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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
---------------
Commission File No. 1-8461
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GULFSTREAM AEROSPACE CORPORATION
P. O. Box 2206
500 Gulfstream Road
Savannah, Georgia 31402-2206
Telephone: (912) 965-3000
State of incorporation: Delaware
IRS identification number: 13-3554834
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
As of August 2, 1997, there were 74,127,742 shares of
Gulfstream Aerospace Corporation Common Stock outstanding.
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GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income
Three and six months ended June 30, 1997
and 1996 4
Consolidated Statement of Stockholders'
Equity
Six months ended June 30, 1997 5
Consolidated Statements of Cash Flows
Six months ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9-12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 13
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
Signature 15
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 249,310 $ 233,172
Accounts receivable (less allowance for doubtful
accounts: $1,153 and $3,243) 105,479 137,342
Inventories 609,835 655,237
Prepaids and other assets 9,185 7,915
----------- -----------
Total current assets 973,809 1,033,666
Property and equipment, net 122,331 126,503
Tooling 45,705 47,677
Goodwill, net of accumulated amortization: $7,861
and $7,322 35,260 35,799
Other intangible assets, net 53,021 55,556
Other assets and deferred charges 16,077 14,014
----------- -----------
Total Assets $1,246,203 $1,313,215
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 50,833 $ 20,000
Accounts payable 150,197 129,410
Accrued liabilities 92,495 111,243
Customer deposits - current portion 464,834 634,922
----------- -----------
Total current liabilities 758,359 895,575
Long-term debt 342,500 380,000
Accrued postretirement benefit cost 112,113 108,705
Customer deposits - long-term 132,768 109,037
Other long-term liabilities 8,106 8,709
Commitments and contingencies
Stockholders' equity
Common stock; $.01 par value; 300,000,000 shares
authorized; 86,053,679 shares issued in 1997 and
85,890,212 shares issued in 1996 860 859
Additional paid-in capital 334,334 333,686
Accumulated deficit (389,437) (468,971)
Minimum pension liability (1,464) (1,464)
Unamortized stock plan expense (1,447) (2,432)
Less: Treasury stock: 11,978,439 shares in 1997
and 1996 (50,489) (50,489)
----------- -----------
Total stockholders' equity (107,643) (188,811)
----------- -----------
Total Liabilities and Stockholders' Equity $1,246,203 $1,313,215
=========== ===========
</TABLE>
See notes to consolidated financial statements
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $522,906 $243,609 $898,532 $458,672
Cost and expenses
Cost of sales 446,896 186,569 752,048 354,841
Selling and administrative 22,982 22,746 45,597 45,190
Stock option compensation expense 463 5,078 985 5,200
Research and development 5,294 18,720 3,774 34,746
Amortization of intangibles and deferred charges 1,826 1,881 3,646 3,763
----------- ----------- ----------- -----------
Total costs and expenses $477,461 $234,994 $806,050 $443,740
----------- ----------- ----------- -----------
Income from operations 45,445 8,615 92,482 14,932
Interest income 2,239 4,118 5,362 7,593
Interest expense (7,680) (3,451) (15,810) (7,166)
----------- ----------- ----------- -----------
Income before income taxes 40,004 9,282 82,034 15,359
Provision for income taxes 500 - 2,500 -
----------- ----------- ----------- -----------
Net Income $ 39,504 $ 9,282 $ 79,534 $ 15,359
=========== =========== =========== ===========
Earnings Per Share:
Net income per share $ .50 $ .12 $ 1.01 $ .20
=========== =========== =========== ===========
Weighted average common and common equivalent shares
outstanding 78,719 78,535 78,638 78,535
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional Minimum Unamortized Total
Common Paid-In Accumulated Pension Stock Plan Treasury Stockholders'
Stock Capital Deficit Liability Expense Stock Equity
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of
December 31,
1996 $859 $333,686 $(468,971) $(1,464) $(2,432) $(50,489) $(188,811)
Net income 79,534 79,534
Amortization of
stock plan
expense 985 985
Exercise of
common stock
options 1 648 649
-----------------------------------------------------------------------------------
Balance as of
June 30, 1997 $860 $334,334 $(389,437) $(1,464) $(1,447) $(50,489) $(107,643)
===================================================================================
</TABLE>
See notes to consolidated financial statements
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 79,534 $ 15,359
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 15,901 12,242
Postretirement benefit cost 3,408 3,320
Provision for loss on pre-owned aircraft 800
Non-cash stock option compensation expense 985 5,200
Other, net (1,659) 201
Change in assets and liabilities:
Accounts receivable 33,522 (16,784)
Inventories 45,402 (175,381)
Prepaids, other assets, and deferred charges (3,904) (844)
Accounts payable and accrued liabilities 2,039 11,845
Customer deposits (146,357) 285,269
Other long-term liabilities (603) (1,347)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 28,268 139,880
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property and equipment (4,734) (7,518)
Dispositions of property and equipment 22
Expenditures for tooling (1,378) (899)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (6,112) (8,395)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of common stock options 649 78
Principal payments on long-term debt (6,667) (26,533)
Repurchase of preferred stock (18,938)
Dividends paid on preferred stock (96,136)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (6,018) (141,529)
Increase (decrease) in cash and cash equivalents 16,138 (10,044)
Cash and cash equivalents, beginning of period 233,172 223,312
---------- ----------
Cash and cash equivalents, end of period $ 249,310 $ 213,268
========== ==========
</TABLE>
See notes to consolidated financial statements
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
have been prepared by the Company pursuant to the rules of the
Securities and Exchange Commission ("SEC") and, in the opinion of
the Company, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of
financial position, results of operations and cash flows.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to SEC rules. The operating results for the three and
six months ended June 30, 1997 are not necessarily indicative of
the results to be expected for the full year. These financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended
December 31, 1996 included in the Company's 1996 Annual Report to
Stockholders.
NOTE 2. NET INCOME PER SHARE
Net income per share is based on net income divided by the
weighted average number of common and common equivalent shares
outstanding during the period. Common equivalent shares consist
of the Company's stock issuable upon exercise of common stock
options determined using the treasury stock method. For the 1996
periods, net income per share is calculated based on historical
net income and assuming the Company's initial public offering and
related transactions that occurred during October 1996 and the
issuance of stock options in 1996 had occurred as of the
beginning of the respective reporting period.
NOTE 3. INVENTORIES
Inventories consisted of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
(In thousands)
<S> <C> <C>
Work in process $348,955 $355,198
Raw materials 111,454 108,041
Vendor progress payments 76,954 104,318
Pre-owned aircraft 72,472 87,680
-------- --------
$609,835 $655,237
======== ========
</TABLE>
NOTE 4. 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 products
liability. Although the outcome of litigation cannot be
predicted with certainty and some lawsuits, claims or proceedings
may be disposed of unfavorably to the Company, management has
made provision for all known probable losses related to lawsuits
and claims and believes that the disposition of all matters which
are pending or asserted will not have a material adverse effect
on the financial statements of the Company.
The Company is involved in a tax audit by the Internal
Revenue Service covering the years ended December 31, 1991 and
1990. The revenue agent's report includes several proposed
adjustments involving the deductibility of certain compensation
expense, items relating to the initial capitalization of the
Company, the allocation of the original purchase price for the
acquisition by the Company of the Gulfstream business, including
the treatment of advance payments with respect to and the cost of
aircraft that were in backlog at the time of the acquisition, and
the amortization of amounts allocated to intangible assets. The
Company believes that the ultimate resolution of these issues
will not have a material adverse effect on its financial
statements because the financial statements already reflect what
the Company currently believes is the expected loss of benefit
arising from the resolution of these issues.
The Company is currently engaged in the monitoring and
cleanup of certain ground water at its Savannah facility under
the oversight of the Georgia Department of Natural Resources.
Expenses incurred for cleanup have not been significant. The
Company received in 1992, at its Long Beach facility, two
inquiries from the U.S. Environmental Protection Agency and, in
1991, at its Oklahoma facility, a soil contamination inquiry. The
Company believes other aspects of the Savannah facility, as well
as other Gulfstream properties, are being carefully monitored and
are in substantial compliance with current federal, state and
local environmental regulations. The Company believes the
liabilities, if any, that will result from the above
environmental matters will not have a material adverse effect on
its financial statements.
NOTE 5. NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
128, EARNINGS PER SHARE, which will be effective for the
Company's 1997 annual financial statements. SFAS No. 128
simplifies the standards for computing earnings per share (EPS)
information and makes the computation comparable to international
EPS standards. SFAS No. 128 replaces the presentation of
"primary" (and when required "fully diluted") EPS with a
presentation of "basic" and "diluted" EPS. Pro forma amounts
under the provisions of SFAS No. 128 are set forth below:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------- -----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic EPS $0.53 $0.13 $1.07 $0.21
Diluted EPS $0.50 $0.12 $1.01 $0.20
</TABLE>
NOTE 6. INCOME TAXES
The Company recorded a provision for income taxes
(principally alternative minimum tax) of $0.5 million and $2.5
million for the quarter and six months ended June 30, 1997,
respectively, and no provision for income taxes for the quarter
and six months ended June 30, 1996, principally as a result of
the utilization of net operating loss carryforwards. The Company
had available at June 30, 1997 net operating loss carryforwards
for regular federal income tax purposes of approximately $160
million which will begin expiring in 2006.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
the Notes to Consolidated Financial Statements beginning on page
7 and with Management's Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) and the audited
Consolidated Financial Statements and Notes to Consolidated
Financial Statements appearing in the Company's 1996 Annual
Report to Stockholders.
COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTER
AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NET REVENUES. Net revenues increased by $279.3 million, or
115%, to $522.9 million in the second quarter of 1997 from $243.6
million in the second quarter of 1996. The significant increase
resulted primarily from the delivery of 12 new aircraft, five
Gulfstream IV-SPs and seven Gulfstream Vs, as compared with six
aircraft, all Gulfstream IV-SPs, in the second quarter of 1996.
Another contributing factor to higher revenues was an increase of
$87.8 million in pre-owned aircraft revenues to $123.6 million in
the second quarter of 1997 from $35.8 million in the second
quarter of 1996. During the six months ended June 30, 1997,
total net revenues increased by $439.8 million, or 96%, to $898.5
million from $458.7 million for the six months ended June 30,
1996. For the six months ended June 30, 1997, Gulfstream
delivered 23 new aircraft, ten Gulfstream IV-SPs and 13 Gulfstream
Vs, up from 11 Gulfstream IV-SPs in the same period of 1996. Also
contributing to the revenue increase was the sale of ten pre-
owned aircraft for the six months as compared to seven in the
corresponding period in 1996.
COST OF SALES. Total cost of sales increased $260.3 million
to $446.9 million in the second quarter of 1997 from $186.6
million in the second quarter of 1996, and increased $397.2
million to $752.0 million for the six months ended June 30, 1997
from $354.8 million for the six months ended June 30, 1996.
These increases were a result of the higher number of new
aircraft and pre-owned aircraft deliveries discussed above.
Excluding pre-owned aircraft, which generally are sold at break-
even levels, the gross profit percentage for the second quarter
of 1997 was 18.2% compared to 28.0% for the second quarter of
1996, and for the six months ended June 30, 1997, the gross
profit percentage was 19.0% compared to 26.9% for the comparable
period in 1996. The decline in gross profit percentage is
primarily attributable to the introduction of the Gulfstream V
aircraft into production and the higher costs associated with the
early stages of the Gulfstream V production program. The Company
expects the margin on the Gulfstream V to approach those of the
Gulfstream IV-SP over the next 18-24 months.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and
administrative expense of $23.0 million in the second quarter of
1997 was relatively unchanged compared to $22.7 million for the
second quarter of 1996. For the six months ended June 30, 1997,
selling and administrative expense was $45.6 million as compared
to $45.2 million for the six months ended June 30, 1996. As a
percentage of net revenues, selling and administrative expense
decreased to 4.4% during the second quarter of 1997 compared to
9.3% in the second quarter of 1996, and decreased to 5.1% during
the six months ended June 30, 1997 versus 9.9% in the comparable
period of 1996, both as a result of higher revenues in 1997.
STOCK OPTION COMPENSATION EXPENSE. The issuance of options
to purchase common stock of the Company resulted in a non-cash
compensation charge of $0.5 million and $1.0 million during the
second quarter of 1997 and the six months ended June 30, 1997,
respectively, compared to $5.1 million and $5.2 million for the
comparable periods in 1996.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development
expense decreased by $13.4 million to $5.3 million for the second
quarter of 1997 from $18.7 million for the second quarter of
1996, principally as a result of the substantial completion of
the Gulfstream V development program. For the six month period
ended June 30, 1997, research and development expense decreased
by $30.9 million to $3.8 million from $34.7 million for the
corresponding period in 1996. Research and development expense
for the six months ended June 30, 1997 is net of a $10.0 million
credit for launch assistance funds received from a vendor
participating in the development of the Gulfstream V.
INTEREST INCOME AND EXPENSE. Interest income decreased by
$1.9 million to $2.2 million in the second quarter of 1997 and
decreased by $2.2 million to $5.4 million in the six months ended
June 30, 1997. In each case, the decrease was a result of lower
average cash balances invested during the 1997 periods. Interest
expense increased by $4.2 million to $7.7 million for the second
quarter of 1997 and by $8.6 million to $15.8 million for the six
months ended June 30, 1997, respectively, over the comparable
periods in 1996. This increase was principally due to the
increase in average long-term borrowings resulting from the
Company's new credit facilities.
PROVISION FOR INCOME TAXES. The Company recorded a
provision for income taxes, principally alternative minimum tax,
of approximately $0.5 million for the second quarter of 1997, and
$2.5 million for the six months ended June 30, 1997. No
provision for income taxes was made for the second quarter or six
months ended June 30, 1996, principally as a result of the
utilization of net operating loss carryforwards.
In compliance with SFAS No. 109, ACCOUNTING FOR INCOME
TAXES, and assuming operating trends continue, the Company is
anticipating the release of its deferred tax valuation allowance
in the third quarter 1997. This would result in a one-time, non-
cash benefit of approximately $65.0 million in reported earnings
for the third quarter 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from working capital
requirements, capital expenditures, and principal and interest
payments on long-term debt. During the six months ended June 30,
1997, the Company relied on its available cash balances to fund
these needs. The Company had cash and cash equivalents totaling
$249.3 million at June 30, 1997 and available borrowings of
$200.0 million under a revolving credit facility.
Net cash generated by operating activities during the six
months ended June 30, 1997 and 1996, was $28.3 million and $139.9
million, respectively. The reduction in 1997 is primarily
attributable to the timing of progress payments on aircraft in
backlog for the comparable periods. A partially offsetting
factor was the decline in inventories in 1997 as a result of
Gulfstream V deliveries, versus the temporary build up in
Gulfstream V related inventory during the same period in 1996.
Capital expenditures for property and equipment and tooling
were $4.7 million and $1.4 million, respectively, during the six
months ended June 30, 1997. As a result of continued strong
demand for its products, and the Company's objective to make
deliveries sooner to its new aircraft customers, Gulfstream
announced, during the fourth quarter of 1996, plans to increase
its annual production rate to approximately 60 aircraft by 1999,
a twofold increase over its 1996 annual production rate. As a
result, in 1997 and 1998, the Company's capital expenditures are
expected to increase by a total of $25 to $35 million above
previously planned annual levels of approximately $15 million to
meet the requirements of the increased 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.
At June 30, 1997, borrowings under the Company's credit
facilities were $393.3 million. The Company made scheduled
payments on its long-term debt of $6.7 million during the six
months ended June 30, 1997, and scheduled repayments remaining
are $13.3 million in 1997, $75.0 million in each of the years
1998 through 2001, and $80.0 million in 2002. The Credit
Agreement contains 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. At June 30, 1997
the Company was in compliance with the covenants of its existing
credit agreement.
In connection with orders for 27 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. In light of the
current market for pre-owned Gulfstream aircraft, management
believes that the fair market value of such aircraft exceeds 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.
On October 10, 1996, the Company reached an agreement in
principle with the Pension Benefit Guaranty Corporation (the
"PBGC") concerning funding of the Company's defined benefit
pension plans. Pursuant to this agreement, the Company
contributed an additional $20 million in 1996, and $12.5 million
during the six months ended June 30, 1997. Further, the Company
has agreed to contribute $12.5 million for the remainder of 1997
and a total of $25 million annually from 1998 through 2000 to its
pension plans, which payments are expected to result in such
plans being fully funded. The payments to be made under this
agreement were already part of the Company's overall financial
planning, and therefore, are not expected to have a material
effect on the Company's financial statements.
The Company's principal source of liquidity, both on a short-
term and long-term basis, is cash flow provided by operations,
including customer progress payments and deposits on new aircraft
orders. Occasionally, however, the Company may borrow against
the credit agreement to supplement cash flow from operations.
The Company believes that based upon its analysis of its
consolidated financial position, its cash flow during the past 12
months and the expected results of operations in the future,
operating cash flow and available borrowings under the credit
agreement will be adequate to fund operations, capital
expenditures and debt service for at least the next 12 months.
The Company intends to repay its remaining indebtedness primarily
with cash flow from operations. There can be no assurance,
however, that future industry specific developments or general
economic trends will not adversely affect the Company's
operations or its ability to meet its cash requirements.
CONTRACTUAL BACKLOG
At June 30, 1997, Gulfstream had a firm contract backlog of
approximately $3.1 billion of revenues, representing a total of
98 aircraft. 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.
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. However, to the extent that there is a
lengthy period of time between a customer's aircraft order and
its delivery date, there may be increased uncertainty as to
changes in business and economic conditions which may affect
customer cancellations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on
May 14, 1997. The following matters were voted upon:
Proposal 1: Election of Directors. The following
nominees were elected to serve as Class I Directors of
the Company, to serve until the annual meeting of
stockholders in 2000 and until their successors are
elected and qualified, by the following vote:
NOMINEE VOTES FOR VOTES WITHHELD
--------------------- ---------- --------------
Charlotte L. Beers 65,234,002 114,565
Thomas D. Bell, Jr. 65,234,002 114,565
Chris A. Davis 65,234,000 114,567
Nicholas C. Forstmann 65,234,002 114,565
Bryan T. Moss 65,234,002 114,565
Roger S. Penske 61,355,161 3,993,406
Donald H. Rumsfeld 64,963,102 385,465
Proposal 2: Amended and Restated 1990 Stock Option
Plan. The Amended and Restated 1990 Stock Option Plan
was approved by the following vote:
VOTES FOR VOTES AGAINST ABSTENTIONS BROKER NON-VOTES
---------- ------------ ----------- ----------------
51,439,558 13,853,744 33,765 21,500
Proposal 3: Ratification of Appointment of Auditors.
The appointment of Deloitte & Touche, LLP to serve as
auditors of the Company for 1997 was ratified by the
following vote:
VOTES FOR VOTES AGAINST ABSTENTIONS BROKER NON-VOTES
---------- ------------- ----------- ----------------
60,000,862 5,325,025 13,480 9,200
ITEM 5. OTHER INFORMATION
Certain statements contained in this Form 10-Q contain
"forward-looking" information that involves risk and
uncertainty, including, but not limited to, statements
regarding planned future deliveries and expenditures.
Actual future results and trends may differ materially
depending on a variety of factors. For discussion of
these factors, see Exhibit 99, CAUTIONARY STATEMENT FOR
PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this
report:
Exhibit 10.24 Outfitted Gulfstream V Sales
Agreement dated June 13, 1997
between Gulfstream Aerospace
Corporation and Allen E. Paulson.
Exhibit 10.25 Marketing Services Agreement dated
June 13, 1997 between Gulfstream
Aerospace Corporation and Allen E.
Paulson.
Exhibit 10.26 Gulfstream IV Aircraft Purchase
Agreement and Amendment to
Outfitted Gulfstream V Sales
Agreement dated August 1, 1997
between Gulfstream Aerospace
Corporation and Allen E. Paulson.
Exhibit 10.27 Amended and Restated Gulfstream
Aerospace Corporation 1990 Stock
Option Plan, as further amended
through July 30, 1997.
Exhibit 11.1 Computation of Earnings per Common
Share.
Exhibit 27.1 Financial Data Schedule.
Exhibit 99.1 Cautionary Statement for Purposes
of the "Safe Harbor" Provisions of
the Private Securities Litigation
Reform Act of 1995.
(b) Report on No reports on Form 8-K were filed
Form 8-K during the quarter ended June 30,
1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: August 12, 1997
GULFSTREAM AEROSPACE CORPORATION
/s/ Chris A. Davis
-----------------------------------------
Chris A. Davis
Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
EXHIBIT INDEX
EXHIBITS
Exhibit 10.24 Outfitted Gulfstream V Sales
Agreement dated June 13, 1997
between Gulfstream Aerospace
Corporation and Allen E. Paulson.
Exhibit 10.25 Marketing Services Agreement dated
June 13, 1997 between Gulfstream
Aerospace Corporation and Allen E.
Paulson.
Exhibit 10.26 Gulfstream IV Aircraft Purchase
Agreement and Amendment to
Outfitted Gulfstream V Sales
Agreement dated August 1, 1997
between Gulfstream Aerospace
Corporation and Allen E. Paulson.
Exhibit 10.27 Amended and Restated Gulfstream
Aerospace Corporation 1990 Stock
Option Plan, as further amended
through July 30, 1997.
Exhibit 11.1 Computation of Earnings per Common
Share.
Exhibit 27.1 Financial Data Schedule.
Exhibit 99.1 Cautionary Statement for Purposes
of the "Safe Harbor" Provisions of
the Private Securities Litigation
Reform Act of 1995.
[LOGO]
GULFSTREAM AEROSPACE CORPORATION
OUTFITTED GULFSTREAM V SALES AGREEMENT
CONDITIONS
Subject to the Terms of Gulfstream V Sales Agreement contained in
Addendum I, which is incorporated herein and made a part hereof
by reference, the BUYER and GULFSTREAM AEROSPACE CORPORATION
("GULFSTREAM") agree as follows:
ARTICLE 1 DEFINITIONS
The following definitions shall apply to the following terms used
in the Terms and Conditions of the Gulfstream V Sales Agreement:
"Agreement" shall mean the Terms of the Gulfstream V Sales
Agreement and the Conditions of the Gulfstream V Sales Agreement.
"Aircraft" shall mean the Gulfstream V aircraft, more fully
described in Addendum I.
"Aircraft Service Changes" are GULFSTREAM published documents
under the same name which provide detailed instructions for
modifications to the Aircraft.
"Authorized Warranty Repair Facility" shall mean an independently
owned aircraft repair facility which has entered into a
Gulfstream Authorized Warranty Repair Agreement with GULFSTREAM
to provide certain warranty services at specific terms and
conditions. The identity and location of the current Gulfstream
Authorized Warranty Repair Facilities are available upon request
from GULFSTREAM. GULFSTREAM reserves the right to add and delete
facilities from its Gulfstream Authorized Warranty Repair
Facility list at its sole discretion.
"Certificate of Airworthiness" shall mean the FAA document
confirming the Aircraft has been inspected and found to conform
to the Type Certificate, is safe for operation, and has been
shown to meet the requirements of the applicable comprehensive
and detailed airworthiness code as provided by Annex 8 to the
Convention on International Civil Aviation.
"Components" shall mean components, systems, accessories,
equipment, or parts of the Aircraft not otherwise included in the
definition of Primary and Secondary Structure.
"Delivery Time" is the date the BUYER and GULFSTREAM execute the
Memorandum of Delivery pursuant to the terms of Article 2.
"Discrepancy" shall mean a condition in the Aircraft which does
not conform to the Product Specification or warranted condition
of the Aircraft.
"FAA" shall mean the United States of America, Department of
Transportation, Federal Aviation Administration.
"Operational Delivery" shall mean the first flight of the
Aircraft following the Aircraft's Outfitting.
"Outfitting" or "Outfitted" shall refer to the initial addition
of interior furnishings and equipment and external paint to the
Aircraft.
"Gulfstream Interior Interface Specification" is a document
licensed by aircraft serial number by GULFSTREAM entitled
Gulfstream Interior Interface Specification, which will be in
form and substance similar to GIV Outfitting Interface
Specification (Report #1159C-GER-023, Revision 4 dated November
2, 1993).
"Preliminary Acceptance Time" is the date the BUYER executes the
Memorandum of Preliminary Acceptance pursuant to the terms of
Article 2.
"Primary and Secondary Structure" shall mean the aluminum, steel,
and/or graphite or fiberglass composite materials, including the
fasteners attached thereto, which form the fuselage, wings,
vertical and horizontal stabilizers, flight control surfaces,
fairings, doors, and engine mounts including attachment and
support structures found within these areas.
"Service Bulletins" shall mean GULFSTREAM published documents
under the same name which give general advice to operators of the
Aircraft.
ARTICLE 2 DELIVERY
SECTION 2.1 PRELIMINARY DELIVERY AND ACCEPTANCE
(a) GULFSTREAM shall tender the Green Aircraft to BUYER for
Preliminary Acceptance at GULFSTREAM's plant in Savannah, Georgia
on or about the Scheduled Preliminary Acceptance Date.
GULFSTREAM shall give BUYER not less than five (5) days advance
written notice of the actual tender date at which time the
Aircraft shall have a valid Certificate of Airworthiness and be
available for immediate flight testing. Within fifteen (15) days
of receipt of GULFSTREAM's notice, BUYER, at its sole discretion,
shall elect either to inspect the Green Aircraft per the
procedures set forth below or accept the Aircraft for purposes of
identifying it as the Aircraft to be Outfitted under this
Agreement without inspection at this time by executing a
Memorandum of Preliminary Acceptance, reserving all BUYER's
rights to further inspections.
(b) If BUYER elects to inspect the Aircraft under Section
2.1(a), the Green Aircraft shall be made available for inspection
and initial flight test of not more than two (2) hours duration
participated in by not more than two (2) of the BUYER's
representatives to confirm that the Green Aircraft meets its
requirements as identified in this Agreement and is acceptable to
BUYER for further Outfitting. Following the completion of this
initial flight test and correction of Discrepancies, if any,
BUYER shall execute a Memorandum of Preliminary Acceptance which
may list deferred Discrepancies, but otherwise reserves BUYER's
rights to require that the identified Aircraft meet the terms of
this Agreement at the Delivery Time.
(c) The BUYER, at its sole election, may require GULFSTREAM
to deliver to BUYER an FAA Bill of Sale or a Warranty Bill of
Sale at the Preliminary Acceptance Time if all current payment
obligations under Addendum I have been met.
SECTION 2.2 FINAL DELIVERY AND ACCEPTANCE
(a) Following the completion of the Outfitting, GULFSTREAM
shall tender the Aircraft to BUYER for final inspection and
flight testing at the Completion Facility and delivery at the
Completion Facility or other mutually agreed location on or about
the Scheduled Delivery Date. GULFSTREAM shall give BUYER not less
than five (5) days advance written notice of the actual tender
date at which time the Aircraft will have been reissued a
Certificate of Airworthiness and be in the condition warranted by
GULFSTREAM under Article 6 hereof. Within fifteen (15) days of
receipt of GULFSTREAM's notice, BUYER shall commence inspection
of the Aircraft and flight testing of the Aircraft of not more
than two (2) hours duration by not more than two (2) of BUYER's
representatives to confirm that the Aircraft meets the terms of
this Agreement. Any Discrepancies discovered during this flight
test or inspection shall be promptly corrected by GULFSTREAM at
no cost to BUYER. Following the correction of a Discrepancy, the
Aircraft shall be reinspected or flight tested as appropriate.
(b) Upon the completion of the inspection and flight tests
reasonably required by BUYER to confirm that the Aircraft meets
the terms and conditions of this Agreement and is free of
Discrepancies, the BUYER shall execute a Memorandum of Delivery.
Upon BUYER's execution of the Memorandum of Delivery, BUYER shall
remit the balance of the Total Purchase Price as determined under
Addendum I, and GULFSTREAM shall deliver possession of the
Aircraft to BUYER together with the Bills of Sale required under
this Agreement to the extent not previously delivered.
SECTION 2.3 Upon delivery by GULFSTREAM to BUYER of a Bill of
Sale under either Section 2.1 or 2.2, all risks of loss or damage
to the Aircraft shall be borne by BUYER, and further, title to
the Aircraft shall pass from GULFSTREAM to BUYER. Upon BUYER's
execution of the Memorandum of Delivery and final payment under
Addendum I, title to all Outfitting shall pass to BUYER free and
clear of any security interest or other lien or encumbrance
liens. GULFSTREAM warrants that the transfer of title in the
Aircraft to BUYER under this Section shall vest full title in
BUYER free and clear of any security interest or other lien or
encumbrance against the Aircraft.
SECTION 2.4 If BUYER does not meet its obligations to execute
a Memorandum of Preliminary Acceptance, inspect or flight test
the Aircraft, or execute a Memorandum of Delivery, then (1) any
unpaid balance of the Total Purchase Price as determined under
Addendum I shall become due and payable, (2) all risk of loss or
damage to the Aircraft shall thereafter be borne by BUYER, and
(3) GULFSTREAM shall provide the Aircraft with suitable outside
storage and routine maintenance at the expense of BUYER.
Further, upon ten (10) days prior written notice to BUYER,
GULFSTREAM may terminate this Agreement no sooner than twenty-
five (25) days after the unpaid balance of the Total Purchase
Price has become due, and payable under this Section 2.4 and
pursue its remedies under Section 9.2.
SECTION 2.5 All fuel costs and pilot expenses associated with
flight tests conducted under this Article 2 shall be at the
expense of GULFSTREAM. All fuel costs and pilot expenses
associated with ferry flights conducted after the Preliminary
Acceptance Time shall be at the expense of BUYER.
SECTION 2.6 If after the Delivery Time, the Aircraft remains
in or is returned to GULFSTREAM's care, custody, or control for
any purpose, BUYER shall retain risk of loss and hereby agrees to
waive on behalf of itself and its insurance carrier(s) any
aircraft hull or property claim, by way of subrogation or
otherwise, against GULFSTREAM for damages to or loss of the
Aircraft while in flight arising out of or by reason of such
care, custody, or control, including claims that such damages or
loss are the result of GULFSTREAM' own negligence. Nothing in
this Section 2.6 shall be deemed to release GULFSTREAM of its
obligations for third parties claims for personal injuries or
deaths alleged to be caused by GULFSTREAM's negligence.
ARTICLE 3 TAXES AND PAYMENT OBLIGATIONS
SECTION 3.1 Time is of the essence in the payment of all
obligations under this Agreement. All payments not received when
due shall bear interest at two (2) percentage points above the
prime rate charged by the Chemical Bank, New York, New York or
its successor on the date due, provided such interest rate shall
not exceed the maximum rate permitted by law.
SECTION 3.2 A. The Total Purchase Price does not include any
sales, use, personal property, excise, or other similar taxes or
assessments which may be imposed by any governmental authority
upon this sales transaction, the Aircraft itself, or the use
thereof by BUYER. BUYER agrees to pay any and all such taxes or
assessments (or at its sole expense to defend against the
imposition of any such taxes) which it is or may be held
obligated by law to pay. GULFSTREAM shall notify BUYER of any
such tax that any governmental authority is seeking to collect
from GULFSTREAM, and BUYER may assume the defense thereof at its
sole expense. If BUYER does not defend, GULFSTREAM may pay the
asserted tax and BUYER shall thereupon be obligated to reimburse
GULFSTREAM for said tax and all reasonable expenses related
thereto.
B. The Total Purchase Price includes all sales, excise, or
similar taxes assessed on the sale of materials or equipment to
GULFSTREAM for incorporation into the Aircraft and any personal
property taxes assessed against the Aircraft or any part thereof
prior to the Delivery Time, and the BUYER is not responsible for
any additional payment in respect thereto. GULFSTREAM shall also
pay any taxes imposed by the United States government, or any
political subdivision thereof, on the income resulting from the
sale of the Aircraft.
ARTICLE 4 TECHNICAL DATA
SECTION 4.1 At the Delivery Time, GULFSTREAM shall deliver to
BUYER one (1) copy (together with all amendments to date, where
applicable) of each of the following:
(a) FAA Bill of Sale,
(b) Warranty Bill of Sale in the form attached hereto as
Appendix B,
(c) Flight Manual approved by the FAA (including a Cruise
Control Manual),
(d) Maintenance Manual (including Chapter 5 "Time Limits/
Maintenance Checks"),
(e) Wiring Diagrams,
(f) Parts Catalog,
(g) Service Bulletins and Aircraft Service Changes
currently applicable to the Aircraft,
(h) Airframe, Engines and Auxiliary Power Unit Logbook,
(i) FAA Certificate of Airworthiness,
(j) Weight and Balance Manual,
(k) Structural Repair Manual.
SECTION 4.2 Commencing on the date of execution of this
Agreement, GULFSTREAM will deliver to BUYER, from time to time,
printed copies of Service Bulletins and Aircraft Service Changes
applicable to the Aircraft. GULFSTREAM, from and after the
Delivery Time, will also furnish to BUYER, at no additional
charge, any amendments to the manuals and catalog described in
Section 4.1 applicable to the Aircraft for a period of ten (10)
years after the Delivery Time.
SECTION 4.3 It is understood that all of the publications,
data, drawings, or other information described in this Article 4
or in the Product Specification are proprietary to GULFSTREAM and
that all intellectual property rights belong to GULFSTREAM, shall
be kept confidential by BUYER, and shall not be disclosed, used,
or transmitted to others except for the purpose of permitting
BUYER or any subsequent owner to maintain, operate or repair the
Aircraft, or make any permitted installation or alteration
thereto.
ARTICLE 5 SPARE PARTS
SECTION 5.1 GULFSTREAM shall maintain a reasonable stock of
suitable and interchangeable spare parts for the Aircraft for
routine repairs and replacements for a period of twenty (20)
years after the date GULFSTREAM delivers its last production
model of the Gulfstream V Aircraft.
ARTICLE 6 WARRANTY
SECTION 6.1 GENERAL - A. Subject to the limitations and
conditions hereinafter set forth, GULFSTREAM warrants that the
Primary and Secondary Structure and the Components of the
Aircraft supplied hereunder shall
(a) at the Delivery Time be free from:
(i) defects in material or workmanship,
(ii) defects arising from the selection of material or
process of manufacture,
(iii) defects inherent in the design thereof in view of the
state of the art at the time of design thereof;
(b) at the Delivery Time and throughout the periods identified
in Section 6.2, be free from:
(i) defects arising from the failure to conform to the
Product Specification as it may be changed pursuant to
this Agreement, except failure to conform to such
portions of the Product Specification stated to be
estimates, approximations, design objectives or design
criteria, or described as not guarantees, and
(ii) defects arising from the failure to conform to the FAA
Type Certificate, as the Type Certificate existed at
the Delivery Time; and
(c) at the Delivery Time and throughout the periods identified
in the BMW Rolls-Royce GmbH warranty provided under Section
6.7, be free from:
(i) defects in workmanship furnished by GULFSTREAM in the
process of installation of the engines and nacelles,
and
(ii) defects inherent in the design of the installation of
the engines and nacelles in view of the state of the
art at the time of the design thereof.
B. Subject to the limitations and conditions hereinafter set
forth, GULFSTREAM warrants that the Outfitting of the Aircraft
supplied hereunder shall, at the Delivery Time, be free from:
(1) defects arising from the failure to conform to the
Completion Specification,
(2) defects in materials or workmanship of Primary or
Secondary Structure or Components manufactured by
GULFSTREAM,
(3) defects in workmanship furnished by GULFSTREAM in the
process of installation of Components, and
(4) defects inherent in the design of the installation of
Components, in view of the state of the art at the time
of the design thereof.
SECTION 6.2 DURATION - A. The extent of GULFSTREAM's liability
under Section 6.1 (A) Warranty as to defects in the Primary and
Secondary Structure is limited to the repair under Section 6.3 of
all such defects in the Aircraft which are discovered within a
period from the date the initial Certificate of Airworthiness is
issued of twenty (20) years or twenty thousand (20,000) hours of
flight operation of the Aircraft, whichever is shorter.
B. The extent of GULFSTREAM's liability under Section 6.1
(A) Warranty as to defects in all Components other than the
Components listed in Section 6.7 is limited to the repair under
Section 6.3 of all such defects which become apparent in the
Aircraft within a period of six years from the date the initial
Certificate of Airworthiness is issued.
C. Notwithstanding the foregoing Section 6.2(A) and (B), the
extent of GULFSTREAM's liability under Section 6.1(B) Warranty
for the Outfitting is limited to correction at its expense of all
such defects which become apparent in the Aircraft within a
period from the Delivery Time of twelve (12) months.
SECTION 6.3 REPAIRS - A. GULFSTREAM's obligation for a breach
of a warranty provided under Section 6.1 during the periods
described in Section 6.2 shall be to repair, replace, or correct,
at GULFSTREAM's sole election, the defective part or condition
with reasonable care and dispatch. All parts and labor required
to support the disassembly and/or removal of the defective
Primary or Secondary Structure or Component and installation and
reassembly of the corrected Primary or Secondary Structure or
Component shall be at GULFSTREAM's expense, provided such work is
performed at GULFSTREAM's facilities or an Authorized Warranty
Repair Facility.
B. The cost of a temporary or interim repair, replacement,
or correction of a defect covered under this Article 6 Warranty
and authorized by GULFSTREAM by facsimile, telex, or otherwise in
writing shall be at GULFSTREAM's expense.
C. GULFSTREAM's obligation under this Section 6.3 shall
include correction or repair for defects to the Primary and
Secondary Structure or Components documented by Service Bulletins
or Aircraft Service Changes to the extent such defects would
otherwise be covered under this Article 6 Warranty.
D. All transportation costs, including the costs associated
with ferrying the Aircraft to and from GULFSTREAM's facilities or
an Authorized Warranty Repair Facility or the shipment of
defective or repaired, replaced, or corrected parts or Components
under this Article 6 Warranty, shall be at BUYER's expense.
SECTION 6.4 EXCLUSIONS - GULFSTREAM's obligations under
Section 6.3 above exclude the following:
(a) Routine inspections other than those specifically required
by GULFSTREAM or a governmental authority to inspect for
known design or manufacturing defects,
(b) Routine maintenance as specified in the Aircraft's
Maintenance Manuals or GULFSTREAM's Computerized Maintenance
Program, including scheduled replacement of life limited
components,
(c) Repair or replacement due to normal wear and tear,
(d) Repair or replacement of consumable parts and materials,
(e) Repair or replacement of defective Components covered by the
BMW Rolls-Royce GmbH warranty identified in Section 6.7, or
(f) After expiration of the twelve (12) month warranty in
Section 6.2C above repair or replacement of defective
Components incorporated into the Aircraft as part of the
Outfitting that were not manufactured by GULFSTREAM.
SECTION 6.5 EXCLUSION FOR MISUSE - The warranties set forth in
this Section 6.1 shall not apply to any defect in the Aircraft or
parts thereof (1) which is the proximate result of an accident,
misuse, neglect, improper installation, improper repair, or
improper modification by persons other than GULFSTREAM, its
agents or employees, or an Authorized Warranty Repair Facility;
(2) if the Aircraft parts were not obtained by BUYER from
GULFSTREAM, its agents or employees, or an Authorized Warranty
Repair Facility or a source authorized by GULFSTREAM; or (3) if
the Aircraft or parts thereof have not been operated or
maintained in accordance with GULFSTREAM's approved operating and
maintenance manuals, instructions, or bulletins issued in respect
of the Aircraft.
SECTION 6.6 BUYER'S OBLIGATIONS - To be entitled to the
benefits of the warranty set forth in this Article 6,
(a) BUYER shall report all failures or defects in writing, by
telegram, or by facsimile to GULFSTREAM prior to the alleged
defect being corrected and within sixty (60) days following such
failure or defect becoming apparent, and
(b) BUYER shall maintain complete records of operations and
maintenance of the Aircraft and engines and make those records
available to GULFSTREAM for GULFSTREAM's inspection. Failure to
maintain such records shall relieve GULFSTREAM of its warranty
obligation hereunder.
SECTION 6.7 BMW ROLLS-ROYCE GMBH WARRANTY - Except to the
extent identified in Section 6.1(A)(C), GULFSTREAM's liability
under Section 6.1 and obligations under Sections 6.2 and 6.3 do
not apply to the BMW Rolls-Royce BR 710 Engines, nacelles, and
spare parts. However, GULFSTREAM represents that the separate
warranty from BMW Rolls-Royce GmbH is attached hereto and will be
extended by BMW Rolls-Royce GmbH for these items to BUYER.
SECTION 6.8 DISCLAIMER AND RELEASE OF OTHER OBLIGATIONS - A.
THE WARRANTIES SET FORTH IN THIS ARTICLE 6 ARE EXCLUSIVE AND IN
LIEU OF ALL OTHER WARRANTIES (EXCEPT FOR THE WARRANTY OF TITLE)
AND REPRESENTATIONS EXPRESS, IMPLIED, OR STATUTORY, INCLUDING BUT
NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS (INCLUDING FITNESS FOR A PARTICULAR PURPOSE). These
warranties are also in lieu of all other obligations and
warranties (including without limitation, the implied warranties
of merchantability and fitness for a particular purpose) related
to any modifications, repairs, replacement parts, or service
change kits which may hereafter be furnished by GULFSTREAM to
BUYER for use on the Aircraft either pursuant to this Article 6
or otherwise.
B. Except for the obligations expressly undertaken by
GULFSTREAM herein, BUYER hereby waives and releases all rights,
claims, and remedies with respect to any and all warranties
express, implied or statutory (including without limitation, the
implied warranties of merchantability and fitness), duties,
obligations, and liabilities in tort or contract arising by law
or otherwise including (1) liability for GULFSTREAM's own
negligence, (2) strict liability or product liability, and (3)
any obligations of GULFSTREAM with respect to incidental or
consequential damages, damages for loss of use, or change in
market value of the Aircraft.
C. If an alleged defect which would be covered by this
Article 6 Warranty causes the destruction of the Aircraft beyond
economical repair, then and only then, BUYER hereby waives and
releases for itself and its insurers all rights, claims, and
remedies with respect to any claims for the recovery of the value
of the Aircraft or for loss of use of the Aircraft with respect
to any and all warranties expressed (including those provided in
this Article 6), implied or statutory (including without
limitation, the implied warranties of merchantability and
fitness), duties, obligations, and liabilities in tort or
contract arising by law or otherwise including (1) liability for
GULFSTREAM's own negligence or (2) strict liability or product
liability. This Section 6.8 (C) shall not be interpreted to
affect in any way GULFSTREAM's obligations, if any, for third
party claims for property damage, personal injury, or wrongful
death.
SECTION 6.9 150 HOUR INSPECTION - GULFSTREAM shall perform
GULFSTREAM's recommended 150 hour post production warranty
inspection on the Aircraft at no charge to BUYER. Such
inspection shall be performed at GULFSTREAM's facility or an
Authorized Warranty Repair Facility. Transportation costs shall
be at BUYER's expense.
SECTION 6.10 ASSIGNMENT - The warranties set forth in this
Article 6 shall run to BUYER, its successors, assigns, and to all
persons whom title to the Aircraft may be transferred during the
warranty period set forth in this Article 6, provided that the
subsequent purchaser agrees in writing to all terms and
conditions contained within this Article 6 and performs all
obligations of BUYER hereunder.
SECTION 6.11 MODIFICATION - No agreement or understanding
varying or extending these warranties will be binding upon
GULFSTREAM unless in writing, signed by a duly authorized
representative of GULFSTREAM.
ARTICLE 7 CHANGES
SECTION 7.1 Prior to the Delivery Time, GULFSTREAM shall have
the right, without the prior written consent of BUYER, to make
changes in the Aircraft or Product Specification and to
substitute equivalent equipment, accessories or materials in the
Aircraft where such changes or substitutions are deemed necessary
by GULFSTREAM to prevent delays in manufacture or delivery or to
improve the performance, producibility, stability, control,
utility, safety, pilot workload, maintenance, or appearance of
the Aircraft provided that such changes or substitutions shall
not adversely affect the Delivery Time or the performance of the
Aircraft. All costs of any such changes shall be borne by
GULFSTREAM.
SECTION 7.2 GULFSTREAM will make any changes in the Aircraft
which are required by applicable law or interpretation thereof by
the FAA established after the execution date of this Agreement
and before the Delivery Time to permit GULFSTREAM to obtain the
appropriate Certificate of Airworthiness as referred to in
Section 2.1. GULFSTREAM will give notice to BUYER upon obtaining
knowledge of such requirement. BUYER shall remit to GULFSTREAM
at the Delivery Time one-half of the amount of the reasonable
costs incurred by GULFSTREAM to effect the change, or give
GULFSTREAM notice prior to the Delivery Time of its intention not
to remit its portion of such costs. Upon receiving such notice
GULFSTREAM may elect to either bear all costs arising under this
Section and complete performance under this Agreement or
terminate this Agreement by giving BUYER prompt notice of such
termination. If GULFSTREAM terminates this Agreement under this
Section, GULFSTREAM shall return to BUYER all payments (without
interest) previously made by BUYER which are applicable to the
Total Purchase Price of the Aircraft and neither party shall have
any further liability to the other resulting from this Agreement.
ARTICLE 8 EXCUSABLE DELAYS
SECTION 8.1 GULFSTREAM shall not be charged with any liability
for failure or delay in the performance of this Agreement when
the failure or delay is due to causes beyond the reasonable
control of GULFSTREAM or without its fault or negligence. Such
causes include but are not limited to: Acts of God; force
majeure; any act of government, including FAA certification
delays or delays in relevant non-U.S. government aviation
certification; delay in transportation; strikes or labor trouble
causing cessation, slow-down or interruption of work; or the
inability after due and timely diligence of GULFSTREAM to procure
materials, accessories, equipment, or parts. The occurrence of
such a cause of GULFSTREAM's failure or delay shall extend the
Scheduled Delivery Date by the period of time required for
GULFSTREAM to correct the cause of the failure or delay by using
its best efforts to eliminate such cause or to overcome the
effect thereof. However, if the period of time required for
correction shall be more than six (6) months, either party may
terminate this Agreement by giving written notice to the other
party within a fifteen (15) day period immediately following such
six (6) month period. In the event of a termination under this
Section 8.1, or if the cause of the failure or delay is such as
to render performance impossible, GULFSTREAM shall return to
BUYER all payments previously made by BUYER (without interest)
which are applicable to the Total Purchase Price of the Aircraft
and neither party shall have any further liability to the other,
resulting from this Agreement.
ARTICLE 9 TERMINATION
SECTION 9.1 This Agreement may be terminated by GULFSTREAM
prior to the Delivery Time:
(a) under Section 2.4,
(b) under Section 7.2,
(c) under Section 8.1,
(d) upon the failure of the BUYER to make payments as
specified in Addendum I,
(e) upon breach or default by BUYER of any other Terms or
Conditions of this Agreement and the failure of BUYER to
cure or remedy such breach or default promptly after
receipt of notice thereof from GULFSTREAM, or
(f) without prior notice to BUYER, upon the occurrence of any
of the following events:
(i) the insolvency of BUYER,
(ii) the institution by or against BUYER of any
involuntary proceedings not dismissed within sixty
(60) days or any voluntary proceeding under any
insolvency or bankruptcy law,
(iii) the adjudication of BUYER as a bankrupt or an
insolvent,
(iv) the appointment of a receiver of BUYER's property,
or
(v) an assignment by BUYER for the benefit of its
creditors.
SECTION 9.2 Upon the termination of this Agreement due to any
of the events set forth in Section 9.1(a), (d) or (e), GULFSTREAM
may elect, in GULFSTREAM's sole discretion:
(a) To resell the Aircraft to a third party in a commercially
reasonable transaction. Upon such a sale, GULFSTREAM will first
apply the amount received from the resale to satisfy GULFSTREAM's
reasonable expenses, including the expense of the sale of the
Aircraft (including sales commissions), storage charges, ordinary
maintenance expenses, and other costs which resulted from BUYER's
failure to commence flight testing and inspection or to accept
the Aircraft. GULFSTREAM shall refund to BUYER the amount
received through the resale up to the amount of payments made by
BUYER under Addendum I less reasonable expenses incurred in
resale as defined above and less the difference between the Total
Purchase Price and the resale price, if and only if, the latter
price is less than the former price;
(b) to recover, as liquidated damages and not as a penalty,
(i) prior to the Scheduled Preliminary Acceptance Date, the
amount of ONE MILLION U.S. DOLLARS ($1,000,000.00) by
retaining the non-refundable down payment,
(ii) after the Scheduled Preliminary Acceptance Date, FOUR
MILLION U.S. DOLLARS ($4,000,000.00), by:
(A) retaining the non-refundable down payment in the amount
of ONE MILLION U.S. DOLLARS ($1,000,000.00) and THREE
MILLION U.S. DOLLARS ($3,000,000.00) from the
previously received payments, or
(B) retaining the non-refundable down payment in the amount
of ONE MILLION U.S. DOLLARS ($1,000,000.00) and
returning to BUYER the Trade-In Aircraft, GIV Serial
Number 1042, upon receipt from BUYER of an additional
THREE MILLION U.S. DOLLARS ($3,000,000.00), or
(C) reselling the Trade-In Aircraft, GIV Serial Number
1042, free and clear of any and all other obligations
to BUYER and retaining from the non-refundable down
payment and proceeds from the resale FOUR MILLION U.S.
DOLLARS ($4,000,000.00) and returning to BUYER the
remaining proceeds collected from the resale.
(c) such other legal remedies as may be available to GULFSTREAM.
SECTION 9.3 This Agreement may be terminated by BUYER prior to
the Delivery Time:
(a) under Section 8.1;
(b) upon the default or breach by GULFSTREAM of any of the Terms
and Conditions hereof and the failure of GULFSTREAM to cure or
remedy such default or breach promptly after receipt of notice
thereof from BUYER provided, however, that a delay of less than
three (3) months beyond the Scheduled Delivery Date shall not be
deemed to be a default or breach within the meaning of this
paragraph (b) unless GULFSTREAM fails to use reasonable efforts
to remove the causes of the delay and to resume performance of
this Agreement with dispatch when such causes are removed; and
provided, further, that BUYER at all times shall have the right
to refrain from exercising its right to termination under this
paragraph (b), and, except as provided in Section 9.5, to require
specific performance by GULFSTREAM of this Agreement; and
(c) immediately, and without prior notice to GULFSTREAM, upon
the occurrence of any of the following events:
(i) the insolvency of GULFSTREAM,
(ii) the institution by or against GULFSTREAM of any
involuntary proceedings not dismissed within sixty
(60) days or any voluntary proceedings under any
insolvency or bankruptcy law,
(iii) the adjudication of GULFSTREAM as a bankrupt or an
insolvent,
(iv) the appointment of a receiver of GULFSTREAM'S
property, or
(v) an assignment by GULFSTREAM for the benefit of
creditors.
SECTION 9.4 In the event BUYER elects to terminate this
Agreement pursuant to Section 9.3 (b), GULFSTREAM shall promptly
return to BUYER all payments made by BUYER which are applicable
to the Total Purchase Price plus interest at the prime rate
charged by Chemical Bank, New York, New York or its successor
from the time of receipt the funds by GULFSTREAM to the time of
refund to BUYER, and neither party shall have any further
liability to the other resulting from this Agreement.
SECTION 9.5 This Agreement shall terminate upon the
destruction or damage beyond economic repair (as GULFSTREAM may
determine) of the Aircraft. In the event this Agreement is
terminated pursuant to this Section 9.5, GULFSTREAM shall
promptly return to BUYER all payments (without interest)
theretofore made by BUYER which are applicable to the Total
Purchase Price and neither party shall thereafter have any
further liability to the other resulting from this Agreement.
ARTICLE 10 MISCELLANEOUS
SECTION 10.1 Any notice given under this Agreement shall be
sent by registered or certified mail, air courier delivery
service, or telegraph to the recipient party at the address shown
on Addendum I or by facsimile to a telephone number provided by
the recipient party. A notice shall be deemed given when
received.
SECTION 10.2 The Terms and Conditions of this Agreement
constitute the entire agreement between the parties hereto with
respect to the purchase and sale of the Aircraft and shall
supersede all communications, representations or agreements,
either oral or written, between the parties hereto with respect
to the subject matter hereof. No agreement or understanding
varying the terms and conditions hereof shall be binding upon
either party hereto unless in writing attached hereto and signed
by duly authorized representatives of both parties.
SECTION 10.3 This Agreement shall be construed and interpreted
in accordance with the laws of the State of Georgia.
SECTION 10.4 This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective
successors and assigns, but this Agreement may not be voluntarily
assigned in whole or in part by BUYER without the prior written
consent of GULFSTREAM.
SECTION 10.5 Any controversy or claim between the parties
arising out of or relating to this Agreement, or the breach
thereof, shall be settled by arbitration in Savannah, Georgia by
three (3) arbitrators under the Commercial Arbitration Rules of
the American Arbitration Association ("AAA") and administered by
the AAA. Each party shall appoint one (1) arbitrator. The two
(2) arbitrators thus appointed shall choose the third arbitrator,
who shall act as chairman. If within thirty (30) days after the
receipt of a party's notification of the appointment of its
arbitrator the other party has not notified the first party of
the arbitrator he has appointed, the first party may request the
AAA to appoint the second arbitrator. If within thirty (30) days
after the appointment of the second arbitrator the two
arbitrators have not agreed on the choice of the third
arbitrator, either party may request the AAA to appoint the third
arbitrator from the panel of the AAA pursuant to Rule 15 of the
Commercial Arbitration Rules of the AAA.
GULFSTREAM AEROSPACE CORPORATION MR. ALLEN E. PAULSON
- -------------------------------- ------------------------------
(BUYER)
/s/ W.W. Boisture, Jr. /s/ Allen E. Paulson
- -------------------------------- ------------------------------
SIGNATURE OF GULFSTREAM's SIGNATURE OF BUYER's
AUTHORIZED REPRESENTATIVE AUTHORIZED REPRESENTATIVE
ADDENDUM I
TERMS OF
OUTFITTED GULFSTREAM V SALES AGREEMENT
THIS GULFSTREAM V SALES AGREEMENT is made and entered into
this 13th day of June, 1997,
BETWEEN: MR. ALLEN E. PAULSON
6001 CLUBHOUSE DRIVE
RANCHO SANTA FE, CALIFORNIA 92067
("BUYER")
AND: GULFSTREAM AEROSPACE CORPORATION, a Georgia
corporation, located at Savannah International
Airport, Savannah, Georgia, and its mailing
address at 500 Gulfstream Road, P. O. Box 2206,
Savannah, Georgia 31402 - 2206 ("GULFSTREAM").
Subject to GULFSTREAM's Conditions of Contract, which are
incorporated herein and made a part hereof by reference,
BUYER hereby agrees to purchase the following described
Outfitted Aircraft from GULFSTREAM pursuant to the following
terms.
Terms defined in this Addendum I will have the same
definition for purposes of the Conditions of Outfitted
Gulfstream V Sales Agreement. If there is any inconsistency
between the Terms of Outfitted Gulfstream V Sales Agreement
and the Conditions of Outfitted Gulfstream V Sales
Agreement, these Terms of the Outfitted Gulfstream V Sales
Agreement shall control.
Section 1 SUBJECT MATTER OF SALE
Aircraft: One Gulfstream V manufactured by
GULFSTREAM in accordance with the Product
Specification, which specification is incorporated
herein and made a part hereof as Appendix A.
Product Specification: Gulfstream Product
Specification for Serial Number 501, dated
February 20, 1997.
Serial Number: Gulfstream V Flight Test Aircraft
Serial Number 501.
Completion Specification: Number 606060. The
Completion Specification number will be changed by
GULFSTREAM, without amendment to this Agreement,
to specifically identify BUYER's individual
specification. Any modification to the Completion
Specification will be treated as a Work Change
Request (WCR) with pricing and Delivery Date
adjusted accordingly.
Completion Facility: Gulfstream Aerospace
Corporation, Long Beach, California.
Scheduled Preliminary Acceptance Date: Fourth
Quarter 1997 or First Quarter 1998. The Scheduled
Preliminary Acceptance Date may be any date
designated by GULFSTREAM during the Fourth Quarter
1997 or First Quarter 1998. GULFSTREAM shall
provide BUYER with at least thirty (30) days prior
written notice of the Scheduled Preliminary
Acceptance Date.
Scheduled Delivery Date: Second Quarter 1998 or
Third Quarter 1998. The Scheduled Delivery Date
may be any date during the Second Quarter 1998 or
Third Quarter 1998. GULFSTREAM shall provide
BUYER with at least thirty (30) days prior written
notice of the Scheduled Delivery Date.
The Scheduled Delivery Date identified herein is
contingent upon BUYER's documented approval of the
following documents by the date identified:
(a) Completion Specification: No later than
sixteen (16) weeks prior to the Scheduled
Preliminary Acceptance Date;
(b) Design Package (includes 1/20 Scale Floor
Plan): No later than sixteen (16) weeks
prior to the Scheduled Preliminary
Acceptance Date;
(c) Material and Color Board: No later than
sixteen (16) weeks prior to the Scheduled
Preliminary Acceptance Date;
(d) External Paint Scheme: No later than
nine (9) weeks prior to the scheduled
induction of the Aircraft into the
Completion facility.
When the Aircraft completes its initial production schedule
it is commonly referred to as the "Green Aircraft." Upon
conclusion of the work defined in the Completion
Specification, the Aircraft is referred to as the "Outfitted
Aircraft." When necessary in the Agreement to differentiate
between the "Green Aircraft" and the "Outfitted Aircraft,"
these terms will be used. Upon definition of the work
requirements specified in the Completion Specification, such
work may be changed by mutual agreement of BUYER and
GULFSTREAM. Such an agreement shall be embodied in a Work
Change Request on a form to be provided by GULFSTREAM. In
the event of a conflict between the above-listed documents,
the more specific shall control the more general one,
provided that in all cases this Agreement shall ultimately
control unless otherwise expressly provided herein.
Section 2 PURCHASE PRICE AND PAYMENT TERMS
Section 2.1 Total Purchase Price: THIRTY-ONE MILLION FIVE
HUNDRED THOUSAND U.S. DOLLARS ($31,500,000.00).
Section 2.2 All cash payments of the Total Purchase Price
shall be paid in United States Dollars by wire
transfer to a bank specified by GULFSTREAM.
Section 2.3 The Total Purchase Price shall be paid in
accordance with the following schedule:
(A) A non-refundable down payment deposit of
ONE MILLION U.S. DOLLARS ($1,000,000.00)
shall be paid on execution of this
Agreement.
(B) A second payment of EIGHTEEN MILLION FIVE
HUNDRED THOUSAND U.S. DOLLARS
($18,500,000.00) shall be due on or before
the Scheduled Preliminary Acceptance Date.
To satisfy this payment obligation, BUYER
is granted the option to trade in
Gulfstream IV Aircraft, Serial Number 1042,
pursuant to Section 8.
(C) At the Delivery Time, the following shall
be due and payable:
(i) The unpaid balance of the Total
Purchase Price in the amount of TWELVE
MILLION U.S. DOLLARS ($12,000,000.00)
shall be due:
(aa) in cash, or
(bb) in accordance with the Promissory
Note attached at Exhibit B, so long as
the Marketing Services Agreement is in
full force and effect at the Delivery
Time.
(ii) Balance of any work change requests
shall be paid in cash.
This payment schedule is non-assignable.
Section 3 COMPUTERIZED MAINTENANCE PROGRAM ("CMP")
Section 3.1 GULFSTREAM shall provide BUYER, at no
additional charge, participation in the
Gulfstream V Computerized Maintenance Program
commencing at the Delivery Time and terminating
twenty-four (24) months after the Operational
Delivery. Thereafter, BUYER may elect to
continue such participation by the payment of
GULFSTREAM's customary charges in effect from
time to time.
Section 4 TRAINING
Section 4.1 GULFSTREAM shall provide at Savannah, Georgia,
to trainees as designated by BUYER, at no
additional charge to BUYER, the following
training for the Aircraft:
(a) an initial ground school course in the
operation and maintenance of the Aircraft
for up to three (3) pilots, including
simulator training, provided by a qualified
training organization designated by
GULFSTREAM; and
(b) an initial ground school course in the
operation and maintenance of the Aircraft
for up to three (3) mechanics, including
three (3) hours simulator training for each
mechanic, provided by a qualified training
organization designated by GULFSTREAM.
Section 4.2 After the Delivery Time, GULFSTREAM shall
provide through a qualified training
organization designated by GULFSTREAM initial
instruction to proficiency in BUYER's aircraft
for three (3) pilots designated by BUYER; such
instruction shall be conducted in Savannah,
Georgia. Such instruction shall be without
charge to BUYER except that BUYER shall
reimburse GULFSTREAM for cost of any fuel, oil
or maintenance furnished for the Aircraft
during the training period.
Section 4.3 GULFSTREAM's obligation to provide the training
described in Sections 4.1 and 4.2 above shall
expire twelve (12) months after the Operational
Delivery. No credit or other financial
adjustment shall be made for any unused
training as specified in this Section 4.
Section 5 IN SERVICE PILOT ASSISTANCE
Section 5.1 GULFSTREAM shall provide the following pilot
assistance with respect to Outfitting check
flights of the Aircraft:
If the Outfitting was performed at the
GULFSTREAM's facilities in Savannah, Georgia or
Long Beach, California, all pilot services
required by BUYER are provided free of any
further charge.
Section 5.2 Immediately following Outfitting, GULFSTREAM
shall provide five (5) days, excluding pilot
positioning travel days, of pilot services for
initial in-service assistance. The reasonable
expenses of GULFSTREAM's provided pilots for
travel, meals, lodging, and related expenses
shall be reimbursed to GULFSTREAM by BUYER.
Section 6 MEDAIRE, INC.
GULFSTREAM shall provide to BUYER, starting
upon delivery of the Outfitted Aircraft, to the
following services of MedAire, Inc., to the
extent then currently available:
1. A five (5) year subscription to MedLink
Worldwide.
2. Management of Inflight Illness and Injury
training for five crew members. (Training
for up to eight (8) crew members when the
session is held at the customer's site.
Travel expenses will be invoiced to the
customer).
3. One (1) MedAire Aircraft First Aid Kit
aboard each Gulfstream V.
4. Five (5) years of MedTrack service for the
Aircraft First Aid Kit. (MedTrack helps
keep kits up to date by monitoring and
replacing expired refill-type items, plus
replenishing used items with new supplies,
after notification of use.)
Section 7 INSURANCE
GULFSTREAM shall continue to insure the
Aircraft while in GULFSTREAM's Completion
Center; provided, however, that BUYER shall
reimburse GULFSTREAM for the reasonable costs
(not to exceed U.S. $40,000.00) of insuring the
Aircraft's hull while the Aircraft is in
GULFSTREAM's Completion Center and through the
Delivery Time.
Section 8 TRADE-IN OPTION
BUYER is granted the option, exercisable no
later than December 1, 1997, to trade in
Gulfstream IV Aircraft, Serial Number 1042 (the
"Trade-In Aircraft"), at the Scheduled
Preliminary Acceptance Date, for a Trade-In
Value of EIGHTEEN MILLION FIVE HUNDRED THOUSAND
U.S. DOLLARS ($18,500,000.00), pursuant to the
terms and conditions of the Aircraft Trade-In
Agreement attached at Exhibit A.
The Trade-In Value shall be applied to offset
any payment or appropriate part of any payment
owed at the Scheduled Preliminary Acceptance
Date.
Prior to the option exercise date, GULFSTREAM
is the exclusive representative for the Trade-
In Aircraft, except as provided in the
Remarketing Agreement, and will market the
Trade-In Aircraft at any price acceptable to
BUYER pursuant to the terms of the attached
Remarketing Agreement at no charge to BUYER
other than reimbursement of GULFSTREAM expenses
as defined in the Remarketing Agreement.
Should the Trade-In Aircraft be resold by
GULFSTREAM prior to the Scheduled Delivery
Date, then BUYER shall be entitled to receive,
in addition to the above Trade-In Value, an
additional amount, if any, by which the resale
price exceeds the Trade-In Value, after
deduction for GULFSTREAM's reasonable and
customary expenses associated with the resale,
which may include:
Advertising and marketing expenses;
A Standard Pre-Owned Aircraft Warranty
reserve;
Paint and training reserves or expenses;
GULFSTREAM internal sales force commission
expenses;
Third party brokerage commissions, if any;
Prepurchase inspection and discrepancy
expenses;
Non-reimbursable aircraft demonstration
expenses;
Aircraft modifications which are included in
the resale price; and
Any other expenses agreed to by the parties.
Section 9 FLIGHT TEST AIRCRAFT
BUYER acknowledges that the Aircraft purchased
pursuant to this Agreement is being used by
GULFSTREAM in its Gulfstream V Certification
Flight Test Program. GULFSTREAM estimates that
the Aircraft will have no more than 1200 flight
hours and 700 cycles on its airframe, and 900
flight hours and 1300 cycles on its engines as
of the Preliminary Acceptance Time. Actual
figures will be provided at the Preliminary
Acceptance Time.
Section 10 LETTER OF CREDIT
BUYER, at the Delivery Time, agrees to provide
GULFSTREAM a Letter of Credit in the initial
amount of TWELVE MILLION U.S. DOLLARS
($12,000,000.00) to secure payments under the
Promissory Note provided under Section
2.3(C)(i)(bb) of this Addendum I, so long as
such Promissory Note remains unpaid. Such
Letter of Credit will be in the form attached
at Exhibit C (Letter of Credit), or other form
satisfactory to GULFSTREAM in its sole
discretion. Prior to each renewal date of the
Letter of Credit (or at quarterly intervals at
the request of BUYER). GULFSTREAM shall review
the amounts then outstanding under the
Promissory Note, including any offsets for
amounts otherwise due BUYER from GULFSTREAM
under this Agreement or the Marketing Services
Agreement between the parties of even date
herewith, and permit the amendment or renewal
of the Letter of Credit to be in the maximum
amount then remaining due under the Promissory
Note. GULFSTREAM shall return the original
Letter of Credit to BUYER upon full payment of
the Promissory Note.
All costs of the Letter of Credit will be borne
by BUYER.
Section 11 GULFSTREAM'S USE OF THE AIRCRAFT
BUYER agrees to provide GULFSTREAM with use of
the Aircraft subsequent to the Delivery Time
for a total of 200 hours per year for a term of
three (3) years in accordance with the terms
and conditions of the Non-Exclusive Use
Agreement attached at Exhibit D.
Section 12 LEASEBACK OF TRADE-IN AIRCRAFT
GULFSTREAM hereby agrees to lease back to
BUYER, at a nominal charge under an "Aircraft
Lease Agreement" attached at Exhibit E, GIV
Aircraft Serial Number 1042 from the acceptance
date of the Trade-In Aircraft as defined in
Exhibit A, through the Delivery Time of the
Gulfstream V Aircraft.
Section 13 CONFIDENTIALITY
The terms set out in this Agreement and the
information made available as a result of the
negotiations which preceded the consummation of
the transactions contemplated by this Agreement
are strictly confidential and are personal,
trade, or business secrets of the parties. The
parties shall not disclose to any other person
the nature, terms or conditions of this
Agreement or any information concerning the
respective parties unless necessary for either
party to carry out its obligations or enforce
its rights pursuant to this Agreement.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be signed by their duly authorized
representatives on the date first above written.
GULFSTREAM AEROSPACE CORPORATION MR. ALLEN E. PAULSON
------------------------
(BUYER)
BY: /s/ W.W. Boisture, Jr. BY: /s/ Allen E. Paulson
--------------------- ----------------------
TITLE: TITLE:
--------------------- ---------------------
June 13, 1997
Mr. Allen E. Paulson
6001 Clubhouse Drive
Rancho Santa Fe, California 92067
Re: MARKETING SERVICES AGREEMENT
Dear Allen:
This letter confirms and sets out our agreement with you to
provide Gulfstream with certain marketing and sales services.
1. During the period that this agreement is in effect you shall
represent Gulfstream Aerospace Corporation and its
affiliated and associated companies ("Gulfstream") exclusive
of any other aircraft manufacturer, and shall, in
consultation with me or my designee, promote without
reservation Gulfstream's interest in selling Gulfstream V
Aircraft to potential customers.
Specifically, you will assist Gulfstream and its employees
in establishing and maintaining favorable relationships and
channels of communication with potential customers that you
identify or have a close relationship with and perform such
other liaison services that Gulfstream may request you to
perform in connection with selling Gulfstream Aircraft.
You will also provide product development services as
specified in Exhibit 1 to this Agreement.
2. You shall earn success fees as specified in Exhibit 1 for
sales of Gulfstream V Aircraft in which you are actively and
materially involved and for certain product development
activities that result in a commercially viable product to
which Gulfstream obtains exclusive marketing and service and
support rights as described in Exhibit 1 to this Agreement.
3. This agreement shall be effective from the date hereof until
the earlier of four years or such time that Gulfstream has
received from you (whether by payment, offset of success
fees or other offsets) the final payment due under the
Outfitted Gulfstream V Sales Agreement dated June 13, 1997,
and no outstanding balance remains. Upon termination
neither party shall have any further obligations or duties
to the other under this agreement.
4. It is understood and agreed that no part of the success fee
paid to you will be paid directly or indirectly to a
government official or employee or any official or employee
of any customer, potential customer or Gulfstream.
5. It is understood that this agreement is personal in
character and cannot be assigned.
6. Given the unique relationship and trust Gulfstream enjoys
with all of its customers, we reserve the right to disclose
to any customer you become involved with that we have an
agreement with you to pay a success fee upon the successful
sale of a Gulfstream Aircraft to them after consultation
with you. Other than this disclosure, and other than
disclosure pursuant to U.S. federal securities laws and
regulations, both parties agree to make every reasonable
effort to avoid any publicity relative to this agreement and
agree not to divulge or disclose to persons outside this
relationship the details of this agreement, provided,
however, that in the event publicity does occur, or unless
either party is lawfully required to disclose the payment of
a success fee or the details of this agreement to any
regulatory agency or governmental authority of any
government entitled to such information, both parties hereby
consent to such disclosure and acknowledge that no claim or
action by either party against the other party or its
representatives shall arise.
7. We have asked you to execute the attached FINDER FCPA
CERTIFICATION, and have thoroughly briefed you on our high
ethical standards in commercial and governmental
transactions. We know you share these values and hereby
commit to each other to uphold them during the term of this
agreement.
8. It is understood and agreed that you will keep confidential,
without limits to time, all matters related to this
agreement, as well as any and all of Gulfstream's documents,
data, or information that may come into your possession
during our association.
9. It is further understood and agreed that for the purpose of
this agreement you are an independent contractor, and that
Gulfstream shall have no liability for any suits or claims
brought against you by virtue of the association
contemplated herein.
10. Finally, it is understood and agreed that in the absence of
an express written corporate authorization you may not bind
or commit Gulfstream in any manner whatsoever, and in
particular, without limitation, you shall not engage or
retain any third-parties as sub-agents or in any other
capacity in any manner to bind or commit Gulfstream.
11. The construction of this agreement and its performance shall
be in accordance with the laws of the State of Georgia. Any
dispute between us will be resolved pursuant to the
Commercial Rules of Arbitration of the American Arbitration
Association in Savannah, Georgia.
If the foregoing accurately reflects our agreement, would
you please so indicate by signing and returning the enclosed
duplicate original of this letter. I look forward to working
with you and will be your principal contact during the course of
this agreement.
Very truly yours,
/s/ W. W. Boisture, Jr.
-----------------------
W. W. Boisture, Jr.
Agreed and accepted:
/s/ Allen E. Paulson
- ---------------------------
Date: ---------------------
[LOGO]
Gulfstream
Aerospace
GULFSTREAM IV AIRCRAFT PURCHASE AGREEMENT
AND
AMENDMENT TO OUTFITTED GULFSTREAM V SALES AGREEMENT
THIS AGREEMENT made and entered into this _______ day of August, 1997 by
and between
SELLER:
Please include: MR. ALLEN E. PAULSON
Street & Mailing 6001 CLUBHOUSE DRIVE
Address, City, State, RANCHO SANTA FE, CA 92067
Zip Code and Country:
and GULFSTREAM:
Please include: GULFSTREAM AEROSPACE CORPORATION
Street & Mailing 500 GULFSTREAM ROAD
Address, City, State, SAVANNAH, GA 31408
Zip Code and Country:
WHEREAS, SELLER owns the following described Aircraft:
Manufacturer, Model: GIV
Airframe Serial Number: 1042
Aircraft Registration Number: TBD
With the following attached engines together with the equipment items
listed in Attachment A together referred to as the "Aircraft":
Manufacturer, Model: ROLLS-ROYCE TAY MK611-8
Engine Serial Numbers: LEFT: 16189, RIGHT: 16190
NOW, THEREFORE, in consideration of the mutual covenants and
representations herein contained, and other good and valuable
consideration, the parties hereby agree as follows:
ARTICLE 1 SUBJECT MATTER OF SALE
Equipment
The items listed in Attachment A, "Equipment Items" will be delivered with
the Aircraft at the Delivery Time, in a condition consistent with the
representations stated therein.
ARTICLE II DELIVERY
A. Tender and Condition of Aircraft for Delivery
SELLER shall tender the Aircraft to GULFSTREAM in Savannah Georgia, or a
mutually agreed upon location, on or about August 15, 1997 (the "Scheduled
Delivery Date"), in the following condition:
(1) The Aircraft shall be fully serviceable and in an airworthy condition
in accordance with the Federal Aviation Administration ("FAA") Part 135
Regulations for Civil Aircraft, normal wear and tear excepted.
(2) All Aircraft systems shall be fully functional and operational as
required by the Airframe or Engine manufacturers maintenance manuals.
(3) The Aircraft must be delivered with a current FAA Standard Certificate
of Airworthiness.
(4) The Aircraft maintenance shall be current and in complete
compliance with GULFSTREAM's recommended maintenance schedule for such
aircraft model which will include but may not be limited to:
(a) Airframe, Engine, and APU component overhaul periods shall be
complied with. Any replacement items will have been completely
overhauled and at zero time when installed, with complete and
accurate supporting technical documentation, such as log book
entries and serviceable tags that verify the component(s) origin
and its condition at installation.
(b) All Airframe, Engine, APU and Accessory FAA Airworthiness
Directives applicable to the Aircraft shall be incorporated prior
to the Delivery Time.
(c) All Airframe, Engine, APU, and Component Mandatory Service
Bulletins or "Active" Customer Bulletins applicable to the Aircraft
shall be embodied prior to the Delivery Time.
(5) The Aircraft's Weight and Balance Schedule shall be current and
represent the Aircraft's configuration at the Delivery Time.
(6) The Aircraft will have no known corrosion and will have suffered no
structural damage that requires an entry to be placed within the Aircraft's
maintenance records.
(7) The Aircraft will not have incurred any reduction to either its
specified fatigue life or routine maintenance inspections as determined by
the Engineering Department of GULFSTREAM.
(8) CMP must be paid in full, current, and assignable at no cost to
GULFSTREAM.
(9) All applicable maintenance engine maintenance service plans including
but not limited to, Power by the Hour, MSP, and JSS must be paid in full,
current, and assignable at no cost to GULFSTREAM.
(10) All airframe, engine, APU, component, and associated equipment
maintenance records and manuals shall be surrendered by SELLER to
GULFSTREAM which shall include but not be limited to:
(a) Log books, work cards NDT radiographs, computerized maintenance
history and any engineering instructions issued by the Aircraft
manufactuer's Engineering Department.
(b) Component serviceability tags or Certificates of Conformity
(c) Copies of FAA approved STC's, 337 alteration forms, and interior
burn certifications.
(d) All manuals conveyed to GULFSTREAM which are subject to periodic
revision shall be fully up to date and current to the latest revision
standard.
(11) Prior to the Tender of the Aircraft SELLER shall allow GULFSTREAM
access to the Aircraft and its records to perform a preliminary assessment.
SELLER will also supply GULFSTREAM an inventory list of all loose
equipment, tools, manuals, log books and any other associated Aircraft
records or documentation which will be conveyed to GULFSTREAM at delivery.
B. Inspection of Aircraft and Correction of Discrepancies
Prior to acceptance by GULFSTREAM, the Aircraft shall be subject to the
following inspections by GULFSTREAM and at GULFSTREAM's expense:
(1) A flight test by GULFSTREAM (or approved Designee) of at least three
hours duration.
(2) A ground inspection and records review in accordance with GULFSTREAM's
procedures.
(3) Any routine maintenance that GULFSTREAM considers necessary which may
not be due but could result in the discovery of discrepant conditions.
If the Aircraft does not conform to the specifications in Article I, or
does not meet the standards and conditions as set forth in Article II,
Section A, or has discrepancies discovered by the inspection and flight
test, then GULFSTREAM shall not be obligated to accept the Aircraft unless
SELLER corrects, at its expense, any discrepancies disclosed by such flight
test and ground inspection. Upon the correction of the discrepancies as
verified by follow-on inspections or flight tests, if any, GULFSTREAM shall
accept the Aircraft.
C. Failure of SELLER to Correct Discrepancies
If SELLER does not correct the discrepancies disclosed by GULFSTREAM's
inspection to the satisfaction of GULFSTREAM, this Agreement shall be
terminated, and, if applicable, title transferred back to SELLER, and
neither Party shall have any obligation to the other or liability resulting
from this Agreement.
D. Delivery Time
When the Aircraft is tendered to GULFSTREAM in the condition required of it
by Article II Section (A) with an FAA Standard Airworthiness Certificate
and upon correction of any discrepancies identified under Section B of this
Article II to GULFSTREAM's satisfaction, this shall be referred to herein
as the "Delivery Time."
E. GULFSTREAM's Acceptance
At the Delivery Time:
(i) the parties shall execute a Memorandum of Delivery, identified as
"Attachment B," attached hereto,
(ii) GULFSTREAM shall pay to SELLER the Purchase Price for the Aircraft as
set forth in Article III A and B,
(iv) the parties shall execute a Warranty Bill of Sale, identified as
"Attachment C," attached hereto, and
(iii) SELLER shall cause an FAA Bill of Sale to be filed with the FAA
Aircraft Registry.
This exchange of documents and payment of the Purchase Price shall
constitute acceptance of the Aircraft by GULFSTREAM. Upon GULFSTREAM's
acceptance, title to the Aircraft shall pass from SELLER to GULFSTREAM and
all risk of loss or damage to the Aircraft shall thereafter be borne by
GULFSTREAM.
ARTICLE III AIRCRAFT PURCHASE PRICE
A. Purchase Price
The Purchase Price for the Aircraft shall be: TWENTY-ONE MILLION U.S.
DOLLARS ($21,000,000.00), subject to GULFSTREAM's receipt and written
acceptance of an Attachment A for this Agreement.
B. Form of Payment
The Purchase Price shall be paid by GULFSTREAM at the Delivery Time by wire
transfer to a bank specified by SELLER .
ARTICLE IV TECHNICAL DATA
Prior to execution of this Agreement, SELLER shall furnish a complete and
accurate Aircraft Specification Sheet which will include the interior floor
plan of the Aircraft. The Aircraft Specification information supplied by
SELLER as Attachment A to the Agreement determines the Purchase Price of
the Aircraft as shown in Article III, Section A above.
ARTICLE V WARRANTIES
A. Title
SELLER warrants that it has clear and indefeasible title to the Aircraft,
the right to transfer the Aircraft to GULFSTREAM, and that the Aircraft is
free and clear of all liens, charges, and encumbrances and claims. If the
SELLER cannot produce clear and indefeasible title to GULFSTREAM at the
Delivery Time then this Agreement shall be terminated. In addition, SELLER
warrants that it has no knowledge of any undisclosed defects in the
Aircraft.
B. Assignment of Other Warranties
In the event any warranties remain in effect with respect to the Aircraft,
SELLER shall assign them to GULFSTREAM without recourse to SELLER to the
extent such warranties are assignable by SELLER .
C. Disclaimer of Other Warranties
ALL WARRANTIES WHETHER EXPRESS, IMPLIED, OR STATUTORY, SUCH AS WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OF PURPOSE ARE HEREBY
EXCLUDED AND DISCLAIMED EXCEPT ONLY FOR THE WARRANTY OF GOOD TITLE PROVIDED
UNDER THIS ARTICLE V WHICH WARRANTY COMPRISES SELLER'S EXCLUSIVE AND ENTIRE
RESPONSIBILITY WITH RESPECT TO THE AIRCRAFT OR ANY FAILURE OR DEFECT
THEREIN, TO THE EXCLUSION OF ALL LIABILITY IN TORT (WHETHER FOR NEGLIGENCE
OR OTHERWISE) OR IN CONTRACT, INCLUDING WITHOUT LIMITATION, ANY LIABILITY
OF SELLER WITH RESPECT TO INCIDENTAL OR CONSEQUENTIAL DAMAGES, OR DAMAGES
FOR LOSS OF USE.
ARTICLE VI MISCELLANEOUS
A. Taxes
(1) State Sales Taxes
GULFSTREAM indemnifies and holds SELLER harmless from the payment of or
assessment of any sales tax, related penalties, and attorney's fees which
results from the application of the provisions of the Georgia Sales Tax or
any other similar state sales tax law to the transaction contemplated
herein, at the place and time of delivery of the Aircraft; provided
however, that GULFSTREAM shall receive timely notice of any proposed
assessment and shall have the opportunity at its option and expense to
contest the collection of such sales taxes. At Delivery Time, GULFSTREAM
shall provide SELLER a valid certificate of exemption as a dealer under
Georgia Sales Tax Law, if the Aircraft is delivered in the state of
Georgia.
(2) Other Taxes
SELLER indemnifies and holds GULFSTREAM harmless from the payment or
assessment of any other tax applicable to the sale and normally imposed
upon SELLER, related penalties and attorney's fees, including all duties,
imposts, tariffs, or other similar levies applicable to the sale of the
Aircraft or to the use, ownership, or transportation of the Aircraft before
the Delivery Time; provided however, that SELLER shall receive timely
notice of any proposed assessment and shall have the opportunity at its
option and expense to contest the collection of such taxes.
B. Notice
Any notice given under this Agreement shall be sent by registered mail,
certified mail, or facsimile to the recipient Party at the address shown on
page one. A notice shall be deemed given when received. For purposes of
this agreement, any notice sent to GULFSTREAM shall be sent to Vice
President, Pre-Owned Aircraft, 500 Gulfstream Road, Savannah GA 31408.
Telephone 912-965-3118, facsimile 912-965-3986.
C. Assignment
This Agreement shall inure to the benefit of and be binding upon the
Parties, their successors and assigns, provided however, that GULFSTREAM
shall have right of assignment prior to the Delivery Time.
D. Scope of Agreement
The terms and conditions contained in this Agreement constitute the entire
Agreement between the parties with respect to the purchase and sale of the
Aircraft and shall supersede all communications, representations, or
agreements, either oral or written, between the Parties.
E. Modification of Agreement
This Agreement may not be changed or modified except by an instrument in
writing executed subsequent to the date hereof by authorized
representatives of both parties.
F. Section Headings
Section headings used herein are merely descriptive and used for
convenience only. No amplification or limitation of language contained in
a particular section shall be implied from the section heading thereof.
G. Governing Law
This Agreement shall be construed and interpreted in accordance with the
laws of the State of Georgia.
H. Arbitration
Any controversy or claim between the parties arising out of or relating to
this Agreement, or breach thereof, shall be settled by arbitration in
Savannah, Georgia by three (3) arbitrators under the Commercial Arbitration
Rules of the American Arbitration Association ("AAA") and administered by
the AAA. Each party shall appoint one (1) arbitrator. The two (2)
arbitrators thus appointed shall choose the third arbitrator, who shall act
as chairman. If within thirty (30) days after the receipt of a party's
notification of the appointment of its arbitrator the other party has not
notified the first party of the arbitrator he has appointed, the first
party may request the AAA to appoint the second arbitrator. If within
thirty (30) days after the appointment of the second arbitrator the two
arbitrators have not agreed on the choice of the third arbitrator, either
party may request the AAA to appoint the third arbitrator from the panel of
the AAA pursuant to the Rule 15 of the Commercial Arbitration Rules of the
AAA. Any award issued under this Section shall be entitled to enforcement
in any court having jurisdiction.
I. Counterparts
This Agreement may be executed in counterparts, each of which when
executed, shall, irrespective of the date of its execution and delivery, be
deemed an original, and said counterparts together shall constitute one and
the same agreement.
ARTICLE VII AMENDMENT TO OUTFITTED
GULFSTREAM V SALES AGREEMENT
The parties hereby agree to amend Addendum I Terms of the Outfitted
Gulfstream V Sales Agreement, as follows:
A. Section 2.3(B) is amended by deleting the last sentence thereof.
B. Sections 8 and 12 are deleted.
IN WITNESS WHEREOF, the Parties have caused this GULFSTREAM IV
Aircraft Purchase Agreement and Amendment to Outfitted Gulfstream V Sales
Agreement to be signed by their duly authorized representatives on the date
first written above.
GULFSTREAM AEROSPACE CORPORATION MR. ALLEN E. PAULSON
BY: /s/Mike Ellis BY: /s/Allen E. Paulson
------------------------------- --------------------------
TITLE: V.P. Pre-Owned Sales TITLE: Owner
---------------------------- -----------------------
DATE: July 31, 1997 DATE: Aug. 1, 1997
----------------------------- -----------------------
AMENDED AND RESTATED
GULFSTREAM AEROSPACE CORPORATION
1990 STOCK OPTION PLAN,
AS FURTHER AMENDED THROUGH JULY 30, 1997
1. Purpose. The purpose of the Gulfstream Aerospace
Corporation Stock Option Plan is to provide financial
incentives to key employees of the Corporation and its
Subsidiaries and such consultants, advisors and members of
the Board of Directors of the Corporation and its
Subsidiaries whose entrepreneurial and management talents
and commitments are essential for the continued growth and
expansion of the Corporation's business.
The Options granted under the Plan are not
intended to qualify as Incentive Stock Options within the
meaning of Section 422 of the Code.
2. Definitions. For purposes of this Plan:
(a) "Affiliate" means any person directly or
indirectly controlling, controlled by, or under common
control with the person of which it is an Affiliate.
(b) "Board" means the Board of Directors of the
Corporation.
(c) "Common Stock" means the Common Stock, par
value $.0l per share, of the Corporation and any other stock
or securities into which such shares are changed or for
which such shares are exchanged as described in Section 7
hereof.
(d) "Code" means the Internal Revenue Code of
1986, as amended.
(e) "Committee" means a committee, as described
in Section 3, appointed by the Board from time to time to
administer the Plan and to perform the functions set forth
herein.
(f) "Corporation" means Gulfstream Aerospace
Corporation, a Delaware corporation, and any successor to
Gulfstream Aerospace Corporation by merger, consolidation,
acquisition of substantially all the assets thereof or
otherwise.
(g) "Eligible Person" means any individual
employee or director of, or consultant or advisor to, the
Corporation or its Subsidiaries whom the Committee
designates as eligible to receive Options.
(h) "FL & Co. Companies" means individually and
collectively Gulfstream Partners, Gulfstream Partners II,
L.P. and Forstmann Little & Co. Subordinated Debt and Equity
Management Buyout Partnership - IV, each a New York limited
partnership.
(i) "Nonemployee Director" means a director of
the Corporation who is a "nonemployee director" within the
meaning of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended.
(j) "Option" means an option granted under the
Plan.
(k) "Optionee" means a person to whom an Option
has been granted.
(l) "Option Price" means the price at which a
share of Common Stock can be purchased pursuant to an
Option.
(m) "Original Shareholders" means individually
and collectively the FL & Co. Companies and Allen E.
Paulson.
(n) "Outside Director" means a director of the
Corporation who is an "outside director" within the meaning
of Section 162(m) of the Code and the regulations
promulgated thereunder.
(o) "Parent" means a parent corporation within
the meaning of Section 424(e) of the Code.
(p) "Plan" means the Gulfstream Aerospace
Corporation Stock Option Plan as set forth in this
instrument and as it may be amended from time to time.
(q) "Stock Option Agreement" means the written
agreement between an Optionee and the Corporation evidencing
the grant of an Option and setting forth the terms and
conditions of that Option.
(r) "Stockholder's Agreement" means the
Stockholder's Agreement governing the rights, duties and
obligations of present or former employees, directors,
consultants or advisors of the Corporation or its
Subsidiaries with respect to shares of Common Stock granted
or sold to such persons, or issued pursuant to options
granted or sold to such persons, substantially in the form
attached hereto, or such other form as is in use by the
Corporation at the time of exercise of any Option or any
part thereof and which the Corporation elects to require the
Optionee to execute in connection with his exercise of the
Option. All references herein or in any Stock Option
Agreement to sections of the Stockholder's Agreement refer
to sections of the Stockholder's Agreement attached hereto
or to the corresponding sections of any Stockholder's
Agreement in use by the Corporation at the time of exercise
of any Option and which the Corporation elects to require
the Optionee to execute in connection with his exercise of
the Option.
(s) "Subsidiary" means a subsidiary corporation
of the Corporation within the meaning of Section 424(f) of
the Code, substituting "issuing" for "employer" references
therein.
(t) "Successor Corporation" means a corporation,
or a Parent or Subsidiary of such corporation, which issues
or assumes a stock option in a transaction to which Section
424(a) of the Code applies.
(u) "Third Party" means any person who is not an
Affiliate or a partner of the Original Shareholders or an
Affiliate of such partner.
3. Administration. The Plan shall be administered by
the Committee, which shall hold meetings at least annually,
and shall keep minutes of its meetings. The Committee shall
have all of the powers necessary to enable it to carry out
its duties under the Plan properly, including the power and
duty to construe and interpret the Plan and to determine all
questions arising under it. The Committee's interpretations
and determinations shall be conclusive and binding upon all
persons. The Committee may also establish, from time to
time, such regulations, provisions, procedures and
conditions regarding the Options and granting of Options
which in its opinion may be advisable in administering the
Plan. A quorum shall consist of not fewer than two members
of the Committee and a majority of a quorum may authorize
any action. Any decision or determination reduced to
writing and signed by a majority of all of the members of
the Committee shall be as fully effective as if made by a
majority vote at a meeting duly called and held. The
Committee shall consist of at least two (2) directors of the
Corporation and may consist of the entire Board; provided,
however, that (A) if the Committee consists of less than the
entire Board, each member shall be a Nonemployee Director
and (B) to the extent necessary for any Option intended to
qualify as performance-based compensation under Section
162(m) of the Code to so qualify, each member of the
Committee, whether or not it consists of the entire Board,
shall be an Outside Director.
4. Shares Available for Option.
(a) The Corporation shall reserve for the
purposes of the Plan, out of its authorized but unissued
Common Stock or out of shares of Common Stock held in the
Corporation's treasury, or partly out of each, as shall be
determined by the Board, a total of 9,688,550 shares of
Common Stock (or the number and kind of shares of stock or
other securities into which those 9,688,550 shares are
changed or for which those 9,688,550 shares are exchanged in
accordance with Section 7 hereof).
(b) In any calendar year, no Eligible Person may
be granted Options in the aggregate in respect of more than
500,000 Shares.
(c) In the event that an Option granted under the
Plan to any Eligible Person expires, or is for any other
reason terminated and unexercised as to any shares of Common
Stock covered by the Option, those shares of Common Stock
shall thereafter be available for the granting of future
Options under the Plan.
5. Granting Options.
(a) Subject to the provisions of the Plan, the
Committee shall have full and final authority to select
those Eligible Persons who will receive Options. The
Committee may also grant more than one Option to a given
Eligible Person during the term of the Plan, either in
addition to, or in substitution for, one or more Options
previously granted that Eligible Person. Options shall be
issued pursuant to a Stock Option Agreement executed by the
Corporation and the Optionee.
(b) The Committee, in its sole discretion, shall
establish the per share Option Price at the time an Option
is granted.
(c) The terms of each Option granted under the
Plan may differ from those of other Options granted under
the Plan at the same time, or at some other time; provided
that in no event shall the term of any Option granted under
the Plan exceed ten years and one day.
(d) Subject to the provisions of the Plan and the
Stock Option Agreement, an Option granted under this Plan
shall be exercisable immediately or in accordance with a
schedule determined by the Committee in its sole discretion,
and the Committee may accelerate the exercisability of any
Option at any time.
(e) Unless set forth in the Stock Option
Agreement evidencing the Option at the time of grant or at
any time thereafter, an Option granted hereunder shall not
be transferable by the Optionee to whom granted except by
will or the laws of descent and distribution of the state of
the Optionee's domicile at the time of his death, and an
Option may be exercised during the lifetime of such Optionee
only by the Optionee or his or her guardian or legal
representative. The terms of such Option shall be final,
binding and conclusive upon the beneficiaries, executors,
administrators, heirs and successors of the Optionee.
(f) Subject to the terms and conditions and
within the limitations of the Plan, the Committee may
modify, extend, replace or renew outstanding Options granted
under the Plan, or accept the surrender of outstanding
Options (to the extent they have not yet been exercised) and
grant new Options in substitution for them. Notwithstanding
the foregoing, however, no modification of an Option shall
adversely alter or impair any rights or obligations under
any Option granted under the Plan without the affected
Optionee's consent.
6. Exercise Of Options.
(a) To exercise an Option, in whole or in part,
the Optionee shall deliver to the Committee a written notice
of exercise specifying the number of shares of Common Stock
in respect of which the Option is being exercised. The
Option Price shall be paid in full in cash for those shares
of Common Stock with respect to which the Option is being
exercised. The Stock Option Agreement shall set forth the
minimum number of shares of Common Stock, if any, which may
be purchased at any one time upon the exercise of an Option.
Each share of Common Stock purchased upon exercise of an
Option shall be issued and delivered at the principal office
of the Corporation to the person entitled to receive it. An
Optionee shall not be deemed the holder of any shares of
Common Stock subject to the Option or have any rights of a
stockholder with respect thereto until such shares of Common
Stock have been issued and delivered to such Optionee. The
Stock Option Agreement may contain such other conditions to
the exercise of an Option as the Committee from time to time
shall determine and may also contain provisions relating to
the ownership of the shares of Common Stock issued upon the
exercise of the Option or may require the Optionee, as a
condition of exercise of the Option, to execute a
Stockholder's Agreement.
(b) Except as provided in the Stock Option
Agreement, any Options held by an Optionee shall not be
exercisable after the termination of the Optionee's
employment with the Corporation or its Subsidiaries or his
membership on the Board, as the case may be. During an
Optionee's lifetime, Options granted under the Plan shall be
exercisable only by the Optionee. In the event of an
Optionee's death, any Options held by the Optionee shall be
exercisable, to the extent provided in the Plan or under the
Stock Option Agreement, by the legatee or legatees under his
will or by his personal representatives or distributees.
(c) All certificates representing shares of
Common Stock issued pursuant to the exercise of an Option
shall bear the following legend:
"The shares represented by this certificate have
not been registered under the Securities Act of
1933, as amended, or any securities regulatory
authority of any state, and may not be sold,
transferred, assigned, exchanged, pledged,
encumbered or otherwise disposed of except in
accordance with the provisions of a Stockholder's
Agreement with the Corporation, a copy of which is
available for inspection at the offices of the
Corporation."
or such other legend to the same effect as approved by the
Committee.
(d) To the extent that an Option is not exercised
prior to the expiration of its term or such shorter period
of time prescribed by the Plan and the Stock Option
Agreement, the Option shall lapse and all rights of the
Optionee with respect thereto shall terminate.
7. Changes in Common Stock. In the event that the
outstanding shares of Common Stock are changed into or
exchanged for a different number or kind of shares of stock
or other securities of the Corporation, whether through
merger, consolidation, reorganization, recapitalization,
stock dividend, stock split-up or other substitution of
securities of the Corporation, the Committee shall make
appropriate adjustments to the maximum number and class of
shares of stock as to which Options may be granted under the
Plan and the number and class of shares of stock with
respect to which Options have been granted under the Plan,
the Option Price for such shares and any other economic
terms of the Option. In the event that any shares of Common
Stock are issued after the date of the Plan to any of the FL
& Co. Companies for less than fair consideration, as
determined conclusively by the Committee, the Committee
shall make appropriate adjustments to the maximum number of
shares of stock as to which Options may be granted under the
Plan and the number of shares of stock with respect to which
Options have been granted under the Plan and the Option
Price for such shares. The Committee's adjustment shall be
final and binding for all purposes of the Plan and each
Stock Option Agreement entered into under the Plan. No
adjustment provided for in this Section 7 shall require the
Corporation to issue a fractional share, and with respect to
each Stock Option Agreement the total adjustment as to the
number of shares for which Options have been granted shall
be effected by rounding down to the nearest whole number of
shares.
8. Amendment or Termination of Plan. The Board shall
have the right to amend, suspend or terminate the Plan at
any time, provided that, to the extent necessary under
applicable law, an amendment shall not be effective unless
approved by the stockholders of the Company in accordance
with applicable law. The rights of an Optionee under any
Option granted prior to an amendment, suspension or
termination of the Plan shall not be adversely affected by
any such action of the Board except with the consent of the
Optionee.
9. Indemnification of Stock Option Committee. The
members of the Committee shall be indemnified by the
corporation against all losses, claims, damages and
liabilities, joint or several (including all legal and other
expenses reasonably incurred in connection with the
preparation for, or defense of, any claim, action or
proceeding, whether or not resulting in any liability), for
any acts or omissions which are within the scope of such
member's duties as a member of the Committee to the full
extent permitted under the General Corporation Law of the
State of Delaware, as amended from time to time.
10. Compliance with Law and Other Conditions. All
Options and Stock Option Agreements shall be governed by the
laws of the State of New York to the extent not superseded
by the laws of the United States. Notwithstanding anything
herein or in any agreements pursuant to which Options are
granted to the contrary, the Corporation shall not be
required to issue shares pursuant to the exercise of any
Option granted under the Plan unless the Corporation's
counsel has advised the Corporation that such exercise and
issuance comply with all applicable laws including, without
limitation, all applicable federal and state securities
laws.
11. Miscellaneous. Nothing in the Plan or in any
Stock Option Agreement shall (a) confer on any employee any
right to continue in the employ of the Corporation, any of
its Subsidiaries or any Successor corporation; or (b) affect
the right of the Corporation, any of its Subsidiaries or any
Successor Corporation to terminate his employment at any
time.
12. Withholding of Taxes. At such times as an
Optionee recognizes taxable income in connection with the
receipt of Shares hereunder (a "Taxable Event"), the
Optionee shall pay to the Corporation an amount equal to the
federal, state and local income taxes and other amounts as
may be required by law to be withheld by the Corporation in
connection with the Taxable Event prior to the issuance of
such Shares.
13. Effective Date and Duration of Plan. The
effective date of the Plan shall be the date of its adoption
by the Board, subject only to the approval of the
stockholders of the Corporation. No options may be granted
under the Plan after September 12, 2010.
14. Taxes. At such times as an Optionee recognizes
taxable income in connection with the exercise of Options
hereunder (a "Taxable Event"), the Optionee shall pay to the
Corporation an amount equal to the federal, state and local
income taxes and other amounts as may be required by law to
be withheld by the Corporation in connection with the
Taxable Event (the "Withholding Taxes") prior to the
issuance of Common Stock. In satisfaction of the obligation
to pay Withholding Taxes to the Corporation, the Optionee
may make a written election, which may be accepted or
rejected in the discretion of the Committee, to have
withheld a portion of the Common Stock then issuable to him
or her in connection with the exercise of Options hereunder
having an aggregate Fair Market Value equal to the
Withholding Taxes. For purposes of this Section 14, "Fair
Market Value" on any date means the closing sales prices of
the shares of Common Stock on such date on the principal
national securities exchange on which such shares of Common
Stock are listed or admitted to trading, or, if the shares
of Common Stock are not so listed or admitted to trading,
the average of the per share of Common Stock closing bid
price and per share of Common Stock closing asked price on
such date as quoted on the National Association of
Securities Dealers Automated Quotation System or such other
market in which such prices are regularly quoted, or, if
there have been no published bid or asked quotations with
respect to the Common Stock on such date, the Fair Market
Value shall be the value established by the Board in good
faith.
EXHIBIT 11.1
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
Computation of Earnings per Common Share
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------- -----------------
1997 1996 1997 1996
------- ------ ------ -------
<S> <C> <C> <C> <C>
Net income applicable to common shares $39,504 $9,282 $79,534 $15,359
======= ====== ======= =======
Shares:
Average shares issued and
outstanding (after giving effect to
the Recapitalization) 74,068 65,403 73,994 65,403
Exercise of certain stock options
with the Offering - 3,949 - 3,949
Incremental shares applicable to stock
options outstanding after the exercise
of certain stock options with the
Offering 4,651 4,624 4,644 4,624
Shares issued pursuant to the
Offering - 4,559 - 4,559
------- ------ ------ -----
Weighted average common and common
equivalent shares outstanding 78,719 78,535 78,638 78,535
======= ====== ====== ======
Net income per common and common
equivalent share $ .50 $ .12 $ 1.01 $ .20
======= ====== ====== ======
Note: Shares and stock options issued prior to October 16, 1996, the date
of the Offering (see Note 10 to the consolidated financial statements
included in the 1996 Annual Report to Stockholders), are treated as
outstanding for all reported periods.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 249
<SECURITIES> 0
<RECEIVABLES> 105<F2>
<ALLOWANCES> 1<F2>
<INVENTORY> 610
<CURRENT-ASSETS> 974
<PP&E> 122<F3>
<DEPRECIATION> 102<F3>
<TOTAL-ASSETS> 1,246
<CURRENT-LIABILITIES> 758
<BONDS> 343
0
0
<COMMON> 1
<OTHER-SE> (109)
<TOTAL-LIABILITY-AND-EQUITY> 1,246
<SALES> 899
<TOTAL-REVENUES> 904
<CGS> 752
<TOTAL-COSTS> 806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 82
<INCOME-TAX> 2
<INCOME-CONTINUING> 80
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
<FN>
<F1> Amounts inapplicable or not disclosed as a separate line on the Statement
of Financial Position or Results of Operations are reported as 0 herein.
<F2> Notes and accounts receivable - trade are reported net of allowances
for doubtful accounts in the Consolidated Balance Sheet.
<F3> Property, plant and equipment are reported net of accumulated
depreciation in the Consolidated Balance Sheet.
</FN>
</TABLE>
EXHIBIT 99.1
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES REFORM ACT OF 1995
-------------------------------------------------------
Gulfstream Aerospace Corporation (the "Company" or
"Gulfstream") cautions readers that the important factors set
forth below, as well as factors discussed in other documents
filed by the Company with the Securities and Exchange Commission
(the "SEC"), among others, could cause the Company's actual
results to differ materially from statements contained in this
report, future filings by the Company with the SEC, the Company's
press releases and oral statements made by or on behalf of the
Company. The words "estimate", "project", "anticipate",
"expect", "intend", "believe", and similar expressions are
intended to identify forward looking statements.
Aircraft Production
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 a
Gulfstream V aircraft is delayed more than six months after a
customer's scheduled delivery date. An extended delay in the
production process could cause an increase in the number of
cancellations of orders, which could have an adverse effect on
the Company's results of operations.
In contrast to its historical practice of discontinuing
prior models, the Company will continue to manufacture and sell
Gulfstream IV-SPs at the same time that it manufactures and sells
Gulfstream Vs. The Company expects to increase its aircraft
production rate in 1997 as compared to its aircraft production
rate in 1996. In addition, the Company has announced its plan to
increase its annual production rate to approximately 60 aircraft
by 1999, a two-fold increase over its 1996 annual production
rate. 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
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 operation 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. 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. 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 has announced that it will merge with
Aerospatiale SA) and Bombardier Inc. ("Bombardier"). The
Gulfstream V competes in the ultra-long range business jet
aircraft market segment, primarily with the Global Express, which
is being marketed by Canadair, a subsidiary of Bombardier, and
which, according to published reports, is scheduled for
certification in May 1998, 18 months after the initial delivery
of the Gulfstream V. The Boeing Company, in partnership with
General Electric Co., is marketing a version of the Boeing 737
into the ultra-long range business jet aircraft market segment.
Boeing has indicated that it expects this aircraft to be
available for delivery in the fourth quarter of 1998. In June
1997, Airbus Industrie announced it would market a version of the
Airbus A319 into this market segment as well. Airbus has
indicated it expects the aircraft to be available in early 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's ability to compete successfully 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. No assurance
can be given that the Company's competitors will not be able to
produce aircraft capable of performance comparable or superior to
Gulfstream aircraft in the future.
Purchased Materials and Equipment
Approximately 70% of the production costs of both the
Gulfstream IV-SP and the Gulfstream V consist of materials and
equipment purchased from other manufacturers. While the
Company's production activities have never been materially
affected by its inability to obtain components, and while the
Company maintains business interruption insurance in the event
that such a disruption should occur, the failure of the Company's
suppliers to meet the Company's performance specifications,
quality standards, pricing terms or delivery schedules could have
a material adverse impact on the profitability of the Company's
new aircraft sales or the ability of the Company to timely
deliver new aircraft to customers.
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.
Pending Tax Audit
The Company is involved in a tax audit by the Internal
Revenue Service covering the years ended December 31, 1991
and 1990. The revenue agent's report includes several proposed
adjustments involving the deductibility of certain compensation
expense, items relating to the initial capitalization of the
Company as well as the allocation of the original purchase price
for the acquisition by the Company of the Gulfstream business,
including the treatment of advance payments with respect to and
the cost of aircraft that were in backlog at the time of the
acquisition and the amortization of amounts allocated to
intangible assets. The Company believes that the ultimate
resolution of these issues will not have a material adverse
effect on its financial statements because the financial
statements already reflect what the Company currently believes is
the expected loss of benefit arising from the resolution of
these issues. However, because the revenue agent's report is
proposing adjustments in amounts materially in excess of what the
Company has reflected in its financial statements and because it
may take several years to resolve the disputed matters, the
ultimate extent of the Company's expected loss of benefit and
liability with respect to these matters cannot be predicted with
certainty and no assurance can be given that the Company's
financial position or results of operations will not be adversely
affected.
Leverage and Debt Service
The degree to which the Company is leveraged at a particular
time could have important consequences to the Company, 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 Company's credit
agreement contains certain restrictive financial and operating
covenants, including, among others, requirements that the Company
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.
