<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1996
REGISTRATION NO. 333-09897
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
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. / /
--------------
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 AUGUST 29, 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.
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 $21.00 and $25.00. 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.
Application will be made to list the Common Stock on the New York Stock
Exchange under the symbol "GAC".
-------------------
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
AND (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). 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. 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 $2.9 billion of revenues and executed contracts with financing
contingencies of approximately $250 million of potential revenues, representing
total revenues and potential revenues of approximately $3.1 billion at August
29, 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 August 29, 1996, the Company
had a contract backlog of approximately $2.9 billion of revenues plus executed
contracts with financing contingencies of approximately $250 million of
potential revenues, representing a total of 65 contracts for Gulfstream Vs and
31 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 August 29, 1996, the Company had letters
of intent with deposits for a total of 3 Gulfstream Vs and 2 Gulfstream IV-SPs,
representing approximately $160 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, 7 of which have been
delivered and 11 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. 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 $35.0 million as of June 30, 1996, 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 & Co. (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 61.2% of the
Common Stock (55.4% on a fully diluted basis) or 55.8% (50.9% 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............ 72,220,541 shares (2)(3)
Use of proceeds by the Company.. Together with proceeds of $400 million from new bank borrowings 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 an aggregate
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 2,122,928 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 7,527,210 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)......... 78,314 78,314 78,314
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,
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" and "Capitalization". 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 August 29, 1996, the Company had a contract backlog of approximately $2.9
billion of revenues plus executed contracts with financing contingencies of
approximately $250 million of potential revenues, representing a total of 65
contracts for Gulfstream Vs (none with financing contingencies) and 31
contracts for Gulfstream IV-SPs (9 with financing contingencies). In
addition, at August 29, 1996, the Company had letters of intent with
deposits for a total of 3 Gulfstream Vs and 2 Gulfstream IV-SPs,
representing approximately $160 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, as are its BMW Rolls-Royce BR710 engines. Neither the
Gulfstream V nor the BR710 engines have yet been delivered to customers. The
Gulfstream V and the BR710 engines have successfully passed the FAA tests
administered to date as part of their respective certification processes. On
August 14, 1996, the BR710 engine was certified by the Joint Aviation
Authorities. While the Company believes that the Gulfstream V and the BR710
engines are 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 operation.
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. As of July 31, 1996, the Company
had produced 5 Gulfstream Vs concurrently with its production of Gulfstream
IV-SPs. 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 32 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 or its fair market
value. 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. 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.
RELIANCE ON SINGLE SOURCE SUPPLIERS
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 and revenue share partners (i.e., parties which
supply components or systems for the Gulfstream V in exchange for a fixed
percentage of the revenues of each Gulfstream V sold) 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), Textron Aerostructures (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).
While the Company's production activities have never been materially
affected by its inability to obtain essential components, and while the Company
maintains business interruption insurance in the event that such a disruption
should occur, the failure of certain suppliers or revenue share partners to meet
the Company's performance specifications, quality standards or delivery
schedules could have a material adverse effect on the Company's results of
operations. In addition, because of the difficulty in obtaining alternate
sources for these products, the inability of any one of the Company's single
source suppliers to deliver their products at agreed upon prices may have an
adverse effect on the Company's
10
<PAGE>
profitability or on its ability to price its aircraft competitively. The Company
works closely with its major 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", " -- Reliance on Single Source Suppliers" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Quarterly Results".
LEVERAGE AND DEBT SERVICE; RESTRICTIONS ON PAYMENT OF DIVIDENDS
Pursuant to a commitment letter, dated August 9, 1996 (the "Committment
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
to be entered into (the "Credit Agreement"). 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 an
aggregate 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 will be secured by a pledge of the stock
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 61.2% of the Common Stock (55.4% on a fully
diluted basis) or 55.8% (50.9% 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 an aggregate purchase price of $450 million, plus approximately
$7.9 million of unpaid dividends. See "Certain Transactions -- The Acquisition;
Subsequent Events".
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of the Company's 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 72,220,541 shares of Common Stock, including 44,220,541
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 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 44,220,541 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
12
<PAGE>
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 existing stockholders and Selling Stockholders, for certain
transfers to immediate family members, trusts for the benefit of such existing
stockholder or 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. Based on shares outstanding as of August 9, 1996,
following expiration or waiver of the foregoing restrictions on dispositions,
44,206,787 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. 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 principal executive offices of the Company are located at 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 and funds generated from
operations, to repurchase all of the outstanding shares of the 7% Cumulative
Preferred Stock for an aggregate 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 2,122,928 shares of Common Stock from the Company for an aggregate
exercise price of approximately $8.1 million; all of such shares are expected to
be sold by such Selling Stockholders in the Offerings.
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.
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<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 an aggregate
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 $0.4 million as a result of the accelerated
vesting of certain stock options (see "Management -- Stock Options") and (f) the
sale of 2,122,928 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 $8.1 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 $ 34,663 $ 135,563
------------ ---------------- ----------------
------------ ---------------- ----------------
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 84,191,501 shares issued after the 1996
Recapitalization and Offerings............................... 524 794 842
Additional paid-in capital...................................... 219,751 227,549 328,401
Accumulated deficit............................................. (491,390) (502,085) (502,085)
Minimum pension liability....................................... (1,450) (1,450) (1,450)
Unamortized stock plan expense.................................. (3,843) (3,433) (3,433)
Less: Treasury stock: 8,220,833 shares and 11,970,960 shares
after the 1996 Recapitalization and Offerings.................. (50,489) (50,489) (50,489)
------------ ---------------- ----------------
Total stockholders' equity (deficit)........................ 123,103 (329,114) (228,214)
------------ ---------------- ----------------
Total capitalization........................................ $ 242,901 $ 70,886 $ 171,786
------------ ---------------- ----------------
------------ ---------------- ----------------
</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.
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<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 $(432.5) million or $(6.41) 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 $(331.6) million or $(4.59) per share. This represents
an immediate increase in the net tangible book value of $1.82 per share to
existing stockholders and an immediate dilution of $27.59 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)......................................................................... $ (6.41)
Increase in per share attributable to the Offerings.................................... 1.82
----------
Pro forma, for 1996 Recapitalization and Offerings, net tangible book value per share.... (4.59)
----------
Dilution per share to new investors (3).................................................. $ 27.59
----------
----------
</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, net tangible book value per share at June 30, 1996, as
adjusted for the Offerings, 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..................................... 67.4 93.4% 228.3 67.5% 3.39
New investors............................................. 4.8 6.6 110.0 32.5 23.00
----------- ----- --------- -----
Total................................................. 72.2 100.0% $ 338.3 100.0%
----------- ----- --------- -----
----------- ----- --------- -----
</TABLE>
The foregoing tables assume the sale of 2,122,928 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 $8.1 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 7,527,210 shares of Common Stock at a weighted
average exercise price of approximately $3.93 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.
16
<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 2,122,928
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 (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)........................ 78,314
-------------------
-------------------
</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, 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.
17
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
---------------------------------------------------
PRO FORMA FOR 1996
RECAPITALIZATION
ACTUAL ADJUSTMENTS (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)..................... 78,314
-----------
-----------
</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 $0.4 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, 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>
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)...... 78,314 78,314 78,314
---------- --------- ---------
---------- --------- ---------
</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,
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" and "Capitalization". 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.
19
<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 August 29, 1996, the Company had a contract backlog of approximately
$2.9 billion of revenues plus executed contracts with financing
contingencies of approximately $250 million of potential revenues,
representing a total of 65 contracts for Gulfstream Vs (none with financing
contingencies) and 31 contracts for Gulfstream IV-SPs (9 with financing
contingencies). In addition, at August 29, 1996, the Company had letters of
intent with deposits for a total of 3 Gulfstream Vs and 2 Gulfstream
IV-SPs, representing approximately $160 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.
20
<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 August 29, 1996, the Company had a contract backlog of approximately
$2.9 billion of revenues plus executed contracts with financing
contingencies of approximately $250 million of potential revenues,
representing a total of 65 contracts for Gulfstream Vs (none with financing
contingencies) and 31 contracts for Gulfstream IV-SPs (9 with financing
contingencies). In addition, at August 29, 1996, the Company had letters of
intent with deposits for a total of 3 Gulfstream Vs and 2 Gulfstream
IV-SPs, representing approximately $160 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.
21
<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.
22
<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,
23
<PAGE>
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.
24
<PAGE>
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.
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. 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 payments of $31.8 million
during 1995 and $26.5 million during the six months ended June 30, 1996. 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.
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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. See "Description of Credit
Agreement".
In connection with orders for 32 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 or
fair market value. 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 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 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) 51,722
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
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
1995
--------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT DELIVERIES DATA)
Net revenues................................................. $ 172,564 $ 302,320 $ 239,420 $ 327,210
<S> <C> <C> <C> <C>
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 August 29, 1996, the Company had a contract backlog of approximately
$2.9 billion of revenues plus executed contracts with financing contingencies of
approximately $250 million of potential revenues, representing a total of 65
contracts for Gulfstream Vs and 31 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 August 29, 1996, the Company had letters of intent with deposits
for a total of 3 Gulfstream Vs and 2 Gulfstream IV-SPs, representing
approximately $160 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.
27
<PAGE>
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.
28
<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 & Co.
The Company has developed a broad range of aircraft products to meet the
aviation needs of its targeted customers. 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 $2.9 billion of revenues and executed contracts with financing
contingencies of approximately $250 million of potential revenues, representing
total revenues and potential revenues of approximately $3.1 billion at August
29, 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.
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
29
<PAGE>
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 August 29, 1996, the Company
had a contract backlog of approximately $2.9 billion of revenues plus executed
contracts with financing contingencies of approximately $250 million of
potential revenues, representing a total of 65 contracts for Gulfstream Vs and
31 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 August 29, 1996, the Company had letters
of intent with deposits for a total of 3 Gulfstream Vs and 2 Gulfstream IV-SPs,
representing approximately $160 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 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.
30
<PAGE>
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, 7 of which have been
delivered and 11 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. 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 $35.0 million as of June 30, 1996, 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 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.
31
<PAGE>
According to BUSINESS AVIATION WEEKLY, 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. Five Gulfstream Vs have been manufactured to date, and four are
currently engaged 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 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
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<PAGE>
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. On August 14, 1996, the
BR710 engine was certified by the Joint Aviation Authorities. BMW Rolls-Royce
GmbH expects FAA certification of the BR710 engines in September 1996.
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 -- Reliance on Single
Source Suppliers".
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. 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 aircraft (which are included in the
Company's pre-owned aircraft inventory) which make up EJI's core
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<PAGE>
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, 7 of which have been delivered and 11 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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<PAGE>
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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<PAGE>
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.
Additionally, pilot and maintenance training services are provided to
Gulfstream customers by SimuFlight Training International ("SimuFlight") located
at Dallas-Fort Worth International Airport, Texas.
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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 August 29, 1996, the Company had a contract backlog of approximately
$2.9 billion of revenues plus executed contracts with financing contingencies of
approximately $250 million of potential revenues, representing a total of 65
contracts for Gulfstream Vs and 31 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 August 29, 1996, the Company had letters of intent with deposits
for a total of 3 Gulfstream Vs and 2 Gulfstream IV-SPs, representing
approximately $160 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 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.
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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 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
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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 Inc. 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 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.
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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 Gulfstreams.
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), Textron Aerostructures (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 -- Reliance on Single Source Suppliers".
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 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
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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. Virtually all of the Gulfstream IIIs 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.
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
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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. 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.
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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
expects to expand 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.
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
("RCRA"), 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 ("CERCLA").
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.
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The Company is currently and continuously 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 and
the allocation of the purchase price in connection with the Acquisition,
including 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.
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.
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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.................................. 45 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)................... 35 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>
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- --------------
(a) Member of Executive Committee.
(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 CIDCO Incorporated, 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 and Chief Executive Officer of Ogilvy & Mather Worldwide, Inc.
since April 1992. 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.
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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, 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 Company.
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,
Amylin Pharmaceuticals, Inc., 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.
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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................. Chariman 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
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<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) $ 312,500 -- 675,000 $ 765,975(2)
Vice Chairman of the Board
Fred A. Breidenbach .......................... 500,011 312,500 $ 236,521(3) 19,304(4)
President and COO
W.W. Boisture, Jr. ........................... 274,056 171,875 225,000 2,433(5)
Executive Vice President
Chris A. Davis ............................... 274,056 171,875 187,500 3,000(5)
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 signing bonus ($325,600), 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).
(3) Represents tax gross-up relating to vesting of annuity contract purchased
by the Company for Mr. Breidenbach in 1993.
(4) Represents the Company's contribution to an executive life insurance plan
($16,304) and the 401(k) plan ($3,000).
(5) Represents the Company's contribution to the 401(k) plan.
50
<PAGE>
The following table sets forth the stock option grants to each of the named
executive officers for fiscal 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE/ OPTION TERM(2)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#) FISCAL YEAR ($/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.
51
<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
52
<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 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 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 Gulfstream Aerospace Corporation Stock
Option Plan (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 8,218,993; at June 30, 1996, options for approximately
7,481,480 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 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 (as defined below), 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 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.
53
<PAGE>
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). The Offerings will not constitute 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. The Offerings constitute a Partial Sale. Upon receipt of a
notice of a Terminating Event, the optionee may, within ten days of receiving
such notice (or such shorter time as determined by the Committee), 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 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
54
<PAGE>
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 Stockholders 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.
55
<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).................................................................................... 3,262,528
</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.
56
<PAGE>
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 2,168,658 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
57
<PAGE>
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.
58
<PAGE>
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 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 Offering. 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 SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERINGS (1) NUMBER OF OFFERINGS (1)
------------------------ SHARES ----------------------
NAME NUMBER PERCENT (2) OFFERED (1) NUMBER PERCENT (2)
- --------------------------------------------------- --------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
MBO-IV (3).........................................
Gulfstream Partners (3)............................
Gulfstream Partners II, L.P. (3)...................
DIRECTORS:
William R. Acquavella (4)..........................
Robert Anderson (5)................................
Charlotte L. Beers (6).............................
Thomas D. Bell, Jr. (7)............................
W.W. Boisture, Jr. (8).............................
Fred A. Breidenbach (9)............................
Nicholas C. Forstmann (3)..........................
Theodore J. Forstmann (3)(10)......................
Sandra J. Horbach (3)(11)..........................
Drew Lewis (3)(12).................................
Bryan T. Moss (13).................................
Allen E. Paulson (14)..............................
Roger S. Penske (15)...............................
Colin L. Powell (16)...............................
Gerard Roche (17)..................................
Donald H. Rumsfeld (18)............................
George P. Shultz (19)..............................
Robert S. Strauss (20).............................
OTHER NAMED EXECUTIVE OFFICERS:
Chris A. Davis (21)................................
All Directors and Executive Officers as a Group (19
persons) (3)(22)..................................
ADDITIONAL SELLING STOCKHOLDERS:
[ ] 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.........................................
</TABLE>
- --------------
* The percentage of shares of Common Stock beneficially owned does not exceed
one percent of the outstanding shares of Common Stock.
(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
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<PAGE>
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 [ ] shares of Common Stock outstanding prior to the
consummation of the Offerings and [ ] 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) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(5) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(6) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(7) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
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<PAGE>
(8) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(9) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(10) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(11) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(12) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(13) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(14) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(15) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(16) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(17) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(18) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(19) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(20) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(21) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
(22) Includes [ ] shares subject to options exercisable currently or within
60 days of the date of this Prospectus, none of which have been exercised,
but [ ] of which are expected to be exercised in connection with the
Offerings.
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<PAGE>
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
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Series A-1 Common Stock on a 1.0301-for-1 and a 1.0137-for-1 basis,
respectively, (iii) the Class A 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 "-- 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.
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.
See also "Management -- Compensation Committee Interlocks and Insider
Participation".
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<PAGE>
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 0.9708 shares of Class A Series
A-1 Common Stock and each outstanding share of Class B Common Stock will be
exchanged for 0.9865 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 72,220,541 shares will be issued and outstanding upon completion 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 61.2% of the Common Stock (55.4% on a fully
diluted basis) or 55.8% (50.9% 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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Application will be made to list the Common Stock on the New York Stock
Exchange under the symbol "GAC".
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
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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.
TRANSFER AGENT
The transfer agent for the Common Stock will be ChaseMellon Shareholder
Services, L.L.C.
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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 expires unless the closing thereunder occurs on or prior to
December 31, 1996.
The following summary of the Credit Agreement, which is expected to be
entered into simultaneously with the Offerings, does not purport to be complete
and is qualified in its entirety by reference to the Credit Agreement a copy of
which will be 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 Loan 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 made available to the Company by Chase to provide cash 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
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.5% in effect from time to time plus the Applicable Margin for ABR Loans (the
"ABR Loans"); or (ii) the Eurodollar rate (the "Eurodollar Rate") for the
respective interest period 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 Facilities 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 each of the
Company's direct and indirect subsidiaries which have a total asset value which
exceeds $20 million, and such other subsidiaries as the Company may elect to
include as a guarantor, other than foreign subsidiaries or other subsidiaries if
more than 75% of the assets of such subsidiaries are securities of foreign
subsidiaries.
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.
COVENANTS
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
68
<PAGE>
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, incurrence of liabilities or conduct of
business by the Company and change of control.
69
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offerings, the Company will have approximately
72,220,541 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment options. Of these shares, only the 28,000,000
shares of Common Stock sold in the Offerings will be freely tradeable without
registration under the Securities Act and without restriction by persons other
than "affiliates" of the Company (as defined below). The 44,206,787 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.
The Selling Stockholders and all directors and executive officers of the
Company 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 Goldman, Sachs & Co., 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 44,206,787 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 limitations under
Rule 144 described above.
70
<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 this Offering, 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 contents of any contract, agreement or other document
referred to are not necessarily complete; with
71
<PAGE>
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.
72
<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.
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 net income (loss) per share
(Unaudited) (Note 1):
For 1996 Recapitalization.................. $ .19 $ (.02) $ .08
------------- ----------- -----------
------------- ----------- -----------
For 1996 Recapitalization and Offerings.... $ .18 $ (.02) $ .08
------------- ----------- -----------
------------- ----------- -----------
Pro forma common shares outstanding
(Unaudited) (Note 1):
For 1996 Recapitalization.................. 73,531 73,531 73,531
------------- ----------- -----------
------------- ----------- -----------
For 1996 Recapitalization and Offerings.... 78,314 78,314 78,314
------------- ----------- -----------
------------- ----------- -----------
</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 MINIMUM
PREFERRED STOCK CLASS A PAID-IN ACCUMULATED PENSION
SERIES A SERIES A-1 & A-2 CLASS B CAPITAL DEFICIT LIABILITY
---------------- ------------------- ----------- ----------- ------------- -----------
<S> <C> <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... $ (2,127)
---------------- ----- ----- ----------- ------------- -----------
BALANCE AS OF DECEMBER 31, 1993........ 468,938 413 110 210,621 (463,071) (2,127)
Net Income............................. 23,564
Minimum pension liability adjustment... 991
---------------- ----- ----- ----------- ------------- -----------
BALANCE AS OF DECEMBER 31, 1994........ 468,938 413 110 210,621 (439,507) (1,136)
Net Income............................. 28,894
Minimum pension liability adjustment... (314)
Issuance of stock pursuant to stock
options.............................. 10
---------------- ----- ----- ----------- ------------- -----------
BALANCE AS OF DECEMBER 31, 1995........ 468,938 413 110 210,631 (410,613) (1,450)
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) $ (1,450)
---------------- ----- ----- ----------- ------------- -----------
---------------- ----- ----- ----------- ------------- -----------
<CAPTION>
UNAMORTIZED TOTAL
STOCK PLAN TREASURY STOCKHOLDERS'
EXPENSE STOCK EQUITY
------------- ----------- --------------
<S> <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)
------------- ----------- --------------
BALANCE AS OF DECEMBER 31, 1993........ 0 (50,489) 164,395
Net Income............................. 23,564
Minimum pension liability adjustment... 991
------------- ----------- --------------
BALANCE AS OF DECEMBER 31, 1994........ 0 (50,489) 188,950
Net Income............................. 28,894
Minimum pension liability adjustment... (314)
Issuance of stock pursuant to stock
options.............................. 10
------------- ----------- --------------
BALANCE AS OF DECEMBER 31, 1995........ 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).......................... $ (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.
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 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 (as discussed in Note 16) based upon pro forma net income,
after giving effect to the 1996 recapitalization, 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 was 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.
Pro forma net income (loss) per share amounts, for 1996 recapitalization and
offerings, are calculated based on the pro forma net income (loss) per common
and common equivalent share amounts for 1996 recapitalization, as adjusted,
assuming the shares sold in the offerings were outstanding for all periods
reported.
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
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 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 77,679
Vendor progress payments............................................. 66,333 67,855 111,391
----------- ----------- ------------
$ 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.
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 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>
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>
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
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.
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.
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 7. LONG-TERM DEBT (CONTINUED)
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
$7.7 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.
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
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 8. INCOME TAXES (CONTINUED)
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 and
the allocation of the purchase price in connection with the Acquisition,
including 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 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.
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)
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>
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-
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)
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):
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.
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)
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 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
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)
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 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 3,807,950 shares and 4,838,178 shares, respectively, are
exercisable and 5,802,075 shares and 6,459,575 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.............. 2,565,550 587,500
Granted................................. 11,750 318,750
Canceled or expired..................... (779,100)
----------------- ----------
Balance at December 31, 1993............ 1,798,200 906,250
Granted................................. 2,180,875 450,000
Canceled or expired..................... (37,500)
----------------- ----------
Balance at December 31, 1994............ 3,941,575 1,356,250
Granted................................. 1,160,000
Exercised............................... (2,000)
Canceled or expired..................... (616,250) (37,500)
----------------- ----------
Balance at December 31, 1995............ 4,483,325 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) 5,008,325 1,451,250
----------------- ----------
----------------- ----------
</TABLE>
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 11. STOCKHOLDERS' EQUITY (CONTINUED)
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 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 position or results of operations of
the Company.
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
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)
generally provide for price and quantity of components to be supplied. In
connection with the Gulfstream 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 33
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 or its fair market value. 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
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)
consummation of the initial public offering, make available to the Company a
$400 million term loan and $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 2,122,928 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.
The Selling Stockholders and all directors and executive officers of the
Company 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 Goldman, Sachs & Co., 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.
Application will be made to list the Common Stock on the New York Stock
Exchange. 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.................................... 14
Capitalization..................................... 15
Dilution........................................... 16
Pro Forma Condensed Financial Information.......... 17
Selected Financial Data............................ 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 21
Business........................................... 29
Management......................................... 46
Principal and Selling Stockholders................. 59
Certain Transactions............................... 62
Description of Capital Stock....................... 64
Description of Credit Agreement.................... 67
Shares Eligible For Future Sale.................... 70
Validity of Common Stock........................... 71
Experts............................................ 71
Additional Information............................. 71
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)................................... $ 255,379
NYSE filing fee*................................................
NASD fees (actual).............................................. 30,500
Transfer agent and registrar fee and expenses*..................
Accounting fees and expenses*...................................
Legal fees and expenses*........................................
Blue Sky expenses and counsel fees.............................. 26,000
Printing and engraving expenses*................................
Miscellaneous*..................................................
----------
Total........................................................... $
----------
----------
</TABLE>
- --------------
* To be filed by Amendment.
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 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 has entered into agreements to indemnify its directors and
officers in addition to the indemnification provided for in the Certificate 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 Registrant, 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, a Georgia
Corporation.
10.16 -- Credit Agreement, dated as of 1996, among Gulfstream Delaware
Corporation, Gulfstream Aerospace Corporation, The Chase Manhattan Bank
and the banks and other financial institutions parties thereto.**
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.
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.
24.1 -- Powers of Attorney.*
</TABLE>
- --------------
* Previously filed.
** To be filed by amendment.
+ Compensation Arrangement
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>
II-3
<PAGE>
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 29th day of
August, 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 August 29, 1996
Theodore J. Forstmann
*
------------------------------- President and Chief Operating Officer; Director August 29, 1996
Fred A. Breidenbach
/s/ CHRIS A. DAVIS Executive Vice President, Chief Financial
------------------------------- Officer (Principal Financial Officer and August 29, 1996
Chris A. Davis Principal and Accounting Officer)
*
------------------------------- Director August 29, 1996
William R. Acquavella
*
------------------------------- Director August 29, 1996
Robert Anderson
*
------------------------------- Director August 29, 1996
Charlotte L. Beers
*
------------------------------- Director August 29, 1996
Thomas D. Bell, Jr.
*
------------------------------- Executive Vice President; Director August 29, 1996
W.W. Boisture, Jr.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ------------------------
<C> <S> <C>
*
------------------------------- Director August 29, 1996
Nicholas C. Forstmann
*
------------------------------- Director August 29, 1996
Sandra J. Horbach
*
------------------------------- Director August 29, 1996
Drew Lewis
*
------------------------------- Vice Chairman of the Board; Director August 29, 1996
Bryan T. Moss
*
------------------------------- Director August 29, 1996
Allen E. Paulson
*
------------------------------- Director August 29, 1996
Roger S. Penske
*
------------------------------- Director August 29, 1996
Colin L. Powell
*
------------------------------- Director August 29, 1996
Gerard Roche
*
------------------------------- Director August 29, 1996
Donald H. Rumsfeld
*
------------------------------- Director August 29, 1996
George P. Shultz
*
------------------------------- Director August 29, 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>
Registration No. 333-09897
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
EXHIBITS
FILED WITH
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
GULFSTREAM AEROSPACE CORPORATION
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 -- Credit Agreement, dated as of 1996, among Gulfstream Delaware
Corporation, Gulfstream Aerospace Corporation, The Chase Manhattan Bank and the
banks and other financial institutions parties thereto.**
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>
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.
24.1 -- Powers of Attorney.*
</TABLE>
- --------------
* Previously filed.
** To be filed by amendment.
+ Compensation Arrangement
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into as of this 1st day of January, 1988,
by and between the Trustees of the Oklahoma City Airport Trust, a public trust
duly authorized and existing under the laws of the State of Oklahoma
(hereinafter referred to as "LESSOR"), and Gulfstream Aerospace Corporation, an
Oklahoma corporation (hereinafter referred to as "LESSEE"),
W I T N E S S E T H:
WHEREAS, the LESSEE desires to establish new opportunities and markets for
aviation engineering services and aircraft components and desires to utilize the
LESSOR'S existing site as a place of performance for such purposes; and
WHEREAS, the LESSOR possesses property and will assist the LESSEE in
providing facilities which will accommodate the LESSEE'S proposed program; and
WHEREAS, the LESSOR now leases and operates a municipal airport designated
as Wiley Post Airport, hereinafter referred to as Airport, located in Oklahoma
County, Oklahoma; and
WHEREAS, the approval and execution of this Lease Agreement will not only
benefit the LESSEE but also the LESSOR and The City of Oklahoma City will
receive numerous tangible and intangible benefits which will include, but not be
limited to, the following:
(A) The LESSOR has acquired ownership by warranty deed from LESSEE of real
property which is surrounded on three (3) sides by Airport property owned
by The City of Oklahoma City, the same having been purchased by the LESSOR
from the proceeds of the sale of the $12,900,000 Oklahoma City Airport
Trustees Junior Lien Taxable Bonds, Fifteenth Series (hereinafter referred
to as the "Bonds"), issued pursuant to the Fifteenth Supplemental Junior
Lien
<PAGE>
Bond Indenture, dated as of January 1, 1988 (hereinafter referred to as the
"Indenture") by and between the LESSOR and First Interstate Bank of
Oklahoma, N.A., Oklahoma City, Oklahoma, as trustee bank (hereinafter
referred to as the "Trustee");
(B) The LESSOR will insure the continued location and presence in Oklahoma
City of LESSEE and its manufacturing of aerospace related products, which
corporation together with its predecessors in title, including Aero-
Commander and Rockwell International, constitute the oldest continuous
tenant at Wiley Post Airport;
(C) The LESSOR will insure LESSEE'S renewal of its lease of two hangar
facilities owned by the LESSOR, thus precluding the loss of additional
tenants and further airport revenues due to multiple hangar vacancies at
Wiley Post Airport occasioned by the bankruptcy or insolvency of several
prior tenants and by generally depressed economic conditions as well as the
decline in general aviation activities in this part of the nation; and
WHEREAS, it is now the desire of the LESSOR and the LESSEE to enter into
this Lease Agreement for the purpose of (1) continuing LESSEE'S aircraft
manufacturing business, and (2) formalizing all applicable terms, provisions,
covenants, conditions, rentals and the lease term pertaining to the real
property, facilities and improvements which are the subject of this Lease
Agreement;
NOW, THEREFORE, in consideration of the mutual promises, covenants,
obligations and conditions herein set forth, LESSOR and LESSEE hereby agree as
follows:
ARTICLE I - PREMISES
LESSOR does hereby grant, demise and lease to LESSEE, and LESSEE does
hereby hire, accept and lease from LESSOR the real property located adjacent to
Wiley
2
<PAGE>
Post Airport, described in Exhibit A, which is attached hereto and made a part
hereof, and the buildings thereon (collectively referred to as the "Leased
Facilities").
ARTICLE II - TERM
The primary term of this Lease Agreement shall commence on the 1st day of
January, 1988, and terminate on the 31st day of December, 2007 (hereinafter
referred to as the "Initial Lease Term"). During the Initial Lease Term the
LESSEE shall pay the rentals specified in Article III, and in all respects the
Lease shall be subject to the terms and conditions hereof. At the expiration of
the Initial Lease Term, LESSEE shall have the option to renew the same for one
(1) five (5) year period (the "First Option Term") at the rental rate specified
in Article III, and otherwise upon the same terms and conditions set forth
herein. Such option to renew shall be exercisable by LESSEE giving prior
written notice to the LESSOR One Hundred and Eighty (180) days prior to the
expiration of the Initial Lease Term. At the expiration of the First Option
Term, LESSEE shall have the option to renew the same for two (2) successive
twenty-five (25) year periods upon terms, conditions and for reasonable rental
rates then mutually agreeable to both parties. Such option to renew shall be
exercisable by LESSEE giving prior written notice to the LESSOR One Hundred and
Eighty (180) days prior to the expiration of the respective lease term. It is
the present intent and desire of LESSOR and LESSEE that this Lease Agreement
shall be renewed for each of the two (2) successive twenty-five (25) year option
periods upon terms and conditions substantially similar to those presently set
forth herein to the extent that any such renewal terms and conditions, including
rental rates, shall be consistent with applicable provisions and requirements of
general airport rules, regulations and minimum standards for commercial
activities and leasing of land and facilities at Oklahoma City municipal
airports which may be in effect at the commencement of each such renewal period.
3
<PAGE>
ARTICLE III - RENTAL PAYMENTS; ASSISTANCE PAYMENTS
During the Initial Lease Term, the LESSEE hereby agrees to pay or cause to
be paid to the Trustee for the account of the LESSOR rental payments in the
amounts set forth below, and the LESSOR hereby agrees to pay or cause to be paid
to the Trustee assistance payments in the amounts set forth below. During the
First Option Term, the LESSEE hereby agrees to pay or cause to be paid to the
LESSOR rental payments in the amounts set forth below.
A. INITIAL LEASE TERM; BOND AMORTIZATION. - The aggregate of the
semiannual rental payments to be paid by the LESSEE and the semiannual
assistance payments to be paid by the LESSOR during the Initial Lease Term have
been calculated and are intended to provide the funds necessary to amortize the
semiannual principal and interest on the Bonds. All such rental payments and
assistance payments during the Initial Lease Term hereof shall be made to the
Trustee; and semiannual assistance payments shall be paid on the same dates as
the semiannual rental payments by the LESSEE.
(i) The rental payments payable by the LESSEE during the Initial Lease
Term hereof shall be as follows:
(a) During the period commencing January 1, 1988, and ending on
December 31, 1992, LESSEE'S annual rental shall be at the rate of
$512,000 per year, payable in arrears in semiannual installments on
each June 28th and December 28th, with the first semiannual installment
due and payable on June 28, 1988, and the last semiannual installment
due and payable on December 28, 1992; and
(b) During the period commencing January 1, 1993, and ending on
December 31, 2007, the LESSEE'S annual rental shall be at the rate
of $712,000 per year, payable in arrears in semiannual installments
on each June 28th and December 28th, with the first semiannual
installment due and
4
<PAGE>
payable on June 28, 1993, and the last semiannual installment due
and payable on December 28, 2007.
(ii) The assistance payments payable by the LESSOR during the Initial
Lease Term hereof shall be as follows:
(a) During the period commencing January 1, 1988, and ending on
December 31, 1992, the LESSOR'S average annual assistance payments
shall be at the rate of $941,020 per year, payable in arrears in
semiannual installments on each June 28th and December 28th, with
the first semiannual installment due and payable on June 28, 1988,
and the last semiannual installment due and payable on December 28,
1992; and
(b) During the period commencing January 1, 1993, and ending on
December 31, 2007, the LESSOR'S average annual assistance payments
shall be at the rate of $738,823 per year, payable in arrears in
semiannual installments on each June 28th and December 28th, with
the first semiannual installment due and payable on June 28th,
1993, and the last semiannual installment due and payable on
December 28, 2007.
(iii) If any June 28 or December 28 on which a rental payment and an
assistance payment are due shall not be a business day, such
payments shall be made on the next succeeding business day.
B. FIRST OPTION TERM. - During the First Option Term, the LESSEE shall
pay directly to the LESSOR as rental for the Leased Facilities, the sum of
$400,000 per year, payable semiannually on June 28th and December 28th of each
year during said First Option Term, commencing June 28, 2008.
C. DEFAULT OR DELAY RENTALS. - During the Initial Lease Term and the
First Option Term, the LESSEE agrees to pay to the LESSOR, as additional
rentals, the amounts, fees, interest and expenses which the LESSOR may legally
be obligated to pay under any agreement of whatsoever nature by reason of any
default hereunder or any
5
<PAGE>
default or delay in payment of the sums due hereunder, provided that such
default or delay shall have resulted from the LESSEE'S default or breach of
covenants under this Lease Agreement. In this regard, LESSOR agrees to furnish
LESSEE with documentation of any such expenses paid by LESSOR as a result of
LESSEE'S default or delay in payment of sums due hereunder. LESSEE further
agrees to pay to the LESSOR or the Trustee, as the case may be, additional
rentals hereinafter provided for, including without limiting the generality
thereof, the reasonable amounts expended by either of them for the purpose of
curing LESSEE'S defaults hereunder, procuring insurance on the Leased Facilities
due to LESSEE'S failure to provide the insurance required by ARTICLE XVIII
hereof, and taxes, assessments or charges, paid by either of them due to
LESSEE'S failure to pay the same as required by ARTICLE XVI hereof. As
additional rental, the LESSEE also covenants and agrees to pay all costs,
expenses and charges, including reasonable attorney fees, incurred by LESSOR or
Trustee in collecting rentals or in enforcing any covenant or agreement of the
LESSEE contained in this Lease Agreement or incurred in obtaining possession of
the Leased Facilities after default of the LESSEE or upon expiration or early
termination of the Initial Lease Term hereof. All of the additional rentals
payable by LESSEE under this subparagraph are hereinafter referred to as
"Default or Delay Rentals". LESSEE agrees to pay such Default or Delay Rentals
promptly upon presentation of proof that such amounts are due and owing. Any
remedy vested in the LESSOR or Trustee by this Lease Agreement for the
collection of the rentals due hereunder shall be available to the LESSOR or the
Trustee for collection of Default or Delay Rentals.
In the event the LESSEE should fail to make any of the payments required in
this ARTICLE III, the item or installment so in default shall continue as an
obligation of the LESSEE until the amount in default shall have been fully paid,
and the LESSEE agrees to pay the same with interest thereon at the rate
specified in ARTICLE IV hereof.
6
<PAGE>
D. PLACE OF PAYMENT. - During the Initial Lease Term, the rental
payments to be made by the LESSEE and the assistance payments to be made by the
LESSOR shall be paid to the Trustee at the office of the Trustee for the account
of the LESSOR and shall be deposited in the Project Fund. During the First
Option Term, the rental payments to be made by the LESSEE shall be paid to the
LESSOR at the office of the Director of Airports of The City of Oklahoma City,
Will Rogers Airport, P. O. Box 59937, Oklahoma City, Oklahoma 73159.
E. OBLIGATIONS OF LESSEE. - During the lease term, the LESSEE will
perform and observe all of its agreements contained in this Lease Agreement, and
except as specifically provided herein will not terminate the lease for any
cause including, without limiting the generality of the foregoing, any acts or
circumstances that may constitute failure of consideration, eviction or
constructive eviction provided that none of the same have occurred by action of
the LESSOR, destruction of or damage to the Leased Facilities, commercial
frustration of purpose, any change in the tax or other laws or
administrative rulings of or administrative actions by the United States of
America or the State of Oklahoma or any political subdivision of either, or any
failure of the LESSOR to perform and observe any agreement, whether expressed or
implied, or any duty, liability or obligation arising out of or connected with
this Lease Agreement. Nothing contained in this Article shall be construed to
release the LESSOR from the performance of any of the agreements on its part
herein contained; and in the event the LESSOR shall fail to perform any such
agreement on its part, the LESSEE may institute such action against the LESSOR
as the LESSEE may deem necessary to compel performance, provided that no such
action shall diminish the amounts required to be paid by the LESSEE hereunder.
The LESSEE may, in its own name, or in the name of the LESSOR subject to the
specific authorization given by the LESSOR, prosecute or defend any action or
proceeding or take any other action involving third persons or take actions
against the LESSOR which the LESSEE deems reasonably necessary in order to
secure or
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protect its right of possession, occupancy and use hereunder, or to secure
payment by the LESSOR to the Trustee of the assistance payments required under
this ARTICLE III, and in such event the LESSOR (if the LESSOR is not the
defendant) hereby agrees to cooperate fully with the LESSEE and to take all
action necessary to cooperate fully with the LESSEE and to take all action
necessary to effect the substitution of the LESSEE for the LESSOR in any such
action or proceeding if the LESSEE shall so request.
ARTICLE IV - INTEREST ON DEFAULT OR DELAY RENTALS
Should LESSEE fail to make timely remittance of any rental payments as
required under any of the provisions hereof, then the outstanding balance of
such delinquency shall accrue interest at the rate of one and one-half percent
(1-1/2%) per month; moreover, said interest shall be considered additional
rental for the leased premises and payable upon submission of satisfactory
evidence that the obligation is due.
ARTICLE V - FINANCIAL RECORDS
LESSEE shall furnish to LESSOR or its authorized representative upon
request by LESSOR, a copy of LESSEE'S certified annual report or the certified
annual report of any parent company of LESSEE which is publicly available.
ARTICLE VI - INGRESS AND EGRESS
As long as the LESSEE shall continue to pay the rentals hereunder and
perform the covenants of this Lease Agreement, the LESSEE shall have the right
of ingress to and egress from said leased premises for the LESSEE, its
officers, employees, agents, servants, customers, vendors, suppliers, patrons
and invitees and the LESSEE shall not interfere with the rights and privileges
of other persons or firms using Wiley Post Airport.
ARTICLE VII - OBJECTS AND PURPOSES OF LEASE
The purpose of this Lease Agreement is to grant to LESSEE the right and
privilege of conducting business as a provider of aerospace engineering services
and as a manufacturer of aerospace related products at the Leased Facilities and
LESSEE agrees
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that the Leased Facilities shall never be used for any other purpose, except
upon written approval by the LESSOR by and through its Director of Airports.
ARTICLE VIII - MAINTENANCE AND OPERATIONS
The LESSEE shall accept the Leased Facilities in an "as is" condition; and
except as may be otherwise expressly provided herein, LESSOR makes no agreement
whatsoever to make improvements, alterations or repairs to the Leased
Facilities; PROVIDED, HOWEVER, during the five (5) year period commencing on the
commencement date of this Lease, the LESSOR shall assist LESSEE in the funding
of capital improvements (including, but not limited to repair or replacement of
the roof structure and exterior painting) of one or more of the buildings
comprising the Leased Facilities at a cost not to exceed in the aggregate
$290,000, such improvements to be made in accordance with the applicable
competitive bidding requirements. LESSOR shall not be liable for acts causing
injury or damage to persons or property that may arise on said premises or may
occur during the LESSEE'S tenancy or occupancy of the Leased Facilities, other
than acts amounting to sole negligence of or wilful misconduct of the LESSOR,
The City of Oklahoma City, their officers, agents and employees. It is
understood and agreed that, except as provided above, all maintenance
responsibility, including without limiting the generality hereof, all interior,
exterior, structural as well as nonstructural maintenance, shall be that of the
LESSEE, at LESSEE'S sole expense. Unless otherwise agreed in writing by the
parties, LESSEE shall never use the Leased Facilities for any purpose other than
those set forth in ARTICLE VII above. Moreover, no sales to the public, whether
wholesale or retail, shall be conducted from the Leased Facilities in any manner
prohibited by 60 O.S.A., Sections 178.4 through 178.6.
The LESSEE shall maintain the Leased Facilities at all times in a safe,
neat and sightly condition and shall not permit the accumulation of any trash,
ashes or debris on the premises of the Airport. The LESSEE shall be responsible
for all maintenance including, but not limited to:
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A. Janitorial services, providing janitorial supplies, window washing,
rubbish and trash removal.
B. Supply and replacement of light bulbs in and on all buildings,
(except obstructional lights), and for replacement of all glass in
buildings.
C. Cleaning of stoppages in interior plumbing fixtures and drain lines
due to the use of the premises by the LESSEE up to the first
manhole or cleanout outside of the exterior of the building.
D. Replacement of floor covering.
E. Maintenance of all doors and door operating systems, including
weather stripping and glass replacement.
F. Building exterior and interior maintenance; including painting
(except as provided above), repairing and replacement.
G. Landscaping and grass cutting services on and around the Leased
Facilities, exterior building flood lighting and planter lighting.
H. Repair or replacement of equipment and utilities in all buildings
occupied by LESSEE under this lease, including electrical,
mechanical and plumbing equipment, and the heating and air
conditioning system. All repairs to electrical and mechanical
equipment are to be made by licensed personnel. Other repairs
required of LESSEE shall be made by skilled craftsmen who perform
such work regularly as a trade.
I. Cleaning trash and snow from driveways and sidewalks between the
building and parking lot. LESSEE will not dispose of any debris or
waste materials on Airport property.
J. Maintenance on LESSEE-owned structures, pavements and equipment;
and maintenance on utilities to the point where connected to the
main source of supply or outlet.
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K. With the LESSOR'S prior consent in writing, major changes involving
structural changes to building or premises, modifications, or
additions to plumbing, electrical or other utilities.
L. Maintaining electrical loads within the designed capacity of the
system. Prior to any change desired by LESSEE in the electrical
loading which would exceed such capacity, written consent shall be
obtained from the Director of Airports.
M. Assisting the LESSOR in determining the cause of damage to LESSOR'S
property, in the event of damage to building structures or
equipment, streets or lighting systems and utilities.
N. Maintaining and relamping flood lights on the buildings.
O. Providing and maintaining hand fire extinguishers for the interior
of all buildings.
P. Making and paying for arrangements for all utility services.
Q. Maintaining the exterior and interior of all buildings owned by
LESSOR and on pavements owned by LESSOR which are located on the
real property constituting the Leased Facilities.
No alterations or repairs shall be made in or on the Leased Facilities
except as provided in ARTICLE IX hereof. No waste shall be committed or damage
done to the property of the LESSOR, reasonable wear and tear excepted.
If the Leased Facilities are not maintained and kept in a safe, clean,
sightly, and healthful condition by LESSEE, as aforesaid, then as an alternative
to termination of the Lease Agreement under the provisions of ARTICLE XIX,
INFRA, the LESSOR, after giving thirty (30) days' written notice to LESSEE
(during which period LESSEE may abate or correct the omission or objection), may
enter the Leased Facilities itself or by its agents, servants, or employees
(without such entering causing or constituting a termination of this Lease
Agreement or an interference with possession of the premises
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by the LESSEE), and the LESSOR may cause the Leased Facilities to be placed in a
state of good repair or in a safe, clean, sightly, and/or healthful condition;
and the LESSEE agrees to pay the LESSOR the expenses of LESSOR incurred in the
above connection as additional rent within (30) days after submission of an
invoice showing the reasonable expenditure or the incurring of any such
reasonable expenditure by the LESSOR.
ARTICLE IX - ALTERATIONS AND REPAIRS TO PREMISES
The LESSEE agrees not to construct, install, remove, modify and/or repair
any of the buildings or premises leased hereunder without prior written approval
of the Director of Airports, such approval not to be unreasonably withheld, but
may be contingent upon approval by the LESSOR of plans and specifications for
the proposed project as well as other conditions considered by the LESSOR to be
necessary. Immediately upon completion of the repairs, alterations and new
construction, the LESSEE shall present to the LESSOR for examination and
approval, a statement of the "Construction and/or Alteration Costs." Where such
alterations or construction have been made on buildings owned by the LESSOR, the
LESSEE shall within (30) days following completion of the alterations or
construction present to the LESSOR a complete set of "as-built" drawings
including, but not necessarily limited to, plumbing and electrical systems. The
LESSEE shall keep the premises leased hereunder free and clear of any and all
liens in any way arising out of any construction, improvement, or use thereof by
the LESSEE.
In the event that the LESSEE makes further alterations or improvements of
the Leased Facilities, the use thereof shall be enjoyed by the LESSEE during the
remaining term of this Lease Agreement without the payment of additional rental
therefor, but such alteration or improvements shall become the property of the
LESSOR upon the completion of the alteration or improvement.
"Construction and/or Alteration Costs" for the purposes of ARTICLE IX are
hereby defined as all money paid by the LESSEE for actual demolition,
construction or
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alteration, including architectural and engineering costs plus pertinent fees in
connection therewith.
ARTICLE X - DESTRUCTION OF PREMISES - TERMINATION
In the event of damage to or destruction or loss of the building or
buildings by an insured risk, which damage, destruction or loss is not capable
of being repaired within six (6) months, the LESSOR shall have the option,
exercisable by written notice given to the LESSEE within thirty (30) days after
the occurrence of such event, to terminate this lease forthwith, such
termination to be effective as of the date of such damage, destruction or loss.
From and after such date, the LESSEE shall not be required to make any further
rental payments. In the event the LESSOR does not exercise the foregoing option
to terminate this lease, or in the event said damage, destruction or loss is
capable of being repaired within six (6) months, this lease shall not terminate
and the LESSOR shall promptly repair, replace, restore, or rebuild said building
or buildings to the extent of the insurance proceeds received by it, as nearly
as possible to the condition said building or buildings were in immediately
prior to such damage, destruction or loss, or with such changes or alterations
as may be approved by the LESSOR and the LESSEE.
In the event of damage to or destruction or loss of the Leased Facilities
by an uninsured risk, the LESSOR shall have the option, exercisable by written
notice given to the LESSEE within thirty (30) days after the occurrence of such
event, to terminate this Lease Agreement forthwith, such termination to be
effective as of the date of such damage, destruction or loss. From and after
such date, the LESSEE shall not be required to make any further rental payments.
ARTICLE XI - LESSOR'S RESERVED RIGHTS
A. The LESSOR reserves the right to further develop or improve the
aircraft operating area of Wiley Post Airport (the "Airport") as it
sees fit and to take any action it considers necessary to protect
the aerial approaches of the Airport against obstructions, together
with the right to prevent the LESSEE
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from erecting or permitting to be erected, any building or other
structure on the Airport which, in the opinion of the LESSOR, would
limit the usefulness of the Airport or constitute a hazard to
aircraft.
B. During the time of war or national emergency declared by Congress,
the LESSOR shall have the right to lease the Airport or any part
thereof to the United States Government for military or naval use,
and if any such lease is executed, the provisions of this
instrument insofar as they are inconsistent with the lease to the
Government shall be suspended and in that event a just and
proportionate part of the rent hereunder shall be abated.
C. Any other provision of this lease notwithstanding, this lease shall
be subordinate to the provisions of any existing or future
agreement between the LESSOR and the United States Government,
relative to the operation or maintenance of the Airport, the terms
and execution of which has been or may be required as a condition
precedent to the expenditure or reimbursement to the LESSOR of
Federal funds for the development of the Airport.
D. The LESSOR, through its duly authorized agent, shall have at any
and all times the full and unrestricted right to enter the Leased
Facilities for the purpose of inspection or maintenance and for the
purpose of doing any and all things which it is obligated and has a
right to do under this Lease Agreement.
ARTICLE XII - NONINTERFERENCE WITH OPERATION OF AIRPORT
The LESSEE covenants and agrees that it will not allow any condition on the
Leased Facilities, nor permit the conduct of any activity on such premises,
which shall materially or adversely affect the development, improvement,
operation or maintenance of the Airport or its facilities; nor will the LESSEE
use or permit the Leased Facilities to be used in any manner which might
interfere with the landing and take-off of aircraft
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from the Airport or otherwise constitute a hazard. If any proscribed or
prohibited condition or activity, as described above, shall be permitted to
exist on the Leased Facilities, or any part thereof, then, as an alternative
to termination of this lease under the provisions of ARTICLE XIX, the LESSOR,
after giving thirty (30) days' written notice to the LESSEE (during which
period the LESSEE may abate or correct the omission or objection so set forth
in the LESSOR'S notice) may thereupon correct such omission or objection by
entering the Leased Facilities itself or by its agents, servants or
employees, without such entering causing or constituting a termination of
this lease or an interference with possession of the premises by the LESSEE,
and the LESSOR may cause abatement of such proscribed or prohibited condition
or activity; and, in such event, the LESSEE agrees to pay the LESSOR the
reasonable expenses of the LESSOR incurred in the above connection within
thirty (30) days after submission of an invoice showing the reasonable
expenditure or the incurring of any such reasonable expenditure by the LESSOR.
ARTICLE XIII - UTILITIES TO BE FURNISHED BY LESSEE
The LESSOR shall not be required to furnish any service to the leased
premises, including by way of example, but not of limitation, heat, water and
power. Neither the LESSOR nor The City of Oklahoma City shall be liable for any
failure of water supply or electric current or of any service by any utility;
likewise, neither the LESSOR nor The City of Oklahoma City shall be liable for
injury to persons (including wrongful death) or damage to property resulting
from steam, gas, electricity, water, rain, or snow which may flow from any part
of the leased premises or from any pipes, appliances, or plumbing works, from
the street or subsurface, or from any other place; or for interference with any
easements of whatsoever nature, however caused. The LESSEE shall make all its
own arrangements with utility companies and shall pay all charges for steam,
gas, electricity, water, light, heat, power, and other services used in or about
the Leased Facilities and shall defend and indemnify the LESSOR and The City of
Oklahoma City against any and all liability on such account.
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ARTICLE XIV - PERSONS AND PROPERTY ON LEASED PREMISES
AT RISK OF LESSEE
All property of every kind which may be on the Leased Facilities during the
term hereof shall be at the sole risk of the LESSEE or those claiming under it
and the LESSOR shall not be liable to the LESSEE, or any person whatsoever, for
any injury, loss or damage to any persons or property in or upon said Leased
Facilities, or upon the sidewalks and alleyways contiguous thereto; provided,
however, that the LESSEE shall not be liable for any loss occasioned by the sole
negligence or wilful misconduct of the LESSOR, The City of Oklahoma City, their
officers, agents and employees. The LESSEE hereby covenants and agrees to
assume all liability for or on account of any injury, loss or damage above
described and to defend and to save the LESSOR and The City of Oklahoma City
harmless therefrom.
ARTICLE XV - REMOVAL OF PROPERTY BY LESSEE
Except as otherwise provided in ARTICLE IX and this ARTICLE XV, the
following items shall, subject to the conditions contained herein, be deemed to
be and remain the property of the LESSEE, to wit:
(i) all personal property owned by and placed upon the leased premises
by the LESSEE; and
(ii) all fixtures, machinery, equipment and other property of a similar
nature brought, installed, erected, or placed by the LESSEE in, on
or about the leased premises by the LESSEE.
The above described property may be removed by the LESSEE from the Leased
Facilities at the termination or expiration of this Lease Agreement, even though
the same may be attached to the Leased Facilities; provided the LESSEE shall not
then be in default in the performance of the covenants hereof. The removal of
any and all such property, as aforesaid, shall be effected and all damage caused
to said premises by such removal shall be repaired, and the Leased Facilities
shall be restored and repaired to the
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state and condition in which they existed on the date originally accepted by
LESSEE, ordinary wear and tear excepted, at LESSEE'S sole cost and expense not
later than one hundred eighty (180) days after the termination or expiration of
this Lease Agreement. Should the LESSEE fail to remove said property within the
prescribed one hundred eighty (180) day period, title to all such property shall
vest in the LESSOR at the LESSOR'S sole discretion and/or the LESSOR may cause
the removal of all or any portion of the property at the sole risk and expense
of the LESSEE; likewise, should the LESSEE fail to restore and/or repair all or
any portion of the leased premises to their original condition within the
prescribed one hundred and eighty (180) day period, then the LESSOR may cause
any and/or all such restoration to be accomplished at the sole expense of the
LESSEE.
ARTICLE XVI - TAXES
LESSEE agrees to pay all taxes, amounts in lieu of taxes or special
assessments now or hereafter levied or assessed (1) upon the Leased Facilities
(2) upon property owned or possessed by LESSEE and situated on the Leased
Facilities, or (3) upon LESSEE'S interest in or use of the Leased Facilities.
LESSEE shall defend, indemnify and save LESSOR and The City of Oklahoma City
harmless from any claims or liens in connection with such taxes, in lieu of
taxes or assessments.
ARTICLE XVII - MISCELLANEOUS COVENANTS
A. The LESSEE shall observe and comply with any and all requirements
of the constituted public authorities and with all federal, state,
or local statutes, ordinances, regulations and standard rules
applicable to the LESSEE or its use of the Leased Facilities,
including by way of example, but not of limitation, all general
rules and regulations promulgated from time to time by the Director
of Airports of The City of Oklahoma City in connection with the
administration of the Airport.
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B. The LESSEE shall not erect, maintain, or display any signs or other
advertising at or on the Leased Facilities or other premises
without first obtaining the written approval of the Director of
Airports, such approval not to be unreasonably withheld.
C. The LESSEE hereby agrees to make no claims or file or cause to be
filed any legal or equitable actions against the LESSOR or The City
of Oklahoma City for any kind of damages which result from noise or
sound shock waves due to aircraft use of said Airport's facilities.
ARTICLE XVIII - INDEMNITY AND INSURANCE BY LESSEE
A. INDEMNITY. - The LESSEE hereby agrees to release, defend, indemnify
and save harmless the LESSOR and The City of Oklahoma City, and its
officers, agents and employees, (i) from and against any and all
loss of, or damage to, property, or injuries to, or death of, any
person or persons, (ii) from and against any and all claims,
damages, suits, costs, expenses, liability, actions or proceedings
of any kind or nature whatsoever, (including, without limiting the
generality of the foregoing, Workers' Compensation), of or by
anyone whomever, in matters resulting from, or arising out of, or
alleged to have resulted from or to have arisen out of, directly or
indirectly, the LESSEE'S operations or activities under or in
connection with this Lease Agreement, or the LESSEE'S use and
occupancy of any portion of the Airport, and including, without
limiting the generality of the foregoing, acts and omissions of the
LESSEE'S officers, employees, representatives, suppliers, invitees,
contractors or agents; provided, however, that the LESSEE shall not
be liable for any loss occasioned by the sole negligence or wilful
misconduct of the LESSOR, The City of Oklahoma City, their
officers, agents and employees. The LESSOR covenants that it will
give the LESSEE prompt notice of any claims. The
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minimum insurance requirements set forth below shall not be deemed
to limit or define the obligations of the LESSEE hereunder.
B. LIABILITY INSURANCE. - The LESSEE shall purchase, or cause to be
purchased, and cause to be maintained in effect for the term of
this Lease Agreement with insurance carriers acceptable to the
LESSOR the following:
(1) Workers' Compensation Insurance as required by the Statutes
of the State of Oklahoma; and
(2) General Public Liability Insurance in the amount of not less
than $1,000,000 for any number of claims arising out of a
single occurrence or accident, with a limit of $25,000 for
any claim or to any claimant who has more than one claim for
loss of property arising out of a single accident or
occurrence and with a limit of $100,000 to any claimant for
his claim for any other loss arising out of a single
accident or occurrence.
Prior to the effectiveness of this Lease Agreement, satisfactory proof of
carriage of such insurance by way of either copies of insurance policies or
certificates of insurance must be submitted to the LESSOR showing the LESSOR and
The City of Oklahoma City as additional insureds under the policies and also
containing a provision that coverages afforded under the policies will not be
materially altered in any manner adverse to the interest of the LESSOR or
cancelled except upon at least ten (10) days' prior written notice given to the
LESSOR.
C. PROPERTY INSURANCE. - The LESSEE, in its own name and that of the
LESSOR, as their interests may appear, shall during the Initial
Lease Term and renewal terms hereof, purchase and maintain in
effect, with responsible underwriters approved by the LESSOR, a
blanket "all risks" form of fire insurance with the broadest
extended coverage endorsements obtainable, as well as vandalism and
malicious mischief and boiler and machinery
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insurance on the buildings and improvements situated on the Leased
Premises to the extent of not less than ninety percent (90%) of the
full insurable value thereof. Also, the LESSEE shall in connection
with all hazards or risks required to be insured against in the
immediately preceding sentence, purchase and maintain in effect
rental insurance on the buildings and improvements on the Leased
Facilities, in an amount not less than the rental payments to be
made by the LESSEE.
The insurance required herein may be provided by policies
obtained specifically to cover the obligations described herein or
by blanket policies which cover such obligations and other
obligations and liabilities of the LESSEE.
The LESSEE shall furnish the LESSOR with either copies of
insurance policies or certificates of such insurance, issued by
insurance underwriters, evidencing the existence of valid policies
of insurance with the coverage specified, which policies or
certificates shall not be amended so as to decrease the protection
below the limits specified herein or be subject to cancellation
without at least (10) days' advance written notice to the LESSOR.
In lieu of the requirement of the LESSEE to purchase and maintain
property insurance as described above, the LESSEE may request the
LESSOR to purchase such insurance. In the event the LESSOR agrees
to so purchase the described property insurance, the LESSEE shall
reimburse the LESSOR for all expenses incurred by the LESSOR in
carrying and maintaining such insurance coverage; in this
connection, the LESSEE agrees to pay all premiums immediately upon
receipt of an invoice for same from the LESSOR. Whether the LESSEE
or the LESSOR obtains property insurance, the LESSEE shall assume
and pay for or reimburse the LESSOR
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for any property loss up to the amount of any deductible amount
under any property insurance policy.
ARTICLE XIX - TERMINATION BY LESSOR IN EVENT OF DEFAULT
A. In the event that the LESSEE shall fail to perform, keep and
observe any material term, covenant or condition herein contained
on the part of the LESSEE to be performed, kept and observed, the
LESSOR may give written notice to the LESSEE to use due diligence
to correct such condition or default; and, if the LESSEE shall not
commence and use diligence to correct such condition or default
within sixty (60) days after receipt of such notice, the LESSOR
may, after the lapse of an additional thirty (30) day period and
prior to the correction or curing of such default or condition,
terminate this lease by giving ten (10) days' notice, and the term
hereby demised shall thereupon cease and expire at the end of such
ten (10) days in the same manner and effect as if it were the
expiration of the lease term. No default on the part of the LESSEE
shall be deemed to continue so long as the LESSEE shall have
promptly taken action to correct the same and shall diligently
prosecute such action. In any case where the LESSOR shall be
entitled hereunder to terminate this Lease Agreement for failure of
the LESSEE to correct or cure a default after due notice as
hereinabove provided in this paragraph, the LESSOR may, as an
alternative to termination of the Lease Agreement, perform the
obligation imposed under this Lease Agreement for the account of
and at the expense of the LESSEE and the same shall be paid by the
LESSEE within thirty (30) days following the date of receipt by the
LESSEE of an invoice for the said reasonable expense.
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B. The LESSOR may terminate this Lease Agreement and all of its
obligations hereunder by giving the LESSEE ten (10) days' written
notice upon or after filing by the LESSEE of a voluntary petition
in bankruptcy.
C. The LESSOR may terminate this Lease Agreement and all of its
obligations hereunder by giving the LESSEE sixty (60) days' written
notice upon or after failure of the LESSEE to vacate or set aside
the following:
(i) If involuntary proceedings in bankruptcy be instituted
against the LESSEE and the LESSEE is thereafter adjudicated
a bankrupt pursuant to such proceedings;
(ii) If a court shall take jurisdiction of LESSEE pursuant to
proceedings brought under the provisions of any Federal
Reorganization Act; or
(iii) If a permanent receiver of LESSEE'S assets be appointed.
D. The LESSOR may terminate this Lease Agreement and all of its
obligations hereunder by giving the LESSEE written notice if the
LESSEE shall voluntarily abandon the Leased Facilities for a
continuous period of thirty (30) days at any one time, except when
such abandonment be caused by fire, earthquake, war, strike or
other calamity beyond the LESSEE'S control.
E. No waiver of default by the LESSOR of any of the terms, covenants
or conditions hereof to be performed, kept or observed by the
LESSEE shall be construed to be or act as a waiver of any
subsequent default of the terms, covenants and conditions herein
contained to be performed, kept and observed by the LESSEE. The
acceptance of rental by the LESSOR for any period or periods after
default of any of the terms, conditions or covenants herein
contained to be performed, kept and observed by the LESSEE shall
not be deemed a waiver of any right on the part of the LESSOR to
cancel
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this Lease Agreement for failure by the LESSEE to perform, keep or
observe any of the terms, covenants or conditions of this lease.
ARTICLE XX - WAIVER OF STATUTORY NOTICE
In the event the LESSOR exercises its option to terminate this Lease
Agreement upon the happenings of any or all of the events set forth in ARTICLE
XIX, "Termination by the LESSOR in Event of Default," any notice of termination
given pursuant to the provisions of said ARTICLE XIX shall be sufficient to
cancel and terminate this Lease Agreement; and, upon such termination, LESSEE
hereby agrees that it will forthwith surrender up possession of the demised
premises to the LESSOR. In this connection, the LESSEE hereby expressly waives
the receipt of any notice to quit or notice of termination which would otherwise
be given by the LESSOR under any provisions of the laws of the State of
Oklahoma, including, but not limited to, notices required to be given under any
section of Title 41 of the Oklahoma Statutes.
ARTICLES XXI - ASSIGNMENT AND SUBLETTING
The LESSEE shall not assign the Lease Agreement or any interest therein and
shall not agree to or permit such an assignment by an operation of law, process
or proceeding of any Court or otherwise, or sublet the Leased Facilities or any
portion thereof and/or the operation or maintenance of the Leased Facilities
without first obtaining the prior written approval of the LESSOR, which shall
not be unreasonably withheld. Moreover, at least ninety (90) days prior to any
contemplated assignment of the Lease Agreement by the LESSEE or by the operation
of law, process or proceeding of any Court or otherwise, the LESSEE shall submit
a written request to the LESSOR, and the LESSEE shall submit evidence showing
good and sufficient financial worth and adequate experience in the operation of
the facilities on the part of the contemplated assignee. In any event, no
assignment shall be made or shall be effective unless the LESSEE shall not be in
default in any of the terms, provisions, covenants and conditions herein
contained. Further, in no event shall any assignment be effective, regardless
of
23
<PAGE>
any submissions to the LESSOR, without the prior written approval of the LESSOR,
which shall not be unreasonably withheld. The party to whom such assignment is
made shall expressly assume in writing and agree to be bound by and fulfill all
of the terms, covenants, obligations and agreements contained in this Lease
Agreement.
In the event of any approved assignment, the LESSEE shall remain liable to
the LESSOR to pay to the LESSOR any portion of the rental and fees provided for
herein upon failure of the assignee to pay the same when due. Moreover, no
subleasing shall release the LESSEE from its obligations to pay all rental
amounts hereunder or release the LESSEE from any of the terms, covenants or
conditions herein contained on the part of the LESSEE to be performed, kept and
observed. Further, in the event of an approved assignment of subleasing, the
assignee or sublessee shall not assign or sublet any portion of the Leased
Facilities except with the prior approval of the LESSOR and the LESSEE herein,
and any assignment or sublease by the LESSEE shall contain a clause to this
effect.
ARTICLE XXII - PROHIBITION OF LIENS, ENCUMBRANCES AND CLAIMS
The LESSEE shall keep the Leased Facilities and the premises on which all
such facilities are constructed as well as said facilities at all times free and
clear of all liens or encumbrances of whatsoever nature for labor or for
material furnished in and about the construction, installation, alteration,
modification and/or repair of facilities; and further the LESSEE will defend at
its sole cost each and every lien or encumbrance or claim of whatsoever nature
filed against the Leased Facilities and the premises on which the facilities are
constructed as well as the facilities, or any part thereof, for labor claimed to
have been performed or for material claimed to have been furnished in connection
with the construction, installation, alteration, modification and/or repair of
the facilities. Further, and in any event, LESSEE will pay each and every
judgment made or given against said Leased Facilities, or any part thereof, or
against the LESSOR or The City of Oklahoma City, on account of any lien,
encumbrance, or claim, and will indemnify and
24
<PAGE>
save harmless the LESSOR and The City of Oklahoma City from all and every claim
and action on account of such lien, encumbrance, claim or judgment.
ARTICLE XXIII - NONDISCRIMINATION
A. NONDISCRIMINATION IN EMPLOYMENT.
The LESSEE agrees not to discriminate against any employee or
applicant for employment because of race, creed, color, sex, national
origin, ancestry, age or handicap. The LESSEE shall take affirmative
action to insure that employees are treated without regard to their race,
creed, color, national origin, sex, ancestry, age or handicap. Such
actions shall include, but not be limited to, the following: advertising,
lay-off or termination and selection for training, including
apprenticeship. The LESSEE, or any sublessee, hereby agrees to post, in a
conspicuous place, available to employees and applicants for employment,
notices setting forth the provisions of this Article.
B. FACILITIES NONDISCRIMINATION.
1. The LESSEE shall furnish its accommodations and/or services on a
fair, equal and not unjustly discriminatory basis to all users
thereof and it shall charge fair, reasonable and not unjustly
discriminatory prices for each unit or service; provided, that the
LESSEE may be allowed to make reasonable and nondiscriminatory
discounts, rebates, or other similar type of price reductions to
volume purchasers.
2. The LESSEE shall make its accommodations and/or services available
to the public on fair and reasonable terms without unjust
discrimination on the basis of sex, age, race, creed, ancestry,
handicap, color, or national origin; provided, however, that
nothing herein shall require the furnishing to the general public
of the use of
25
<PAGE>
any facilities or accommodations customarily furnished by the
LESSEE solely to its employees, customers, clients, guests and
invitees.
3. Noncompliance with Provisions 1 and 2 above shall constitute a
material breach hereof and, in the event of such noncompliance, the
LESSOR shall have the right to terminate this Lease Agreement and
the estate hereby created without liability therefor, or at the
election of the LESSOR or the United States, either or both said
Governments, shall have the right to judicially enforce said
Provisions 1 and 2.
4. The LESSEE agrees to insert the above in any leases, agreements, or
contracts, etc. by which the LESSEE grants a right or privilege to
any person, firm or corporation to render accommodations and/or
services to the public on the premises herein leased.
C. AFFIRMATIVE ACTION PROGRAM.
The Lessee assures that it will undertake an affirmative action program as
required by 14 CFR Part 152, Subpart E, to insure that no person on the grounds
of race, creed, color, national origin, ancestry, age, handicap, or sex be
excluded from participation in any employment activities covered by 14 CFR Part
152, Subpart E. LESSEE assures that no person shall be excluded on these
grounds from participating in or receiving the services or benefits of any
program or activity covered by such Subpart. The LESSEE assures that its
covered suborganizations will give assurances to the LESSEE that they similarly
will undertake affirmative action programs and that they will require assurances
from the suborganizations, as required by 14 CFR Part 152, Subpart E, to the
same effect.
26
<PAGE>
ARTICLE XXIV - MISCELLANEOUS
A. NOTICES.
Notices or other communications to the LESSOR pursuant to the provisions
hereof shall be sufficient if sent by registered or certified mail, postage
prepaid, addressed to the Oklahoma City Airport Trust, P.O. Box 59937, Oklahoma
City, Oklahoma 73159; and bills, statements and notices or communications to the
LESSEE shall be sufficient if sent by mail, postage prepaid, or if hand-
delivered, to Gulfstream Aerospace Corporation, P.O. Box 22500, Oklahoma City,
Oklahoma 73123, or to such respective addresses as the parties may designate in
writing from time to time.
B. DESCRIPTIVE HEADINGS.
The descriptive headings of the articles and sections of this Lease
Agreement are for convenience only and shall not be used in the construction of
the terms hereof.
C. SEVERABILITY AND GOVERNING LAW.
In the event any provision of this Lease Agreement shall be held invalid or
unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provision thereof. This Lease
Agreement shall be governed exclusively by the applicable laws of the State of
Oklahoma.
27
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands to this Lease
Agreement as of the day and year first above written.
APPROVAL RECOMMENDED: OKLAHOMA CITY AIRPORT TRUST
/s/ Leroy B. Hansen /s/ Terry L. Childers
- ------------------------------- -----------------------------------
Leroy B. Hansen Terry L. Childers, Trustee
Director of Airports /s/ Ken W. Townsend
-----------------------------------
Ken W. Townsend, Trustee
GULFSTREAM AEROSPACE
CORPORATION
/s/ Robert N. Buckley
-----------------------------------
President
(SEAL)
ATTEST:
/s/ Albert Wayne Rodko
- -------------------------------
Asst. Secretary
APPROVED by the City Council of The City of Oklahoma City this 26th day of
January, 1988.
/s/ Ronald J. Norrick
-----------------------------------
Mayor
ATTEST:
/s/ Thomas P. Hurley
- -------------------------------
City Clerk
APPROVED as to form and legality this 27th day of January, 1988.
/s/ James R. Fuson
-----------------------------------
Deputy Municipal Counselor
28
<PAGE>
STATE OF OKLAHOMA )
) SS
COUNTY OF OKLAHOMA )
The foregoing instrument was acknowledged before me this 27th day of
January, 1988, by Terry L. Childers and Ken W. Townsend, Trustees of the
Oklahoma City Airport Trust, a public trust, on behalf of the Trust.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial
seal the day and year aforesaid.
(SEAL) /s/ Terry L. Hawkins
-----------------------------------
Notary Public
My commission expires: 3/18/89.
STATE OF OKLAHOMA )
) SS
COUNTY OF OKLAHOMA )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on the 27th day of January, 1988, personally appeared Robert N. Buckley
and Albert Wayne Radko, to me known to be President and Assistant Secretary,
respectively of Gulfstream Aerospace Corporation, an Oklahoma corporation, and
to me further known to be the identical persons who subscribed the name of said
Corporation, one of the makers thereof to the foregoing instrument as its
President and Assistant Secretary, respectively, and acknowledged to me that
they executed the same as their free and voluntary act and deed, and as of the
free and voluntary act and deed of such Corporation, for the uses and purposes
therein mentioned and set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial
seal the day and year aforesaid.
(SEAL) /s/ Terry L. Hawkins
-----------------------------------
Notary Public
My commission expires: 3/18/89.
29
<PAGE>
EXHIBIT A
GULFSTREAM AEROSPACE CORPORATION
The real property situated in Oklahoma County, Oklahoma, more particularly
described as follows:
TRACT -1
A part of the Northeast Quarter (NE/4) of Section Seventeen (17), Township
Twelve (12) North, Range Four (4) West of the I.M., Oklahoma County,
Oklahoma, more particularly described as:
BEGINNING at the Northeast Corner of Section Seventeen (17),
Township Twelve (12) North, Range Four (4) West of I.M., and thence
South 89 DEGREES 36'00" West along the North line of said Section
Seventeen (17) a distance of 1848.60 feet; Thence South 0 DEGREES
13'01" East a distance of 1320.52 feet; Thence North 89 DEGREES
36'11" East a distance of 528.42 feet; Thence North 0 DEGREES
00'17" East a distance of 330 feet; Thence North 89 DEGREES 36'11"
East a distance of 1053.48 feet; Thence North 0 DEGREES 08'05" West
a distance of 330 feet; Thence North 89 DEGREES 36'11" East a
distance of 264 feet; Thence North 0 DEGREES 08'05" West along the
East line of said Section Seventeen (17) a distance of 660 feet to
the point or place of beginning, more or less, less and except the
North 50 feet and the East 33 feet of the North 660 feet for road
purposes, and now platted as:
All of Lot No. 1, AERO COMMANDER INDUSTRIAL PARK, an Addition to
Bethany, Oklahoma according to the recorded plat thereof. LESS
AND EXCEPT the East 314 feet thereof.
A-1
<PAGE>
TRACT - 2
An easement appurtenant for taxiway purposes described as:
A strip of land one hundred feet (100') in width and being the East one
hundred feet (100') of that part of the Northwest Quarter (NW/4) of the
Northeast Quarter (NE/4) of Section Seventeen (17), Township Twelve (12)
North, Range Four (4) West, described as follows:
Commencing at the Northwest Corner of said Northwest Quarter (NW/4)
of the Northeast Quarter (NE/4), thence East along the North line
of said Section Seventeen (17) 784.0 feet; thence south a distance
of 1319.5 feet to a point on the South line of said Northwest
Quarter (NW/4) of the Northeast Quarter (NE/4); thence West a
distance of 784.0 feet to the Southwest Corner of the said
Northwest Quarter (NW/4) of the Northeast Quarter (NE/4) thence
North a distance of 1319.5 feet to the point or place of beginning.
together with all buildings, structures and improvements now or hereafter
situated on said property and owned by LESSOR, and all rights, alleys, waters,
privileges, appurtenances and advantages to the same belonging or otherwise
appertaining.
<PAGE>
LONG BEACH MUNICIPAL AIRPORT
FIXED BASE OPERATION LEASE
CITY OF LONG BEACH
LANDLORD
7701 WOODLEY AVENUE CORPORATION
TENANT
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page No.
------- --------
1. Leased Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Condition of Leased Premises. . . . . . . . . . . . . . . . . . . . . 3
3. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Removal of Improvements. . . . . . . . . . . . . . . . . . . . . 4
4. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Holding Rent . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.3 Time of Payment. . . . . . . . . . . . . . . . . . . . . . . . . 6
4.4 Back Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.5 Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. Rental Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Land Rent Adjustment Procedure . . . . . . . . . . . . . . . . . 8
5.3 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6. Late Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7. Construction, Alteration and Changes. . . . . . . . . . . . . . . . . 12
8. Construction and Bonding. . . . . . . . . . . . . . . . . . . . . . . 13
A. Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
B. Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . . 14
C. No Forfeiture. . . . . . . . . . . . . . . . . . . . . . . . . . 14
D. Applicable Laws. . . . . . . . . . . . . . . . . . . . . . . . . 15
E. Property of City . . . . . . . . . . . . . . . . . . . . . . . . 15
F. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9. Removal of Improvements . . . . . . . . . . . . . . . . . . . . . . . 18
10. Security Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12. Unauthorized Uses . . . . . . . . . . . . . . . . . . . . . . . . . . 24
i
<PAGE>
13. Operation of Business . . . . . . . . . . . . . . . . . . . . . . . . 25
14. Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . 26
15. Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
16. Monthly Report . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
17. Indemnification and Hold Harmless . . . . . . . . . . . . . . . . . . 30
18. Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 31
19. Property Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 34
20. Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . 36
21. Workers' Compensation . . . . . . . . . . . . . . . . . . . . . . . . 37
22. Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
A. Assignments for Purposes of Financing. . . . . . . . . . . . . . 38
B. Lender's Rights. . . . . . . . . . . . . . . . . . . . . . . . . 38
C. Lender Defined . . . . . . . . . . . . . . . . . . . . . . . . . 39
D. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
E. Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . 40
23. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . 41
A. Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
B. Vesting of Assignments . . . . . . . . . . . . . . . . . . . . . 42
C. Vesting of Subleases . . . . . . . . . . . . . . . . . . . . . . 42
D. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
E. Lender's Liability . . . . . . . . . . . . . . . . . . . . . . . 43
F. Lender's Right to Assignment . . . . . . . . . . . . . . . . . . 43
24. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
25. Reservations to Landlord. . . . . . . . . . . . . . . . . . . . . . . 47
26. Use of Airport Facilities . . . . . . . . . . . . . . . . . . . . . . 49
27. Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
28. Aircraft Parking, Storage and Hangars . . . . . . . . . . . . . . . . 51
29. Aircraft Tiedown and Storage Hangar Agreements. . . . . . . . . . . . 53
ii
<PAGE>
30. Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
31. Automobile Parking. . . . . . . . . . . . . . . . . . . . . . . . . . 55
32. Fuel Flowage Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 56
A. Requirement to Pay . . . . . . . . . . . . . . . . . . . . . . . 56
B. Supplier Agreement . . . . . . . . . . . . . . . . . . . . . . . 56
C. Underground Storage and Delivery . . . . . . . . . . . . . . . . 56
D. Reporting, Payment and Statements. . . . . . . . . . . . . . . . 57
33. Noise Abatement . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
34. Avigation Easement. . . . . . . . . . . . . . . . . . . . . . . . . . 58
35. Bulletin Board . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
36. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
37. Waste Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
38. FAA Security and Safety Regulations . . . . . . . . . . . . . . . . . 61
39. Billboards and Signs. . . . . . . . . . . . . . . . . . . . . . . . . 61
40. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
41. Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
42. Termination by Landlord . . . . . . . . . . . . . . . . . . . . . . . 64
43. Termination by Tenant . . . . . . . . . . . . . . . . . . . . . . . . 65
44. Landlord's Right to Re-Enter. . . . . . . . . . . . . . . . . . . . . 66
45. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
46. Abandonment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
47. Possessory Interest . . . . . . . . . . . . . . . . . . . . . . . . . 68
48. Federal Aviation Administration Assurances. . . . . . . . . . . . . . 69
49. Termination of Prior Agreements . . . . . . . . . . . . . . . . . . . 69
iii
<PAGE>
50. General Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . 70
A. Holding Over by Tenant . . . . . . . . . . . . . . . . . . . . . 70
B. Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
C. Successors In Interest . . . . . . . . . . . . . . . . . . . . . 71
D. Taxes and Assessments. . . . . . . . . . . . . . . . . . . . . . 71
E. Costs of Sustaining an Action for Breach or Default. . . . . . . 71
F. Circumstances Which Excuse Performance . . . . . . . . . . . . . 72
G. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
H. Lease Organization . . . . . . . . . . . . . . . . . . . . . . . 72
I. Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . 72
J. Waiver of Rights . . . . . . . . . . . . . . . . . . . . . . . . 73
K. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
L. Time . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
iv
<PAGE>
FIXED BASE OPERATION LEASE
The following Lease is made and entered into, in duplicate, as of the
14th day of March, 1989, pursuant to minute order adopted by the City
Council, City of Long Beach at its meeting held on the 22nd day of December,
1987, by and between the CITY OF LONG BEACH, a municipal corporation,
hereinafter referred to as "LANDLORD" and 7701 WOODLEY AVENUE CORPORATION,
dba GULFSTREAM AEROSPACE, INC., a California corporation, having its place of
business at 4150 Donald Douglas Drive, Long Beach, California 90808,
hereinafter referred to as "TENANT".
1
<PAGE>
1. LEASED PREMISES
In consideration of the faithful performance of the covenants and
conditions hereinafter agreed to be kept by LANDLORD and TENANT, LANDLORD
does hereby lease and TENANT does hereby take and accept the following
described premises hereinafter referred to as Leased Premises, consisting of
approximately 12.665 acres of land as shown on the drawing attached hereto as
Exhibit A and legally described in Exhibit B, each of which is attached
hereto and made a part hereof by this reference.
2
<PAGE>
2. CONDITION OF LEASED PREMISES
A. TENANT accepts the leased premises in an as is condition and
acknowledges that TENANT has not received and LANDLORD has not made any
warranty, express or implied as to the condition of the premises or any
improvements, structures substructures, or infrastructures located thereon.
B. Except as otherwise set forth in this Lease, TENANT agrees to bear all
expenses incurred in the development, operation and maintenance of said premises
including improvements thereto existing at the time TENANT assumes possession.
C. TENANT agrees to keep the leased premises in a neat, orderly and safe
condition and free of waste, rubbish and debris during the term of this lease.
3
<PAGE>
3. TERM
The term of this Lease shall commence upon the day and year first above
written, and shall continue thereafter for a period of twenty-five (25) years.
TENANT shall also have the option to extend the term of the Lease for not more
than three periods of five (5) years each so that the total term of the Lease
may be extended to a total of no more than forty (40) years. In order to
exercise any of the options to extend the term, TENANT must notify LANDLORD, in
writing, not less than one year (1) prior to the date of expiration of the then
existing term of its intention to exercise the option.
Upon exercise of any option set forth in this Section, the extended term
shall be upon the same terms and conditions set forth herein unless mutually
agreed upon by the parties hereto, except that the land rent will be adjusted at
the beginning of each five year extension as provided in subsection 5.2 hereof.
3.1 Removal of Improvements.
If upon the expiration of the term of this Lease improvements remain on the
Leased Premises which LANDLORD has not expressed a written intention to retain,
the term of this Lease, and the obligation to pay rent, shall be extended from
month to month for a period not to exceed six (6) months to permit removal of
such improvements as provided for in Section 9 of this Lease. The extended term
of this Lease and obligation to pay rent shall terminate upon completion of the
processes described in paragraph 9 hereof.
4
<PAGE>
4. RENT
4.1 Base Rent.
TENANT agrees to pay LANDLORD as a base land rental for the Leased Premises
the sum of TWENTY-FOUR THOUSAND AND FIFTY-FOUR AND NO/100 DOLLARS ($24,054.00)
per month ("Land Rent"), payable to LANDLORD on the first day of each calendar
month during the term of this Lease. The obligation to pay said Land Rent shall
commence on the first day of the fourth year of this Lease. Prior to that time,
holding rent set out in section 4.2 hereof shall be paid by TENANT. Said
installments shall be subject to adjustment as provided for herein.
The Land Rent of TWENTY-FOUR THOUSAND AND FIFTY-FOUR AND NO/100 DOLLARS
($24,054.00) is derived from a blended fair market land value of $6.54 per
square foot based upon fifty-five percent (55%) of the land area of the Leased
Premises being used for FBO purposes and forty-five percent (45%) of the land
area of the Leased Premises being used for manufacturing purposes, and an eight
percent (8%) rate of return as indicated in the
formula: ( sq. ft. X $6.54 X 8%).
---------------------------
12
This is agreed to by both parties to be the fair market land value and rate
of return as of the date of this Lease.
4.2 Holding Rent.
Because of the substantial investment of approximately $10 million to be
made by TENANT and the reduced revenue during construction, rents shall be
raised gradually to the base rent level on the following schedule:
5
<PAGE>
Rent Payment Due
Period Value/Square Foot Per Acre Per Year Monthly Rent
- ------ ----------------- ----------------- ------------
Year 1 $5.14 $17,914.25 $18,907.00
Year 2 $5.89 $20,527.43 $21,665.20
Year 3 $6.13 $21,388.70 $22,574.00
4.3 Time Of Payment.
In the event the obligation to pay rent commences on some date other than
the first day of the month, the first month's rent shall be prorated to reflect
the actual period of occupancy.
Payment of rental hereunder shall be considered delinquent on the tenth day
of month following the date due. TENANT understands and agrees that LANDLORD
shall not be obligated to bill or otherwise advise TENANT of the date when
rental charges are due and payable.
4.4 Back Rent.
TENANT shall pay back rent at the rate of FIFTEEN THOUSAND FIVE HUNDRED
FIFTY DOLLARS ($15,550.00) per month for the period from April 2, 1987 through
and including April 2, 1988, or the date of execution of this Lease, whichever
is later. TENANT shall receive a credit of ELEVEN THOUSAND ONE HUNDRED THIRTEEN
DOLLARS ($11,113.00) per month against such back rent obligation for the period
from April 1, 1987, to the date of execution of this lease.
4.5 Improvements.
LANDLORD and TENANT agree that TENANT shall not be obligated to pay any
rent for use of the improvements existing on the premises at the date of this
Lease or thereafter constructed.
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5. RENTAL ADJUSTMENT
Land Rent will be increased at the beginning of each of the fifth through
ninth years of the lease term in an amount equal to the increase in the Consumer
Price Index, Los Angeles-Long Beach, all consumers in the previous twelve (12)
months, but in no event more than five (5) percent in any year.
Beginning in the 10th year from and after the commencement date of this
Lease, and every five (5) years thereafter, the Land Rent shall be adjusted by
determining land value and prevailing rate of return for the period in question
using the procedure set out in section 5.2 of this Lease. However, in no event
shall the Land Rent after any application of the adjustment process be less than
the Land Rent in effect prior to the adjustment.
5.1 Definitions.
5.1.1 Fair Market Value. As used in this Lease the term "fair market
value", shall mean the fair market value of the Leased Premises with adjustments
and considerations as follows:
A. The value of the Leased Premises based upon the percentage of the land
area of the Leased Premises being used for FBO purposes and the percentage of
the Leased Premises being used for manufacturing purposes should be a factor and
be included.
B. The value of any improvements placed on or in the property shall be
excluded and not considered.
C. The nature and extent to which the Leased Premises title is affected
by, among others, reservations, covenants, conditions, easements, encumbrances,
restrictions on use or other restrictions on the enjoyment or use of the
property, whether or not imposed upon said Premises by City or others shall be
considered.
D. The proximity of the Leased Premises to the passenger terminal shall
be excluded and not considered.
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5.1.2 Prevailing Rate Of Return. As used in this Lease, the term
"prevailing rate of return" shall mean the percentage of fair market value which
is charged to lessees by lessors in lease agreements for similar or comparable
uses entered into or renewed in the Los Angeles/Orange County urban area during
the preceding twelve months, which lease agreements are reasonably comparable in
their terms to this Lease.
5.2 Land Rent Adjustment Procedure.
The Land Rent for the subject leasehold shall be adjusted for fair market
value and prevailing rate of return at the periods specified in Section 5 of
this Lease.
LANDLORD shall provide written notice of LANDLORD's estimate of the Fair
Market Rental Value of the Premises not later than one hundred eighty (180) days
prior to the Adjustment Date. TENANT shall have thirty (30) days after receipt
of LANDLORD's notice of such estimated Fair Market Rental Value within which (i)
to accept LANDLORD's estimated Fair Market Rental Value, in which case
LANDLORD's estimated Fair Market Rental Value shall be the Annual Basic Rent
until the next Adjustment Date or (ii) to object in writing to LANDLORD's
estimated Fair Market Rental Value. Failure of TENANT to accept within said
thirty (30) day period to the estimated Fair Market Rental Value submitted by
LANDLORD shall conclusively be deemed to be TENANT's objection to said estimated
Fair Market Rental Value so submitted by LANDLORD. In the event TENANT objects
or is deemed to object to the estimated Fair Market Rental Value submitted by
LANDLORD, LANDLORD and TENANT shall attempt in good faith to agree upon the Fair
Market Rental Value of the Premises. If LANDLORD and TENANT fail to reach
agreement on such Fair Market Rental Value within fifteen (15) days after TENANT
has objected to or has been deemed to have objected to LANDLORD's estimated Fair
Market Rental Value (the "Outside Agreement Date"), then TENANT shall submit to
LANDLORD its estimated Fair Market Rental Value and LANDLORD at its option may,
within such fifteen (15) day period, submit a revised estimated Fair Market
Rental Value to TENANT and each party's
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estimated Fair Market Rental Value shall be submitted to arbitration in
accordance with Subsections 5.2.1 through 5.2.3.
5.2.1 LANDLORD and TENANT shall attempt to agree upon a single
arbitrator within fifteen (15) days after the Outside Agreement Date. If no
such agreement is reached, then within thirty (30) days after the Outside
Agreement Date LANDLORD and TENANT shall each appoint one arbitrator who shall
by profession be a licensed MAI real estate appraiser who shall have been active
over the five (5) year period, ending on the date of such appointment, in the
appraisal of commercial properties, including airport industrial properties in
the Los Angeles and Orange County area.
5.2.2 The two arbitrators so appointed shall within fifteen (15) days
of the date of the appointment of the last appointed arbitrator agree upon and
appoint a third arbitrator who shall be qualified under the same criteria set
forth hereinabove for qualification of the initial two arbitrators.
5.2.3 The three arbitrators shall, within thirty (30) days of the
appointment of the third arbitrator, determine the Fair Market Rental Value. If
the Fair Market Rental Value as determined by the arbitrators is lower than
TENANT's estimated Fair Market Rental Value or higher than LANDLORD's estimated
Fair Market Rental Value, then the closest estimated Fair Market Rental Value
(as revised, if applicable), whether LANDLORD's or TENANT's to the Fair Market
Rental Value determined by the arbitrators shall be the Land Rent until the next
Adjustment Date. If the Fair Market Rental Value as determined by the
arbitrators is between the LANDLORD's estimated Fair Market Rental Value (as
revised, if applicable) and TENANT's estimated Fair Market Rental Value, then
the Land Rent until the next Adjustment Date shall be the average of the Fair
Market Rental Value as determined by the arbitrators and the nearest estimated
Fair Market Rental Value, whether LANDLORD's or TENANT's. If LANDLORD's
estimated Fair Market Rental Value (as revised, if applicable) and TENANT's
estimated Fair Market Rental Value are equally near the Fair Market Rental Value
as determined by the arbitrators, then the Land
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Rent until the next Adjustment Date shall be the Fair Market Rental Value as
determined by the arbitrators. The arbitrators shall notify LANDLORD and TENANT
of their determination of the Fair Market Rental Value. The arbitrator's
determination shall be based upon each arbitrator's opinion of the Fair Market
Rental Value that would be payable for similar real property, taking into
account such variables as set forth in Section 5.1.
5.2.4 The parties hereto each agree to hold harmless and not file any
action against the appraiser retained by the other party.
5.3 No Waiver.
No failure by LANDLORD's accounting or clerical personnel to notify
TENANT of any rental adjustment provided for herein shall be construed as a
waiver of the right of the LANDLORD to require such adjustment as of the date
or dates when it should have been made, nor shall any such failure be held to
estop LANDLORD from requiring such adjustment and TENANT does hereby
knowingly waive the provisions of any statute of limitations barring
collection of any sum due pursuant to any such adjustment because of the
passage of time between the date such adjustment to the rent ought to have
been made and the date suit is brought to collect any sum due as a result
thereof.
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6. LATE PAYMENT
If money payable to LANDLORD as a condition of this Lease is not paid and
becomes delinquent, interest at the rate of ten percent (10%) per annum of the
amount due and unpaid shall be added to the amount due and the total sum shall
become immediately due and payable to LANDLORD. Such interest shall be
compounded on the amount unpaid, including accrued interest for any month that
said amount remains unpaid, provided, however, that payments not made within
sixty (60) days from the date first due shall be deemed to be in default, five
(5) days after written notice that the payment was not made within the said
sixty (60) day period.
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7. CONSTRUCTION, ALTERATION AND CHANGES
TENANT shall not construct, install, modify, paint or otherwise change any
structures, facilities or exterior signs on the Leased Premises without prior
written approval of LANDLORD's Airport Manager.
TENANT shall not place upon the Leased Premises any portable buildings,
trailers, or other like portable structures without prior written approval of
LANDLORD's Airport Manager. Such approval shall not be unreasonably withheld.
TENANT hereby agrees to remove any such permitted structure that may exist on
the Leased Premises within six (6) months from date of execution thereof.
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8. CONSTRUCTION AND BONDING
No construction shall be commenced upon the Leased Premises by TENANT until
TENANT has furnished LANDLORD with a Completion Bond in the amount of the total
estimated construction cost of the improvements to be constructed by TENANT. In
lieu of this Completion Bond, LANDLORD will accept the performance, labor and
material bonds supplied by TENANT's contractor or contractors, provided said
bonds are issued jointly to TENANT and LANDLORD. Said bonds must be issued by a
company qualified to do business in the State of California and acceptable to
LANDLORD. Said bonds shall be in a form acceptable to LANDLORD and shall insure
faithful and full observance and performance by TENANT of all the terms,
conditions, covenants, and agreements relating to construction of improvements
upon the Leased Premises.
A. BONDS.
(1) On or before the date of commencement of construction of any
building, structure or other improvements (other than temporary structures on
the site for six (6) months or less) on the Leased Premises, TENANT shall file
or cause to be filed with LANDLORD, a Performance Bond and a Payment Bond
executed by TENANT or TENANT's contractor and by a surety authorized to do
business in the State of California as surety guaranteeing the performance of
the provisions of this Lease. If said bond is executed by the TENANT's
contractor it shall name the TENANT and the LANDLORD as joint obligees.
(2) The term of both bonds shall commence on or before the date of
filing with LANDLORD. The Performance Bond shall remain in effect until the
date of completion of the work to the reasonable satisfaction of LANDORD's City
Manager or his designate. The Payment Bond shall remain in effect until the
expiration of the period of filing a claim of lien as provided in Title 15 of
Part 4 of the California Civil Code, and
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as hereafter amended, or if a claim of lien is filed, the expiration of the
period for filing an action to foreclose such lien, or until the Leased Premises
are freed from the effect of such claim of lien and any action brought to
foreclose such lien pursuant to the provisions of said Title 15 of Part 4 or the
lien is otherwise discharged.
(3) The Performance Bond shall be in the amount and provide a penalty
of one hundred percent (100%) of the valuation of the improvements to be
constructed. The Payment Bond shall be in the amount and provide a penalty of
one hundred percent (100%) of the valuation of the improvements to be
constructed.
(4) In lieu of the Performance Bond and Payment Bond required in
subsections (1), (2) and (3) hereof, TENANT may furnish cash, assignment of
account, time certificate of deposit.
B. FORCE MAJEURE.
The time within which TENANT is obligated hereunder to construct, repair or
rebuild any building or other improvement, or cure any default on the part of
TENANT hereunder shall be extended for a period of time equal in duration to,
and performance in the meantime shall be excused on account of and for, any
delay caused by strikes, threats of strikes, lockouts, war, threats of war,
insurrection, invasion, acts of God, calamities, violent action of the elements,
fire action or regulation of any governmental agency, law or ordinance,
impossibility of obtaining materials, or other things beyond the reasonable
control of TENANT.
C. NO FORFEITURE.
If, for any reason, TENANT shall fail to complete construction of
buildings, structures or other improvements within the time herein provided
therefor and TENANT pays to the City the liquidated damages therefor as provided
in Paragraph 10 hereof, this
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Lease shall not be subject to cancellation or forfeiture as a result thereof,
notwithstanding anything to the contrary herein contained.
D. APPLICABLE LAWS.
The Leased Premises are presently zoned PD-2. Any buildings, structures or
other improvements constructed or placed thereon shall be constructed or placed
in accordance with the laws and regulations of the State and City applicable to
development in Zone PD-2.
E. PROPERTY OF CITY.
Any buildings, structures or other improvements existing on the date of
execution of this Lease or constructed or placed on the Leased Premises by
Tenant shall be and remain the property of TENANT. TENANT shall have the right
to remove said buildings, structures, and other improvements, less paving at any
time, within six (6) months following expiration or termination of this Lease.
All such improvements remaining on the Leased Premises after said six (6) month
period shall become the property of LANDLORD without compensation therefor and
may be removed as provided in Paragraph 9 of this Lease.
F. LIENS.
(1) Subject to TENANT's right to contest the same and post bonds as
hereinafter provided, TENANT agrees that it will pay as soon as due all
mechanics, laborers, materialmens, contractors, subcontractors or similar
charges, and all other charges of whatever nature which may become due, attached
to or payable on said property or any part thereof or any building, structure or
other improvements thereon, from and after the date as of which this Lease is
executed. Nothing herein contained shall in any respect make TENANT the agent
of the LANDLORD, or (except as otherwise
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specifically provided in this Lease), authorize TENANT to do any act or to make
any contract encumbering or in any manner affecting the title or rights of the
LANDLORD in or to the Leased Premises or in the improvements thereon.
(2) Before any buildings, structures or other improvements, repairs
or additions thereto, are constructed or reconstructed upon the Leased Premises,
TENANT shall serve written notice upon the LANDLORD's City Manager in the manner
specified in this Lease of TENANT's intention to perform such work for the
purpose of enabling the LANDLORD to post notices of non-responsibility under the
provisions of Section 3094 of the Civil Code of the State of California, or any
other similar notices which may be required by law.
(3) If any such mechanics or other liens shall at any time be filed
against the Leased Premises, TENANT shall cause the same to be discharged of
record within thirty (30) days after the date of filing the same, or by bonding
or otherwise free the Leased Premises from the effect of such claim of lien and
any action brought to foreclose such lien, or TENANT shall record a bond in the
amount required by Civil Code Section 3143 releasing the Premises from the
effect of such claim of lien and against any action brought to foreclose such
lien.
(4) Any contest by TENANT of any such liens shall be made by TENANT
in good faith and with due diligence and TENANT shall fully pay and immediately
discharge the amount of any final judgment rendered against the LANDLORD or
TENANT in any litigation involving the enforcement of such liens or the validity
thereof.
(5) In the event of TENANT's failure to discharge of record any such
uncontested lien within said thirty (30) day period or to pay and satisfy any
such judgment as aforesaid, the LANDLORD shall give TENANT notice in writing to
discharge such lien. If TENANT fails within five (5) days from such written
notice to discharge or release the Leased Premises from such lien, LANDLORD may,
but shall not
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be obliged to, pay the amount thereof, inclusive of any interest thereon and any
costs assessed against TENANT in said litigation, or may discharge such lien by
contesting its validity or by any other lawful means.
(6) Any amount paid by the LANDLORD for any of the aforesaid
purposes, and all reasonable legal and other expenses of the LANDLORD including
reasonable counsel fees, in defending any such action or in connection with
procuring the discharge of such lien, with all necessary disbursements in
connection therewith, together with interest thereon at the rate provided by law
from the date of payment shall be repaid by TENANT to LANDLORD on demand.
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9. REMOVAL OF IMPROVEMENTS
TENANT shall within the six (6) month period specified in Section 3.1 of
this Lease clear all improvements from and restore the Leased Premises to level
grade. Should TENANT fail to remove all improvements from the Leased Premises
within the six (6) month period, any remaining improvements shall be deemed
abandoned property which LANDLORD may remove at its sole discretion without
liability to any lien holder or for any cost of labor or material incurred by
TENANT during TENANT's possession of the Premises. It is specifically agreed
that LANDLORD may charge the cost of any such removal to TENANT and that TENANT
will pay that sum without objection provided LANDLORD has given TENANT written
notice at least ten (10) months prior to the expiration of the term of this
Lease that LANDLORD requests that TENANT remove all such improvements within the
aforestated six (6) month period. In the event of termination prior to the
expiration of the term of this Lease, TENANT shall be required to pay such sum
provided LANDLORD notifies TENANT concurrently with the termination of the Lease
of its request that TENANT remove all such improvements within the aforestated
six (6) month period. If LANDLORD does not comply with the notice provisions in
this Section 9, TENANT shall have no obligation to pay the cost of removal of
improvements. It is further agreed that TENANT's obligation to pay for removal
of improvements shall extend for one (1) year beyond the end of the term or
other termination of this Lease.
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10. SECURITY DEPOSIT
A security deposit in the sum of TWENTY-FIVE THOUSAND DOLLARS ($25,000)
shall be provided LANDLORD by TENANT prior to the commencement date of this
Lease. Said security deposit is to be maintained at all times. Said security
deposit shall be by one of the methods set forth below and shall guarantee
TENANT's full and faithful performance of all the terms, covenants, and
conditions of this Lease:
A. Cash.
B. Surety bond written by a surety company authorized to transact
business in the State of California. Said bond shall be subject to approval by
the City Manager as to sufficiency and by the City Attorney as to form.
C. The assignment to LANDLORD of a savings deposit held in a financial
institution acceptable to LANDLORD. Such assignment shall be evidenced at least
by the delivery to LANDLORD of the original passbook reflecting said savings
deposit and a written assignment of said deposit to LANDLORD in a form approved
by LANDLORD.
D. A time certificate of deposit from a financial institution wherein the
principal sum is made payable to LANDLORD or order. Both the financial
institution and the form of the certificate must be approved in advance by
LANDLORD.
E. An instrument or instruments of credit from one or more financial
institutions subject to regulation by the state or federal government pledging
that funds are on deposit and guaranteed for payment and providing that said
funds shall be trustfunds securing TENANT's performance and that all or any
part shall be paid to LANDLORD, or order, upon demand by LANDLORD. Both the
financial institution(s) and the form of the instrument(s) must be approved by
LANDLORD.
Regardless of the manner in which TENANT elects to make said security
deposit, all or any portion of the principal sum shall be available
unconditionally to LANDLORD
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if TENANT or TENANT's successor or assigns fails to cure such default or breach
as provided in this Lease or TENANT or TENANT's successors or assigns, fails to
pay expenses incurred by LANDLORD as a result of the failure of TENANT or
TENANT's successors or assigns, to faithfully perform all of the terms,
covenants and conditions of this Lease. Should TENANT elect to assign a savings
deposit to LANDLORD or provide a time certificate of deposit, or provide an
instrument of credit to fulfill the security deposit requirements of this Lease,
said assignment, certificate or instrument shall have the effect of releasing
the depository or financial institution therein from liability on account of the
payment of any or all of the principal sum to LANDLORD, or order, upon demand by
LANDLORD. The agreement entered into by TENANT with a financial institution to
establish the deposit necessary to permit assignment or issuance of a
certificate as provided above may allow the payment of interest accruing on
account of said deposit to TENANT or order. TENANT shall maintain the required
security deposit throughout the entire term of this Lease or any extension
thereof. Failure to do so shall be deemed a default and shall be grounds for
immediate termination of this Lease. The security deposit shall be rebated,
reassigned, released, or endorsed to TENANT, or order, as applicable at the end
of the Lease Term, provided TENANT has fully and faithfully performed each and
every term, covenant and condition of this Lease. No interest shall be paid to
TENANT on said security deposit.
TENANT agrees that if TENANT violates any of the terms, covenants and
conditions of this Lease and fails to cure such default within the time
hereinafter provided therefore, then, in that event, the entire amount of the
security deposit shall be applied by LANDLORD in discharge and satisfaction of
any delinquent rentals or other element of
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default and/or retained by LANDLORD as liquidated damages because it is agreed
by and between the parties hereto that a judge or jury would be unable to
adequately determine such damages.
__________ ________
LANDLORD TENANT
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11. USE
The Leased Premises and any and all improvements located or erected
thereupon shall be used for the purpose of conducting an aviation-industrial use
and/or fixed base operation in conformity with LANDLORD's adopted minimum
standards (Exhibit "D") for aeronautical uses and no other purpose. The fixed
base operation is limited to the following aeronautical and support uses which
are inclusive.
A. Sale of new and used aircraft (both retail and wholesale);
B. Sale and installation of aircraft parts and accessories (both retail
and wholesale);
C. Sale and installation of aircraft parts, components and allied
equipment;
D. Sale and installation of new and used avionics and electronic
equipment;
E. Sale and installation of new and used aircraft instruments;
F. Storage, distribution, sale and dispensing of aviation fuel and
lubricants on the Leased Premises;
G. Sale of pilot supplies and accessories;
H. Leasing and rental of aircraft;
I. Sale of aircraft insurance;
J. Financing of aircraft;
K. Operation of air cargo and air freight activities subject to prior
written approval of LANDLORD's Airport Manager;
L. Flight operations, including ground school, flight
training/proficiency, demonstration of aircraft for sale, charter and air taxi.
Charter/Air Taxi operations are subject to prior written approval of LANDLORD's
Airport Manager. The conduct of scheduled commercial service is expressly
prohibited;
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M. Maintenance, repair, overhaul and modification of aircraft, aircraft
engines, airframes, flight systems, instruments, avionics, electronics
equipment, propellers and related aircraft components;
N. Rental of aircraft storage hangars and open tie-down facilities;
O. Operation of a UNICOM radio transmitter and receiver (subject to
written approval of LANDLORD's Airport Manager);
P. Washing, detailing and waxing of aircraft;
Q. Providing upholstery, cabinetry and interior services and
installation;
R. Parachute, fire extinguisher and oxygen services;
S. Line Services for the purpose of meeting the needs of transient
aircraft;
T. Operation of food vending equipment, a coffee bar, and/or cafeteria
for the purpose of serving TENANT's employees and customers;
U. Maintenance and servicing of TENANT-owned and operated automotive ramp
equipment;
V. Any such other aviation related uses as may be approved in writing by
LANDLORD's Airport Manager and which do not conflict with future airport
terminal facilities.
W. Preparation and painting of aircraft and ancillary parts within an
enclosed structure which complies with all federal state and local laws, rules
and regulations applicable to aircraft painting facilities.
X. Rent-a-car service, provided that the TENANT or any other operator of
such rent-a-car facility shall pay LANDLORD a fee equal to and calculated on the
same basis as the concession charges set forth in the terminal car rental
concession agreements in effect upon the commencement of such rent-a-car
service, as such may be modified from time to time.
Y. Uses incidental to those specifically permitted in this section.
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12. UNAUTHORIZED USES
Only the uses specified in the use clause hereof are authorized uses, and
such uses are authorized only when conducted by TENANT or in the case of a
Subtenant when approved in advance by LANDLORD's City Manager. All other
business activities engaged in on or from the Leasehold premises for involving
provision of services or products to parties other than TENANT or an approved
Subtenant for financial gain are prohibited. Said prohibition shall be enforced
by TENANT.
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13. OPERATION OF BUSINESS
A. TENANT shall continuously use and operate the Leased Premises, during
all usual business hours and on all such days as comparable business of like
nature in the area are open for business in accordance with the provisions of
this Lease relating to use. If the premises are destroyed or partially
condemned and this Lease remains in full force and effect, TENANT shall continue
operation of its business at the premises to the extent reasonably practical as
determined by good business judgment during any period of reconstruction.
B. TENANT shall appoint in writing an authorized local agent duly
empowered to make decisions on behalf of TENANT in all routine administrative
and operational matters relating to the Leased Premises who shall be available
during normal business hours. TENANT shall notify LANDLORD's Airport Manager in
writing of the name, address and telephone number of the said agent and shall
supply therewith a copy of the writing appointing the agent.
C. All uses operating on or from the Leased Premises shall maintain an
office in Los Angeles or Orange County which is staffed during normal business
hours.
D. Rotary winged aircraft may not be parked, repaired or operated from
the Leased Premises without the prior written approval of the Airport Manager
and such approval, if granted, is subject to Airport Rules and Regulations and
may be terminated by the Airport Manager on thirty (30) days notice unless
otherwise specified in writing at the time of said written approval. It is
understood that executives of TENANT and TENANT's parent companies may visit the
Leased Premises from time to time in rotating wing aircraft. TENANT and the
Airport Manager shall consult to develop a procedure for such operations.
E. TENANT agrees to provide reasonable services at reasonable prices
compared to those prevailing at comparable airports within the Southern
California area.
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14. COMPLIANCE WITH LAW
No improvements or structures either permanent, temporary or portable,
shall be erected, placed upon, operated or maintained on the Leased Premises,
nor shall business or any other activity be conducted or carried on, in, onto,
or from the Leased Premises in violation of the terms of this Lease or any duly
adopted rules, regulations, orders, law, statute, by-law, or ordinance of any
governmental agency having jurisdiction thereover.
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15. IMPROVEMENTS
TENANT shall cause the following improvements to be designed, constructed
and installed within the Leased Premises at no cost to LANDLORD:
A. All improvements shown in Exhibit C, attached hereto and made a part
hereof by this reference are approved by LANDLORD by execution of this Lease.
B. Repair or repave as necessary and slurry coat all existing pavement on
Leased Premises in a manner sufficient to ensure a useful life of between three
(3) to five (5) years.
C. Properly mark all taxi lanes and aircraft parking spaces.
D. Provide, replace and/or modify existing fencing and gates to meet the
requirements of Federal Aviation Regulation Parts 107 (Security) and 139
(Safety).
E. Provide adequate security lighting.
F. Provide safe ingress and egress for pedestrians.
G. TENANT may install signs which comply with the Airport's sign policy.
H. TENANT shall demolish the existing fire station located on the
Premises within twenty-four (24) months after the date of this Lease.
Plans prepared by TENANT for the above cited improvements shall be approved
by LANDLORD's Airport Manager prior to commencement of work; in addition, plans
for improvements shown in Exhibit C shall be approved by the Department of
Planning and Building of the City of Long Beach prior to commencement of work,
and shall receive a determination of no objection from the Federal Aviation
Administration.
Subject to the provisions of this Lease, TENANT agrees that all
improvements and facilities shown on Exhibit "C" shall be constructed or
installed and in use no later than twenty-four (24) months following the
commencement of this Lease.
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TENANT shall conduct its construction operations so that such operations
will in no way interfere with the normal operation and use of the Long Beach
Municipal Airport by LANDLORD and other persons and organizations entitled to
use of the same.
After completion of the work described in this paragraph, TENANT shall not
perform any other construction upon the Leased Premises, nor shall TENANT
modify, alter, or remove permanent improvements lying within the Leased Premises
without the prior written approval of LANDLORD's Airport Manager.
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16. MONTHLY REPORT
Within fifteen (15) days after execution of this Lease, TENANT shall submit
a written report to LANDLORD's Airport Manager listing all based aircraft
located on the Leased Premises. Said report shall be prepared on a form
supplied by LANDLORD, and shall include for each based aircraft located on the
Leased Premises: the make, model, registration number, color, space or hangar
number, registered owner(s) name(s), address(es) and telephone number(s).
Should aircraft be on lease, the same information required for owner shall be
provided for any or all lessee(s) of said aircraft.
For purposes of this section, a based aircraft is any aircraft which makes
arrangements to park at Long Beach Airport for any purpose other than those
specified herein, to wit:
A. Visiting or transient aircraft who utilize parking facilities for less
than fifteen (15) days in any thirty (30) day period.
B. Aircraft maintaining tiedown or storage space at another airport that
are undergoing interior installation or modification, maintenance, service or
repair by TENANT or a subtenant.
C. Aircraft awaiting sale and/or delivery by a tenant or subtenant where
delivery subsequent to sale occurs within thirty (30) calendar days.
D. Used aircraft for sale by a tenant or subtenant where delivery
subsequent to sale occurs within thirty (30) calendar days.
TENANT further agrees that by the tenth (10th) day of each month to submit
a list showing additions to, or deletions from, the above mentioned written
report.
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17. INDEMNIFICATION AND HOLD HARMLESS
TENANT expressly agrees to defend, protect, indemnify and hold harmless the
City, its officers, agents and employees free and harmless from and against any
and all claims, demands, damages, expenses, losses or liability of any kind or
nature whatsoever which LANDLORD, its officers, agents or employees may sustain
or incur or which may be imposed upon them or any of them or injury to or death
of persons or damage to property arising out of or resulting from the alleged
acts or omissions of TENANT, its officers, agents or employees or in any manner
connected with this Lease or with the occupancy, use or misuse of the Leased
Premises by TENANT, its officers, agents, employees, subtenants, licensees,
contractors, patrons or visitors; and TENANT agrees to defend at its own cost,
expense and risk all claims or legal actions that may be instituted against
either the TENANT or the LANDLORD, and the TENANT agrees to pay any settlement
entered into and to satisfy any judgment that may be rendered against either the
TENANT or the LANDLORD as a result of any injuries or damages which are alleged
to have resulted from or be connected with this Lease or the occupancy or use of
the Leased Premises by the TENANT, or its officers, agents, employees,
subtenants, licensees, contractors, patrons or visitors.
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18. LIABILITY INSURANCE
A. TENANT agrees that at all times during the term of this Lease, it
shall maintain in full force and effect an insurance policy which shall insure
and indemnify the TENANT and the City of Long Beach, the City Council and each
member thereof, all of City's Boards and Commissions and every officer, employee
and volunteer of the City against liability, financial loss or expense resulting
from any suits, claims, demands, actions or loss, brought by any person or
persons and from all costs and expenses of litigation brought by reason of the
use and occupation by TENANT or by any other person or persons of said Leased
Premises, in the amount of Five Million Dollars ($5,000,000) combined single
limit for any injury to persons and/or damages to property.
B. Such policy or policies of insurance shall provide at least the
following forms of insurance.
(1) Comprehensive General Liability
(2) Automobile Liability
(3) Contractual Liability
(4) Aircraft Liability, including Passengers
(5) Airport Liability
(6) Products and Completed Operations, including Aircraft Products
(7) Hangarkeepers Liability, including Aircraft in Flight
LANDLORD may waive coverages which it deems unnecessary in light of
specific operations of TENANT.
C. All insurance shall be placed with insurers having a rating in Best's
Insurance Guide of or equivalent to A:X or otherwise acceptable to and approved
by the City Manager. The City of Long Beach, the City Council and each member
thereof, all of the City's Boards and Commissions, and every officer, employee
and volunteer of the City shall be named as insureds under said insurance, and
each policy shall be endorsed to
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provide thirty (30) days written notice from the insurer to LANDLORD before
cancellation or change in conditions. Coverage shall be primary with respect to
LANDLORD and all liability insurance shall provide for severability of
interests.
Said insurance may include such deductibles or self insured retention as
may be acceptable to the City Manager. In the event insurance does provide for
deductibles or self-insured retention, TENANT agrees that it will fully protect
LANDLORD, its Boards, officers and employees, in the same manner as those
interests would have been protected had the policy or policies not contained a
deductible or retention.
D. Upon the execution of this Lease, the TENANT hall deliver to the
Airport Manager for approval as to sufficiency and for approval as to form by
the City Attorney, a certificate or certificates of insurance issued by the
respective insurance companies certifying that said insurance coverage is in
full force and effect and that all operations of the TENANT under this Lease are
covered by such insurance.
Notwithstanding any other provision to the contrary contained in this
Lease, TENANT shall not have the right to take possession of said Leased
Premises until such certificate or certificates are filed with the Airport
Manager.
E. The procuring of any policy of insurance shall not be construed to
be a limitation upon TENANT's liability or as a full performance on its part
of the indemnification provisions of this Lease, TENANT's obligations being,
notwithstanding said policy of insurance, for the full and total amount of
any damage, injury or loss caused by the negligence or neglect connected with
or attributable to its operations under this Lease.
F. LANDLORD shall have the right at any time during the term of this
Lease to review the type, form and coverage limits of the insurance enumerated
herein. If, in the opinion of LANDLORD, the insurance provisions in this Lease
are not sufficient to provide adequate protection for LANDLORD and the members
of the public using Long Beach Airport, LANDLORD may require the TENANT to
obtain insurance sufficient to
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provide such adequate protection. Insurance requirements shall be applied
uniformly to all TENANTS engaged in similar type operations on the Long Beach
Airport, and such requirements shall be consistent with industry standards.
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19. PROPERTY INSURANCE
A. TENANT agrees that at all times during the term of this Lease and any
renewal or extension thereof, it will maintain in force an insurance policy
which will insure and indemnify the TENANT and the City from loss occurring to
equipment, buildings, structures, or other improvements on said Leased Premises
by reason of fire and any other hazards insured against in what is commonly
known as an extended coverage to the extent of at least ninety percent (90%) of
the full replacement cost of the buildings, structures or other improvements or
fixtures used in connection with the operation of any improvements located on
said Leased Premises. The City shall be named as an insured under said policy.
B. Should the Leased Premises or the building of which the Leased
Premises is a part be damaged or destroyed, in whole or in part, by fire,
earthquake or any other casualty at any time during the term of this Lease so
that the same cannot be repaired within ninety (90) working days to
substantially the same condition it was immediately prior to the happening of
such casualty, TENANT may, within ninety (90) working days after the happening
of such casualty, terminate this Lease as of the date of said casualty. In the
event of any termination of this Lease as provided in this clause, the TENANT
shall forthwith surrender the Leased Premises to LANDLORD, and upon such
surrender LANDLORD shall refund to TENANT the security deposit provided for in
Paragraph 12. In the event of any damage or destruction or other casualty as
mentioned in this paragraph, except that caused by neglect on the part of
TENANT, and this Lease is not terminated as provided in this clause, TENANT
shall proceed with reasonable diligence to restore the basic building to
substantially the condition in which it was prior to the occurrence of said
casualty. TENANT shall likewise proceed with reasonable diligence to restore
and reconstruct all other improvements on the Leased Premises to substantially
the same condition in which they were prior to the happening of the casualty.
During the
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period of reconstruction and restoration under conditions as set forth above,
the TENANT shall be entitled to a reduction in the monthly rental in an amount
that is in direct proportion to TENANT's loss of use of the Leased Premises.
Should the damage or destruction as mentioned herein be caused by neglect on the
part of TENANT, then TENANT shall be responsible for the restoration of the
Leased Premises and the restoration of the basic building to the condition in
which they were prior to the happening of the casualty, and in such case there
shall be no reduction in the rent for TENANT's loss of use of the Leased
Premises. In no event shall LANDLORD be liable to TENANT for any damages
resulting to TENANT from the happening of any such fire or other casualty or
from the repair or reconstruction of the Leased Premises or from the termination
of this Lease as herein provided, nor shall TENANT be released thereby from any
of its obligations hereunder except as expressly stated in this clause.
C. The requirements of Paragraph 18, C, D, and F hereof relating to the
form, nature, source and effects of insurance policies shall also apply to
policies obtained pursuant to this paragraph.
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20. WAIVER OF SUBROGATION
TENANT hereby waives all rights of subrogation against LANDLORD with
respect to damage to or loss of property insured under Paragraph 19 hereof or
with respect to any workers' compensation benefits paid as a result of injury to
TENANT's employees. TENANT shall attempt to obtain a waiver of subrogation
against LANDLORD from any insurer providing workers' compensation insurance for
TENANT.
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21. WORKERS' COMPENSATION
TENANT agrees to obtain and furnish evidence to City of the waiver of
TENANT's Workers' Compensation carrier of any right of subrogation against the
City. TENANT shall have the right to self insure for workers' compensation upon
submission to LANDLORD's Risk Manager of a certificate from the State of
California authorizing TENANT to self insure.
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22. ENCUMBRANCES
A. ASSIGNMENTS FOR PURPOSES OF FINANCING
Subject to the provisions of Paragraph 22 herein, during the term of this
Lease, TENANT may assign for security purposes only, or subject to the
provisions of subparagraph D of this Paragraph 21 may encumber, TENANT's
interest under this Lease and the leasehold estate hereby created to a lender on
the security of the leasehold estate and in that connection may perform any and
all acts and execute any and all instruments necessary or proper to consummate
any loan transaction and perfect the security therefor to be given such lender
on the security of the leasehold estate.
B. LENDERS' RIGHTS.
Any such lender shall have the right at any time during the term hereof:
(1) To do any act or thing required of TENANT hereunder and all such acts
or things done and performed shall be as effective to prevent a forfeiture of
TENANT's rights hereunder as if done by the TENANT; and
(2) To realize on the security afforded by the leasehold estate and to
acquire and succeed to the interest of TENANT hereunder by foreclosure of any
mortgage or deed of trust and subject to the limitations of Paragraph 23F, to
convey or assign the title to the leasehold estate created hereby to any
purchaser at a foreclosure sale or to convey to a subsequent purchase of lender
in the purchase at a foreclosure sale; and
(3) In the event of any default by the TENANT in the payment of an
installment of rent hereunder, to pay such rent to the LANDLORD and such rent
payments alone, without further requirement, shall be sufficient to prevent a
termination or forfeiture of the leasehold estate created hereby, provided,
however, that such right to prevent such termination or forfeiture shall exist
only for a period of sixty (60) days after notice of such default has been given
by the LANDLORD to such lender and only as to those lenders who have notified
the Airport Manager of their interest in said Leased
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Premises, as provided in Paragraph 22 herein; and after said sixty (60) day
period such lender, to prevent such termination or forfeiture, shall be required
to do all acts and things required of TENANT to be done and performed hereunder;
and
(4) Cure such default or breach if the same can be cured by the payment or
expenditure of money provided to be paid under the terms of this Lease; or if
such default or breach is not so curable, cause the trustee under the trust deed
to commence and thereafter to diligently pursue to completion steps and
proceedings for the exercise of the power of sale under and pursuant to the
trust deed in the manner provided by law; and
(5) Keep and perform all of the covenants and conditions of this Lease
requiring the payment or expenditure of money by TENANT until such time as said
leasehold shall be sold upon foreclosure pursuant to the trust deed or shall be
released or reconveyed thereunder; and
(6) However, if the holder of the trust deed shall fail or refuse to
comply with any and all of the conditions of this paragraph, then and thereupon
LANDLORD shall be released from the covenant of forebearance herein contained.
C. LENDER DEFINED.
The term "lender on the security of the leasehold estate" as used in this
Paragraph 21 and elsewhere in this Lease shall mean the mortgagee under any
mortgage, or the trustee and beneficiary under any deed of trust or indenture
of mortgage and deed of trust encumbering the leasehold estate or TENANT's
interest therein (including the assignee or successor of any such mortgage,
beneficiary or trustee of any such mortgage, deed of trust or indenture of
mortgage and deed of trust and the holder of any promissory note or bond secured
thereby), and executed by TENANT and delivered for the purpose of securing to
such mortgagee, trustee or beneficiary payment of any indebtedness incurred by
TENANT and secured by such mortgage, deed of trust or indenture of mortgage and
deed of trust.
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D. NOTICE.
As a condition to the vesting of any rights in this Lease or in the
leasehold estate created hereby in any encumbrancer, except as may be
otherwise provided by law, there shall first have been delivered to the
Airport Manager a written notice of such encumbrance which shall state the
name and address of the encumbrancer for the purpose of enabling notices to
be given under Paragraph 48L herein.
E. NOTICE OF DEFAULT.
Upon and immediately after the recording of the trust deed, TENANT, at
TENANT's expense, shall cause to be recorded in the office of the Recorder
of Los Angeles County, California, a written request executed and
acknowledged by LANDLORD for a copy of any notice of default and of any
notice of sale under the trust deed as provided by the statutes of the State
of California relating thereto. Concurrently with the execution of the
consent, TENANT shall furnish to LANDLORD a complete copy of the trust deed
and note secured thereby, together with the name and address of the holder
thereof. No such encumbrance shall be valid or effective unless and until
LANDLORD shall execute its written consent thereto as hereinabove provided.
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23. ASSIGNMENT AND SUBLETTING
A. CONSENT.
(1) TENANT shall not have any right to assign or sublet this Lease or any
interest herein without LANDLORD's written consent.
(2) LANDLORD will consider requests to assign or sublease. Such requests
will not be approved unless the identity and acceptability of the proposed
assignee or subtenant has been demonstrated to the satisfaction of the City
Manager.
(3) Any request to assign or sublease, shall be accompanied by such data
relating to the identity and financial condition of the proposed assignee or
sublessee as may be requested to permit LANDLORD to render its decision.
(4) If TENANT be a partnership or joint venture, a withdrawal, addition or
change (voluntary, involuntary, by operation of law, or otherwise) of any of the
partners or adventurers thereof, or if TENANT be composed of more than one
person, a purported assignment or transfer (voluntary or involuntary, by
operation of law, or otherwise) from one thereof unto the other or others
thereof, or if TENANT be a corporation, a change in the ownership (voluntary,
involuntary, or by operation of law, or otherwise) of twenty five percent (25%)
or more of its capital stock owned as of the date of its acquisition of this
Lease shall be deemed an assignment prohibited hereby unless the written consent
of the LANDLORD be first obtained thereto; provided, however, that a change in
the ownership of said capital stock as a result of the death or judicially
declared incompetency of the TENANT may be made without the consent of the
LANDLORD.
(5) Except as provided herein, LANDLORD's City Manager shall not
unreasonably refuse to grant his written consent to such transfer or assignment,
however, any such transfer without said approval, whether voluntary or
involuntary, shall be void and shall confer no right or occupancy upon said
assignee or purchaser.
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A transfer or an assignment of any such stock or interest to a
shareholder's or member's spouse, children or grandchildren is excepted from the
provisions hereof.
(6) TENANT shall reimburse LANDLORD for all of LANDLORD's costs and
expenses incurred in LANDLORD's review and consideration of requests to sublease
or assign.
B. VESTING OF ASSIGNMENTS.
As a condition of the vesting of any rights in this Lease or in the
leasehold estate created hereby in any assignee of the TENANT's interest
hereunder whether voluntary or involuntary, each such assignee shall first have
delivered to LANDLORD's Airport Manager a written notice of such assignment,
which notice:
(1) Shall contain a statement that the assignee agrees to be bound by all
the terms, covenants and conditions of this Lease which are to be performed by
TENANT.
(2) Shall state the name and address of the assignee for the purpose of
enabling notices to be given under Paragraph 49L herein.
(3) Shall state whether the assignee is an individual, a corporation or a
partnership, and if such assignee be a corporation, the names of such
corporation's principal officers and of its directors and state of
incorporation, and if such assignee be a partnership, the names and addresses of
the members of such partnership.
(4) Shall state the amount of capital stock assigned and the total amount
of capital stock outstanding at the time of the assignment.
(5) Upon an assignment of this Lease and the Leasehold estate as provided
herein, TENANT shall be released from all further liabilities and obligations
under this Lease.
C. VESTING OF SUBLEASES.
As a condition to the vesting of any rights in this Lease or in the
leasehold estate created hereby in any sublease of the TENANT's interest
hereunder, whether voluntary or
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involuntary, each such sublessee shall first have delivered to LANDLORD'S
Airport Manager a written notice of such subleases which notice:
(1) Shall state the name and address of the sublessee for the purpose of
enabling notices to be given under Paragraph 49L herein.
(2) Shall state whether the sublessee is an individual, a corporation or a
partnership, and if such sublessee be a corporation, the names of such
corporation's principal officers and its directors and state of incorporation,
and if such sublessee be a partnership, the names and addresses of the members
of such partnership.
D. TERMINATION.
This Lease shall not be terminated by reason of any assignment or transfer
by operation of law of TENANT's interest hereunder or in the leasehold estate
created hereby.
E. LENDER'S LIABILITY.
In the event that any lender on the security of the leasehold estate
obtains title to the leasehold estate or to any part hereof, by sale on
foreclosure proceedings or by deed given in lieu of foreclosure and
subsequently assigns its interest therein and such lender and its assignee
comply with all the provisions of this Paragraph, then such lender shall be
relieved of any liability hereunder as the successor of TENANT, except:
(1) Liability for the amount of any rental or other moneys due and owing
to the City by the lender or by TENANT or any other of the assignees or
successors of the lender or TENANT at the time of such assignment;
(2) Liability to apply the proceeds of any insurance policy in accordance
with the provisions of Paragraphs 18 and 19 herein; and
(3) Liability under the provisions of Paragraphs 18 and 19 herein.
F. LENDER'S RIGHT TO ASSIGNMENT.
Notwithstanding anything to the contrary contained in this Paragraph 22,
any lender on the security of the leasehold estate upon succeeding to the
TENANT's interest
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shall have the right to make one (1) assignment thereafter without the prior
written consent of LANDLORD.
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24. EMINENT DOMAIN
In the event the whole or any part of the Leased Premises is condemned by a
public entity in the lawful exercise of the power of eminent domain, this Lease
shall cease as to the part condemned upon the date possession of that part is
taken by the public entity.
If only a part of the Leased Premises is condemned and the taking of that
part, does not, as determined by the Court, substantially impair the capacity of
the remainder to be used for the purposes required in this Lease, TENANT shall
continue to be bound by the terms, covenants, and conditions of this Lease.
However, in such case, Land Rent shall be reduced in direct proportion to
TENANT's loss of use of the square footage of the Leased Premises actually taken
and the square footage of the other portions of the Leased Premises that TENANT
reasonably cannot use because of such taking.
If only a part of the Leased Premises is condemned, but the taking of the
part, as determined by the Court, substantially impairs the capacity of the
remainder to be used for the purposes required in this Lease, TENANT shall have
the option of:
A. Terminating this Lease and being absolved of obligations hereunder
which have not accrued at the date possession is taken by the public entity; or
B. Continuing to occupy the remainder of the Leased Premises and
remaining bound by the terms, covenants, and conditions of the Lease. If TENANT
elects to continue to occupy the remainder of the Leased Premises, the Land Rent
shall be reduced in the direct proportion to the percentage of the square
footage of the Leased Premises which is taken and the square footage of the
remaining portion of the Leased Premises which TENANT cannot reasonably use
because of such taking.
TENANT shall give notice in writing of its election hereunder within thirty
(30) days of the date of the taking of possession of the part of the Leased
Premises by the public entity.
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LANDLORD shall be entitled to receive and shall receive all compensation
for the condemnation of all or any portion of the Leased Premises by exercise of
eminent domain except as hereinafter provided. TENANT shall be entitled to that
portion of said compensation or award which is computed and paid for the loss of
use and/or ownership of improvements constructed on the Leased Premises. The
amount to which TENANT shall be entitled hereunder for such improvements shall
not exceed the fair market value of the improvements on the Leased Premises
(reduced in proportion to the relationship that the portion of the Lease term
which has expired bears to forty (40) years.
Nothing contained in this Section shall be deemed to constitute a waiver of
any claim TENANT may have in the direct condemnation action for severance
damages or economic loss or detriment caused to its business by the taking.
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25. RESERVATIONS TO LANDLORD
A. The Leased Premises are accepted by TENANT subject to any and all
existing easements or other encumbrances; and LANDLORD shall have the right to
maintain, repair and operate such presently constructed sanitary sewers, drains,
storm water sewers, pipelines, manholes, connections; water, oil and gas
pipelines; and telephone and telegraph power lines and such other appliances and
appurtenances necessary or convenient to use in connection therewith over, in,
upon, through, across and along the Leased Premises or any part thereof, as will
not interfere with TENANT's operations hereunder and to enter thereupon for any
and all such purposes subject to TENANT's approval which shall not unreasonably
be withheld. LANDLORD also reserves the right to grant franchises, easements,
rights of way and permits in, over, and upon, along, or across any and all
portions of said Leased Premises as LANDLORD may elect so to do, provided,
however, that no right of the LANDLORD provided for in this paragraph shall be
so executed as to interfere unreasonably with TENANT's operations hereunder, or
impair the security of any secured creditor of TENANT.
LANDLORD represents that to the best of its knowledge that Exhibit "E"
attached hereto and incorporated herein by reference, accurately shows and
describes all easements, franchises, permits and rights of way affecting the
Leased Premises including, but not limited to, sanitary sewers, drains, storm
water sewers, pipelines, manholes, connections, water, oil and gas pipelines;
and telephone and telegraph power lines.
B. LANDLORD agrees that any right as set forth in this paragraph shall
not be exercised unless a prior written notice of sixty (60) days is given to
TENANT. However, if such right must be exercised by reason of emergency,
LANDLORD will give TENANT such notice in writing as is possible under the
existing circumstances.
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C. LANDLORD will cause the surface of the Leased Premises to be restored
to its original condition upon the completion of any construction done pursuant
to this paragraph.
D. LANDLORD reserves the right to enter and have access to the Leased
Premises in order to make, construct or carry out airport improvements under
such terms and conditions as do not unreasonably interfere with TENANT's
operations hereunder.
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26. USE OF AIRPORT FACILITIES
TENANT shall have, in conjunction with the general public and other airport
users, a non-exclusive right to the use of the public airport facilities
provided and developed by LANDLORD for public aviation use on such terms and
conditions as such facilities may be made available by LANDLORD either now or in
the future to other users and tenants of the same class and subject to all
applicable laws and rules of the United States, the State of California or the
City of Long Beach governing aviation, air navigation or the use of the airport.
LANDLORD makes no undertaking or representation that the rules and
regulations governing aircraft operations at the Airport prior to execution of
this Lease or in effect thereafter will continue in effect for any specific
period of time. Enforcement of Ordinance C-6278 by the City has been joined in
the federal court action of Alaska Airlines, et al. v. City of Long Beach, et
al., CV 83-4028-LEW, and litigation of that matter is continuing. Accordingly,
it is understood by TENANT that the right to continue operation of any specific
class or model of aircraft may be subject to limitation at any time.
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27. MAINTENANCE
A. TENANT agrees, at TENANT's sole cost and expense, to repair and
maintain the Leased Premises and all improvements or landscaping existing or
constructed thereon in good order and repair and to keep said premises and
facilities in a neat, clean, attractive and orderly condition. Failure of the
TENANT to properly maintain and repair the Leased Premises shall constitute
breach of the terms of this Lease.
B. If the Leased Premises are not being adequately maintained, LANDLORD's
Airport Manager may, at his sole option, after giving thirty (30) days written
notice to TENANT to cure such breach, cause such repair and maintenance to be
made provided that TENANT has not commenced to cure the breach. If LANDLORD
causes such repairs and maintenance to be made, the breach of this lease as
described in this Section shall be deemed cured and the cost of such maintenance
or repair shall be treated as additional rent. If said costs treated as
additional rent are not paid within the next installment of Land Rent, this
Lease shall be deemed to be in default, and LANDLORD shall be entitled to all
available legal remedies for the failure to pay rent.
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28. AIRCRAFT PARKING, STORAGE AND HANGARS
A. TENANT shall provide open aircraft parking aprons which shall be so
designed, marked and maintained, as to provide for safe and functional parking
of aircraft, including sufficient distance between all structural elements
(including, but not limited to body, wings and tail) of parked aircraft to
permit safe movement of aircraft to and from aircraft parking spaces. Aircraft
tiedown equipment or apparatus shall be of a type approved by the Airport
Manager for use at the airport and all aircraft designed and equipped to be tied
down shall be properly secured to such tiedown apparatus when left unattended.
All tiedown spaces shall be clearly marked on the pavement with an
identification number in such manner that each individual parking space can be
easily identified.
B. TENANT will provide and maintain taxi lanes and aircraft parking
spaces clear of obstacles, vehicles and improperly parked aircraft in a manner
which will permit safe and convenient movement of aircraft throughout all open
parking areas.
C. TENANT will provide adequate aircraft parking spaces on the Leased
Premises to accommodate transient or visiting aircraft or aircraft present at
TENANT's facility for the purpose of maintenance or other work. Parking is
permitted only in designated spaces and TENANT expressly covenants and agrees to
make every reasonable and prudent effort to prevent parking of aircraft or
ground vehicles on property contiguous to the Leased Premises, but not a part
thereof. The Airport Manager may require creation of additional parking spaces
if he finds that aircraft using TENANT'S facilities are parking in areas other
than authorized tie downs or hangar spaces.
D. Maintenance and repair of aircraft on the based and transient aircraft
parking area shall be limited to that permitted by Federal Aviation Regulations
Part 43.3(h) and Appendix A(c), unless otherwise specifically authorized in
writing by the
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Airport Manager. Said parking areas shall be kept free of non-operational
aircraft which are not currently undergoing maintenance, repairs or installation
by TENANT.
E. Aircraft storage hangars shall be used for storage aircraft only and
no maintenance shall be done therein, except as specifically authorized by
Federal Aviation Regulations Part 43.3(h) and Appendix A(c) if such maintenance
and repair can be done in compliance with such fire, building and safety codes,
rules and/or regulations as may be applicable to such hangar or activity from
time to time.
F. Maintenance, repair, and other activities may be conducted in hangars
heretofore or hereafter constructed in such a manner that such maintenance,
repair and other activities can be carried out in such hangar in compliance with
such fire, building and safety codes, rules and/or regulations, as may be
applicable from time to time to such activities.
G. All aircraft service, maintenance, repair, inspection and building
activities conducted for financial gain within or from aircraft storage hangars
shall be done by fixed based operators, tenants or sub-tenants located on the
Long Beach Municipal Airport or their duly authorized personnel. No other
persons may perform such work.
H. Parking spaces in storage hangars shall be marked, numbered and
designed in the manner specified in subparagraph A of this paragraph for tie
down spaces.
I. The aircraft identification number of each aircraft parked in a hangar
shall be affixed to the outside of such hangar in a convenient and plainly
visible manner and said information shall be revised from time to time so that
it shall be current and visible at all times.
J. Aircraft hangars constructed after the date of execution of this Lease
shall be so designed and constructed by and of a method approved by the Airport
Manager as to permit certification for identification, safety and security
purposes of all aircraft parked therein at all times without compromising the
security of such aircraft.
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29. AIRCRAFT TIEDOWN AND STORAGE HANGAR AGREEMENTS
TENANT is authorized to enter into sublease agreements to permit aircraft
tiedown and storage on the Leased Premises without approval of LANDLORD,
provided that TENANT shall enter into and maintain current a written Aircraft
Tiedown or Aircraft Storage Hangar Agreement with the owner or lessee or
operator of each aircraft renting space on the Leased Premises. Such agreements
shall be in writing and shall specify all terms, conditions and restrictions
relating to the rental of space for the tiedown or storage of TENANT's aircraft
and indicating that said owner, operator or lessee of an aircraft to be tied
down or stored is a sub-tenant of LANDLORD as well as TENANT by virtue of the
creation of this sublease. Such agreement shall also require that the
information which TENANT must provide to LANDLORD pursuant to the terms of
Paragraph 16 of this Lease shall be supplied to TENANT by any parties with whom
TENANT has entered such agreements. LANDLORD's Airport Manager or his
designated representative may inspect TENANT's file of Aircraft Tiedown and
Storage Hangar Rental Agreements at any reasonable time during TENANT's regular
business hours.
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30. STORAGE
A. TENANT may store aircraft components, equipment, parts, bulk liquids,
scrap lumber, metal, machinery or other materials related to the conduct of its
business on the Leased Premises, provided, however, that such storage may be
done only within an area screened from public view as approved by the Airport
Manager. No storage may be done on any apron, ramp or taxiway without prior
written approval of Airport Manager which shall not unreasonably be withheld.
B. Derelict aircraft, inoperative grounded vehicles, unused ramp
equipment, scaffolding, hoists and related items not regularly and routinely
used in TENANT's business, may not be kept on the Leased Premises unless such
materials are maintained within a fully enclosed permanent structure.
C. Violation of the requirements of this Paragraph shall be deemed in
default if the condition has not been cured to the satisfaction of the Airport
Manager within thirty (30) days of posting of the property or service of TENANT
with a notice thereof.
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31. AUTOMOBILE PARKING
TENANT agrees to provide sufficient automobile parking on the Leased
Premises to accommodate the parking needs of patrons, visitors and employees,
provided, however, that Airport streets and access roadways may not be utilized
to comply with this requirement. All customer vehicles entering or leaving the
aircraft operation area must be accompanied at all such times by employees of
TENANT or its subtenants. Customer vehicles within the aircraft operating area
shall be parked inside of aircraft hangars and not on any taxiway or between
hangars.
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32. FUEL FLOWAGE FEES
A. REQUIREMENT TO PAY.
TENANT agrees to pay or cause its supplier to pay such fuel flowage fees
at such rates as may be regularly established from time to time by LANDLORD's
City Council for aircraft fuels delivered at the airport. Such fees shall be
due and payable on the tenth (10th) day of the month succeeding that in which
the aircraft fees are received by TENANT. The fees shall be calculated and
administered as provided herein on the basis of information submitted on a
form provided by LANDLORD.
B. SUPPLIER AGREEMENT.
TENANT shall enter into a written agreement with its fuel supplier which
recognizes the existence of the provisions of this Lease. A copy of said
agreement shall be delivered to LANDLORD's Airport Manager prior to the
commencement of fuel delivery. Said agreement shall provide that either TENANT
or TENANT's supplier shall indemnify, hold harmless and provide insurance
coverage to the City for all uses arising from the delivery, storage, sale and
supplying of such fuel. Such agreement shall further provide that the supplier
shall make available to the City at reasonable times, its records of
transactions involving delivery of fuel to TENANT for purposes of auditing
TENANT's performance under this Lease.
C. UNDERGROUND STORAGE AND DELIVERY.
All fuel delivered to TENANT by its supplier or suppliers shall be
placed into underground storage facilities, the location and design of which
shall have been approved by LANDLORD's Airport Manager and all fuel delivered
by any supplier or suppliers shall be placed directly into said approved
underground storage facilities.
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D. REPORTING, PAYMENT AND STATEMENTS.
Deliveries of fuel shall be reported and fees therefor paid to LANDLORD by
TENANT or TENANT's supplier each calendar month as provided herein. The fees to
be paid shall be computed on the basis of the supplier's meter tickets
indicating the fuel pumped from supplier's tanker truck to TENANT's fuel tanks
located on the Leased Premises. The amount shown on such tickets for each month
shall be multiplied by the rate established by the City Council then in effect.
The product of that computation shall be the fuel flowage fee due for that
month. TENANT will provide a year-end statement showing all deliveries in the
previous year. Both monthly reports and year-end statements shall be on forms
supplied by the Airport Manager.
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33. NOISE ABATEMENT
TENANT expressly covenants to make its best effort to ensure that aircraft
based on, or operating from, the Leased Premises adhere to duly adopted present
and future Noise Abatement Programs and Rules and Regulations relating thereto.
34. NAVIGATION EASEMENT
There is hereby reserved to the LANDLORD, its successors and assigns, for
the use and benefit of the public, a right of flight for the passage of aircraft
in the airspace above the surface of the Leased Premises herein leased. This
public right of flight shall include the right to cause in said airspace any
noise inherent in the operation of any aircraft used for navigation or flight
through said airspace or landing at, taking off from or operation on the Long
Beach Municipal Airport.
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35. BULLETIN BOARD
TENANT will install and continuously maintain a bulletin board in a
location on the Leased Premises which will be convenient to and easily seen by
patrons, users and visitors and will post and display notices, bulletins and
other information supplied by the Airport Manager in a prominent place where
such will be easily visible to TENANT's employees, patrons, users and visitors,
or will authorize the Airport Manager to post such notices which shall remain
continuously on display for such period of time as the same may continue in
effect.
36. UTILITIES
The TENANT shall, at its own cost, pay for all electricity, gas, water,
telephone and other utility services furnished to TENANT, including the cost of
installation of necessary connections for all of said services. All utilities
added from or after the date of this Lease shall be underground.
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37. WASTE DISPOSAL
TENANT shall construct all facilities necessary to prevent any water or
industrial waste from the operations of TENANT on the Leased Premises from
flowing into adjacent property. TENANT shall dispose of all sewage and
industrial waste in accordance with all applicable regulations and laws of those
environmental agencies having jurisdiction or authority thereover.
TENANT shall insure that all solid waste materials are placed in
appropriate covered containers designed for use with the type of waste involved,
which shall remain covered, and that said containers are maintained within
enclosures located on said Leased Premises and designated to keep said trash
containers out of the flow of traffic and obscured from view.
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38. FAA SECURITY AND SAFETY REGULATIONS
A. This Lease is subject to Federal Aviation Regulations Part 107 and
Part 139 relating to Safety and Security. LANDLORD shall provide copies thereof
to TENANT who shall provide copies thereof to all sub-tenants.
B. If any violation of Part 107 or Part 139 occurs on the Leased
Premises, TENANT or its sub-tenants shall be strictly liable to reimburse
LANDLORD for the full amount of any fine, penalty or other financial loss
resulting therefrom.
39. BILLBOARDS AND SIGNS
TENANT agrees not to construct, install or maintain, nor to allow upon the
Leased Premises any billboards, signs, banners or like displays which may be
placed in or upon any building or structure in such manner as to be visible from
the outside thereof, except those approved in writing by LANDLORD's Airport
Manager.
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40. INSPECTION
The Airport Manager or his authorized representative shall have the
right to enter, inspect, determine the condition of and protect LANDLORD's
interest in, the leased premises for the purpose of insuring that the Leased
Premises are maintained as required by Sections 2, 27 and 38. If inspection
discloses that the premises are not in the condition required, the procedures
established in Section 27 B shall be followed.
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41. AUDIT
The LANDLORD, City Auditor and City Manager, or their designated
representatives, shall be permitted to examine and view TENANT's records
relevant to this Lease at all reasonable times, with reasonable prior
notification, for the purpose of determining compliance with all terms,
covenants and conditions of this Lease. Such examinations and reviews shall be
conducted during TENANT's regular business hours in a manner causing as little
inconvenience as possible to TENANT.
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42. TERMINATION BY LANDLORD
Except as otherwise specifically provided in this Lease, should TENANT
default in the performance of any term, covenant, condition or agreement
imposed upon or promised by said TENANT to be performed and such default is
not corrected within thirty (30) days from and after written notice to TENANT
by LANDLORD's Airport Manager, specifying said default and demanding its
immediate correction, LANDLORD's Airport Manager may declare this Lease and
all rights and interests created thereby to be terminated. Provided,
however, that where it appears that such default cannot be cured within
thirty (30) days by the exercise of due diligence, and where TENANT has begun
and continues a good faith effort to cure such default, the Airport Manager
shall grant an extension of time for the curing of said default sufficient to
permit said default to be cured.
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43. TERMINATION BY TENANT
Should LANDLORD default in the performance of any term, covenant, or
condition to be performed by LANDLORD and such default is not remedied by
LANDLORD within thirty (30) days from and after written notice by TENANT
specifying said default, TENANT may without liability declare this Lease and all
rights and interests created thereby to be terminated. Should any law or
ordinance become effective which results in substantial interference with the
use of the Leased Premises by TENANT, then TENANT may without liability
terminate this Lease upon giving written notice to LANDLORD's City Manager of
such termination.
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44. LANDLORD'S RIGHT TO RE-ENTER
TENANT agrees to yield and peaceably deliver possession of the Leased
Premises to LANDLORD on the date of termination of this Lease, without regard to
the reason for such termination. Upon giving written notice of termination to
TENANT, the LANDLORD shall have the right to re-enter and take possession of the
Leased Premises on the date such termination becomes effective without further
notice of any kind and without institution of summary or regular legal
proceedings. Termination of the Lease and re-entry of the Leased Premises by
LANDLORD prior to expiration of the Lease Term shall in no way alter or diminish
any obligation of TENANT under the Lease terms and shall not constitute an
acceptance or surrender. TENANT waives any and all right of redemption under
any existing or future law or statute in the event of eviction from or
dispossession of the Leased Premises in the event LANDLORD re-enters and takes
possession of the Leased Premises in a lawful manner. TENANT agrees that this
clause may be filed in any such action and that when filed, it shall be a
stipulation of TENANT fixing the total damages to which TENANT is entitled to
such an action.
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45. DEFAULT
TENANT shall be in default upon the occurrence of the following events:
A. If any default in the payment of an installment of rent hereunder,
shall continue for a period of sixty (60) days after the LANDLORD delivers to
TENANT notice in writing thereof; or
B. Except as specifically provided in this Lease, if default should be
made in any of the other convenants and conditions herein contained to be
observed, kept and performed by TENANT and such default, if curable within a
period of sixty (60) days, shall nevertheless continue for sixty (60) days after
LANDLORD delivers to TENANT notice thereof in writing; or
C. If such default described in Section B above is not curable within
such sixty (60) days and TENANT has failed to commence the curing of such
default within such sixty (60) day period, or, having thus commenced to cure
said default, shall thereafter fail to prosecute diligently the curing thereof
as soon as possible.
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46. ABANDONMENT
If TENANT shall abandon or be dispossessed by process of law, any personal
property belonging to TENANT remaining on the premises thirty (30) days after
such abandonment or dispossession shall be deemed to have been transferred to
LANDLORD, and LANDLORD shall have the right to remove and to dispose of the same
without liability to account therefore to TENANT or to any person claiming under
TENANT.
47. POSSESSORY INTEREST
TENANT recognizes and understands that this Lease may create a possessory
interest subject to property taxation and that TENANT may be subject to the
payment of property taxes on such interest.
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48. FEDERAL AVIATION ADMINISTRATION ASSURANCES
This Lease is subject to certain assurances mandated by the Federal
Aviation Administration for inclusion in airport leases. These assurances are
set out in full in Exhibit "F" attached hereto and made a part hereof.
49. TERMINATION OF PRIOR AGREEMENTS
It is mutually agreed that this Lease shall supersede any prior agreements
between the parties hereto covering all or any portion of the Leased Premises.
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50. GENERAL CONDITIONS
A. Holding Over by TENANT.
In the event of TENANT holding over and failing to surrender the premises
at the expiration of the term hereof, or any extension thereof, with or without
the consent of LANDLORD's City Manager, said holdover shall result in the
creation of a tenancy from month to month at the monthly rental in effect for
the last month prior to termination hereof, payable on the first day of each
month during said month to month tenancy. Nothing herein shall be construed to
grant TENANT any right to hold over at the expiration of the term, or any
extension thereof without the express written consent of LANDLORD's City
Manager. All other terms and conditions of this Lease shall remain in full
force and effect and be fully applicable to any month to month tenancy
hereunder.
B. Bankruptcy.
If TENANT shall file a petition in bankruptcy under any Chapter of federal
bankruptcy law as then in effect, or if TENANT be adjudicated a bankrupt in
involuntary bankruptcy proceedings and such adjudication shall not have been
vacated within sixty (60) days from the date thereof, or if a receiver or
trustee be appointed of TENANT's property and the order appointing such receiver
or trustee not be set aside or vacated within sixty (60) days after the entry
thereof, or if TENANT shall assign TENANT's estate or effects for the benefit of
creditors, or if this Lease shall otherwise by operation of law pass to any
person or persons other than TENANT, then and in any such event LANDLORD may, if
LANDLORD so elects, with or without notice of such election and with or without
entry or action by LANDLORD, forthwith terminate this Lease and neither TENANT
nor any person claiming through or under TENANT or by virtue of any statute or
order of any court shall be entitled to possession of the Premises but shall
forthwith quit and surrender the Premises to LANDLORD. Nothing herein contained
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shall limit or prejudice the right of LANDLORD to prove and obtain as damages by
reason of any such termination an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing the proceedings
in which such damages are to be proved.
C. Successors in Interest.
Unless otherwise provided in this Lease, the terms, covenants and
conditions contained herein shall apply to and find the heirs, successors,
executors, administrators and assigns of all of the parties hereto.
D. Taxes and Assessments.
TENANT shall pay before delinquency, all taxes, license fees, assessments
and other charges which are levied and assessed against and upon the Leased
Premises, fixtures, equipment, aircraft or other property caused or suffered by
the TENANT to be placed upon the Leased Premises or located at the Long Beach
Municipal Airport. The TENANT shall furnish LANDLORD with satisfactory evidence
of these payments upon demand by LANDLORD.
E. Costs of Sustaining an Action for Breach or Default.
In the event LANDLORD or TENANT commences legal action against the other
claiming a breach or default of this Lease, the prevailing party shall be
entitled to recover from the other its costs and expenses of said litigation,
including but not limited to legal fees.
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F. Circumstances Which Excuse Performance.
If either party hereto shall be delayed or prevented from the performance
of any act required hereunder by reason of acts of God, restrictive governmental
laws or regulations or other cause beyond the reasonable control of the party
obligated other than financial incapacity, performance of such act shall be
excused for the period of the delay; and the period for the performance of any
such act shall be extended for a period equivalent to the period of such delay,
provided, however, nothing in this subsection shall excuse TENANT from the
prompt payment of any rental or other charge required of TENANT hereunder except
as may be expressly provided elsewhere in this Lease.
G. Amendments.
This Lease sets forth all of the agreements and understandings of the
parties hereto and is not subject to modification, except in writing duly
executed by the legally authorized representatives of each of the parties.
H. Lease Organization.
The various headings in this Lease, the number of letters thereof, and the
organization of the Lease into separate sections and paragraphs are for purposes
of convenience only and shall not be considered otherwise.
I. Partial Invalidity.
If any term, covenant, condition or provisions of this Lease is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the provisions hereof shall remain in full force and effect and
shall in no way be affected, impaired or invalidated thereby.
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J. Waiver Of Rights.
The failure of TENANT or LANDLORD to insist upon strict performance of any
of the terms, conditions or covenants herein shall not be deemed a waiver of any
rights or remedies that either may have, and shall not be deemed a waiver of any
subsequent breach or default of the terms, conditions or covenants herein
contained.
K. Notices.
All notices given or to be given by either party to the other, shall be in
writing and shall be served by either: (1) enclosing the same in a sealed
envelope addressed to the party intended to receive the same at the address
indicated herein or at such other address as the parties may by written notice
hereafter designate, and deposited in the U. S. Postal Service, first-class
mail, with postage prepaid; or (2) personal service upon the Airport Manager or
upon an officer or authorized agent of TENANT. Such notices shall be effective
on the date of mailing if served by mail or on the date personal service is
effected if such notice is personally served. For the purposes hereof, notices
to LANDLORD and TENANT shall be addressed as follows:
TO: LANDLORD TO: TENANT
Airport Manager 7701 WOODLEY AVENUE
Long Beach Municipal Airport CORPORATION
4100 Donald Douglas Drive 4150 Donald Douglas Drive
Long Beach, California 90808 Long Beach, California 90808
L. Time.
Time is of the essence in this Lease.
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IN WITNESS WHEREOF, the parties hereto have caused these presents to be
duly executed with all the formalities required by law on the respective dates
set forth opposite their signatures.
CITY OF LONG BEACH, a municipal
corporation
March 14, 1989 By /s/ James Mankle
- -------- --------------------------------
City Manager
LANDLORD
7701 WOODLEY AVENUE CORPORATION
January 13, 1989 By /s/ Allyn P. Robinson III
- ---------- --------------------------------
Vice President, Service &
Product Support
TENANT
The foregoing Fixed Base Operation Lease is hereby approved as to form this
27th day of February, 1989.
JOHN R. CALHOUN, City Attorney
By: /s/ John R. Calhoun
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EXHIBIT A
[MAP OF LEASED PREMISES]
A-1
<PAGE>
EXHIBIT B
[MAP OF LEASED PREMISES]
B-1
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ATTACHMENT 2
RESOLUTION NO. C-26041
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF LONG BEACH ESTABLISHING RATES AND FEES
TO BE CHARGED AT THE LONG BEACH MUNICIPAL
AIRPORT
WHEREAS, Section 16.44.090 of the Long Beach Municipal Code provides that
the rates and fees for the uses of or services rendered at the Long Beach
Municipal Airport shall be established by resolution of the Long Beach City
Council; and
WHEREAS, the schedules of the various rates and fees for uses of and
services rendered at the Long Beach Municipal Airport which have been
established pursuant to Municipal Code Section 16.44.090 are presently specified
in Resolution No. C-25842 adopted by the Long Beach City Council on June 20,
1995; and
WHEREAS, the City Council desires to adjust the existing rates and fees and
modify the application of certain rates and fees for the uses of or services
rendered at the Long Beach Municipal Airport; and
WHEREAS, the definitions of terms used in this resolution are set out at
Long Beach Municipal Code Chapter 16.43 and the Flight Allocation Resolution of
the City of Long Beach;
NOW, THEREFORE, the City Council of the City of Long Beach resolves as
follows:
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Section 1. The rates and fees for the uses of and services rendered at
the Long Beach Municipal Airport as indicated herein are hereby fixed and
established as follows, and said rates and fees shall be collected by the
Airport Manager or designee:
A. LANDING FEES.
All aircraft certified under FAR Part 121 or 125, or certified under FAR
Part 135 (if such Part 135 operations are on a scheduled basis of 5 or more
landings per week) conducting commercial landings at Long Beach Municipal
Airport shall pay a landing fee based on the Gross Certified Landing Weight of
the aircraft. For purposes of this resolution, a commercial landing is defined
as any landing where an aircraft is carrying persons or cargo for hire,
compensation or reward or will do so in its next subsequent departure. The
landing fees shall be as follows:
Period 7:00 a.m. - 10:00 p.m. $1.46/1000 lbs.
Period 10:00 p.m. - 7:00 a.m. $3.11/1000 lbs.
Any scheduled commercial carrier diverted from landing at Long Beach
Airport between 10:00 p.m. and 7:00 a.m. shall be credited for incremental (over
and above costs which would have been incurred at the Long Beach Airport)
expenses incurred for aircraft handling, airport use and facility fees, and fees
incurred in transporting enplaning and deplaning passengers between LGB and an
authorized alternate airport. In order to qualify such incremental costs for a
credit against Airport-related rents/fees owed the City of Long Beach, such
expenditures must be consistent with a schedule of rates/charges which has been
pre-approved by the Airport Manager.
B. TERMINAL BUILDING GATE USE FEE.
All aircraft using the Airport Terminal Building apron for the enplanement
or deplanement of passenger or cargo shall pay a fee as set out below for each
flight which makes use of said facilities:
$.45/1000 lbs. based on Gross Certified Landing Weight.
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Uses which require the presence of a Security Officer will be charged a
pro-rata fee based on actual time at a cost recovery rate of $35.00/hour. Such
uses include ramp safety enforcement during enplaning and/or deplaning of
passengers, and escorting of aircraft and vehicles between locations.
C. TERMINAL BUILDING APRON PARKING FEE.
Any aircraft which is parked on the Terminal Building apron and not engaged
in the enplanement or deplanement of passengers or cargo or which remains
overnight, shall pay aircraft parking fees in accordance with the following
schedule:
For each 24-hour period or portion thereof, $.38/1000 lbs.,
based upon the aircraft's Gross Certified Landing Weight.
D. AIRCRAFT PARKING FEE - UNCOVERED.
The following rates shall be paid for the parking of aircraft on open areas
of the Airport designated such uncovered parking by the Airport Manager:
WING SPAN (FEE) MONTHLY RATE DAILY RATE
-------------- ------------ ----------
0 - 35 $ 57.64 $ 4.20
36 - 40 $ 62.88 $ 4.56
41 - 45 $ 78.60 $ 5.66
46 - 50 $120.52 $ 8.81
51 - 75 $235.80 $16.77
76 - 100 $393.00 $28.30
101 - 125 $471.60 $33.54
126 - 150 $550.20 $39.83
Above 150 $628.80 $45.07
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No parking charges for such outdoor parking shall be assessed against
aircraft owned and operated by the United States of America, or any state,
county, or city while said aircraft is located at the Airport on documented
official government business.
E. SECURITY SURCHARGE.
Each airline requiring a law enforcement officer to be present during
security screening as required by Part 107 of the Federal Aviation Regulations
shall pay a pro-rata fee based on actual time at a cost recovery rate of
$35.00/hour, per security officer.
F. TEMPORARY COMMERCIAL USE.
The Airport Manager, as designee of the City Manager, is hereby authorized
to issue commercial use permits, to any person or entity for use of any portion
of the Airport in connection with the temporary use of Airport property.
1. For such purposes as filming of commercial motion pictures, commercial
still photography, or other similar purposes, there shall be a $210.00 permit
preparation fee which is non-refundable. In addition, the following fees shall
be applied:
a. Security Officer - $35.00 per hour or portion thereof per officer.
The Airport Manager shall determine the number of security officers required;
b. Security Vehicle - $21.00 per day. The Airport Manager shall
determine the number of security vehicles required;
c. Parking Lots, Streets And Other Public Terminal Areas -
$100.00 per hour or portion thereof;
d. Runway, Taxiways And Other Operational Areas - $131.00 per hour or
portion thereof;
e. Terminal Building Area - $210.00 per hour or portion thereof for the
time period 7:00 p.m. to 7:00 a.m.; and $367.00 per hour or portion thereof for
the time period 7:00 a.m. to 7:00 p.m.;
2. For such purposes as food catering vehicles which offer services to
the public, the fee of $110.04 per month catering truck shall be applied.
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3. For such purposes as aircraft washing or other aircraft services
provided by vehicles which offer the service to the public, the fee of $55.02
per month per truck shall be applied.
G. FUEL FLOWAGE FEES.
For every gallon of fuel and lubricant accepted for delivery into fuel
facilities at Long Beach Municipal Airport, the following fees shall be paid to
the City by the owner or operator of such facility:
1. $0.06 per gallon of fuel used for any purpose whether on or off the
airfield. Upon submittal of substantiating documentation, the fuel flowage
fee may be waived only for the following activities:
a. Commercial Aviation, where commercial aviation activity is defined as
the carrying of persons or cargo for hire, compensation or reward and if such
activity results in the payment of landing fees for that activity;
b. Any aircraft operated by or for public agencies which is engaged in
documented official government business.
2. Upon submittal of substantiating documentation acceptable to the
Airport Manager, the fuel flowage fee shall be adjusted for those gallons sold
to a single entity in a calendar month as follows:
...... ......
0 to 25,000 gals fee is $0.06 per gal.
25,001 gals to 50,000 gals fee is $0.02 per gal.
Over 50,000 gals fee is $0.01 per gal.
Fuel Flowage Reports and Fees must be submitted to Airport Administration
monthly, in accordance with the terms of the operative Lease, Permit or
Agreement. Fuel Flowage Reports must be submitted by both the supplier of fuel
to the Airport and by the operator of the fueling facility. Fuel Flowage
Reports must designate the party responsible for paying the Fuel Flowage Fee and
the Fuel Flowage Fee must accompany said report.
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H. COMMENCEMENT BONDS.
Each Air Carrier or Commuter Carrier, as defined by Long Beach Municipal
Code Chapter 16.43 shall post a bond, or other adequate security, as approved as
to sufficiency by the City Manager, or designee, and as to form by the City
Attorney, for each Flight Slot or for reservation of Flight Slots, in the amount
specified:
1. Air Carrier Bond. The bond to be posted by direct and indirect
commercial air carriers for allocation of flights shall be $10,000 per Flight
Slot.
2. Commuter Carrier Bond. The bond to be posted by commuter carriers for
allocation of flights shall be an amount equal to three times the projected
monthly fees.
These bonds are intended to secure Air Carriers' and Commuter Carriers'
performance as required by the Flight Allocation Resolution of the City of Long
Beach and to assure continuation of Operations of each Flight Slot for at least
six months. Such security is in addition to bonds to indemnify the City against
a failure on the part of the Carrier to perform all obligations of the Carrier
to the City under their Permit to operate.
I. RESERVATION BOND. Any carrier wishing to reserve or use an available
"unused flight" as prescribed in the Flight Allocation Resolution of the City of
Long Beach must post an amount equal to the sum of the projected fees.
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J. AUTOMOBILE PARKING FEES.
The fee for automobile parking at the Airport shall be:
Short term/open lot
lst half hour (or part thereof) $ .50
2nd half hour (or part thereof) $ .50
Each additional hour (or part thereof). $ 1.55
Daily maximum - standard $12.60
- handicapped $ 3.00
Metered lot (24 hour maximum stay) per each quarter hour $ 0.25
Long term and structure parking
lst half hour (or part thereof) $ .50
2nd half hour (or part thereof) $ .50
Each additional hour (or part thereof) $ 1.55
Daily maximum - first through third day $ 9.45
- fourth through fifth day $ 6.00
- sixth through seventh day $ -0-
- handicapped $ 3.00
Long term "Parking Special" (if applicable)
- daily maximum $ 6.00
Remote open lot/Douglas Drive & Lakewood Blvd.
24 hour daily rate (or part thereof) $ 3.00
Monthly permit parking - tenant employee lot = per space $31.50
tenant/employer - not less than 50 spaces reserved = per
space $ 7.50
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Frequent Flyer Parking Coupon Booklet $50.00
1 coupon = one parking day in long term parking
structure. Per booklet based on 10 coupons per
booklet ($5.00 per coupon).
The long term cycle will repeat in the same pattern after 7 days. A day is
24 hours from the time of entry; a partial day is charged at the daily rate or
portion thereof whichever is less. Frequent Flyer Coupons must be used within
90 days of purchase and are redeemable at a rate of 1 coupon per parking day in
the long term parking structure. The Frequent Flyer Parking Coupon program and
the Long Term "Parking Special" shall be reevaluated quarterly by Airport
Manager who shall determine whether to continue or discontinue the programs
based on effectiveness, usage, parking demand and available capacity. Whether
to institute or discontinue the Long Term "Parking Special" program is within
the discretion of the Airport Manager based on the criteria set forth in this
resolution. Whether to discontinue or reintroduce the Frequent Flyer Coupon
program is within the discretion of the Airport Manager based on the criteria
set forth in this resolution.
K. COMMON USE CHARGES.
Common use areas include the boarding lounge, concourse, and baggage claim
areas. The common use charge shall be computed on the depreciation, utilities,
custodial, and maintenance services for the common use areas. Common use
charges shall be assessed of all airlines which use the common areas at a per
enplaned passenger rate calculated by the Airport Manager. The calculation
shall be based on actual expenses for common use areas, and number of airlines
and flight activity at the Long Beach Airport. The per passenger rate starting
July, 1996 shall be $1.05 per enplaned passenger; however, may be modified at
least annually to reflect changes in expenditures and activities. The common
use charges shall be invoiced by the Airport monthly.
C-8
<PAGE>
L. TERMINAL SPACE CHARGES.
The Airport Manager, as designee of the City Manager, is hereby authorized
to issue Commercial Use Permits to any person or entity for use of designated
portions of the Airport Terminal in connection with the operation of an approved
service. The following rental rates shall be applied:
Ticket Counter Space $1.00 per sq. ft. per month
plus utilities at $0.30 per sq. ft. per month
Terminal Back Office Space $0.833 per sq. ft. per month
plus utilities at $0.30 per sq. ft. per month
Terminal Basement Space $0.25 per sq. ft. per month
plus utilities at $0.075 per sq. ft. per month
Terminal Ramp Storage Space $.025 per sq. ft. per month
no utilities provided
M. CONTRACTED AIRPORT SERVICES.
Fees for other services which may lawfully be contracted from the Airport
Bureau shall be determined by the Airport Manager on a time, equipment, and
materials used basis, unless otherwise specified by City Council approved
contract.
N. SECURITY IDENTIFICATION BADGES.
The Long Beach Airport is required under Federal Air Regulation (FAR) to
maintain a security identification badging system to control entry of
unauthorized persons into the Security Identification Display Area (SIDA). The
FAR requires that the entire system be replaced whenever at least five percent
of the issued badges are unaccountable (lost, stolen or unreturned photo
identification badges) as it considers the system compromised. Therefore, a
$50.00 fee per unaccounted badge shall be assessed the user of the system to
recover the cost of badge replacement.
C-9
<PAGE>
Sec. 2. All of the rates and fees specified herein, except automobile
parking, shall be adjusted each year by an amount equal to the annual percentage
change in the April Consumer Price Index (All Urban Consumers) for the Los
Angeles-Anaheim-Riverside region. The adjusted rates shall be increased up to
the nearest cent. Said adjustments shall automatically become effective on the
first day of October each year without amendment of this resolution or any
other action by the City. For the period beginning July 1, 1996 to September
30, 1997, no such adjustment shall be made.
Sec. 3. The City Manager or the Airport Manager shall be authorized to
exempt an aircraft and/or special event from any of the rates or fees specified
herein when such aircraft or event has come to the Airport to participate in a
non-profit event cosponsored by the City/Airport or the owner or event is a
governmental entity on documented official government business.
Sec. 4. If any provision or clause of this resolution or the
application thereof to any person or circumstances is held to be
unconstitutional or otherwise invalid by any court of competent jurisdiction,
such invalidity shall not affect other ordinance provisions or clauses or
applications thereof which can be implemented without the invalid provision,
clause of application, and to this end the provisions and clauses of this
resolution are declared to be severable.
Sec. 5. That Resolution C-25842 adopted by the City Council of the City
of Long Beach at its meeting of June 20, 1995, is hereby rescinded and is
superseded by this resolution.
Sec. 6. This resolution shall take effect immediately upon its adoption
by the City Council, and the City Council shall certify the vote adopting this
resolution.
C-10
<PAGE>
I hereby certify that the foregoing resolution was adopted by the City
Council of the City of Long Beach at its meeting of July 9, 1996, by the
following vote:
Ayes: Councilmembers: Oropeza, Lowenthal, Drummond,
-----------------------------------
Clark, Robbins, Topsy-Elvord,
-----------------------------------
Donelon, Shultz.
-----------------------------------
Noes: Councilmembers: None.
-----------------------------------
Absent: Councilmembers: Kellogg.
-----------------------------------
/s/ Shelba Powell
-----------------------------------
City Clerk
C-11
<PAGE>
Exhibit 10.13
Form of Lease Agreements, dated as of January 1, 1994
between Immuebles El Vigia, S.A. ("Immuebles")
and Interiores Aeros, S.A. de C.V ("Interiores")
------------------------------------------------------
Interiores has entered into three substantially similar leases with
Immuebles for three buildings. The only significant differences between the
three leases are building size (9,643, 15,574 and 14,346 square feet) and rent
(currently $1,929, $3,115 and $2,869, respectively, per month). The rent under
all of the leases is subject to annual adjustment in the same proportion and on
the same terms as set forth in the form of lease.
<PAGE>
LEASE AGREEMENT entered into by and between IMMUEBLES EL VIGIA, S.A.,
hereinafter known as LESSOR, represented by Mr. Rodolfo Nelson Culebro; and
INTERIORES AEREOS, S.A. DE C.V., hereinafter known as LESSEE, represented by Mr.
Zaven Arakelian, and which is formalized in accordance with the following
Declarations and Clauses:
D E C L A R A T I O N S:
Mr. Rodolfo Nelson Culebro declares:
I. That his principal is the owner and can freely dispose of a piece of
land and constructions therein located in Calle del Acero, Lot Number 1,
Building No. 6, El Vigia Industrial Subdivision, in Mexicali, Baja California,
and which property is described in the plot plan that as Exhibit "A" is attached
hereto to form a part thereof.
II. That the building subject of this lease agreement is constructed of
metal sheets, block walls and cement floors, and has an area of 9,643.00 square
feet.
III. That said building has water and drainage services, and that the
electricity and telephone lines run in close proximity.
IV. That the building described above, which is the subject of this lease,
is suitable to carry on industrial activities as proposed by LESSEE, due to its
nature and its location in accordance with zoning regulations presently in
effect.
Pursuant to the above the parties agree as follows:
2
<PAGE>
C L A U S E S:
FIRST: LESSOR leases to LESSEE, and LESSEE leases from LESSOR, the
building and land described in Declarations I and II above, the description of
which is consigned in the plot plan that as Exhibit "A" is attached hereto to
form an integrant part hereof.
SECOND: The Lease Term is five years and six months binding for LESSOR and
optional for LESSEE, except for the first six months, that will be binding for
LESSEE, effective as of the first of January, nineteen hundred ninety four.
Upon termination of the period of six binding months, LESSEE may, at its
option, notify LESSOR thirty days in advance, its intention to continue to
occupy the leased premises for an additional period of one year, up to a maximum
of five additional years, under the terms hereinabove established.
Upon expiration of the binding Lease Term, LESSEE may, at its option, by
means of a written notice given to LESSOR sixty days in advance to the
termination of this Agreement, continue to occupy the leased premises for an
additional period of five years, binding for LESSOR and optional for LESSEE.
THIRD: The price of the lease for the property referred to in Declaration
I above, for the first six months, effective as of the first of January,
nineteen hundred ninety four, is the amount in Mexican currency equal to
US$1,735.74 (ONE THOUSAND SEVEN HUNDRED AND THIRTY FIVE DOLLARS 74/100 UNITED
STATES CURRENCY), per month.
3
<PAGE>
In the event that LESSEE continues to occupy the premises for additional
periods during the original Lease Term, as provided for in Clause Second above,
the price for the lease of the premises referred to in Declarations I and II
above shall be the following:
a) For the lease year counted as of the first day of January, nineteen
hundred ninety five, the amount in Mexican currency equal to US$1,832.17 (ONE
THOUSAND EIGHT HUNDRED AND THIRTY TWO DOLLARS 17/100 UNITED STATES CURRENCY),
per month.
b) For the lease year counted as of the first day of January nineteen
hundred ninety six, the amount in Mexican currency equal to US$1,928.60 (ONE
THOUSAND NINE HUNDRED AND TWENTY EIGHT DOLLARS 60/100 UNITED STATES CURRENCY),
per month.
c) For the lease year counted as of the first day of January nineteen
hundred ninety seven, the amount in Mexican currency equal to US$2,025.03 (TWO
THOUSAND AND TWENTY FIVE DOLLARS 03/100 UNITED STATES CURRENCY), per month.
d) For the lease year counted as of the first day of January nineteen
hundred ninety eight, the amount in Mexican currency equal to US$2,121.46 (TWO
THOUSAND ONE HUNDRED TWENTY ONE 46/100 UNITED STATES CURRENCY), per month.
e) For the fourth and fifth lease year, in the event that LESSEE
exercises the option referred to in the second paragraph of Clause Second above,
negotiated between LESSOR and LESSEE, who will meet, before the termination of
the initial five years lease; that is before December 31st nineteen hundred and
ninety eight, to be applied as of January 1st nineteen hundred and ninety nine.
FOURTH: LESSEE will use the building object of this lease to carry on its
industrial operations.
4
<PAGE>
FIFTH: LESSEE is expressly authorized by LESSOR to introduce any and all
improvements into the leased premises without prior authorization from LESSOR,
and is further authorized to remove such improvements provided that any damage
to the building be repaired by LESSEE; consequently, LESSEE is authorized to
remove all equipment and accessories such as lamps, systems and units for
distribution and control of electricity, heating and air conditioning units,
which items are listed in an enunciative and not limitative manner. LESSEE may
not remove all integral improvements made to the building, such as floors and
wall finishings.
SIXTH: In the event that LESSEE has knowledge of any condition of the
leased premises that requires repairs that under the terms of Fraction II of
Article 2286 of the Civil Code for Baja California should be executed by LESSOR,
and a delay in the execution of such repairs may cause a greater damage either
to the building or to the items located therein, LESSEE shall have the option to
make such repairs without prior authorization from LESSOR, and LESSOR shall
reimburse LESSEE for the cost of such repairs.
SEVENTH: LESSOR promises to obtain an insurance policy that protects the
leased building against fire, and other major catastrophes, and LESSEE shall
obtain the insurance corresponding to the equipment it introduces into the
leased premises, consequently, each party released the other from any
responsibility that may result for damages to the properties herein referred to.
EIGHTH: LESSEE promises to pay for its own account the services it
installs or that are installed in the leased premises, such as electricity,
water, telephone, etc.; consequently, LESSEE will deal directly with the person
or corporation that renders such
5
<PAGE>
services for their installation, removal or suspension. LESSOR shall pay any
property tax on the leased premises, and other taxes and duties imposed on
leased premises.
NINTH: LESSOR promises to repair and maintain in good order the roof of
the premises subject of this lease.
TENTH: LESSEE may assign in whole or in part, the rights and obligations
derived from this agreement, or sublease only prior written authorization from
LESSOR, who may not unreasonably withhold such approval; however, LESSEE may
freely exercises this right to assign or sublease if it be in favor of an
affiliated company or subsidiary.
ELEVENTH: If during the lease term the right of LESSEE to use and hold the
leased premises is limited by any administrative or judicial act not derived
from the relations of LESSEE with third parties, LESSOR shall at its own account
and expense, perform such acts or initiate such procedures as may be required to
invalidate such judicial or administrative decision, and if within a period of
thirty days LESSEE'S use of the leased premises is nevertheless thereby
affected, LESSEE will have the right to terminate this agreement with no
responsibility.
If during the term of this agreement, any governmental authority
establishes any legal prohibition that without due cause by LESSEE prevents such
LESSEE from doing business in Mexico, LESSEE, upon written notice to LESSOR, may
terminate this Lease Agreement without further liability for rental payments due
under this Lease Agreement, but without prejudice to the rights of LESSOR and
LESSEE to claim from the corresponding authority the damages caused.
6
<PAGE>
TWELVETH: For the interpretation and compliance of this agreement both
parties expressly submit themselves to the jurisdiction and competence of the
Courts of the City of Mexicali, State of Baja California, waiving any other
jurisdiction to which they may have a right due to their present or future
domiciles.
IN WITNESS WHEREOF this document is drawn in duplicate and signed in this
City of Mexicali, Baja California, on first day of January of nineteen hundred
and ninety four.
LESSOR: LESSEE:
/s/ Mr. Rodolfo Nelson Culebro /s/ Mr. Zaven Arakelian
INMUEBLES EL VIGIA, SA DE CV INTERIORES AEREOS, SA DE CV
IVI-670412-I78 IAE-860616-AF7
MR. RODOLFO NELSON CULEBRO MR. ZAVEN ARAKELIAN
WITNESS: WITNESS:
/s/ Juan Carlos Nelson Luken /s/ Martha Patricia Castro S.
- ------------------------------ -------------------------------
LIC. JUAN CARLOS NELSON LUKEN CP. MARTHA PATRICIA CASTRO S.
ADMINISTRATIVE MANAGER CONTROLLER
7
<PAGE>
Exhibit 10.14
LEASE AGREEMENT entered into by and between IMMUEBLES EL VIGIA, S.A.,
hereinafter known as LESSOR, represented by Mr. Rodolfo Nelson Culebro; and
INTERIORES AEREOS, S.A. DE C.V., hereinafter known as LESSEE, represented by
Mr. Zaven Arakelian, and which is formalized in accordance with the following
Declarations and Clauses:
DECLARATIONS
Mr. Rodolfo Nelson Culebro declares:
I. That his principal is the owner and can freely dispose of a piece of land
and constructions therein located in Calle del Acero, Lot Number 19, Building
No. 19, El Vigia Industrial Subdivision, in Mexicali, Baja California, and which
property is described in the plot plan that as Exhibit "A" is attached hereto to
form a part thereof.
II. That the building subject of this lease agreement is constructed of metal
sheets, block walls and cement floors, and has an area of 11,913 Square Feet.
III. That said building has water and drainage services, and that the
electricity and telephone lines run in close proximity.
IV. That the building described above, which is the subject of this lease, is
suitable to carry on industrial activities as proposed by LESSEE, due to its
nature and its location in accordance with zoning regulations presently in
effect.
Pursuant to the above the parties agree as follows:
CLAUSES
FIRST: LESSOR leases to LESSEE, and LESSEE leases from LESSOR, the building
and land described in Declarations I and II above, the description of which is
consigned in the plot plan that as Exhibit "A" is attached hereto to form an
integral part hereof.
SECOND: The Lease Term is two years and eight months binding for LESSOR and
optional for LESSEE, except for the first six months, that will be binding for
LESSEE, effective as of the first of May, nineteen hundred ninety six.
Upon termination of the period of six binding months, LESSEE may, at its option,
notify LESSOR thirty days in advance, its intention to continue to occupy the
leased premises
<PAGE>
for an additional period of two (2) years and two (2) months, up to a maximum of
five years, under the terms hereinabove established.
THIRD: LEASE PRICE
The price of the lease for the property referred to in Declaration I above, for
the first eight months, effective as of the first of May, nineteen hundred
ninety six, is the amount in Mexican currency equal to US $2,382.00 (TWO
THOUSAND THREE HUNDRED & EIGHTY TWO DOLLARS 00/100 UNITED STATES CURRENCY), per
month plus I.V.A. tax.
In the event that LESSEE continues to occupy the premises for additional period
during the original Lease Term, as provided for in Clause II above, the price
for the lease of the premises referred to in Declarations I and II above shall
be the following:
a) For the lease year counted as of the first day of January, nineteen
hundred ninety seven, the amount in Mexican currency equal to US $2,501.73 (TWO
THOUSAND FIVE HUNDRED AND ONE DOLLARS 73/100 UNITED STATES CURRENCY), per
month per month plus I.V.A. tax.
b) For the lease year counted as of the first day of January, nineteen
hundred ninety eight, the amount in Mexican currency equal to US $2,620.86 (TWO
THOUSAND SIX HUNDRED AND TWENTY DOLLARS 86/100 UNITED STATES CURRENCY), per
month per month plus I.V.A. tax.
The rents agree herein shall be paid monthly in advance in the address of LESSOR
located at Reforma #1699 y Calle I, Colonia Nueva of this City, at the official
rate of exchange for the day of payment applicable for such operations.
FOURTH: LESSEE will use the building object of this lease to carry on its
industrial operations.
FIFTH: LESSEE is expressly authorized by LESSOR to introduce any and all
improvements into the leased premises without prior authorization from LESSOR,
and is further authorized to remove such improvements provided that any damage
to the building be repaired by LESSEE; consequently LESSEE is authorized to
remove all the equipment and accessories such as lamps, systems and units for
distribution and control of electricity, heating and air conditioning units,
which items are listed in an enunciative and not limitative manner. LESSEE may
not remove any integral improvements made to the building, such as floors,
walls, ramps, etc., as well as, any other type of integral lease hold
improvement.
2
<PAGE>
SIXTH: In the event that LESSEE has knowledge of any condition of the leased
premises that requires repairs that under the terms of Fraction II of Article
2286 of the Civil Code for Baja California should be executed by LESSOR, and a
delay in the execution of such repairs may cause a greater damage either to the
building or to the items located therein, LESSEE shall have the option to make
such repairs without prior authorization from LESSOR, and LESSOR shall reimburse
LESSEE for the cost of such repairs.
SEVENTH: LESSOR promises to obtain an insurance policy that protects the leased
building against fire, and other major catastrophes, consequently, LESSEE shall
obtain the insurance corresponding to the equipment it introduces into the
leased premises, materials and finish products it introduces into the leased
premises, consequently, each party releases to the other from any responsibility
that may result in damages to the properties herein referred to, upon occupancy.
EIGHTH: LESSEE promises to pay for its own account the services it installs or
that are installed in the leased premises, such as electricity, water,
telephone, day care, security etc. consequently, LESSEE will deal directly with
the person or corporation the renders such services for their installation,
removal or suspension. LESSOR shall pay any property tax on the leased, and
other taxes and duties imposed on leased premises.
NINTH: LESSOR promises to repair and maintain in good order the roof of the
premises subject of this lease.
TENTH: LESSEE may assign in whole or in part, the rights and obligations
derived from its agreement, or sublease only prior written authorization from
LESSOR, who may not unreasonably withhold such approval; however, LESSEE may
freely exercises this right to assign or sublease if it be in favor of an
affiliated company subsidiary.
ELEVENTH: If during the lease term the right of LESSEE to use and hold the
leased premises is limited by any administrative or judicial act not derived
from the relations of LESSEE with third parties, LESSOR shall at its on account
and expense, perform such acts or initiate such procedures as may be required to
invalidate such judicial or administrative decision, and if within a period of
thirty days LESSEE'S use of the leased premises is nevertheless thereby
affected, LESSEE will have the right to terminate this agreement with no
responsibility.
If during the term of this agreement, any governmental authority establishes any
legal prohibition that without due cause by LESSEE prevents such LESSEE from
doing business in Mexico, LESSEE, upon written notice to
3
<PAGE>
LESSOR, may terminate this Lease Agreement without further liability for
rental payments due under this Lease Agreement, that without prejudice to the
rights of LESSOR and LESSEE to claim from the corresponding authority the
damages caused.
TWELFTH: For the interpretation and compliance of this agreement both parties
expressly submit themselves to the jurisdiction and competence of the Courts of
the City of Mexicali, State of Baja California, waiving any other jurisdiction
to which they may have a right due to their present or future domiciles.
IN WITNESS WHEREOF this document is drawn in duplicate and signed in this City
of Mexicali, Baja California, on first day of May of nineteen hundred and ninety
six.
LESSOR: LESSEE:
INMUEBLES EL VIGIA SA INTERIORES AEREOS, SA DE CV
IVI-67041-178 IAE-860616-AF7
/s/ Rodolfo Nelson Culebro /s/ Zaven Arakelian
RODOLFO NELSON CULEBRO ZAVEN ARAKELIAN
WITNESS:
/s/ Manuel Rubio Montoya /s/ Martha Patricia Castro S.
MANUEL RUBIO MONTOYA MARTHA PATRICIA CASTRO S.
4
<PAGE>
STATE OF GEORGIA
COUNTY OF GLYNN
SUBLEASE AGREEMENT
------------------
This Sublease (also referred to as Agreement) entered into this 1st day of June
1992, by and between the BRUNSWICK AND GLYNN COUNTY DEVELOPMENT AUTHORITY,
hereinafter referred to as "Authority" or "Sublessor," and GULFSTREAM AEROSPACE
CORPORATION, a Georgia corporation, hereinafter referred to as "Sublessee."
W I T N E S S E T H:
WHEREAS, on October 11, 1988, Glynn County, Georgia, a political
subdivision of the State of Georgia, (hereinafter referred to as "County"),
acting by and through its Board of Commissioners entered into a Lease with the
Authority, a copy of which is recorded in the Office of Glynn County Superior
Court in Deed Book 32 Q, page 595; and
WHEREAS, the Authority was created for the purpose, among other things, of
developing, promoting and expanding industry and commerce for the public good
and general welfare in Glynn County, Georgia; and
WHEREAS, the County is the owner of certain real property located in Glynn
County, Georgia, which real property is fully described in Exhibit "A" to the
aforesaid Lease, which includes the property known as "Malcolm B. McKinnon
Airport" and "Glynco Jetport"; and
WHEREAS, the County and the Authority entered into the aforesaid Lease for
the purpose of providing for the use of the aforesaid real property which was
acquired from the United States of America in order to accomplish certain
objectives for the benefit of the citizens of Glynn County, Georgia; and
WHEREAS, the Glynn County Airport Commission (GCAC) was created in order to
ensure the welfare, safety and convenience of citizens of Glynn County, Georgia
and to ensure the proper economic development of Glynn County through the
establishment, maintenance and operation of unified and coordinated airport
systems in
<PAGE>
the Glynn County areas, to ensure the orderly and proper use and growth of
public airports, to ensure that maximum public benefit is obtained from the
various public airports presently in existence and hereafter established, to
ensure proper planning and establishment of airports needed in the future, to
ensure the maximum participation of Glynn County in national and international
programs of air transportation, to promote public transportation, trade,
commerce, industry and employment opportunities and to provide the most
effective and economical use of public airports for the public welfare, safety
and convenience; and
WHEREAS, the Glynn County Airport Commission is authorized to exercise
immediate control and supervision of all airport property and facilities of
Glynn County, Georgia and has been delegated authority to negotiate contracts,
leases or other agreements on behalf of County with federally certified air
carrier and other commercial users of Glynn County airports under such terms and
conditions as the Glynn County Airport Commission deems appropriate and for such
charges, rentals and fees as it deems appropriate and has also been given the
power to carry out and enforce the terms, conditions and provisions of any
written lease or sublease between the County or the Authority and any third
party occupying any portion of airport property of the County; and
WHEREAS, the Glynn County Airport Commission is presently operating and
maintaining on behalf of the County certain airport facilities known as the
Glynco Jetport and Malcolm B. McKinnon Airport, with improvements thereon,
pursuant to the authority delegated to it by Glynn County, Georgia; and
WHEREAS, the Authority, as Sublessor, desires to sublease and rent to
Sublessee a portion of such airport premises and property, as hereinafter set
forth and described, for the purpose of conducting the business hereinafter
stated and described.
2
<PAGE>
WHEREAS, the Glynn County Airport Commission is an agency of Glynn County,
a political subdivision of the State of Georgia.
NOW THEREFORE, for and in consideration of the premises hereinabove set
forth and the terms, conditions, and mutual covenants hereinafter stated, the
Sublessor and Sublessee hereby formally covenant and agree and bind themselves
as follows to-wit:
1. SUBLEASED PREMISES. That the Sublessor hereby subleases to the
Sublessee and the Sublessee does hereby rent from the Sublessor that tract of
land and building described as follows:
All of that certain tract of land and buildings described on
the attached Exhibit "A," which is located on the Glynco Jetport,
Glynn County Georgia, together with the improvements located thereon.
The Sublessor further grants, transfers, and assigns to the Sublessee, a
nonexclusive easement for the use, in common with others, of all taxiways
and runways, now or hereafter existing, upon the Glynco Jetport, together with
the further right to use roadways now or hereafter serving said airport and
particularly those roads which are necessary for ingress and egress to the
subleased premises, and which connect the subleased premises with the remainder
of the airport.
1. (a) ALTERNATIVE SUBLEASED PREMISES. Sublessor shall have the right
to provide alternative subleased premises and facilities to Sublessee at any
time during the original term or any renewal term of this Sublease upon the
following conditions:
i. The alternative subleased premises and facilities are constructed to
the specifications of Sublessee.
3
<PAGE>
ii. The subleased premises and facilities shall provide a minimum of
twenty-seven thousand (27,000) square feet of hangar space, four thousand eight
hundred (4,800) square feet of shop space, and four thousand eight hundred
(4,800) square feet of storage warehouse space and four thousand eight hundred
(4,800) square feet of office space together with adequate ramp area to gain
access to taxiways and use of the airport general facilities. The ramp area
shall have sufficient area to park a minimum of four Gulfstream aircraft. The
facilities shall have utility hook ups and functioning services comparable to
those of the original leased building including an overhead crane. The entire
facility shall be heated and the office space will be air-conditioned.
iii. Sublessor and Sublessee shall work together in good faith to keep the
cost of construction of the alternative subleased premises and facilities as
reasonable as possible, including the arrangement of the most economical
financing of the construction, including tax-exempt financing, so that the total
cost of construction to Sublessor shall not exceed $2.5 million.
iv. Within fifteen (15) days after execution of this Sublease, Sublessee's
detailed requirements and floor plan shall be made available to Sublessor. When
Sublessor makes the election to provide alternative subleased premises and
facilities, Sublessor shall notify Sublessee of such election and provide
architectural drawings of the proposed alternative subleased premises and
facilities for Sublessee's approval. Facility design and specification shall be
promptly and mutually agreed upon by Sublessee and Sublessor. Said notification
shall specify the proposed date for occupancy by Sublessee in the alternative
subleased premises and facilities and Sublessor and Sublessee shall work
together in good faith to construct the facility so as to meet the occupancy
date, it being understood that the alternative subleased premises and facilities
shall be made available to Sublessee fifteen (15) days prior to Sublessee's
requirement to vacate the original leased premises.
4
<PAGE>
v. All other terms, conditions and options of this Sublease shall remain
in effect, including fees and rent to be paid or received except there shall be
no deferrals of rent attributable to improvements made by Sublessee. That is,
the monthly rental for the alternative subleased premises and facilities, if
occupied during the base term, shall be $13,750.00. Rental for the original
subleased premises shall be fully accounted for, prior to occupancy of the
alternative subleased premises and facilities, taking into account total cost of
all agreed upon improvements made by Sublessee prior to that date, balancing
deferrals to date against actual funds expended to date. In the event Sublessee
has expended monies for improvements in excess of the monthly deferral in Item
4, then Sublessee shall receive a credit for this excess amount against the
monthly rental for the alternate subleased premises. This credit shall be at a
rate not to exceed the monthly deferral stipulated in Item 4 and the aggregate
total deferral allowance.
vi. It is mutually agreed that should Sublessee desire alternative
premises and facilities larger than those set forth in this paragraph 1(a) or at
an expense greater than contemplated by this paragraph 1(a), fair and equitable
increases in the rental shall be negotiated based on construction costs
differences between the above-stated minimal requirements and those desired by
Sublessee.
2. TERM. This Sublease commenced on the 1st day of June 1992, providing
Sublessor has delivered possession to Sublessee, inclusive and expires on the
31st day of May 1994, inclusive, a period of two (2) years and zero (0) months
(the "original base term"). This Sublease may be extended by mutual agreement
of the parties or in compliance with any option for renewal provided in
Paragraph 3 of this Sublease.
3. OPTIONS TO RENEW. Sublessee shall have the option to renew this
Sublease for five (5) renewal terms of one (1) year and zero (0) months each
beginning on the 1st day of June 1994, unless this Sublease is terminated as a
result of Sublessee's default and breach.
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Sublessee shall not exercise any option to renew for more than one renewal
term at a time during either the original term or any renewal term of this
Sublease. Sublessee shall deliver to Sublessor written notice of its intent to
renew this Sublease at least sixty (60) days prior to the expiration of the
original or any renewal then in effect.
Except for the amount of the rental rate, unless otherwise provided for
within Paragraph 4 all agreements and conditions in this Sublease shall have the
same force and effect for each renewal term as for the original term unless the
parties otherwise agree in writing.
At the end of all option periods, the Sublessee may request new
negotiations for the leasehold and improvements. This request shall be
submitted in writing at least ninety (90) days prior to the termination of the
last option period. The Sublessor agrees to enter into good faith negotiations
prior to negotiations with any other prospective Sublessee.
4. RENTAL. Sublessee shall pay for the use and occupancy of the premises
during the original base term of this Sublease, the sum of One Hundred Sixty-
Five Thousand and 00/100 Dollars ($165,000.00) per year, Thirteen Thousand Seven
Hundred Fifty and 00/100 Dollars ($13,750.00) per month, payable in equal
monthly payments for the original base term of this Agreement. Provided,
however, Six Thousand Two Hundred Fifty and 00/100 Dollars $6,250.00) of the
monthly payment for the twelve (12) months of the first year of the base term
shall be deferred upon the following condition: the total amount deferred,
Seventy-Five Thousand and 00/100 Dollars ($75,000.00), less any amounts
attributable to improvements made by Sublessee prior to May 31, 1993, shall be
paid to Sublessor in a lump-sum prior to May 31, 1993. During the second year
of the original base term beginning June 1, 1993, and extending through May 31,
1994, Five Thousand and 00/100 Dollars ($5,000.00) of the monthly payment for
the twelve (12) months of the second year of the base term shall be deferred
upon the
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following condition: the total amount deferred, Sixty Thousand and 00/100
Dollars ($60,000.00), less any amount attributable to improvements made by
Sublessee between May 31, 1993 and May 31, 1994, shall be paid to Sublessor in a
lump-sum prior to May 31, 1994. Paid receipt documentation for improvements
shall be provided to Sublessor. Sublessor shall adjust the rental rate after
the original base term of two (2) years, or any renewal, by an amount which
equals the percent of change of the All Urban Consumer Price Index (C.P.I.-U.)
as published by the Bureau of Labor Statistics, with a base C.P.I.-U.) equaling
415.2 for February 1992, based upon the base year of 1967=100).
Sublessee shall not be liable to the Sublessor for any additional charge
for purchase or sale of fuel made while utilizing the premises should Sublessee
determine, at its option, to purchase or resell fuel, delivered from any Fixed
Base Operations resident and operating on Sublessor's premises. Said Fixed Base
Operations shall be responsible for payment of any and all appropriate funds,
based on the Sublessee's published sales price to the Sublessee's customers and
in effect at the time of delivery.
Should no Fixed Data Operations be resident agreeing to sell fuel to
Sublessee on the Sublessor's premises and the Sublessee selects to sell fuel on
the subleased premises, then and if the sale of fuel is permitted on the
subleased premises, by applicable Federal and State law, then and only in such
an event, said Sublessee shall pay to the Sublessor a sum equal to that charged
other Fixed Base Operations on all fuel sold on the subleased premises.
Sublessee agrees that the additional rental called for herein will be paid
on all fuel used in connection with refueling operations on all aircraft.
Sublessee agrees to keep complete and accurate records of all fuel sold by
Sublessee on the subleased premises during the term of this Sublease or any
extension thereof and Sublessee shall on or before the 25th day of each and
every month provide the Sublessor with written notice of such fuel sales
together with the payment required by the subparagraph above. In addition,
Sublessee shall, on or before the 25th day of June of
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each lease year provide the Sublessor with a certified statement of fuel sold
during the immediately preceding lease year together with any fuel fees due to
the Sublessor for that period.
The Sublessor shall have the right on an annual basis, upon written notice
to the Sublessee to increase the fuel fees, provided, however, such increase
shall apply to all Fixed Base Operations uniformly.
5. PLACE OF PAYMENT. All payments made hereunder by Sublessee shall be
made to the Glynn County Airport Commission, acting on behalf of the Sublessor,
at the offices of the Commission, 500 Connole Street, Brunswick, Georgia 31525,
unless notified to the contrary by Sublessor.
6. USE OF PREMISES. Sublessee shall have the right to use the subleased
premises for the express purpose of operating an aircraft maintenance,
manufacturing and engineering facility, to include aircraft overhaul, and/or jet
engine and component equipment receiving, inspection, disassembly, cleaning,
repair, manufacturing, test installation, test flights, leasing of aircraft
engines and components, and any other aviation related activity, for example:
air crew training facility, cargo airline, passenger airline, etc. Sublessee
may sell for aviation purposes only, gasoline, jet fuels, and other lubricants
necessary to aircraft operation, maintenance or repair.
Sublessee, his tenants and sublessees shall not be authorized to conduct
any services not specifically listed in this Agreement. The use of the
subleased premises shall be limited to only those activities having to do with
or related to aircraft maintenance, manufacturing and engineering. No person,
business or corporation may operate a commercial, retail or industrial business
upon the premises of Sublessee or upon the airport property without written
consent from Sublessor authorizing such commercial, retail or industrial
activity.
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Sublessee shall not have the right to use any of the subleased land or
premises, either directly or as a sublease to another tenant, for the operation
of a motel, hotel, restaurant, private club or bar, automobile or vehicle rental
agency, apartment house, or for industrial, commercial or retail purposes,
except as authorized herein.
Sublessee shall file with the Airport Manager and keep current its mailing
address, telephone number(s) and contracts where he or his authorized
representatives may be reached in an emergency.
Sublessee shall file with the Airport Manager and keep current a list of
the tenants and sublessees.
Sublessee shall require its employees and sublessees (and sublessee's
invitees) to abide by the terms of this Agreement. Sublessee shall promptly
enforce its contractual rights in the event of a default of such covenants.
7. CONDITION OF THE PREMISES. The Sublessee accepts the subleased
premises in its present state, and without any representation or warranty by the
Sublessor as to the conditions of such property, or as to the use which may be
made thereof, except as stated to the contrary in the Sublease. The Sublessor
shall not be responsible for any latent defects or changes of condition in such
buildings and improvements and the rent herein shall in no case be withheld or
diminished on account of any defect in such property, or change in condition
thereof, any damage thereto, or the existence with respect thereto, of any
violation of the laws or regulations or any governmental authority.
7. (a) PRECONDITION OF BUILDINGS PRIOR TO LEASE. The Sublessor shall
not hold the Sublessee responsible for the repair of any preexisting conditions
to the buildings, facilities and grounds being leased. Repairs may be made to
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the existing conditions so that the Sublessee may perform and conduct business
as outlined in Paragraph 4.
8. CONSTRUCTION ON PREMISES. There shall be no construction or
alteration to the subleased premises without the prior written consent of the
Sublessor. Any improvements already constructed on the subleased premises or
which may be constructed on the subleased premises shall be the property of
Sublessor.
9. MAINTENANCE. Throughout the original term and any renewals thereof,
the Sublessee shall, at its own expense, (i) keep the premises in as reasonably
safe condition as the operation thereof will permit, and (ii) keep the building
and all other improvements forming a part of the premises in good repair and in
good operating condition and/or minimally, in condition equal to that as found
at delivery of properties, normal wear and tear excepted, making from time to
time all necessary repairs thereto and renewals and replacements thereof,
including but not limited to, the repair and maintenance of all heating and air-
conditioning systems. Sublessee shall be responsible for trash removal and
grass cutting on the subleased premises. Sublessee shall repair or replace any
improvements on the subleased premises which are damaged or destroyed as a
result of Sublessee's operation.
Sublessee herein agrees not to utilize or permit others to utilize areas on
the subleased premises which are located on the outside of the building to be
used for the storage of inoperable, wrecked, or permanently disabled aircraft,
aircraft parts, automobiles, vehicles of any type, or any other equipment or
items which would detract from the appearance of the subleased premises.
Inoperative, wrecked or disabled aircraft shall be defined as an aircraft which
is out of flight worthy status longer than ninety (90) days. Sublessee may,
with written approval by Sublessor, be granted waiver to this rule on an
individual aircraft basis.
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10. DAMAGE ON DESTRUCTION. If, at any time during this Sublease, the
subleased premises or the improvements or any part thereof shall be damaged or
destroyed by fire, or other casualty (including any casualty for which insurance
coverage was not obtained or attainable) of any kind or nature, ordinary or
extraordinary, foreseen or unforeseen, Sublessee, at Sublessee's sole cost and
expense, and whether or not the insurance proceeds, shall be sufficient for the
purpose, shall commence and thereafter proceed with reasonable diligence
(subject to a reasonable time allowance for the purpose of adjusting the
insurance loss and for unavoidable delay) to repair, alter, restore, replace, or
rebuild the same as nearly as possible to its value immediately prior to such
damage or destruction. Any such casualty shall not terminate this Sublease.
However, Sublessee shall pay rent to Sublessor for the damaged premises, only to
the extent it is fit for occupancy during the time of such repair, provided
Sublessee has not caused or allowed the repairs to take longer than they
reasonably should. The cost of the repairs shall include the reasonable fees of
an architect, if any, employed by Sublessor for the purpose of examining and
passing upon the plans and specifications and seeing that the repairs conform
therewith.
11. CONDEMNATION. If the whole of the subleased premises be condemned or
taken by legally constituted authority for any public or quasi-public use or
purpose, or if a part of said subleased premises be so condemned or taken and
the subsequent reduction in the area of said subleased premises be such as to
render the remainder unsuitable for the purposes for which they are rented, then
the term hereby granted shall cease from the time when possession thereof shall
be required for any such public or quasi-public purpose, and the payment of
further or future rent hereunder shall cease at such time. Sublessor shall not
be liable to Sublessee for any damage or loss sustained by Sublessee resulting
from such condemnation or taking for public or quasi-public use. Should,
however, only a portion of said subleased premises be so condemned or taken by
any legally constituted authority for any public or quasi-public use or purpose
and the consequent reduction of the area of said subleased premises shall be not
such as to
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render the remainder unsuitable for the purposes for which they are rented, this
Sublease shall continue in full force and effect as to the remaining portion of
the subleased premises and there shall be an abatement of rent in the proportion
which the value of the portion thus taken or condemned for public or quasi-
public use bears to the value of the whole of the premises. The termination of
this Agreement, or the abatement of rent, by reason of the taking or
condemnation of any part of the subleased premises, by any legally constituted
authority for any public purpose or use, shall be without prejudice to the
rights of either the Sublessor or Sublessee to recover compensation from the
taker or condemnor. In the event of any such condemnation, neither the
Sublessor nor the Sublessee shall have any rights in any award made to the other
by any condemnation authority.
12. RIGHT OF EASEMENT. Sublessor or Sublessor's authorized agent shall
have the right to establish easements, at no cost to Sublessee, upon the
subleased premises for the purpose of providing utility services to, from or
across the airport property or for the construction of public facilities on the
airport. However, any such easements shall not unreasonably interfere with
Sublessee's use of the subleased premises and Sublessor shall restore the
property to its original condition upon the installation of any utility services
on, in, over or under any such easement at the conclusion of such construction.
Sublessee shall not have the right to levy fees or charges for any exercised
right of easement by Sublessor or Sublessor's authorized agent.
13. RULES, REGULATIONS AND RESTRICTIONS. The use of the premises shall at
all times be in compliance with and subject to any covenants, restrictions, and
conditions of record pertaining to the use and occupancy of the subleased
premises and shall at all times comply with the laws, codes, ordinances, rules
and regulations, either existing or those promulgated within reason in the
future, by the County of Glynn, the Glynn Airport Commission, the State of
Georgia, the United States of America and the Federal Aviation Administration,
or their successors. Sublessee shall
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not operate or permit the operation of any transmitter devices, electrical
signal producers, or machinery on the subleased premises which could interfere
with the electronic aircraft navigation aids or devices located on or off
airport property. Sublessee shall not be permitted to engage in any business or
operation on the subleased premises which would produce obstructions to
visibility or violate height restrictions as set forth by the Federal Aviation
Administration and/or the Glynn County Airport Commission. Sublessee further
agrees that at no time during the term of this Sublease shall any material,
fluids, solids or gaseous substances be utilized, stored, disposed or
transported on the subleased premises which are considered by Sublessor to be a
hazard to the health of the general public and that no activity shall be
permitted on the subleased premises that would produce noxious odors.
Sublessor shall not hold Sublessee responsible for any preexisting
conditions relating to hazardous waste which may exist to meet any local, State
or Federal requirements which exist now or may be imposed in the future.
Sublessee shall comply with all Federal Aviation Administration, other
Federal or State agency directives and regulations concerning aircraft and
engine testing noise abatement requirements and procedures. No local directive
will be more restrictive than current or future Federal Aviation Administration
noise standards.
14. HEIGHT RESTRICTION AND AIRSPACE PROTECTION. The Brunswick and Glynn
County Development Authority, the County of Glynn, and the Glynn County Airport
Commission, reserves unto itself, its successors and assigns, for the use and
benefit of the flying public, a right to flight for the passage of aircraft
above the surface of the premises hereinafter described, together with the right
to cause in said airspace such noise as may be inherent in the operation of
aircraft now known or hereafter used, for navigation of or flight in the said
airspace. and for use of said airspace for landing on, taking off from, or
operating on the Glynco Jetport. The Sublessee further
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agrees for itself, its successors and assigns to restrict the height of
structures, objects of natural growth and other obstructions on the hereinafter
described premises to a height of not more than thirty (30) feet above sea
level.
The Sublessee also agrees for itself, its successors and assigns to prevent
any use of the hereinafter described premises which would interfere with landing
or taking off of aircraft at the Glynco Jetport, or otherwise constitute an
airport hazard. Sublessee hereby forfeits all claims to aviation rights over
the subleased premises.
15. INSURANCE REQUIREMENTS. Sublessee shall maintain continuously in
effect at all times during the term of this Agreement, at Sublessee's expense,
the following insurance overage:
Comprehensive General Liability Insurance covering the subleased premises,
the Sublessee or its company, its personnel and its operations on the airport.
Liability insurance limits shall be in the minimum amount of $2,000,000.00
combined and single limits on a per occurrence basis for premises liability
including bodily injury, death, and property damage and the policy shall name
Sublessor, and the County of Glynn, and the Glynn County Airport Commission as
additional named insureds.
Fire, casualty and other risks insurance with expensive coverage
endorsements in an amount not less than 100% of the full insurable value as
determined from time to time with loss payable to Sublessor to assure Sublessor
that the proceeds of such insurance shall be applied to the repair or
replacement of the premises as provided in Paragraph 10 of this Agreement.
Sublessee shall be responsible for insuring all contents of the subleased
premises against any and all losses. Sublessee hereby releases, indemnifies and
holds Sublessor harmless from any and all liabilities in connection with the use
of the subleased premises, except for the duties and obligations of Sublessor
under the terms of this
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Sublease. Sublessee hereby waives any right of subrogation that it or one of
its insurers may have and shall notify any insurer of its waiver.
Sublessor and Sublessee acknowledge that there are certain Federal, State,
and local laws, regulations and guidelines now in effect, and that additional
laws, regulations and guidelines may hereinafter be enacted, relating to or
affecting the premises concerning the impact on the environment by construction,
land use, the maintenance and operations of structures and the conduct of
business. Sublessee hereby releases, indemnifies and holds Sublessor harmless
from any and all liabilities in connection with its use of the premises or its
modification or alteration of the premises which would adversely affect the
environment or cause any violation of said laws, regulations, or guidelines.
Sublessee shall not cause, or permit to be caused, any act or practice, by
negligence, omission, or otherwise, that would adversely affect the environment
or do anything or permit anything to be done that would violate any of said
laws, regulations or guidelines. Any violation of this covenant shall be an
event of default under this Agreement. Sublessee shall have no obligation to
indemnify Sublessor for any violation of said laws, regulations, or guidelines
which occurred prior to the commencement of the term of this Agreement.
The Sublessor shall be provided with a copy of all such policies and said
policies shall provide for a minimum of thirty (30) days' written notice to the
Sublessor prior to the effective date of any cancellation of lapse of such
policies.
16. UTILITIES AND FEES. Sublessee shall pay all expenses and payments in
connection with the use and occupancy of the premises and the rights and
privileges herein granted, including the timely payments of utilities, permit
fees, and license fees.
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17. CHARGES BY SUBLESSEE. The Sublessee agrees to furnish all services on
a fair, equal, and not unjustly discriminatory basis to all users thereof, and
to charge fair, reasonable, and not unjustly discriminatory prices for each unit
of service, provided, however, that the Sublessee may be allowed to make
reasonable and nondiscriminatory discounts, rebates, or other similar types of
price reductions to volume purchasers.
18. ASSIGNMENT OF SUBLEASE. Sublessee expressly covenants that it will
not assign this Sublease through the sale of stock or otherwise, not sublet,
assign, transfer, mortgage, pledge, hypothecate, or license the whole or any
part of the said premises for any purpose, except to a subsidiary of Sublessee
for any purpose allowed to the Sublessee under this Agreement or to any third
party for rental of space for aircraft storage, without the prior written
consent of the Sublessor. Any such assignment, mortgage, pledge, hypothecation
or sublease would be subordinate to this Sublease and Sublessee and any
assignee, mortgagee, secured party, or Sublessee shall be legally bound to
perform the obligations and duties of Sublessee as designated herein. No such
assignment, mortgage, pledge, hypothecation or sublease with or without the
prior written consent of Sublessor shall relieve Sublessee from primary
liability for any of its obligations hereunder and Sublessee shall continue to
remain primarily liable for the performance and observations of all agreements
as provided herein to be performed and observed by it. Furthermore, Sublessee
shall furnish to Sublessor a conformed copy of any assignment or sublease
between Sublessee and any subsidiary of it within ten (10) days after execution
of such assignment or sublease.
19. CANCELLATION BY SUBLESSOR AND DEFAULT. All the terms, restrictions,
covenants and conditions of record pertaining to the use and occupancy of the
premises are conditions of this Sublease and failure of the Sublessee to comply
with any of the terms, conditions, restrictions, covenants and conditions of
record,
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or of this Sublease shall be considered a default of this Sublease, and upon
default, the Sublessor shall have the right to invoke any one or all of the
following remedies:
a. Should Sublessee fail to pay the monthly rental amounts by the tenth
(10th) working day of each month, Sublessor shall give written notice to
Sublessee by certified or registered mail of Sublessee's failure to pay. Should
Sublessee fail to pay the monthly rental amount within ten (10) working days
following receipt of written notice from Sublessor, then Sublessor, at
Sublessor's discretion, may terminate this Sublease. Should this Sublease be
terminated by the Sublessor for nonpayment of the monthly rental amount by the
Sublessee, Sublessee shall forfeit all rights to all improvements on the
subleased premises and all improvements of the subleased premises shall become
the property of the Sublessor.
b. Should Sublessee violate any law, rule, restriction or regulation of
the Sublessor or the Federal Aviation Administration, or should the Sublessee
engage in or permit other persons or agents to engage in activities which could
produce hazards or obstructions to air navigation, obstructions to visibility or
interference with any aircraft navigational aid station or device, either
airborne or on the ground, then Sublessor shall state the violation in writing
and deliver the written notice to Sublessee or Sublessee's agent on the
subleased premises, or to the person(s) on the subleased premises who are
causing said violation(s), and upon delivery of such written notice, Sublessor
shall have the right to demand that the person(s) responsible for the
violation(s) cease and desist from all such activity creating the violation(s).
In such event, Sublessor shall have the right to demand that corrective action,
as required, be commenced immediately to restore the subleased premises into
conformance with the appropriate law, rule or aeronautical regulation. Should
Sublessee, Sublessee's agent, or the person(s) responsible for the violation(s)
fail to cease and desist from said violation(s) and to immediately commence
correcting the violation(s), and to complete said corrections within ninety-six
(96) hours following written notification, then Sublessor's contracting agent
shall have the right to
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enter onto the subleased premises and correct the violation(s), and Sublessor or
Sublessor's contracting agent shall not be responsible for any damages incurred
to any improvements on the subleased premises as a result of the corrective
action process. In such event, Sublessor shall give to the Sublessee written
notice by certified or registered mail of all expenses incurred by the Sublessor
in the corrective action process, and should Sublessee fail to reimburse
Sublessor for said expense within ten (10) working days following receipt of
such notice, Sublessor at Sublessor's discretion, may terminate this Sublease.
Should this Sublease be terminated by the Sublessor for failure of the Sublessee
to reimburse the Sublessor for expenses incurred in the corrective action
process, Sublessee shall forfeit all rights to all improvements on the subleased
premises and all improvements on the subleased premises shall become the
property of the Sublessor.
c. In the event that Sublessee fails to maintain any of the items of
maintenance it is responsible for under Article 9, Sublessor shall give
Sublessee written notice by certified or registered mail of such breach, and
provided corrective action to cure the breach has not commenced within the
thirty (30) working days following receipt of such notice, and completed within
ninety (90) days following receipt of said notice, Sublessor or Sublessor's
contracting agent shall have the right to enter onto the subleased premises and
correct violation(s), and Sublessor or Sublessor's contracting agent shall not
be responsible for any damage incurred as a result of the corrective action
process. In such event, Sublessor shall give to the Sublessee written notice by
certified or registered mail of all expenses incurred by the Sublessor in the
corrective action process, and should Sublessee fail to reimburse sublessor for
said expenses within ten (10) working days following receipt of such notice,
Sublessor at Sublessor's discretion, may terminate this Sublease. Should this
sublease be terminated by the Sublessor for failure of the Sublease to reimburse
the Sublessor for expenses incurred in the corrective action process, Sublessee
shall forfeit all rights to all improvements on the subleased premises and all
improvements on the subleased premises shall become the property of the
Sublessor.
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d. In addition to termination of this Sublease for the breach of terms
and conditions herein, the Sublessor shall have the right to terminate this
Sublease for the following reason(s):
(1) The Sublease has reached the termination date of the original or
extended term, and no option to renew has been exercised.
(2) In the event that Sublessee shall file a voluntary petition in
bankruptcy or proceedings in bankruptcy shall be instituted against Sublessee
and Sublessee thereafter is adjudicated bankrupt pursuant to such proceedings,
or any court shall take jurisdiction of Sublease and its assets pursuant to
proceedings brought under the provisions of any Federal reorganization act.
(3) In the event that Sublessee should make an assignment or Sublease of
this Agreement without the approval of and written consent from Sublessor.
(4) Sublessee abandons premises. Abandonment shall occur whenever
Sublessee, its officers, employees and agents all shall be and remain absent
from premises for thirty (30) consecutive days without notice to and approval
from Sublessor of such absence.
(5) Failure by Sublessee to observe and/or perform any agreement hereunder
on its part to be observed and/or performed, other than as referred to in
paragraphs (a), (b), and (c) of this Paragraph 19, for a period of thirty (30)
days after written notice, specifying such failure and requesting that it be
remedied, given to the Sublessee by the Sublessor, provided, however, if the
failure stated in the notice cannot be corrected within the applicable period,
the Sublessor will not unreasonably withhold its consent to an extension of such
time if it is possible to correct such failure and corrective action is
instituted by the Sublessee within the applicable period and diligently pursued
until the failure is corrected.
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In the event of termination of this Sublease by Sublessor for any reason,
termination shall be effective immediately upon notice to Sublessee by certified
or registered mail. Upon termination or cancellation of this Sublease and
provided all monies due Sublessor have been paid, Sublessee shall have the right
to remove its personal property, provided such removal does not cause damage to
any part of the structure or improvements.
20. ASSUMPTION. All improvements of whatever nature remaining upon the
subleased premises at the end of the original terms, or any renewal terms, of
this Agreement shall automatically become the property of Sublessor absolutely
in full without any cost to Sublessor.
21. NONDISCRIMINATION. The Sublessee, for himself, his personal
representatives, successors in interest, and assigns as a part of the
consideration hereof, does hereby covenant and agree as a covenant running with
the land that (1) no person on the grounds of race, color, sex, religion, or
national original shall be excluded from participation in, denied the benefits
of, or be otherwise subjected to discrimination under any program or activity
receiving federal financial assistance from the Department of Transportation,
(2) that in the construction of any improvements on, over, or under such land
that the furnishing of services thereon, no person on the grounds of race,
color, sex, religion or national origin shall be excluded from participation in,
denied the benefits of, or otherwise be subjected to discrimination, (3) that
the (grantee, licensee, sublessee, permittee, etc.) shall use the premises in
compliance with all other requirements imposed by or pursuant to Title 49, Code
of Federal Regulations, Department of Transportation, Subtitle A, Office of the
Secretary, Part 21, Nondiscrimination in Federally Assisted Programs of the
Department of Transportation - Effectuation of Title VI of the Civil Rights Acts
of 1964, and as said Regulations may be amended, (4) that the (grantee,
licensee, sublessee, permittee, etc.) shall at all times use the premises in
compliance with all nondiscrimination laws, either in effect at the present time
or those promulgated in the
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future, of the United States of America, and the Federal Aviation
Administration, or their successors.
22. PUBLIC AREAS.
a. Sublessor reserved the right to further develop or improve the landing
area of the airport as it sees fit, regardless of the desires or views of the
Sublessee, and without interference or hindrance.
b. During the time of war or national emergency, Sublessor shall have the
right to sublease the landing area or any part thereof to the United States
Government for military or naval use, and, if such sublease is executed, the
provisions of this instrument insofar as they are inconsistent with the
provisions of the sublease to the Government shall be suspended.
c. Sublessor reserves the right to take any action it considers necessary
to protect the aerial approaches of the airport against obstruction, together
with the right to prevent Sublessee from erecting, or permitting to be erected,
any building or other structure on or adjacent to the airport which, in the
opinion of the Sublessor, would limit the usefulness or safety of the airport or
constitute a hazard to aircraft or to aircraft navigation.
d. This Sublease shall be subordinate to the provisions of any existing
or future agreement between Sublessor and the United States or agency thereof,
relative to the operation or maintenance of the airport.
23. QUIET POSSESSION. Sublessor covenants and warrants that, if Sublessee
discharges the obligation set forth to be performed by the Sublessee, the
Sublessee shall have and enjoy during the term of this Sublease the quiet and
undisturbed
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possession of the subleased premises, together with all appurtenances thereto
and without hindrance from the Sublessor, subject to the terms and provisions
contained herein.
24. INDEMNITY. Sublessor shall not be liable to the Sublessee nor any
other person for any personal injury, death, loss or damage to any personal
property in or upon the subleased premises or upon any other lands of Sublessor
being used by Sublessee for customer parking, and the Sublessee hereby assumes
all liability for or on account of such injury, loss or damage, and shall save
the Sublessor harmless therefrom.
25. NO LIABILITY FOR LIENS. Notice is hereby given that Sublessor on
behalf of Glynn County, neither authorizes, consents to, nor shall be liable for
either labor, services or materials furnished Sublessee, its officers,
employees, agents and anyone claiming under Sublessee on credit, and no
mechanic's lien, materialman's lien or other similar lien either for labor,
services or material either shall attach to the subleased premises or affect
Glynn County's interest in any part of the subleased premises. Any act by
Sublessee which encumbers any part of the subleased premises by a materialman's
lien or other similar lien shall constitute a default and breach of this
Sublease. Should such a lien be filed against the subleased premises purporting
to be for or on account of labor performed or services or materials furnished
under Sublessee's authority or that of anyone claiming under Sublessee,
Sublessee shall discharge such lien of record within forty-five (45) days after
the date such lien is filed.
26. NO AGENCY CREATED. Under no circumstances shall Sublessee act as
agent for Sublessor or Glynn County or the Glynn County Airport Commission in
making repairs and improvements to the subleased premises or for any other
reason. Likewise, Sublessor and/or Glynn County and/or the Glynn County Airport
Commission at no time shall act as agent or Sublessee. Nor are the parties
partners, or joint venturers by virtue of this Agreement.
22
<PAGE>
27. NO EXCLUSIVE USE. It is understood and agreed that nothing herein
contained shall be construed to grant or authorize the granting of an exclusive
right within the meaning of Section 308 of the Federal Aviation Act of 1958.
28. WAIVERS. Failure of either party to complain of any act or omission
on the part of the other, no matter how long the same may continue, shall not be
deemed a waiver of any breach of any other provisions of this Sublease or a
consent to any subsequent breach of any of the game or any other provision.
29. LEASE-BINDING ON SUCCESSORS, ASSIGNS, ETC. All covenants, agreements,
provisions and conditions of this Sublease shall be binding upon and inure to
the benefit of the respective parties hereto, that is both Sublessor and
Sublessee jointly and severally, and their legal representatives, successors or
assigns, and/or any grantee or assignees of the Sublessor and Sublessee. No
modification of this Sublease shall be binding upon either party unless written
and signed by both parties.
30. ATTORNEY FEES AND COSTS. In the event of any default or breach by
Sublessee, Sublessor shall be entitled to all costs, incurred as a result of
such default or breach, including reasonable attorney fees incurred as a result
of Sublessor exercising any of its remedies under law or equity as a result of
the default or breach.
31. PARAGRAPH HEADINGS. The headings used herein for each paragraph are
used only for convenience and are not intended to explain the nature of each
paragraph.
32. PARKING. Sublessor reserved the right to reenter and designate public
parking areas for all surface vehicles on all areas of the Glynco Jetport.
Parking areas within the leased premises solely provided to Sublessee under this
Agreement shall not be considered for public use.
23
<PAGE>
33. SEVERABILITY. If a provision hereof shall be finally declared void or
illegal by any court or administrative agency having jurisdiction, the entire
Agreement shall continue in effect as nearly as possible in accordance with the
original intent of the parties.
34. SUBLEASE APPROVAL. This Sublease shall automatically become effective
pursuant to Section Twenty of the aforesaid Lease Agreement between the County
and Sublessor, dated October 11, 1988, unless the county gives written notice of
its disapproval to Sublessor and Sublessee within fifteen (15) days of
Sublessor's request that the County recognize this Sublease.
35. NOTICE. Any notice given by one party to the other in connection with
this Agreement shall be in writing and shall be sent by certified or registered
mail, return receipt requested, with postage and fees prepaid.
1. If to Sublessor, addressed to:
Glynn County Airport Commission
500 Connole Street
Brunswick, GA 31525
2. If to Sublessee, addressed to:
Gulfstream Aerospace Corporation
P.O. Box 2206
Savannah, GA 31402-2206
Notices shall be deemed to have been received on the date of receipt as
shown on the return receipt.
24
<PAGE>
36. GOVERNING LAW. This Agreement is to be construed in accordance with
the laws of the State of Georgia.
37. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
between the parties and as of its effective date supersedes all prior or
independent Agreements between the parties covering the subject matter hereof.
Any changes or modifications hereof shall be in writing signed by both parties.
38. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original.
25
<PAGE>
IN WITNESS WHEREOF, each of the respective parties hereto (and in the case of a
corporation, an authority or partnership, by and through its duly authorized
officers or partners) has caused these presents to be duly signed, sealed and
delivered as of the date first above written in the preamble, but on the date
set forth beside each respective signature.
Signed, sealed and delivered SUBLESSOR:
this 14th day of May,
1992, in the presence of: BRUNSWICK AND GLYNN COUNTY
DEVELOPMENT AUTHORITY
/s/ E____K. Br______ By: /s/ Alfred W. Jones, III
- ------------------------ ------------------------------
Witness Alfred W. Jones, III
Chairman
/s/ Bonnie Jean Jemigan ATTEST: /s/ William H. Stewart
- ------------------------ -------------------------------
Notary Public William H. Stewart
Secretary-Treasurer
(Agency Seal)
26
<PAGE>
Signed, sealed and delivered SUBLESSEE:
this 15th day of May,
1992, in the presence of: GULFSTREAM AEROSPACE
CORPORATION
/s/ Robb K. Sallee By: /s/ Albert H. Glenn
- ------------------------- ---------------------------------
Witness ALBERT H. GLENN
VICE CHAIRMAN
ATTEST: /s/ Donald L. Mayer
-------------------------------
/s/ Gary B. Young DONALD L. MAYER, SECRETARY
- --------------------------
Notary Public (Corporate Seal)
27
<PAGE>
STATE OF GEORGIA
COUNTY OF GLYNN
AMENDMENT NO. 1 TO SUBLEASE AGREEMENT
-------------------------------------
This Amendment to Sublease Agreement made this the 23rd day of May,
1994, by and between the BRUNSWICK AND GLYNN COUNTY DEVELOPMENT AUTHORITY,
hereinafter referred to as "Authority" or "Sublessor," and GULFSTREAM AEROSPACE
CORPORATION, a Georgia Corporation, hereinafter referred to as "Sublessee."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Brunswick and Glynn County Development Authority and
Gulfstream Aerospace Corporation, a Georgia Corporation, entered into a Sublease
Agreement on June 1, 1992, a copy of which is recorded in the Office of the
Clerk of Glynn County Superior Court in Deed Book 42 W, page 48; and
WHEREAS, Glynn County Georgia, as Lessor and Authority, as Lessee, entered
into a Lease Agreement dated October 11, 1988, a copy of which is recorded in
the Office of the Clerk of Glynn County Superior Court in Deed Book 32 Q, page
595, and amended by Agreement dated May 4, 1990, recorded in Deed Book 35 E
page 335, and amended by Agreement dated June 22, 1990, recorded in Deed Book 35
P, page 61; and
WHEREAS, the real property which is the subject of this amendment and said
Sublease Agreement dated June 1, 1992, was a portion of the real property which
was the subject of said Lease Agreement dated October 11, 1988; and
WHEREAS, pursuant to said Lease Agreement dated October 11, 1988, the
Authority is the successor in interest to Glynn County, Georgia, and authorized
to enter into this amendment; and
WHEREAS, the Authority and Gulfstream Aerospace Corporation mutually desire
to amend paragraphs 2, 3, and 4 of said Sublease Agreement entered into on
June 1, 1992, by and between the Brunswick and Glynn County Development
Authority and Gulfstream Aerospace Corporation;
<PAGE>
NOW THEREFORE, for and in consideration of the premises herein set forth
and the terms and conditions hereinafter stated, the Brunswick and Glynn County
Development Authority and Gulfstream Aerospace Corporation agree and bind
themselves as follows, to-wit:
1. Delete paragraph 2 in its entirety and insert the following in lieu
thereof;
Paragraph 2. Term. This Sublease commences on the 1st day of June 1994,
inclusive and expires on the 31st day of May 1995, inclusive, a period of one
(1) year and zero (0) months (the base term). This Sublease may be extended by
mutual agreement of the parties or in compliance with any option for renewal
provided in Paragraph 3 of this Sublease.
2. Delete paragraph 3 in its entirety and insert the following in lieu
thereof:
Paragraph 3. Options to Renew. Sublessee shall have the option to renew
this sublease for five (5) renewal terms of one (1) year and zero (0) months
beginning the 1st day of June 1995, unless this Sublease is terminated as a
result of Sublease's default and breach.
Sublessee shall not exercise any option to renew for more than one renewal
term at a time during either the base term or any renewal term of this Sublease.
Sublease shall deliver to Sublessor written notice of its intent to renew this
Sublease at least one hundred eighty (180) days prior to the expiration of the
base term or any renewal term then in effect.
Except for the amount of the rental rate, unless otherwise provided for
within Paragraph 4 all agreements and conditions in this Sublease shall have the
same force and effect for each renewal term as for the base term unless the
parties otherwise agree in writing.
At the end of the last of the five renewal terms, the Sublessee may request
new negotiations for the leasehold and improvements. This request shall be
submitted in writing at least ninety (90) days prior to the termination of the
last option period. The
<PAGE>
Sublessor agrees to enter into good faith negotiations prior to negotiations
with any other prospective Sublessee.
3. Delete paragraph 4 in its entirety and insert the following in lieu
thereof:
Paragraph 4. Rental. Sublessee shall pay for the use and occupancy of the
premises during the base term of this Sublease, beginning June 1, 1994, and
extending through May 31, 1995, the sum of One Hundred Sixty-five Thousand and
00/100 Dollars ($165,000.00) per year; Thirteen Thousand Seven Hundred Fifty and
00/100 Dollars ($13,750.00) per month, payable in equal monthly payments for the
base term of this Agreement. Provided, however, Five Thousand and 00/100
Dollars ($5,000) of the monthly payment for the twelve (12) months of the base
term shall be deferred upon the following condition: the total amount deferred,
Sixty Thousand and 00/100 Dollars ($60,000), less any amounts attributable to
improvements made by Sublessee prior to May 31, 1995, shall be paid to Sublessor
in a lump-sum prior to May 31, 1995. Paid receipt documentation for
improvements shall be provided to Sublessor.
Sublessor shall adjust the rental rate after the base term of one (1) year,
or any renewal, by an amount which equals the percent of change of the All Urban
Consumer Price Index (C.P.I.-U.) as published by the Bureau of Labor Statistics,
with a base C.P.I.-U.) equaling 441.1 for March 1994, based upon the base year
of 1967=100). The rental rate shall not exceed One Hundred Seventy-two Thousand
Five Hundred and 00/100 Dollars ($172,500.00) for the first one (1) year option
term.
Sublessee shall not be liable to the Sublessor for any additional charge
for purchase or sale of fuel made while utilizing the premises should Sublessee
determine, at its option, to purchase or resale fuel, delivered from any Fixed
Base Operations resident and operating on Sublessor's premises. Said Fixed Base
Operations shall be responsible for payment of any and all appropriate funds,
based on the Sublessee's published sales price to the Sublessee's customers and
in effect at the time of delivery.
Should no resident Fixed Base Operations be agreeable to selling fuel to
Sublessee on the Sublessor's premises and the Sublessee elects to sell fuel on
the subleased premises, then and if the sale of fuel is permitted on the
subleased premises, by applicable Federal and State law, then and only in such
an event, said Sublessee shall pay
<PAGE>
to the Sublessor a sum equal to that charged other Fixed Base Operations on all
fuel sold on the subleased premises. Sublessee agrees that the additional
rental called for herein will be paid on all fuel used in connection with
refueling operations on all aircraft.
Sublessee agrees to keep complete and accurate records of all fuel sold by
Sublessee on the subleased premises during the term of this Sublease or any
extension thereof and Sublessee shall on or before the 25th day of each and
every month provide the Sublessor with written notice of such fuel sales
together with the payment required by the subparagraph above. In addition,
Sublessee shall, on or before the 25th day of June of each lease year provide
the Sublessor with a certified statement of fuel sold during the immediately
preceding lease year together with any fuel fees due to the Sublessor for that
period.
The Sublessor shall have the right on an annual basis, upon written notice
to the Sublessee to increase the fuel fees, provided however, such increase
shall apply to all Fixed Base Operations uniformly.
IN WITNESS WHEREOF, each of the respective parties hereto (and in the case
of a corporation, an authority or partnership, by and through its duly
authorized officers or partners) has caused these presents to be duly signed,
sealed and delivered as of the date first above written in the preamble, but on
the date set forth beside each respective signature.
Signed, sealed and delivered SUBLESSOR:
this 23rd day of May, 1994,
in the presence of: BRUNSWICK AND GLYNN COUNTY
DEVELOPMENT AUTHORITY
By: /s/ Walter McNeely
- ------------------------ ------------------------------
Witness Walter McNeely
Chairman
/s/ Penny P. Moore
- ------------------------
Notary Public
My Commission Expires: ATTEST: -------------------------
6-9-95 Ben T. Slade, III
<PAGE>
Secretary-Treasurer
(Agency Seal)
Signed, sealed and delivered SUBLESSEE:
this 11th day of May, 1994,
in the presence of:
GULFSTREAM AEROSPACE
CORPORATION
- ------------------------
Witness By: /s/ Robert L. Williams
------------------------
/s/ Gail P. Carroll
- -----------------------
Notary Public
ATTEST: /s/ Donald L. Mayer, SEC
-------------------------
(Corporate Seal)
GAIL P. CARROLL
Notary Public, Chatham County, GA
My Commission Expires July 11, 1997
<PAGE>
Exhibit 10.21
STATE OF GEORGIA
COUNTY OF GLYNN
AMENDMENT NO. 2 TO SUBLEASE AGREEMENT
--------------------------------------
This Amendment to Sublease Agreement made this the 25th day of May 1995, by
and between the BRUNSWICK AND GLYNN COUNTY DEVELOPMENT AUTHORITY, hereinafter
referred to as "Authority" or "Sublessor," and GULFSTREAM AEROSPACE CORPORATION,
a Georgia Corporation, hereinafter referred to as "Sublessee."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Brunswick and Glynn County Development Authority and
Gulfstream Aerospace Corporation, a Georgia Corporation, entered into a Sublease
Agreement on June 1, 1992, a copy of which is recorded in the Office of the
Clerk of Glynn County Superior Court in Deed Book 42 W, page 48; and
WHEREAS, Glynn County Georgia, as Lessor and Authority, as Lessee, entered
into a Lease Agreement dated October 11, 1988, a copy of which is recorded in
the Office of the Clerk of Glynn County Superior Court in Deed Book 32 Q, page
595, and amended by Agreement dated May 4, 1990, recorded in Deed Book 35 E,
page 335, and amended by Agreement dated June 22, 1990, recorded in Deed Book 35
P, page 61; and
WHEREAS, the real property which is the subject of this amendment and said
Sublease Agreement dated June 1, 1992, was a portion of the real property which
was the subject of said Lease Agreement dated October 11, 1988; and
WHEREAS, pursuant to said Lease Agreement dated October 11, 1988, the
Authority is the successor in interest to Glynn County, Georgia, and authorized
to enter into this amendment; and
WHEREAS, the Authority and Gulfstream Aerospace Corporation mutually desire
to amend paragraphs 2, 3, and 4 of said Sublease Agreement entered into on June
1, 1992, by and between the Brunswick and Glynn County Development Authority and
Gulfstream Aerospace Corporation;
NOW THEREFORE, for and in consideration of the premises herein set forth
and the terms and conditions hereinafter stated, the Brunswick and Glynn County
Development Authority and Gulfstream Aerospace Corporation agree and bind
themselves as follows, to-wit:
1. Delete paragraph 2 in its entirety and insert the following in lieu
thereof:
<PAGE>
PARAGRAPH 2. TERM. This Sublease commences on the 1st day of June 1995,
inclusive and expires on the 31st day of May 1998, inclusive, a period of three
(3) years and zero (0) months (the base term). This Sublease may be extended by
mutual agreement of the parties or in compliance with any option for renewal
provided in Paragraph 3 of this Sublease.
2. Delete paragraph 3 in its entirety and insert the following in lieu
thereof:
PARAGRAPH 3. OPTIONS TO RENEW. Sublessee shall have the option to renew
this Sublease for five (5) renewal terms of one (1) year and zero (0) months
beginning the 1st day of June 1998, unless this Sublease is terminated as a
result of Sublessee's default and breach.
Sublessee shall not exercise any option to renew for more than one renewal
term at a time during either the base term or any renewal term of this Sublease.
Sublessee shall deliver to Sublessor written notice of its intent to renew this
Sublease at least one hundred eighty (180) days prior to the expiration of the
base term or any renewal term then in effect.
Except for the amount of the rental rate, unless otherwise provided for
within Paragraph 4 all agreements and conditions in this Sublease shall have the
same force and effect for each renewal term as for the base term unless the
parties otherwise agree in writing.
At the end of the last of the five renewal terms, the Sublessee may request
new negotiations for the leasehold and improvements. This request shall be
submitted in writing at least ninety (90) days prior to the termination of the
last option period. The Sublessor agrees to enter into good faith negotiations
prior to negotiations with any other prospective Sublessee.
3. Delete paragraph 4 in its entirety and insert the following in lieu
thereof:
PARAGRAPH 4. RENTAL. Sublessee shall pay for the use and occupancy of the
premises during the first year of this Amendment, beginning June 1, 1995, and
extending through May 31, 1996, the sum of One Hundred Sixty-five Thousand and
00/100 Dollars ($165,000.00) per year; Thirteen Thousand Seven Hundred Fifty
and 00/100 Dollars ($13,750.00) per month, payable in equal monthly payments for
the first year of this Agreement. Provided, however, Seven Thousand Seven
Hundred Fifty and 00/100 Dollars ($7,750.00) of the monthly payment for the
twelve (12) months of the first year shall be deferred upon the following
condition: the total amount deferred, Ninety-three Thousand and 00/100 Dollars
($93,000.00), less any amounts attributable to improvements made by Sublessee
prior to May 31, 1996, shall be paid to Sublessor in a
2
<PAGE>
lump-sum prior to May 31, 1996. Paid receipt documentation for improvements
shall be provided to Sublessor.
Sublessee shall pay for the use and occupancy of the premises during the
second year of this Amendment, beginning June 1, 1996, and extending through
May 31, 1997, the sum of One Hundred Sixty-five Thousand and 00/100 Dollars
($165,000.00) per year; Thirteen Thousand Seven Hundred Fifty and 00/100
Dollars ($13,750.00) per month, payable in equal monthly payments for the second
year of this Agreement. Provided, however, Five Thousand Seven Hundred Fifty
and 00/100 Dollars ($5,750.00) of the monthly payment for the twelve (12) months
of the second year shall be deferred upon the following condition: the total
amount deferred, Sixty-nine Thousand and 00/100 Dollars ($69,000.00), less any
amounts attributable to improvements made by Sublessee prior to May 31, 1997,
and which have not been previously deducted from rental obligations pursuant to
this Agreement shall be paid to Sublessor in a lump-sum prior to May 31, 1997.
Paid receipt documentation for improvements shall be provided to Sublessor.
Sublessee shall pay for the use and occupancy of the premises during the
third year of this Amendment, beginning June 1, 1997, and extending through May
31, 1998, the sum of One Hundred Seventy-two Thousand Five Hundred and 00/100
Dollars ($172,500.00) per year; Fourteen Thousand Three Hundred Seventy-five
and 00/100 Dollars ($14,375.00) per month, payable in equal monthly payments for
the third year of this Agreement. Provided, however, Two Thousand One Hundred
Twenty-five and 00/100 Dollars ($2,125.00) of the monthly payment for the twelve
(12) months of the third year shall be deferred upon the following condition:
the total amount deferred, Twenty-five Thousand Five Hundred and 00/100 Dollars
($25,500.00), less any amounts attributable to improvements made by Sublessee
prior to May 31, 1998, and which have not been previously deducted from rental
obligations pursuant to this Agreement shall be paid to Sublessor in a lump-sum
prior to May 31, 1998. Paid receipt documentation for improvements shall be
provided to Sublessor.
Sublessor shall adjust the rental rate after the base term of three (3)
years, or any renewal, by an amount which equals the percent of change of the
All Urban Consumer Price Index (C.P.I.-U.) as published by the Bureau of Labor
Statistics, with a base C.P.I.-U.) equaling 452.0 for February 1995, based upon
the base year of 1967=100). The rental rate shall not exceed One Hundred
Seventy-five Thousand and 00/100 Dollars ($175,000.00) for the first one (1)
year option term.
Sublessee shall not be liable to the Sublessor for any additional charge
for purchase or sale of fuel made while utilizing the premises should Sublessee
determine, at its option, to purchase or resale fuel, delivered from any Fixed
Base Operations resident and operating on Sublessor's premises. Said Fixed Base
Operations shall be responsible
3
<PAGE>
for payment of any and all appropriate funds, based on the Sublessee's published
sales price to the Sublessee's customers and in effect at the time of delivery.
Should no resident Fixed Base Operations be agreeable to selling fuel to
Sublessee on the Sublessor's premises and the Sublessee elects to sell fuel on
the subleased premises, then and if the sale of fuel is permitted on the
subleased premises, by applicable Federal and State law, then and only in such
an event, said Sublessee shall pay to the Sublessor a sum equal to that charged
other Fixed Base Operations on all fuel sold on the subleased premises.
Sublessee agrees that the additional rental called for herein will be paid on
all fuel used in connection with refueling operations on all aircraft.
Sublessee agrees to keep complete and accurate records of all fuel sold by
Sublessee on the subleased premises during the term of this Sublease or any
extension thereof and Sublessee shall on or before the 25th day of each and
every month provide the Sublessor with written notice of such fuel sales
together with the payment required by the subparagraph above. In addition,
Sublessee shall, on or before the 25th day of June of each lease year provide
the Sublessor with a certified statement of fuel sold during the immediately
preceding lease year together with any fuel fees due to the Sublessor for that
period.
The Sublessor shall have the right on an annual basis, upon written notice
to the Sublessee to increase the fuel fees, provided however, such increase
shall apply to all Fixed Base Operations uniformly.
4
<PAGE>
IN WITNESS WHEREOF, each of the respective parties hereto (and in the case
of a corporation, an authority or partnership, by and through its duly
authorized officers or partners) has caused these presents to by duly signed,
sealed and delivered as of the date first above written in the preamble, but on
the date set forth beside each respective signature.
Signed, sealed and delivered SUBLESSOR:
this 25th day of May
1995, in the presence of: BRUNSWICK AND GLYNN COUNTY
DEVELOPMENT AUTHORITY
/s/ Bonna Jean Jernigan
- --------------------------------------
Witness By: /s/ Walter McNeely
------------------------------
Walter McNeely
/s/ Penny P. Moore Chairman
- --------------------------------------
Notary Public ATTEST: /s/ Ben T. Slade III
--------------------------
Ben T. Slade, III
Secretary-Treasurer
(Agency Seal)
Signed, sealed and delivered SUBLESSEE:
this 25th day of May
1995, in the presence of: GULFSTREAM AEROSPACE
CORPORATION
BY: /s/ W.W. Boisture, Jr.
------------------------------
/s/ Becky R. Richs
- --------------------------------------
Witness ATTEST: /s/ Donald N. Mayer, SEC
--------------------------
(Corporate Seal)
/s/ Gail P. Carroll
- --------------------------------------
Notary Public
5
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to use in this Amendment No. 1 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
August 29, 1996
