The Series A Preferred Stock has a stated value
of $4,689,375 per share, and a liquidation preference equal to the stated value
per share plus all accumulated dividends ($77.3 million at December 31, 1995)
subsequent to October 1, 1993. The dividends are payable quarterly, when, as and
if, declared by the Company's Board of Directors. No payments in liquidation may
be made with respect to Common Stock unless all accumulated dividends on the
Series A Preferred Stock and the liquidation preference on the Series A
Preferred Stock have been paid in full. After provision for the Series A
Preferred Stock, the Class A Common Stock has preference with respect to
dividends, other distributions and in liquidation over all other classes of
common stock currently outstanding in the amount of approximately $186 million.
After the provision for the Preferred Stock and the Class A Common Stock
preferences as described above, the Class A Common Stock is entitled to 75% and
the Class B Common Stock is entitled to 25% of any dividends and other
distributions or in liquidation. Under certain circumstances, holders of the
Series A Preferred Stock are entitled to limited voting rights. In addition,
under certain circumstances, including an initial public offering of the
Company's common stock, the Series A-2 Common Stock and the Class B Common Stock
shall be exchanged for Series A-1 Common Stock.
Under a Stock Option Plan adopted by its stockholders effective March 20,
1990, the Company has granted options to purchase its common stock to certain
Company employees with an option price which, prior to 1996, was not less than
the fair value of the stock at the date of grant. Generally, the options vest
25% on date of issuance, 25% on or before the first anniversary of the date of
issuance, and
F-17
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 11. STOCKHOLDERS' EQUITY (CONTINUED)
25% annually thereafter. Effective July 1, 1994, generally the vesting schedule
was changed to 33% on and after the first anniversary of the date of issuance,
an additional 33% on and after the second anniversary of the date of issuance
and the last 33% after the third anniversary of the date of issuance. In
addition, the Company has granted options to purchase its common stock to its
directors and advisors with vesting periods up to three years. Generally, such
options expire ten years from date of grant. The option price per share ranges
from approximately $5 to $6. At December 31, 1995 and June 30, 1996, options for
3,811,000 shares and 4,841,228 shares, respectively, are exercisable and
6,816,750 shares and 6,949,250 shares, respectively, of Class A Common Stock are
reserved for issuance upon the exercise of the options under the Stock Option
Plan and to the Company's directors and advisors. The Company recorded
compensation expense related to stock option grants of $5.2 million during the
six months ended June 30, 1996.
The Company's stock option transactions were as follows:
<TABLE>
<CAPTION>
GRANTS TO DIRECTORS
STOCK OPTION PLAN AND ADVISORS
----------------- ---------------------------
NUMBER OF NUMBER OF
SHARES SHARES
----------------- ---------------------------
<S> <C> <C>
Balance at January 1, 1993.............. 2,570,350 587,500
Granted................................. 11,750 318,750
Canceled or expired..................... (779,100)
----------------- ----------
Balance at December 31, 1993............ 1,803,000 906,250
Granted................................. 2,180,875 450,000
Canceled or expired..................... (37,500)
----------------- ----------
Balance at December 31, 1994............ 3,946,375 1,356,250
Granted................................. 1,160,000
Exercised............................... (2,000)
Canceled or expired..................... (618,000) (37,500)
----------------- ----------
Balance at December 31, 1995............ 4,486,375 1,318,750
Granted (Unaudited)..................... 535,000 145,000
Exercised (Unaudited)................... (12,500)
Canceled or expired (Unaudited)......... (10,000)
----------------- ----------
Balance at June 30, 1996 (Unaudited) 5,011,375 1,451,250
----------------- ----------
----------------- ----------
</TABLE>
The Company has granted stock appreciation rights (SARs) to certain officers
and key employees. There were 22,312 and 14,312 SARs outstanding as of December
31, 1995 and June 30, 1996, respectively, with a base price ranging from
approximately $5 to $6. The Company recorded compensation expense related to
SARs of $165,000 during the six months ended June 30, 1996. These SARs vest 50%
on the first anniversary date of issuance, and 25% annually thereafter.
NOTE 12. RELATED PARTY TRANSACTIONS
Entities related to Forstmann Little & Co. ("Forstmann Little") currently
beneficially own substantially all of the Company's common stock. Under a usage
agreement, the Company pays an affiliate of
F-18
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 12. RELATED PARTY TRANSACTIONS (CONTINUED)
Forstmann Little for the use of a Gulfstream IV. Total expenses associated with
this agreement totalled $4.6 million for 1993 and $2.3 million for 1994 and
1995. This aircraft is utilized as a demonstrator aircraft. The Company also
procures certain inventory items from another Forstmann Little affiliate engaged
in the aircraft industry. During 1994, the Company sold three aircraft totaling
$58.6 million to two corporations whose presidents are directors of the Company
and also sold a Gulfstream II to an affiliate of Forstmann Little for $6.7
million. Additionally, the Company leased from one of its directors, through
August 1993, an aircraft used for sales demonstration, and customer support
purposes. Total expense for the year ended December 31, 1993 was $834,000.
Management believes all these transactions with related parties are on terms
similar to those of other customers and vendors.
In August 1996, Gulfstream entered into agreements with Mr. Theodore J.
Forstmann pursuant to which Gulfstream will provide Mr. Forstmann with the use
of a Gulfstream V for a period of ten years. Until the Gulfstream V becomes
available, Gulfstream will make available to Mr. Forstmann a Gulfstream IV (by
purchasing at fair market value, or assuming a lease at fair market value for, a
Gulfstream IV from an affiliate of FLC Partnership, L.P.). Mr. Forstmann has
agreed to pay Gulfstream up to $1.0 million annually for non-Company use of the
aircraft. If Mr. Forstmann is no longer serving as a director or official of
Gulfstream, he has agreed to reimburse Gulfstream $1,800 per hour for all use of
the aircraft, or other such rate required so as not to exceed FAA regulatory
requirements.
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of the fair value of certain
financial instruments. Cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities are reflected in the financial statements at
fair value because of the short-term maturity of these instruments. The Company
estimates that the carrying value of its long-term debt, based on current
interest rates and terms, approximates fair value.
NOTE 14. COMMITMENTS AND CONTINGENCIES
In the normal course of business, lawsuits, claims and proceedings have been
or may be instituted or asserted against the Company relating to various
matters, including product liability. Although the outcome of litigation cannot
be predicted with certainty and some lawsuits, claims or proceedings may be
disposed of unfavorably to the Company, management has made provision for all
known probable losses related to lawsuits and claims and believes that the
disposition of all matters which are pending or asserted will not have a
material adverse effect on the financial statements of the Company.
The Company is currently engaged in the monitoring and cleanup of certain
ground water at its Savannah facility under the oversight of the Georgia
Department of Natural Resources. Expenses incurred for cleanup have not been
significant. The Company received in 1992, at its Long Beach facility, two
inquiries from the U.S. Environmental Protection Agency and, in 1991, at its
Oklahoma facility, a soil contamination inquiry. The Company believes other
aspects of the Savannah facility, as well as other Gulfstream properties, are
being carefully monitored and are in substantial compliance with current
federal, state and local environmental regulations. The Company believes the
liabilities, if any, that will result from the above environmental matters will
not have a material adverse effect on its financial statements.
The Company has agreements with certain of its suppliers to procure major
aircraft components such as engines, wings, and avionics. The agreements vary in
length from three to five years and generally provide for price and quantity of
components to be supplied. In connection with the Gulfstream
F-19
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
V program, the Company has entered into revenue sharing agreements with two
suppliers. One of these suppliers has reorganized, and the Gulfstream revenue
sharing agreement was assigned to the successor corporation which was formed
from the remaining business divisions. The terms of such agreements require the
supplier to design, manufacture and supply certain aircraft components in
exchange for a fixed percentage of the revenues of each Gulfstream V sold.
Progress payments under the revenue sharing agreements are generally required to
be made on a pro rata basis concurrent with the associated deposits received on
Gulfstream V contracts.
In connection with the sale of 28 aircraft as of December 31, 1995, and 29
aircraft as of June 30, 1996, the Company has offered customers trade-in options
(which may or may not be exercised) pursuant to which the Company will accept
trade-in aircraft (primarily Gulfstream IVs and IV-SPs) at a guaranteed minimum
trade-in price. Management believes that the fair market value of such aircraft
will exceed the specified trade-in value.
At December 31, 1995 and June 30, 1996, the Company had outstanding letters
of credit (which support performance guarantees) totaling $24.4 million and
$13.7 million, respectively.
The Company purchases its major aircraft components from a limited number of
suppliers. Although the Company purchases from a limited number of suppliers,
management believes that there are other suppliers who could provide similar
components on comparable terms without significant disruption of its production.
Management of the Company expects that its new Gulfstream V aircraft will be
certified by the Federal Aviation Administration by the end of 1996. While a
significant delay in such certification could have near term adverse
consequences, management believes that certification will occur on schedule.
NOTE 15. EXPORT SALES
Foreign sales by geographical area consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- 1996
1993 1994 1995 (UNAUDITED)
----------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Africa................................................. $ 7,512 $ 5,977 $ 6,773 $ 49,886
Latin America and Caribbean............................ 83,398 28,337 36,479 17,325
Asia................................................... 86,831 64,630 102,990 12,973
Europe................................................. 71,229 22,201 51,330 12,269
Canada................................................. 611 821 19,102 929
Other.................................................. 6,013 834 358 206
----------- ----------- ----------- ------------
$ 255,594 $ 122,800 $ 217,032 $ 93,588
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
NOTE 16. SUBSEQUENT EVENTS
The Company is currently pursuing an initial public offering which is
expected to be effected during the fourth quarter of 1996.
On August 9, 1996, the Company received a commitment from a bank for a new
long-term credit agreement under which the lenders who are parties to the credit
agreement would, effective upon the consummation of the initial public offering,
make available to the Company a $400 million term loan and
F-20
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 16. SUBSEQUENT EVENTS (CONTINUED)
$250 million revolving credit facility with substantially different terms but
with similar restrictive covenants as the present credit agreements.
Concurrently with entering into the credit agreement, the Company would repay
all amounts outstanding under its present credit agreements and terminate such
agreements.
In connection with the initial public offering, the Company expects to
effect a 1996 recapitalization immediately prior to, or simultaneous with, the
closing of the offerings to:
- repurchase all of its outstanding 7% Series A Cumulative Preferred Stock
for a purchase price of $450 million plus approximately $7.9 million of
unpaid dividends,
- exchange all outstanding shares of Class A-2 and Class B Common Stock for
Class A-1 Common Stock,
- redesignate Class A-1 Common Stock into Common Stock,
- effect a 1.5-for-1 stock split of the Common Stock,
- sell 1,956,520 shares of Common Stock by the Company to certain option
holders pursuant to existing option agreements, and
- restate the Company's Certificate of Incorporation to authorize
300,000,000 shares of Common Stock, par value $.01 per share, and
20,000,000 shares of Preferred Stock.
F-21
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the U.S.
Underwriters named below, and each of such U.S. Underwriters, for whom Goldman,
Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan
Stanley & Co. Incorporated are acting as representatives, has severally agreed
to purchase from the Company and the Selling Stockholders the respective number
of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
- ----------------------------------------------------------------------------------------- -------------
<S> <C>
Goldman, Sachs & Co......................................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................................................
Morgan Stanley & Co. Incorporated........................................................
-------------
Total................................................................................ 22,400,000
-------------
-------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
The Company and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters of
the international offering (the "International Underwriters") providing for the
concurrent offer and sale of 5,600,000 shares of Common Stock in an
international offering outside the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two offerings
are identical. The closing of the offering made hereby is a condition to the
closing of the International Offering, and vice versa. The representatives of
the International Underwriters are Goldman Sachs International, Merrill Lynch
International and Morgan Stanley & Co. International Limited.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as a part of the international
offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of Common Stock (a) in the United
States or to any U.S. persons or (b) to any person who it believes intends to
reoffer, resell or deliver the shares in the United States or to any U.S.
persons, and (ii) cause any dealer to whom it may sell such shares at any
concession to agree to observe a similar restriction.
U-1
<PAGE>
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
The Selling Stockholders have granted the U.S. Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 3,360,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the U.S. Underwriters exercise their over-allotment
option, the U.S. Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 22,400,000 shares of Common Stock offered. The Selling
Stockholders have granted the International Underwriters a similar option
exercisable up to an aggregate of 840,000 additional shares of Common Stock.
The Company has agreed that, during the period beginning from the date of
this Prospectus and continuing to and including the date 180 days after the date
of this Prospectus, it will not offer, sell, contract to sell or otherwise
dispose of or file a registration statement (other than a registration statement
on Form S-8 with respect to an employee benefit plan) with respect to any Common
Stock, or any securities of the Company (other than pursuant to employee stock
option and incentive plans and agreements, upon conversion of outstanding
convertible securities or grants of options to directors) which are
substantially similar to the Common Stock or any other securities which are
exercisable or exchangeable for, convertible into or whose exercise or
settlement price is derivable from the price of Common Stock or any such
securities substantially similar to the Common Stock, without the prior written
consent of the representatives of the Underwriters.
The Selling Stockholders have agreed not to offer, sell or otherwise dispose
of any Common Stock for a period of 180 days after the date of the Offerings
without the prior written consent of the representatives of the Underwriters,
except for certain transfers to immediate family members, trusts for the benefit
of the Selling Stockholder and his or her immediate family, charitable
foundations and controlled entities so long as the transferee agrees to be bound
by the foregoing restrictions.
The representatives of the Underwriters have informed the Company that they
do not expect sales to discretionary accounts by the U.S. Underwriters to exceed
five percent of the total number of shares of Common Stock offered by them.
Prior to the Offerings, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company, the Selling Stockholders and the representatives of the U.S.
Underwriters and the International Underwriters. Among the factors to be
considered in determining the initial public offering price of the Common Stock,
in addition to prevailing market conditions, will be the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of the
above factors in relation to market valuation of companies in related
businesses.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "GAC", subject to official notice of issuance. In
order to meet one of the requirements for listing the Common Stock on the New
York Stock Exchange, the U.S. Underwriters have undertaken to sell lots of 100
or more shares to a minimum of 2,000 beneficial holders.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
International Offering, to persons located in the United States.
U-2
<PAGE>
[INSIDE BACK COVER]
Gulfstream IV-SPs and Gulfstream Vs are manufactured simultaneously at
Gulfstream's main production facility in Savannah, GA.
[Photo of Gulfstream's main production facility in Savannah, GA]
Gulfstream's new state-of-the-art, 200,000 sq. ft. service center can handle up
to 20 aircraft at one time.
[Photo of Gulfstream's 200,000 sq ft. service center]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................. 3
Risk Factors....................................... 9
The Company........................................ 14
Use of Proceeds.................................... 14
Dividend Policy.................................... 15
Capitalization..................................... 16
Dilution........................................... 17
Pro Forma Condensed Financial Information.......... 18
Selected Financial Data............................ 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 22
Business........................................... 30
Management......................................... 48
Principal and Selling Stockholders................. 61
Certain Transactions............................... 63
Description of Capital Stock....................... 65
Description of Credit Agreement.................... 68
Shares Eligible For Future Sale.................... 71
Validity of Common Stock........................... 72
Experts............................................ 72
Additional Information............................. 72
Index to Financial Statements...................... F-1
Underwriting....................................... U-1
</TABLE>
THROUGH AND INCLUDING , 1996 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
28,000,000 SHARES
GULFSTREAM AEROSPACE
CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-----------
[LOGO]
-----------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
REPRESENTATIVES OF THE UNDERWRITERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be borne by the
Company, in connection with the issuance and distribution of the securities
being registered hereby, other than underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC registration fee (actual).................................. $ 288,531
NYSE filing fee................................................ 315,000
NASD fees (actual)............................................. 30,500
Transfer agent and registrar fee and expenses.................. 10,000
Accounting fees and expenses................................... 550,000
Legal fees and expenses........................................ 845,000
Blue Sky expenses and counsel fees............................. 26,000
Printing and engraving expenses................................ 425,000
Miscellaneous.................................................. 9,969
----------
Total.......................................................... $2,500,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation and By-Laws of the Company provide
for indemnification, to the fullest extent permitted by the DGCL, of any person
who is or was involved in any manner in any threatened, pending or completed
investigation, claim or other proceeding, by reason of the fact that such person
is or was a director or officer of the Company or is or was serving at the
request of the Company as a director or officer of another entity, against all
expenses, liabilities, losses and claims actually incurred or suffered by such
person in connection with the investigation, claim or other proceeding. The
By-Laws also provide that the Company shall advance expenses to a director or
officer upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it is ultimately determined that the director or
officer is not entitled to be indemnified by the Company.
Article SIXTH of the Restated Certificate of Incorporation provides that
directors of the Company shall not, to the fullest extent permitted by the DGCL,
be liable to the Company or any of its stockholders for monetary damages for any
breach of fiduciary duty as a director. The Restated Certificate of
Incorporation also provides that if the DGCL is amended to permit further
elimination or limitation of the personal liability of directors, then the
liability of the directors of the Company shall be eliminated or limited to the
fullest extent permitted by the DGCL as so amended.
The Company and Gulfstream Delaware have entered into, or intend to enter
into, agreements to indemnify the Company's directors and officers in addition
to the indemnification provided for in the Restated Certificate of Incorporation
and By-Laws. These agreements, among other things, indemnify the Company's
directors and officers to the fullest extent permitted by Delaware law for
certain expenses (including attorney's fees), liabilities, judgments, fines and
settlement amounts incurred by such person arising out of or in connection with
such person's service as a director or officer of the Company or an affiliate of
the Company.
Policies of insurance are maintained by the Company under which its
directors and officers are insured, within the limits and subject to the
limitations of the policies, against certain expenses in connection with the
defense of, and certain liabilities which might be imposed as a result of,
actions, suits or proceedings to which they are parties by reason of being or
having been such directors or officers.
II-1
<PAGE>
The form of Underwriting Agreements filed as Exhibit 1.1 hereto provides for
the indemnification of the Company, its controlling persons, its directors and
certain of its officers by the Underwriters against certain liabilities,
including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (WITHOUT GIVING EFFECT TO THE
1996 RECAPITALIZATION)
On November 30, 1993, the Company sold 100 shares of its 7% Cumulative
Preferred Stock and 11,045,833 shares of its Class B Common Stock to MBO-IV in
return for the Original Debentures and the Additional Debentures. See "Certain
Transactions -- The Acquisition; Subsequent Events." Such issuances were exempt
from registration under the Securities Act pursuant to Section 4(2) thereof
because they did not involve a public offering as the shares were issued only to
a limited number of persons and were not offered to any other persons.
Registration under the Securities Act also was not required because MBO-IV was
an existing holder of the Company's securities and the sale did not involve any
solicitation. Therefore, these exchanges are exempt from registration under the
Securities Act under Section 3(a)(9) of the Securities Act.
On June 30, 1995, the Company sold to a former officer of the Company 2,000
shares of Class A Common Stock, Series A-2, pursuant to a stock option granted
to the former officer in May 1994. The purchase price for these shares was
$10,240. This issuance was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof because it did not involve a public offering as
the shares were issued to one person and were not offered to another person.
On May 13, 1996, the Company sold to an advisor of the Company 12,500 shares
of Class A Common Stock, Series A-1, pursuant to a stock option granted to the
advisor in May 1994. The purchase price for these shares was $76,875. This
issuance was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof because it did not involve a public offering as the shares
were issued to one person and were not offered to another person.
As part of the 1996 Recapitalization, (i) each outstanding share of Class A
Series A-2 Common Stock and each outstanding share of Class B Common Stock will
be exchanged for shares of Class A Series A-1 Common Stock, (ii) all Class A
Series A-1 Common Stock will be redesignated Common Stock and (iii) the Common
Stock will be adjusted for a 1.5-for-1 split of the Common Stock. See
"Description of Capital Stock -- General". Registration under the Securities Act
will not be required in respect of issuances pursuant to the 1996
Recapitalization because they will be made exclusively to existing holders of
the Company's securities and will not involve any solicitation. Therefore, these
issuances will be exempt from registration under the Securities Act pursuant to
Section 3(a)(9) of the Securities Act.
No other sales of the Company's securities have taken place within the last
three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
<TABLE>
<C> <S> <C>
1.1 -- Proposed Form of Underwriting Agreements.*
2.1 -- Stock Purchase Agreement, dated as of February 12, 1990, between
Electrospace Holding, Inc. and GA Acquisition Corp.*
3.1 -- Form of Restated Certificate of Incorporation of the Company.*
3.2 -- Form of Restated By-Laws of the Company.*
4.1 -- Specimen Form of Company's Common Stock Certificate.
5.1 -- Opinion of Fried, Frank, Harris, Shriver & Jacobson as to the validity of
the securities being registered.
10.1 -- Gulfstream Aerospace Corporation Pension Plan, amended and restated January
1, 1989, as amended.* +
10.2 -- Gulfstream Aerospace Corporation Supplemental Executive Retirement Plan,
effective as of April 1, 1991.* +
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S> <C>
10.3 -- Gulfstream Aerospace Corporation November 1, 1991 Supplemental Executive
Retirement Plan.* +
10.4 -- Form of Indemnification Agreement between the Company and its directors and
executive officers.*
10.5 -- Form of Outside Director Stock Option Agreement.* +
10.6 -- Form of Outside Director Stockholder's Agreement.* +
10.7 -- Gulfstream Aerospace Corporation Stock Option Plan.* +
10.8 -- Form of Employee Stock Option Agreement.* +
10.9 -- Form of Employee Stockholder's Agreement.* +
10.10 -- Form of Employee Stock Appreciation Right Agreement.* +
10.11 -- Lease Agreement, dated as of January 1, 1988, between Oklahoma City Airport
Trust and Gulfstream Aerospace Corporation.*
10.12 -- Lease Agreement, dated as of March 14, 1989, between City of Long Beach and
7701 Woodley Avenue Corporation dba Gulfstream Aerospace.*
10.13 -- Form of Lease Agreements, dated January 1, 1994, between Immuebles El Vigia,
S.A., and Interiores Aeros, S.A. De C.V.*
10.14 -- Lease Agreement, dated May 1, 1996 between Immuebles El Vigia, S.A., and
Interiores Aeros, S.A. De C.V.*
10.15 -- Sublease Agreement, dated June 1, 1992, between Brunswick and Glynn County
Development Authority and Gulfstream Aerospace Corporation.*
10.16 -- Form of Credit Agreement, dated as of October 1996, among Gulfstream
Delaware Corporation, The Chase Manhattan Bank and the banks and other
financial institutions parties thereto (including form of guaranty and
pledge agreement).
10.17 -- Registration Rights Agreement among Gulfstream Aerospace Corporation,
Gulfstream Delaware Corporation, Gulfstream Partners, Gulfstream Partners
II, L.P., and MBO-IV.*
10.18 -- Repurchase Agreement, dated as of May 15,1996, between Gulfstream Aerospace
Corporation and MBO-IV.*
10.19 -- Repurchase Agreement, dated as of August 8, 1996, between Gulfstream
Aerospace Corporation and MBO-IV.*
10.20 -- Amendment No. 1 to Sublease Agreement, dated May 23, 1994, by and between
Brunswick and Glynn County Development Authority and Gulfstream Aerospace
Corporation.*
10.21 -- Amendment No. 2 to Sublease Agreement, dated May 25,1996, by and between
Brunswick and Glynn County Development Authority and Gulfstream Aerospace
Corporation.*
10.22 -- Agreement, effective August 9, 1996, between Gulfstream Aerospace
Technologies and the International Union, United Automobile, Aerospace &
Agricultural Implement Workers of America Local #2130.*
10.23 -- Lease Agreement, dated as of August 27, 1996, between Long Beach Million
Air, Inc. and Gulfstream Aerospace Corporation.*
11.1 -- Computation of Earnings per Common Share.*
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit
5.1).
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Aviation Week Group.*
24.1 -- Powers of Attorney.*
</TABLE>
- --------------
* Previously filed.
+ Compensation Arrangement
II-3
<PAGE>
B. SCHEDULES
<TABLE>
<CAPTION>
Independent Auditors Consent and Report on Schedules.................. S-1
<S> <C>
Schedule I Condensed Financial Information of Registrant........... S-2
Schedule II Valuation and Qualifying Accounts (Company)............ S-4
</TABLE>
All financial statement schedules other than the above have been omitted
because they are not required or the information required to be set forth
therein is included in the financial statements or in the notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To provide to the underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
(2) That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant, pursuant to the provisions described in Item 14 or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by any such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
or not such indemnification is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(3) That for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(4) That for the purpose of determining any liability under the Securities
Act, each posteffective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Gulfstream
Aerospace Corporation has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Savannah and the State of Georgia on the 8th day of
October, 1996.
GULFSTREAM AEROSPACE CORPORATION
By: /s/ CHRIS A. DAVIS
-----------------------------------
Chris A. Davis
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ------------------------
<C> <S> <C>
*
------------------------------- Chairman of the Board; Director October 8, 1996
Theodore J. Forstmann
*
------------------------------- President and Chief Operating Officer; Director October 8, 1996
Fred A. Breidenbach
/s/ CHRIS A. DAVIS Executive Vice President, Chief Financial
------------------------------- Officer (Principal Financial Officer and October 8, 1996
Chris A. Davis Principal and Accounting Officer)
*
------------------------------- Director October 8, 1996
William R. Acquavella
*
------------------------------- Director October 8, 1996
Robert Anderson
*
------------------------------- Director October 8, 1996
Charlotte L. Beers
*
------------------------------- Director October 8, 1996
Thomas D. Bell, Jr.
*
------------------------------- Executive Vice President; Director October 8, 1996
W.W. Boisture, Jr.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ------------------------
<C> <S> <C>
*
------------------------------- Director October 8, 1996
Nicholas C. Forstmann
*
------------------------------- Director October 8, 1996
Sandra J. Horbach
*
------------------------------- Director October 8, 1996
Drew Lewis
*
------------------------------- Vice Chairman of the Board; Director October 8, 1996
Bryan T. Moss
*
------------------------------- Director October 8, 1996
Allen E. Paulson
*
------------------------------- Director October 8, 1996
Roger S. Penske
*
------------------------------- Director October 8, 1996
Colin L. Powell
*
------------------------------- Director October 8, 1996
Gerard Roche
*
------------------------------- Director October 8, 1996
Donald H. Rumsfeld
*
------------------------------- Director October 8, 1996
George P. Shultz
*
------------------------------- Director October 8, 1996
Robert S. Strauss
*By /s/ CHRIS A. DAVIS
--------------------------
CHRIS A. DAVIS
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
To the Board of Directors and Stockholders of
Gulfstream Aerospace Corporation:
We consent to the use in this Registration Statement of Gulfstream Aerospace
Corporation on Form S-1 of our report dated February 2, 1996, appearing in the
Prospectus, which is part of this Registration Statement and to the reference to
us under the heading "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the consolidated financial statement schedules of
Gulfstream Aerospace Corporation and its subsidiaries, listed in Item 16(B).
These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such consolidated financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
August 6, 1996
S-1
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
(PARENT COMPANY ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
Investment in subsidiary.......................................................... $ 190,644 $ 219,234
-------------- --------------
Total Assets.................................................................. $ 190,644 $ 219,234
-------------- --------------
-------------- --------------
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Payable to subsidiary............................................. $ 1,694 $ 1,694
----------- -----------
Total Liabilities............................................... 1,694 1,694
----------- -----------
Stockholders' Equity:
Preferred stock, Series A, 7%-cumulative; par value $.01; shares
authorized; 10,000,000; shares issued; 100 in 1994 and 1995,
Liquidation preference, $546,282,056 in 1995..................... 468,938 468,938
Common stock, Class A, Series A-1 and A-2, par value $.01; shares
authorized: 93,493,000; shares issued: 41,345,833 in 1994 and
41,347,833 in 1995;.............................................. 413 413
Common stock, Class B, par value $.01; shares authorized;
15,780,000; shares issued: 11,045,833 in 1994 and 1995........... 110 110
Additional paid-in capital........................................ 210,621 210,631
Accumulated deficit............................................... (439,507) (410,613)
Minimum pension liability......................................... (1,136) (1,450)
Treasury stock, Common stock, Class A, Series A-2, 8,220,833
shares in 1994 and 1995.......................................... (50,489) (50,489)
----------- -----------
Total Stockholders' Equity...................................... 188,950 217,540
----------- -----------
Total Liabilities and Stockholders' Equity........................ $ 190,644 $ 219,234
----------- -----------
----------- -----------
</TABLE>
Note to Schedule I:
The Company accounts for its investment in its subsidiary using the equity
method of accounting. No dividends were paid to the Company by its subsidiary
during the two years ended December 31, 1995.
S-2
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
(PARENT COMPANY ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
------------ --------- ---------
<S> <C> <C> <C>
Interest income.............................................................. $ (28,406)
Interest expense............................................................. 28,406
------------ --------- ---------
Interest--net................................................................ 0 0 0
Net income (loss) of subsidiary.............................................. (275,227) $ 23,564 $ 28,894
------------ --------- ---------
Net income (loss)............................................................ $ (275,227) $ 23,564 $ 28,894
------------ --------- ---------
------------ --------- ---------
</TABLE>
Note: Statement of cash flows are not presented since the Company had no cash
flows from operations.
S-3
<PAGE>
GULFSTREAM AEROSPACE CORPORATION
SCHEDULE II -- CONSOLIDATED SCHEDULE OF VALUATION AND QUALIFYING
ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS (1) PERIOD
- ----------------------------------------------------------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended December 31, 1993............................. $ 1,255 $ 50 $ 153 $ 1,152
----------- ----------- ----- -----------
Year ended December 31, 1994............................. 1,152 286 126 1,312
----------- ----------- ----- -----------
Year ended December 31, 1995............................. 1,312 2,506 381 3,437
----------- ----------- ----- -----------
</TABLE>
(1) Deductions from the allowance for doubtful accounts represent the write-off
of uncollectible accounts.
S-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C> <C>
1.1 -- Proposed Form of Underwriting Agreements.*
2.1 -- Stock Purchase Agreement, dated as of February 12, 1990, between Electrospace
Holding, Inc. and GA Acquisition Corp.*
3.1 -- Form of Restated Certificate of Incorporation of the Company.*
3.2 -- Form of Restated By-Laws of the Company.*
4.1 -- Specimen Form of Company's Common Stock Certificate.
5.1 -- Opinion of Fried, Frank, Harris, Shriver & Jacobson as to the validity of the
securities being registered.
10.1 -- Gulfstream Aerospace Corporation Pension Plan, amended and restated January 1, 1989,
as amended.* +
10.2 -- Gulfstream Aerospace Corporation Supplemental Executive Retirement Plan, effective as
of April 1, 1991.* +
10.3 -- Gulfstream Aerospace Corporation November 1, 1991 Supplemental Executive Retirement
Plan.* +
10.4 -- Form of Indemnification Agreement between the Company and its directors and executive
officers.*
10.5 -- Form of Outside Director Stock Option Agreement.* +
10.6 -- Form of Outside Director Stockholder's Agreement.* +
10.7 -- Gulfstream Aerospace Corporation Stock Option Plan.* +
10.8 -- Form of Employee Stock Option Agreement.* +
10.9 -- Form of Employee Stockholder's Agreement.* +
10.10 -- Form of Employee Stock Appreciation Right Agreement.* +
10.11 -- Lease Agreement, dated as of January 1, 1988, between Oklahoma City Airport Trust and
Gulfstream Aerospace Corporation.*
10.12 -- Lease Agreement, dated as of March 14, 1989, between City of Long Beach and 7701
Woodley Avenue Corporation dba Gulfstream Aerospace.*
10.13 -- Form of Lease Agreements, dated January 1, 1994 between Immuebles El Vigia, S.A., and
Interiores Aeros, S.A. De C.V.*
10.14 -- Lease Agreement, dated May 1, 1996 between Immuebles El Vigia, S.A., and Interiores
Aeros, S.A. De C.V.*
10.15 -- Sublease Agreement, dated June 1, 1992, between Brunswick and Glynn County
Development Authority and Gulfstream Aerospace Corporation.*
10.16 -- Form of Credit Agreement, dated as of October 1996, among Gulfstream Delaware
Corporation, The Chase Manhattan Bank and the banks and other financial
institutions parties thereto (including form of guaranty and pledge agreement).
10.17 -- Registration Rights Agreement among Gulfstream Aerospace Corporation, Gulfstream
Delaware Corporation, Gulfstream Partners, Gulfstream Partners II, L.P., and
MBO-IV.*
10.18 -- Repurchase Agreement, dated as of May 15,1996, between Gulfstream Aerospace
Corporation and MBO-IV.*
10.19 -- Repurchase Agreement, dated as of August 8, 1996, between Gulfstream Aerospace
Corporation and MBO-IV.*
10.20 -- Amendment No. 1 to Sublease Agreement, dated May 23, 1994, by and between Brunswick
and Glynn County Development Authority and Gulfstream Aerospace Corporation.*
10.21 -- Amendment No. 2 to Sublease Agreement, dated May 25,1996, by and between Brunswick
and Glynn County Development Authority and Gulfstream Aerospace Corporation.*
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C> <C>
10.22 -- Agreement, effective August 9, 1996, between Gulfstream Aerospace Technologies and
the International Union, United Automobile, Aerospace & Agricultural Implement
Workers of America Local #2130.*
10.23 -- Lease Agreement, dated as of August 27, 1996, between Long Beach Million Air, Inc.
and Gulfstream Aerospace Corporation.*
11.1 -- Computation of Earnings per Common Share.*
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1).
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Aviation Week Group.*
24.1 -- Powers of Attorney.*
</TABLE>
- --------------
* Previously filed.
+ Compensation Arrangement
<PAGE>
NUMBER
COMMON STOCK SHARES
PAR VALUE $.01
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 402734 10 7
GULFSTREAM AEROSPACE CORPORATION
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULL-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
CERTIFICATE OF STOCK
GULFSTREAM AEROSPACE CORPORATION, TRANSFERABLE IN PERSON OR BY DULY
AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE SUBJECT TO ALL THE
TERMS, CONDITIONS AND LIMITATIONS OF THE CERTIFICATE OF INCORPORATION AND
ALL AMENDMENTS THERETO AND SUPPLEMENTS THEREOF. THIS CERTIFICATE IS NOT VALID
UNTIL COUNTERSIGNED BY THE TRANSFER AGENT AND REGISTERED BY THE REGISTRAR.
WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
DATED [SIGNATURE]
COUNTERSIGNED AND REGISTERED: [SEAL] CHAIRMAN
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
[SIGNATURE]
SECRETARY
BY
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT-_________Custodian_________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ______________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated:__________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED:
- ---------------------------------
- ---------------------------------
<PAGE>
[LETTERHEAD]
October 8, 1996
Gulfstream Aerospace Corporation
P.O. Box 2206
500 Gulfstream Road
Savannah, Georgia 31402-2206
Re: Registration Statement on Form S-1
(No. 333-09897)
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel for Gulfstream Aerospace
Corporation, a Delaware corporation (the "Company"), in connection with the
underwritten initial public offering (the "Offering") by the Company and certain
of the Company's stockholders of shares (the "Shares") of common stock, par
value $.01 per share (the "Common Stock") of the Company, including Shares which
may be offered and sold upon the exercise of over-allotment options granted to
the underwriters. The Shares are to be offered to the public pursuant to a U.S.
underwriting agreement among the Company, the selling stockholders named
therein, and Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Morgan Stanley & Co. Incorporated, as representatives of the
U.S. underwriters, and an international underwriting agreement among the
Company, the selling stockholders named therein, and Goldman Sachs
International, Merrill Lynch International and Morgan Stanley & Co.
International Limited, as representatives of the international underwriters
(together, the "Underwriting Agreements"). The opinion set forth below is
based on the assumption that, prior to the sale of the Shares pursuant
to the Underwriting Agreements, the Company will amend and restate its
certificate of incorporation (as amended and restated, the "Restated Charter")
to read substantially in the form filed as Exhibit 3.1 to the Registration
Statement, as amended (the "Registration Statement"), of the Company on Form S-1
(No. 333-09897).
The Shares to be sold in the Offering include Shares to be issued
upon the exercise of stock options (the "Option Shares") granted pursuant to (a)
the Company's stock option plan (the "Plan"), and related stock option
agreements, and (b) certain stock
<PAGE>
Gulfstream Aerospace Corporation -2- October 8, 1996
option agreements ("Non-Plan Option Agreements") between the Company and certain
of its current and former directors, advisors and consultants.
With your permission, all assumptions and statements of reliance
herein have been made without any independent investigation or verification on
our part except to the extent otherwise expressly stated, and we express no
opinion with respect to the subject matter or accuracy of such assumptions or
items relied upon.
In connection with this opinion, we have (i) investigated such
questions of law, (ii) examined originals or certified, conformed or
reproduction copies of such agreements, instruments, documents and records of
the Company, such certificates of public officials and such other documents, and
(iii) received such information from officers and representatives of the Company
as we have deemed necessary or appropriate for the purposes of this opinion. In
all examinations, we have assumed the legal capacity of all natural persons
executing documents, the genuineness of all signatures, the authenticity of
original and certified documents and the conformity to original or certified
copies of all copies submitted to us as conformed or reproduction copies. As to
various questions of fact relevant to the opinions expressed herein, we have
relied upon, and assume the accuracy of, representations and warranties
contained in the documents and certificates and oral or written statements and
other information of or from representatives of the Company and others and
assume compliance on the part of all parties to the documents with their
covenants and agreements contained therein.
Based upon the foregoing and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion that the
Shares registered pursuant to the Registration Statement (when issued and
delivered pursuant to the provisions of Article Fourth of the Restated Charter
and (i) in the case of the Option Shares, when issued, delivered and paid for in
accordance with the provisions of the Plan and the applicable option agreements
or with the provisions of the applicable Non-Plan Option Agreements, as the case
may be and (ii) in the case of the Shares to be sold by the Company, when
issued, delivered and paid for in accordance with the terms of the Underwriting
Agreements) will be duly authorized, validly issued, fully paid and non-
assessable.
The opinion expressed herein is limited to the General
Corporation Law of the State of Delaware, as currently in effect.
<PAGE>
Gulfstream Aerospace Corporation -3- October 8, 1996
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to this firm under the caption
"Validity of Common Stock" in the Prospectus forming part of the Registration
Statement. In giving such consent, we do not hereby admit that we are in the
category of such persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ Lois Herzeca
------------------------------------
Lois Herzeca
<PAGE>
DRAFT 10/4/96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
among
GULFSTREAM DELAWARE CORPORATION,
CERTAIN LENDERS,
and
THE CHASE MANHATTAN BANK,
as Administrative Agent,
Dated as of October __, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . 19
SECTION 2. TERM LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1 Term Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.2 Repayment of Term Loans . . . . . . . . . . . . . . . . . . . . . 19
2.3 Proceeds of Term Loans. . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS . . . . . . . . 20
3.1 Revolving Credit Commitments. . . . . . . . . . . . . . . . . . . 20
3.2 Proceeds of Revolving Credit Loans. . . . . . . . . . . . . . . . 21
3.3 Issuance of Letters of Credit . . . . . . . . . . . . . . . . . . 21
3.4 Participating Interests . . . . . . . . . . . . . . . . . . . . . 22
3.5 Procedure for Opening Letters of Credit . . . . . . . . . . . . . 22
3.6 Payments in Respect of Letters of Credit. . . . . . . . . . . . . 22
3.7 Swing Line Commitment . . . . . . . . . . . . . . . . . . . . . . 23
3.8 Participations. . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4. GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT . . 25
4.1 Procedure for Borrowing . . . . . . . . . . . . . . . . . . . . . 25
4.2 Repayment of Loans; Evidence of Debt. . . . . . . . . . . . . . . 25
4.3 Conversion Options. . . . . . . . . . . . . . . . . . . . . . . . 26
4.4 Changes of Commitment Amounts . . . . . . . . . . . . . . . . . . 27
4.5 Optional Prepayments. . . . . . . . . . . . . . . . . . . . . . . 27
4.6 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . 28
4.7 Interest Rates and Payment Dates. . . . . . . . . . . . . . . . . 29
4.8 Computation of Interest and Fees. . . . . . . . . . . . . . . . . 29
4.9 Commitment Fees . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.10 Certain Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.11 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . 30
4.12 Letter of Credit Reserves . . . . . . . . . . . . . . . . . . . . 31
4.13 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . 32
4.14 Obligations Absolute. . . . . . . . . . . . . . . . . . . . . . . 32
4.15 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.16 Participations. . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.17 Inability to Determine Interest Rate. . . . . . . . . . . . . . . 33
4.18 Pro Rata Treatment and Payments . . . . . . . . . . . . . . . . . 33
4.19 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
<PAGE>
Page
----
4.20 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . 36
4.21 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 38
5.1 Corporate Existence; Compliance with Law. . . . . . . . . . . . . 38
5.2 Corporate Power; Authorization. . . . . . . . . . . . . . . . . . 38
5.3 Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . 39
5.4 No Legal Bar. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.5 No Material Litigation. . . . . . . . . . . . . . . . . . . . . . 39
5.6 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . 40
5.7 Investment Company Act. . . . . . . . . . . . . . . . . . . . . . 40
5.8 Federal Regulation. . . . . . . . . . . . . . . . . . . . . . . . 40
5.9 No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.10 No Burdensome Restrictions. . . . . . . . . . . . . . . . . . . . 41
5.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.12 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.13 Ownership of Property; Liens. . . . . . . . . . . . . . . . . . . 41
5.14 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . 42
6.1 Conditions to Effectiveness of this Agreement, Initial Loans
and Letters of Credit . . . . . . . . . . . . . . . . . . . . . 42
6.2 Conditions to All Loans and Letters of Credit . . . . . . . . . . 45
SECTION 7. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 46
7.1 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 46
7.2 Certificates; Other Information . . . . . . . . . . . . . . . . . 48
7.3 Payment of Obligations. . . . . . . . . . . . . . . . . . . . . . 49
7.4 Conduct of Business and Maintenance of Existence. . . . . . . . . 49
7.5 Maintenance of Property; Insurance. . . . . . . . . . . . . . . . 49
7.6 Inspection of Property; Books and Records; Discussions. . . . . . 49
7.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.8 Additional Subsidiary Guarantors; Stock Pledge. . . . . . . . . . 51
SECTION 8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 52
8.1 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.2 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . 53
8.3 Limitation on Contingent Obligations. . . . . . . . . . . . . . . 55
8.4 Prohibition of Fundamental Changes. . . . . . . . . . . . . . . . 55
8.5 Prohibition on Sale of Assets . . . . . . . . . . . . . . . . . . 55
8.6 Limitation on Investments, Loans and Advances . . . . . . . . . . 56
8.7 Limitation on Capital Expenditures. . . . . . . . . . . . . . . . 57
8.8 Maintenance of Interest Coverage. . . . . . . . . . . . . . . . . 58
8.9 Maintenance of Current Ratio. . . . . . . . . . . . . . . . . . . 58
8.10 Maintenance of Leverage Ratio . . . . . . . . . . . . . . . . . . 58
-ii-
<PAGE>
Page
----
8.11 Limitation on Restricted Payments . . . . . . . . . . . . . . . . 59
8.12 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . 60
8.13 Foreign Exchange Contracts. . . . . . . . . . . . . . . . . . . . 60
8.14 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 9. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 10. THE ADMINISTRATIVE AGENT; ISSUING LENDER. . . . . . . . . . . . 64
10.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.2 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . . 64
10.3 Exculpatory Provisions. . . . . . . . . . . . . . . . . . . . . . 64
10.4 Reliance by the Administrative Agent. . . . . . . . . . . . . . . 65
10.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . 65
10.6 Non-Reliance on Administrative Agent and Other Lenders. . . . . . 65
10.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.8 Administrative Agent in its Individual Capacities . . . . . . . . 66
10.9 Successor Administrative Agent. . . . . . . . . . . . . . . . . . 66
SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 67
11.1 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . 67
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.3 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . . . 69
11.4 Survival of Representations and Warranties. . . . . . . . . . . . 69
11.5 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . . 69
11.6 Successors and Assigns; Participations; Purchasing Lenders. . . . 71
11.7 Adjustments; Set-off. . . . . . . . . . . . . . . . . . . . . . . 73
11.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.9 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
11.10 GOVERNING LAW; NO THIRD PARTY RIGHTS . . . . . . . . . . . . . . 75
11.11 SUBMISSION TO JURISDICTION; WAIVERS. . . . . . . . . . . . . . . 75
11.12 Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . 76
-iii-
<PAGE>
SCHEDULES:
Schedule 1.1A Lists of Addresses for Notices; Lending Offices;
Commitment Amounts
Schedule 1.1B Terms of Used Aircraft Inventory Financing
Schedule 3.3 Outstanding Letters of Credit
Schedule 5.14 ERISA
Schedule 5.5 Material Litigation
Schedule 5.12A Domestic Subsidiaries
Schedule 5.12B Foreign Subsidiaries
Schedule 5.6(d) Dividends
Schedule 8.1 Existing Indebtedness
Schedule 8.2 Existing Liens
Schedule 8.3 Existing Contingent Obligations
Schedule 8.13 Existing Foreign Exchange Contracts
EXHIBITS:
Exhibit A Revolving Credit Note
Exhibit B Swing Line Note
Exhibit C Term Note
Exhibit D Company Pledge Agreement
Exhibit E Holdings Guarantee
Exhibit F Holdings Pledge Agreement
Exhibit G Subsidiary Guarantee
Exhibit H Subsidiary Pledge Agreement
Exhibit I-1 Opinion of Fried, Frank, Harris, Shriver
& Jacobson
Exhibit I-2 Opinion of Donald Mayer, Esq.
Exhibit J-1 Holdings Closing Certificate
Exhibit J-2 Company Closing Certificate
Exhibit J-3 Subsidiary Guarantor Closing Certificate
Exhibit K L/C Participation Certificate
Exhibit L Swing Line Loan Participation Certificate
Exhibit M Assignment and Acceptance
-iv-
<PAGE>
CREDIT AGREEMENT, dated as of October __, 1996, among GULFSTREAM
DELAWARE CORPORATION, a Delaware corporation (the "COMPANY"), the several
lenders from time to time parties hereto (the "LENDERS") and THE CHASE MANHATTAN
BANK, a New York banking corporation, as administrative agent for the Lenders
(in such capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H :
WHEREAS, Holdings and the Company have informed the Administrative
Agent and the Lenders that Holdings intends to issue and sell shares of its
common stock in an initial public offering registered under the Securities Act
of 1933, as amended (the "IPO"); and
WHEREAS, in connection with the IPO, Holdings and the Company have
requested the Lenders to enter into this Agreement to make loans and other
extensions of credit to be used, together with the proceeds of the IPO, to
refinance certain of the outstanding indebtedness of Company, to pay fees and
expenses related to the IPO and the other transactions contemplated hereby, to
retire certain capital stock of Holdings and to provide financing for the
working capital needs and general corporate purposes of the Company and its
Subsidiaries.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the terms defined in
the preamble hereto shall have the meanings set forth therein, and the following
terms have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on
such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. For purposes hereof: "PRIME RATE" shall mean the rate of interest per
annum publicly announced from time to time by Chase as its prime rate in effect
at its principal office in New York City (the Prime Rate not being intended to
be the lowest rate of interest charged by Chase in connection with extensions of
credit to debtors); and "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day,
the weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of
New York, or, if such rate is not so published for any day which is a Business
Day, the average of the quotations for the day
<PAGE>
2
of such transactions received by the Administrative Agent from three federal
funds brokers of recognized standing selected by it. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate, for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in accordance with the
terms hereof, the ABR shall be determined without regard to clause (b), of the
first sentence of this definition, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the ABR due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be effective
as of the opening of business on the effective day of such change in the Prime
Rate or the Federal Funds Effective Rate, respectively.
"ABR LOANS": Loans whose interest rate is based on the ABR.
"ACCOUNTANTS": as defined in subsection 7.1(a)
"ADJUSTMENT DATE": the first Business Day following receipt by the
Administrative Agent of both (i) the financial statements required to be
delivered pursuant to subsection 7.1(a) or 7.1(b), as the case may be, for the
most recently completed fiscal period and (ii) the certificate required to be
delivered pursuant to subsection 7.2(b) with respect to such fiscal period.
"ADMINISTRATIVE AGENT": as defined in the preamble hereto.
"AFFILIATE": of any Person (a) any Person (other than a Subsidiary)
which, directly or indirectly, is in control of, is controlled by, or is under
common control with such Person, or (b) any Person who is a director or officer
(i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person
described in clause (a) above. For purposes of this definition, control of a
Person shall mean the power, direct or indirect, either to (i) vote 10% or more
of the securities having ordinary voting power for the election of directors of
such Person, or (ii) direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"AGREEMENT": this Credit Agreement, as amended, supplemented or
modified from time to time.
"AGGREGATE REVOLVING CREDIT EXTENSIONS OF CREDIT": at any particular
time, the sum of (a) the aggregate then outstanding principal amount of the
Revolving Credit Loans, (b) the aggregate amount then available to be drawn
under all outstanding Letters of Credit and (c) the aggregate then outstanding
amount of Revolving L/C Obligations.
"APPLICABLE MARGIN": (a) with respect to ABR Loans, .75%, and (b)
with respect to Eurodollar Loans, 1.75%, PROVIDED that, from and after the first
Adjustment Date to occur after the Closing Date, the Applicable Margin for all
Loans will be adjusted, if required on each Adjustment Date, to the Applicable
Margin set forth on ANNEX A hereto opposite the Leverage Ratio Level of the
Company in effect on such Adjustment Date, and PROVIDED further, that in the
event that the financial statements required to be delivered pursuant to
subsection 7.1(a) or 7.1(b), as applicable, and the related certificate required
<PAGE>
3
pursuant to subsection 7.2(b), are not delivered when due, then, during the
period from the date upon which such financial statements were required to be
delivered until one Business Day following the date upon which they actually are
delivered, Leverage Ratio Level I shall be deemed to be in effect for the
purposes of determining Applicable Margins during such period.
"ASSET SALE": any sale, sale-leaseback, assignment, conveyance,
transfer or other disposition by the Company or any Subsidiary thereof of any of
its property or assets, including the stock of any Subsidiary of the Company and
any primary issuance of capital stock of any Subsidiary of the Company other
than to the Company or any Subsidiary of the Company (except sales, sale-
leasebacks, assignments, conveyances, transfers and other dispositions permitted
by clauses (a), (b), (c), and (d) of subsection 8.5).
"ASSIGNEE": as defined in subsection 11.6(c).
"ASSIGNMENT AND ACCEPTANCE": an Assignment and Acceptance
substantially in the form of Exhibit N hereto.
"AVAILABLE REVOLVING CREDIT COMMITMENT": as to any Lender, at a
particular time, an amount equal to the excess, if any, of (a) the amount of
such Lender's Revolving Credit Commitment at such time less (b) the sum of (i)
the aggregate unpaid principal amount at such time of all Revolving Credit Loans
made by such Lender pursuant to subsection 3.1, (ii) such Lender's L/C
Participating Interest in the aggregate amount available to be drawn at such
time under all outstanding Letters of Credit, (iii) such Lender's Revolving
Credit Commitment Percentage of the aggregate outstanding amount of Revolving
L/C Obligations and (iv) such Lender's Revolving Credit Commitment Percentage of
the aggregate unpaid principal amount at such time of all Swing Line Loans,
PROVIDED; however, that the amount referred to in this clause (iv) shall be
zero for the purposes of calculating the Available Revolving Credit Commitment
pursuant to subsection 4.9; collectively, as to all the Lenders, the
"AVAILABLE REVOLVING CREDIT COMMITMENTS".
"BENEFITTED LENDER": as defined in subsection 11.7 hereof.
"BOARD": the Board of Governors of the Federal Reserve System of the
United States or any successor.
"BORROWING DATE": any Business Day, or, in the case of Eurodollar
Loans, any Working Day, specified in a notice pursuant to (a) subsection 3.7 or
4.1 as a date on which the Company requests Chase to make Swing Line Loans or
the Lenders to make Revolving Credit Loans, respectively, hereunder or (b)
subsection 3.5 as a date on which the Company requests the Issuing Lender to
issue a Letter of Credit hereunder.
"BUSINESS DAY": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close.
"CAPITAL EXPENDITURES": for any period, all amounts (other than those
arising from the acquisition or lease of businesses and assets which are
permitted by subsection
<PAGE>
4
8.6(g)) which are set forth on Holdings', and its Subsidiaries' consolidated
statement of cash flows for such period as "Additions to property and
equipment", in accordance with GAAP, consistent with the Holdings financial
statements for the year ended December 31, 1995 (it being understood that
tooling expenditures shall, in any event, constitute capital expenditures).
"CASH EQUIVALENTS": (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition, (ii) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case, with any Lender or with any domestic commercial bank
having capital and surplus in excess of $250,000,000, (iii) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (i) and (ii) entered into with any financial
institution meeting the qualifications specified in clause (ii) above, and (iv)
commercial paper issued by any Lender, the parent corporation of any Lender or
any Subsidiary of such Lender's parent corporation, and commercial paper rated
A-1 or the equivalent thereof by Standard & Poor's Rating Group or P-1 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case maturing
within six months after the date of acquisition thereof.
"CHANGE IN LAW": with respect to any Lender, the adoption of any law,
rule, regulation, policy, guideline or directive (whether or not having the
force of law) or any change therein or in the interpretation or application
thereof by any Governmental Authority, including, without limitation, the
issuance of any final rule, regulation or guideline by any regulatory agency
having jurisdiction over such Lender or, in the case of subsection 4.12(b) or
4.20(b), any corporation controlling such Lender.
"CHASE": as defined in the preamble hereto.
"CLOSING DATE": the date on which each of the conditions precedent to
the effectiveness of this Agreement contained in Section 6.1 has been either
satisfied or waived in accordance with the terms and provisions of Section 6.1.
"CODE": the Internal Revenue Code of 1986, as amended from time to
time.
"COMMERCIAL L/C": a commercial documentary Letter of Credit under
which the relevant Issuing Lender agrees to make payments in Dollars for the
account of the Company, on behalf of the Company or any Subsidiary thereof, in
respect of obligations of the Company or any Subsidiary thereof in connection
with the importation or exportation of goods in the ordinary course of business.
"COMMITMENT PERCENTAGE": as to any Lender at any time, its Term Loan
Commitment Percentage or its Revolving Credit Commitment Percentage, as the
context may require.
<PAGE>
5
"COMMITMENTS": the collective reference to the Revolving Credit
Commitments, the Swing Line Commitment and the Term Loan Commitments;
individually, a "COMMITMENT".
"COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated,
which is under common control with the Company within the meaning of Section
4001 of ERISA or is part of a group which includes the Company and which is
treated as a single employer under Section 414 of the Code.
"COMPANY": as defined in the preamble hereto.
"COMPANY PLEDGE AGREEMENT": the Pledge Agreement, substantially in
the form of Exhibit D hereto, made by the Company in favor of the Administrative
Agent, for the ratable benefit of the Lenders, as the same may be amended,
supplemented or otherwise modified from time to time (it being understood and
agreed that, subject to Section 7.8(c) hereof, the Company Pledge Agreement
shall not require the Company to pledge (x) any of the stock of any Foreign
Subsidiary of the Company or Holdings which is owned by a Foreign Subsidiary of
the Company or Holdings or (y) more than 65% of the stock of (i) any other
Foreign Subsidiary of the Company or Holdings or (ii) any other Subsidiary of
the Company or Holdings if more than 65% of the assets of such Subsidiary are
securities of foreign Persons (such determination to be made on the basis of
fair market value)).
"CONSOLIDATED CURRENT ASSETS": at a particular date, all amounts
which would, in conformity with GAAP (except that the unamortized amount of
production tooling shall be included as a current asset), be included under
current assets on a consolidated balance sheet of Holdings and its Subsidiaries
as at such date , plus the lesser of (i) the Available Revolving Credit
Commitment at such date and (ii) $165,000,000.
"CONSOLIDATED CURRENT LIABILITIES": at a particular date, all amounts
which would, in conformity with GAAP, be included under current liabilities on a
consolidated balance sheet of Holdings and its Subsidiaries as at such date,
excluding any portion of the Loans otherwise so included.
"CONSOLIDATED EBITDA": for any period, Consolidated Net Income ((i)
including earnings and losses from discontinued operations, (ii) excluding
extraordinary gains, and gains and losses arising from the proposed or actual
disposition of material assets, and (iii) excluding the non-cash portion of
other non-recurring losses) of Holdings and its Subsidiaries for such period,
PLUS to the extent reflected as a charge in the statement of consolidated net
income for such period, the sum of (a) interest expense (net of interest
income), amortization (including accelerated amortization) and write offs of
debt discount and debt issuance costs, including such write-offs in connection
with the prepayment of debt, and commissions, discounts and other fees and
charges associated with Letters of Credit, (b) taxes measured by income, (c)
depreciation and amortization expenses including acceleration thereof and
including the amortization of the increase in inventory resulting from the
application of APB 16 for transactions contemplated by this Agreement including
acquisitions permitted under 8.6(g), (d) non-cash compensation expenses arising
from the sale of stock, the granting of stock options, the granting of stock
appreciation rights and
<PAGE>
6
similar arrangements, (e) the excess of the expense in respect of post-
retirement benefits and post-employment benefits accrued under Statement of
Financial Accounting Standards No. 106 ("FASB 106") and Statement of Financial
Accounting Standards No. 112 ("FASB 112") over the cash expense in respect of
such post-retirement benefits and post-employment benefits and (f) the amount of
any non-cash charges made or required to be made in connection with the
Refinancing (including, in the case of stock appreciation rights, any charge
thereafter on a cumulative basis) in respect of (A) the charge to expense for
compensation relating to stock options, stock appreciation rights and stock
purchases by officers, directors and key employees of Holdings or any of its
Subsidiaries and (B) the charge to expense for deferred financing costs
resulting from the prepayment of all amounts owing and payable under the
Existing Credit Agreements; PROVIDED, that Consolidated EBITDA during any period
shall be increased by research and development expense incurred during such
period in respect of the Gulfstream V program (if the amount of such expense for
such period is greater than $0), but only to the extent of customer deposits
received, net of cancellations, during such period.
"CONSOLIDATED INTEREST EXPENSE": for any period the amount of
interest expense, both expensed and capitalized (excluding amortization and
write offs of debt discount, and debt issuance costs net of interest income, of
Holdings and its Subsidiaries, determined on a consolidated basis in accordance
with GAAP, for such period, PROVIDED that (i) Consolidated Interest Expense for
the period of four consecutive fiscal quarters ending December 31, 1996, shall
be equal to the product of (A) Consolidated Interest Expense for the fiscal
quarter ending December 31, 1996 times (B) 4, (ii) Consolidated Interest Expense
for the period of four consecutive fiscal quarters ending March 31, 1997, shall
be equal to the product of (A) Consolidated Interest Expense for the two
consecutive fiscal quarters ending March 31, 1997 times (B) 2, and (iii)
Consolidated Interest Expense for the period of four consecutive fiscal quarters
ending June 30, 1997, shall be equal to the product of (A) Consolidated Interest
Expense for the three consecutive fiscal quarters ending June 30, 1997 times (B)
a fraction, the numerator of which is 4 and the denominator of which is 3.
"CONSOLIDATED NET INCOME": for any period, the net income or net loss
of Holdings and its Subsidiaries for such period, determined in accordance with
GAAP on a consolidated basis, as reflected in the financial statements furnished
to the Administrative Agent in accordance with subsections 7.1(a) and (b)
hereof.
"CONSOLIDATED TOTAL DEBT": at any date of determination, the
principal amount of all indebtedness of Holdings and its consolidated
Subsidiaries outstanding in accordance with GAAP under this Agreement plus any
other amounts, without duplication, included in clause (a) of the definition of
Indebtedness (including any amounts drawn and unreimbursed under letters of
credit) at such date of determination, on a consolidated basis in accordance
with GAAP.
"CONTINGENT OBLIGATION": as to any Person, any obligation of such
Person guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other obligations ("PRIMARY OBLIGATIONS") of any other Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent (a)
to purchase any such primary obligation or any
<PAGE>
7
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof; PROVIDED, HOWEVER, that the term Contingent Obligation shall not
include endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Contingent Obligation shall be deemed to
be an amount equal to the stated or determinable amount (based on the maximum
reasonably anticipated net liability in respect thereof as determined by the
Company in good faith) of the primary obligation or portion thereof in respect
of which such Contingent Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated net liability in respect thereof (assuming
such Person is required to perform thereunder) as determined by the Company in
good faith.
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or undertaking to
which such Person is a party or by which it or any of the property owned by it
is bound.
"CREDIT DOCUMENTS": the collective reference to this Agreement, the
Notes, the Pledge Agreements, the Guarantees and any security agreement and
guarantee executed and delivered pursuant to the terms of subsection 7.8.
"CREDIT PARTIES": the collective reference to Holdings, the Company
and each Subsidiary which is a party, or which at any time becomes a party, to a
Credit Document.
"DEFAULT": any of the events specified in Section 9, whether or not
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"DOLLARS" and "$": dollars in lawful currency of the United States of
America.
"DOMESTIC SUBSIDIARY": any Subsidiary of the Company other than a
Foreign Subsidiary.
"ENVIRONMENTAL LAWS": any and all Federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements of any Governmental Authority regulating, relating to or imposing
liability or standards of conduct concerning environmental protection matters,
including without limitation, Hazardous Materials, as now or may at any time
hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EUROCURRENCY RESERVE REQUIREMENTS": for any day, as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as
a decimal) of
<PAGE>
8
reserve requirements current on such day (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the Board
or other Governmental Authority having jurisdiction with respect thereto), as
now and from time to time hereafter in effect, dealing with reserve requirements
prescribed for Eurocurrency funding (currently referred to as "Eurocurrency
liabilities" in Regulation D of such Board) maintained by a member bank of such
System. As of the Closing Date, there are no Eurocurrency Reserve Requirements
in effect.
"EURODOLLAR BASE RATE": with respect to each day during any Interest
Period for any Eurodollar Loan, the rate per annum equal to the rate at which
Chase is offered Dollar deposits at or about 10:00 a.m., New York City time, two
Working Days prior to the beginning of such Interest Period in the interbank
eurodollar market where the foreign currency and exchange operations in respect
of its Eurodollar Loans then are being conducted for delivery on the first day
of such Interest Period for the number of days comprised therein and in an
amount comparable to the amount of its Eurodollar Loan to be outstanding during
such Interest Period.
"EURODOLLAR LENDING OFFICE": initially, the office of each Lender
designated as such in Schedule 1.1A; thereafter, such other office of such
Lender, if any, which shall be making or maintaining Eurodollar Loans as
designated as such from time to time in a notice from such Lender to the
Administrative Agent.
"EURODOLLAR LOANS": Loans at such time as they are made and/or being
maintained at a rate of interest based upon a Eurodollar Rate.
"EURODOLLAR RATE": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for such day
in accordance with the following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate
---------------------------------------
1.00 - Eurocurrency Reserve Requirement
"EVENT OF DEFAULT": any of the events specified in Section 9,
PROVIDED that any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.
"EXISTING CREDIT AGREEMENTS": the collective reference to (i) the
Credit Agreement, dated as of March 19, 1990, among the Company, the banks and
other financial institutions parties thereto and Chase, as administrative agent,
as amended, and (ii) the Credit Agreement, dated as of November 30, 1993, among
the Company, the banks and other financial institutions parties thereto and
Chase, as administrative agent, as amended.
"FINANCING SUBSIDIARY": any Affiliate or Subsidiary of the Company
which is a party to the Used Aircraft Inventory Financing.
"FL AFFILIATE": any Affiliate (other than any described in
clause (b) of the definition thereof) of any member of the FL Group.
"FL GROUP": FL & Co. and the FL Affiliates.
<PAGE>
9
"FL & CO.": FLC Partnership, L.P., a New York limited partnership
("FLC"), each of the general partners thereof, any subordinated debt and equity
partnership controlled by FLC or such general partner or any combination of the
foregoing.
"FOREIGN SUBSIDIARY": any Subsidiary of the Company (or if so
specified, Holdings) (a) which is organized under the laws of any jurisdiction
outside the United States (within the meaning of Section 7701(a)(9) of the
Code), or (b) whose principal assets consist of capital stock or other equity
interests of one or more Persons which conduct the major portion of their
business outside the United States (within the meaning of Section 7701 (a)(9) of
the Code).
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.
"GOVERNMENTAL AUTHORITY": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"GUARANTEES": the collective reference to the Holdings Guarantee and
the Subsidiary Guarantee.
"GULFSTREAM V": the type of large cabin business jet aircraft
produced by the Company and designated "Gulfstream V".
"HAZARDOUS MATERIALS": any substance (a) which is or becomes defined
as a "hazardous waste," "hazardous substance," pollutant or contaminant under
any federal, state or local statute, regulation, rule or ordinance or amendments
thereto including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) and/or the
Resource Conservation and Recovery Act (42 U.S.C.Section 6901 et seq.); and (b)
without limitation, which is or contains petroleum products (including crude oil
or any fraction thereof), PCBs, asbestos, urea formaldehyde foam insulation,
radon gas or infectious or radioactive materials.
"HOLDINGS": Gulfstream Aerospace Corporation, a Delaware corporation.
"HOLDINGS DIVIDEND LIMIT": as defined in subsection 8.11(e).
"HOLDINGS GUARANTEE": the Guarantee, substantially in the form of
Exhibit E hereto, made by Holdings in favor of the Administrative Agent, for the
ratable benefit of the Lenders, as the same may be amended, supplemented or
otherwise modified from time to time.
"HOLDINGS NOTE": the Note due December 31, 2002 and dated the date
hereof, in the original principal amount of $100,000,000, made by Holdings in
favor of the Company in connection with the Refinancing.
<PAGE>
10
"HOLDINGS PLEDGE AGREEMENT": the Pledge Agreement, substantially in
the form of Exhibit F hereto, made by Holdings in favor of the Administrative
Agent, for the ratable benefit of the Lenders, as the same may be amended,
supplemented or otherwise modified from time to time (it being understood and
agreed that, subject to Section 7.8(c) hereof, the Holdings Pledge Agreement
shall not require Holdings to pledge (x) any of the stock of any Foreign
Subsidiary of the Company or Holdings which is owned by a Foreign Subsidiary of
the Company or Holdings or (y) more than 65% of the stock of (i) any other
Foreign Subsidiary of the Company or Holdings or (ii) any other Subsidiary of
the Company or Holdings if more than 65% of the assets of such Subsidiary are
securities of foreign Persons (such determination to be made on the basis of
fair market value)).
"HOLDINGS PREFERRED": the 7% Cumulative Preferred Stock issued by
Holdings and outstanding on the Closing Date.
"INDEBTEDNESS": of any Person, at any particular date, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade payables or liabilities
and deferred payment for services to employees or former employees incurred in
the ordinary course of business and payable in accordance with customary
practices and other deferred compensation arrangements), (b) the face amount of
all letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder, (c) all liabilities (other than Lease
Obligations) secured by any Lien on any property owned by such Person, to the
extent attributable to such Person's interest in such property, even though such
Person has not assumed or become liable for the payment thereof, (d) lease
obligations of such Person which, in accordance with GAAP, should be capitalized
and (e) all indebtedness of such Person arising under acceptance facilities; but
excluding (y) customer deposits and interest payable thereon in the ordinary
course of business and (z) trade and other accounts and accrued expenses payable
in the ordinary course of business in accordance with customary trade terms and
in the case of both clauses (y) and (z) above, which are not overdue for a
period of more than 90 days or, if overdue for more than 90 days, as to which a
dispute exists and adequate reserves in conformity with GAAP have been
established on the books of such Person.
"INSOLVENCY": with respect to a Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of such term as used in Section
4245 of ERISA.
"INTEREST COVERAGE RATIO": as at the last day of any fiscal quarter
of Holdings, the ratio of (a) Consolidated EBITDA less Capital Expenditures, in
each case for the period of four fiscal quarters ending on such day to (b)
Consolidated Interest Expense for the period of four fiscal quarters ending on
such day, in each period subject to the proviso at the end of the definition of
Consolidated Interest Expense.
"INTEREST PAYMENT DATE": (a) as to ABR Loans, the last day of each
March, June, September and December, commencing on the first such day to occur
after any ABR Loans are made or any Eurodollar Loans are converted to ABR Loans,
(b) as to any Eurodollar Loan in respect of which the Company has selected an
Interest Period of one, two or three months, the last day of such Interest
Period, (c) as to any Eurodollar Loan in respect of which the Company has
selected an Interest Period of six months, the day which is three
<PAGE>
11
months after the date on which such Eurodollar Loan is made or an ABR Loan is
converted to such a Eurodollar Loan, and the last day of such Interest Period,
(d) as to any Eurodollar Loan, each day on which principal of such Eurodollar
Loan is payable, (e) in the case of any Term Loan, when such Loan is paid in
full, and (f) in the case of the Revolving Credit Loans, on the Revolving Credit
Termination Date.
"INTEREST PERIOD": with respect to any Eurodollar Loan:
(a) initially, the period commencing on, as the case may be, the
Borrowing Date or conversion date with respect to such Eurodollar Loan and
ending one, two, three or six months thereafter as selected by the Company
in its notice of borrowing as provided in subsection 4.1 or its notice of
conversion as provided in subsection 4.3; and
(b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Loan and ending
one, two, three or six months thereafter as selected by the Company by
irrevocable notice to the Administrative Agent not less than three Working
Days prior to the last day of the then current Interest Period with respect
to such Eurodollar Loan;
PROVIDED that the foregoing provisions relating to Interest Periods are subject
to the following:
(A) if any Interest Period would otherwise end on a day which is not
a Working Day, that Interest Period shall be extended to the next
succeeding Working Day, unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event such
Interest Period shall end on the immediately preceding Working Day;
(B) any Interest Period that would otherwise extend beyond (i) in the
case of an Interest Period for a Term Loan, the final scheduled installment
date set forth in subsection 2.2 shall end on such date or, if such
Installment Payment Date shall not be a Working Day, on the next preceding
Working Day and (ii) in the case of any Interest Period for a Revolving
Credit Loan, the Revolving Credit Termination Date shall end on the
Revolving Credit Termination Date, or if the Revolving Credit Termination
Date shall not be a Working Day, on the next preceding Working Day;
(C) if the Company shall fail to give notice as provided above in
clause (b), it shall be deemed to have selected a conversion of a
Eurodollar Loan into an ABR Loan (which conversion shall occur
automatically and without need for compliance with the conditions for
conversion set forth in subsection 4.3);
(D) any Interest Period that begins on the last day of a calendar
month (or on a day for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period) shall end on the
last Working Day of a calendar month; and
<PAGE>
12
(E) the Company shall select Interest Periods so as not to require a
prepayment (to the extent practicable) or a scheduled payment of a
Eurodollar Loan during an Interest Period for such Eurodollar Loan.
"IPO": as defined in the Recitals hereto.
"ISSUING LENDER": The Chase Manhattan Bank.
"L/C APPLICATION": a letter of credit application in the relevant
Issuing Lender's then customary form for the type of letter of credit requested.
"L/C PARTICIPATING INTEREST": an undivided participating interest in
the face amount of each issued and outstanding Letter of Credit and the L/C
Application relating thereto.
"L/C PARTICIPATION CERTIFICATE": a certificate in substantially the
form of Exhibit L hereto.
"LEASE OBLIGATIONS": of the Company and its Subsidiaries, as of the
date of any determination thereof, the rental commitments of the Company and its
Subsidiaries determined on a consolidated basis, if any, under leases for real
and/or personal property (net of rental commitments from sub-leases thereof),
excluding however, obligations under leases which are classified as Indebtedness
under clause (d) of the definition of Indebtedness.
"LENDERS": as defined in the preamble hereto.
"LETTER OF CREDIT": a letter of credit issued by the Issuing Lender
pursuant to the terms of subsection 3.3.
"LEVERAGE RATIO": at any date, the ratio of Consolidated Total Debt
at such date to Consolidated EBITDA for the period of four consecutive fiscal
quarters ending on such date.
"LEVERAGE RATIO LEVEL": the existence of Leverage Ratio Level I,
Leverage Ratio Level II, Leverage Ratio Level III, Leverage Ratio Level IV,
Leverage Ratio Level V or Leverage Ratio Level VI, as the case may be.
"LEVERAGE RATIO LEVEL I": shall exist on an Adjustment Date if the
Leverage Ratio for the period of four consecutive fiscal quarters ending on the
last day of the period covered by the financial statements relating to such
Adjustment Date is greater than or equal to 3.50 to 1.00.
"LEVERAGE RATIO LEVEL II": shall exist on an Adjustment Date if the
Leverage Ratio for the period of four consecutive fiscal quarters ending on the
last day of the period covered by the financial statements relating to such
Adjustment Date is less than 3.50 to 1.00 but greater than or equal to 3.00 to
1.00.
<PAGE>
13
"LEVERAGE RATIO LEVEL III": shall exist on an Adjustment Date if the
Leverage Ratio for the period of four consecutive fiscal quarters ending on the
last day of the period covered by the financial statements relating to such
Adjustment Date is less than 3.00 to 1.00 but greater than or equal to 2.50 to
1.00.
"LEVERAGE RATIO LEVEL IV": shall exist on an Adjustment Date if the
Leverage Ratio for the period of four consecutive fiscal quarters ending on the
last day of the period covered by the financial statements relating to such
Adjustment Date is less than 2.50 to 1.00 but greater than or equal to 2.00 to
1.00.
"LEVERAGE RATIO LEVEL V": shall exist on an Adjustment Date if the
Leverage Ratio for the period of four consecutive fiscal quarters ending on the
last day of the period covered by the financial statements relating to such
Adjustment Date is less than 2.00 to 1.00 but greater than or equal to 1.50 to
1.00.
"LEVERAGE RATIO LEVEL VI": shall exist on an Adjustment Date if the
Leverage Ratio for the period of four consecutive fiscal quarters ending on the
last day of the period covered by the financial statements relating to such
Adjustment Date is less than 1.50 to 1.00.
"LIEN": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction in respect of
any of the foregoing except for the filing of financing statements in connection
with Lease Obligations incurred by the Company or its Subsidiaries to the extent
that such financing statements relate to the property subject to such Lease
Obligations).
"LOANS": the collective reference to the Term Loans, the Swing Line
Loans and the Revolving Credit Loans; individually, a "LOAN".
"MATERIAL ADVERSE EFFECT": a material adverse effect on the business,
financial condition, assets or results of operations of the Company and its
Subsidiaries taken as a whole.
"MATERIAL SUBSIDIARY": any Subsidiary of the Company or Holdings
which at any time has a total asset value (including the total asset values of
any Subsidiaries), or for which Holdings, the Company or any of their respective
Subsidiaries shall have paid consideration (including the assumption of
Indebtedness) in connection with the acquisition of the stock or the assets of
such Subsidiary, in excess of $20,000,000.
"MONEY MARKET RATE": for any day, with respect to any Money Market
Rate Loan, the rate per annum quoted by Chase to the Company in accordance with
subsection 3.7(a) as the rate at which Chase is willing to make such Loan.
<PAGE>
14
"MONEY MARKET RATE LOANS": Swing Line Loans the rate of interest
applicable to which is based upon the Money Market Rate.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"NET PROCEEDS": the aggregate cash proceeds received by the Company
or any Subsidiary of the Company in respect of any Asset Sale, and any cash
payments received in respect of promissory notes or other non-cash consideration
delivered to the Company or such Subsidiary in respect of an Asset Sale (subject
to the limitations set forth in subsection 8.6(f)), net of (without duplication)
(i) the reasonable expenses (including legal fees and brokers' and underwriters'
commissions paid to third parties which are not Affiliates or Subsidiaries of
the Company) incurred in effecting such Asset Sale, (ii) any taxes reasonably
attributable to such Asset Sale and, in case of an Asset Sale in a foreign
jurisdiction, the repatriation of the proceeds of such Asset Sale reasonably
estimated by the Company or such Subsidiary to be actually payable, (iii) any
amounts payable to a Governmental Authority triggered as a result of any such
Asset Sale, (iv) any Indebtedness or Contractual Obligation of the Company and
its Subsidiaries (other than the Loans and other Obligations) required to be
paid or retained in connection with such Asset Sale and (v) the aggregate amount
of reserves required in the Company's reasonable judgment to be maintained on
the books of the Company in order to pay contingent liabilities with respect to
such Asset Sale; PROVIDED that amounts deducted from aggregate proceeds pursuant
to clause (v) and not actually paid by the Company or any of its Subsidiaries in
liquidation of such contingent liabilities shall be deemed to be Net Proceeds
and shall be prepaid in accordance with subsection 4.6 at such time as such
contingent liabilities shall cease to be obligations of the Company or any of
its Subsidiaries.
"NON-US.LENDER": as defined in subsection 4.18(e).
"NOTES": the collective reference to the Revolving Credit Notes, the
Swing Line Note and the Term Loan Notes; one of the Notes, a "NOTE".
"OBLIGATIONS": the unpaid principal of and interest on the Notes and
all other obligations and liabilities of the Company to the Administrative Agent
or the Lenders (including, without limitation, interest accruing at the then
applicable rate provided in the Credit Agreement after the maturity of the
Loans and interest accruing at the then applicable rate provided in the
Credit Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating
to the Company whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
incurred, which may arise under, out of, or in connection with, this
Agreement, the Notes, the other Credit Documents, any Letter of Credit or
L/C Application, any agreements between the Company and any Lender relating
to interest rate, currency or similar swap and hedging arrangements
or any other document made, delivered or given in connection therewith,
whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses (including, without limitation, all fees and
disbursements of counsel to the Administrative Agent or any Lender) or
otherwise.
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15
"PARTICIPANT": as defined in subsection 11.6(b)
"PARTICIPATING LENDER": any Lender (other than the Issuing Lender
with respect to such Letter of Credit) with respect to its L/C Participating
Interest in each Letter of Credit.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA or any successor thereto.
"PERSON": an individual, partnership, corporation, business trust,
joint stock company, trust, limited liability company, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.
"PLAN": any pension plan which is covered by Title IV of ERISA and in
respect of which the Company or a Commonly Controlled Entity is an "employer" as
defined in Section 3(5) of ERISA.
"PLEDGE AGREEMENTS": the collective reference to the Holdings Pledge
Agreement, the Company Pledge Agreement, the Subsidiary Pledge Agreements and
any pledge agreement delivered after the Closing Date pursuant to subsection
7.8; individually, a "PLEDGE AGREEMENT".
"PLEDGED STOCK": as defined in the respective Pledge Agreements.
"PROPERTIES": each parcel of real property currently or previously
owned or operated by the Company or any Subsidiary of the Company.
"REFINANCING": the transactions described in subsection 6.1(d), (e)
and (f), and the transactions related thereto.
"REFUNDED SWING LINE LOANS": as defined in subsection 3.7(c).
"REGISTRATION STATEMENT": the Registration Statement No. 333-09897
on Form S-1, filed by Holdings with the Securities and Exchange Commission
on August 9, 1996.
"REGULATION G": Regulation G of the Board, as from time to time in
effect.
"REGULATION U": Regulation U of the Board, as from time to time in
effect.
"RELATED DOCUMENT": any agreement, certificate, document or
instrument relating to a Letter of Credit.
"RELEASE LENDERS": at a particular time, Lenders that hold Term Loans
and Revolving Credit Commitments in an aggregate principal amount equal to at
least 75% of the sum of the aggregate unpaid principal amount of the Term Loans
at such time, if any, and the aggregate Revolving Credit Commitments at such
time.
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16
"REORGANIZATION": with respect to a Multiemployer Plan, the condition
that such Plan is in reorganization as such term is used in Section 4241 of
ERISA.
"REPORTABLE EVENT": any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder.
"REQUIRED LENDERS": at a particular time, Lenders that hold Term
Loans and Revolving Credit Commitments in an aggregate principal amount equal
to at least 51% of the sum of the aggregate unpaid principal amount of the
Term Loans outstanding at such time, if any, and the aggregate Revolving Credit
Commitments at such time.
"REQUIREMENT OF LAW": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation (including, without limitation,
Environmental Laws) or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"RESPONSIBLE OFFICER": the chief executive officer or the chief
operating officer of the Company or, with respect to financial matters, the
chief financial officer or controller of the Company.
"REVOLVING CREDIT COMMITMENT": as to any Lender, its obligations to
make Revolving Credit Loans to the Company pursuant to subsection 3.1, and to
purchase its L/C Participating Interest in any Letter of Credit, in an aggregate
amount on the Closing Date not to exceed at any time the amount set forth
opposite such Lender's name in Schedule 1.1A under the heading "Revolving
Credit" and in an aggregate amount not to exceed at any time the amount equal to
such Lender's Revolving Credit Commitment Percentage of the aggregate Revolving
Credit Commitments, as the aggregate Revolving Credit Commitments may be reduced
from time to time pursuant to this Agreement; collectively, as to all the
Lenders, the "REVOLVING CREDIT COMMITMENTS".
"REVOLVING CREDIT COMMITMENT PERCENTAGE": as to any Lender, at any
time, the percentage which such Lender's Revolving Credit Commitment constitutes
of all of the Revolving Credit Commitments (or, if the Revolving Credit
Commitments shall have been terminated, the percentage of the outstanding
Aggregate Revolving Credit Extensions of Credit and Swing Line Loans constituted
by such Lender's Aggregate Revolving Credit Extensions of Credit and
participating interest in Swing Line Loans).
"REVOLVING CREDIT COMMITMENT PERIOD": the period from and including
the Closing Date to but not including the Revolving Credit Termination Date.
"REVOLVING CREDIT LOAN" and "REVOLVING CREDIT LOANS": as defined in
subsection 3.1(a).
"REVOLVING CREDIT NOTE": as defined in subsection 4.2.
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17
"REVOLVING CREDIT TERMINATION DATE": the earlier of (i) September 30,
2002 and (ii) any other date on which the Revolving Credit Commitments shall
terminate hereunder.
"REVOLVING L/C OBLIGATIONS": the obligations of the Company to
reimburse the relevant Issuing Lender for any payments made by the relevant
Issuing Lender under any Letter of Credit that have not been reimbursed by the
Company pursuant to subsection 3.6.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"STANDBY L/C": an irrevocable standby or direct pay Letter of Credit
under which the relevant Issuing Lender agrees to make payments in Dollars for
the account of the Company, on behalf of the Company or any Subsidiary thereof,
in respect of obligations of the Company or a Subsidiary thereof incurred
pursuant to contracts made or performance undertaken, or to be undertaken, or
like matters relating to contracts to which the Company or a Subsidiary thereof
is or proposes to become a party in the ordinary course of the Company's or such
Subsidiary's business, including, without limitation, for insurance purposes or
in respect of advance payments or as bid or performance bonds.
"SUBSIDIARY": as to any Person, any corporation, partnership or other
entity of which shares of stock of each class or other equity interests having
ordinary voting power (other than stock or other equity interests having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation, partnership or
other entity are at the time owned by such Person or by one or more Subsidiaries
of such Person or by such Person and one or more Subsidiaries of such Person. A
Subsidiary shall be deemed wholly-owned by a Person who owns all of the voting
shares or other equity interests of such Subsidiary except for directors'
qualifying or similar shares.
"SUBSIDIARY GUARANTEE": the Subsidiary Guarantee to be executed by
each Subsidiary Guarantor in favor of the Administrative Agent, for the ratable
benefit of the Lenders, substantially in the form of Exhibit G hereto, as the
same may be amended, supplemented or otherwise modified from time to time.
"SUBSIDIARY GUARANTOR": the Material Subsidiaries of Holdings and
such other Subsidiaries as the Company may elect to include as guarantors,
other than Foreign Subsidiaries of Holdings or the Company or other Subsidiaries
of Holdings or the Company if more than 65% of the assets of such subsidiaries
are securities of foreign Persons (such determination to be made on the basis of
fair market value); PROVIDED that the term "Subsidiary Guarantor" shall, in any
event, include any Subsidiary which enters into a Guarantee pursuant to
subsection 7.8(b).
"SUBSIDIARY NOTE": the promissory note made by Gulfstream Aerospace
Corporation, a Georgia corporation and a Subsidiary of the Company, in favor of
the Company and evidencing the intercompany indebtedness owed from time to time
by such Subsidiary to the Company.
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18
"SUBSIDIARY PLEDGE AGREEMENT": the Subsidiary Pledge Agreement to be
executed by each Subsidiary Pledgor in favor of the Administrative Agent, for
the ratable benefit of the Lenders, substantially in the form of Exhibit H
hereto, as the same may be amended, supplemented or otherwise modified from time
to time (it being understood and agreed that, subject to Section 7.8(c) hereof,
the Subsidiary Pledge Agreement shall not require a Subsidiary Pledgor to pledge
(x) any of the stock of any Foreign Subsidiary of the Subsidiary Pledgor, the
Company or Holdings which is owned by a Foreign Subsidiary of the Subsidiary
Pledgor, the Company or Holdings or (y) more than 65% of the stock of (i) any
other Foreign Subsidiary of the Subsidiary Pledgor, the Company or Holdings or
(ii) any other Subsidiary of the Subsidiary Pledgor, the Company or Holdings if
more than 65% of the assets of such Subsidiary are securities of foreign Persons
(such determination to be made on the basis of fair market value)).
"SUBSIDIARY PLEDGOR": Any Subsidiary of the Company which,
after the Closing Date, enters into a Pledge Agreement pursuant to
subsection 7.8(a).
"SWING LINE COMMITMENT": Chase's obligation to make Swing Line Loans
pursuant to subsection 3.7.
"SWING LINE LOAN" and "SWING LINE LOANS": as defined in subsection
3.7(a).
"SWING LINE LOAN PARTICIPATION CERTIFICATE": a certificate in
substantially the form of Exhibit M hereto.
"SWING LINE NOTE": as defined in subsection 4.2.
"TERM INSTALLMENT PAYMENT DATE": as defined in subsection 2.2.
"TERM LOAN" and "TERM LOANS": as defined in subsection 2.1.
"TERM LOAN COMMITMENT": as to any Lender, its obligations to make
Term Loans to the Company pursuant to subsection 2.1 in an aggregate amount not
to exceed the amount set forth opposite such Lender's name in Schedule 1.1A
under the heading "Term Loan", as the same may be reduced from time to time
pursuant to subsection 4.4; collectively, as to all the Lenders, the "TERM LOAN
COMMITMENTS".
"TERM LOAN COMMITMENT PERCENTAGE": as to any Lender, at any time, the
percentage of the aggregate principal amount of all Term Loans then outstanding
constituted by the aggregate principal amount of such Lender's Term Loans then
outstanding.
"TERM LOAN NOTE" and "TERM LOAN NOTES": as defined in subsection 4.2.
"TYPE": as to any Loan, its nature as an ABR Loan, a Eurodollar Loan,
or a Money Market Rate Loan.
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"UNIFORM CUSTOMS": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as the same may be amended from time to time.
"USED AIRCRAFT INVENTORY FINANCING": the collective reference to each
financing arrangement (other than any sale in which there is no recourse to the
Company or any of its Subsidiaries, to the extent that such a sale might be
deemed to be a financing arrangement) between any Financing Subsidiary and a
third party with regard to used aircraft held by the Company or any of its
Subsidiaries in inventory, substantially upon the terms set forth in Schedule
1.1B; PROVIDED, in any event, that all such arrangements collectively shall be
limited to such portion of the used aircraft inventory of the Company and its
Subsidiaries having a fair market value not in excess of $200,000,000 in the
aggregate.
"WORKING DAY": any day on which dealings in foreign currencies and
exchange between banks may be carried on in London, England and in New York, New
York.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes, any other Credit Document or any certificate or other
document made or delivered pursuant hereto.
(b) As used herein and in the Notes, any other Credit Document and
any certificate or other document made or delivered pursuant hereto, accounting
terms relating to Holdings, the Company and its Subsidiaries not defined in
subsection 1.1 and accounting terms partly defined in subsection 1.1 to the
extent not defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to the singular and plural forms of such terms.
SECTION 2. TERM LOANS
2.1 TERM LOANS. Subject to the terms and conditions hereof, each
Lender severally agrees to make the term loans in Dollars (individually, a "TERM
LOAN"; and collectively, the "TERM LOANS") to the Company on the Closing Date in
an aggregate principal amount not to exceed such Lender's Term Loan Commitment.
The Term Loans shall initially be ABR Loans.
2.2 REPAYMENT OF TERM LOANS. The Company shall repay the Term Loans
in 22 consecutive quarterly installments on the last day of each March, June,
September and
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20
December (each such day, a "TERM INSTALLMENT PAYMENT DATE"), commencing on
June 30, 1997, each of which installments on any such date shall be the amount
set forth opposite such date below (or such earlier date on which the Term Loans
become due and payable hereunder):
Installment Date Amount
---------------- ------
June 30, 1997 6,666,666.00
September 30, 1997 6,666,667.00
December 31, 1997 6,666,667.00
March 31, 1998 18,750,000.00
June 30, 1998 18,750,000.00
September 30, 1998 18,750,000.00
December 31, 1998 18,750,000.00
March 31, 1999 18,750,000.00
June 30, 1999 18,750,000.00
September 30, 1999 18,750,000.00
December 31, 1999 18,750,000.00
March 31, 2000 18,750,000.00
June 30, 2000 18,750,000.00
September 30, 2000 18,750,000.00
December 31, 2000 18,750,000.00
March 31, 2001 18,750,000.00
June 30, 2001 18,750,000.00
September 30, 2001 18,750,000.00
December 31, 2001 18,750,000.00
March 31, 2002 26,666,666.00
June 30, 2002 26,666,667.00
September 30, 2002 26,666,667.00
2.3 PROCEEDS OF TERM LOANS. The Company shall use the proceeds of
the Term Loans solely (a) to finance in part the refinancing on the Closing Date
of the Existing Credit Agreements as described in subsection 6.1(f), (b) for the
payment of related fees and expenses in connection with the IPO and the
transactions contemplated hereby and (c) to effect the repurchase on the Closing
Date of the Holdings Preferred as described in subsection 6.1(e).
SECTION 3. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS
3.1 REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and
conditions hereof, each Lender agrees to extend credit to the Company from time
to time on any Borrowing Date during the Revolving Credit Commitment Period (i)
by purchasing an L/C Participating Interest in each Letter of Credit issued by
the Issuing Lender and (ii) by making loans in Dollars (individually, a
REVOLVING CREDIT LOAN, and collectively the "REVOLVING CREDIT LOANS") to the
Company from time to time. Notwithstanding the foregoing, in no
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21
event shall (i) any Revolving Credit Loan or Swing Line Loan be made, or any
Letter of Credit be issued, if, after giving effect to such making or issuance
and the use of proceeds thereof as irrevocably directed by the Company, the sum
of the Aggregate Revolving Credit Extensions of Credit and the aggregate
outstanding principal amount of the Swing Line Loans would exceed the aggregate
Revolving Credit Commitments or if subsection 3.5 would be violated thereby,
(ii) any Revolving Credit Loan or Swing Line Loan be made, or any Letter of
Credit be issued, if the amount of such Loan to be made or any Letter of Credit
to be issued would, after giving effect to the use of proceeds, if any, thereof,
exceed the Available Revolving Credit Commitment or (iii) any Revolving Credit
Loan or Swing Line Loan be made, other than to fund Revolving L/C Obligations,
if the sum of the aggregate outstanding principal amount of Revolving Credit
Loans and the aggregate outstanding principal amount of Swing Line Loans would,
after giving effect to the making of such Revolving Credit Loans or such Swing
Line Loan and use of proceeds, if any, thereof, exceed $200,000,000. During the
Revolving Credit Commitment Period, the Company may use the Revolving Credit
Commitments by borrowing, prepaying the Revolving Credit Loans or Swing Line
Loans in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof, and/or by having the Issuing Lenders issue Letters of Credit,
having such Letters of Credit expire undrawn upon or if drawn upon, reimbursing
the relevant Issuing Lender for such drawing, and having the Issuing Lenders
issue new Letters of Credit.
(b) The Revolving Credit Loans shall on the Closing Date be made
initially as ABR Loans. Each borrowing of Revolving Credit Loans pursuant to
the Revolving Credit Commitments shall be in an aggregate principal amount of
the lesser of (i) $5,000,000, or a whole multiple of $1,000,000 in excess
thereof, and (ii) the Available Revolving Credit Commitments, except that any
borrowing of a Revolving Credit Loan to be used solely to pay a like amount of
Swing Line Loans may be in the aggregate principal amount of such Swing Line
Loans.
3.2 PROCEEDS OF REVOLVING CREDIT LOANS. The Company shall use the
proceeds of Revolving Credit Loans solely (a) for the purposes described in
subsection 2.3, (b) for financing general working capital needs of the Company
or any of its Subsidiaries, and (c) for other general corporate purposes of the
Company or any of its Subsidiaries, all in accordance with the terms and
conditions hereof.
3.3 ISSUANCE OF LETTERS OF CREDIT. (a) The Company may from time to
time request the Issuing Lender to issue a Letter of Credit, which may be either
a Standby L/C or a Commercial L/C, by delivering to the Administrative Agent at
its address specified in subsection 11.2 and the Issuing Lender an L/C
Application completed to the satisfaction of the Issuing Lender, together with
the proposed form of such Letter of Credit (which shall comply with the
applicable requirements of paragraph (b) below) and such other certificates,
documents and other papers and information as the Issuing Lender may reasonably
request. All of the letters of credit issued and outstanding on the Closing
Date under the Existing Credit Agreements and set forth on Schedule 3.3 hereto
shall on the Closing Date remain outstanding and shall in each case be deemed to
be, and shall be, a Letter of Credit issued and outstanding under the terms of
this Agreement.
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(b) Each Letter of Credit issued hereunder shall, among other things,
(i) be in such form requested by the Company as shall be acceptable to the
relevant Issuing Lender in its sole discretion and (ii) have an expiry date, in
the case of each Standby L/C, occurring not later than the earlier of (x) 365
days after the issuance of such Standby L/C and (y) the Revolving Credit
Termination Date, and in the case of each Commercial L/C, occurring not later
than the earlier of (x) 180 days after the date of issuance of such Commercial
L/C and (y) the Revolving Credit Termination Date. Each L/C Application and
each Letter of Credit shall be subject to the Uniform Customs and, to the extent
not inconsistent therewith, the laws of the State of New York.
3.4 PARTICIPATING INTERESTS. Effective in the case of each Letter of
Credit opened by the Issuing Lender as of the date of the opening thereof
(including each Letter of Credit set forth on Schedule 3.3 hereto and deemed
opened and outstanding as of the Closing Date), the Issuing Lender agrees to
allot and does allot, to itself and each other Lender, and each Lender severally
and irrevocably agrees to take and does take in such Letter of Credit and the
related L/C Application, an L/C Participating Interest in a percentage equal to
such Lender's Revolving Credit Commitment Percentage.
3.5 PROCEDURE FOR OPENING LETTERS OF CREDIT. Upon receipt of any L/C
Application from the Company in respect of a Letter of Credit, the
Administrative Agent will promptly notify each Lender thereof. The relevant
Issuing Lender will process such L/C Application, and the other certificates,
documents and other papers delivered to the Issuing Lender in connection
therewith, upon receipt thereof in accordance with its customary procedures and,
subject to the terms and conditions hereof, shall promptly open such Letter of
Credit by issuing the original of such Letter of Credit to the beneficiary
thereof and by furnishing a copy thereof to the Company and each of the other
Lenders, PROVIDED that no such Letter of Credit shall be issued (a) if
subsection 3.1 would be violated thereby or (b) if the maximum aggregate amount
available to be drawn under all Letters of Credit outstanding at such time would
exceed $150,000,000.
3.6 PAYMENTS IN RESPECT OF LETTERS OF CREDIT. (a) The Company
agrees forthwith upon demand by the relevant Issuing Lender and otherwise in
accordance with the terms of the L/C Application relating thereto (i) to
reimburse the Issuing Lender, through the Administrative Agent, for any payment
made by the Issuing Lender under any Letter of Credit and (ii) to pay interest
on any unreimbursed portion of any such payment from the date of such payment
until reimbursement in full thereof at a rate per annum equal to (A) prior to
the date which is one Business Day after the day on which the Issuing Lender
demands reimbursement from the Company for such payment, the ABR plus the
Applicable Margin for ABR Loans and (B) on such date and thereafter, the ABR
plus the Applicable Margin for ABR Loans plus 2%.
(b) In the event that the Issuing Lender makes a payment under any
Letter of Credit and is not reimbursed in full therefor forthwith upon demand of
the Issuing Lender, and otherwise in accordance with the terms of the L/C
Application relating to such Letter of Credit, the Issuing Lender will promptly
notify each other Lender through the Administrative Agent. Forthwith upon its
receipt of any such notice, each other Lender will transfer to the Issuing
Lender, through the Administrative Agent, in immediately available funds, an
amount
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23
equal to such other Lender's PRO RATA share of the Revolving L/C Obligation
arising from such unreimbursed payment. Upon its receipt from such other Lender
of such amount, the Administrative Agent will complete, execute and deliver to
such other Lender an L/C Participation Certificate dated the date of such
receipt and in such amount.
(c) Whenever, at any time after the Issuing Lender has made a payment
under any Letter of Credit and has received from any other Lender such other
Lender's PRO RATA share of the Revolving L/C Obligation arising therefrom, the
Issuing Lender receives any reimbursement on account of such Revolving L/C
Obligation or any payment of interest on account thereof (appropriately
adjusted, in the case of interest payments, to reflect the period of time during
which such Lender's participating interest was outstanding and funded), the
Issuing Lender will, as promptly as practicable, distribute to such other
Lender, through the Administrative Agent, its PRO RATA share thereof in like
funds as received; PROVIDED, that in the event that the receipt by the Issuing
Lender of such reimbursement or such payment of interest (as the case may be)
is required to be returned, such other Lender will return to the Issuing
Lender, through the Administrative Agent, any portion thereof previously
distributed by the Issuing Lender to it in like funds as such reimbursement
or payment is required to be returned by the Issuing Lender.
3.7 SWING LINE COMMITMENT. (a) Subject to the terms and conditions
hereof, Chase agrees to make swing line loans (individually, a "SWING LINE
LOAN"; collectively, the "SWING LINE LOANS") to the Company from time to time
during the Revolving Credit Commitment Period in an aggregate principal amount
at any one time outstanding not to exceed $20,000,000, PROVIDED that at no time
may the sum of the aggregate outstanding principal amount of the Swing Line
Loans and the Aggregate Revolving Credit Extensions of Credit exceed the
Revolving Credit Commitments. Amounts borrowed by the Company under this
subsection may be repaid and, through but excluding the Revolving Credit
Termination Date, reborrowed. All Swing Line Loans may from time to time be (i)
ABR Loans, (ii) Money Market Rate Loans or (iii) a combination thereof, and
shall not be entitled to be converted into Eurodollar Loans. The Company shall
give Chase irrevocable notice (which notice must be received by Chase prior to
12:00 Noon, New York City time) on the requested Borrowing Date specifying the
amount of each requested Swing Line Loan, which shall be in minimum amounts of
$500,000 or a whole multiple thereof, in the case of Swing Line Loans which are
ABR Loans, or $2,000,000 or a whole multiple thereof, in the case of Swing Line
Loans which are Money Market Rate Loans. In the case of any Swing Line Loans
that the Company desires to request as Money Market Rate Loans, the Company
may, on any Borrowing Date for Swing Line Loans and prior 12:00 noon, New York
City time, request a quote of the Money Market Rate which would be applicable
for such Swing Line Loans from Chase, specifying the amount of the proposed
Money Market Rate Loans. Upon receipt of such quote, the Company shall
promptly (but not later than 12:00 noon, New York City time on such
Borrowing Date) notify Chase whether it requests Chase to make Money
Market Rate Loans at such Money Market Rate. The proceeds of each Swing
Line Loan will be made available by Chase to the Company by crediting the
account of the Company at Chase with such proceeds. The proceeds of Swing Line
Loans may be used solely for the purposes referred to in subsection 3.2.
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(b) The Swing Line Loans shall be evidenced by a promissory note of
the Company substantially in the form of Exhibit C, with appropriate insertions
(the "SWING LINE NOTE"), payable to the order of Chase and representing the
obligation of the Company to pay the aggregate unpaid principal amount of the
Swing Line Loans, with interest thereon as prescribed in subsection 4.7. Chase
is hereby authorized to record the Borrowing Date, the amount of each Swing Line
Loan and the date and amount of each payment or prepayment of principal thereof,
on the schedule annexed to and constituting a part of the Swing Line Note and,
in the absence of manifest error, any such recordation shall constitute PRIMA
FACIE evidence of the accuracy of the information so recorded, PROVIDED that the
failure of Chase to make such recordation (or any error in such recordation)
shall not affect the obligations of the Company hereunder or under the Swing
Line Note. The Swing Line Note shall (a) be dated the Closing Date, (b) be
stated to mature on the Revolving Credit Termination Date and (c) bear interest
for the period from the date thereof on the unpaid principal amount thereof from
time to time outstanding at the applicable interest rate per annum determined as
provided in, and payable as specified in, subsection 4.7.
(c) Chase at any time in its sole and absolute discretion may, and on
the fifteenth day (or if such day is not a Business Day, the next Business Day)
and the last Business Day of each month shall, on behalf of the Company (which
hereby irrevocably directs Chase to act on its behalf), request each Lender,
including Chase, to make a Revolving Credit Loan in an amount equal to such
Lender's Revolving Credit Commitment Percentage of the amount of the Swing Line
Loans (the "REFUNDED SWING LINE LOANS") outstanding on the date such notice is
given. Unless any of the events described in paragraph (f) of Section 9 shall
have occurred (in which event the procedures of paragraph (d) of this subsection
shall apply) each Lender shall make the proceeds of its Revolving Credit Loan
available to Chase for the account of Chase at the office of Chase located at
270 Park Avenue, New York, New York 10017 prior to 12:00 Noon (New York City
time) in funds immediately available on the Business Day next succeeding the
date such notice is given. The proceeds of such Revolving Credit Loans shall be
immediately applied to repay the Refunded Swing Line Loans. Refunded Swing
Line Loans shall be initially ABR Loans or Eurodollar Loans.
(d) If prior to the making of a Revolving Credit Loan pursuant to
paragraph (c) of this subsection one of the events described in paragraph (f) of
Section 9 shall have occurred, each Lender will, on the date such Loan would
otherwise have been made, purchase an undivided participating interest in the
Refunded Swing Line Loans in an amount equal to its Revolving Credit Commitment
Percentage of such Refunded Swing Line Loans. Each Lender will immediately
transfer to Chase, in immediately available funds, the amount of its
participation and upon receipt thereof Chase will deliver to such Lender a Swing
Line Loan Participation Certificate dated the date of receipt of such funds and
in such amount.
(e) Whenever, at any time after Chase has received from any Lender
such Lender's participating interest in a Swing Line Loan, Chase receives any
payment on account thereof, Chase will distribute to such Lender its
participating interest in such amount (appropriately adjusted, in the case of
interest payments, to reflect the period of time during which such Lender's
participating interest was outstanding and funded) in like funds as received;
PROVIDED, HOWEVER, that in the event that such payment received by Chase is
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25
required to be returned, such Lender will return to Chase any portion thereof
previously distributed by Chase to it in like funds as such payment is required
to be returned by Chase.
3.8 PARTICIPATIONS. Each Lender's obligation to purchase
participating interests pursuant to subsections 3.4 and 3.7(d) is absolute and
unconditional as set forth in subsection 4.16.
SECTION 4. GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF
CREDIT
4.1 PROCEDURE FOR BORROWING. (a) The Company may borrow under the
Commitments on any Working Day, if the borrowing is of Eurodollar Loans, or on
any Business Day, if the borrowing is of ABR Loans, PROVIDED that, with respect
to the borrowings to take place on the Closing Date, the Company shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 10:00 A.M., New York City time, on the Closing
Date), and with respect to any subsequent borrowings, the Company shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 12:00 Noon, New York City time, (i) three Working
Days prior to the requested Borrowing Date if all or any part of the Loans are
to be Eurodollar Loans and (ii) one Business Day prior to the requested
Borrowing Date if the borrowing is to be solely of ABR Loans) specifying (A) the
amount of the borrowing, (B) whether such Loans are initially to be Eurodollar
Loans or ABR Loans, or a combination thereof, and (C) if the borrowing is to be
entirely or partly Eurodollar Loans, the length of the Interest Period for such
Eurodollar Loans. Upon receipt of such notice the Administrative Agent shall
promptly notify each Lender (which notice shall in any event be delivered to
each Lender by 4:00 P.M., New York City time, on such date). Not later than
12:00 Noon, New York City time, on the Borrowing Date specified in such notice,
each Lender shall make available to the Administrative Agent at the office of
the Administrative Agent specified in subsection 11.2 (or at such other location
as the Administrative Agent may direct) an amount in immediately available funds
equal to the amount of the Loan to be made by such Lender. Loan proceeds
received by the Administrative Agent hereunder shall promptly be made available
to the Company by the Administrative Agent's crediting the account of the
Company, at the office of the Administrative Agent specified in subsection 11.2,
with the aggregate amount actually received by the Administrative Agent from the
Lenders and in like funds as received by the Administrative Agent.
(b) Any borrowing of Eurodollar Loans hereunder shall be in such
amounts and be made pursuant to such elections so that, after giving effect
thereto, (i) the aggregate principal amount of all Eurodollar Loans having the
same Interest Period shall not be less than $5,000,000, or a whole multiple of
$1,000,000 in excess thereof, and (ii) no more than ten Interest Periods shall
be in effect at any one time.
(c) Eurodollar Loans shall be made by each Lender at its Eurodollar
Lending Office and ABR Loans shall be made by each Lender at its ABR Lending
Office.
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4.2 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The Company hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Lender (i) the then unpaid principal amount of each Revolving Credit Loan
of such Lender on the Revolving Credit Termination Date (or such earlier date on
which the Revolving Credit Loans become due and payable pursuant to Section 9)
and (ii) the principal amount of the Term Loan of such Lender, in accordance
with the applicable amortization schedule set forth in subsection 2.2 (or the
then unpaid principal amount of such Term Loans, on the date that any or all of
the Term Loans become due and payable pursuant to Section 9). The Company
hereby further agrees to pay interest on the unpaid principal amount of the
Loans from time to time outstanding from the date hereof until payment in full
thereof at the rates per annum, and on the dates, set forth in subsection 4.7.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Company to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to
subsection 11.6(d), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Loan made hereunder, the Type thereof and each
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Company to each Lender
hereunder and (iii) both the amount of any sum received by the Administrative
Agent hereunder from the Company and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to subsection 4.2(b) shall, to the extent permitted by
applicable law, be PRIMA FACIE evidence of the existence and amounts of the
obligations of the Company therein recorded; PROVIDED, HOWEVER, that the failure
of any Lender or the Administrative Agent to maintain the Register or any such
account, or any error therein, shall not in any manner affect the obligation of
the Company to repay (with applicable interest) the Loans made to such Company
by such Lender in accordance with the terms of this Agreement.
(e) The Company agrees that, upon the request to the Company and the
Administrative Agent by any Lender, the Company will execute and deliver to such
Lender (i) a promissory note of the Company evidencing the Revolving Credit
Loans of such Lender, substantially in the form of Exhibit A, with appropriate
insertions as to date and principal amount (a "REVOLVING CREDIT NOTE"), (ii) a
promissory note of the Company evidencing the Swing Line Loans of such Lender,
substantially in the form of Exhibit B, with appropriate insertions as to date
and principal amount (a "SWING LINE NOTE"), and (iii) a promissory note of the
Company evidencing the Term Loans of such Lender, substantially in the form of
Exhibit C with appropriate insertions as to date and principal amount (a
"TERM NOTE").
4.3 CONVERSION OPTIONS. The Company may elect from time to time to
convert Eurodollar Loans into ABR Loans by giving the Administrative Agent
irrevocable notice of such election, to be received by the Administrative Agent
prior to 12:00 Noon,
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27
New York City time, at least three Working Days prior to the proposed conversion
date, PROVIDED that any such conversion of Eurodollar Loans shall only be made
on the last day of an Interest Period with respect thereto. The Company may
elect from time to time to convert all or a portion of the ABR Loans (other than
Swing Line Loans) then outstanding to Eurodollar Loans by giving the
Administrative Agent irrevocable notice of such election, to be received by the
Administrative Agent prior to 12:00 Noon, New York City time, at least three
Working Days prior to the proposed conversion date, specifying the Interest
Period selected therefor, and, if no Default or Event of Default has occurred
and is continuing, such conversion shall be made on the requested conversion
date or, if such requested conversion date is not a Working Day, on the next
succeeding Working Day. Upon receipt of any notice pursuant to this subsection
4.3, the Administrative Agent shall promptly, but in any event by 4:00 P.M., New
York City time, notify each Lender thereof. All or any part of the outstanding
Loans (other than Swing Line Loans) may be converted as provided herein,
PROVIDED that partial conversions of Loans shall be in the aggregate principal
amount of $5,000,000, or a whole multiple of $1,000,000 in excess thereof, and
the aggregate principal amount of the resulting Eurodollar Loans outstanding in
respect of any one Interest Period shall be at least $5,000,000 or a whole
multiple of $1,000,000 in excess thereof.
4.4 CHANGES OF COMMITMENT AMOUNTS. (a) The Company shall have the
right, upon not less than three Business Days' notice to the Administrative
Agent, to terminate or, from time to time, reduce the Revolving Credit
Commitments subject to the provisions of this subsection 4.4. To the extent, if
any, that the sum of the amount of the Revolving Credit Loans, Swing Line Loans
and Revolving L/C Obligations then outstanding and the amounts available to be
drawn under outstanding Letters of Credit exceeds the amount of the Revolving
Credit Commitments as then reduced, the Company shall be required to make a
prepayment equal to such excess amount, the proceeds of which shall be applied
FIRST, to payment of the Swing Line Loans then outstanding, SECOND, to payment
of the Revolving Credit Loans then outstanding, THIRD, to payment of any
Revolving L/C Obligations then outstanding, and LAST, to cash collateralize any
outstanding Letters of Credit on terms reasonably satisfactory to the
Administrative Agent. Any such termination of the Revolving Credit Commitments
shall be accompanied by prepayment in full of the Revolving Credit Loans, Swing
Line Loans and Revolving L/C Obligations then outstanding and by cash
collateralization of any outstanding Letter of Credit on terms reasonably
satisfactory to the Administrative Agent.
(b) Interest accrued on the amount of any partial prepayment pursuant
to this subsection 4.4 to the date of such partial prepayment shall be paid on
the Interest Payment Date next succeeding the date of such partial prepayment.
In the case of the termination of the Revolving Credit Commitments, interest
accrued on the amount of any prepayment relating thereto and any unpaid
commitment fee accrued hereunder shall be paid on the date of such prepayment or
termination, as the case may be. Any such partial reduction of the Revolving
Credit Commitments shall be in an amount of $2,500,000 or a whole multiple of
$1,000,000 in excess thereof, and shall, in each case, reduce permanently the
amount of the Revolving Credit Commitments, then in effect.
4.5 OPTIONAL PREPAYMENTS. The Company may at any time and from time
to time prepay Loans, in whole or in part, without premium or penalty, upon at
least one
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28
Business Days' irrevocable notice to the Administrative Agent in the case of ABR
Loans, and three Business Days' irrevocable notice to the Administrative Agent
in the case of Eurodollar Loans, specifying the date and amount of prepayment
and whether the prepayment is of Revolving Credit Loans or Term Loans, PROVIDED
that Eurodollar Loans may not be optionally prepaid on other than the last day
of any Interest Period with respect thereto. Upon receipt of such notice the
Administrative Agent shall promptly notify each Lender thereof. If such notice
is given, the Company shall make such prepayment, and the payment amount
specified in such notice shall be due and payable, on the date specified
therein. Accrued interest on any Notes or on the amount of any Loans paid in
full pursuant to this subsection 4.5 shall be paid on the date of such
prepayment. Accrued interest on the amount of any partial prepayment shall be
paid on the Interest Payment Date next succeeding the date of such partial
prepayment (or in the case of prepayment in full of Term Loans, on the date of
such payment. Partial prepayments (i) of Term Loans shall be in an aggregate
principal amount equal to the lesser of (A) $2,500,000 or a whole multiple of
$1,000,000 in excess thereof and (B) the aggregate unpaid principal amount of
the Term Loans, as the case may be, and (ii) of Revolving Credit Loans shall be
in an aggregate principal amount equal to the lesser of (A) $2,500,000 or a
whole multiple of $1,000,000 in excess thereof and (B) the aggregate unpaid
principal amount of the Revolving Credit Loans, as the case may be. Except as
otherwise may be agreed by the Company and the Required Lenders, any prepayment
of the Term Loans pursuant to this subsection 4.5 shall be applied, FIRST, to
the installments of the Term Loans scheduled to be paid during the next twelve
months after the date of such prepayment and SECOND the balance, if any, to the
remaining installments of the Term Loans on a PRO RATA basis. Amounts prepaid
on account of the Term Loans pursuant to this subsection 4.5 or otherwise may
not be reborrowed.
4.6 MANDATORY PREPAYMENTS. (a) Subject to the provisions of
subsection 8.5 promptly following the consummation of any Asset Sale by the
Company or any of its Subsidiaries, in the case of cash proceeds, and promptly
following receipt of cash proceeds representing payments under notes or other
securities received in connection with any non-cash consideration obtained in
connection with such Asset Sale, the Company shall, to the extent that the
cumulative amount of Net Proceeds received after the Closing Date exceeds
$20,000,000, apply such amount of the Net Proceeds of such Asset Sale in excess
of $20,000,000, FIRST, to the installments of the Term Loans scheduled to be
paid during the next twelve months after the date of such prepayment and SECOND
to the remaining installments of the Term Loans on a PRO RATA basis.
(b) Upon receipt by the Administrative Agent of the Net Proceeds
required to be paid to the Lenders hereunder from any Asset Sale (i) consisting
of the sale of all of the shares of stock of any Subsidiary Guarantor, the
obligations of such Subsidiary Guarantor under its Guarantee shall automatically
be discharged and released without any further action by the Administrative
Agent or any Lender, PROVIDED that the Administrative Agent and the Lenders
agree, upon the request of the Company, to execute and deliver any instrument or
other document in a form acceptable to the Administrative Agent which may
reasonably be required to evidence such discharge and release and (ii) in
connection with the sale or other disposition of the capital stock of a
Subsidiary of the Company, the Administrative Agent shall release to the pledgor
thereof, without representation, warranty or recovery, express or
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29
implied, the capital stock of such Subsidiary held by it as Pledged Stock (as
defined in the relevant Pledge Agreement), if any, under the relevant Pledge
Agreement.
(c) The Company shall give the Administrative Agent (which shall
promptly notify each Lender) at least one Business Day's notice of each
prepayment pursuant to this subsection 4.6 setting forth the date and amount
thereof. Prepayment of Eurodollar Loans, if not on the last day of the Interest
Period with respect thereto, shall, at the Company's option as long as no
Default or Event of Default has occurred and is continuing, be prepaid subject
to the provisions of subsection 4.21 or such Net Proceeds (after application to
any ABR Loans) shall be deposited with the Administrative Agent as cash
collateral for such Eurodollar Loans on terms reasonably satisfactory to the
Administrative Agent and thereafter shall be applied to the prepayment of the
Term Loans constituting Eurodollar Loans on the last day of the respective
Interest Periods for such Eurodollar Loans next ending most closely to the date
of receipt of such Net Proceeds. After such application, unless a Default or an
Event of Default shall have occurred and be continuing, any remaining interest
earned on such cash collateral shall be paid to the Company.
(d) Amounts prepaid on account of the Term Loans pursuant to this
subsection 4.6 or otherwise may not be reborrowed. Accrued interest on any Term
Loans prepaid pursuant to this subsection 4.6 shall be paid on the Interest
Payment Date next succeeding the date of any partial prepayment and on the date
of such payment or prepayment in the case of a payment or prepayment in full of
the Term Loans.
(e) Upon the Revolving Credit Termination Date the Company shall,
with respect to each then outstanding Letter of Credit, if any, cause such
Letter of Credit to be cancelled without such Letter of Credit being drawn upon.
4.7 INTEREST RATES AND PAYMENT DATES. (a) Each Eurodollar Loan
shall bear interest for each day during each Interest Period with respect
thereto on the unpaid principal amount thereof at a rate per annum equal to the
Eurodollar Rate determined for such Interest Period plus the Applicable Margin.
(b) ABR Loans shall bear interest for the period from and including
the date thereof until maturity thereof on the unpaid principal amount thereof
at a rate per annum equal to the ABR plus the Applicable Margin.
(c) Money Market Rate Loans shall bear interest for the period from
and including the date thereof until maturity thereof on the unpaid principal
amount thereof at a rate per annum equal to the Money Market Rate plus the
Applicable Margin for ABR Loans.
(d) If all or a portion of (i) the principal amount of any of the
Loans or (ii) any interest payable thereon shall not be paid when due (whether
at the stated maturity, by acceleration or otherwise), such overdue amount
shall, without limiting the rights of the Lenders under Section 9, bear interest
at a rate per annum which is (x) in the case of overdue principal, 2% above the
rate that would otherwise be applicable thereto pursuant to the foregoing
provisions of this subsection or (y) in the case of overdue interest, 2% above
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30
the rate described in paragraph (b) of this subsection, in each case from the
date of such nonpayment until such amount is paid in full (as well after as
before judgment).
(e) Interest shall be payable in arrears on each Interest Payment
Date; PROVIDED that interest accruing pursuant to paragraph (c) of this
subsection shall be payable on demand.
4.8 COMPUTATION OF INTEREST AND FEES. (a) Interest in respect of ABR
Loans at any time the ABR is calculated based on the Prime Rate and all fees
hereunder shall be calculated on the basis of a 365 or 366, as the case may be,
day year for the actual days elapsed. Interest in respect of Eurodollar Loans
and ABR Loans at any time the ABR is not calculated based on the Prime Rate
shall be calculated on the basis of a 360 day year for the actual days elapsed.
The Administrative Agent shall as soon as practicable notify the Company and the
Lenders of each determination of a Eurodollar Rate. Any change in the interest
rate on a Loan resulting from a change in the ABR or the Eurocurrency Reserve
Requirement shall become effective as of the opening of business on the day on
which such change in the ABR or the Eurocurrency Reserve Requirement, as the
case may be, becomes effective. The Administrative Agent shall as soon as
practicable notify the Company and the Lenders of the effective date and the
amount of each such change.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Company and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Company, deliver to the
Company a statement showing the quotations used by the Administrative Agent in
determining the Eurodollar Rate.
4.9 COMMITMENT FEES. The Company agrees to pay to the Administrative
Agent, for the account of each Lender, a commitment fee of 0.375% per annum from
and including the Closing Date to but excluding the Revolving Credit Termination
Date on the amount of such Lender's Available Revolving Credit Commitment during
the period for which payment is made, payable quarterly in arrears on the last
day of each March, June, September and December and on the Revolving Credit
Termination Date or such earlier date as the Revolving Credit Commitments shall
terminate as provided herein, commencing on the first of such dates to occur
after the date hereof, PROVIDED that, from and after the first Adjustment
Date, the rate for such commitment fee will be adjusted, if required, on each
Adjustment Date, to the rate set forth on ANNEX A hereto opposite the Leverage
Ratio Level of the Company in effect on such Adjustment Date and PROVIDED,
FURTHER, that, in the event that the financial statements required to be
delivered pursuant to subsection 7.1(a) or 7.1(b), as applicable, and the
related certificate required pursuant to subsection 7.2(b), are not delivered
when due, then, during the period from the date upon which such financial
statements were required to be delivered until one Business Day following the
date upon which they actually are delivered, the Leverage Ratio Level I shall
be deemed to be in effect for the purposes of determining the rate for such
commitment fee for such period.
4.10 CERTAIN FEES. The parties hereto acknowledge and agree that the
Company has agreed to pay to Chase the fees set forth in the letter agreement
dated as of August 9, 1996 between the Company, Chase and Chase Securities Inc.
The parties hereto acknowledge and agree that the Company's only obligation is
to pay such fees to Chase in
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31
accordance with the terms of such letter agreement and the Company is not liable
or otherwise obligated to the Lenders to pay such fees.
4.11 LETTER OF CREDIT FEES. (a) In lieu of any letter of credit
commissions and fees provided for in any L/C Application relating to Standby
L/Cs (other than standard administrative issuance, amendment and negotiation
fees), the Company agrees to pay the Administrative Agent, for the account of
the Issuing Lender and the Participating Lenders, with respect to each Standby
L/C, a Standby L/C fee equal to the Applicable Margin for Eurodollar Loans then
in effect plus 1/4 of 1% per annum (of which the Issuing Lender shall retain for
its own account, as the Issuing Lender and not on account of its L/C
Participating Interest therein, 1/4 of 1% per annum) on the amount available to
be drawn under each Standby L/C payable, in arrears, on the last day of each
fiscal quarter of the Company.
(b) In lieu of any letter of credit commissions and fees provided for
in any L/C Application relating to Commercial L/Cs (other than standard
administrative issuance, amendment and negotiation fees), the Company agrees to
pay the Administrative Agent, for the account of the Issuing Lender and the
Participating Lenders, with respect to each Commercial L/C, a Commercial L/C fee
of 3/4 of 1% (of which the Issuing Lender shall retain for its own account, as
the Issuing Lender and not on account of its L/C Participating Interest therein,
1/4 of 1%) on the maximum face amount of each Commercial L/C payable on the date
such Commercial L/C is issued.
(c) In connection with any payment of fees pursuant to this
subsection 4.11, the Administrative Agent agrees to provide to the Company a
statement of any such fees so paid; PROVIDED that the failure by the
Administrative Agent to provide the Company with any such invoice shall not
relieve the Company of its obligation to pay such fees.
4.12 LETTER OF CREDIT RESERVES. (a) If any Change in Law after the
date of this Agreement shall either (i) impose, modify, deem or make applicable
any reserve, special deposit, assessment or similar requirement against letters
of credit issued by the Issuing Lender or (ii) impose on the Issuing Lender any
other condition regarding this Agreement or any Letter of Credit, and the result
of any event referred to in clause (i) or (ii) above shall be to increase the
cost to the Issuing Lender of issuing or maintaining any Letter of Credit (which
increase in cost shall be the result of the Issuing Lender's reasonable
allocation of the aggregate of such cost increases resulting from such events),
then, upon demand by the Issuing Lender, the Company shall immediately pay to
the Issuing Lender, from time to time as specified by the Issuing Lender,
additional amounts which shall be sufficient to compensate the Issuing Lender
for such increased cost, together with interest on each such amount from the
date demanded until payment in full thereof at a rate per annum equal to the ABR
plus the Applicable Margin for ABR Loans. A certificate submitted by the
Issuing Lender to the Company concurrently with any such demand by the Issuing
Lender, shall be conclusive, absent manifest error, as to the amount thereof.
(b) In the event that at any time after the date hereof any Change in
Law with respect to the Issuing Lender shall, in the opinion of the Issuing
Lender, require that any obligation under any Letter of Credit be treated as an
asset or otherwise be included for purposes of calculating the appropriate
amount of capital to be maintained by the Issuing
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Lender or any corporation controlling the Issuing Lender, and such Change in Law
shall have the effect of reducing the rate of return on the Issuing Lender's or
such corporation's capital, as the case may be, as a consequence of the Issuing
Lender's obligations under such Letter of Credit to a level below that which the
Issuing Lender or such corporation, as the case may be, could have achieved but
for such Change in Law (taking into account the Issuing Lender's or such
corporation's policies, as the case may be, with respect to capital adequacy) by
an amount deemed by the Issuing Lender to be material, then from time to time
following notice by the Issuing Lender to the Company of such Change in Law,
within 15 days after demand by the Issuing Lender, the Company shall pay to the
Issuing Lender such additional amount or amounts as will compensate the Issuing
Lender or such corporation, as the case may be, for such reduction. If the
Issuing Lender becomes entitled to claim any additional amounts pursuant to this
subsection 4.12(b), it shall promptly notify the Company of the event by reason
of which it has become so entitled. A certificate submitted by the Issuing
Lender to the Company concurrently with any such demand by the Issuing Lender,
shall be conclusive, absent manifest error, as to the amount thereof.
(c) The Company agrees that the provisions of the foregoing
paragraphs (a) and (b) and the provisions of each L/C Application providing for
reimbursement or payment to the Issuing Lender in the event of the imposition or
implementation of, or increase in, any reserve, special deposit, capital
adequacy or similar requirement in respect of the Letter of Credit relating
thereto shall apply equally to each Participating Lender in respect of its L/C
Participating Interest in such Letter of Credit, as if the references in such
paragraphs and provisions referred to, where applicable, such Participating
Lender or any corporation controlling such Participating Lender.
4.13 FURTHER ASSURANCES. The Company hereby agrees, from time to
time, to do and perform any and all acts and to execute any and all further
instruments reasonably requested by the Issuing Lender to effect more fully the
purposes of this Agreement and the issuance of Letters of Credit hereunder. The
Company further agrees to execute any and all instruments reasonably requested
by the Issuing Lender in connection with the obtaining and/or maintaining of any
insurance coverage applicable to any Letters of Credit.
4.14 OBLIGATIONS ABSOLUTE. The payment obligations of the Company
under this Agreement with respect to the Letters of Credit shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances, including, without limitation,
the following circumstances:
(i) the existence of any claim, set-off, defense or other right
which the Company or any of its Subsidiaries may have at any time
against any beneficiary, or any transferee, of any Letter of Credit
(or any Persons for whom any such beneficiary or any such transferee
may be acting), the Issuing Lender, the Administrative Agent or any
Lender, or any other Person, whether in connection with this
Agreement, the Related Documents, any Credit Documents, the
transactions contemplated herein, or any unrelated transaction;
(ii) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect
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33
or any statement therein being untrue or inaccurate in any respect,
except where acceptance thereof constitutes gross negligence or
willfull misconduct on the part of the Issuing Lender;
(iii) payment by the Issuing Lender under any Letter of Credit
against presentation of a draft or certificate which does not comply
with the terms of such Letter of Credit, except where such payment
constitutes gross negligence or wilful misconduct on the part of the
Issuing Lender except where, such payment constitutes gross negligence
or willfull misconduct on the part of the Issuing Lender; or
(iv) any other circumstances or happening whatsoever, whether or
not similar to any of the foregoing, except for any such circumstances
or happening constituting gross negligence or willful misconduct on
the part of the Issuing Lender.
4.15 ASSIGNMENTS. No Participating Lender's participation in any
Letter of Credit or any of its rights or duties hereunder shall be subdivided,
assigned or transferred (other than in connection with a transfer of part or all
of such Participating Lender's Revolving Credit Commitment in accordance with
subsection 11.6) without the prior written consent of the relevant Issuing
Lender, which consent will not be unreasonably withheld. Such consent may be
given or withheld without the consent or agreement of any other Participating
Lender. Notwithstanding the foregoing, a Participating Lender may
subparticipate its L/C Participating Interest without obtaining the prior
written consent of the relevant Issuing Lender.
4.16 PARTICIPATIONS. Each Lender's obligation to purchase
participating interests pursuant to subsections 3.4 and 3.7(d) shall be absolute
and unconditional and shall not be affected by any circumstance, including,
without limitation, (i) any set-off, counterclaim, recoupment, defense or other
right which such Lender may have against the Issuing Lender, the Company,
Holdings or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of a Default or an Event of Default; (iii) any adverse change in the
condition (financial or otherwise) of the Company; (iv) any breach of this
Agreement by the Company or any other Lender; or (v) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
4.17 INABILITY TO DETERMINE INTEREST RATE. In the event that the
Administrative Agent shall have determined (which determination shall be
conclusive and binding upon the Company) that (a) by reason of circumstances
affecting the interbank eurodollar market, adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate for any Interest Period with respect
to (i) proposed Loans that the Company has requested be made as Eurodollar
Loans, (ii) any Eurodollar Loans that will result from the requested conversion
of all or part of ABR Loans into Eurodollar Loans or (iii) the continuation of
any Eurodollar Loan as such for an additional Interest Period, or (b) dollar
deposits in the relevant amount and for the relevant period with respect to any
such Eurodollar Loan are not available to any of the Lenders in their respective
Eurodollar Lending Offices' interbank eurodollar market, the Administrative
Agent shall forthwith give notice of such determination, confirmed in
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writing, to the Company and the Lenders at least one day prior to, as the case
may be, the requested Borrowing Date, the conversion date or the last day of
such Interest Period. If such notice is given (i) any requested Eurodollar
Loans shall be made as ABR Loans, (ii) any ABR Loans that were to have been
converted to Eurodollar Loans shall be continued as ABR Loans, and (iii) any
outstanding Eurodollar Loans shall be converted, on the last day of the then
current Interest Period applicable thereto, into ABR Loans. Until such notice
has been withdrawn by the Administrative Agent, no further Eurodollar Loans
shall be made.
4.18 PRO RATA TREATMENT AND PAYMENTS. (a) Each borrowing of any
Loans (other than Swing Line Loans) by the Company from the Lenders, each
payment by the Company on account of any fee hereunder (other than as set forth
in subsections 4.9, 4.10 and 4.11), and payments to Lenders in respect of
proceeds of Collateral and any reduction of the Term Loan Commitments
and the Revolving Credit Commitments of the Lenders hereunder shall
be made PRO RATA according to the relevant Commitment Percentages of the
Lenders. Each payment (including each prepayment) by the Company on account of
principal of and interest on the Loans (other than Swing Line Loans and other
than as set forth in subsections 4.19, 4.20 and 4.21) shall be made PRO RATA
according to the relevant Commitment Percentages of the Lenders. All payments
(including prepayments) to be made by the Company on account of principal,
interest and fees shall be made without set-off or counterclaim and shall be
made to the Administrative Agent, for the account of the Lenders, at the
Administrative Agent's office located at 270 Park Avenue, New York, New York
10017, in lawful money of the United States of America and in immediately
available funds. The Administrative Agent shall promptly distribute such
payments ratably to each Lender in like funds as received. If any payment
hereunder (other than payments on Eurodollar Loans) becomes due and payable on a
day other than a Business Day, such payment shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension. If
any payment on a Eurodollar Loan becomes due and payable on a day other than a
Working Day, the maturity thereof shall be extended to the next succeeding
Working Day unless the result of such extension would be to extend such payment
into another calendar month in which event such payment shall be made on the
immediately preceding Working Day.
(b) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a Borrowing Date that such Lender will not make
the amount which would constitute its relevant Commitment Percentage of the
borrowing on such date available to the Administrative Agent, the Administrative
Agent may assume that such Lender has made such amount available to the
Administrative Agent on such Borrowing Date in accordance with subsection 4.1
and the Administrative Agent may, in reliance upon such assumption, make
available to the Company a corresponding amount. If such amount is made
available to the Administrative Agent by such Lender on a date after such
Borrowing Date, such Lender shall pay to the Administrative Agent on demand an
amount equal to the product of (i) the daily average Federal funds rate during
such period as quoted by the Administrative Agent, times (ii) the amount of such
Lender's relevant Commitment Percentage of such borrowing not made available
on the Borrowing Date, times (iii) a fraction the numerator of which is the
number of days that elapse from and including such Borrowing Date to the date
on which such Lender's relevant Commitment Percentage of such borrowing shall
have become immediately available to the Administrative Agent and the
denominator of which is 360. A certificate of the Administrative Agent
submitted to any
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35
Lender with respect to any amounts owing under this subsection 4.18(b) shall be
conclusive, absent manifest error. If such Lender's relevant Commitment
Percentage of such borrowing is not in fact made available to the Administrative
Agent by such Lender within three Business Days of such Borrowing Date, the
Administrative Agent shall be entitled to recover such amount with interest
thereon at the rate per annum applicable to ABR Loans hereunder and
on demand, from the Company, without prejudice to any rights which the
Company or the Administrative Agent may have against such Lender hereunder.
Nothing contained in this subsection 4.18(b) shall relieve any Lender which
has failed to make available its ratable portion of any borrowing hereunder
from its obligation to do so in accordance with the terms hereof.
(c) The failure of any Lender to make the Loan to be made by it on
any Borrowing Date shall not relieve any other Lender of its obligation, if any,
hereunder to make its Loan on such Borrowing Date, but no Lender shall be
responsible for the failure of any other Lender to make the Loan to be made by
such other Lender on such Borrowing Date.
(d) All payments and optional prepayments (other than prepayments as
set forth in subsection 4.20 with respect to increased costs) of Eurodollar
Loans hereunder shall be in such amounts and be made pursuant to such elections
so that, after giving effect thereto, the aggregate principal amount of all
Eurodollar Loans with the same Interest Period shall not be less than $5,000,000
or a whole multiple of $1,000,000 in excess thereof.
(e) Each Lender, Assignee and Participant that is not a citizen or
resident of the United States of America, a corporation, partnership or other
entity created or organized in or under the laws of the United States of
America, or any estate or trust that is subject to U.S. federal income taxation
regardless of the source of its income (a"Non-U.S. Lender") shall deliver to the
Company and the Administrative Agent, and if applicable, the assigning Lender
(or, in the case of a Participant, to the Lender from which the related
participation shall have been purchased) on or before the date on which it
becomes a party to this Agreement (or, in the case of a Participant, on or
before the date on which such Participant purchases the related participation)
either:
(A) (x) two duly completed and signed copies of either Internal
Revenue Service Form 1001 (relating to such Non-U.S. Lender and entitling
it to a complete exemption from withholding of U.S. taxes on all amounts
to be received by such Non-U.S. Lender pursuant to this Agreement and
the other Credit Documents) or Form 4224 (relating to all amounts to be
received by such Non-U.S. Lender pursuant to this Agreement and the other
Credit Documents), or successor and related applicable forms, as the
case may be, and (y) two duly completed and signed copies of the Internal
Revenue Service Form W-8 or W-9, or successor and related applicable
forms, as the case may be; or
(B) in the case of a Non-U.S. Lender that is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Code and that does not comply with
the requirements of clause (A) hereof, (x) a statement in the form of
Exhibit I (or such other form of statement as shall be reasonably
requested by the Company from time to time) to the effect that such Non-
U.S. Lender is eligible for a complete exemption from withholding of
U.S. Taxes under Code Section 871(h) or 881(c), and (y) two duly completed
and signed copies of Internal Revenue Service Form W-8 or successor and
related applicable form (it being understood and agreed that no
Participant and, without the prior written consent of the Company
described in clause (C) of the proviso to the first sentence of
subsection 16.6(c), no Assignee shall be entitled to deliver any forms
or statements pursuant to this clause (B), but rather shall be
required to deliver forms pursuant to clause (A) of this subsection
8.18(e)).
Each Non-U.S. Lender that delivers a statement in the form of Exhibit I (or
such other form of statement as shall have been requested by the Company)
agrees that it shall be the sole beneficial and record owner of Loans or
Notes held by it. Further, each Non- U.S. Lender agrees (i) to deliver to
the Company and the Administrative Agent, and if applicable, the assigning
Lender (or, in the case of a Participant, to the Lender
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36
from which the related participation shall have been purchased) two further duly
completed and signed copies of such Forms 1001, 4224, W-8 or W-9, as the case
may be, or successor and related applicable forms, on or before the date that
any such form expires or becomes obsolete and promptly after the occurrence of
any event requiring a change from the most recent form(s) previously delivered
by it to the Company (or, in the case of a Participant, to the Lender from
which the related participation shall have been purchased) in accordance with
applicable U.S. laws and regulations, (ii) in the case of a Non-U.S. Lender
that delivers a statement in the form of Exhibit I (or such other form of
statement as shall have been requested by the Company), to deliver to the
Company and the Administrative Agent, and if applicable, the assigning Lender,
such statement on an annual basis on the anniversary of the date on which
such Non-U.S. Lender became a party to this Agreement and to deliver promptly
to the Company and the Administrative Agent, and if applicable, the assigning
Lender, such additional statements and forms as shall be reasonably requested
by the Company from time to time, and (iii) to notify promptly the Company and
the Administrative Agent (or, in the case of a Participant, the Lender from
which the related participation shall have been purchased) if it is no longer
able to deliver, or if it is required to withdrawn or cancel, any form or
statement previously delivered by it pursuant to this subsection 4.18(e).
Each Non-U.S. Lender agrees to indemnify and hold harmless the Company from
and against any taxes, penalties, interest or other costs or losses
(including, without limitation, reasonable attorney's fees and expenses)
incurred or payable by the Company as a result of the failure of the Company
to comply with its obligations to deduct or withhold any U.S. Taxes from any
payments made pursuant to this Agreement to such Non-U.S. Lender or the
Administrative Agent which failure resulted from the Company's reliance on
any form, statement, certificate or other information provided to it by such
Non-U.S. Lender pursuant to clause (B) or clause (ii) of this
subsection 4.18(e). The Company hereby agrees that for so long as a Non-U.S.
Lender complies with this subsection 4.18 Company shall not withhold any
amounts from any payments made pursuant to this Agreement to such Non-U.S.
Lender, unless the Company reasonably determines that it is required by law
to withhold or deduct any amounts from any payments made to such Non-U.S.
Lender shall not be required to deliver any form or statement pursuant to
the immediately preceding sentences in this subsection 4.18(e) that such
Non-U.S. Lender is not legally able to deliver (it being understood and
agreed that the Company shall withhold or deduct such amounts from any
payments made to such Non-U.S. Lender that the Company reasonably determines
are required by law). If any Credit Party other than the Company makes any
payment to any Non-U.S. Lender and such Credit Party as if such Credit
Party were the Company (but a Non-U.S. Lender shall not be required to
provide any form or make any statement to any such Credit Party unless such
Non-U.S. Lender has received a request to do so from such Credit Party and has
a reasonable time to comply with such request.
4.19 ILLEGALITY. Notwithstanding any other provisions herein, if any
Requirement of Law or any change therein or in the interpretation or application
thereof occurring after the date that any lender becomes a Lender party to this
Agreement, shall make it unlawful for such Lender to make or maintain Eurodollar
Loans as contemplated by this Agreement, the commitment of such Lender hereunder
to make Eurodollar Loans or to convert all or a portion of ABR Loans into
Eurodollar Loans shall forthwith be cancelled and such Lender's Loans then
outstanding as Eurodollar Loans, if any, shall, if required by law and if such
Lender so requests, be converted automatically to ABR Loans on the date
specified by such Lender in such request. To the extent that such affected
Eurodollar Loans are converted into ABR Loans, all payments of principal which
would otherwise be applied to such Eurodollar Loans shall be applied instead to
such Lender's ABR Loans. The Company hereby agrees promptly to pay any Lender,
upon its demand, any additional amounts necessary to compensate such Lender for
any costs incurred by such Lender in making any conversion in accordance with
this subsection 4.19 including, but not limited to, any interest or fees payable
by such Lender to lenders of funds obtained by it in order to make or maintain
its Eurodollar Loans hereunder (such Lender's notice of such costs, as certified
to the Company through the Administrative Agent, to be conclusive absent
manifest error).
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37
4.20 REQUIREMENTS OF LAW. (a) In the event that, at any time after
the date hereof, any Requirement of Law or any change therein or in the
interpretation or application thereof or compliance by any Lender with any
request or directive (whether or not having the force of law) from any central
bank or other Governmental Authority:
(i) does or shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note or any Eurodollar
Loans made by it, or change the basis of taxation of payments to such
Lender of principal, commitment fee, interest or any other amount
payable hereunder (except for changes in the rate of tax on the
overall net income of such Lender);
(ii) does or shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement
against assets held by, or deposits or other liabilities in or for the
account of, advances or loans by, or other credit extended by, or any
other acquisition of funds by, any office of such Lender which are not
otherwise included in the determination of the Eurodollar Rate; or
(iii) does or shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender of
making, converting, renewing or maintaining advances or extensions of credit or
to reduce any amount receivable hereunder, in each case, in respect of its
Eurodollar Loans, then, in any such case, the Company shall promptly pay such
Lender, on demand, any additional amounts necessary to compensate such Lender
for such additional cost or reduced amount receivable which such Lender deems to
be material as determined by such Lender with respect to such Eurodollar Loans,
together with interest on each such amount from the date demanded until payment
in full thereof at a rate per annum equal to the ABR plus the Applicable Margin
for ABR Loans.
(b) In the event that at any time after the date hereof, any Change
in Law with respect to any Lender shall, in the opinion of such Lender, require
that any Commitment of such Lender be treated as an asset or otherwise be
included for purposes of calculating the appropriate amount of capital to be
maintained by such Lender or any corporation controlling such Lender, and such
Change in Law shall have the effect of reducing the rate of return on such
Lender's or such corporation's capital, as the case may be, as a consequence of
such Lender's obligations hereunder to a level below that which such Lender or
such corporation, as the case may be, could have achieved but for such Change in
Law (taking into account such Lender's or such corporation's policies, as the
case may be, with respect to capital adequacy) by an amount deemed by such
Lender to be material, then from time to time following notice by such Lender to
the Company of such Change in Law as provided in paragraph (c) of this
subsection 4.20, within 15 days after demand by such Lender, the Company shall
pay to such Lender such additional amount or amounts as will compensate such
Lender or such corporation, as the case may be, for such reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this subsection 4.20, it shall promptly notify the Company, through
the Administrative Agent, of the event by reason of which it has become so
entitled. If any Lender has notified the Company through the Administrative
Agent of any increased costs pursuant to paragraph (a) of this subsection 4.20,
the Company at any time thereafter may, upon at least two Working Days' notice
to the Administrative Agent (which shall promptly notify the Lenders thereof),
and subject to subsection 4.21, prepay (or convert into ABR Loans) all (but not
a part) of the Eurodollar Loans then outstanding. Each Lender agrees that, upon
the occurrence of any event giving rise to the operation of paragraph (a) of
this subsection 4.20 with respect to such Lender, it will, if requested by the
Company and to the extent permitted
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38
by law or by the relevant Governmental Authority, endeavor in good faith to
avoid or minimize the increase in costs or reduction in payments resulting from
such event (including, without limitation, endeavoring to change its Eurodollar
Lending Office); PROVIDED, HOWEVER, that such avoidance or minimization can be
made in such a manner that such Lender, in its sole determination, suffers no
economic, legal or regulatory disadvantage. If any Lender has notified the
Company, through the Administrative Agent, of any increased costs pursuant to
paragraph (b) of this subsection 4.20, the Company at any time thereafter may,
upon at least three Business Days' notice to the Administrative Agent (which
shall promptly notify the Lenders thereof), and subject to subsection 4.21,
reduce or terminate the Revolving Credit Commitments in accordance with
subsection 4.4.
(d) A certificate submitted by such Lender, through the
Administrative Agent, to the Company shall be conclusive in the absence of
manifest error. The covenants contained in this subsection 4.20 shall survive
the termination of this Agreement and payment of the outstanding Notes.
4.21 INDEMNITY. The Company agrees to indemnify each Lender and to
hold such Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (a) default by the Company in payment of the
principal amount of or interest on any Eurodollar Loans of such Lender,
including, but not limited to, any such loss or expense arising from interest or
fees payable by such Lender to lenders of funds obtained by it in order to make
or maintain its Eurodollar Loans hereunder, (b) default by the Company in making
a borrowing of Eurodollar Loans after the Company has given a notice in
accordance with subsection 4.1 or in making a conversion of ABR Loans to
Eurodollar Loans after the Company has given notice in accordance with
subsection 4.3, (c) default by the Company in making any prepayment of
Eurodollar Loans after the Company has given a notice in accordance with
subsections 4.5 and 4.6 or (d) a payment or prepayment of a Eurodollar Loan or a
Money Market Rate Loan or conversion of any Eurodollar Loan into an ABR Loan, in
either case on a day which is not the last day of an Interest Period with
respect thereto (or, with respect to a Money Market Rate Loan, the maturity date
thereof), including, but not limited to, any such loss or expense arising from
interest or fees payable by such Lender to lenders of funds obtained by it in
order to maintain its Eurodollar Loans hereunder. This covenant shall survive
termination of this Agreement and payment of the outstanding Obligations.
SECTION 5. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement and to
continue and make the Loans and to induce the Issuing Lenders to issue, and the
Participating Lenders to participate in, the Letters of Credit, the Company
hereby represents and warrants to each Lender and the Administrative Agent, on
and as of the Closing Date and on the date of each Loan made or Letter of Credit
issued thereafter, that:
5.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each Credit Party and
its Subsidiaries (a) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, (b) has
the corporate power and authority
<PAGE>
39
and the legal right to own and operate its property, to lease the property it
operates and to conduct the business in which it is currently engaged, except to
the extent that the failure to possess such corporate power and authority and
such legal right would not, in the aggregate, have a Material Adverse Effect,
(c) is duly qualified as a foreign corporation and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification, except where the
failure to be so qualified would not have Material Adverse Effect and (d) is in
compliance with all Requirements of Law (including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, any so-
called "Superfund" or "Superlien" law, or any applicable federal, state, local
or other statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to, or imposing liability or standards of conduct
concerning, any Hazardous Materials), except to the extent that the failure to
comply therewith would not, in the aggregate, have a Material Adverse Effect.
5.2 CORPORATE POWER; AUTHORIZATION. Each Credit Party has the
corporate power and authority and the legal right to make, deliver and perform
the Credit Documents to which it is a party and to pledge the Pledged Stock
pursuant to the Pledge Agreement to which it is a party, and the Company has the
corporate power and authority and legal right to borrow hereunder and to have
Letters of Credit issued for its account hereunder. Each Credit Party has taken
all necessary corporate action to authorize the execution, delivery and
performance of the Credit Documents to which it is a party, the pledge of the
Pledged Stock pursuant to the Pledge Agreement to which it is a party and, in
case of the Company, to authorize the borrowings hereunder and the issuance of
Letters of Credit for its account hereunder. No consent or authorization of, or
filing with, any Person (including, without limitation, any Governmental
Authority) is required in connection with the execution, delivery or performance
by any Credit Party, or the use of proceeds of the Loans on the Closing Date as
contemplated hereby, or the validity or enforceability against any Credit Party,
of any Credit Document, to the extent that it is a party thereto, or the pledge
of the Pledged Stock pursuant to the Pledge Agreements, or the guarantee of the
Obligations pursuant to the Guarantees.
5.3 ENFORCEABLE OBLIGATIONS. Each of the Credit Documents has been
duly executed and delivered on behalf of the Credit Party thereto and each of
such Credit Documents constitutes the legal, valid and binding obligation of
such Credit Party, enforceable against such Credit Party in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting creditors'
rights generally and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
5.4 NO LEGAL BAR. The performance of each Credit Document, the
pledge of the Pledged Stock pursuant to the Pledge Agreements, the guarantee of
the Obligations pursuant to the Guarantees, the use of the proceeds of the Loans
and of drawings under the Letters of Credit will not violate any Requirement of
Law or any Contractual Obligation applicable to or binding upon any Credit
Party, any of its Subsidiaries or any of its properties or assets, which
violations, individually or in the aggregate, would have a material adverse
effect on the ability of such Credit Party to perform its obligations under the
Credit Documents to the extent that it is a party thereto, or which would give
rise to any liability on
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40
the part of the Administrative Agent or any Lender, or which would have a
Material Adverse Effect, and will not result in the creation or imposition of
(or the obligation to create or impose) any Lien (other than liens created
pursuant to the Credit Documents) on any of its or their respective properties
or assets pursuant to any Requirement of Law applicable to it or them, as the
case may be, or any of its or their Contractual Obligations, except for the
Liens arising under the Pledge Agreements.
5.5 NO MATERIAL LITIGATION. No litigation or investigation known to
the Company through receipt of written notice or proceeding of or by any
Governmental Authority or any other Person is pending against any Credit Party
or any of its Subsidiaries, including, without limitation, the investigations,
actions, suits and proceedings described in Schedule 5.5, (a) with respect to
the validity, binding effect or enforceability of any Credit Document or with
respect to the Loans made hereunder, the use of proceeds thereof or of any
drawings under a Letter of Creditor and the other transactions contemplated
hereby or thereby, or (b) which would have a Material Adverse Effect.
5.6 FINANCIAL CONDITION. (a) The unaudited consolidated balance
sheet of Holdings as of June 30, 1996, a copy of which has heretofore been
furnished to each Lender, presents fairly, in all material respects, in
accordance with GAAP, the consolidated financial condition of Holdings as at
such date subject to normal year end audit adjustments and such balance sheet is
condensed and excludes detailed footnote disclosures. As of the date of such
balance sheet, except as disclosed in the Registration Statement, neither
Holdings nor any of its Subsidiaries had any material obligation, contingent or
otherwise, which was not reflected therein or in the notes thereto and which
would have a Material Adverse Effect.
(b) The audited consolidated balance sheet of Holdings and its
Subsidiaries at December 31, 1995, as restated, and the related consolidated
statements of operations, stockholders' equity and cash flows for the fiscal
year ended on such date, reported on by Deloitte & Touche LLP, copies of each of
which have heretofore been furnished to each Lender, present fairly in
accordance with GAAP in all material respects the consolidated financial
condition of Holdings and its Subsidiaries as at such date, and the consolidated
results of their operations and cash flows for the fiscal period then ended.
All such financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP applied consistently
throughout the period involved (except as concurred in by the Accountants (as
defined below). Except as disclosed in the Registration Statement, neither
Holdings nor any of its Subsidiaries had, as of the date of such financial
statements, any material obligation, contingent or otherwise, which was not
reflected in the foregoing statements or in the notes thereto and which would
have a Material Adverse Effect.
(c) Except as set forth in the Registration Statement, since December
31, 1995, there have not been any events or states of fact which individually or
in the aggregate would have a Material Adverse Effect.
(d) Between December 31, 1995 and the Closing Date, except as
disclosed in Schedule 5.6(d), no dividends or other distributions have been
declared, paid or made upon
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41
any shares of capital stock of the Company nor have any shares of capital stock
of the Company been redeemed, retired, purchased or otherwise acquired by the
issuer thereof.
5.7 INVESTMENT COMPANY ACT. Neither any Credit Party nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" (as each of the quoted terms is defined or used in the
Investment Company Act of 1940, as amended).
5.8 FEDERAL REGULATION. No part of the proceeds of any of the Loans
or any drawing under a Letter of Credit will be used for any purpose which
violates, or which would be inconsistent with, the provisions of Regulation G,
T, U or X of the Board. Neither the Company nor any of its Subsidiaries is
engaged or will engage, principally or as one of its important activities, in
the business of extending credit for the purpose of "purchasing" or "carrying"
any "margin stock" within the respective meanings of each of the quoted terms
under said Regulation U.
5.9 NO DEFAULT. Neither the Company nor any of its Subsidiaries is
in default in the payment or performance of any of its or their Contractual
Obligations in any respect which would have a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is in default under any order, award or
decree of any Governmental Authority or arbitrator binding upon or affecting it
or them or by which any of its or their properties or assets may be bound or
affected in any respect which would have a Material Adverse Effect and no such
order, award or decree would materially adversely affect the ability of the
Company and its Subsidiaries taken as a whole to carry on their businesses as
presently conducted or the ability of any Credit Party to perform its
obligations under any Credit Document to which it is a party.
5.10 NO BURDENSOME RESTRICTIONS. Neither the Company nor any of its
Subsidiaries is a party to or is bound by any Contractual Obligation or subject
to any Requirement of Law or other corporate restriction which would have a
Material Adverse Effect.
5.11 TAXES. Each of the Company and its Subsidiaries has filed or
caused to be filed or has timely requested an extension to file or has received
an approved extension to file all tax returns which, to the knowledge of the
Company, are required to have been filed, and has paid all taxes shown to be due
and payable on said returns or extension requests or on any assessments made
against it or any of its property and all other taxes, fees or other charges
imposed on it or any of its property by any Governmental Authority (other than
those the amount or validity of which is currently being contested in good faith
by appropriate proceedings and with respect to which reserves in conformity with
GAAP have been provided in the books of the Company or its Subsidiaries, as the
case may be), except any such filings or taxes, fees or charges, the making of
or the payment of which, or the failure to make or pay, would not have a
Material Adverse Effect, and, to the knowledge of the Company, no claims are
being asserted with respect to any such taxes, fees or other charges (other than
those the amount or validity of which is currently being contested in good faith
by appropriate proceedings and with respect to which reserves in conformity with
GAAP have been provided in the books of the Company or its Subsidiaries, as the
case may
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42
be), except as to any such taxes, fees or other charges, the payment of which,
or the failure to pay, would not have a Material Adverse Effect.
5.12 SUBSIDIARIES. As of the Closing Date, the Subsidiaries of the
Company listed on Schedule 5.12A constitute all of the Domestic Subsidiaries of
the Company and the Subsidiaries listed on Schedule 5.12B constitute all of the
Foreign Subsidiaries of the Company.
5.13 OWNERSHIP OF PROPERTY; LIENS. Except as set forth in the
Registration Statement, the Company and each of its Subsidiaries has good and
marketable title to, or valid and subsisting leasehold interests in, all its
respective material real property, and good title to all its respective material
other property, and none of such property is subject, except as permitted
hereunder, to any Lien (including, without limitation and subject to subsection
8.2 hereof, Federal, state and other tax liens).
5.14 ERISA. No "prohibited transaction" (as defined in Section 406
of ERISA or Section 4975 of the Code) or "accumulated funding deficiency" (as
defined in Section 302 of ERISA) or Reportable Event (other than a Reportable
Event with respect to which the 30-day notice requirement under Section 4043 of
ERISA has been waived) has occurred during the five years preceding each date on
which this representation is made or deemed made with respect to any Plan in any
case the consequences of which would have a Material Adverse Effect. Except as
disclosed in Schedule 5.14, the present value of all accrued benefits under each
Single Employer Plan maintained by the Company or a Commonly Controlled Entity
(based on those assumptions used to fund such Plan) did not, as of the most
recent annual valuation date in respect of each such Plan, exceed the fair
market value of the assets of the Plan (including for these purposes accrued but
unpaid contributions) allocable to such benefits by more than $2,000,000, and
the present value of all accrued benefits under all such Single Employer Plans
under which the present value of benefits exceeds the assets allocable thereto
did not, as of such valuation date, exceed the fair market value of all such
Plans (including for these purposes accrued but unpaid contributions) allocable
to such benefits by more than $15,000,000. The liability to which the Company
or any Commonly Controlled Entity would become subject under ERISA if the
Company or any such Commonly Controlled Entity were to withdraw completely from
all Multiemployer Plans as of the valuation date most closely preceding the date
hereof would not have a Material Adverse Effect. No Multiemployer Plan is either
in Reorganization or Insolvent in any case the consequences of which would have
a Material Adverse Effect.
SECTION 6. CONDITIONS PRECEDENT
6.1 CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT, INITIAL LOANS AND
LETTERS OF CREDIT. The effectiveness of this Agreement, the obligation of each
Lender to make its Loans and the obligation of the Issuing Lender to issue any
Letter of Credit on the Closing Date are subject to the satisfaction, or waiver
by the Lenders (or, in the case of conditions specified 6.1(g), (i) or (p), by
the Administrative Agent) immediately prior to or concurrently with the
effectiveness of this Agreement, the making of such Loans or the issuance of
such Letter of Credit, as the case may be, of the following conditions
precedent:
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43
(a) CREDIT AGREEMENT. The Administrative Agent shall have received
this Agreement, executed and delivered by a duly authorized officer of
the Company with a counterpart for each Lender.
(b) PLEDGE AGREEMENTS. The Administrative Agent shall have received
the Holdings Pledge Agreement and the Company Pledge Agreement each
executed and delivered by a duly authorized officer of the Credit Party
party thereto, together with (i) (A) the Holdings Note, (B) the
Subsidiary Note and (C) all stock certificates representing all of the
Pledged Stock (as defined in such Pledge Agreement) and (ii) undated
stock powers for each certificate representing such Pledged Stock,
and undated endorsements to the Holdings Note and the Subsidiary Note,
each duly executed in blank and delivered by a duly authorized officer
of such Credit Party, and in each case accompanied by the acknowledgement
and consent of each issuer of such Pledged Stock or such note thereunder,
as the case may be, in the form annexed to each such Pledge Agreement.
(c) GUARANTEES. The Administrative Agent shall have received (i) the
Holdings Guarantee, executed and delivered by a duly authorized officer of
Holdings, and (ii) the Subsidiary Guarantee, executed and delivered by a
duly authorized officer of each Subsidiary Guarantor.
(d) CONSUMMATION OF THE IPO. The Administrative Agent shall have
received evidence satisfactory to it that the IPO shall have been
consummated with gross cash proceeds (net of underwriting discount) thereof
of not less than $75,000,000, and that any such proceeds not applied as
described in 6.1(e) or to any fees and expenses associated with the
Refinancing and the IPO, shall have been contributed to the Company.
(e) REPURCHASE OR REPAYMENT OF EXISTING HOLDINGS PREFERRED. The
Administrative Agent shall have received evidence satisfactory to it that
Holdings shall have effected the repurchase or repayment of all of the
existing Holdings Preferred in accordance with the terms thereof and shall
have paid all fees and expenses associated therewith and with the
transactions contemplated thereby.
(f) TERMINATION OF EXISTING CREDIT AGREEMENTS. The Administrative
Agent shall have received evidence satisfactory to it that all principal,
interest, fees, and other amounts owing or payable under the Existing
Credit Agreement shall have been paid in full, the Existing Credit
Agreements shall have been terminated and all Liens thereunder shall have
been terminated and released.
(g) LEGAL OPINIONS. The Administrative Agent shall have received
such legal opinions covering the transactions contemplated by this
Agreement as the Administrative Agent shall reasonably request, dated the
Closing Date and addressed to the Administrative Agent and the Lenders,
including, (i) an opinion of Fried, Frank, Harris, Shriver & Jacobson,
counsel to Holdings and the Company, substantially in the form of Exhibit
J-1 hereto with such changes
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44
thereto as may be approved by and otherwise in form and substance
satisfactory to the Administrative Agent and its counsel and (ii) an
opinion of General Counsel to the Company, substantially in the form of
Exhibit J-2 hereto with such changes thereto as may be approved by and
otherwise in form and substance satisfactory to the Administrative Agent
and its counsel. Such opinions shall also cover such other matters
incident to the transactions contemplated by this Agreement as the
Administrative Agent shall reasonably require.
(h) INSURANCE. The Administrative Agent shall have received (i) a
schedule describing all insurance maintained by the Company and its
Subsidiaries pursuant to subsection 7.5(b), which schedule shall set forth
for each insurance policy the scope of coverage, the policy limits and
deductibles, the insurer and the expiration date, (ii) binders (or other
customary evidence as to the obtaining and maintenance by the Company of
such insurance) for each policy set forth on such schedule insuring against
aviation and products liability risk and (iii) a written summary, in form
and substance satisfactory to the Administrative Agent, of all insurance
policies insuring against products liability risk which have been
maintained from time to time by the Company and its Subsidiaries during the
five years immediately preceding the Closing Date.
(i) SOLVENCY OPINION. The Administrative Agent shall have received
an opinion from Marshall & Stevens, Incorporated or, any other firm
acceptable to the Administrative Agent and the Company documenting the
solvency of Holdings and its Subsidiaries after giving effect to the
Refinancing, the IPO and the transactions related thereto.
(j) CLOSING CERTIFICATES. The Administrative Agent shall have
received a Closing Certificate of Holdings, the Company and each Subsidiary
Guarantor, dated the Closing Date, substantially in the form of Exhibits
K-1, K-2 and K-3 hereto, respectively, with appropriate insertions and
attachments, satisfactory in form and substance to the Administrative Agent
and its counsel, executed by the President or any Vice President and the
Secretary or any Assistant Secretary of Holdings, the Company and each
Subsidiary Guarantor, respectively.
(k) FINANCIAL INFORMATION. The Administrative Agent shall have
received a copy of (i) the financial statements referred to in subsection
5.6(b) and such financial statements for the year ended December 31, 1994
(ii) the financial statements referred to in subsection 5.6(a) and such
financial statements for each prior fiscal quarter of Holdings ended during
1996 and (iii) a pro forma balance sheet of the Company as at June 30,
1996, adjusted to give effect to the Refinancing, the Loans to be made on
the Closing Date and the use of proceeds thereof, in each case with a
photocopy thereof for each Lender.
(l) NO LEGAL CONSTRAINTS. Except as disclosed in the Registration
Statement, no litigation, inquiry, injunction or restraining order shall be
pending, entered or threatened (including any proposed statute, rule or
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45
regulation) which is reasonably likely to have a Material Adverse Effect or
a material adverse effect on (i) the transactions described in subsections
6.1(d), (e) and (f) and the transactions related thereto, (ii) the ability
of the Credit Parties to perform their obligations under the Credit
Documents or (iii) the rights and remedies of the Administrative Agent and
the Lenders under the Credit Documents.
(m) ABSENCE OF OTHER DEVELOPMENTS. Except as disclosed in the
Registration Statement, there shall not have occurred any change, or
development or event involving a prospective change, which in either case
is reasonably likely to have a Material Adverse Effect or a material
adverse effect on the rights and remedies of the Administrative Agent and
the Lenders under the Credit Documents.
(n) EVENTS OF DEFAULT UNDER OTHER AGREEMENTS. No default or event of
default shall have occurred and be continuing under any capital stock or
material Indebtedness of Holdings, the Company or their Subsidiaries, or
would occur after giving effect to the transactions described in
subsections 6.1(d), (e) and (f) or otherwise contemplated hereby, except
any such defaults or events of default which (i) have previously been
waived or the obligation with respect to which such default or breach has
occurred has been or will be refinanced and extinguished on or prior to the
Closing Date or (ii) would otherwise not have a Material Adverse Effect.
(o) FEES. The Administrative Agent shall have received for the
account of the Lenders, or for its own account, as the case may be, all
fees and expenses payable to the Lenders and the Administrative Agent on or
prior to the Closing Date.
(p) RELATED AGREEMENTS. The Administrative Agent shall have received
each additional document, instrument or piece of information reasonably
requested by the Lenders, including, without limitation, a copy of any debt
instrument, security agreement or other material contract to which any
Credit Party or any of their Subsidiaries is a party.
(q) ADDITIONAL MATTERS. All other documents and legal matters in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Administrative Agent and its
counsel.
6.2 CONDITIONS TO ALL LOANS AND LETTERS OF CREDIT. The obligation of
each Lender to make any Loan (other than any Revolving Credit Loan the proceeds
of which are to be used to repay Refunded Swing Line Loans) and the obligation
of the Issuing Lender to issue any Letter of Credit is subject to the
satisfaction of the following conditions precedent on the relevant Borrowing
Date:
(a) REPRESENTATIONS AND WARRANTIES. If such Loan is made (and/or
Letter of Credit issued) on the Closing Date, each of the representations
and
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46
warranties made in or pursuant to Section 5, or which are contained in any
other Credit Document or in any certificate, document or financial or other
statement furnished by or on behalf of Holdings, the Company or any
Subsidiary thereof, at any time under or in connection herewith, shall be
true and correct in all material respects on and as of the Closing Date as
if made on and as of the Closing Date (unless stated to relate to a
specific earlier date, in which case such representations and warranties
shall be true and correct in all material respects as of such earlier
date). If such Loan is made (and/or Letter of Credit issued) subsequent to
the Closing Date, each of the representations and warranties made in or
pursuant to Section 5 or which are contained in any other Credit Document
or in any certificate, document or financial or other statement furnished
by or on behalf of Holdings, the Company or any Subsidiary thereof shall be
true and correct in all material respects on and as of the date of such
Loan (or Letter of Credit) as if made on and as of such date (unless stated
to relate to a specific earlier date, in which case such representations
and warranties shall be true and correct in all material respects as of
such earlier date).
(b) NO DEFAULT OR EVENT OF DEFAULT. No Default or Event of Default
shall have occurred and be continuing on such date or after giving effect
to the Loan to be made or the Letter of Credit to be issued on such
Borrowing Date.
Each borrowing by the Company hereunder and the issuance of each
Letter of Credit by the Issuing Lender hereunder shall constitute a
representation and warranty by the Company as of the date of such borrowing or
issuance that the conditions in clauses (a) and (b) of this subsection 6.2 have
been satisfied.
SECTION 7. AFFIRMATIVE COVENANTS
The Company hereby agrees that, so long as the Commitments remain in
effect, any Loan, Note or Revolving L/C Obligation remains outstanding and
unpaid, any amount remains available to be drawn under any Letter of Credit or
any other amount is owing to any Lender or the Administrative Agent hereunder,
it shall, and, in the case of the agreements contained in subsections 7.3, 7.4,
7.5, 7.6 and 7.8 cause each of its Subsidiaries to:
7.1 FINANCIAL STATEMENTS. Furnish to the Administrative Agent (with
sufficient copies for each Lender):
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of Holdings, a copy of the consolidated balance
sheet of Holdings and its consolidated Subsidiaries as at the end of such
year and the related consolidated statements of operations, stockholders'
equity and cash flows for such year, setting forth in each case in
comparative form the figures for the previous year, reported on without a
"going concern" or like qualification or exception, or qualification
arising out of the scope of the audit, by Deloitte & Touche LLP or other
independent
<PAGE>
47
certified public accountants of nationally recognized standing not
unacceptable to the Required Lenders (the "ACCOUNTANTS"); PROVIDED that if
for any reason whatsoever the consolidated balance sheet of Holdings and
its consolidated Subsidiaries and the related consolidated statements of
operations, stockholders' equity and cash flows for any fiscal year would
be materially different from the consolidated balance sheet of the Company
and its consolidated Subsidiaries and the related consolidated statements
of operations, stockholders' equity and cash flows for such fiscal year,
then the Company shall also provide, as soon as available, but in any event
within 90 days after the end of each fiscal year of the Company, a copy of
the consolidated balance sheet of the Company and its consolidated
Subsidiaries as at the end of such year and the related consolidated
statements of operations, stockholders' equity and of cash flows for such
year, setting forth in each case in comparative form the figures for the
previous year, reported on without a "going concern" or like qualification
or exception, or qualification arising out of the scope of the audit, by
the Accountants;
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of Holdings, the unaudited consolidated balance sheet of Holdings and
its consolidated Subsidiaries as at the end of such quarter and the related
unaudited consolidated statements of operations, stockholders' equity and
cash flows of Holdings and its consolidated Subsidiaries for such quarter
and the portion of the fiscal year through the end of such quarter, setting
forth in each case in comparative form the figures for the previous year,
certified by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments); PROVIDED that if
for any reason whatsoever the unaudited consolidated balance sheet of
Holdings and its consolidated Subsidiaries and the related unaudited
consolidated statements of operations, stockholders' equity and cash flows
for such quarter would be materially different from the unaudited
consolidated balance sheet of the Company and its consolidated Subsidiaries
and the related unaudited consolidated statements of operations,
stockholders' equity and cash flows for such quarter, then the Company
shall also provide, as soon as available, but in any event not later than
45 days after the end of each of the first three quarterly periods of each
fiscal year of the Company, the unaudited consolidated balance sheet of the
Company and its consolidated Subsidiaries as at the end of such quarter and
the related unaudited consolidated statements of operations, stockholders'
equity and cash flows of the Company and its consolidated Subsidiaries for
such quarter and the portion of the fiscal year through the end of such
quarter, setting forth in each case in comparative form the figures for the
previous year, certified by a Responsible Officer as being fairly stated in
all material respects (subject to normal year-end audit adjustments);
(c) as soon as available, but in any event within 60 days after the
beginning of each fiscal year of Holdings to which such budget relates, an
annual operating budget, on a consolidated basis, for Holdings and its
Subsidiaries, as adopted by the Board of Directors of the Company;
all financial statements shall be prepared in reasonable detail (except that
interim statements may be condensed and may exclude detailed footnote disclosure
to the extent consistent with
<PAGE>
48
the rules and regulations of the Securities and Exchange Commission relating to
the presentation of financial information in Quarterly Reports on Form 10-Q) in
all material respects (subject, in the case of interim statements, to normal
year-end audit adjustments) and in accordance with GAAP applied consistently
throughout the periods reflected therein and with prior periods (except as
concurred in by the Accountants or officer, as the case may be, and disclosed
therein and except that interim financial statements need not be restated for
changes in accounting principles which require retroactive application, and
operations which have been discontinued (as defined in Accounting Principles
Board Opinion No. 30) during the current year need not be shown in interim
financial statements as such either for the current period or comparable prior
period). In the event Holdings changes its accounting methods because of
changes in GAAP, or any change in GAAP occurs which increases or diminishes the
protection and coverage afforded to the Lenders under current GAAP accounting
methods, the Company or the Administrative Agent, as the case may be, may
request of the other parties to this Agreement an amendment of the financial
covenants contained in this Agreement to reflect such changes in GAAP and to
provide the Lenders with protection and coverage equivalent to that existing
prior to such changes in accounting methods or GAAP, and each of the Company,
the Administrative Agent and the Lenders agree to consider such request in good
faith.
7.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Administrative
Agent (with sufficient copies for each Lender):
(a) concurrently with the delivery of the consolidated financial
statements referred to in subsection 7.1(a), a letter from the independent
certified public accountants reporting on such financial statements stating
that in making the examination necessary to express their opinion on such
financial statements no knowledge was obtained of any Default or Event of
Default, except as specified in such letter;
(b) concurrently with the delivery of the financial statements
referred to in subsections 7.1(a) and (b), a certificate of the chief
financial officer of the Company (i) stating that, to the best of such
officer's knowledge, each of Holdings, the Company and their respective
Subsidiaries has observed or performed all of its covenants and other
agreements, and satisfied every condition, contained in this Agreement, the
Notes and the other Credit Documents to be observed, performed or satisfied
by it, and that such officer has obtained no knowledge of any Default or
Event of Default except as specified in such certificate, (ii) showing in
detail as of the end of the related fiscal period the figures and
calculations supporting such statement in respect of subsections 8.1(d) and
(e)(ii), 8.3(c), 8.5(e), 8.7, 8.8, 8.9, 8.10 and 8.13, and (iii) showing in
detail as of the end of the related fiscal period the Interest Coverage
Ratio and the Leverage Ratio of Holdings and its Subsidiaries and the
calculations supporting such statement and stating the Applicable Margin
and commitment fee payable as a result of such ratios;
(c) promptly upon receipt thereof, copies of all final reports
submitted to Holdings and the Company by independent certified public
accountants in connection with each annual, interim or special audit of the
books of Holdings and the Company
<PAGE>
49
made by such accountants, including, without limitation, any final report
pertaining to the company's internal control systems submitted by such
accountants to management in connection with their annual audit;
(d) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by Holdings, the Company or any of their respective Subsidiaries
and all regular and periodic reports and all final registration statements
and final prospectuses, if any, filed by Holdings, the Company or any of
their respective Subsidiaries with any securities exchange or with the
Securities and Exchange Commission or any Governmental Authority succeeding
to any of its functions;
(e) concurrently with the delivery of the financial statements
referred to in subsections 7.1(a) and (b), a management summary describing
and analyzing the performance of Holdings, the Company and their respective
Subsidiaries during the periods covered by such financial statements; and
(f) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
7.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at
or before maturity or before they become delinquent, as the case may be, all of
its obligations and liabilities of whatever nature (including, without
limitation, taxes), except (a) when the amount or validity thereof is currently
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been provided on the books of the
Company or any of its Subsidiaries, as the case may be, (b) for delinquent
obligations which do not have a Material Adverse Effect and (c) for trade and
other accounts payable in the ordinary course of business in accordance with
customary trade terms and which are not overdue for a period of more than 90
days (or any longer period if longer payment terms are accepted in the ordinary
course of business) or, if overdue for more than 90 days (or such longer
period), as to which a dispute exists and adequate reserves in conformity with
GAAP have been established on the books of the Company and its Subsidiaries, as
the case may be.
7.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to
engage in business of the same general type as now conducted by it, and
preserve, renew and keep in full force and effect its corporate existence and
take all reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business except for rights,
privileges and franchises the loss of which would not in the aggregate have a
Material Adverse Effect, and except as otherwise permitted by subsections 8.4
and 8.5; and comply with all applicable Requirements of Law except to the extent
that the failure to comply therewith would not, in the aggregate, have a
Material Adverse Effect.
7.5 MAINTENANCE OF PROPERTY; INSURANCE. (a) Keep all property
useful and necessary in its business in good working order and condition
(ordinary wear and tear excepted); and
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50
(b) Maintain with financially sound and reputable insurance companies
insurance on all its property in at least such amounts and with only such
deductibles as are usually maintained by, and against at least such risks (but
including, in any event, public liability and product liability insurance) as
are usually insured against in the same general area, by companies engaged in
the same or a similar business; and furnish to each Lender, (i) annually, a
schedule disclosing (in a manner substantially similar to that used in the
schedule provided pursuant to subsection 6.1(h)) all insurance against aviation
and products liability risk maintained by the Company and its Subsidiaries
pursuant to this subsection 7.5(b) or otherwise and (ii) upon written request of
any Lender, full information as to the insurance carried; PROVIDED that the
Company may implement programs of self insurance in the ordinary course of
business and in accordance with industry standards for a company of similar size
so long as reserves are maintained in accordance with GAAP for the liabilities
associated therewith.
7.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and activities
which permit financial statements to be prepared in conformity with GAAP and all
Requirements of Law; and permit representatives of any Lender upon reasonable
notice to visit and inspect any of its properties and examine and make abstracts
from any of its books and records at any reasonable time and as often as may
reasonably be desired upon reasonable notice during normal business hours, and
to discuss the business, operations, properties and financial and other
condition of the Company and its Subsidiaries with officers and employees
thereof and with their independent certified public accountants.
7.7 NOTICES. Promptly give notice to the Administrative Agent and
each Lender:
(a) of the occurrence of any Default or Event of Default;
(b) of any (i) default or event of default under any instrument or
other agreement, guarantee or collateral document of the Company or any of
its Subsidiaries which default or event of default has not been waived and
would have a Material Adverse Effect, or any other default or event of
default under any such instrument, agreement, guarantee or other collateral
document which, but for the proviso to clause (e) of Section 9, would have
constituted a Default or Event of Default under this Agreement, or (ii)
litigation, investigation or proceeding which may exist at any time between
Holdings, the Company or any of their respective Subsidiaries and any
Governmental Authority, or receipt of any notice of any environmental claim
or assessment against Holdings, the Company or any of their respective
Subsidiaries by any Governmental Authority, which in any such case would
have a Material Adverse Effect;
(c) of any litigation or proceeding affecting the Company or any of
its Subsidiaries (i) in which more than $5,000,000 of the amount claimed is
not covered by insurance or (ii) in which injunctive or similar relief is
sought which if obtained would have a Material Adverse Effect;
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51
(d) of the following events, as soon as practicable after, and in any
event within 30 days after, the Company knows thereof: (i) the occurrence
of any Reportable Event with respect to any Single Employer Plan which
Reportable Event could have a Material Adverse Effect, or (ii) the
institution of proceedings or the taking of any other action by PBGC, the
Company or any Commonly Controlled Entity to terminate, withdraw from or
partially withdraw from any Plan and, with respect to a Multiemployer Plan,
the Reorganization or Insolvency of such Plan, in each of the foregoing
cases which could have a Material Adverse Effect, and in addition to such
notice, deliver to the Administrative Agent and each Lender whichever of
the following may be applicable: (A) a certificate of the chief financial
officer of the Company setting forth details as to such Reportable Event
and the action that the Company or such Commonly Controlled Entity proposes
to take with respect thereto, together with a copy of any notice of such
Reportable Event that may be required to be filed with PBGC, or (B) any
notice delivered by PBGC evidencing its intent to institute such
proceedings or any notice to PBGC that such Plan is to be terminated, as
the case may be;
(e) of a material adverse change known to the Company or any of its
Subsidiaries in the business, financial condition, assets or results of
operations of the Company and its Subsidiaries taken as a whole.
Each notice pursuant to this subsection 7.7 be accompanied by a statement of the
chief executive officer or the chief financial officer of the Company setting
forth details of the occurrence referred to therein and stating what action the
Company proposes to take with respect thereto.
7.8 ADDITIONAL SUBSIDIARY GUARANTORS; STOCK PLEDGE. (a) If, at any
time that the Leverage Ratio then in effect is not less than or equal to
1.5:1.0, any Subsidiary of the Company or Holdings (whether presently existing
or hereafter created or acquired) shall become a Material Subsidiary, the
Company or Holdings shall cause to be pledged 100% of the issued and
outstanding stock of such Material Subsidiary owned by it pursuant to a
Pledge Agreement substantially in the form of Exhibit D or H, as
appropriate, each of which Pledge Agreements shall be accompanied by
such resolutions, incumbency certificates and legal opinions as are
reasonably requested by the Administrative Agent and its counsel; PROVIDED
that if (x) (i) such Material Subsidiary is a Domestic Subsidiary of the Company
or Holdings more than 65% of the assets of which are securities of foreign
Persons (such determination to be made on the basis of fair market value) or
(ii) such Material Subsidiary is a Foreign Subsidiary of the Company or
Holdings, only 65% of the stock of such Material Subsidiary shall be required to
be pledged pursuant to this subsection 7.8(a), or (y) such Material Subsidiary
is a Foreign Subsidiary of the Company or Holdings which is owned by a Foreign
Subsidiary of the Company or Holdings, none of the stock of such Material
Subsidiary shall be required to be pledged pursuant to this Section 7.8(a).
(b) If any Subsidiary of the Company or Holdings (whether presently
existing or hereafter created or acquired) shall become a Material Subsidiary,
the Company or
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52
Holdings shall cause such Material Subsidiary to promptly thereafter execute and
deliver a Guarantee in favor of the Administrative Agent in substantially the
form of Exhibit G, each of which Guarantees shall be accompanied by such
resolutions, incumbency certificates and legal opinions as are reasonably
requested by the Administrative Agent and its counsel; PROVIDED that no
Guarantee shall be required to be delivered under this paragraph (b) by a
Foreign Subsidiary of the Company or Holdings or by a Material Subsidiary if
more than 65% of the assets of such Material Subsidiary are securities of
foreign Persons (such determination to be made on the basis of fair market
value).
(c) In the event that there shall be a Change in Law which eliminates
the adverse tax consequences to the Company, Holdings or any of their
Subsidiaries which would have resulted on the date hereof from (A) the pledge of
more than 65% of stock of any Foreign Subsidiary which is a Material Subsidiary
or any Domestic Subsidiary which is a Material Subsidiary more than 65% of the
assets of which are securities of foreign Persons (such determination to be made
on the basis of fair market value) or (B) the guarantee by a Foreign Subsidiary
which is a Material Subsidiary or such a Domestic Subsidiary which is a Material
Subsidiary of the Loans and the other obligations of the Company hereunder, the
Company shall promptly thereafter (i) if at such time the Leverage Ratio then in
effect is not less than or equal to 1.5:1.0, pledge and deliver, or shall cause
to be pledged and delivered, to the Administrative Agent such additional stock
as can be so pledged without any adverse tax consequences and (ii) cause any
such Foreign Subsidiary or Domestic Subsidiary which is a Material Subsidiary
and has not previously executed and delivered a Guarantee because of such
adverse tax consequences to deliver a Guarantee to the Administrative Agent to
the extent any such guarantee can be so executed and delivered without any
adverse tax consequences.
(d) In the event that at any time after the date hereof any
Subsidiary, the stock of which is then pledged to the Administrative Agent for
the benefit of the Lenders hereunder, shall undertake a recapitalization
involving the incurrence of debt or the issuance of equity, such debt or equity
shall be evidenced by securities and the Company shall promptly pledge, or cause
to be pledged, such securities to the Administrative Agent, for the ratable
benefit of the Lenders, upon terms and subject to conditions reasonably
satisfactory to the Administrative Agent and, until the Administrative Agent
possesses a perfected security interest in such securities, the Company shall
hold such securities in trust for the Administrative Agent; PROVIDED, HOWEVER,
that, except as set forth in clause (c) above, if, (x) (i) such Subsidiary is a
Domestic Subsidiary more than 65% of the assets of which are securities of
foreign companies (such determination to be made on the basis of fair market
value) or (ii) such Subsidiary is a Foreign Subsidiary, or (y) such Subsidiary
is a Foreign Subsidiary of the Company or Holdings that is owned by a Foreign
Subsidiary of the Company or Holdings the Company shall be required to pledge
only such portion of such securities so that, after giving effect thereto, only
65% of the stock of such Subsidiary in the case of clause (x) or no stock of a
Subsidiary in the case of clause (y) is pledged to the Administrative Agent, for
the ratable benefit of the Lenders, under the relevant Pledge Agreement. The
Administrative Agent and the Lenders agree that, simultaneously with any such
recapitalization, the Administrative Agent shall release securities of any
Subsidiary then held by it and exchange such securities for those issued in
connection with such recapitalization.
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53
SECTION 8. NEGATIVE COVENANTS
The Company hereby agrees that it shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly so long as the Commitments remain
in effect or any Loan, Note or Revolving L/C Obligation remains outstanding and
unpaid, any amount remains available to be drawn under any Letter of Credit or
any other amount is owing to any Lender or the Administrative Agent hereunder:
8.1 INDEBTEDNESS. Create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness of the Company hereunder and in connection with the
Letters of Credit and this Agreement;
(b) Indebtedness outstanding on the date hereof and listed on
Schedule 8.1;
(c) Indebtedness in respect of Used Aircraft Inventory Financing in
an aggregate amount outstanding at any time, when added (without
duplication) to the aggregate amount of Contingent Obligations permitted
under subsection 8.3(c) outstanding at such time, not to exceed
$60,000,000;
(d) Indebtedness of the Company and its Subsidiaries incurred for
industrial revenue bonds, for capitalized lease obligations and for the
deferred purchase price of newly acquired property of the Company and its
Subsidiaries, in an amount (based on the remaining balance of the
obligations therefor on the books of the Company and its Subsidiaries)
which shall not exceed in the aggregate at any one time outstanding
$40,000,000;
(e) (i) Indebtedness of the Company to any Subsidiary Guarantor and
of any Subsidiary Guarantor to the Company or any other Subsidiary
Guarantor and (ii) additional Indebtedness of the Company or any Subsidiary
Guarantor to any Subsidiary that is not a Subsidiary Guarantor and of any
Subsidiary that is not a Subsidiary Guarantor to the Company or any
Subsidiary Guarantor, in an aggregate amount for this clause (ii) not to
exceed an aggregate principal amount of $10,000,000 outstanding at any
time;
(f) Indebtedness to the extent arising from or constituted by foreign
currency exchange contracts permitted by subsection 8.13;
(g) Indebtedness in the nature of unsecured standby letters of credit
(other than the Standby L/Cs) issued for the account of the Company or any
Domestic Subsidiary not to exceed an aggregate face amount of $50,000,000
at any one time outstanding; and
<PAGE>
54
(h) other Indebtedness of the Company or any of its Subsidiaries
incurred in the ordinary course of their respective businesses in an
aggregate principal amount not to exceed $3,000,000 outstanding at any
time.
8.2 LIMITATION ON LIENS. Create, incur, assume or suffer to exist
any Lien upon any of its property, assets, income or profits, whether now owned
or hereafter acquired, except:
(a) Liens for taxes, assessments or other governmental charges not
yet due or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Company or such Subsidiary, as the case may be, in accordance
with GAAP;
(b) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
in respect of obligations which are not yet due or which are being
contested in good faith and by appropriate proceedings if adequate reserves
with respect thereto are maintained on the books of the Company or such
Subsidiary, as the case may be, in accordance with GAAP;
(c) Liens in existence on the date hereof listed on Schedule 8.2,
PROVIDED that no such Lien is spread to cover any additional property after
the Closing Date and that the amount of Indebtedness secured thereby shall
not subsequently be increased;
(d) pledges or deposits in connection with workmen's compensation,
unemployment insurance and other social security legislation;
(e) Liens or deposits to secure the performance of bids, tenders,
trade or government contracts (other than for borrowed money), leases,
licenses, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature incurred in the ordinary course of
business;
(f) easements, right-of-way, zoning and similar restrictions and
other similar encumbrances or title defects incurred, or leases or
subleases granted to others, in the ordinary course of business, which do
not interfere with or adversely affect in any material respect the ordinary
conduct of the business of the Company and its Subsidiaries taken as a
whole;
(g) Liens in favor of the Lenders pursuant to the Credit Documents
and bankers' liens arising by operation of law;
(h) Liens on assets of corporations which become Subsidiaries of the
Company after the date hereof, PROVIDED that such Liens exist at the time
such corporations become Subsidiaries and are not created in anticipation
thereof;
(i) Liens on documents of title and the property covered thereby
securing Indebtedness in respect of the Letters of Credit which are
Commercial L/Cs;
<PAGE>
55
(j) Liens on property of the Financing Subsidiary created solely for
the purpose of securing Indebtedness permitted by subsection 8.1(c);
(k) Liens created solely for the purpose of securing Indebtedness
permitted by subsection 8.1(d), representing or incurred to finance,
refinance or refund the purchase price of property, PROVIDED that no such
Lien shall extend to or cover other property of the Company or such
Subsidiary other than the respective property so acquired, and the
principal amount of Indebtedness secured by any such Lien shall at no time
exceed the original purchase price of such property;
(l) Liens securing any Indebtedness permitted under subsection
8.1(f), provided that no such Lien shall encumber any Collateral (as
defined in any Pledge Agreement) under any of the Pledge Agreements;
(m) Liens securing any Indebtedness permitted under subsection
8.1(h), PROVIDED that no such Lien shall encumber any Collateral (as
defined in any Pledge Agreement) under any of the Pledge Agreements;
(n) additional Liens, PROVIDED that (i) the maximum aggregate amount
of obligations secured thereby does not exceed $5,000,000 in the aggregate
at any time, and (ii) no such Lien shall encumber any Collateral
(as defined in any Pledge Agreement) under any of the Pledge Agreements.
8.3 LIMITATION ON CONTINGENT OBLIGATIONS. Create, incur, assume or
suffer to exist any Contingent Obligation except:
(a) Contingent Obligations in existence on the date hereof and listed
on Schedule 8.3;
(b) guarantees made in the ordinary course of business of the Company
and its Subsidiaries in connection with employee relocation, travel and
entertainment for an aggregate amount not to exceed $1,000,000 at any one
time outstanding;
(c) Contingent Obligations in respect of Indebtedness permitted under
subsection 8.1(c) in a maximum aggregate amount outstanding at any time,
when added (without duplication) to the aggregate amount of Indebtedness
permitted under subsection 8.1(c) outstanding at such time, not to exceed
$60,000,000.
(d) Contingent Obligations to the extent arising from or constituted
by foreign currency exchange contracts permitted by subsection 8.13;
(e) Contingent Obligations pursuant to the Subsidiary Guarantees; and
(f) (i) guarantees by the Company or any Subsidiary Guarantor of
Indebtedness permitted under subsection 8.1 or other obligations permitted
hereunder of the Company or any Subsidiary Guarantor and (ii) guarantees by
the Company or any Subsidiary Guarantor of Indebtedness permitted under
<PAGE>
56
subsection 8.1 or other obligations permitted hereunder of any Subsidiary
that is not a Subsidiary Guarantor permitted under subsection 8.1(e)
subject to the limitations set forth in subsection 8.6(g).
8.4 PROHIBITION OF FUNDAMENTAL CHANGES. Enter into any transaction
of acquisition of, or merger or consolidation or amalgamation with, any other
Person (including any Subsidiary or Affiliate of the Company or any of its
Subsidiaries), or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or make any material change in the present method
of conducting business or engage in any type of business other than of the same
general type now conducted by it, except for the transactions otherwise
permitted pursuant to subsections 8.5 and 8.6.
8.5 PROHIBITION ON SALE OF ASSETS. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, tax benefits, receivables and leasehold
interests), whether now owned or hereafter acquired except:
(a) the sale or other disposition of any tangible personal property
that, in the reasonable judgment of the Company, has become uneconomic,
obsolete or worn out, and which is disposed of in the ordinary course of
business;
(b) sales or other dispositions of inventory in each case made in the
ordinary course of business (including all or any portion of the used
aircraft inventory of the Company and its Subsidiaries, other than in
connection with the Used Aircraft Inventory Financing);
(c) the sale, lease, transfer or other disposition of any or all of
its assets (upon voluntary liquidation or otherwise) to the Company or a
wholly-owned Subsidiary and any Subsidiary of the Company may sell or
otherwise dispose of, or part with control of any or all of, the stock of
any Subsidiary to a wholly-owned Subsidiary, PROVIDED that to the extent
that any such transaction would result in the transfer of any assets of, or
any stock of, a Subsidiary that is not a Subsidiary Guarantor, such
transfer shall be limited as set forth in subsection 8.6(g);
(d) asset sales in connection with the Used Aircraft Inventory
Financing; and
(e) for the sale or other disposition by the Company or any of its
Subsidiaries of other assets, PROVIDED that (i) such sale
or other disposition shall be made for fair value on an arm's-length basis,
(ii) the aggregate fair market value of all such assets sold or disposed of
under this clause after the Closing Date shall not exceed $10,000,000 in
any fiscal year and $20,000,000 in the aggregate, (iii) the Net Proceeds
from such sale or other disposition shall be applied in accordance with the
provisions of subsection 4.6, and (iv) non-cash consideration therefor
shall constitute investments permitted under subsection 8.6(f).
<PAGE>
57
8.6 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance,
loan, extension of credit or capital contribution to, or Contingent Obligation
for the benefit of, or purchase, stock, bonds, notes, debentures or other
securities of or any interest in, or make any other investment in, or acquire
assets other than in the ordinary course of business from, any Person, except:
(a) the Company may make loans or advances to, or investments in, any
Subsidiary Guarantor, and any Subsidiary Guarantor may make loans or
advances to, or investments in, the Company or any other Subsidiary
Guarantor, to the extent the Indebtedness created thereby is permitted by
subsection 8.1(e)(i);
(b) the Company and its Subsidiaries may invest in, acquire and hold
Cash Equivalents;
(c) the Company or any of its Subsidiaries may make travel and
entertainment advances and relocation loans in the ordinary course of
business to officers and employees of the Company or any such Subsidiary,
PROVIDED that the aggregate principal amount of all such loans and advances
outstanding at any one time, together with the guarantees of such Loans and
advances made pursuant to subsection 8.3(b), shall not exceed $1,000,000;
(d) the Company or any of its Subsidiaries may make payroll advances
in the ordinary course of business;
(e) the Company or any of its Subsidiaries may acquire and hold
receivables and promissory notes owing to it, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms (PROVIDED that nothing in this subsection 8.6
shall prevent the Company or any Subsidiary from offering such
concessionary trade terms, or from receiving such investments in connection
with the bankruptcy or reorganization of their respective suppliers or
customers or the settlement of disputes with such customers or suppliers
arising in the ordinary course of business, as management deems reasonable
in the circumstances);
(f) the Company and its Subsidiaries may make investments
constituting non-cash consideration in connection with Asset Sales
permitted by subsection 8.5; PROVIDED that (i) the amount of any such
investment shall not exceed 10% of the aggregate consideration to be
received by the Company and its Subsidiaries in respect of such Asset Sale
and (ii) to the extent that the amount of any such investment exceeds
$20,000,000, the Company shall use its best efforts to (x) cause each such
investment to be made in such a form and on such terms so that such
investment can be pledged to the Administrative Agent, for the benefit of
the Lenders, and (y) pledge such investment to the Administrative Agent,
for the benefit of the Lenders, on terms reasonably satisfactory to the
Administrative Agent;
(g) the Company and its Subsidiaries may make loans or advances to,
incur Contingent Obligations for the benefit of, make acquisitions from
or of, and make investments
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58
in, other Persons, including, without limitation, Indebtedness described in
subsection 8.1(e)(ii) and Contingent Obligations described in subsections
8.1(f); PROVIDED that the aggregate amount of the consideration paid or
invested and the amounts loaned, advanced or guaranteed by the Company
and its Subsidiaries in all such transactions after the Closing Date
(net, in the case of loans, advances or investments, of any repayments
or return of capital in respect thereof actually received in cash by the
Company or such Subsidiary (net of applicable taxes) after the Closing
Date), when added to the amount of any transfers or dispositions of
assets described in the proviso to subsection 8.5(c), does not exceed
an aggregate amount of $10,000,000 in any single transaction or series of
related transactions or $20,000,000 in any fiscal year of the Company; and
(h) the Company may make a loan to Holdings on the Closing Date in
connection with the Refinancing, evidenced by the Holdings Note and in an
aggregate principal amount not to exceed $100,000,000.
8.7 LIMITATION ON CAPITAL EXPENDITURES. Make or commit to make
Capital Expenditures, other than Capital Expenditures in any fiscal year of the
Company in the aggregate for the Company and its Subsidiaries not exceeding
$40,000,000 (the "BASE AMOUNT"); PROVIDED, HOWEVER, that the Base Amount for any
fiscal year may be increased by a maximum of $5,000,000 by carrying over to such
fiscal year any portion of the Base Amount not spent in the immediately
preceding fiscal year (but not in any year prior thereto).
8.8 MAINTENANCE OF INTEREST COVERAGE. Permit for any period of four
consecutive fiscal quarters ending during any period set forth below the
Interest Coverage Ratio for such period to be less than the ratio set forth
opposite such period below:
Period Ratio
------ -----
Closing Date 1.75:1.0
through
September 30, 1997
October 1, 1997 2.00:1.0
through
December 31, 1997
January 1, 1998 3.00:1.0
through
December 31, 1998
January 1, 1999 4.00:1.0
and at all
times thereafter
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59
8.9 MAINTENANCE OF CURRENT RATIO. Permit the ratio of Consolidated
Current Assets to Consolidated Current Liabilities at any time to be less than
1.00 to 1.00.
8.10 MAINTENANCE OF LEVERAGE RATIO. Permit, as at the end of any
fiscal quarter of Holdings ending during any period set forth below, the
Leverage Ratio to be more than the ratio set forth opposite such period below:
Period Ratio
------ -----
Closing Date 5.0:1.0
through
June 30, 1997
July 1, 1997 4.0:1.0
through
September 30, 1997
October 1, 1997 3.5:1.0
through
December 31, 1997
January 1, 1998 3.0:1.0
through
December 31, 1998
January 1, 1999 2.5:1.0
and at all
times thereafter
8.11 LIMITATION ON RESTRICTED PAYMENTS. Except as contemplated in
connection with the Refinancing and paid on the Closing Date, declare any
dividends on any shares of any class of stock, or make any payment on account
of, or set apart assets for a sinking or other analogous fund for, the purchase,
redemption, retirement or other acquisition of any shares of any class of stock,
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of the Company or any of its Subsidiaries, except that;
(a) Subsidiaries may pay dividends to the Company or to Domestic
Subsidiaries which are directly or indirectly wholly-owned by the Company;
(b) the Company may pay dividends to Holdings in an amount equal to
the amount required for Holdings to pay franchise taxes, fees and expenses
necessary to maintain its status as a public corporation and other fees
required to maintain its corporate existence (including fees and expenses
in connection with filings to be made by Holdings under federal and state
securities laws);
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60
(c) the Company may pay cash dividends to Holdings to the extent
necessary to enable Holdings to pay fees, expenses and other obligations
incurred or required in connection with the Refinancing, PROVIDED that
Holdings shall pay each obligation in respect of which such dividend is
made no later than fifteen Business Days after the date on which the
relevant dividend is made and, PROVIDED FURTHER, that the Company may pay a
non-cash dividend to eliminate the intercompany account between Holdings
and the Company in an amount not to exceed $2,000,000;
(d) the Company (i) may pay dividends to Holdings from time to time in
amounts equal to the amounts then required for Holdings to pay interest
when due on the Holdings Note, PROVIDED that within two days' after receipt
by Holdings of any such amount, Holdings applies such amount as payment to
the Company of such interest on the Holdings Note and (ii) may reduce or
eliminate the Holdings Note if such reduction or elimination is duly
declared and made by the Company as a non-cash dividend;
(e) so long as no Default or Event of Default has occurred or would
occur after giving effect to such declaration or payment, the Company may,
from time to time, declare and pay cash dividends to Holdings on the common
stock of the Company in an aggregate amount not to exceed $3,000,000 (the
"HOLDINGS DIVIDEND LIMIT"), PROVIDED that the proceeds of such dividends
shall be used within 30 days of the receipt of such dividends by Holdings
to repurchase Holdings stock from management employees of Holdings or any
of its Subsidiaries or to make payments in respect of outstanding stock
appreciation rights granted to management employees of Holdings or any of
its Subsidiaries and, PROVIDED FURTHER, the Holdings Dividend Limit shall
be increased by the proceeds of any additional Holdings stock which is
issued to any management employees of Holdings or any of its Subsidiaries
after the Closing Date so long as such proceeds are contributed by Holdings
to the capital of the Company; and
(f) so long as no Default or Event of Default has occurred or would
occur after giving effect to such declaration or payment, the Company may,
at any time that (i) the Leverage Ratio in effect is equal to or less than
1.5:1.0 or (ii) the aggregate principal amount of Term Loans then
outstanding is less than $200,000,000, declare and pay cash dividends to
Holdings on the common stock of the Company, PROVIDED that the aggregate
amount thereof paid in any fiscal year of the Company does not exceed an
amount equal to 25% of Consolidated Net Income for such fiscal year.
8.12 TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate except (a) for transactions
which are otherwise permitted under this Agreement and which are in the ordinary
course of the Company's or a Subsidiary's business and which are upon fair and
reasonable terms no less favorable to the Company or such Subsidiary than it
would obtain in a hypothetical comparable arm's length transaction with a Person
not an Affiliate, (b) as permitted under subsections 8.1(e), 8.3(f) and 8.6(a),
or (c) as disclosed in the Registration Statement.
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61
8.13 FOREIGN EXCHANGE CONTRACTS. Enter into any foreign currency
exchange contracts (other than foreign currency exchange contracts entered into
for the sole purpose of hedging with respect to the purchase or sale by the
Company or its Subsidiaries of inventory to be purchased or sold for payments in
foreign currencies in the ordinary course of their respective businesses)
pursuant to which the Company or its Subsidiaries may incur (i) obligations in
connection with the contracts described on Schedule 8.13 and (ii) additional
obligations in an amount not to exceed the dollar equivalent of $15,000,000 in
the aggregate at any time outstanding.
8.14 FISCAL YEAR. Permit the fiscal year of the Company to end on a
day other than December 31, unless the Company shall have given at least 45 days
prior written notice to the Administrative Agent.
SECTION 9. EVENTS OF DEFAULT
Upon the occurrence of any of the following events:
(a) The Company shall fail to (i) pay any principal of any Note when
due in accordance with the terms hereof or thereof or to reimburse the
Issuing Lender in accordance with subsection 3.6 or (ii) pay any interest
on any Note or any other amount payable hereunder within five days after
any such interest or other amount becomes due in accordance with the terms
thereof or hereof; or
(b) Any representation or warranty made or deemed made by any Credit
Party in any Credit Document or which is contained in any certificate,
guarantee, document or financial or other statement furnished under or in
connection with this Agreement shall prove to have been incorrect in any
material respect on or as of the date made or deemed made; or
(c) The Company shall default in the observance or performance of any
agreement contained in subsection 7.7(a) or Section 8 of this Agreement or
any Credit Party shall default in the observance or performance of any
agreement contained in Section 5 of the Pledge Agreement to which it is a
party or Section 2 of the Guarantee to which it is a party; or Holdings
shall default in the performance or observance of Section 11 of the
Holdings Guarantee; or
(d) The Company or any other Credit Party shall default in the
observance or performance of any other agreement contained in any Credit
Document, and such default shall continue unremedied for a period of 30
days; or
(e) The Company or any of its Subsidiaries shall (i) default in any
payment of principal of or interest on any Indebtedness (other than the
Notes, the Revolving L/C Obligations and any intercompany debt) or in the
payment of any Contingent Obligation, beyond the period of grace, if any,
provided in the instrument or agreement under which such Indebtedness or
Contingent Obligation was created; or (ii) default in the observance or
performance of any other agreement or condition
<PAGE>
62
relating to any such Indebtedness or Contingent Obligation 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 beneficiary or beneficiaries of such Contingent
Obligation (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity, any
applicable grace period having expired, or such Contingent Obligation to
become payable, any applicable grace period having expired, PROVIDED that
the aggregate principal amount of all such Indebtedness and Contingent
Obligations which would then become due or payable would equal or exceed
$10,000,000; or
(f) (i) Holdings, the Company or any of their respective Subsidiaries
shall commence any case, proceeding or other action (A) under any existing
or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian or other similar official for it or for
all or any substantial part of its assets, or Holdings, the Company or any
of their respective Subsidiaries shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against
Holdings, the Company or any of their respective Subsidiaries any case,
proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced against
Holdings, the Company or any of their respective Subsidiaries any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part
of its assets which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or bonded pending
appeal within 60 days from the entry thereof; or (iv) Holdings, the Company
or any of their respective Subsidiaries shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v)
Holdings, the Company or any of their respective Subsidiaries shall
generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan,
(iii) a Reportable Event (other than a Reportable Event with respect to
which the 30-day notice requirement under Section 4043 of ERISA has been
waived) shall occur with respect to, or proceedings to have a trustee
appointed shall commence with respect to, or a trustee shall be appointed
to administer or to terminate, any Single Employer Plan, which Reportable
Event or institution of proceedings or appointment of a trustee is, in the
reasonable opinion of
<PAGE>
63
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, and, in the case of a Reportable Event, such
Reportable Event shall continue unremedied for ten days after notice of
such Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is
given and, in the case of the institution of proceedings, such proceedings
shall continue for ten days after commencement thereof or (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA; and in
each case in clauses (i) through (iv) above, such event or condition,
together with all other such events or conditions relating to such Plans,
if any, could subject the Company or any of its Subsidiaries to any tax,
penalty or other liabilities which in the aggregate would have a Material
Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Company or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance) of $10,000,000 or more and all
such judgments or decrees shall not have been vacated, discharged, stayed
or bonded pending appeal within the time required by the terms of such
judgment; or
(i) Any Pledge Agreement or any Guarantee shall cease, for any
reason, to be in full force and effect or any Credit Party shall so assert
in writing, or any Pledge Agreement shall cease to be effective to grant a
perfected Lien on the collateral described therein with the priority
purported to be created thereby (other than as a result of any action or
inaction on the part of the Administrative Agent or the Lenders); or
(j) (i) Holdings shall cease to own 100% of the issued and
outstanding capital stock of the Company, free and clear of all Liens
(other than the Lien granted to the Administrative Agent, for the ratable
benefit of the Lenders, pursuant to the terms of the Holdings Pledge
Agreement), or (ii) until such time as the aggregate outstanding principal
amount of Term Loans has been reduced to $200 million or less or the
Leverage Ratio is 1.5 to 1.0 or less, the FL Group shall own
beneficially less than 25% of the outstanding voting stock of the
Company, (iii) at any time that the FL Group owns beneficially less than a
majority, but more than 25% of the outstanding voting stock of the Company,
the occurrence of any event as a result of which event, any person or group
(other than the FL Group) acquires beneficial ownership (within the meaning
of Rule 13d-3 of the Securities and Exchange Commission promulgated under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of a
percentage of the outstanding voting stock of the Company or Holdings
greater than that percentage owned beneficially by the FL Group, (iv) at a
time that the FL Group beneficially owns less than 25% of the outstanding
voting stock of the Company, the occurrence of any event, as a result of
which event, any person or group (other than the FL Group) acquires
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
and Exchange Commission promulgated under the Exchange Act) of 25% or more
of the outstanding voting stock of the Company or Holdings or (v) any
person or group of persons (other than the FL Group) at any time has the
right to designate or elect a majority of the board of directors of the
Company or Holdings);
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64
then, and in any such event, (a) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above, automatically (i) the Commitments
shall immediately terminate and the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the Notes shall
immediately become due and payable, and (ii) all obligations of the Company in
respect of the Letters of Credit, although contingent and unmatured, shall
become immediately due and payable and the Issuing Lenders' obligations to issue
Letters of Credit shall immediately terminate and (b) if such event is any other
Event of Default, so long as any such Event of Default shall be continuing,
either or both of the following actions may be taken: (i) with the consent of
the Required Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice to the Company,
declare the Commitments and any Lender's obligations to issue Letters of Credit
to be terminated forthwith, whereupon the Commitments and such obligations shall
immediately terminate; and (ii) with the consent of the Required Lenders, the
Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice of default to the Company, (A) declare all
or a portion of the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement and the Notes to be due and payable
forthwith, whereupon the same shall immediately become due and payable, and (B)
declare all or a portion of the obligations of the Company in respect of the
Letters of Credit, although contingent and unmatured, to be due and payable
forthwith, whereupon the same shall immediately become due and payable and/or
demand that the Company discharge any or all of the obligations supported by the
Letters of Credit by paying or prepaying any amount due or to become due in
respect of such obligations. All payments under this Section 9 on account of
undrawn Letters of Credit shall be made by the Company directly to a cash
collateral account established by the Administrative Agent for such purpose for
application to the Company's reimbursement obligations under subsection 3.6 as
drafts are presented under the Letters of Credit, with the balance, if any, to
be applied to the Company's obligations under this Agreement and the Notes as
the Administrative Agent shall determine with the approval of the Required
Lenders. Except as expressly provided above in this Section 9, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
SECTION 10. THE ADMINISTRATIVE AGENT; ISSUING LENDER
10.1 APPOINTMENT. Each Lender hereby irrevocably designates and
appoints Chase as the Administrative Agent under this Agreement and irrevocably
authorizes Chase as Administrative Agent for such Lender to take such action on
its behalf under the provisions of the Credit Documents and to exercise such
powers and perform such duties as are expressly delegated to the Administrative
Agent by the terms of the Credit Documents, together with such other powers as
are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement, the Administrative Agent shall not have
any duties or responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into the
Credit Documents or otherwise exist against the Administrative Agent.
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65
10.2 DELEGATION OF DUTIES. The Administrative Agent may execute any
of its duties under this Agreement and each of the other Credit Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. Without limiting the
foregoing, the Administrative Agent may appoint Chase Bank Agency Services
Corporation as its agent to perform the functions of the Administrative Agent
hereunder relating to the advancing of funds to the Company and distribution of
funds to the Lenders and to perform such other related functions of the
Administrative Agent hereunder as are reasonably incidental to such functions.
The Administrative Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys-in-fact selected by it with reasonable
care, except as otherwise provided in subsection 10.3.
10.3 EXCULPATORY PROVISIONS. Neither the Administrative Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact, Affiliates
or Subsidiaries shall be (i) liable for any action lawfully taken or omitted to
be taken by it or such Person under or in connection with the Credit Documents
(except for its or such Person's own gross negligence or willful misconduct), or
(ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Credit Party or any
officer thereof contained in the Credit Documents or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Administrative Agent under or in connection with, the Credit Documents or for
the value, validity, effectiveness, genuineness, enforceability or sufficiency
of the Credit Documents or for any failure of any Credit Party to perform its
obligations thereunder. The Administrative Agent shall not be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, any Credit
Document, or to inspect the properties, books or records of any Credit Party.
10.4 RELIANCE BY THE ADMINISTRATIVE AGENT. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
Note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon advice
and statements of legal counsel (including, without limitation, counsel to the
Company), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat the payee of
any Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under any Credit Document unless it shall
first receive such advice or concurrence of the Required Lenders (or, where
unanimous consent of the Lenders is expressly required hereunder, such Lenders)
as it deems appropriate or it shall first be indemnified to its satisfaction by
the Lenders against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under any Credit Document in accordance with a request
of the Required Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Notes.
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10.5 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received written notice from a
Lender or the Company referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall promptly give notice thereof to the Lenders. The Administrative
Agent shall take such action with respect to such Default or Event of Default as
shall be reasonably directed by the Required Lenders; PROVIDED that unless and
until the Administrative Agent shall have received such directions, the
Administrative Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Lenders.
10.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each
Lender expressly acknowledges that neither the Administrative Agent nor any of
its respective officers, directors, employees, agents, attorneys-in-fact,
Subsidiaries or Affiliates has made any representations or warranties to it and
that no act by the Administrative Agent hereafter taken, including any review of
the affairs of the Credit Parties, shall be deemed to constitute any
representation or warranty by the Administrative Agent to any Lender. Each
Lender represents to the Administrative Agent that it has, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Credit Parties and
made its own decision to make its Loans hereunder, issue and participate in the
Letters of Credit and enter into this Agreement. Each Lender also represents
that it will, independently and without reliance upon the Administrative Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under the Credit
Documents, and to make such investigation as it deems necessary to inform itself
as to the business, operations, property, financial and other condition and
creditworthiness of the Credit Parties. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, financial condition, assets, liabilities, net assets,
properties, results of operations, value, prospects and other condition or
creditworthiness of the Credit Parties which may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact, Affiliates or Subsidiaries.
10.7 INDEMNIFICATION. The Lenders severally agree to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Credit Parties and without limiting the obligation of the Credit Parties to
do so), ratably according to the respective amounts of their respective
Commitment Percentages in effect on the date on which indemnification
is sought, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including without limitation at
any time following the payment of the Notes) be imposed on, incurred by or
asserted against the Administrative Agent in any way relating to or arising out
of the Credit Documents or any documents contemplated by or referred to herein
or the transactions
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67
contemplated hereby or any action taken or omitted by the Administrative Agent
under or in connection with any of the foregoing; PROVIDED that no Lender shall
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting solely from the Administrative Agent's gross negligence
or willful misconduct. The agreements contained in this subsection 10.7 shall
survive the payment of the Notes and all other amounts payable hereunder.
10.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITIES. Each of the
Administrative Agent and its respective Affiliates and Subsidiaries may make
loans to, accept deposits from and generally engage in any kind of business with
the Credit Parties as though the Administrative Agent were not the
Administrative Agent hereunder, as the case may be. With respect to its Loans
made or renewed by it, any Note issued to it and any Letter of Credit issued by
or participated in by it, the Administrative Agent shall have the same rights
and powers, duties and liabilities under the Credit Documents as any Lender and
may exercise the same as though it were not the Administrative Agent and the
terms "Lender" and "Lenders" shall include the Administrative Agent in its
individual capacity.
10.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may
resign as Administrative Agent upon 30 days' notice to the Lenders.
If the Administrative Agent shall resign as Administrative Agent under
the Credit Documents, then the Required Lenders shall appoint from among the
Lenders a successor agent for the Lenders which successor agent shall be
approved by the Company (which approval shall not be unreasonably withheld)
whereupon such successor agent shall succeed to the rights, powers and duties of
the Administrative Agent and the term "Administrative Agent" shall mean such
successor agent effective upon its appointment, and the former Administrative
Agent's rights, powers and duties as Administrative Agent shall be terminated,
without any other or further act or deed on the part of such former
Administrative Agent or any of the parties to this Agreement or any holders of
the Notes. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent the provisions of this Section 10 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under the Credit Documents.
SECTION 11. MISCELLANEOUS
11.1 AMENDMENTS AND WAIVERS. No Credit Document nor any terms
thereof may be amended, supplemented or modified except in accordance with the
provisions of this subsection 11.1. With the written consent of the Required
Lenders, the Administrative Agent and the respective Credit Parties may, from
time to time, enter into written amendments, supplements or modifications to any
Credit Document for the purpose of adding any provisions to such Credit Document
to which they are parties or changing in any manner the rights of the Lenders or
of any such Credit Party or any other Person thereunder or waiving, on such
terms and conditions as the Administrative Agent may specify in such instrument,
any of the requirements of any such Credit Document or any Default or Event of
Default and its consequences; PROVIDED, HOWEVER, that:
(a) no such waiver and no such amendment, supplement or modification
shall directly or indirectly release any Guarantor from all or
substantially all of its
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68
obligations under the Guarantee to which it is a party, without the written
consent of the Release Lenders, except as otherwise provided, PROVIDED that
no vote or consent of the Administrative Agent or any Lender shall be
required to release automatically the Collateral under any Pledge
Agreement in accordance with the terms thereof at any time that the
Leverage Ratio is 1.5:1.0 or less;
(b) no such waiver and no such amendment, supplement or modification
shall extend the scheduled maturity of any Note or scheduled installment of
any Loan or extend the expiry date of any Letter of Credit beyond the
Revolving Credit Termination Date, or reduce the rate or extend the time of
payment of interest thereon, or change the method of calculating interest
thereon, or reduce any fee payable to the Lenders hereunder, or reduce the
principal amount thereof, or extend the due date thereof, or increase the
amount of any Lender's Commitments, or extend the expiry date of any
Lender's Commitments, or amend, modify or waive any provision of this
subsection 11.1 or reduce the percentages specified in the definition of
Required Lenders or Release Lenders, or change the percentage of the
Lenders required to waive a condition precedent under Section 6.2 or
consent to the assignment or transfer by any Credit Party of any of its
rights and obligations under any Credit Document, in each case, without the
written consent of each Lender;
(c) no such waiver and no such amendment, supplement or modification
shall amend, modify or waive any provision of this Agreement directly
affecting the rights or obligations of the Swing Line Lender or the Issuing
Lender without the written consent of the Swing Line Lender or the Issuing
Lender, as the case may be; and
(c) no such waiver and no such amendment, supplement or modification
shall amend, modify or waive any provision of Section 10 without the
written consent of the Administrative Agent.
Any such waiver and any such amendment, supplement or modification described in
this subsection 11.1 shall apply equally to each of the Lenders and shall be
binding upon each Credit Party, the Lenders, the Administrative Agent and all
future holders of the Notes. No waiver, amendment, supplement or modification
of any Letter of Credit shall extend the expiry date thereof without the written
consent of the Participating Lenders. In the case of any waiver, the Company,
the Lenders and the Administrative Agent shall be restored to their former
position and rights hereunder and under the outstanding Notes, and any Default
or Event of Default waived shall be deemed to be cured and not continuing; but
no such waiver shall extend to any subsequent or other Default or Event of
Default, or impair any right consequent thereon.
11.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy or telex), and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered by hand, or three Business
Days after being deposited in the mail, postage prepaid, or, in the case of
telecopy notice, when sent, confirmation of receipt received, or, in the case of
telex notice, when sent, answerback received, addressed as follows in the case
of each Credit Party and the Administrative Agent, and as set forth in Schedule
1.1A in the case of
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69
any Lender, or to such other address as may be hereafter notified by the
respective parties hereto and any future holders of the Notes:
The Company: Gulfstream Delaware Corporation
500 Gulfstream Road
Savannah, Georgia 31402-2206
Attention: Chris A. Davis
Telecopy: (912) 965-3000
With a copy to: Forstmann Little & Co.
767 Fifth Avenue
44th Floor
New York, New York 10153
Attention: Sandra J. Horbach
Telex: 497 23385LCO
Telecopy: (212) 759-9059
With a copy to: Fried, Frank, Harris,
Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Robert C. Schwenkel, Esq.
Telex: 128173
Telecopy: (212) 747-1525 or
(212) 269-2644
The Administrative
Agent: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: William Caggiano
Telecopy: (212) 972-0009
PROVIDED that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsections 3.3, 3.7, 4.1, 4.3, 4.4, 4.5 and 4.6
shall not be effective until received and PROVIDED FURTHER that the failure to
provide the copies of notices to the Company provided for in this subsection
11.2 shall not result in any liability to the Administrative Agent or any
Lender.
11.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder, shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
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70
11.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement, the Letters of Credit and the Notes.
11.5 PAYMENT OF EXPENSES AND TAXES. The Company agrees:
(a) to pay or reimburse the Administrative Agent for all of its out-
of-pocket costs and expenses incurred in connection with the development,
preparation and execution of, and any amendment, supplement or modification
to, the Credit Documents and any other documents prepared in connection
herewith, and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent;
(b) to pay or reimburse each Lender and the Administrative Agent for
all their costs and expenses incurred in connection with, and to pay,
indemnify, and hold the Administrative Agent and each Lender harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever arising out of or in connection with, the
enforcement or preservation of any rights under any Credit Document and any
such other documents, including, without limitation, reasonable fees and
disbursements of counsel to the Administrative Agent and each Lender
incurred in connection with the foregoing and in connection with advising
the Administrative Agent with respect to its rights and responsibilities
under this Agreement and the documentation relating thereto;
(c) to pay, indemnify, and to hold the Administrative Agent and each
Lender harmless from, any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other similar taxes (other than withholding taxes), if any,
which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any
waiver or consent under or in respect of, any Credit Document and any such
other documents; and
(d) to pay, indemnify, and hold the Administrative Agent and each
Lender and their respective officers, directors, employees and agents
harmless from and against any and all other liabilities, obligations,
losses, damages (including punitive damages), penalties, fines, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever (including, without limitation, reasonable experts' and
consultants' fees and reasonable fees and disbursements of counsel and
third party claims for personal injury or real or personal property damage)
which may be incurred by or asserted against the Administrative Agent or
the Lenders (x) arising out of or in connection with any investigation,
litigation or proceeding related to this Agreement, the other Credit
Documents, the proceeds of the Loans, or any of the other transactions
contemplated hereby, whether or not the Administrative Agent or
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71
any of the Lenders is a party thereto, (y) with respect to any
environmental matters, any actual or alleged environmental compliance
expenses and any actual or alleged remediation expenses in connection with
the presence, suspected presence, release or suspected release of any
Hazardous Materials in or into the air, soil, groundwater, surface water or
improvements at, on, about, under, or within the Properties, or any portion
thereof, or elsewhere in connection with the transportation of Hazardous
Materials to or from the Properties or (z) without limiting the generality
of the foregoing, by reason of or in connection with the execution and
delivery or transfer of, or payment or failure to make payments under,
Letters of Credit (it being agreed that nothing in this subsection 11.5(d)
is intended to limit the Company's obligations pursuant to subsection 3.6);
(all the foregoing, collectively, the "INDEMNIFIED LIABILITIES"), PROVIDED that
the Company shall have no obligation hereunder with respect to indemnified
liabilities of the Administrative Agent or any Lender or any of their respective
officers, directors, employees or agents arising from (i) the gross negligence
or willful misconduct of such Administrative Agent or Lender or their respective
directors, officers, employees or agents, (ii) legal proceedings commenced
against the Administrative Agent or any Lender by any security holder or
creditor thereof arising out of and based upon rights afforded any such security
holder or creditor solely in its capacity as such or (iii) legal proceedings
commenced against the Administrative Agent or any such Lender by any Transferee
(as defined in subsection 11.6). The agreements in this subsection 11.5 shall
survive repayment of the Notes and all other amounts payable hereunder.
11.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; PURCHASING LENDERS. (a)
This Agreement shall be binding upon and inure to the benefit of the Company,
the Lenders and the Administrative Agent, all future holders of the Notes, and
their respective successors and assigns, except that the Company may not assign
or transfer any of its rights or obligations under this Agreement without the
prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial banking
or lending business and in accordance with applicable law, at any time sell to
one or more banks or other entities ("PARTICIPANTS") participating interests in
any Loan owing to such Lender, any participating interest of such Lender in the
Letters of Credit, any Note held by such Lender, any Commitment of such Lender
or any other interest of such Lender hereunder and under the other Credit
Documents. In the event of any such sale by a Lender of participating interests
to a Participant, such Lender's obligations under this Agreement to the other
parties to this Agreement shall remain unchanged, such Lender shall remain
solely responsible for the performance thereof, such Lender shall remain the
holder of any such Note for all purposes under this Agreement and the other
Credit Documents and the Company and the Administrative Agent shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement and the other Credit Documents. The
Company agrees that if amounts outstanding under this Agreement and the Notes
are due and unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant shall be
deemed to have the right of setoff in respect of its participating interest in
amounts owing under this Agreement and any Note to the same extent as if the
amount of its participating
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72
interest were owing directly to it as a Lender under this Agreement or any Note;
PROVIDED that such Participant shall only be entitled to such right of setoff if
it shall have agreed in the agreement pursuant to which it shall have acquired
its participating interest to share with the Lenders the proceeds thereof, as
provided in subsection 11.7. The Company also agrees that each Participant
shall be entitled to the benefits of subsections 4.12, 4.19, 4.20 and 4.21 with
respect to its participation in the Letters of Credit and in the Commitments and
the Loans outstanding from time to time; PROVIDED that no Participant shall be
entitled to receive any greater amount pursuant to such subsections than the
transferor Lender would have been entitled to receive in respect of the amount
of the participation transferred by such transferor Lender to such Participant
had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial banking
or lending business and in accordance with applicable law, at any time, sell
to any Lender or any Affiliate thereof (including any Affiliate or Subsidiary
of such transferor Lender) or, with the consent of the Company and the
Administrative Agent (which in each case shall not be unreasonably withheld),
sell to one or more additional banks or financial institutions (an "ASSIGNEE"),
all or any part of its rights and obligations under this Agreement, the
Notes and the other Credit Documents and with respect to the Letters of Credit,
pursuant to an Assignment and Acceptance executed by such Assignee, such
assigning Lender and by the Company and the Administrative Agent, and
delivered to the Administrative Agent for its acceptance and recording in
the Register (as defined below); PROVIDED that, unless the Company and the
Administrative Agent agree otherwise, (A) each such sale pursuant to this
subsection 11.6(c) of less than all of a Lender's rights and Obligations
(I) to a Person which is not then a Lender or an Affiliate of a Lender shall
be of Commitments and/or Loans of $10,000,000 or more and (II) to a Person
which is then a Lender or an Affiliate of a Lender may be in any amount,
(B) in the event of a sale of less than all of such rights and obligations,
such Lender after such sale shall retain Commitments and/or Loans
(without duplication) aggregating at least $10,000,000 and (C) each
Assignee which is a Non-U.S. Lender shall comply with the provisions of
clause (A) of subsection 4.18(e) hereof, or, with the prior written consent
of the Company which may be withheld in its sole discretion, with or without
cause, the provisions of clause (B) of subsection 4.18(e) hereof (and, in
either case, with all of the other provisions of subsection 4.18(e) hereof);
and PROVIDED FURTHER that the foregoing shall not prohibit a Lender from
selling participating interests in accordance with subsection 11.6(b) in all or
any portion of its Commitments and/or Loans (without duplication). Upon such
execution, delivery, acceptance and recording, from and after the effective date
determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
with the Commitments as set forth therein, and (y) the assigning Lender
thereunder shall, to the extent of the interest transferred, as reflected in
such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto). Such
Assignment and Acceptance shall be deemed to amend this Agreement to the extent,
and only to the extent, necessary to reflect the addition of such Assignee and
the resulting adjustment of Commitment Percentages arising from the purchase by
such Assignee of all or a portion of the rights and obligations of such
assigning Lender under this Agreement and the Notes. As soon as practicable
after the effective date determined pursuant to such Assignment and Acceptance,
the Company, at its own expense, shall execute and deliver to the Administrative
Agent, in exchange for the surrendered Notes, new Notes to the order of such
Assignee in amounts equal to the respective Commitments assumed by it pursuant
to such Assignment and Acceptance and, if the assigning Lender has retained
Commitments hereunder, new Notes to the order of the
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73
assigning Lender in an amount equal to the Commitments retained by it hereunder.
Such new Notes shall be dated the Closing Date and shall otherwise be in the
form of the Notes replaced thereby. The Notes surrendered by the assigning
Lender shall be returned by the Administrative Agent to the Company marked
"cancelled".
(d) The Administrative Agent shall maintain at its address referred
to in subsection 11.2 a copy of each Assignment and Acceptance delivered to it
and a register (the "REGISTER") for the recordation of the names and addresses
of the Lenders and the registered owners of the Notes and the Commitments of,
the principal amount of any Term Loans, Swing Line Loans and/or Revolving
Credit Loans owing to, and, if such Lender has any Revolving Credit
Commitment, the L/C Participating Interests of, each Lender from time to time.
The entries in the Register shall be conclusive, in the absence of manifest
error, and the Company, the Administrative Agent and the Lenders may
treat each Person whose name is recorded in the Register as the owner of the
Loans, the Notes or L/C Participating Interests recorded therein for all
purposes of this Agreement. The Register shall be available for inspection by
the Company or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender, an Assignee and by the Company and the Administrative Agent,
together with payment to the Administrative Agent of a registration and
processing fee of $4,000, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto, record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and the Company.
(f) The Company authorizes each Lender to disclose to any Participant
or Assignee (each, a "TRANSFEREE") and any prospective Transferee any and all
financial information in such Lender's possession concerning Holdings, the
Company and their respective Subsidiaries and Affiliates which has been
delivered to such Lender by or on behalf of the Company pursuant to this
Agreement or which has been delivered to such Lender by or on behalf of the
Company in connection with such Lender's credit evaluation of Holdings, the
Company and their respective Subsidiaries and Affiliates prior to becoming a
party to this Agreement.
(g) If, pursuant to this subsection 11.6, any interest in this
Agreement or any Note or Letter of Credit is transferred to any Transferee which
would be a Non-U.S. Lender upon effectiveness of such transfer the assigning
Lender shall cause such Transferee, concurrently with the effectiveness of such
transfer, (i) to represent to the assigning Lender (for the benefit of the
assigning Lender, the Administrative Agent and the Company) that under
applicable law and treaties no taxes will be required to be withheld by the
Administrative Agent, the Company or the assigning Lender with respect to any
payments to be made to such Transferee in respect of the Loans or L/C
Participating Interests, (ii) to furnish to the assigning Lender (and, in the
case of any Assignee registered in the Register, the Administrative Agent and
the Company) such Internal Revenue Service Forms required to be furnished
pursuant to subsection 4.18(e) and (ii) to agree (for the benefit of the
assigning Lender, the Administrative Agent and the Company) to be bound by the
provisions of subsection 4.18(e).
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(h) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this subsection concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law; provided that any transfer of Loans or Notes
upon, or in lieu of, enforcement of or the exercise of remedies under any such
pledge shall be treated as an assignment thereof which shall not be made without
compliance with the requirements of this subsection 11.6.
11.7 ADJUSTMENTS; SET-OFF. (a) If any Lender (a "Benefitted
Lender") shall at any time receive any payment of all or part of any of its Term
Loans, Revolving Credit Loans (other than payment of Swing Line Loans) or L/C
Participating Interests, as the case may be, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in clause (f) of
Section 9, or otherwise) in a greater proportion than any such payment to and
collateral received by any other Lender, if any, in respect of such other
Lender's Term Loans, Revolving Credit Loans or L/C Participating Interests, as
the case may be, or interest thereon, such benefitted Lender shall purchase for
cash from the other Lenders such portion of each such other Lender's Term Loans,
Revolving Credit Loans or L/C Participating Interests, as the case may be, or
shall provide such other Lenders with the benefits of any such collateral, or
the proceeds thereof, as shall be necessary to cause such benefitted Lender to
share the excess payment or benefits of such collateral or proceeds ratably with
each of the Lenders; PROVIDED, HOWEVER, that if all or any portion of such
excess payment or benefits is thereafter recovered from such benefitted Lender,
such purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest. The Company agrees that
each Lender so purchasing a portion of another Lender's Loans and/or L/C
Participating Interests may exercise all rights of payment (including, without
limitation, rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion. The Administrative Agent shall
promptly give the Company notice of any set-off, PROVIDED that the failure to
give such notice shall not affect the validity of such set-off.
(b) Upon the occurrence of an Event of Default specified in
subsection 9(a) or 9(f), the Administrative Agent and each Lender are hereby
irrevocably authorized at any time and from time to time without notice to the
Company, any such notice being hereby waived by the Company, to set off and
appropriate and apply any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by the
Administrative Agent or such Lender to or for the credit or the account of the
Company, or any part thereof in such amounts as the Administrative Agent or such
Lender may elect, on account of the liabilities of the Company hereunder and
under the other Credit Documents and claims of every nature and description of
the Administrative Agent or such Lender against the Company, in any currency,
whether arising hereunder, under any other Credit Document or otherwise, as the
Administrative Agent or such Lender may elect, whether or not the Administrative
Agent or such Lender has made any demand for payment and although such
liabilities and claims may be contingent or unmatured. The Administrative Agent
and each Lender shall notify the
<PAGE>
75
Company promptly of any such setoff made by it and the application made by it of
the proceeds thereof, PROVIDED that the failure to give such notice shall not
affect the validity of such setoff and application. The rights of the
Administrative Agent and each Lender under this paragraph are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) which the Administrative Agent or such Lender may have.
11.8 COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Company and the Administrative Agent. This Agreement
shall become effective with respect to the Company, the Administrative Agent and
the Lenders when the Administrative Agent shall have received copies of this
Agreement executed by the Company and the Lenders, or, in the case of any
Lender, shall have received telephonic confirmation from such Lender stating
that such Lender has executed counterparts of this Agreement or the signature
pages hereto and sent the same to the Administrative Agent.
11.9 INTEGRATION. This Agreement and the other Credit Documents
represent the entire agreement of the Credit Parties, the Administrative Agent
and the Lenders with respect to the subject matter hereof and thereof, and there
are no promises, undertakings, representations or warranties by the
Administrative Agent or any Lender relative to the subject matter hereof or
thereof not expressly set forth or referred to herein or in the other Credit
Documents.
11.10 GOVERNING LAW; NO THIRD PARTY RIGHTS. THIS AGREEMENT AND THE
NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE
NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK. THIS AGREEMENT IS SOLELY FOR THE BENEFIT OF
THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, AND, EXCEPT AS
SET FORTH IN SUBSECTION 11.6, NO OTHER PERSONS SHALL HAVE ANY RIGHT, BENEFIT,
PRIORITY OR INTEREST UNDER, OR BECAUSE OF THE EXISTENCE OF, THIS AGREEMENT.
11.11 SUBMISSION TO JURISDICTION; WAIVERS. (a) EACH PARTY TO THIS
AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS CREDIT AGREEMENT OR ANY OF THE OTHER CREDIT
DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS 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;
<PAGE>
76
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT
IN SUCH COURTS, AND WAIVES ANY OBJECTION 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 SUCH PARTY AT ITS ADDRESS SET FORTH IN SUBSECTION 11.2 OR AT
SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN
NOTIFIED PURSUANT THERETO; AND
(iv) AGREES THAT NOTHING CONTAINED 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.
(b) EACH PARTY HERETO UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (a) ABOVE.
11.12 ACKNOWLEDGEMENTS. The Company hereby acknowledges that:
(a) none of the Administrative Agent or any Lender has any fiduciary
relationship to any Credit Party, and the relationship between the
Administrative Agent and the Lenders, on the one hand, and the Credit
Parties, on the other hand, is solely that of creditor and debtor; and
(b) no joint venture exists among the Lenders or among any Credit
Parties and the Lenders.
<PAGE>
77
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
GULFSTREAM DELAWARE CORPORATION
By:
--------------------------
Title:
THE CHASE MANHATTAN BANK, as Administrative
Agent and as a Lender
By:
--------------------------
Title:
<PAGE>
ANNEX A
PRICING GRID
Eurodollar ABR Commitment
Leverage Ratio Level Applicable Margin Applicable Margin Fee Rate
-------------------- ----------------- ----------------- --------
I 2.00% 1.00% 0.500%
II 1.75% 0.75% 0.375%
III 1.50% 0.50% 0.375%
IV 1.25% 0.25% 0.300%
V 1.00% 0% 0.300%
VI 0.75% 0% 0.250%
<PAGE>
EXHIBIT A TO
CREDIT AGREEMENT
FORM OF REVOLVING CREDIT NOTE
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS AND
PROVISIONS OF THE CREDIT AGREEMENT REFERRED TO BELOW. TRANSFERS OF THIS NOTE
MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT
TO THE TERMS OF SUCH CREDIT AGREEMENT.
$___________ New York, New York
_________ __, 1996
FOR VALUE RECEIVED, the undersigned, GULFSTREAM DELAWARE CORPORATION,
a Delaware corporation (the "COMPANY"), hereby unconditionally promises to pay
to the order of ________________ (the "LENDER") on the Revolving Credit
Termination Date, as defined in the Credit Agreement referred to below, at the
office of The Chase Manhattan Bank, located at 270 Park Avenue, New York, New
York 10017, in lawful money of the United States of America and in immediately
available funds, the principal amount of the lesser of (a) _____________________
DOLLARS ($_________) and (b) the aggregate unpaid principal amount of all
Revolving Credit Loans made by the Lender to the undersigned pursuant to
subsection 3.1 of the Credit Agreement. The undersigned further agrees to pay
interest in like money at such office on the unpaid principal amount hereof and
unpaid interest hereon from time to time from the date hereof at the rates and
on the dates specified in subsection 4.7 of the Credit Agreement.
The holder of this Note is authorized to record on the schedule
annexed hereto and made a part hereof and on a continuation thereof, the
Borrowing Date, Type and amount of each Revolving Credit Loan made by the Lender
pursuant to subsection 3.1 of the Credit Agreement and the date and amount of
each payment or prepayment of principal hereof. In the absence of manifest
error, each such recordation shall constitute PRIMA FACIE evidence of the
accuracy of the information recorded, PROVIDED that the failure of the Lender to
make such recordation (or any error in such recordation) shall not affect the
obligations of the Company hereunder or under the Credit Agreement.
This Note (a) is one of the Revolving Credit Notes referred to in the
Credit Agreement, dated as of ______ __, 1996, among the Company, the Lender and
certain other lenders parties thereto and The Chase Manhattan Bank, as
Administrative Agent (as the same may from time to time be amended, modified or
supplemented, the "CREDIT AGREEMENT"), and is entitled to the benefits thereof,
(b) is subject to the provisions of the Credit Agreement and (c) is subject to
prepayment in whole or in part as provided therein. This Note is secured and
guaranteed as provided in the Credit Documents. Reference is hereby made to the
Credit
<PAGE>
2
Documents for a description of the assets in which a security interest has been
granted, the nature and extent of the security and the guarantees, the terms and
conditions upon which the security interests and each guarantee were granted and
the rights of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all
amounts remaining unpaid on this Note shall become, or may be declared to be,
immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
GULFSTREAM DELAWARE CORPORATION
By:
---------------------------
Name:
Title:
<PAGE>
SCHEDULE A
TO REVOLVING CREDIT NOTE
LOANS AND REPAYMENTS OF LOANS
- --------------------------------------------------------------------------------
Amount of Type of Amount of Principal Unpaid Principal Notation
Date Loans Loan of Loans Repaid Balance of Loans Made By
- --------------------------------------------------------------------------------
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<PAGE>
EXHIBIT B TO
CREDIT AGREEMENT
FORM OF SWING LINE NOTE
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS AND
PROVISIONS OF THE CREDIT AGREEMENT REFERRED TO BELOW. TRANSFERS OF THIS NOTE
MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT
TO THE TERMS OF SUCH CREDIT AGREEMENT.
$_______________ New York, New York
_________ __, 1996
FOR VALUE RECEIVED, the undersigned, GULFSTREAM DELAWARE CORPORATION,
a Delaware corporation (the "COMPANY"), hereby unconditionally promises to pay
to the order of THE CHASE MANHATTAN BANK, (the "LENDER"), on the Revolving
Credit Termination Date, as defined in the Credit Agreement referred to below,
at the office of The Chase Manhattan Bank, located at 270 Park Avenue, New York,
New York 10017, in lawful money of the United States of America and in
immediately available funds, the principal amount of the lesser of (a) TWENTY
MILLION DOLLARS ($20,000,000), and (b) the aggregate unpaid principal amount of
all Swing Line Loans made by the Lender to the undersigned pursuant to
subsection 3.7 of the Credit Agreement. The undersigned further agrees to pay
interest in like money from time to time from the date hereof at the rates and
on the dates specified in subsection 4.7 of the Credit Agreement.
The Lender is authorized to record on the schedule annexed hereto and
made a part hereof and on a continuation thereof, the Borrowing Date, the amount
of each Swing Line Loan and the date and amount of each payment or prepayment of
principal hereof. In the absence of manifest error, each such recordation shall
constitute PRIMA FACIE evidence of the accuracy of the information recorded,
PROVIDED that the failure of the Lender to make such recordation (or any error
in such recordation) shall not affect the obligations of the Company hereunder
or under the Credit Agreement.
This Note is the Swing Line Note referred to in the Credit Agreement,
dated as of _____ __, 1996, among the Company, the Lender, the other lenders
parties thereto and The Chase Manhattan Bank, as Administrative Agent (as the
same may from time to time be amended, modified or supplemented, the "CREDIT
AGREEMENT"), and is entitled to the benefits thereof, (b) is subject to the
provisions of the Credit Agreement and (c) is subject to prepayment in whole or
in part as provided therein. This Note is secured and guaranteed as provided in
the Credit Documents. Reference is hereby made to the Credit Documents for a
description of the assets in which a security interest has been granted, the
nature and extent of the security and the guarantees, the terms and conditions
upon which the security interests and each guarantee were granted and the rights
of the holder of this Note in respect thereof.
<PAGE>
2
Upon the occurrence of any one or more of the Events of Default, all
amounts remaining unpaid on this Note shall become, or may be declared to be,
immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
GULFSTREAM DELAWARE CORPORATION
By:
---------------------------
Name:
Title:
<PAGE>
SCHEDULE A
TO SWING LINE NOTE
SWING LINE
LOANS AND PAYMENTS OF PRINCIPAL
- --------------------------------------------------------------------------------
Amount of Type of Amount of Principal Unpaid Principal Notation
Date Loans Loan Repaid Balance Made By
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<PAGE>
EXHIBIT C TO
CREDIT AGREEMENT
FORM OF TERM NOTE
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS AND
PROVISIONS OF THE CREDIT AGREEMENT REFERRED TO BELOW. TRANSFERS OF THIS NOTE
MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT
TO THE TERMS OF SUCH CREDIT AGREEMENT.
$______________ New York, New York
_______ __, 1996
FOR VALUE RECEIVED, the undersigned, GULFSTREAM DELAWARE CORPORATION,
a Delaware corporation (the "BORROWER"), hereby unconditionally promises to pay
to the order of __________ (the "LENDER") or its registered assigns at the
office of The Chase Manhattan Bank, located at 270 Park Avenue, New York, New
York 10017, in lawful money of the United States of America and in immediately
available funds, the principal amount of _________________ DOLLARS ($_________),
or, if less, the unpaid principal amount of the Term Loan of the Lender. The
principal amount of the Term Loan of the Lender shall be paid in the amounts and
on the dates specified in subsection 2.2 of the Credit Agreement. The Borrower
further agrees to pay interest in like money at such office on the unpaid
principal amount hereof from time to time outstanding at the rates and on the
dates specified in subsection 4.7 of the Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date, Type and amount of the Term
Loan extended by the Lender and the date and amount of each payment or
prepayment of principal with respect thereto, the date of each interest rate
conversion pursuant to subsection 4.3 of the Credit Agreement and the principal
amount with respect thereto and, in the case of Eurodollar Loans, the length of
each Interest Period and the Eurodollar Rate with respect thereto. In the
absence of manifest error, each such recordation shall constitute PRIMA FACIE
evidence of the accuracy of the information recorded, PROVIDED that the failure
of the Lender to make such recordation (or any error in such recordation) shall
not affect the obligations of the Company in respect of such Term Loan.
This Note (a) is one of the Term Notes referred to in the Credit
Agreement, dated as of ________ __, 1996 among Gulfstream Delaware Corporation,
a Delaware corporation, the Borrower, the Lender, the other banks, financial
institutions and other entities from time to time parties thereto and The Chase
Manhattan Bank, as Administrative Agent (as the same may be amended,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
(b) is subject to the provisions of the Credit Agreement and (c) is subject to
optional and mandatory prepayment in whole or in part as provided in the Credit
Agreement. This Note is guaranteed as provided in the Credit Documents.
Reference is hereby made to the Credit Documents for a description of the nature
and extent of the
<PAGE>
2
guarantees, the terms and conditions upon which each guarantee was granted and
the rights of the holder of this Note in respect thereof.
This Note and the Loans evidenced hereby may be transferred in whole
or in part only by registration of such transfer on the register maintained for
such purpose by or on behalf of the Company as provided in subsection 11.6(d) of
the Credit Agreement.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
GULFSTREAM DELAWARE CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
SCHEDULE A
TO REVOLVING CREDIT NOTE
LOANS AND REPAYMENTS OF LOANS
- --------------------------------------------------------------------------------
Amount of Type of Amount of Principal Unpaid Principal Notation
Date Loans Loan of Loans Repaid Balance of Loans Made By
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<PAGE>
EXHIBIT E TO
CREDIT AGREEMENT
FORM OF HOLDINGS GUARANTEE
HOLDINGS GUARANTEE, dated as of _____ __, 1996, made by GULFSTREAM
AEROSPACE CORPORATION (this "GUARANTEE"), a Delaware corporation (the
"GUARANTOR"), in favor of THE CHASE MANHATTAN BANK, as Administrative Agent (in
such capacity, the "ADMINISTRATIVE AGENT") for the banks and other financial
institutions (the "LENDERS") that are parties to the Credit Agreement described
below.
W I T N E S S E T H :
WHEREAS, GULFSTREAM DELAWARE CORPORATION, a Delaware corporation (the
"COMPANY"), is party to the Credit Agreement, dated as of the date hereof among
the Company, the Lenders and the Administrative Agent (as amended, supplemented
or otherwise modified from time to time, the "CREDIT AGREEMENT");
WHEREAS, pursuant to the terms of the Credit Agreement and the other
Credit Documents, the Lenders have severally agreed to make loans to, and the
Issuing Bank has agreed to issue certain letters of credit for the account of,
the Company;
WHEREAS, it is a condition precedent to the obligation of the Lenders
to make their respective loans to, and the Issuing Lenders to issue certain
letters of credit for the account of, the Company under the Credit Agreement
that the Guarantor shall have executed and delivered this Guarantee to the
Administrative Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and to
make Extensions of Credit, each Guarantor hereby agrees with and for the benefit
of the Administrative Agent and the Lenders as follows:
1. DEFINED TERMS. As used in this Guarantee, terms defined in the
Credit Agreement (unless otherwise defined herein) are used herein as therein
defined.
2. GUARANTEE. The Guarantor hereby unconditionally and irrevocably
guarantees to the Administrative Agent and the Lenders and their respective
successors, indorsees, transferees and assigns, the prompt and complete payment
by the Company when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations, and the Guarantor further agrees to pay any and
all expenses (including, without limitation, all reasonable fees and
disbursements of counsel) which may be paid or incurred by the Administrative
Agent or any Lender in enforcing, or obtaining advice of counsel in respect of,
any rights with respect to, or collecting, any or all of the Obligations and/or
enforcing any rights with respect to, or collecting against, the Guarantor under
this Guarantee. This Guarantee constitutes a guarantee of payment
<PAGE>
2
when due and not of collection, and the Guarantor specifically agrees that it
shall not be necessary or required that the Administrative Agent or any Lender
exercise any right, assert any claim or demand or enforce any remedy whatsoever
against the Company (or any other Person) before or as a condition to the
obligations of the Guarantor hereunder.
No payment or payments made by the Company, any other guarantor or any
other Person or received or collected by the Administrative Agent or any Lender
from the Company, any other guarantor or any other Person by virtue of any
action or proceeding or any set-off or appropriation or application at any time
or from time to time in reduction of or in payment of the Obligations shall be
deemed to modify, reduce, release or otherwise affect the liability of the
Guarantor hereunder which shall, notwithstanding any such payment or payments
other than payments made by the Guarantor in respect of the Obligations or
payments received or collected from the Guarantor in respect of the Obligations,
remain liable for the Obligations until the Obligations are paid in full, no
Letters of Credit are outstanding and the Commitments are terminated.
The Guarantor agrees that whenever, at any time, or from time to time,
it shall make any payment to the Administrative Agent or any Lender on account
of its liability hereunder, it will notify the Administrative Agent in writing
that such payment is made under this Guarantee for such purpose.
4. RIGHT OF SET-OFF. Upon the occurrence and during the continuance
of any Event of Default specified in the Credit Agreement, the Guarantor hereby
irrevocably authorizes each Lender at any time and from time to time without
notice to the Guarantor, any such notice being expressly waived by the
Guarantor, to set-off and appropriate and apply any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Lender to or for the credit or the account of the Guarantor, or
any part thereof, in such amounts as such Lender may elect, against and on
account of the obligations and liabilities of the Guarantor to such Lender
hereunder and claims of every nature and description of such Lender against the
Guarantor, in any currency, whether arising hereunder, under the Credit
Agreement, the Notes, the Letters of Credit or otherwise under any other Credit
Document, as such Lender may elect, whether or not the Administrative Agent or
any Lender has made any demand for payment and although such obligations,
liabilities and claims may be contingent or unmatured. Each Lender agrees to
notify the Guarantor promptly of any such set-off and the application made by
such Lender, PROVIDED that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each Lender under this
paragraph are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which such Lender may have.
5. SUBROGATION, ETC. Notwithstanding any payment or payments made by
the Guarantor hereunder, or any set-off or application of funds of the Guarantor
by any Lender, the Guarantor shall not exercise any of the rights of the
Administrative Agent or any Lender which the Guarantor may acquire by way of
subrogation, by any payment made hereunder, by reason of such set-off or
application of funds or otherwise, against the Company or any collateral
<PAGE>
3
security or guarantee or right of set-off held by any Lender for the payment of
the Obligations, nor shall the Guarantor seek or be entitled to seek any
contribution or reimbursement from the Company or any other guarantor in respect
of payments made by such Guarantor hereunder, until all amounts owing to the
Administrative Agent and the Lenders by the Company on account of the
Obligations are paid in full, no Letters of Credit are outstanding and the
Commitments are terminated. If any amount shall be paid to the Guarantor on
account of such subrogation rights at any time when all of the Obligations shall
not have been paid in full, any Letter of Credit shall be outstanding or the
Commitments shall not have been terminated, such amount shall be held by the
Guarantor in trust for the Administrative Agent and the Lenders, segregated from
other funds of the Guarantor, and shall, forthwith upon receipt by the
Guarantor, be turned over to the Administrative Agent in the exact form received
by such Guarantor (duly indorsed by the Guarantor to the Administrative Agent,
if required), to be applied against the Obligations, whether matured or
unmatured, in such order as required by the applicable Credit Documents.
6. AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS; WAIVER OF
RIGHTS. The Guarantor shall remain obligated hereunder notwithstanding that,
without any reservation of rights against the Guarantor and without notice to or
further assent by the Guarantor, any demand for payment of any of the
Obligations made by the Administrative Agent or any Lender may be rescinded by
such party and any of the Obligations continued, and the Obligations, or the
liability of any other party upon or for any part thereof, or any collateral
security or guarantee therefor or right of set-off with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Administrative
Agent or any Lender and the Credit Agreement, the Notes, the other Credit
Documents, any Letter of Credit and any other collateral security document or
other guarantee or document in connection therewith may be amended, modified,
supplemented or terminated, in whole or in part, as the Administrative Agent
and/or any Lender may deem advisable from time to time, and any collateral
security, guarantee or right of set-off at any time held by the Administrative
Agent or any Lender for the payment of the Obligations may be sold, exchanged,
waived, surrendered or released. Neither the Administrative Agent nor any
Lender shall have any obligation to protect, secure, perfect or insure any Lien
at any time held by it as security for the Obligations or for this Guarantee or
any property subject thereto.
7. GUARANTEE ABSOLUTE AND UNCONDITIONAL. The Guarantor waives any
and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Administrative Agent or
any Lender upon this Guarantee or acceptance of this Guarantee; the Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred, or renewed, extended, amended or waived, in reliance upon this
Guarantee; and all dealings between the Company or the Guarantor and the
Administrative Agent or any Lender shall likewise be conclusively presumed to
have been had or consummated in reliance upon this Guarantee. The Guarantor
waives diligence, presentment, protest, demand for payment and notice of default
or nonpayment to or upon the Company or any of the Guarantors with respect to
the Obligations. The Guarantor understands and agrees that this Guarantee shall
be construed as a continuing, absolute and unconditional guarantee of payment
without regard to (a) the validity, regularity or enforceability of the Credit
Agreement, the Notes, the Letters of Credit, any of the other Credit Documents,
any of the Obligations or any
<PAGE>
4
other collateral security therefor or guarantee or right of set-off with respect
thereto at any time or from time to time held by the Administrative Agent or any
Lender, (b) any defense, set-off or counterclaim (other than a defense of
payment or performance) which may at any time be available to or be asserted by
the Company against the Administrative Agent or any Lender, or (c) any other
circumstance whatsoever (with or without notice to or knowledge of the Company
or the Guarantor) which constitutes, or might be construed to constitute, an
equitable or legal discharge of the Company for the Obligations, or of the
Guarantor under this Guarantee, in bankruptcy or in any other instance. When
pursuing its rights and remedies hereunder against the Guarantor, the
Administrative Agent and any Lender may, but shall be under no obligation to,
pursue such rights and remedies as it may have against the Company or any other
Person or against any collateral security or guarantee for the Obligations or
any right of set-off with respect thereto, and any failure by the Administrative
Agent or any Lender to pursue such other rights or remedies or to collect any
payments from the Company or any such other Person or to realize upon any such
collateral security or guarantee or to exercise any such right of set-off, or
any release of the Company or any such other Person or any such collateral
security, guarantee or right of set-off, shall not relieve such Guarantor of any
liability hereunder, and shall not impair or affect the rights and remedies,
whether express, implied or available as a matter of law, of the Administrative
Agent or any Lender against the Guarantor. This Guarantee shall remain in full
force and effect and be binding in accordance with and to the extent of its
terms upon the Guarantor and the successors and assigns thereof, and shall inure
to the benefit of the Administrative Agent and the Lenders, and their respective
successors, indorsees, transferees and assigns, until all the Obligations and
the obligations of the Guarantor under this Guarantee shall have been satisfied
by payment in full, no Letter of Credit shall remain outstanding and the
Commitments shall be terminated, notwithstanding that from time to time during
the term of the Credit Agreement the Company may be free from any Obligations.
8. REINSTATEMENT. This Guarantee shall continue to be effective, or
be reinstated, as the case may be, if at any time payment, or any part thereof,
of any of the Obligations is rescinded or must otherwise be restored or returned
by the Administrative Agent or any Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Company or the Guarantor, or
upon or as a result of the appointment of a receiver, intervenor or conservator
of, or trustee or similar officer for, the Company or the Guarantor or any
substantial part of its property, or otherwise, all as though such payments had
not been made.
9. PAYMENTS. The Guarantor hereby guarantees that payments hereunder
will be paid to the Administrative Agent without set-off or counterclaim in U.S.
Dollars at the office of the Administrative Agent located at 270 Park Avenue,
New York, New York 10017.
10. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby represents
and warrants that:
(a) the Guarantor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power and authority and the legal right to own and operate its
property, to lease the property it operates and to conduct the business in
which it is currently engaged, except to the extent that the failure to
possess such corporate or partnership power and authority and such
<PAGE>
5
legal right would not, in the aggregate, have a material adverse effect on
the business, financial condition, assets or results of operations of the
Guarantor and its Subsidiaries taken as a whole (a "Material Adverse
Effect");
(b) the Guarantor has the corporate power and authority and the legal
right to execute and deliver, and to perform its obligations under, the
Credit Documents to which it is a party, and has taken all necessary
corporate or partnership action to authorize its execution, delivery and
performance of this Guarantee;
(c) this Guarantee constitutes a legal, valid and binding obligations
of the Guarantor enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law);
(d) the execution, delivery and performance by the Guarantor of this
Guarantee will not violate any Requirement of Law or any Contractual
Obligation applicable to or binding upon the Guarantor, which violations,
individually or in the aggregate, would have a material adverse effect on
the ability of the Guarantor to perform its obligations hereunder or which
would have a Material Adverse Effect (not waived by the other parties
hereto) and will not result in or require the creation or imposition of any
Lien on any of the properties or assets of the Guarantor pursuant to any
Requirement of Law applicable to it or any Contractual Obligation of the
Guarantor (other than any Liens created pursuant to the Credit Documents);
(e) no consent or authorization of, filing with, or other act by or
in respect of, any arbitrator or Governmental Authority and no consent of
any other Person (including, without limitation, any stockholder or
creditor of the Guarantor) is required in connection with the execution,
delivery, performance, validity or enforceability of this Guarantee; and
(f) no litigation or investigation known to the Guarantor or
proceeding of or by any Governmental Authority or other Person is pending
against the Guarantor (i) with respect to any of this Guarantee (ii) which
would have a Material Adverse Effect.
The Guarantor agrees that the foregoing representations and warranties
shall be deemed to have been made by the Guarantor on each Borrowing Date by the
Company under the Credit Agreement on and as of such Borrowing Date as though
made hereunder on and as of such Borrowing Date.
11. COVENANTS. The Guarantor hereby covenants and agrees with the
Administrative Agent and the Lenders that, from and after the date hereof and
until all amounts owing to the Administrative Agent and the Lenders by the
Company on account of the Obligations are paid in full, no Letters of Credit are
outstanding and the Commitments are terminated, the Guarantor shall not conduct,
transact or otherwise engage in any business or operations, incur, create,
assume or suffer to exist any Indebtedness, Contingent Obligations or
<PAGE>
6
other liabilities or obligations or Liens, or own, lease, manage or otherwise
operate any properties or assets, other than (i) incident to the ownership of
the capital stock of the Company, and the exercise of rights and performance of
obligations in connection therewith, (ii) the entry into, and exercise of rights
and performance of obligations in respect of this Guarantee and the Holdings
Pledge Agreement, (iii) the issuance of equity securities and unsecured debt
securities PROVIDED that the net proceeds of such issuance are advanced
(pursuant to instruments subordinated to the Obligations in a manner
satisfactory to the Administrative Agent) to or contributed to the capital of,
the Company, in each case promptly after the issuance thereof, (iv) the making
of loans to the Company, (v) the conduct or direct or indirect ownership of
other businesses if such other businesses are related to the business of the
Company and such businesses are effectively contributed to the Company within 90
days of its acquisition by Parent, (vi) the issuance of guarantees of
obligations of the Company and its Subsidiaries otherwise permitted under the
Credit Agreement, (vii) the filing of registration statements, and compliance
with applicable reporting and other obligations, under federal, state or other
securities laws, (viii) the listing of its equity securities and compliance with
applicable reporting and other obligations in connection therewith, (ix) the
retention of transfer agents, private placement agents, underwriters, counsel,
accountants and other advisors and consultants, (x) the performance of
obligations under in and compliance with its certificate of incorporation and
by-laws, or any applicable law, ordinance, regulation, rule, order, judgment,
decree or permit, including, without limitation, as a result of or in connection
with the activities of the Company and its Subsidiaries, (xi) the issuance of
the Holdings Note to the Company and (xii) the incurrence and payment of any
taxes for which it may be liable.
12. SEVERABILITY. Any provision of this Guarantee 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 jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. PARAGRAPH HEADINGS. The paragraph headings used in this
Guarantee are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
14. NO WAIVER; CUMULATIVE REMEDIES. Neither the Administrative Agent
nor any Lender shall by any act (except by a written instrument pursuant to
paragraph 15 hereof), delay, indulgence, omission or otherwise be deemed to have
waived any right or remedy hereunder or to have acquiesced in any Default or
Event of Default or in any breach of any of the terms and conditions hereof. No
failure to exercise, nor any delay in exercising, on the part of the
Administrative Agent or any Lender, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Administrative Agent or any Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Administrative Agent or such Lender would otherwise have on any future occasion.
The rights
<PAGE>
7
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
15. INTEGRATION; WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS;
GOVERNING LAW. This Guarantee represents the agreement of the Guarantor with
respect to the subject matter hereof and there are no promises or
representations by the Guarantor, the Administrative Agent or any Lender
relative to the subject matter hereof not reflected herein. None of the terms
or provisions of this Guarantee may be waived, amended or supplemented or
otherwise modified except by a written instrument executed by the Guarantor and
the Administrative Agent, PROVIDED that any provision of this Guarantee may be
waived by the Administrative Agent and the Lenders in a letter or agreement
executed by the Administrative Agent or by telex or facsimile transmission from
the Administrative Agent. This Guarantee shall be binding upon the successors
and assigns of the Guarantor and shall inure to the benefit of the
Administrative Agent and the Lenders and their respective successors and
assigns. THIS GUARANTEE SHALL BE GOVERNED BY, AND BE CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
16. NOTICES. All notices, requests and demands to or upon the
Guarantor or the Administrative Agent or any Lender to be effective shall be in
writing or by telecopy or telex and, unless otherwise expressly provided herein,
shall be deemed to have been duly given or made when delivered by hand, or, in
the case of mail, three days after deposit in the postal system, first class
postage pre-paid, or, in the case of telecopy notice, confirmation of receipt
received, or, in the case of telex notice, when sent, answerback received,
addressed to a party at the address provided for such party in subsection 11.2
of the Credit Agreement or Schedule I hereto, as the case may be.
17. COUNTERPARTS. This Guarantee may be executed by one or more of
the parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
18. SUBMISSION TO JURISDICTION; WAIVERS. (a) THE GUARANTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO ANY CREDIT DOCUMENT, OR FOR RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE
GENERAL JURISDICTION OF THE COURTS 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 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
<PAGE>
8
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 AFFECTED BY MAILING A COPY THEREOF, BY REGISTERED OR CERTIFIED MAIL
(OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO SUCH
GUARANTOR AT ITS ADDRESS SET FORTH ON SCHEDULE I HERETO OR AT SUCH OTHER
ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT
TO SECTION 15 HEREOF;
(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.
(b) EACH OF THE ADMINISTRATIVE AGENT, EACH LENDER AND THE GUARANTOR HEREBY
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED
TO IN PARAGRAPH (a) ABOVE.
20. AUTHORITY OF ADMINISTRATIVE AGENT. The Guarantor acknowledges
that the rights and responsibilities of the Administrative Agent under this
Guarantee with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this Guarantee shall, as between the Administrative Agent and the
Lenders be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Administrative Agent and the Guarantor, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and neither the Guarantor, the
Company nor any other guarantor shall be under any obligation, or entitlement,
to make any inquiry respecting such authority.
<PAGE>
9
IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee
to be duly executed and delivered by its duly authorized officer as of the day
and year first above written.
GULFSTREAM AEROSPACE CORPORATION
a Delaware Corporation
By:
-----------------------------
Title:
<PAGE>
SCHEDULE I
ADDRESS OF GUARANTOR
500 Gulfstream Road
Savannah, Georgia 31402-2206
<PAGE>
EXHIBIT F TO
CREDIT AGREEMENT
FORM OF HOLDINGS PLEDGE AGREEMENT
HOLDINGS PLEDGE AGREEMENT dated as of _____ __, 1996 made by
GULFSTREAM AEROSPACE CORPORATION, a Delaware corporation (the "PLEDGOR"), in
favor of THE CHASE MANHATTAN BANK ("CHASE"), as administrative agent (in such
capacity, the "ADMINISTRATIVE AGENT") for the lenders (the "LENDERS") parties to
the Credit Agreement, dated as of _____ __, 1996 (as amended, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT"), among GULFSTREAM
DELAWARE CORPORATION (the "Company"), the Administrative Agent and the Lenders.
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make loans to, and the Issuing Lenders have agreed to issue certain
letters of credit for the account of, the Company upon the terms and subject to
the conditions set forth therein;
WHEREAS, the Pledgor is the legal and beneficial owner of the shares
of Pledged Stock (as hereinafter defined) issued by the Persons named under the
caption "Issuer" on Schedules I and II hereto;
WHEREAS, the Pledgor has executed and delivered the Holdings Guarantee
dated as of the date hereof (as amended, supplemented or otherwise modified from
time to time, the "HOLDINGS GUARANTEE") pursuant to which, subject to the terms
and conditions thereof, the Pledgor has guaranteed to the Administrative Agent
and the Lenders the punctual payment and performance of all amounts and other
obligations owing by the Issuer pursuant to the Credit Agreement; and
WHEREAS, it is a condition precedent to the obligation of the Lenders
to make their respective loans to, and the Issuing Lenders to issue certain
letters of credit for the account of, the Company under the Credit Agreement
that the Pledgor shall have executed and delivered this Pledge Agreement to the
Administrative Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the
Lenders to make their respective loans to, and the Issuing Lenders to issue
certain letters of credit for the account of, the Company under the Credit
Agreement, the Pledgor hereby agrees with the Administrative Agent, for the
ratable benefit of the Lenders, as follows:
1. DEFINED TERMS. Unless otherwise defined herein, terms that are
defined in the Credit Agreement and used herein are so used as so defined; and
the following terms which are defined in the Uniform Commercial Code in effect
in the State of New York on the date
<PAGE>
2
hereof are used herein as so defined: Accounts, Chattel Paper, General
Intangibles and Instruments; and the following terms shall have the following
meanings:
"CODE": the Uniform Commercial Code from time to time in effect in
the State of New York.
"COLLATERAL": the collective reference to the Pledged Stock and all
Proceeds thereof.
"GUARANTEE OBLIGATIONS": all indebtedness, obligations and
liabilities of such Pledgor under the Holdings Guarantee, including, without
limitation, all guarantee obligations in respect of the unpaid principal of and
interest on the Loans, all obligations and liabilities of the Company with
respect to the Letters of Credit and all other Obligations of the Company to the
Administrative Agent and the Lenders, whether direct or indirect, absolute or
contingent, matured or unmatured, due or to become due, or now existing or
hereafter incurred under the Credit Agreement and the other Credit Documents.
"ISSUER": with respect to any Pledged Stock, the Issuers from time to
time listed on Schedules I and II hereto as the issuer of such Pledged Stock.
"PLEDGE AGREEMENT": this Pledge Agreement, as amended, supplemented
or otherwise modified from time to time.
"PLEDGED STOCK": all of the shares of capital stock of the Issuers
listed on Schedules I and II hereto (but not more than 65% of all shares of each
class of capital stock of the Issuers listed on Schedule II hereto) now owned or
at any time hereafter acquired by the Pledgor or in which the Pledgor now has or
may from time to time acquire any right, title or interest, together with all
stock certificates, options or rights of any nature whatsoever that may be
issued or granted by the Issuer thereof to the Pledgor while this Pledge
Agreement is in effect.
"PROCEEDS": all "proceeds" as such term is defined in Section 9-
306(1) of the Code on the date hereof and, in any event, shall include, without
limitation, all dividends or other income from the Pledged Stock, and any and
all collections on the foregoing or distributions with respect to the foregoing.
2. PLEDGE; GRANT OF SECURITY INTEREST. The Pledgor hereby delivers
to the Administrative Agent, for the ratable benefit of the Lenders, all of the
Pledgor's right, title and interest in the Pledged Stock, and hereby transfers
and grants to the Administrative Agent, for the ratable benefit of the Lenders,
a first security interest in all of the Pledgor's right, title and interest in
all of the Collateral, as collateral security for the prompt and complete
payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Guarantee Obligations.
<PAGE>
3
3. STOCK POWERS. Concurrently with the delivery to the
Administrative Agent of each certificate representing one or more shares of
Pledged Stock, the Pledgor shall deliver an undated stock power covering such
certificate, duly executed in blank by the Pledgor.
4. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and
warrants that:
(a) the shares of capital stock of each of the Issuers listed on
Schedules I and II hereto which are identified as Pledged Stock on said
Schedules I and II constitute (i) all of the issued and outstanding shares of
capital stock of the Issuers listed on Schedule I hereto which are owned by the
Pledgor; and (ii) all of the issued and outstanding shares of capital stock of
the Issuers listed on Schedule II hereto which are owned by the Pledgor (but not
in excess of 65% of the issued and outstanding shares of all classes of the
capital stock of such Issuers).
(b) all the shares of Pledged Stock have been duly and validly issued
and are fully paid and nonassessable;
(c) the Pledgor is the record and beneficial owner of, and has good
title to, the Collateral, free of any and all Liens or options in favor of, or
claims of, any other Person, except the Lien created by this Pledge Agreement;
and
(d) upon delivery to the Administrative Agent of the stock
certificates evidencing the Pledged Stock, the Lien granted pursuant to this
Pledge Agreement will constitute a valid, perfected first priority Lien on the
Collateral (except, with respect to Proceeds, only to the extent permitted by
Section 9-306 of the Code), enforceable as such against all creditors of the
Pledgor and any Persons purporting to purchase any Collateral from the Pledgor
except in each case as enforceability may be affected by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
(e) The Pledgor's chief executive office and chief place of business,
and the place where the Pledgor keeps its records concerning the Collateral, is
located at: 500 Gulfstream Rd., Savannah, Georgia 31402-2206, or such other
location as the Pledgor shall inform the Administrative Agent in accordance with
subsection 6(e).
The Pledgor agrees that the foregoing representations and warranties
shall be deemed to have been made by it on each Borrowing Date by the Pledgor
under the Credit Agreement on and as of such Borrowing Date as though made
hereunder on and as of such Borrowing Date.
5. COVENANTS. The Pledgor covenants and agrees with the
Administrative Agent and the Lenders, that, from and after the date of this
Pledge Agreement until the Guarantee Obligations are paid in full, no Letters of
Credit are outstanding and the Commitments are terminated:
<PAGE>
4
(a) If the Pledgor shall, as a result of its ownership of the
Collateral, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization),
promissory note or other instrument, option or rights, whether in addition to,
in substitution of, as a conversion of, or in exchange for any of the
Collateral, or otherwise in respect thereof, the Pledgor shall accept the same
as the agent of the Administrative Agent and the Lenders, hold the same in trust
for the Administrative Agent and the Lenders and deliver the same forthwith to
the Administrative Agent in the exact form received, duly indorsed by the
Pledgor to the Administrative Agent, if required, together with an undated stock
power or endorsement, as appropriate, covering such certificate, note or
instrument duly executed in blank by the Pledgor and with, if the Administrative
Agent so requests, signature guarantees, to be held by the Administrative Agent,
subject to the terms hereof, as additional collateral security for the Guarantee
Obligations. Any sums paid upon or in respect of the Collateral upon the
liquidation or dissolution of any Issuer shall be paid over to the
Administrative Agent to be held by it hereunder as additional collateral
security for the Guarantee Obligations, and, in case any distribution of capital
shall be made on or in respect of the Collateral or any property shall be
distributed upon or with respect to the Collateral pursuant to the
recapitalization or reclassification of the capital of such Issuer or pursuant
to the reorganization thereof, the property so distributed shall be delivered to
the Administrative Agent to be held by it hereunder as additional collateral
security for the Guarantee Obligations. If any sums of money or property so
paid or distributed in respect of the Collateral shall be received by the
Pledgor, the Pledgor shall, until such money or property is paid or delivered to
the Administrative Agent, hold such money or property in trust for the Lenders,
segregated from other funds of the Pledgor, as additional collateral security
for the Guarantee Obligations.
(b) Without the prior written consent of the Administrative Agent and
except as permitted by, or not prohibited under, the Credit Agreement, the
Pledgor will not (i) vote to enable, or take any other action to permit, any
Issuer to issue any stock, membership interests or other equity securities of
any nature or to issue any other securities convertible into or granting the
right to purchase or exchange for any stock or other equity securities of any
nature of such Issuer, (ii) sell, assign, transfer, exchange, or otherwise
dispose of, or grant any option with respect to, the Collateral, or (iii)
create, incur or permit to exist any Lien or option in favor of, or any claim of
any Person with respect to, any of the Collateral, or any interest therein,
except for the Lien provided for by this Pledge Agreement. The Pledgor will
defend the right, title and interest of the Administrative Agent and the Lenders
in and to the Collateral against the claims and demands of all Persons
whomsoever.
(c) At any time and from time to time, upon the written request of
the Administrative Agent, and at the sole expense of the Pledgor, the Pledgor
will promptly and duly execute and deliver such further instruments and
documents and take such further actions as the Administrative Agent may
reasonably request for the purposes of obtaining or preserving the full benefits
of this Pledge Agreement and of the rights and powers herein granted. If any
amount payable under or in connection with any of the Collateral shall be or
become evidenced by any promissory note, other Instrument or Chattel
<PAGE>
5
Paper, such note, Instrument or Chattel Paper shall be immediately delivered to
the Administrative Agent, duly endorsed in a manner satisfactory to the
Administrative Agent, to be held as Collateral pursuant to this Pledge
Agreement.
(d) The Pledgor agrees to pay, and to hold the Administrative Agent
and the Lenders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or other
similar taxes which may be payable or determined to be payable with respect to
any of the Collateral or in connection with any of the transactions contemplated
by this Pledge Agreement.
6. CASH DIVIDENDS; VOTING RIGHTS. (a) Unless an Event of Default
shall have occurred and be continuing and the Administrative Agent shall (unless
such Event of Default is an Event of Default specified in subsection 9(f) of the
Credit Agreement, in which case no such notice need be given) have given notice
to the Pledgor of the Administrative Agent's intent to exercise its rights
pursuant to paragraph 8 below, the Pledgor shall be (i) permitted to receive all
cash dividends or distributions to the extent permitted in the Credit Agreement
in respect of the Pledged Stock and (ii) permitted to exercise all voting,
corporate, limited liability company and other rights of ownership with respect
to the Pledged Stock, PROVIDED, HOWEVER, that no vote shall be cast or corporate
right exercised or other action taken which, in the Administrative Agent's
reasonable judgment, would impair the Collateral or which would be inconsistent
with or result in any violation of any provision of the Credit Agreement or any
of the other Credit Documents.
(b) If an Event of Default shall have occurred and be continuing and
the Administrative Agent shall (unless such Event of Default is an Event of
Default specified in subsection 9(f) of the Credit Agreement, in which case no
such notice need be given) have given notice to the Pledgor of its intent to
exercise its rights pursuant to paragraph 8 below, (i) all dividends, interest
payments and other distributions (including cash) paid on or in respect of the
Pledged Stock shall be paid to and retained by the Administrative Agent as
Collateral hereunder (or if received by the Pledgor, shall be held in trust by
the Pledgor for the benefit of the Administrative Agent and the Lenders and
shall be forthwith delivered by it), and (ii) all voting, corporate, limited
liability company and other rights pertaining to the Pledged Stock, if any,
shall be exercised by the Administrative Agent.
7. RIGHTS OF THE LENDERS AND THE ADMINISTRATIVE AGENT. (a) If an
Event of Default shall occur and be continuing and the Administrative Agent
shall (unless such Event of Default is an Event of Default specified in
subsection 9(f) of the Credit Agreement, in which case no such notice need be
given) give notice of its intent to exercise its rights hereunder to the
Pledgor, (i) the Administrative Agent shall have the right to receive any and
all cash dividends, distributions and payments or other income paid in respect
of the Collateral and make application thereof to the Guarantee Obligations in
such order as the Administrative Agent may determine and (ii) all shares of the
Pledged Stock shall be registered in the name of the Administrative Agent or its
nominee, and the Administrative Agent or its nominee may thereafter exercise (A)
all voting, corporate, member, creditor and other rights, powers and privileges
pertaining to such Collateral at any meeting of shareholders of any Issuer and
(B) any and all rights of
<PAGE>
6
conversion, exchange, subscription and any other rights, privileges or options
pertaining to the Collateral as if it were the absolute owner thereof
(including, without limitation, the right to exchange at its discretion any and
all of the Collateral upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the structure of any Issuer, or
upon the exercise by the Pledgor or the Administrative Agent of any right,
privilege or option pertaining to the Collateral, and in connection therewith,
the right to deposit and deliver any and all of the Collateral with any
committee, depositary, transfer agent, registrar or other designated agency upon
such terms and conditions as it may determine), all without liability except to
account for property actually received by it and except for its gross negligence
or willful misconduct, but the Administrative Agent shall have no duty to the
Pledgor to exercise any such right, privilege or option and shall not be
responsible for any failure to do so or delay in so doing.
(b) The rights of the Administrative Agent and the Lenders hereunder
shall not be conditioned or contingent upon the pursuit by the Administrative
Agent or any Lender of any right or remedy against any Issuer or the Pledgor or
against any other Person which may be or become liable in respect of all or any
part of the Guarantee Obligations or against any collateral security therefor,
guarantee therefor or right of set-off with respect thereto. Neither the
Administrative Agent nor any Lender shall be liable for any failure to demand,
collect or realize upon all or any part of the Collateral or for any delay in
doing so, nor shall the Administrative Agent be under any obligation to sell or
otherwise dispose of any Collateral upon the request of the Pledgor or any other
Person or to take any other action whatsoever with regard to the Collateral or
any part thereof.
(c) At any time that the Leverage Ratio then in effect is less than
or equal to 1.5:1.0, so long as no Default or Event of Default has occurred and
is continuing, upon the Borrower's request (i) all Collateral shall
automatically be released from the Liens hereunder in respect thereof and (ii)
the Administrative Agent shall, as promptly as practicable after receiving such
notice, deliver to the Pledgor the Collateral in its possession and take such
other action, at the Borrower's expense, which the Borrower shall reasonably
request to evidence the release of the Lien and security interest created
hereunder with respect to such Collateral.
8. REMEDIES. In the event that any portion of the Obligations has
been declared or becomes due and payable in accordance with the terms of the
Credit Agreement and such Obligations have not been paid in full, the
Administrative Agent, on behalf of the Lenders, may exercise, in addition to all
other rights and remedies granted in this Pledge Agreement and in any other
instrument or agreement securing, evidencing or relating to the Guarantee
Obligations or Obligations, all rights and remedies of a secured party under the
Code. Without limiting the generality of the foregoing, the Administrative
Agent, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon the Pledgor, any Issuer, or any other Person (all and each
of which demands, defenses, advertisements and notices are hereby waived), may
in such circumstances forthwith collect, receive, appropriate and realize upon
the Collateral, or any part thereof, and/or may forthwith sell, assign, give
option or options to purchase or otherwise dispose of and deliver the Collateral
or any part thereof (or contract to do any of the foregoing),
<PAGE>
7
in one or more parcels at public or private sale or sales, in the over-the-
counter market, at any exchange or broker's board or office of the
Administrative Agent or any Lender or elsewhere upon such terms and conditions
as it may deem advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The
Administrative Agent or any Lender shall have the right upon any such public
sale or sales, and, to the extent permitted by law, upon any such private sale
or sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in the Pledgor, which right or equity is
hereby waived or released. The Administrative Agent shall apply any Proceeds
from time to time held by it and the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred in respect thereof or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Administrative Agent and the
Lenders hereunder, including, without limitation, reasonable attorneys' fees and
disbursements of counsel to the Administrative Agent, to the payment in whole or
in part of the Guarantee Obligations, in such order as the Administrative Agent
may elect, and only after such application and after the payment by the
Administrative Agent of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the Code, need the
Administrative Agent account for the surplus, if any, to the Pledgor. To the
extent permitted by applicable law, the Pledgor waives all claims, damages and
demands it may acquire against the Administrative Agent or any Lender arising
out of the lawful exercise by them of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least 10 days before
such sale or other disposition.
9. REGISTRATION RIGHTS; PRIVATE SALES. (a) If the Administrative
Agent shall determine to exercise its right to sell any or all of the Collateral
pursuant to paragraph 9 hereof, and if in the opinion of the Administrative
Agent it is necessary or advisable to have the Collateral, or that portion
thereof to be sold, registered under the provisions of the Securities Act of
1933, as amended (the "SECURITIES ACT"), the Pledgor will cause each Issuer
whose stock or note or membership interest, as the case may be, is to be so
registered to (i) execute and deliver, and cause the directors and officers of
such Issuer or the Pledgor, as the case may be, to execute and deliver, all such
instruments and documents, and do or cause to be done all such other acts as may
be, in the opinion of the Administrative Agent, necessary or advisable to
register the Collateral, or that portion thereof to be sold, under the
provisions of the Securities Act, (ii) use its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Collateral or that portion thereof to be sold, and (iii) make all amendments
thereto and/or to the related prospectus that, in the opinion of the
Administrative Agent, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The Pledgor agrees to
cause each Issuer to comply with the provisions of the securities or "Blue Sky"
laws of any and all jurisdictions that the Administrative Agent shall designate
and to make available to its security holders, as soon as practicable, an
earnings statement (which need not be audited) that will satisfy the provisions
of Section 11(a) of the Securities Act.
<PAGE>
8
(b) The Pledgor recognizes that the Administrative Agent may be
unable to effect a public sale of any or all the Collateral by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers that will be obliged to agree, among
other things, to acquire such securities for their own account for investment
and not with a view to the distribution or resale thereof. The Pledgor
acknowledges and agrees that any such private sale may result in prices and
other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The
Administrative Agent shall be under no obligation to delay a sale of any of the
Collateral for the period of time necessary to permit any Issuer to register
such securities for public sale under the Securities Act, or under applicable
state securities laws, even if such Issuer would agree to do so.
(c) The Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Collateral pursuant to this paragraph 9 valid and
binding and in compliance with any and all other applicable Requirements of Law.
The Pledgor further agrees that a breach of any of the covenants contained in
this paragraph 9 will cause irreparable injury to the Administrative Agent and
the Lenders, that the Administrative Agent and the Lenders have no adequate
remedy at law in respect of such breach and, as a consequence, that each and
every covenant contained in this paragraph 10 shall be specifically enforceable
against the Pledgor, and the Pledgor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants.
10. LIMITATION ON DUTIES REGARDING COLLATERAL. The Administrative
Agent's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the
Code or otherwise, shall be to deal with it in the same manner as the
Administrative Agent deals with similar securities and property for its own
account. Neither the Administrative Agent nor any Lender nor their respective
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon any of the Collateral or for any delay in doing so
(except to the extent the same constitutes gross negligence or willful
misconduct) or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of the Pledgor or otherwise.
11. POWERS COUPLED WITH AN INTEREST. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
12. SEVERABILITY. Any provision of this Pledge Agreement 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 jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
<PAGE>
9
13. PARAGRAPH HEADINGS. The paragraph headings used in this Pledge
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
14. NO WAIVER; CUMULATIVE REMEDIES. Neither the Administrative Agent
nor any Lender shall by any act (except by a written instrument pursuant to
paragraph 15 hereof) be deemed to have waived any right or remedy hereunder. No
failure to exercise, nor any delay in exercising, on the part of the
Administrative Agent or any Lender any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by the
Administrative Agent or any Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Administrative Agent or such Lender would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any other rights or remedies provided
by law.
15. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS; GOVERNING LAW.
None of the terms or provisions of this Pledge Agreement may be amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgor and the Administrative Agent, PROVIDED that any provision of this
Pledge Agreement may be waived by the Administrative Agent in a letter or
agreement executed by the Administrative Agent or by telex or facsimile
transmission from the Administrative Agent. This Pledge Agreement shall be
binding upon the successors and assigns of the Pledgor and shall inure to the
benefit of the Administrative Agent and the Lenders and their respective
successors and assigns. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
16. NOTICES. Notices by the Administrative Agent may be given by
mail, by telex or by facsimile transmission, addressed or transmitted to the
Issuers at their addresses or transmission numbers set forth in Schedule III
hereto and to the Pledgor at the address or transmission number set forth in
subsection 11.2 of the Credit Agreement. Such notice shall be effective (a) in
the case of mail, three Business Days after deposit in the postal system, first
class postage pre-paid, and (b) in the case of telex or facsimile notices, when
sent, answerback received, addressed. The Pledgor and the Issuers may change
their respective addresses and transmission numbers by written notice to the
Administrative Agent.
17. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO ISSUERS. The
Pledgor hereby authorizes and instructs the Issuers to comply with any
instruction received by it from the Administrative Agent in writing that (a)
states that an Event of Default has occurred and is continuing and (b) is
otherwise in accordance with the terms of this Pledge Agreement, without any
other or further instructions from the Pledgor, and the Pledgor agrees that the
Issuers shall be fully protected in so complying.
<PAGE>
10
18. AUTHORITY OF ADMINISTRATIVE AGENT. The Pledgor acknowledges that
the rights and responsibilities of the Administrative Agent under this Pledge
Agreement with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Pledge Agreement shall, as between the
Administrative Agent and the Lenders, be governed by the Credit Agreement and by
such other agreements with respect thereto as may exist from time to time among
them, but, as between the Administrative Agent and the Pledgor, the
Administrative Agent shall be conclusively presumed to be acting as agent for
the Lenders with full and valid authority so to act or refrain from acting, and
neither the Pledgor nor the Issuers shall be under any obligation, or
entitlement, to make any inquiry respecting such authority.
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement
to be duly executed and delivered as of the date first above written.
GULFSTREAM AEROSPACE CORPORATION
a Delaware Corporation
By:
----------------------------
Title:
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
The undersigned Issuers referred to in the foregoing Holdings Pledge
Agreement hereby acknowledge receipt of a copy thereof and agree to be bound
thereby and to comply with the terms thereof insofar as such terms are
applicable to it. The undersigned Issuers agree to notify the Administrative
Agent promptly in writing of the occurrence of any of the events described in
paragraph 5(a) of the Holdings Pledge Agreement. The undersigned Issuers
further agree that the terms of paragraph 9(c) of the Holdings Pledge Agreement
shall apply to them, MUTATIS MUTANDIS, with respect to all actions that may be
required of them under or pursuant to or arising out of paragraph 9 of the
Holdings Pledge Agreement.
GULFSTREAM DELAWARE CORPORATION
By:
--------------------------------
Title:
<PAGE>
SCHEDULE I
TO HOLDINGS
PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK (DOMESTIC SUBSIDIARIES)
Percentage of
Outstanding
Stock Total No. of Number of Shares Owned
Class of Certificate Outstanding Shares Owned by
Issuer Stock No. Shares by the Pledgor the Pledgor
------ -------- ----------- ------------ -------------- -------------
<PAGE>
SCHEDULE II
TO HOLDINGS
PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK (FOREIGN SUBSIDIARIES)
Percentage of
Outstanding
Stock Total No. of Number of Shares Owned
Class of Certificate Outstanding Shares Owned by
Issuer Stock No. Shares by the Pledgor the Pledgor
------ -------- ----------- ------------ -------------- -------------
<PAGE>
SCHEDULE III
TO HOLDINGS
PLEDGE AGREEMENT
ADDRESSES OF ISSUERS
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 21.1
SUBSIDIARIES OF GULFSTREAM AEROSPACE CORPORATION
Subsidiary Name Doing Business As Jurisdiction of Incorporation
- --------------- ----------------- -----------------------------
<S> <C> <C>
Gulfstream Aerospace Corporation California
Gulfstream Delaware Corporation Delaware
Gulfstream International Corporation Delaware
Gulfstream Aircraft Incorporated Georgia
Gulfstream Financial Services Corporation Georgia
Gulfstream Aerospace Corporation Georgia
Gulfstream NetJets, Inc. Georgia
Gulfstream Aerospace Corporation Gulfstream Aerospace Technologies Oklahoma
Gulfstream Aerospace Corporation of Texas Texas
Gulfstream Aerospace (Middle East) Ltd. Cyprus
Gulfstream Aircraft Corporation Hong Kong
Interiores Aereos S.A. De C.V. Mexico
</TABLE>
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to use in this Amendment No. 4 to Registration Statement No.
333-09897 of Gulfstream Aerospace Corporation on Form S-1 of our report dated
February 2,1996 appearing in the Prospectus, which is part of this Registration
Statement, and of our report dated August 6, 1996 relating to the financial
statement schedules appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
October 3, 1996
