-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MZF/MptAHk4buF05phoHs2VAwVcbeDFwAK21qYvli4nbUQ9MHfZrNkaLTU34VbKT /qI618EQmRqYNqDznY3r0A== 0000912057-96-020040.txt : 19960912 0000912057-96-020040.hdr.sgml : 19960912 ACCESSION NUMBER: 0000912057-96-020040 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19960911 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULFSTREAM AEROSPACE CORP CENTRAL INDEX KEY: 0000715355 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT [3721] IRS NUMBER: 133554834 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-09897 FILM NUMBER: 96628474 BUSINESS ADDRESS: STREET 1: P O BOX 2206 STREET 2: 500 GULFSTREAM RD - TRAVIS FIELD CITY: SAVANNAH STATE: GA ZIP: 31402-2206 BUSINESS PHONE: 9129643000 MAIL ADDRESS: STREET 1: 500 GULFSTREAM RD STREET 2: TRAVIS FIELD CITY: SAVANNAH STATE: GA ZIP: 31402-2206 S-1/A 1 S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1996 REGISTRATION NO. 333-09897 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- GULFSTREAM AEROSPACE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 3721 13-3554834 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or Classification Code Number) Identification organization) Number)
P.O. BOX 2206 500 GULFSTREAM ROAD SAVANNAH, GEORGIA 31402-2206 (912) 965-3000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) CHRIS A. DAVIS GULFSTREAM AEROSPACE CORPORATION P.O. BOX 2206 500 GULFSTREAM ROAD SAVANNAH, GEORGIA 31402-2206 (912) 965-3000 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------- COPIES OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO AGENT FOR SERVICE, SHOULD BE SENT TO: Lois Herzeca, Esq. Robert W. Reeder, III, Esq. FRIED, FRANK, HARRIS, SHRIVER & SULLIVAN & CROMWELL JACOBSON 125 Broad Street One New York Plaza New York, New York 10004-2498 New York, New York 10004-1980 (212) 558-4000 (212) 859-8000
-------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. -------------- If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / -------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED SEPTEMBER 11, 1996 28,000,000 SHARES [LOGO] GULFSTREAM AEROSPACE CORPORATION COMMON STOCK (PAR VALUE $.01 PER SHARE) ------------------- Of the 28,000,000 shares of Common Stock offered, 22,400,000 shares are being offered hereby in the United States and 5,600,000 shares are being offered in a concurrent international offering outside the United States. The initial public offering price and the aggregate underwriting discount per share will be identical for both offerings. See "Underwriting". Of the 28,000,000 shares of Common Stock offered, 4,782,600 shares are being sold by the Company and 23,217,400 shares are being sold by the Selling Stockholders. See "Principal and Selling Stockholders". The Company will not receive any of the proceeds from the sale of the shares being sold by the Selling Stockholders. The Company intends to use a portion of the proceeds it receives from the sale of shares in the Offerings, together with other funds, to repurchase all of the outstanding Series A 7% cumulative preferred stock of the Company from a partnership formed by Forstmann Little & Co. for a purchase price of $450 million, plus approximately $7.9 million of unpaid dividends. Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently anticipated that the initial public offering price per share will be between $21.00 and $25.00. For factors to be considered in determining the initial public offering price, see "Underwriting". SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK. The Common Stock has been approved for listing on the New York Stock Exchange under the symbol "GAC", subject to official notice of issuance. ------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS ------------------ --------------------- ------------------ --------------------- Per Share..................... $ $ $ $ Total(3)...................... $ $ $ $
- -------------- (1) The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (2) Before deducting estimated expenses of $ payable by the Company. (3) The Selling Stockholders have granted the U.S. Underwriters an option for 30 days to purchase up to an additional 3,360,000 shares at the initial public offering price per share, less the underwriting discount, solely to cover over-allotments. Additionally, the Selling Stockholders have granted the International Underwriters a similar option with respect to an additional 840,000 shares as part of a concurrent International Offering. If such options are exercised in full, the total initial public offering price, underwriting discount, proceeds to the Company and proceeds to the Selling Stockholders will be $ , $ , $ and $ , respectively. See "Underwriting". ------------------- The shares offered hereby are offered severally by the U.S. Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that certificates for the shares will be ready for delivery in New York, New York, on or about , 1996, against payment therefor in immediately available funds. GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. MORGAN STANLEY & CO. INCORPORATED -------------------------------------- The date of this Prospectus is , 1996. GULFSTREAM AIRCRAFT ARE THE CHOICE OF 40 WORLD GOVERNMENTS AND NINE OUT OF THE TOP TEN FORTUNE 500 COMPANIES. SHOWN BELOW IS A GULFSTREAM IV-SP. [PHOTO OF GULFSTREAM IV-SP] The Company intends to furnish to its stockholders annual reports containing audited financial statements for each fiscal year of the Company. ------------------- IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. [INSIDE FRONT COVER FOLD OUT] THE ALL NEW 6,500 NM GULFSTREAM V. FIRST CUSTOMER DELIVERIES SCHEDULED FOR LATER THIS YEAR. [PHOTO OF GULFSTREAM V] PROSPECTUS SUMMARY THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) GIVES EFFECT TO THE REPURCHASE OF ALL OF THE OUTSTANDING PREFERRED STOCK AND THE EXCHANGE, REDESIGNATION AND 1.5-FOR-1 STOCK SPLIT OF THE COMPANY'S COMMON STOCK, WHICH WILL OCCUR IMMEDIATELY PRIOR TO, OR SIMULTANEOUSLY WITH, THE CLOSING OF THE OFFERINGS (COLLECTIVELY, THE "1996 RECAPITALIZATION") DESCRIBED UNDER "DESCRIPTION OF CAPITAL STOCK", (II) ASSUMES THAT THE OVER-ALLOTMENT OPTIONS GRANTED TO THE UNDERWRITERS ARE NOT EXERCISED, (III) ASSUMES THE ISSUANCE AND SALE OF COMMON STOCK IN THE OFFERINGS AT $23.00 PER SHARE (THE MID-POINT OF THE RANGE OF THE INITIAL PUBLIC OFFERING PRICES SET FORTH ON THE COVER PAGE OF THIS PROSPECTUS) AND (IV) ASSUMES THE ISSUANCE OF 2,126,533 SHARES OF COMMON STOCK BY THE COMPANY TO CERTAIN SELLING STOCKHOLDERS PURSUANT TO THE EXERCISE OF OUTSTANDING OPTIONS AND THE SALE OF SUCH SHARES IN THE OFFERINGS (WHICH AMOUNTS ARE SUBJECT TO CHANGE PENDING FINAL CONFIRMATION OF SELLING STOCKHOLDER PARTICIPATION IN THE OFFERINGS, PRIOR TO PRICING OF THE OFFERINGS). UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES TO THE COMPANY OR GULFSTREAM REFER TO GULFSTREAM AEROSPACE CORPORATION, ITS PREDECESSORS AND ITS SUBSIDIARIES AND REFERENCES TO "COMMON STOCK" REFER TO THE COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF GULFSTREAM AEROSPACE CORPORATION AFTER GIVING EFFECT TO THE 1996 RECAPITALIZATION. REFERENCES IN THIS PROSPECTUS TO (I) MILES ARE TO NAUTICAL MILES; ONE NAUTICAL MILE IS EQUAL TO 1.15 STATUTE MILES; AND (II) FISCAL YEARS ARE TO THE FISCAL YEAR OF THE COMPANY ENDED DECEMBER 31 OF THE YEAR SPECIFIED (e.g., "FISCAL 1995" REFERS TO THE YEAR ENDED DECEMBER 31, 1995). THE COMPANY Gulfstream Aerospace Corporation is recognized worldwide as a leading designer, developer, manufacturer and marketer of the most technologically advanced intercontinental business jet aircraft. Since 1966, when the Company created the large cabin business jet category with the introduction of the Gulfstream II, the Company has dominated this market segment, capturing a cumulative market share of 60%. The Company has manufactured and sold over 950 large business aircraft since the introduction of the Gulfstream product line in 1958. Since 1990, the Company has been owned by certain partnerships formed by Forstmann Little & Co., a private investment firm ("Forstmann Little"). The Company has developed a broad range of aircraft products to meet the aviation needs of its targeted customers (which include national and multinational corporations, governments and governmental agencies, heads of state and wealthy individuals). See "Business--Customers and Marketing". The Company's current principal aircraft products are the Gulfstream IV-SP, the Gulfstream V, Gulfstream Shares-TM- (fractional ownership interests in Gulfstream IV-SPs) and pre-owned Gulfstream aircraft. As an integral part of its aircraft product offerings, the Company offers aircraft completion (exterior painting of the aircraft and installation of customer selected interiors and optional avionics) and worldwide aircraft maintenance services and technical support for all Gulfstream aircraft. In addition, the Company's financial services subsidiary, Gulfstream Financial Services Corporation, through its private label relationship with a third-party aircraft financing provider, offers customized products to finance the worldwide sale of Gulfstream aircraft. BUSINESS STRATEGY Beginning in 1993, the Company implemented a major restructuring and refocusing of its business in order to improve profitability, increase market share and build backlog. Theodore J. Forstmann, who assumed the position of Chairman of the Company in November 1993, recruited a new senior management team (including over 20 senior executives with aviation and aerospace industry experience) and established a five member Management Committee, chaired by Mr. Forstmann and comprised of four other key executives who share responsibility for strategic decisions, management and oversight of the Company's operations. In addition, Mr. Forstmann assembled both a Board of Directors and an International Advisory Board comprised of prominent business executives and senior statesmen to counsel the Company and assist in its refocused sales and operating initiatives. Under the leadership of Mr. Forstmann and the new management team, the Company (i) recapitalized its balance sheet, thereby reducing the Company's annual interest expense by approximately $38 million, (ii) reduced the Company's cost structure, yielding over $50 million in annual savings, while increasing the Company's aircraft production rate, (iii) strengthened the Company's market position and aircraft order growth, resulting in a contract backlog of approximately $2.9 billion of revenues and executed contracts with financing contingencies of approximately $250 million of potential revenues, representing total revenues and potential revenues of approximately $3.1 billion at August 29, 1996, (iv) expanded and improved the Company's product offerings and (v) increased the Company's completion order rate and expanded its worldwide service and support business. 3 The most significant aspects of the restructuring were: RECAPITALIZATION AND SIGNIFICANT REDUCTION OF INTEREST EXPENSE In late 1993, a partnership formed by Forstmann Little exchanged approximately $469 million of the Company's subordinated debentures (including accrued interest) for preferred stock, thereby reducing the Company's annual interest expense by approximately $38 million. See "Certain Transactions -- The Acquisition; Subsequent Events". This recapitalization and the resulting increase in cash flow (together with the cost reductions and manufacturing efficiencies discussed below) enabled the Company to dedicate additional resources to significantly enhance the design of the Gulfstream V, the Company's new ultra-long range business jet. COST REDUCTIONS AND INCREASED PRODUCTION RATE The Company initiated a restructuring that significantly reduced its cost structure and product manufacturing cycle times. The restructuring program included a voluntary reduction in the Company's work force of approximately 15%, the outsourcing of certain manufacturing activities, the renegotiation of major supplier contracts and the termination of certain leases, which, in the aggregate, have yielded over $50 million in annual savings. Additionally, the Company has reduced final assembly time of an aircraft by more than 50% from over 67 days to approximately 30 days and has reduced aircraft completion time from approximately 35 weeks to approximately 21 weeks. As a result of these cycle time reductions, the use of common tooling and selected outsourcing, the Company expects to increase its production rate from an average of 2.4 aircraft per month in 1996 to an average of 3.5 to 4.0 aircraft per month in 1997. NEW MARKETING INITIATIVES AND SIGNIFICANTLY INCREASED BACKLOG The Company developed and implemented a new, proactive marketing strategy to substantially broaden the markets for its products. In addition to the Company's historical practice of targeting its existing customer base, the Company (a) initiated an aggressive marketing campaign focused on companies and individuals that have not previously owned Gulfstream aircraft, (b) significantly expanded international sales activities, (c) introduced its Gulfstream Shares-TM- program and (d) offered its customers access to customized financing to support the sale of new and pre-owned Gulfstream aircraft. The Company has also redirected its sales and marketing effort to focus on high level decision makers through increased involvement of the Company's Board of Directors, International Advisory Board and senior management in the selling process and restructured its sales commission program to more effectively support the Company's strategic goals. As a result of these new marketing initiatives, the Company has experienced strong growth in aircraft orders and backlog and believes that it has substantially strengthened its market position. At August 29, 1996, the Company had a contract backlog of approximately $2.9 billion of revenues plus executed contracts with financing contingencies of approximately $250 million of potential revenues, representing a total of 65 contracts for Gulfstream Vs and 31 contracts for Gulfstream IV-SPs. Contracts with financing contingencies are converted to backlog upon receipt of financing by the purchaser, which generally occurs within 120 days. In addition, at August 29, 1996, the Company had letters of intent with deposits for a total of 3 Gulfstream Vs and 2 Gulfstream IV-SPs, representing approximately $160 million of additional potential revenues. In total, approximately 50% of the Gulfstream V contracts in backlog have scheduled deliveries beyond 1997. EXPANDED PRODUCT OFFERINGS The Company expanded its product offerings to provide multiple aircraft products in contrast to its historical strategy of offering only one new aircraft model at a time. In addition, the Company began marketing its products as an integrated whole, offering completion and worldwide maintenance services and technical support for all Gulfstream aircraft. The Company's current product offerings include the following: GULFSTREAM V. The Company significantly enhanced the design and performance characteristics of the Gulfstream V, which was in the early stage of development in 1993, and accelerated the pace of its development. The Gulfstream V is targeted at the market for ultra-long range business jet aircraft (6,500 nautical miles) which is a new market segment for the business jet industry. The Gulfstream V is in the advanced stages of flight testing and is on schedule to obtain certification by the Federal Aviation Administration ("FAA") in the last quarter of 1996, at least 4 12 months prior to the targeted certification date of any other ultra-long range business jet aircraft. The Company believes the Gulfstream V provides the longest range, fastest cruising speed and most technologically advanced avionics of any ultra-long range business jet aircraft in operation. GULFSTREAM IV-SP. In 1993, the Company introduced the Gulfstream IV-SP, which offers significantly improved performance and upgraded avionics as compared to its predecessor, the Gulfstream IV. The Company believes that the Gulfstream IV-SP offers the best combination of large cabin size, long range (4,220 nautical miles), fast cruising speed and technologically advanced avionics of any large business jet aircraft currently available. GULFSTREAM SHARES-TM-. In 1995, the Company introduced a Gulfstream IV-SP fractional share ownership program (Gulfstream Shares-TM-) in conjunction with Executive Jet International, Inc.'s ("EJI") NetJets-Registered Trademark- Program. Gulfstream Shares-TM- provides customers with the benefits of Gulfstream aircraft ownership at a substantially lower cost than full aircraft ownership and significantly increases the Company's potential customer base. To date, the Company has contracted to deliver 16 Gulfstream IV-SPs and 2 Gulfstream Vs to EJI in connection with this program, 7 of which have been delivered and 11 of which will be delivered through 1999. EJI also has an option to purchase 5 additional Gulfstream IV-SPs in 1998. PRE-OWNED GULFSTREAM AIRCRAFT. The Company assembled a new, experienced management team for its pre-owned aircraft sales operations and introduced a number of initiatives that have enhanced the marketability of pre-owned Gulfstream aircraft. See "Business--Principal Products--Premium Pre-Owned Gulfstream Aircraft and Other Pre-Owned Aircraft". In addition, the Company has been successful in using pre-owned Gulfstream aircraft as a significant tool to expand the Company's potential market and to compete against other manufacturers of lower priced, new aircraft products. As a result of the Company's competitive success in marketing pre-owned aircraft, the Company has reduced its inventory of pre-owned aircraft available for sale to approximately $23.6 million and $35.0 million as of June 30, 1995 and 1996, respectively, as compared with approximately $125.8 million at October 31, 1993. IMPROVED COMPLETION, SERVICE AND SUPPORT The Company's new marketing strategy has resulted in substantial improvements in the Company's completion business. Gulfstream currently completes approximately 95% of all new Gulfstream aircraft sold to customers as compared to 70% in 1990. Further, the Company has significantly expanded its worldwide maintenance services and technical support for Gulfstream aircraft, including opening a new 200,000 square foot service center in 1996 to increase its ability to provide high quality service to Gulfstream customers. These service and support activities provide the Company with ongoing customer contact, which the Company believes enhances its opportunity to sell new aircraft to existing service and support customers. SUCCESSFUL CO-PRODUCTION OF GULFSTREAM V AND GULFSTREAM IV-SP AIRCRAFT The Company is currently manufacturing both the Gulfstream V and Gulfstream IV-SP. Upon FAA certification of the Gulfstream V, which is expected to occur in the last quarter of 1996, the Company will begin delivering Gulfstream V aircraft to customers. Given the Company's increased manufacturing volume and large backlog of orders, the Company expects to deliver aircraft in 1997 at rates substantially in excess of those experienced in the recent past. Assuming FAA certification in the last quarter of 1996, the Company expects to deliver approximately 46 new aircraft in 1997, including 19 Gulfstream IV-SP and 27 Gulfstream V aircraft, representing a 59% increase over the Company's expected deliveries in 1996. Certain partnerships formed by Forstmann Little & Co. (the "Forstmann Little Partnerships") own substantially all of the shares of the Company's currently outstanding common stock (87.1% of the common stock on a fully diluted basis). Shares of Common Stock to be sold pursuant to the Offerings will be sold by the Company and by the Forstmann Little Partnerships, as well as by certain other holders of the Company's common stock and certain option holders (collectively, the Forstmann Little Partnerships and such holders of common stock and options are the "Selling Stockholders"). After the consummation of the Offerings, the Forstmann Little Partnerships will beneficially own approximately 61.2% of the Common Stock (55.4% on a fully diluted basis) or 55.7% (50.9% on a fully diluted basis), assuming that the Underwriters' over-allotment options are exercised in full. See "Certain Transactions -- The Acquisition; Subsequent Events" and "Principal and Selling Stockholders". 5 THE OFFERINGS (1) Common Stock offered by the Company: (2) United States Offering........ 3,826,100 shares International Offering........ 956,500 shares Total....................... 4,782,600 shares Common Stock offered by the Selling Stockholders: (2) United States Offering........ 18,573,900 shares International Offering........ 4,643,500 shares Total....................... 23,217,400 shares Common Stock to be outstanding after the Offerings............ 72,133,976 shares (2)(3) Use of proceeds by the Company.. Together with proceeds of $400 million from new bank borrowings, proceeds of expected stock option exercises in connection with the Offerings, and funds generated from operations, to repurchase the outstanding Series A 7% cumulative preferred stock of the Company (the "7% Cumulative Preferred Stock") at its stated value for a purchase price of $450 million, plus approximately $7.9 million of unpaid dividends, to repay outstanding indebtedness under existing credit facilities (which was $119.8 million at June 30, 1996) and to pay the fees and expenses incurred in connection with the Offerings and the refinancing of the Company's indebtedness. The Company will not receive any of the proceeds from the sale of shares by the Selling Stockholders. See "Use of Proceeds". Proposed NYSE symbol............ GAC
- -------------- (1) The offering of 22,400,000 shares of Common Stock initially being offered in the United States (the "U.S. Offering") and the offering of 5,600,000 shares of Common Stock initially being offered outside the United States (the "International Offering") are collectively referred to as the "Offerings". The underwriters for the U.S. Offering (the "U.S. Underwriters") and the underwriters for the International Offering (the "International Underwriters") are collectively referred to as the "Underwriters". (2) Assumes that the Underwriters' over-allotment options are not exercised. See "Underwriting". (3) Includes 2,126,533 shares of Common Stock to be issued simultaneously with or immediately prior to the consummation of the Offerings upon exercise of outstanding stock options, which shares will be sold in the Offerings. Does not include 7,527,411 shares issuable upon the exercise of additional outstanding stock options. See "Management -- Stock Options". RISK FACTORS Prospective purchasers of the Common Stock should carefully consider the factors set forth under "Risk Factors" as well as the other information set forth in this Prospectus. 6 SUMMARY FINANCIAL DATA The summary historical financial information presented below, except the pro forma financial information, is derived from the Company's Financial Statements as of the date and for the periods indicated. The summary historical financial statements for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996 and pro forma financial information should be read in conjunction with the Company's Consolidated Financial Statements and the related notes thereto included elsewhere in this Prospectus, "Capitalization", "Selected Financial Data", "Pro Forma Condensed Financial Information", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Business -- Business Strategy -- Recapitalization and Significant Reduction of Interest Expense" and "Description of Capital Stock". In the six months ended June 30, 1996, 3 fewer green aircraft were delivered than were in the same period in 1995 as a result of the delivery in early 1995 of 3 units which were produced in late 1994. In addition, beginning in the fourth quarter of 1995, the Company dedicated a portion of its production capacity to the manufacture of Gulfstream Vs which the Company will not begin delivering to customers until after FAA certification, which is expected in the fourth quarter of 1996.
SIX MONTHS ENDED JUNE YEAR ENDED DECEMBER 31, 30, ------------------------------------------------------- ---------------------- 1991 1992 1993 1994 1995 1995 1996 --------- --------- --------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA) STATEMENT OF OPERATIONS DATA: Net revenues.................................... $ 887,234 $ 900,419 $ 887,113 $ 901,638 $1,041,514 $ 474,884 $ 458,672 Gross profit.................................... 138,681 175,865 149,752 191,084 205,967 96,862 103,831 Restructuring charge............................ 203,911(1) Interest expense................................ 72,679 61,235 48,940 20,686 18,704 9,945 7,166 Income (loss) from operations................... 21,254 9,528 (226,773) 43,883 42,090 16,358 14,932 Net income (loss)............................... (49,728) (49,572) (275,227) 23,564 28,894 7,839 15,359 Pro forma net income (loss) per share (2)....... $ .18 $ (.02) $ .08 Pro forma common shares outstanding (2)......... 78,228 78,228 78,228 BALANCE SHEET DATA (AT END OF PERIOD): Working capital................................. $ 248,974 $ 268,881 $ 302,369 $ 301,913 $ 356,976 $ 322,261 $ 232,508 Total assets.................................... 991,841 945,433 799,470 745,761 981,253 823,861 1,159,371 Total debt (3).................................. 719,500 670,258 206,145(4) 178,145 146,331 172,863 119,798 Total stockholders' equity (deficit) (3)........ (27,191) (26,700) 164,395 188,950 217,540 196,789 123,103 OTHER DATA: Depreciation and amortization................... $ 49,687 $ 52,374 $ 47,866 $ 24,151 $ 23,094 $ 11,530 $ 12,242 Research and development expense................ 9,555 36,295 47,990 57,438 63,098 34,076 34,746 Stock option compensation expense............... 5,200 OPERATING DATA: Units delivered during period: Gulfstream IV/IV-SP........................... 28 25 26 22 26 14 11 Units ordered during period: Gulfstream IV/IV-SP........................... 31 26 26 25 30 17 15 Gulfstream V.................................. 0 8 17 16 12 5 12 --------- --------- --------- ---------- ---------- ---------- ---------- Total orders.................................. 31 34 43 41 42 22 27 Units in backlog at end of period: Gulfstream IV/IV-SP(5)........................ 5 3 3 3 7 6 11 Gulfstream V(6)............................... 0 8 24 40 50 45 62 --------- --------- --------- ---------- ---------- ---------- ---------- Total backlog (in units)(7)................... 5 11 27 43 57 51 73 Estimated backlog (in thousands) (7)(8)......... $ 124,225 $ 362,466 $ 897,747 $1,473,772 $1,938,315 $1,731,532 $2,496,061
- ------------------ (1) The Company recorded a charge for a restructuring plan based upon the Company's reassessment of its business plan and its products from which it has realized improved operating efficiencies, reduced costs, and increased overall profitability. See Note 2 to the Company's Consolidated Financial Statements included elsewhere in this Prospectus. (2) Pro forma net income (loss) per share amounts are calculated based on the pro forma net income, after giving effect to the 1996 Recapitalization and the Offerings, divided by the pro forma weighted average number of common and common equivalent shares outstanding assuming the 1996 Recapitalization shares and the shares sold in the Offerings were outstanding for all periods reported. For information regarding the pro forma data, see "Pro Forma Condensed Financial Information" on pages 18 and 19 and "Capitalization" on page 16. Due to the change in the Company's capital structure to be effected with the 1996 Recapitalization, historical share and per share data for all periods is not relevant and therefore is not presented. (3) Total debt and stockholders' equity (deficit) does not include the impact of the 1996 Recapitalization of the Company to be effected immediately prior to or simultaneously with the consummation of the Offerings. See "Capitalization". 7 (4) During November 1993, the Company converted $469 million of subordinated debentures (including accrued interest) to 7% Cumulative Preferred Stock in connection with the 1993 recapitalization. See "Business -- Business Strategy -- Recapitalization and Significant Reduction of Interest Expense" and "Certain Transactions -- The Acquisition; Subsequent Events". (5) Net of 3 cancellations in each of 1992 and 1994, which generally relate to orders placed in prior years. (6) Net of cancellations of 1 and 2 in 1993 and 1995, respectively, which generally relate to orders placed in prior years. As of June 30, 1996, only 3 Gulfstream V contracts had been cancelled, 2 of which were the result of declines in the business performance of the customer and one of which was the result of adverse economic conditions in a foreign country. (7) At August 29, 1996, the Company had a contract backlog of approximately $2.9 billion of revenues plus executed contracts with financing contingencies of approximately $250 million of potential revenues, representing a total of 65 contracts for Gulfstream Vs (none with financing contingencies) and 31 contracts for Gulfstream IV-SPs (9 with financing contingencies). In addition, at August 29, 1996, the Company had letters of intent with deposits for a total of 3 Gulfstream Vs and 2 Gulfstream IV-SPs, representing approximately $160 million of additional potential revenues. (8) Backlog includes only those orders for which the Company has entered into a purchase contract with a customer and has received a significant (generally non-refundable) deposit from the customer. Not included in backlog are executed contracts subject to financing contingencies, options and letters of intent for which definitive agreements have not yet been executed, which, at June 30, 1996, represented approximately $350 million of additional potential revenues. 8 RISK FACTORS IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY. GULFSTREAM V CERTIFICATION AND PRODUCTION The Gulfstream V is a new aircraft product that is still in the FAA certification process, as are its BMW Rolls-Royce BR710 engines. Neither the Gulfstream V nor the BR710 engines have yet been delivered to customers. The Gulfstream V and the BR710 engines have successfully passed the FAA tests administered to date as part of their respective certification processes. On August 14, 1996, the BR710 engine was certified by the Joint Aviation Authorities. While the Company believes that the Gulfstream V and the BR710 engines are currently on schedule to obtain FAA certification in the last quarter of 1996, no assurance can be given that certification will occur as scheduled or that changes in FAA policies or procedures will not delay certification. An extended delay in the FAA certification process may have a near-term adverse effect on the Company's results of operations. In addition, while the Company generally receives non-refundable deposits in connection with each order, an order may be cancelled (and the deposit returned) under certain conditions if the delivery of the Gulfstream V is delayed more than six months after a customer's scheduled delivery date. An extended delay in the FAA certification process could cause an increase in the number of cancellations of orders for Gulfstream Vs, which could have an adverse effect on the Company's results of operation. In contrast to its historical practice of discontinuing existing models, the Company will continue to manufacture and sell Gulfstream IV-SPs at the same time that it manufactures and sells Gulfstream Vs. As of July 31, 1996, the Company had produced 5 Gulfstream Vs concurrently with its production of Gulfstream IV-SPs. The Company expects to increase its production rate from an average of 2.4 aircraft per month in 1996 to an average of 3.5 to 4.0 aircraft per month in 1997. No assurance can be given as to the extent to which the Company can successfully increase its rate of production. THE BUSINESS JET AIRCRAFT MARKET The Company's principal business is the design, development, manufacture and marketing of large and ultra-long range business jet aircraft. Because of the high unit selling price of its aircraft products and the availability of commercial airlines and charters as alternative means of business travel, a downturn in general economic conditions could result in a reduction in the orders received by the Company for its new and pre-owned aircraft. The Company would not be able to rely on sales of other products to offset a reduction in sales of its aircraft. If a potential purchaser is experiencing a business downturn or is otherwise seeking to limit its capital expenditures, the high unit selling price of a new Gulfstream aircraft could result in such potential purchaser deferring its purchase or changing its operating requirements and electing to purchase a competitor's lower priced aircraft. Since the Company relies on the sales of a relatively small number of high unit selling price new aircraft (42 new contracts signed, and 26 aircraft delivered, in 1995) to provide approximately 55% to 65% of its revenues, small decreases in the number of aircraft delivered in any year could have a material adverse effect on the results of operations for that year. The Company believes that its reputation and the exemplary safety record of its aircraft are important selling points for new and pre-owned Gulfstream aircraft. The Company designs its aircraft with back-up systems for major functions and appropriate safety margins for structural components. However, if one or a number of catastrophic events were to occur with the Gulfstream fleet, Gulfstream's reputation and sales of Gulfstream aircraft could be adversely affected. In many cases, the Company has agreed to accept, at the customer's option, the customer's pre-owned aircraft as a trade-in in connection with the purchase of a Gulfstream V. In connection with orders for 29 Gulfstream V aircraft, the Company has offered customers trade-in options (which may or may not be exercised) pursuant to which the Company will accept trade-in aircraft (primarily Gulfstream IVs and 9 Gulfstream IV-SPs) at a guaranteed minimum trade-in price. See Note 14 to the Company's Consolidated Financial Statements included elsewhere in this Prospectus. Based on the current market for pre-owned aircraft, the Company expects to continue to be able to resell such pre-owned aircraft, and does not expect to suffer a loss with respect to the possible trade-in of such aircraft. However, an increased level of pre-owned aircraft or changes in the market for pre-owned aircraft may increase the Company's inventory costs and may result in the Company receiving lower prices for its pre-owned aircraft. The market for large cabin business jet aircraft is highly competitive. The Gulfstream IV-SP competes in the large cabin business jet aircraft market segment, principally with Dassault Aviation S.A. (which recently announced that it will merge with Aerospatiale SA) and Bombardier Inc. The Gulfstream V competes in the ultra-long range business jet aircraft market segment, primarily with the Global Express, which is being marketed by Canadair, a subsidiary of Bombardier, and which is scheduled for certification at least 12 months after the anticipated initial delivery of the Gulfstream V. In addition, in July 1996, The Boeing Company ("Boeing"), in partnership with General Electric Co., publicly announced that it intends to begin to market a version of the Boeing 737 into the ultra-long range business jet aircraft market segment. Boeing has indicated that it expects that this aircraft could be available for delivery in late 1998 or 1999. The Company's competitors may have access to greater resources (including, in certain cases, governmental subsidies) than are available to the Company. The Company believes, however, that it competes favorably with its competitors on the basis of the performance characteristics of its aircraft, the quality, range and timeliness of the service it provides and its innovative marketing techniques, and that it has the leading market share in both the large cabin and ultra-long range business jet aircraft market segments. The Company's ability to remain pre-eminent in the large business jet and ultra-long range business jet aircraft markets over the long term requires continued technological and performance enhancements to Gulfstream aircraft. Although the Company believes that the Gulfstream IV-SP and the Gulfstream V are currently the most advanced aircraft in the marketplace, no assurance can be given that the Company's competitors will not be able to produce aircraft capable of performance comparable or superior to Gulfstream aircraft in the future. RELIANCE ON SINGLE SOURCE SUPPLIERS As is typical among general aviation aircraft manufacturers, the Company relies on single source suppliers for complex aircraft components and systems. These single sources are selected based on overall aircraft systems requirements, quality and certification requirements and competitiveness in the market. The Company's suppliers and revenue share partners (i.e., parties which supply components or systems for the Gulfstream V in exchange for a fixed percentage of the revenues of each Gulfstream V sold) include Rolls-Royce Commercial Aero Engines Limited (Gulfstream IV-SP engines), BMW Rolls-Royce GmbH (Gulfstream V engines), Honeywell Incorporated (Gulfstream IV-SP and Gulfstream V flight management systems/avionics), Textron Aerostructures (Gulfstream IV-SP wing), Northrop Grumman Corporation (Gulfstream V wing revenue share partner through its Vought Aircraft Company subsidiary and Gulfstream IV-SP nacelle supplier), Fokker Aviation B.V. (Gulfstream V empennage revenue share partner), The B.F. Goodrich Co. (Gulfstream IV-SP and Gulfstream V landing gears and air speed sensors), Sundstrand Corp. (Gulfstream V electrical system and actuators) and AlliedSignal, Inc. (Gulfstream IV-SP and Gulfstream V auxiliary power unit and environmental control systems and Gulfstream IV-SP electrical systems). While the Company's production activities have never been materially affected by its inability to obtain essential components, and while the Company maintains business interruption insurance in the event that such a disruption should occur, the failure of certain suppliers or revenue share partners to meet the Company's performance specifications, quality standards or delivery schedules could have a material adverse effect on the Company's results of operations. In addition, because of the difficulty in obtaining alternate sources for these products, the inability of any one of the Company's single source suppliers to deliver their products at agreed upon prices may have an adverse effect on the Company's 10 profitability or on its ability to price its aircraft competitively. The Company works closely with its major suppliers to procure materials on a timely basis that meet Gulfstream's high quality standards. See "Business -- Materials and Components". POSSIBLE FLUCTUATIONS IN QUARTERLY AND ANNUAL RESULTS The Company records revenue from the sale of a new "green" aircraft (i.e., before exterior painting and installation of customer selected interiors and optional avionics) when that aircraft is delivered to the customer. As a result, a delay or an acceleration in the delivery of new aircraft may affect the Company's revenues for a particular quarter or year and may make quarter-to-quarter or year-to-year comparisons difficult. In addition, the Company's production schedule may be affected by many factors, including timing of deliveries by suppliers. Accordingly, the prevailing market price of the Common Stock could be subject to fluctuations in response to variations in the Company's production and delivery schedules. See " -- Gulfstream V Certification and Production", " -- Reliance on Single Source Suppliers" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Results". PENDING TAX AUDIT The Company is involved in a tax audit by the Internal Revenue Service covering the years ended December 31, 1990 and 1991. The revenue agent's report includes several proposed adjustments involving the deductibility of certain compensation expense and items relating to the capitalization of the Company as well as the allocation of the purchase price in connection with the Acquisition, including the cost of aircraft that were in backlog at the time of the Acquisition and the amortization of amounts allocated to intangible assets. The Company believes that the ultimate resolution of these issues will not have a material adverse effect on its financial statements because the financial statements already reflect what the Company currently believes is the expected loss of benefit arising from the resolution of these issues. However, because the revenue agent's report is proposing adjustments in amounts materially in excess of what the Company has reflected in its financial statements and because it may take several years to resolve the disputed matters, the ultimate extent of the Company's expected loss of benefit and liability with respect to these matters cannot be predicted with certainty and no assurance can be given that the Company's financial position or results of operations will not be adversely affected. LEVERAGE AND DEBT SERVICE; RESTRICTIONS ON PAYMENT OF DIVIDENDS Pursuant to a commitment letter, dated August 9, 1996 (the "Committment Letter"), The Chase Manhattan Bank ("Chase") and Chase Securities, Inc., as the arranger ("CSI"), have committed to provide a $650 million credit facility (the "Bank Facility") to Gulfstream Delaware Corporation, the principal operating subsidiary of the Company ("Gulfstream Delaware"), under a new credit agreement to be entered into (the "Credit Agreement"). The facility under the Credit Agreement will consist of a $400 million term loan (the "Term Loan Facility") and a $250 million revolving credit facility (the "Revolving Credit Facility"). Gulfstream Delaware expects to borrow and use approximately $400 million under the Credit Agreement to fund, along with the proceeds of the sale of shares of Common Stock by the Company in the Offerings and funds generated by operations, (i) the repayment of outstanding indebtedness under the Company's existing credit facilities (which was $119.8 million at June 30, 1996), (ii) the payment of fees and expenses incurred in connection with the Offerings and the refinancing of the Company's indebtedness and (iii) the repurchase of all of the outstanding shares of the Company's 7% Cumulative Preferred Stock for an aggregate purchase price of $450 million (plus approximately $7.9 million of unpaid dividends). As a result, the Company will be more leveraged after the Offerings. On a pro forma basis, after giving effect to the Offerings, the borrowings under the Credit Agreement and the application of the net proceeds thereof as described under "Use of Proceeds", at June 30, 1996, the Company's long-term indebtedness (including current maturities of $13.3 million) would have been $400 million. See "Capitalization" and "Description of Credit Agreement". The degree to which the Company is leveraged could have important consequences to holders of Common Stock, including the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, product development, acquisitions, general corporate purposes or other purposes may be impaired; (ii) a portion of the Company's and its subsidiaries' cash 11 flow from operations must be dedicated to the payment of the principal of and interest on its indebtedness; (iii) the Credit Agreement will contain certain restrictive financial and operating covenants, including, among others, requirements that Gulfstream satisfy certain financial ratios; (iv) a significant portion of Gulfstream's borrowings will be at floating rates of interest, causing Gulfstream to be vulnerable to increases in interest rates; (v) the Company's degree of leverage may make it more vulnerable in a downturn in general economic conditions; and (vi) the Company's financial position may limit its flexibility in responding to changing business and economic conditions. The Company is a holding company with no operations or assets other than the stock of its subsidiaries. As a result, the Company's ability to pay dividends on its Common Stock is dependent upon the ability of its subsidiaries to pay cash dividends or make other distributions. The Credit Agreement will restrict the ability of the Company's subsidiaries to pay cash dividends or to make other distributions and, accordingly, will limit the ability of the Company to pay cash dividends to its stockholders. The borrowings under the Credit Agreement will be guaranteed by the Company and will be secured by a pledge of the stock of the Company's subsidiaries. See "Dividend Policy" and "Description of Credit Agreement". CONTROL BY PRINCIPAL STOCKHOLDERS; LIMITATIONS ON CHANGE OF CONTROL; BENEFITS TO PRINCIPAL STOCKHOLDERS After the consummation of the Offerings, the Forstmann Little Partnerships will beneficially own approximately 61.2% of the Common Stock (55.4% on a fully diluted basis) or 55.7% (50.9% on a fully diluted basis), assuming that the Underwriters' over-allotment options are exercised in full. As long as the Forstmann Little Partnerships continue to own in the aggregate more than 50% of the Company's outstanding shares of Common Stock, they will collectively have the power to elect the entire Board of Directors of the Company and, in general, determine (without the consent of the Company's other stockholders) the outcome of any corporate transaction or other matter submitted to the stockholders for approval, including mergers, consolidations and the sale of all or substantially all of the Company's assets, and to prevent or cause a change in control of the Company. See "Management", "Principal and Selling Stockholders" and "Description of Credit Agreement". The Company's Restated Certificate of Incorporation and By-laws contain provisions that may have the effect of discouraging a third party from making an acquisition proposal for the Company. The Restated Certificate of Incorporation and By-laws of the Company, among other things, (i) classify the Board of Directors into three classes, with directors of each class serving for a staggered three-year period, (ii) provide that directors may be removed only for cause and only upon the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock entitled to vote for such directors and (iii) permit the Board of Directors (but not the Company's stockholders) to fill vacancies and newly created directorships on the Board. Such provisions would make the removal of incumbent directors more difficult and time-consuming and may have the effect of discouraging a tender offer or other takeover attempt not previously approved by the Board of Directors. Under the Company's Restated Certificate of Incorporation, the Board of Directors of the Company also has the authority to issue up to 20,000,000 shares of preferred stock in one or more series and to fix the powers, preferences and rights of any such series without stockholder approval. The Board of Directors could, therefore, issue, without stockholder approval, preferred stock with voting and other rights that could adversely affect the voting power of the holders of Common Stock and could make it more difficult for a third party to gain control of the Company. See "Description of Capital Stock". The Company intends to use a portion of the proceeds it receives from the sale of shares in the Offerings, together with borrowings under the Credit Agreement and funds generated from operations, to repurchase all of the outstanding 7% Cumulative Preferred Stock from one of the Forstmann Little Partnerships for a purchase price of $450 million, plus approximately $7.9 million of unpaid dividends. See "Certain Transactions -- The Acquisition; Subsequent Events". In connection with the Offerings, 2,126,533 shares of Common Stock will be issued upon the exercise of outstanding stock options by approximately 300 current and former employees, directors, advisors and consultants of the Company for an aggregate exercise price of approximately $8.1 million, which shares will be sold in the Offerings 12 for aggregate proceeds of approximately $46.0 million (net of underwriting discounts), based on an assumed initial public offering price of $23.00 per share (the mid-point of the range of initial public offering prices set forth on the cover page of this Prospectus); approximately one-half of such shares will be issued to and sold by current directors and executive officers of the Company. See "Principal and Selling Stockholders". SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS Sales of a substantial number of shares of the Company's Common Stock after the consummation of the Offerings could adversely affect the prevailing market price of the Common Stock. Upon the consummation of the Offerings, the Company will have outstanding 72,133,976 shares of Common Stock, including 44,133,977 outstanding shares of Common Stock beneficially owned by existing stockholders. Of these shares, the 28,000,000 shares sold in the Offerings (32,200,000 if the Underwriters' over-allotment options are exercised in full) will be freely transferable in the public market or otherwise without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), unless purchased by an "affiliate" of the Company as that term is defined in Rule 144 under the Securities Act (an "Affiliate"). Shares purchased by Affiliates will be subject to the resale limitations of Rule 144 under the Securities Act. The Company and the Selling Stockholders (who will beneficially own 44,133,977 outstanding shares immediately following the consummation of the Offerings) have agreed with the Underwriters not to offer, sell or otherwise dispose of any shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of the Representatives of the Underwriters except, in the case of such existing stockholders and Selling Stockholders, for certain transfers to immediate family members, trusts for the benefit of such existing stockholder or Selling Stockholder and his or her immediate family, charitable foundations and controlled entities so long as the transferee agrees to be bound by the foregoing restrictions. Based on shares outstanding as of August 9, 1996, following expiration or waiver of the foregoing restrictions on dispositions, 44,120,230 shares of Common Stock owned by the Forstmann Little Partnerships will be available for sale into the public market pursuant to Rule 144 (including the volume and other limitations set forth therein) and could impair the Company's future ability to raise capital through an offering of equity securities. In addition, pursuant to a registration rights agreement (the "Registration Rights Agreement"), the Forstmann Little Partnerships have the right, under certain circumstances and subject to certain conditions, to require the Company to effect up to six registrations under the Securities Act, covering all or any portion of the shares of Common Stock held by them. In addition, whenever the Company proposes to register any of its securities under the Securities Act, the Forstmann Little Partnerships and the holders of the Company's outstanding stock options (pursuant to the stock option agreements under which such options were granted) have the right, under certain circumstances and subject to certain conditions, to include their shares (or any security convertible into or exercisable or exchangeable for Common Stock) in such registration. The Company is generally required to pay all the expenses (other than the expenses of optionholders) associated with these offerings (other than underwriting discounts and commissions). See "Principal and Selling Stockholders", "Description of Capital Stock" and "Shares Eligible for Future Sale". ABSENCE OF PRIOR PUBLIC MARKET Prior to the consummation of the Offerings, there has been no public market for the Common Stock. There can be no assurance that market prices after the consummation of the Offerings will equal or exceed the initial public offering price set forth on the cover page of this Prospectus. The initial public offering price will be determined by negotiation among the Company, the Selling Stockholders and the Underwriters based upon several factors and may not be indicative of the market price for the Common Stock following the consummation of the Offerings. See "Underwriting". DILUTION Persons purchasing shares of Common Stock in the Offerings will incur immediate and substantial dilution in net tangible book value per share. Assuming an initial public offering price of $23.00 per share (the mid-point of the range of initial public offering prices set forth on the cover page of this Prospectus), purchasers of shares in the Offerings would experience dilution of $27.60 per share. See "Dilution". 13 THE COMPANY GENERAL Gulfstream is recognized worldwide as a leading designer, developer, manufacturer and marketer of the most technologically advanced intercontinental business jet aircraft. Since 1966, when the Company created the large cabin business jet category with the introduction of the Gulfstream II, the Company has dominated this market segment, capturing a cumulative market share of 60%. The Company has manufactured and sold over 950 large business aircraft since the introduction of the Gulfstream product line in 1958. Gulfstream is the ultimate successor to a business (the "Predecessor Business") established by Grumman Aerospace ("Grumman") in 1956. In 1978, the Predecessor Business was acquired by a group of investors headed by Allen E. Paulson, the then Chairman of the Predecessor Business. Chrysler Corporation ("Chrysler") acquired the Predecessor Business in 1985. In March 1990, the Gulfstream business was acquired (the "Acquisition") from Chrysler by certain partnerships formed by Forstmann Little. The Company's product line originated in 1958, with the introduction of the Gulfstream I, and continued with the introduction of the Gulfstream II in 1966, the Gulfstream III in 1979, the Gulfstream IV in 1983, the Gulfstream IV-SP in 1993 and the Gulfstream V, deliveries of which are expected to begin in the last quarter of 1996. Only the Gulfstream IV-SP and the Gulfstream V are currently in production. The Company was incorporated under the laws of the State of Delaware in 1990. The principal executive offices of the Company are located at 500 Gulfstream Road, Savannah, Georgia 31402-2206, and the telephone number of the Company is (912) 965-3000. The Company has operating subsidiaries with facilities in Savannah, Georgia; Brunswick, Georgia; Bethany, Oklahoma; Long Beach, California; and Mexicali, Mexico. USE OF PROCEEDS The net proceeds to be received by the Company from the Offerings are estimated to be approximately $100 million, based on an assumed initial public offering price of $23.00 per share (the mid-point of the range of the initial public offering prices set forth on the cover page of this Prospectus) and after deducting estimated underwriting discounts and other expenses. The Company intends to use the net proceeds of the Offerings, together with $400 million of borrowings under the Company's new Credit Agreement, proceeds of expected stock option exercises in connection with the Offerings (discussed below), and funds generated from operations, to repurchase all of the outstanding shares of the 7% Cumulative Preferred Stock for a purchase price of $450 million, plus approximately $7.9 million of unpaid dividends, to repay outstanding indebtedness under the Company's existing credit facilities (which was $119.8 million at June 30, 1996) and to pay fees and expenses incurred in connection with the Offerings and the refinancing of the Company's indebtedness. The indebtedness to be repaid under the Company's existing facilities: (i) in the case of the 1990 term loan portion of such facilities, is payable in quarterly installments through March 1997 and at June 30, 1996 bore interest at 7.57% per annum and (ii) in the case of the 1993 term loan, is payable in two equal installments in September 1997 and March 1998 and at June 30, 1996 bore interest at 8.69% per annum. No amounts were outstanding under the revolving credit facility at June 30, 1996. The Company will not receive any of the proceeds from the sale of shares of Common Stock by the Selling Stockholders. In connection with the Offerings, certain current and former directors and employees of, and advisors to, the Company are expected to exercise stock options to purchase, in the aggregate, approximately 2,126,533 shares of Common Stock from the Company for an aggregate exercise price of approximately $8.1 million; all of such shares are expected to be sold by such Selling Stockholders in the Offerings. 14 The following summary table sets forth the estimated sources and uses of funds in connection with the 1996 Recapitalization and the Offerings (based on an assumed initial public offering price of $23.00 per share):
SOURCES OF FUNDS: (IN THOUSANDS) - --------------------------------------------------------------------- Credit Agreement..................................................... $ 400,000 Proceeds to the Company of the Offerings (net of estimated underwriting discounts)............................................. 103,400 Proceeds from exercise of stock options.............................. 8,082 Available cash....................................................... 78,191 -------------- $ 589,673 -------------- -------------- USES OF FUNDS - --------------------------------------------------------------------- Repurchase of 7% Cumulative Preferred Stock.......................... $ 450,000 Payment of unpaid dividends on 7% Cumulative Preferred Stock......... 7,875 Repayment of indebtedness under existing credit facilities........... 119,798 Fees and expenses related to the Offerings and the refinancing of indebtedness........................................................ 12,000 -------------- $ 589,673 -------------- --------------
DIVIDEND POLICY The Company has never paid cash dividends on its common stock and does not anticipate paying such dividends in the foreseeable future. As a holding company, the ability of the Company to pay dividends is dependent upon the ability of its subsidiaries to pay cash dividends or to make other distributions. The Credit Agreement will restrict the ability of the Company's subsidiaries to pay cash dividends or to make other distributions to the Company and, accordingly, will limit the ability of the Company to pay cash dividends to its stockholders. See "Description of Credit Agreement". Any determination to pay cash dividends in the future will be at the discretion of the Company's Board of Directors and will depend upon the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant at that time by the Company's Board of Directors. 15 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company and its subsidiaries as of June 30, 1996, (i) on an actual basis, (ii) on a pro forma basis, for the 1996 Recapitalization, after giving effect to (a) the borrowing of $400 million under the Term Loan Facility of the Credit Agreement, (b) the repurchase of 7% Cumulative Preferred Stock for a purchase price of $450 million, plus approximately $7.9 million of unpaid dividends, (c) the repayment of the outstanding indebtedness under the existing credit facilities of $119.8 million, (d) the write-off of approximately $2.4 million of deferred financing costs associated with the repayment of the indebtedness under the existing credit facilities, (e) the reduction of unamortized stock plan expense of $0.4 million as a result of the accelerated vesting of certain stock options (see "Management -- Stock Options") and (f) the sale of 2,126,533 shares of Common Stock by the Company to certain of the Selling Stockholders pursuant to existing option agreements for an aggregate option exercise price of $8.1 million, and (iii) on a pro forma basis, for the 1996 Recapitalization and the Offerings, to reflect the sale of 4,782,600 shares of Common Stock by the Company (assuming an initial public offering price of $23.00 per share (the mid-point of the range of the initial public offering prices set forth on the cover page of this Prospectus)). The information presented below should be read in conjunction with the Company's Consolidated Financial Statements and the related notes thereto, "Pro Forma Condensed Financial Information", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Description of Capital Stock" and "Certain Transactions" included elsewhere in this Prospectus.
JUNE 30, 1996 ------------------------------------------------ PRO FORMA FOR 1996 RECAPITALIZATION ACTUAL AND OFFERINGS ------------ PRO FORMA FOR ---------------- 1996 RECAPITALIZATION ---------------- (IN THOUSANDS) Cash............................................................ $ 213,268 $ 34,177 $ 135,077 ------------ ---------------- ---------------- ------------ ---------------- ---------------- Short-term debt: Current portion of long-term debt............................. $ 39,798 $ 13,333 $ 13,333 ------------ ---------------- ---------------- Total short-term debt....................................... 39,798 13,333 13,333 ------------ ---------------- ---------------- Long-term debt (excluding current portion) (1): Credit Facilities Existing credit facilities.................................. 80,000 0 0 New Credit Agreement........................................ 386,667 386,667 ------------ ---------------- ---------------- Total debt................................................ 119,798 400,000 400,000 ------------ ---------------- ---------------- Stockholders' equity (deficit): Preferred stock; Series A, 7%-cumulative $.01 par value; 10,000,000 shares authorized; 96 shares issued in 1996 and 20,000,000 shares authorized and none outstanding after the 1996 Recapitalization and Offerings.......................... 450,000 0 0 Common stock; $.01 par value; 109,273,000 shares authorized and 52,406,166 shares issued and 300,000,000 shares authorized and 84,097,075 shares issued after the 1996 Recapitalization and Offerings............................... 524 793 841 Additional paid-in capital...................................... 219,751 227,563 328,415 Accumulated deficit............................................. (491,390) (502,085) (502,085) Minimum pension liability....................................... (1,450) (1,450) (1,450) Unamortized stock plan expense.................................. (3,843) (3,433) (3,433) Less: Treasury stock: 8,220,833 shares and 11,963,099 shares after the 1996 Recapitalization and Offerings.................. (50,489) (50,489) (50,489) ------------ ---------------- ---------------- Total stockholders' equity (deficit)........................ 123,103 (329,101) (228,201) ------------ ---------------- ---------------- Total capitalization........................................ $ 242,901 $ 70,899 $ 171,799 ------------ ---------------- ---------------- ------------ ---------------- ----------------
- ------------------ (1) See "Description of Credit Agreement" and Note 7 to the Company's Consolidated Financial Statements included elsewhere in this Prospectus for descriptions of the long-term debt instruments of the Company and its subsidiaries. 16 DILUTION The tangible book value is the book value determined in accordance with generally accepted accounting principles, less goodwill and other intangible assets. At June 30, 1996, the pro forma, for 1996 Recapitalization, net tangible book value of the Company was $(432.5) million or $(6.43) per share of Common Stock, without giving effect to the Offerings. At June 30, 1996, after giving effect to the Offerings, including the use of the estimated net proceeds therefrom (assuming the Underwriters' over-allotment options are not exercised and an initial public offering price of $23.00 per share (the mid-point of the range of the initial public offering prices set forth on the cover page of this Prospectus) and after deducting estimated underwriting discounts and expenses), as described in "Use of Proceeds" but without taking into account any other changes in such net tangible book value subsequent to June 30, 1996, the pro forma, for 1996 Recapitalization and Offerings, net tangible book value of the Company would have been $(331.6) million or $(4.60) per share. This represents an immediate increase in the net tangible book value of $1.83 per share to existing stockholders and an immediate dilution of $27.60 per share to investors purchasing shares of Common Stock in the Offerings. The following table illustrates this dilution:
JUNE 30, 1996 ---------------------- Assumed initial public offering price per share (1)...................................... $ 23.00 Pro forma, for 1996 Recapitalization, net tangible book value per share before the Offerings (2)......................................................................... $ (6.43) Increase in per share attributable to the Offerings.................................... 1.83 ---------- Pro forma, for 1996 Recapitalization and Offerings, net tangible book value per share.... (4.60) ---------- Dilution per share to new investors (3).................................................. $ 27.60 ---------- ----------
- -------------- (1) Before deduction of estimated underwriting discounts and expenses to be paid by the Company. (2) Pro forma, for 1996 Recapitalization, net tangible book value per share is determined by dividing the net tangible book value of the Company after the 1996 Recapitalization (assets less liabilities, goodwill and other intangible assets) by the number of shares of Common Stock outstanding after the 1996 Recapitalization. (3) Dilution is determined by subtracting the pro forma, for 1996 Recapitalization and Offerings, net tangible book value per share at June 30, 1996 from the assumed initial public offering price paid by a new investor for a share of Common Stock. The following table compares, on a pro forma basis as of June 30, 1996, the number of shares of Common Stock purchased and the total consideration paid by the existing stockholders when they purchased shares of the Company with the number of shares of Common Stock purchased and the total consideration paid by the new investors in the Offerings (assuming the Underwriters' over-allotment options are not exercised and an initial public offering price of $23.00 per share):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------------ ---------------------- PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE ----------- ----------- --------- ----------- ----------- (IN THOUSANDS) (IN THOUSANDS) Existing Stockholders..................................... 67.4 93.4% 228.4 67.5% 3.39 New investors............................................. 4.8 6.6 110.0 32.5 23.00 ----------- ----- --------- ----- Total................................................. 72.2 100.0% $ 338.4 100.0% ----------- ----- --------- ----- ----------- ----- --------- -----
The foregoing tables assume the sale of 2,126,533 shares of Common Stock by the Company to certain of the Selling Stockholders pursuant to existing option agreements for an aggregate option exercise price of $8.1 million. The foregoing tables do not assume the exercise of any other outstanding options to purchase Common Stock after June 30, 1996. After exercise of such options, there were outstanding options to purchase 7,527,411 shares of Common Stock at a weighted average exercise price of approximately $3.93 per share. After giving effect to the exercise of any remaining options to purchase Common Stock, there will be further dilution in the aggregate to new investors. See "Management -- Stock Options -- Stock Option Plan" and Note 11 to the Company's Consolidated Financial Statements included elsewhere in this Prospectus. 17 PRO FORMA CONDENSED FINANCIAL INFORMATION The following unaudited pro forma condensed financial information was derived from the historical financial data of the Company included elsewhere in this Prospectus. The unaudited pro forma statements of operations for the year ended December 31, 1995 and the six months ended June 30, 1996 give effect to (i) the 1996 Recapitalization as described under "Description of Capital Stock", (ii) the new borrowings under the Credit Agreement, (iii) the sale of 2,126,533 shares of Common Stock by the Company to certain of the Selling Shareholders pursuant to existing option agreements, and (iv) the issuance of the shares of Common Stock offered by the Company pursuant to the Offerings and the application of the estimated net proceeds as provided under "Use of Proceeds" as if such transactions occurred at the beginning of the respective periods. The pro forma financial data presented herein does not purport to represent the results of operations of the Company that would have resulted had such transactions in fact occurred at the beginning of such periods or to project the Company's results of operations of any future period. The pro forma financial information is based upon, and should be read in conjunction with, the Company's Consolidated Financial Statements, including the notes thereto, included elsewhere in this Prospectus. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 ---------------------------------------------- PRO FORMA FOR 1996 RECAPITALIZATION ACTUAL ADJUSTMENTS AND OFFERINGS (1) ------------- ------------ ----------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues..................................................... $ 1,041,514 $ 1,041,514 ------------- ----------------- Costs and expenses: Cost of sales.................................................. 835,547 835,547 Selling and administrative expenses............................ 93,239 93,239 Amortization of intangibles and deferred charges............... 7,540 7,540 Research and development....................................... 63,098 63,098 ------------- ----------------- Total costs and expenses......................................... 999,424 999,424 ------------- Income from operations........................................... 42,090 42,090 Interest income.................................................. 5,508 5,508 Interest expense................................................. (18,704) $ (14,693)(2) (33,397) ------------- ------------ ----------------- Net income....................................................... $ 28,894 $ (14,693) $ 14,201 ------------- ------------ ----------------- ------------- ------------ ----------------- Pro forma net income per share (3)............................... $ .18 ----------------- ----------------- Pro forma common shares outstanding (3).......................... 78,228 ----------------- -----------------
- ------------------ (1) The unaudited pro forma condensed consolidated statement of operations does not include a one-time charge of approximately $3.1 million for write-off of deferred financing charges associated with the repayment of amounts outstanding under the existing credit facilities. (2) Reflects the increase in interest expense due to the borrowings under the new Credit Agreement and the repayment of amounts outstanding under the existing credit facilities as described under "Use of Proceeds". The assumed interest rate on the new $400.0 million Credit Agreement is 8.0% per annum. (3) Pro forma net income per share amount is calculated based on the pro forma net income, after giving effect to the 1996 Recapitalization and the Offerings, divided by the pro forma weighted average number of common and common equivalent shares outstanding assuming the 1996 Recapitalization shares and the shares sold in the Offerings were outstanding for all of the period reported. 18
SIX MONTHS ENDED JUNE 30, 1996 ------------------------------------------------- PRO FORMA FOR 1996 RECAPITALIZATION ACTUAL ADJUSTMENTS AND OFFERINGS (1)(2) ------------- ------------ -------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues.................................................. $ 458,672 $ 458,672 ------------- ----------- Costs and expenses: Cost of sales............................................... 354,841 354,841 Selling and administrative expenses......................... 45,190 45,190 Stock option compensation expense........................... 5,200 5,200 Amortization of intangibles and deferred charges............ 3,763 3,763 Research and development.................................... 34,746 34,746 ------------- ----------- Total costs and expenses...................................... 443,740 443,740 ------------- ----------- Income from operations........................................ 14,932 14,932 Interest income............................................... 7,593 7,593 Interest expense.............................................. (7,166) $ (9,112)(3) (16,278) ------------- ------------ ----------- Net income.................................................... $ 15,359 $ (9,112) $ 6,247 ------------- ------------ ----------- ------------- ------------ ----------- Pro forma net income per share (4)............................ $ .08 ----------- ----------- Pro forma common shares outstanding (4)....................... 78,228 ----------- -----------
- ------------------ (1) The unaudited pro forma condensed consolidated statement of operations does not include a one-time charge of approximately $2.4 million for the write-off of deferred financing charges associated with the repayment of amounts outstanding under the existing credit facilities. (2) The unaudited pro forma condensed consolidated statements of operations do not include a one-time charge of approximately $0.4 million for non-cash compensation expense associated with accelerated vesting of certain options to purchase common stock upon consummation of the Offerings. (3) Reflects the increase in interest expense due to the borrowings under the new Credit Agreement and the repayment of amounts outstanding under the existing credit facilities as described under "Use of Proceeds". The assumed interest rate on the new $400.0 million Credit Agreement is 8.0% per annum. (4) Pro forma net income per share amount is calculated based on the pro forma net income, after giving effect to the 1996 Recapitalization and the Offerings, divided by the pro forma weighted average number of common and common equivalent shares outstanding assuming the 1996 Recapitalization shares and the shares sold in the Offerings were outstanding for all of the period reported. 19 SELECTED FINANCIAL DATA The following selected historical financial information should be read in conjunction with the Company's Consolidated Financial Statements and the related notes thereto included elsewhere in this Prospectus and with "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Business -- Business Strategy -- Recapitalization and Significant Reduction of Interest Expense", and "Description of Capital Stock". The statement of operations data set forth below with respect to the years ended December 31, 1993, 1994 and 1995 are derived from the audited financial statements included elsewhere in this Prospectus. The statement of operations data set forth below with respect to the years ended December 31, 1991 and 1992 are derived from audited financial statements not included herein. The selected historical financial information for the six months ended June 30, 1995 and 1996 are derived from unaudited financial statements and reflect all adjustments (consisting only of adjustments of a normal recurring nature) that in the opinion of management of the Company are necessary for a fair presentation of the results of such periods. The unaudited results of operations for the six months ended June 30, 1996 are not necessarily indicative of results expected for the year ending December 31, 1996. In the six months ended June 30, 1996, 3 fewer green aircraft were delivered than were in the same period in 1995 as a result of the delivery in early 1995 of 3 units which were produced in late 1994. In addition, beginning in the fourth quarter of 1995, the Company dedicated a portion of its production capacity to the manufacture of Gulfstream Vs which the Company will not begin delivering to customers until after FAA certification, which is expected in the fourth quarter of 1996.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------- -------------------- 1991 1992 1993 1994 1995 1995 1996 --------- --------- ---------- --------- ---------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net revenues $ 887,234 $ 900,419 $ 887,113 $ 901,638 $1,041,514 $ 474,884 $ 458,672 --------- --------- ---------- --------- ---------- --------- --------- Costs and expenses: Cost of sales.............................. 748,553 724,554 737,361 710,554 835,547 378,022 354,841 Selling and administrative expenses........ 77,800 98,187 97,011 82,180 93,239 42,651 45,190 Stock option compensation expense.......... 5,200 Research and development expense........... 9,555 36,295 47,990 57,438 63,098 34,076 34,746 Amortization of intangibles and deferred charges................................... 30,072 31,855 27,613 7,583 7,540 3,777 3,763 Restructuring charge....................... 203,911(1) --------- --------- ---------- --------- ---------- --------- --------- Total costs and expenses..................... 865,980 890,891 1,113,886 857,755 999,424 458,526 443,740 --------- --------- ---------- --------- ---------- --------- --------- Income (loss) from operations................ 21,254 9,528 (226,773) 43,883 42,090 16,358 14,932 Interest income............................ 1,697 2,135 486 367 5,508 1,426 7,593 Interest expense........................... (72,679) (61,235) (48,940) (20,686) (18,704) (9,945) (7,166) --------- --------- ---------- --------- ---------- --------- --------- Net income (loss)............................ $ (49,728) $ (49,572) $ (275,227) $ 23,564 $ 28,894 7,839 15,359 --------- --------- ---------- --------- ---------- --------- --------- --------- --------- ---------- --------- ---------- --------- --------- Pro forma net income (loss) per share (2).... $ .18 $ (.02) $ .08 ---------- --------- --------- ---------- --------- --------- Pro forma common shares outstanding (2)...... 78,228 78,228 78,228 ---------- --------- --------- ---------- --------- ---------
- ------------------ (1) The Company recorded a charge for a restructuring plan based upon the Company's reassessment of its business plan and its products from which it has realized improved operating efficiencies, reduced costs, and increased overall profitability. See Note 2 to the Company's Consolidated Financial Statements included elsewhere in this Prospectus. (2) Pro forma net income (loss) per share amounts are calculated based on the pro forma net income, after giving effect to the 1996 Recapitalization and the Offerings, divided by the pro forma weighted average number of common and common equivalent shares outstanding assuming the 1996 Recapitalization shares and the shares sold in the Offerings were outstanding for all periods reported. For information regarding the pro forma data, see "Pro Forma Condensed Financial Information" on pages 18 and 19 and "Capitalization" on page 16. Due to the change in the Company's capital structure to be effected with the 1996 Recapitalization, historical share and per share data for all periods is not relevant and therefore is not presented. 20
SIX MONTHS ENDED JUNE DECEMBER 31, 30, ------------------------------------------------------ ---------------------- 1991 1992 1993 1994 1995 1995 1996 -------- -------- -------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT OPERATING DATA) BALANCE SHEET DATA (AT END OF PERIOD): Working capital...................... $248,974 $268,881 $302,369 $ 301,913 $ 356,976 $ 322,261 $ 232,508 Total assets......................... 991,841 945,433 799,470 745,761 981,253 823,861 1,159,371 Total debt (1)....................... 719,500 670,258 206,145(2) 178,145 146,331 172,863 119,798 Total stockholders' equity (deficit) (1)................................. (27,191) (26,700) 164,395 188,950 217,540 196,789 123,103 OTHER DATA: Depreciation and amortization........ $ 49,687 $ 52,374 $ 47,866 $ 24,151 $ 23,094 $ 11,530 $ 12,242 OPERATING DATA: Units delivered during period: Gulfstream IV/IV-SP................ 28 25 26 22 26 14 11 Units ordered during period: Gulfstream IV/IV-SP................ 31 26 26 25 30 17 15 Gulfstream V....................... 0 8 17 16 12 5 12 -------- -------- -------- ---------- ---------- ---------- ---------- Total orders....................... 31 34 43 41 42 22 27 Units in backlog at end of period: Gulfstream IV/IV-SP (3)............ 5 3 3 3 7 6 11 Gulfstream V (4)................... 0 8 24 40 50 45 62 -------- -------- -------- ---------- ---------- ---------- ---------- Total backlog (in units) (5)....... 5 11 27 43 57 51 73 Estimated backlog (in thousands) (5)(6)............................ $124,225 $362,466 $897,747 $1,473,772 $1,938,315 $1,731,532 $2,496,061
- ------------------ (1) Total debt and stockholders' equity (deficit) does not include the impact of the 1996 Recapitalization of the Company to be effected immediately prior to or simultaneously with the consummation of the Offerings. See "Capitalization". (2) During November 1993, the Company converted $469 million of subordinated debentures (including accrued interest) to 7% Cumulative Preferred Stock in connection with the 1993 recapitalization. See "Business -- Business Strategy -- Recapitalization and Significant Reduction of Interest Expense" and "Certain Transactions -- The Acquisition; Subsequent Events". (3) Net of 3 cancellations in each of 1992 and 1994, which generally relate to orders placed in prior years. (4) Net of cancellations of 1 and 2 in 1993 and 1995, respectively, which generally relate to orders placed in prior years. As of June 30, 1996, only 3 Gulfstream V contracts had been cancelled, 2 of which were the result of declines in the business performance of the customer and one of which was the result of adverse economic conditions in a foreign country. (5) At August 29, 1996, the Company had a contract backlog of approximately $2.9 billion of revenues plus executed contracts with financing contingencies of approximately $250 million of potential revenues, representing a total of 65 contracts for Gulfstream Vs (none with financing contingencies) and 31 contracts for Gulfstream IV-SPs (9 with financing contingencies). In addition, at August 29, 1996, the Company had letters of intent with deposits for a total of 3 Gulfstream Vs and 2 Gulfstream IV-SPs, representing approximately $160 million of additional potential revenues. (6) Backlog includes only those orders for which the Company has entered into a purchase contract with a customer and has received a significant (generally non-refundable) deposit from the customer. Not included in backlog are executed contracts subject to financing contingencies, options and letters of intent for which definitive agreements have not yet been executed, which, at June 30, 1996, represented approximately $350 million of additional potential revenues. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto contained elsewhere in this Prospectus. GENERAL Gulfstream is recognized worldwide as a leading designer, developer, manufacturer and marketer of the most technologically advanced intercontinental business jet aircraft. The Company's current principal aircraft products are the Gulfstream IV-SP, the Gulfstream V, Gulfstream Shares-TM- (fractional ownership interests in Gulfstream IV-SPs) and pre-owned Gulfstream aircraft. As an integral part of its aircraft product offerings, the Company offers aircraft completion and worldwide aircraft maintenance services and technical support for all Gulfstream aircraft. In addition, the Company's financial services subsidiary, Gulfstream Financial Services Corporation, through its private label relationship with a third-party aircraft financing provider, offers customized products to finance the worldwide sale of Gulfstream aircraft. The Company recognizes revenue for the sale of a new "green" aircraft (i.e., before exterior painting and installation of customer selected interiors and optional avionics) when that aircraft is delivered to the customer. Revenues from completion services are recorded when the outfitted aircraft is delivered to the customer. Revenues on all other products and services, including pre-owned aircraft, are recognized when such products are delivered or such services are performed. Generally, production of aircraft for delivery remains relatively smooth throughout a year. However, deliveries of such aircraft can vary significantly depending upon the timing of contract execution and final customer acceptance. Accordingly, the Company's revenues can vary significantly from quarter to quarter. In addition, beginning in the fourth quarter of 1995, the Company dedicated a portion of its production capacity to the manufacture of Gulfstream Vs which the Company will not begin delivering to customers until after FAA certification, which is expected in the fourth quarter of 1996. OPERATING DATA The following sets forth certain statistical data concerning the Company's deliveries, orders and backlog for new aircraft.
SIX MONTHS ENDED JUNE YEAR ENDED DECEMBER 31, 30, ------------------------------------------------------- ---------------------- 1991 1992 1993 1994 1995 1995 1996 --------- --------- --------- ---------- ---------- ---------- ---------- OPERATING DATA: Units delivered during period: Gulfstream IV/IV-SP.................... 28 25 26 22 26 14 11 Units ordered during period: Gulfstream IV/IV-SP.................... 31 26 26 25 30 17 15 Gulfstream V........................... 0 8 17 16 12 5 12 --------- --------- --------- ---------- ---------- ---------- ---------- Total orders........................... 31 34 43 41 42 22 27 Units in backlog at end of period: Gulfstream IV/IV-SP (1)................ 5 3 3 3 7 6 11 Gulfstream V (2)....................... 0 8 24 40 50 45 62 --------- --------- --------- ---------- ---------- ---------- ---------- Total backlog (in units) (3)........... 5 11 27 43 57 51 73 Estimated backlog (in thousands) (3)(4)................................ $ 124,225 $ 362,466 $ 897,747 $1,473,772 $1,938,315 $1,731,532 $2,496,061
- ------------------ (1) Net of 3 cancellations in each of 1992 and 1994, which generally relate to orders placed in prior years. (2) Net of cancellations of 1 and 2 in 1993 and 1995, respectively, which generally relate to orders placed in prior years. As of June 30, 1996, only 3 Gulfstream V contracts had been cancelled, 2 of which were the result of declines in the business performance of the customer and one of which was the result of adverse economic conditions in a foreign country. (3) At August 29, 1996, the Company had a contract backlog of approximately $2.9 billion of revenues plus executed contracts with financing contingencies of approximately $250 million of potential revenues, representing a total of 65 contracts for Gulfstream Vs (none with financing contingencies) and 31 contracts for Gulfstream IV-SPs (9 with financing contingencies). In addition, at August 29, 1996, the Company had letters of intent with deposits for a total of 3 Gulfstream Vs and 2 Gulfstream IV-SPs, representing approximately $160 million of additional potential revenues. (4) Backlog includes only those orders for which the Company has entered into a purchase contract with a customer and has received a significant (generally non-refundable) deposit from the customer. Not included in backlog are executed contracts subject to financing contingencies, options and letters of intent for which definitive agreements have not yet been executed, which, at June 30, 1996, represented approximately $350 million of additional potential revenues. 22 COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 NET REVENUES. During the six months ended June 30, 1996, the Company received orders for 15 Gulfstream IV-SPs and 12 Gulfstream Vs as compared to orders for 17 Gulfstream IV-SPs and 5 Gulfstream Vs during the six months ended June 30, 1995. Total net revenues decreased by $16.2 million, or 3.4%, to $458.7 million for the six months ended June 30, 1996 from $474.9 million for the six months ended June 30, 1995. In the six month period ended June 30, 1996, 3 fewer green aircraft were delivered than in the same period in 1995, with associated revenues decreasing $47.5 million, as a result of the delivery in early 1995 of 3 units which were produced in late 1994. In addition, beginning in the fourth quarter of 1995, the Company dedicated a portion of its production capacity to the manufacture of Gulfstream Vs which the Company will not begin delivering to customers until after FAA certification, which is expected in the fourth quarter of 1996. Other factors contributing to the overall revenue decline in 1996 were a decrease in the sale of pre-owned aircraft ($9.7 million) resulting from a reduced number of trade-ins requiring re-sales and the conclusion of a U.S. Department of Defense logistical supply contract ($8.4 million). Offsetting these declines were an increase in Gulfstream IV-SP average selling prices ($8.8 million), an increase in revenues from 5 additional completions ($32.9 million) and increased international spares sales and service center volume primarily attributable to the addition of the new service center ($12.4 million). See "-- Liquidity and Capital Resources". COST OF SALES. Total cost of sales decreased by 6.1%, or $23.2 million, to $354.8 million for the six months ended June 30, 1996 from $378.0 million for the six months ended June 30, 1995. The decline in total cost was due to 3 fewer green Gulfstream IV-SPs deliveries, partially offset by 5 additional completion deliveries. Excluding pre-owned aircraft, which are generally sold at breakeven levels and other nonrecurring items, the gross profit percentage increased to 26.9% for the six months ended June 30, 1996 from 25.7% for the comparable period in 1995, primarily as a result of the Company's cost and cycle time reduction initiatives and the price appreciation on Gulfstream IV-SP aircraft sales. SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense increased by $2.5 million, or 5.9%, to $45.2 million for the six months ended June 30, 1996, from $42.7 million for the six months ended June 30, 1995 and as percentage of net revenues increased from 9.0% in 1995 to 9.9% in 1996. The dollar increase principally resulted from increased advertising and marketing expenses associated with the Gulfstream V program. The increase as a percentage of sales was also attributable to lower net revenues stemming from the timing of deliveries, as discussed above. STOCK OPTION COMPENSATION EXPENSE. The issuance of options to purchase Common Stock of the Company during the six months ended June 30, 1996 resulted in a non-cash compensation charge of $5.2 million. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense of $34.7 million for the six months ended June 30, 1996 was comparable to such expense for the six months ended June 30, 1995. Substantially all research and development expense was associated with the Gulfstream V development program, which the Company expects to be materially completed by the end of 1996. AMORTIZATION OF INTANGIBLES AND DEFERRED CHARGES. This non-cash expense includes amortization of goodwill and other intangible assets consisting of after-market service and after-market product support, as well as deferred financing charges related to the Company's existing bank credit facilities. Amortization of intangibles and deferred charges of $3.8 million for the six months ended June 30, 1996 remained essentially unchanged from the six months ended June 30, 1995. INTEREST INCOME AND EXPENSE. Interest income increased by $6.2 million to $7.6 million for the six months ended June 30, 1996 from $1.4 million for the six months ended June 30, 1995, as a result of the increase in cash generated from operations. Interest expense decreased by $2.7 million to $7.2 million for the six months ended June 30, 1996 from $9.9 million for the six months ended June 30, 1995. This decrease was due to limited use of the revolving credit facility and a reduction in borrowings under the existing term loans. 23 INCOME TAXES. The Company had available at June 30, 1996 net operating loss carryforwards for regular federal income tax purposes of approximately $150 million, which will begin expiring in 2006. Although the Company recorded net income during the six months ended June 30, 1996 and the six months ended June 30, 1995, no provision for income taxes was recorded in either period principally as a result of the utilization of net operating loss carryforwards. COMPARISON OF THE YEARS ENDED DECEMBER 31, 1995 AND 1994 NET REVENUES. During 1995, the Company received orders for 30 Gulfstream IV-SPs and 12 Gulfstream Vs as compared to orders for 25 Gulfstream IV-SPs and 16 Gulfstream Vs during 1994. Gulfstream V orders for 1995 were lower as a result of the delay into 1996 of a multiple aircraft order which was under a letter of intent at year-end 1995 and which was executed in the first quarter of 1996. Total net revenues increased by $139.9 million, or 15.5%, to $1,041.5 million in 1995 from $901.6 million in 1994. Revenues from green Gulfstream IV-SP aircraft increased $116.7 million in 1995 due to the delivery of 4 more units and higher average selling prices. Three of the 4 additional units were deliveries of aircraft in 1995 which were produced in 1994. In addition, revenues from the sale of pre-owned aircraft increased $54.2 million in 1995 as a result of the Company's initiatives to provide premium pre-owned products to the large business jet market. Completion revenues increased by $8.1 million in 1995 as a result of the Company completing a higher percentage of new aircraft in 1995 than in 1994. These increases were partially offset by declines in revenues of (i) $30.9 million primarily due to the delivery of special aircraft modifications on two contracts with governmental agencies in 1994 and (ii) a decline of $11.0 million due to the early termination in 1994 of a wing manufacturing contract with another aerospace manufacturer. COST OF SALES. Total costs of sales increased $124.9 million, or 17.6%, to $835.5 million in 1995 from $710.6 million in 1994 as a result of increased unit deliveries in 1995 of both green Gulfstream IV-SP aircraft and completions. Gross profit as a percentage of sales (excluding pre-owned aircraft and other nonrecurring items) increased from 25.2% in 1994 to 25.8% in 1995 as a result of the restructuring of the Company's manufacturing process to obtain cycle time reductions and additional cost savings. SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expenses increased by $11.0 million, or 13.4%, to $93.2 million for 1995 from $82.2 million for 1994, but decreased as a percentage of net revenues to 8.9% in 1995 from 9.1% in 1994. The dollar increase was principally attributable to increases in marketing programs centered around the Company's new marketing strategies, including the roll out and first flight of the Gulfstream V, expansion of the Company's international sales activities, and, as a result of successful Company performance, higher payouts to employees under the Company's management and employee incentive plans. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense increased by $5.7 million, or 9.9%, to $63.1 million in 1995 from $57.4 million in 1994, which was 6.1% and 6.4%, respectively, of net revenues. This increase was related to the Gulfstream V development program. AMORTIZATION OF INTANGIBLES AND DEFERRED CHARGES. Amortization of intangibles and deferred charges were $7.5 million in 1995 and $7.6 million in 1994. INTEREST INCOME AND EXPENSE. Interest income increased by $5.1 million to $5.5 million for 1995 from $0.4 million in 1994 as a result of the increased cash generated from operations between the periods. Interest expense decreased by $2.0 million, or 9.7%, to $18.7 million for 1995 from $20.7 million for 1994. Interest expense consists almost entirely of interest paid on borrowings under the Company's bank credit facilities. The decrease resulted principally from a reduced level of average borrowings in 1995 compared to 1994. See "-- Liquidity and Capital Resources". The weighted average interest rates on the Company's bank credit facilities at December 31, 1995 and 1994 were 8.42% and 8.64%, respectively, per annum. INCOME TAXES. The Company had available at December 31, 1995 and 1994 net operating loss carryforwards for regular federal income tax purposes of approximately $150 million and $167 million, 24 respectively, which will expire beginning in 2006. Although the Company recorded net income during 1995 and 1994, no provision for income taxes was recorded in either period principally as a result of the utilization of net operating loss carryforwards. COMPARISON OF THE YEARS ENDED DECEMBER 31, 1994 AND 1993 NET REVENUES. During 1994, the Company received orders for 25 Gulfstream IV-SPs and 16 Gulfstream Vs as compared to orders for 26 Gulfstream IV-SPs and 17 Gulfstream Vs during 1993. Total net revenues increased by $14.5 million, or 1.6%, to $901.6 million in 1994 from $887.1 million in 1993. This increase in revenues was primarily driven by (i) increased sales of pre-owned aircraft ($74.2 million due to 6 additional unit deliveries in 1994) as a result of the new pre-owned sales and marketing strategy, (ii) delivery of special aircraft modifications on two government aircraft and increased volume on logistics support contracts with governmental agencies ($35.2 million) and (iii) 6 additional completion deliveries ($15.7 million). These increases in 1994 revenues were largely offset by four fewer Gulfstream IV/IV-SP deliveries ($114.1 million), 3 of which were produced in 1994 but not delivered until 1995. COST OF SALES. Total cost of sales decreased $26.8 million, or 3.6%, to $710.6 million in 1994 from $737.4 million in 1993. The decline was primarily due to fewer deliveries of green Gulfstream IV/IV-SPs aircraft, as well as reduced material costs of new Gulfstream IV-SP aircraft which resulted from contract re-negotiations with certain suppliers of systems and components. Additionally, during 1993 the Company incurred approximately $6.7 million in non-recurring reversionary price penalties associated with supplier contracts which are no longer in force. The gross profit percentage (excluding pre-owned aircraft and other nonrecurring items) increased to 25.2% in 1994 from 21.6% in 1993 as a result of the Company's cost and cycle time reduction initiatives. SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses decreased by $14.8 million, or 15.3%, to $82.2 million in 1994 from $97.0 million in 1993, and as a percentage of net revenues from 10.9% to 9.1%. This decrease was the direct result of the restructuring plan implemented by the Company in 1993. These changes are discussed below under "-- Restructuring Charge". RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense increased by $9.4 million, or 19.6%, to $57.4 million in 1994 from $48.0 million in 1993, or 6.4% and 5.4% of net revenues, respectively. Increased spending was related to the development of the Gulfstream V. AMORTIZATION OF INTANGIBLES AND DEFERRED CHARGES. Amortization of intangibles and deferred charges decreased by $20.0 million, to $7.6 million for 1994. This decrease was due to the Company accelerating the amortization of aircraft design intangibles during 1993, as part of the restructuring plan discussed below. RESTRUCTURING CHARGE. Based upon the Company's reassessment of its business plan and its products, the Company recorded a $203.9 million charge in 1993 for a restructuring plan from which it realized improved operating efficiencies, reduced costs, and overall increased profitability of the Company. This charge included, among other items, payments for severance or early retirement of employees, acceleration of certain employee benefit programs, costs associated with re-aligning manufacturing capacity through selected outsourcing, lease terminations of administrative facilities, and the accelerated amortization of aircraft design intangibles and related Gulfstream IV aircraft tooling. The charge, determined in part based on expected future cash flows and net realizable values, is comprised of $146.2 million of accelerated amortization for aircraft design and related tooling, $24.8 million of special termination benefits and $32.9 million of other items. INTEREST EXPENSE. Interest expense decreased by $28.2 million, or 57.7% to $20.7 million in 1994 from $48.9 million in 1993. This decrease was due to a conversion in October 1993 of $450 million of subordinated debt, plus $18.9 million of accrued interest, into 7% Cumulative Preferred Stock. This conversion reduced the Company's annual interest expense by approximately $38.0 million. This reduction was partially offset by increases in interest rates on the Company's floating rate debt during 1994. The weighted average interest rates on the Company's bank credit facilities at December 31, 1994 and 1993 were 8.64% and 6.17%, respectively, per annum. 25 INCOME TAXES. The Company had available at December 31, 1994 net operating loss carryforwards for regular federal income tax purposes of approximately $167 million. Although the Company recorded net income during 1994, no provision for income taxes was recorded principally as a result of the utilization of net operating loss carryforwards. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity needs arise from working capital requirements, capital expenditures, principal and interest payments on long-term debt, and the payment of dividends on the 7% Cumulative Preferred Stock (which will be repurchased simultaneously with the consummation of the Offerings). During 1995 and the six months ended June 30, 1996, the Company relied on cash flows from operations to finance these needs. During the six months ended June 30, 1996, net cash generated by operating activities was $139.9 million, a 48% increase over the same period in 1995. This increase was primarily due to the increase in customer progress payments associated with aircraft orders in backlog and deposits on new Gulfstream V aircraft orders, a portion of which funds the temporary inventory build-up associated with Gulfstream V production occurring prior to initial customer aircraft deliveries. The Company expects to begin deliveries of Gulfstream V aircraft in the fourth quarter of 1996 with 6 deliveries planned for 1996 and 27 deliveries planned for 1997. Net cash provided by operating activities during 1995 and 1994 was $282.4 million and $69.0 million, respectively. This substantial increase is also principally attributable to progress payments associated with aircraft orders in backlog and deposits on new orders of Gulfstream IV-SP and Gulfstream V aircraft. While the Company experienced higher net inventories during 1995 resulting from the commencement of Gulfstream V production, the Company benefited from receipt of progress payments associated with Gulfstream V orders in backlog. The decrease in inventories from 1993 to 1994 resulted from both the increase in pre-owned aircraft sales and new aircraft sales as previously discussed under NET REVENUES for the years ended December 31, 1994 and 1993. The decrease in accounts payable for the same period resulted from the timing of payments to suppliers as well as the nonrecurrence of reversionary pricing adjustments, described under COSTS OF SALES for the years ended December 31, 1994 and 1993. During the six months ended June 30, 1996, additions to property and equipment were $7.5 million, or approximately 44% of the total year forecasted expenditures of $17.0 million for fiscal 1996. At June 30, 1996, the Company was not committed to the purchase of a significant amount of property and equipment. Additions to property and equipment were $25.2 million in 1995 and $9.9 million in 1994. Spending in 1995 increased by $15.3 million primarily related to the construction of a new $16.0 million, 200,000 square foot service center to support the Company's strategic initiative of expanding the Company's market share for servicing Gulfstream aircraft. The Company expects to make capital expenditures of approximately $15.0 million in 1997 for the production, completion and service of aircraft in the ordinary course of the Company's business. Subsequent to 1997, the Company's capital expenditures may increase to the extent the Company determines to expand its production capacity. The Company continually monitors its capital spending in relation to current and anticipated business needs. As circumstances dictate, facilities are added, consolidated, or modernized. For the six months ended June 30, 1996, capitalized tooling increased $0.9 million. As of June 30, 1996, the Company had expended an aggregate of $46.2 million in tooling associated with the Gulfstream V program and anticipates incurring approximately $2.0 million of additional tooling during the remainder of 1996. During 1995 and 1994, the Company invested $25.7 million and $17.3 million, respectively, for tooling associated with the Gulfstream V program. Gulfstream V tooling will be amortized to cost of sales on a unit basis over the first 200 units of the Gulfstream V program. Tooling associated with the Gulfstream IV and IV-SP has been fully amortized to cost of sales. At June 30, 1996 and December 31, 1995, borrowings under the Company's existing bank credit facilities were $119.8 million and $146.3 million, respectively. The Company made scheduled principal 26 payments of $31.8 million during 1995 and $26.5 million and $5.3 million during the six months ended June 30, 1996 and 1995, respectively. Of the scheduled maturities totalling $119.8 million at June 30, 1996, $39.8 million is payable over the next 12 months. On June 30, 1996, the Company repurchased approximately four shares of 7% Cumulative Preferred Stock at their stated value of $18.9 million, and paid accumulated dividends of $96.1 million out of excess cash flow. Pursuant to the Commitment Letter, The Chase Manhattan Bank and Chase Securities, Inc. have severally agreed to provide a $650 million credit facility to Gulfstream Delaware, a wholly owned subsidiary of the Company. The Bank Facility will consist of a $400 million Term Loan Facility and a $250 million Revolving Credit Facility. The Credit Agreement will contain customary affirmative and negative covenants including restrictions on the ability of the Company and its subsidiaries to pay cash dividends, as well as financial covenants, under which the Company must operate. Scheduled repayments under the new Term Loan Facility of $20 million in 1997, $75 million in each of the years 1998 through 2001 and $80 million in 2002 are expected to be repaid from cash generated from operations. See "Description of Credit Agreement". In connection with orders for 29 Gulfstream V aircraft in the backlog, the Company has offered customers trade-in options (which may or may not be exercised) under which the Company will accept trade-in aircraft, primarily Gulfstream IVs and Gulfstream IV-SPs, at a guaranteed minimum trade-in price. See Note 14 to the Company's Consolidated Financial Statements included elsewhere in this Prospectus. In light of the current market for used Gulfstream aircraft, management believes that the fair market value of such aircraft will exceed the specified trade-in values. As such, Gulfstream does not believe the existence of such commitments will have a material adverse effect on its results of operations, cash flow or financial position. The Company believes that the net proceeds of the Offerings, together with cash generated from operating activities, including customer progress payments and deposits on new aircraft orders, and borrowings available under the Bank Facility, are sufficient for the Company to meet its working capital needs and planned capital expenditures. The Company is currently engaged in the monitoring and cleanup of certain ground water at its Savannah facility under the oversight of the Georgia Department of Natural Resources. Expenses incurred for cleanup have not been significant. The Company received in 1992, at its Long Beach facility, two inquiries from the U.S. Environmental Protection Agency and, in 1991, at its Oklahoma facility, a soil contamination inquiry. The Company believes other aspects of the Savannah facility, as well as other Gulfstream properties, are being carefully monitored and are in substantial compliance with current federal, state and local environmental regulations. The Company believes the liabilities, if any, that will result from the above environmental matters will not have a material adverse effect on its financial statements. The Company has initiated discussions with the Pension Benefit Guaranty Corporation (the "PBGC") concerning the Company's defined benefit pension plans (one of which is currently underfunded for financial reporting purposes). Although the Company and the PBGC have not yet agreed upon the amount by which such plans may be underfunded using the PBGC's more conservative methodology, and no assurances can be given as to the ultimate outcome of the discussions with the PBGC, the Company does not believe that any arrangements with respect to such plans will have a material adverse effect on the Company's financial statements. The Company is involved in a tax audit by the Internal Revenue Service covering the years ended December 31, 1990 and 1991. See "Business -- Legal Proceedings". QUARTERLY RESULTS The following table sets forth the unaudited consolidated statement of operating data for each quarter of 1994 and 1995 and the first two quarters of 1996. This quarterly information has been prepared 27 on the same basis as annual consolidated financial statements and, in the opinion of management, reflects all adjustments (consisting only of adjustments of a normal recurring nature) necessary to state fairly the information set forth therein. Since revenues from sales of new aircraft are recorded as deliveries of green aircraft are made and revenues from completion services are recorded as completed aircraft are delivered to the customer, the Company's revenues can vary significantly from quarter to quarter depending upon the timing of the deliveries. The operating results for any quarter are not indicative of results for any future period.
1994 -------------------------------------------------- FIRST SECOND THIRD FOURTH ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT DELIVERIES DATA) Net revenues................................................. $ 128,283 $ 235,502 $ 141,795 $ 396,058 Gross profit................................................. 26,840 34,132 35,831 94,281 Income (loss) from operations................................ (4,491) 169 (3,567) 51,722 Net income (loss)............................................ (8,922) (4,528) (8,944) 45,958 Aircraft deliveries (in units): Green...................................................... 2 5 2 13 Completion................................................. 6 4 7 9 Pre-owned aircraft......................................... 2 8 2 5 1995 -------------------------------------------------- FIRST SECOND THIRD FOURTH ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT DELIVERIES DATA) Net revenues................................................. $ 172,564 $ 302,320 $ 239,420 $ 327,210 Gross profit................................................. 39,072 57,790 44,207 64,898 Income (loss) from operations................................ (1,301) 17,659 5,172 20,560 Net income (loss)............................................ (5,569) 13,408 2,118 18,937 Aircraft deliveries (in units): Green...................................................... 5 9 5 7 Completion................................................. 3 4 8 14 Pre-owned aircraft......................................... 3 6 5 7 1996 ------------------------ FIRST SECOND ----------- ----------- (IN THOUSANDS, EXCEPT DELIVERIES DATA) Net revenues................................................. $ 215,063 $ 243,609 Gross profit................................................. 46,791 57,040 Income from operations....................................... 6,317 8,613 Net income................................................... 6,077 9,282 Aircraft deliveries (in units): Green...................................................... 5 6 Completion................................................. 6 6 Pre-owned aircraft......................................... 3 4
CONTRACTUAL BACKLOG Typically, the Company begins taking orders and building backlog two to three years prior to beginning production of a new aircraft model and receives a significant number of orders prior to delivering its initial aircraft in a program. At August 29, 1996, the Company had a contract backlog of approximately $2.9 billion of revenues plus executed contracts with financing contingencies of approximately $250 million of potential revenues, representing a total of 65 contracts for Gulfstream Vs and 31 contracts for Gulfstream IV-SPs. The Company includes an order in backlog only if the Company has entered into a purchase contract (with no contingencies) with the customer and has received a significant (generally non-refundable) deposit from the customer. Contracts with financing contingencies are 28 converted to backlog upon receipt of financing by the purchaser, which generally occurs within 120 days. In addition to excluding contracts with financing contingencies, the Company's contract backlog excludes options and letters of intent for which definitive contracts have not been executed. At August 29, 1996, the Company had letters of intent with deposits for a total of 3 Gulfstream Vs and 2 Gulfstream IV-SPs, representing approximately $160 million of additional potential revenues. In total, approximately 50% of the Gulfstream V contracts in backlog have scheduled deliveries beyond 1997. At December 31, 1994 and 1995 the Company had a contract backlog of approximately $1.5 billion and $1.9 billion, respectively, representing 3 and 7 Gulfstream IV-SP units and 40 and 50 Gulfstream V units, respectively. The Company continually monitors the condition of its backlog and believes, based on the nature of its customers and its historical experience, that there will not be a significant number of cancellations. FOREIGN EXCHANGE The Company does not have any significant assets located outside the United States. All the Company's sales and contracts have historically been and currently are denominated in U.S. dollars and, as a result, are not subject to changes in exchange rates. In addition, substantially all of the Company's material purchases are currently denominated in U.S. dollars. INFLATION The Company continually attempts to minimize any effect of inflation on earnings by controlling its operating costs and selling prices. During the past few years, the rate of inflation has been low and has not had a significant impact on the results of the Company's operations. A significant portion of the Company's Gulfstream V contracts contain an adjustment in the purchase price to account for inflation. Such adjustments are generally capped at an aggregate of 3% per year. These adjustments are intended to minimize the Company's cost risk associated with the small portion of material contracts which are not under long-term agreements. NEW ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 addresses issues surrounding the measurement and recognition of losses when the value of certain assets has been deemed to be permanently impaired. The Company adopted this Statement in 1996 and there was no material effect on its financial position or results of operations from adoption. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123 establishes a method of accounting for stock compensation plans based on the fair value of employee stock options and similar equity instruments. Adoption of the fair value method of accounting is not required and the Company is continuing to account for stock-based compensation using the method set forth in Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, which is based on the intrinsic value of equity instruments. However, beginning in 1996, SFAS No. 123 requires disclosure in annual financial statements of pro forma net income and earnings per share as if a fair value method included in SFAS No. 123 had been used to measure compensation cost. 29 BUSINESS GENERAL Gulfstream Aerospace Corporation is recognized worldwide as a leading designer, developer, manufacturer and marketer of the most technologically advanced intercontinental business jet aircraft. Since 1966, when the Company created the large cabin business jet category with the introduction of the Gulfstream II, the Company has dominated this market segment, capturing a cumulative market share of 60%. The Company has manufactured and sold over 950 large business aircraft since the introduction of the Gulfstream product line in 1958. Since 1990, the Company has been owned by certain partnerships formed by Forstmann Little & Co. The Company has developed a broad range of aircraft products to meet the aviation needs of its targeted customers (which include national and multinational corporations, governments and governmental agencies, heads of state and wealthy individuals). See "-- Customers and Marketing". The Company's current principal aircraft products are the Gulfstream IV-SP, the Gulfstream V, Gulfstream Shares-TM- (fractional ownership interests in Gulfstream IV-SPs) and pre-owned Gulfstream aircraft. As an integral part of its aircraft product offerings, the Company offers aircraft completion (exterior painting of the aircraft and installation of customer selected interiors and optional avionics) and worldwide aircraft maintenance services and technical support for all Gulfstream aircraft. In addition, the Company's financial services subsidiary, Gulfstream Financial Services Corporation, through its private label relationship with a third-party aircraft financing provider, offers customized products to finance the worldwide sale of Gulfstream aircraft. BUSINESS STRATEGY Beginning in 1993, the Company implemented a major restructuring and refocusing of its business in order to improve profitability, increase market share and build backlog. Theodore J. Forstmann, who assumed the position of Chairman of the Company in November 1993, recruited a new, senior management team (including over 20 senior executives with aviation and aerospace industry experience) and established a five member Management Committee, chaired by Mr. Forstmann and comprised of four other key executives who share responsibility for strategic decisions, management and oversight of the Company's operations. In addition, Mr. Forstmann assembled both a Board of Directors and an International Advisory Board comprised of prominent business executives and senior statesmen to counsel the Company and to assist in its refocused sales and operating initiatives. Under the leadership of Mr. Forstmann and the new management team, the Company (i) recapitalized its balance sheet, thereby reducing the Company's annual interest expense by approximately $38 million, (ii) reduced the Company's cost structure, yielding over $50 million in annual savings, while increasing the Company's aircraft production rate, (iii) strengthened the Company's market position and aircraft order growth, resulting in a contract backlog of approximately $2.9 billion of revenues and executed contracts with financing contingencies of approximately $250 million of potential revenues, representing total revenues and potential revenues of approximately $3.1 billion at August 29, 1996, (iv) expanded and improved the Company's product offerings and (v) increased the Company's completion order rate and expanded its worldwide service and support business. The most significant aspects of the restructuring were: RECAPITALIZATION AND SIGNIFICANT REDUCTION OF INTEREST EXPENSE In late 1993, a partnership formed by Forstmann Little exchanged approximately $469 million of the Company's subordinated debentures (including accrued interest) for preferred stock, thereby reducing the Company's annual interest expense by approximately $38 million. See "Certain Transactions -- The Acquisition; Subsequent Events". This recapitalization and the resulting increase in cash flow (together with the cost reductions and manufacturing efficiencies discussed below) enabled the Company to dedicate additional resources to significantly enhance the design of the Gulfstream V, the Company's new ultra-long range business jet. 30 COST REDUCTIONS AND INCREASED PRODUCTION RATE The Company initiated a restructuring that significantly reduced its cost structure and product manufacturing cycle times. The restructuring program included a voluntary reduction in the Company's work force by approximately 15%, the outsourcing of certain manufacturing activities, the renegotiation of major supplier contracts and the termination of certain leases, which, in the aggregate, have yielded over $50 million in annual savings. Additionally, the Company has reduced final assembly time of an aircraft by more than 50% from over 67 days to approximately 30 days and has reduced aircraft completion time from approximately 35 weeks to approximately 21 weeks. As a result of these cycle time reductions, the use of common tooling and selected outsourcing, the Company expects to increase its production rate from an average of 2.4 aircraft per month in 1996 to an average of 3.5 to 4.0 aircraft per month in 1997. NEW MARKETING INITIATIVES AND SIGNIFICANTLY INCREASED BACKLOG The Company developed and implemented a new, proactive marketing strategy to substantially broaden the markets for its products. In addition to the Company's historical practice of targeting its existing customer base, the Company (a) initiated an aggressive marketing campaign focused on companies and individuals that have not previously owned Gulfstream aircraft, (b) significantly expanded international sales activities, (c) introduced its Gulfstream Shares-TM- program and (d) offered its customers access to customized financing to support the sale of new and pre-owned Gulfstream aircraft. The Company has also redirected its sales and marketing effort to focus on high level decision makers through increased involvement of the Company's Board of Directors, International Advisory Board and senior management in the selling process and restructured its sales commission program to more effectively support the Company's strategic goals. As a result of these new marketing initiatives, the Company has experienced strong growth in aircraft orders and backlog and believes that it has substantially strengthened its market position. At August 29, 1996, the Company had a contract backlog of approximately $2.9 billion of revenues plus executed contracts with financing contingencies of approximately $250 million of potential revenues, representing a total of 65 contracts for Gulfstream Vs and 31 contracts for Gulfstream IV-SPs. Contracts with financing contingencies are converted to backlog upon receipt of financing by the purchaser, which generally occurs within 120 days. In addition, at August 29, 1996, the Company had letters of intent with deposits for a total of 3 Gulfstream Vs and 2 Gulfstream IV-SPs, representing approximately $160 million of additional potential revenues. In total, approximately 50% of the Gulfstream V contracts in backlog have scheduled deliveries beyond 1997. EXPANDED PRODUCT OFFERINGS The Company expanded its product offerings to provide multiple aircraft products in contrast to its historical strategy of offering only one new aircraft model at a time. In addition, the Company began marketing its products as an integrated whole, offering completion and worldwide maintenance services and technical support for all Gulfstream aircraft. The Company's current product offerings include the following: GULFSTREAM V. The Company significantly enhanced the design and performance characteristics of the Gulfstream V, which was in the early stage of development in 1993, and accelerated the pace of its development. The Gulfstream V is targeted at the market for ultra-long range business jet aircraft (6,500 nautical miles) which is a new market segment for the business jet industry. The Gulfstream V is in the advanced stages of flight testing and is on schedule to obtain certification by the Federal Aviation Administration ("FAA") in the last quarter of 1996, at least 12 months prior to the targeted certification date of any other ultra-long range business jet aircraft. The Company believes the Gulfstream V provides the longest range, fastest cruising speed and most technologically advanced avionics of any ultra-long range business jet aircraft in operation. GULFSTREAM IV-SP. In 1993, the Company introduced the Gulfstream IV-SP, which offers significantly improved performance and upgraded avionics as compared to its predecessor, the Gulfstream IV. 31 The Company believes that the Gulfstream IV-SP offers the best combination of large cabin size, long range (4,220 nautical miles), fast cruising speed and technologically advanced avionics of any large business jet aircraft currently available. GULFSTREAM SHARES-TM-. In 1995, the Company introduced a Gulfstream IV-SP fractional share ownership program (Gulfstream Shares-TM-) in conjunction with Executive Jet International, Inc.'s ("EJI") NetJets-Registered Trademark- Program. Gulfstream Shares-TM- provides customers with the benefits of Gulfstream aircraft ownership at a substantially lower cost than full aircraft ownership and significantly increases the Company's potential customer base. To date, the Company has contracted to deliver 16 Gulfstream IV-SPs and 2 Gulfstream Vs to EJI in connection with this program, 7 of which have been delivered and 11 of which will be delivered through 1999. EJI also has an option to purchase 5 additional Gulfstream IV-SPs in 1998. PRE-OWNED GULFSTREAM AIRCRAFT. The Company assembled a new, experienced management team for its pre-owned aircraft sales operations and introduced a number of initiatives that have enhanced the marketability of pre-owned Gulfstream aircraft. See "-- Principal Products -- Premium Pre-Owned Gulfsteam Aircraft and Other Pre-Owned Aircraft". In addition, the Company has been successful in using pre-owned Gulfstream aircraft as a significant tool to expand the Company's potential market and to compete against other manufacturers of lower priced, new aircraft products. As a result of the Company's competitive success in marketing pre-owned aircraft, the Company has reduced its inventory of pre-owned aircraft available for sale to approximately $23.6 million and $35.0 million as of June 30, 1995 and 1996, respectively, as compared with approximately $125.8 million at October 31, 1993. IMPROVED COMPLETION, SERVICE AND SUPPORT The Company's new marketing strategy has resulted in substantial improvements in the Company's completion business. Gulfstream currently completes approximately 95% of all new Gulfstream aircraft sold to customers as compared to 70% in 1990. Further, the Company has significantly expanded its worldwide maintenance services and technical support for Gulfstream aircraft, including opening a new 200,000 square foot service center in 1996 to increase its ability to provide high quality service to Gulfstream customers. These service and support activities provide the Company with ongoing customer contact, which the Company believes enhances its opportunity to sell new aircraft to existing service and support customers. SUCCESSFUL CO-PRODUCTION OF GULFSTREAM V AND GULFSTREAM IV-SP AIRCRAFT The Company is currently manufacturing both the Gulfstream V and Gulfstream IV-SP. Upon FAA certification of the Gulfstream V, which is expected to occur in the last quarter of 1996, the Company will begin delivering Gulfstream V aircraft to customers. Given the Company's increased manufacturing volume and large backlog of orders, the Company expects to deliver aircraft in 1997 at rates substantially in excess of those experienced in the recent past. Assuming FAA certification in the last quarter of 1996, the Company expects to deliver approximately 46 new aircraft in 1997, including 19 Gulfstream IV-SP and 27 Gulfstream V aircraft, representing a 59% increase over the Company's expected deliveries in 1996. INDUSTRY The business jet aircraft market is generally divided into four segments -- light, medium, large and ultra-long range. These segments are defined on the basis of range, cabin volume and gross operating weight. The Company considers the large segment to currently consist of the Gulfstream IV-SP, Canadair Challenger 604, and Dassault Falcon 900B and 900EX. The medium segment includes a variety of business jet aircraft such as the Cessna Citation VII and X, Dassault Falcon 50EX and 2000, Learjet 60 and Raytheon Hawker 800XP and 1000. The light segment consists of a variety of aircraft such as the Learjet 31A and 45, Beechjet 400A and Cessna Citation V-Ultra and Bravo. The ultra-long range market has evolved with the development by the Company of the Gulfstream V. The first Gulfstream V deliveries are expected in the fourth quarter of 1996. Bombardier, which is marketing the Global Express in the ultra-long range market, has announced that it does not expect to 32 receive certification for delivery of the first Global Express until the second quarter of 1998. In July 1996, Boeing publicly announced that it would market, in partnership with General Electric Co., a version of the Boeing 737 for the ultra-long range business aircraft market. Boeing has indicated that it expects this entry could be available for delivery in late 1998 or early 1999. According to BUSINESS AVIATION WEEKLY, since 1982, the annual unit growth rate for the total business jet fleet worldwide averaged 4.2%. During the same period, the annual unit growth rate for the large business aircraft segment averaged 4.5%. Since 1966, when the Company created the large cabin business jet category with the introduction of the Gulfstream II, the Company has dominated this market segment, capturing a cumulative market share of 60%. The Company believes that the large and ultra-long range business jet aircraft market will expand significantly in the future due to: (i) the increasing business relationships in and between existing and emerging commerce centers, including the Pacific Rim, Europe, the former Soviet states, and the United States, (ii) the broader and increased utilization of business aircraft as a result of the increased difficulty of, and safety and security concerns with, commercial travel, (iii) the improved performance and extended range of business aircraft, and (iv) the expansion of the fractional ownership concept in the large business jet aircraft market which allows customers, whose aircraft usage patterns or financial resources do not justify or permit the direct purchase of a large aircraft, to purchase a fractional interest in a business jet aircraft. PRINCIPAL PRODUCTS GULFSTREAM V The Company's newest aircraft product is the Gulfstream V, which the Company believes provides the longest range, fastest cruising speed and most technologically advanced avionics of any ultra-long range business jet aircraft currently in operation. The Gulfstream V is in the advanced stages of flight testing and the Company expects it to be certified by the FAA in the last quarter of 1996. Five Gulfstream Vs have been manufactured to date, and four are currently engaged in the flight testing process. The Company expects to begin customer deliveries of the Gulfstream V in the last quarter of 1996, at least 12 months prior to the announced delivery dates of any other ultra-long range business jet aircraft. Assuming FAA certification by year end, the Company expects to deliver approximately 27 Gulfstream V aircraft in 1997. See "Risk Factors -- Gulfstream V Certification and Production". The Gulfstream V has a maximum operating speed of Mach .885. It can accommodate up to 19 passengers and is expected to have a range of up to 6,500 nautical miles and a cruising speed of up to Mach .87. These capabilities will permit routine intercontinental travel at cruising speeds comparable to commercial airline cruising speeds, while operating efficiently at altitudes as high as 51,000 feet, flying above most commercial airline traffic and adverse weather. The Gulfstream V is versatile enough to fly long-range missions, such as New York to Tokyo in approximately 14 hours, as well as high-speed missions, such as New York to London, in approximately six hours. The Gulfstream V design process combined modern technology with the conservative design philosophy of all Gulfstream aircraft. The Gulfstream V aircraft development was launched in September 1992 and significantly enhanced in 1993 in response to extensive market research. Aerodynamic profiles were developed and verified using computational fluid dynamics (CFD) and scale model wind tunnel testing. Following systems definition, detailed designs were prepared on both two dimensional (CADAM) and three dimensional (CATIA) digital computer models, thereby eliminating the need to construct a physical prototype of the new aircraft. The Company estimates that Gulfstream, its revenue share partners and key suppliers will have invested over $800 million, in the aggregate, in developing the Gulfstream V. The Company expects that the Gulfstream V development program will be materially completed by the end of 1996. The Gulfstream V is equipped with two 14,750-pound-thrust BR710 engines built by BMW Rolls-Royce GmbH, which were specifically designed for use on the Gulfstream V and for which Gulfstream was the launch customer. The sound levels of the Gulfstream V's engines are well below FAA Stage 3 33 and ICAO/Chapter 3 regulatory requirements (the FAA's and ICAO's most stringent noise abatement regulations). These engines, like the Rolls-Royce Tay engines on the Gulfstream IV-SP (which are considered an industry benchmark), are designed to operate 7,000 flight hours between major overhauls and, due to fuel efficiency, are expected to operate at a lower cost than the engines of the Gulfstream IV-SP. On August 14, 1996, the BR710 engine was certified by the Joint Aviation Authorities. BMW Rolls-Royce GmbH expects FAA certification of the BR710 engines in September 1996. The aircraft utilizes dual cabin pressurization systems to minimize cabin altitude. At a maximum altitude of 51,000 feet, the Gulfstream V cabin altitude is designed to be pressurized to 6,000 feet, the lowest cabin altitude pressurization of any business jet aircraft. This low cabin altitude, together with a 100% fresh air ventilation system (instead of a recirculating air system) is expected to significantly reduce passenger fatigue. The advanced flight systems on the Gulfstream V include automatic throttle systems, an integrated performance computer system, an engine information crew advisory system, a dual global positioning system and independent inertial reference systems. These systems provide accurate flight planning, as well as automatic control, throughout the planned flight profile. For maximum safety, a Traffic Collision Avoidance System, turbulence and wind shear-detecting radar and an enhanced Ground Proximity Warning System are also standard. An additional safety feature of the Gulfstream V is an optional head-up display ("HUD"). The HUD optimizes pilot performance and improves flight safety, especially in low visability conditions, by reducing the pilot's dependence on the instrument panel, thus allowing the pilot to direct his vision outside the cockpit. In order to reduce the business risk associated with the design and manufacture of the Gulfstream V, the Company entered into revenue sharing agreements with Vought Aircraft Company (a subsidiary of Northrop Grumman Corporation) for the wing and Fokker Aviation B.V. for the empennage. Under these agreements, the revenue share partner is responsible for the detailed design, tooling and manufacture of the systems in exchange for a fixed percentage of revenues of each Gulfstream V sold (which the Company records as a cost of goods sold upon an aircraft delivery). Thus, in addition to financing the development, manufacture and delivery of its components, each manufacturer shares in the risk of fluctuations in demand and market price of the Gulfstream V. See "-- Materials and Components" and "Risk Factors -- Reliance on Single Source Suppliers". The list price for a completed Gulfstream V is currently approximately $37,750,000 (depending on escalation and selected options). The Company provides a purchaser of a Gulfstream V with a 20 year or 20,000 flight hour (whichever comes first) warranty on the airframe structure and a six-year warranty on components (other than the engines). BMW Rolls-Royce GmbH provides a direct five-year or 2,500 flight hour (whichever comes first) warranty on the engines to purchasers of a Gulfstream V. GULFSTREAM IV-SP The Company's other principal aircraft product is the Gulfstream IV-SP, a twin-engine fanjet aircraft which is an enhanced version of the Gulfstream IV (which the Company no longer manufactures). See "-- Past Aircraft Product Offerings." The Company believes that the Gulfstream IV-SP offers the best combination of large cabin size, long range, fast cruising speed and technologically advanced avionics of any large business jet aircraft currently available. The Company has manufactured and sold 81 Gulfstream IV-SPs from its introduction in 1993 through June 30, 1996. The Company intends to continue to manufacture the Gulfstream IV-SP after the introduction of the Gulfstream V. The Gulfstream IV-SP can accommodate up to 19 passengers, has a range of up to 4,220 nautical miles and a cruising speed of up to approximately Mach .85. These capabilities permit routine intercontinental travel at cruising speeds comparable to commercial airline cruising speeds, while operating efficiently at altitudes as high as 45,000 feet, flying above most commercial airline traffic and adverse weather. The Gulfstream IV/IV-SP is the holder of 79 distance, altitude and speed records for aircraft of its class including east-bound and west-bound around-the-world speed records (36 hours and 8 minutes (east-bound) and 45 hours and 25 minutes (west-bound)). 34 The Company developed the SP (Special Performance) version of the Gulfstream IV with enhanced avionics, increased interior cabin width and height, and increased allowable landing weight, providing improved mission flexibility and allowing the Gulfstream IV-SP to fly multiple-leg trips without refueling. The Gulfstream IV-SP is equipped with two Rolls-Royce Tay fan jet engines which have commercial airline-proven reliability and performance. The Tay engines can operate 7,000 flight hours between major overhauls, producing aircraft operating costs for the Gulfstream IV-SP that the Company believes are comparable to those of its competitors. Additionally, the Gulfstream IV-SP, together with the Gulfstream IV and the Gulfstream V, are the only business jet aircraft combining an electronic "all glass cockpit" and an advanced avionics suite consisting of a fully integrated computerized flight management system, including a performance computer and automatic throttle systems. The list price for a completed Gulfstream IV-SP is currently approximately $28,200,000 (depending upon selected options). The Company provides a purchaser of a Gulfstream IV-SP with a 15 year or 15,000 flight hour warranty (whichever comes first) on the airframe structure and a 30 month warranty on most other parts (other than the engines). Rolls-Royce provides a direct 5 year or 2,500 flight hour warranty (whichever comes first) on the engines to purchasers of a new Gulfstream IV-SP. Since the first delivery of a Gulfstream IV in 1985, warranty claims on the Gulfstream IV and Gulfstream IV-SP have aggregated less than 1% of aggregate net revenues from the sales of Gulfstream IVs and Gulfstream IV-SPs. GULFSTREAM IV-MPA The Company has designed and manufactured the Gulfstream IV-MPA, a multi purpose derivative of the Gulfstream IV (designated C20-G) procured by and in service for the United States Navy. The Gulfstream IV-MPA may be equipped with a six-foot wide cargo door and/or high density seating (up to 26 passengers). These aircraft have the capability to convert from a cargo configuration to a 26 passenger configuration in less than four hours. Depending upon the specific configuration, the Gulfstream IV-MPA's list price ranges from $28,000,000 to $32,000,000. There are currently 5 Gulfstream IV-MPAs in service with the United States Navy with 3 additional units under contract for delivery to other government agencies. The Company believes that the Gulfstream IV-MPA and other special mission modifications of the Gulfstream IV-SP aircraft will be important products for meeting the needs of government operators, military organizations, civil authorities and intelligence gathering agencies. GULFSTREAM SHARES-TM- The Company offers customers fractional ownership in Gulfstream IV-SP aircraft through a program established by the Company in 1995 in conjunction with EJI's NetJets-Registered Trademark- program. This program is designed to provide customers with the benefits of Gulfstream IV-SP aircraft ownership at a substantially lower cost than the purchase of an entire aircraft. The program significantly expands the market for Gulfstream IV-SP aircraft to include those customers whose aircraft usage patterns or financial resources do not justify or permit the direct purchase of a Gulfstream aircraft. The Gulfstream Shares-TM- program, by teaming Gulfstream and EJI, has brought the Gulfstream name, quality, reputation and marketing infrastructure together with the operational experience and reputation of the founder and leader in the business jet aircraft fractional ownership market. The Gulfstream Shares-TM- program is marketed by the Company. EJI purchases Gulfstream IV-SPs from the Company and then sells fractional ownership interests in such aircraft generally in one-eighth or one-quarter increments for which the customer receives 100 or 200 hours of flying time per year, respectively, with a guaranteed response time for pick-up of 10 hours or 6 hours, respectively. The customers enter into management and operating contracts with EJI which provide guaranteed services and operating costs. EJI's agreement with its customers provides for a term of 5 years with certain termination and renewal rights. There is no recourse to the Company under the provisions of these agreements or under the Company's contractual agreement with EJI. The Gulfstream IV-SP aircraft are maintained by the Company under a maintenance agreement with EJI. Further, under a lease arrangement, the Company provides EJI up to 4 pre-owned Gulfstream IV 35 aircraft (which are included in the Company's pre-owned aircraft inventory) which make up EJI's core fleet and are used to facilitate EJI's meeting its response time and service guarantees. The Company has a proprietary agreement with EJI relating to the marketing activities and provision of the core fleet, pursuant to which the Company is reimbursed for certain marketing expenses and earns royalty fees on certain EJI revenues. Under the terms of the agreements between the Company and EJI, the program consists of EJI's purchase or option to purchase over 20 Gulfstream IV-SPs and 2 Gulfstream Vs. To date, the Company has contracted to deliver to EJI 16 Gulfstream IV-SPs and 2 Gulfstream Vs in connection with the Gulfstream Shares-TM- program, 7 of which have been delivered and 11 of which will be delivered through 1999. In addition, EJI has remaining an option to purchase 5 additional Gulfstream IV-SPs in 1998. The Company's marketing services agreement for Gulfstream Shares-TM- has a term of three years which can be extended by mutual agreement of the parties. In addition to providing the Company with an incremental source of revenues, the Company believes the Gulfstream Shares-TM- program represents an important marketing tool. Fractional ownership provides the Company with a lower priced product that allows it to broaden its potential market and to create an entry level product for new Gulfstream customers. Fractional ownership also allows the Company to offer an interim solution for customers who have an immediate need for aircraft transportation and desire to purchase a whole aircraft, but must wait for delivery due to the orders backlog. The Company is currently conducting a feasibility study, which is expected to be completed by early 1997, to determine whether to establish a pre-owned Gulfstream Shares-TM- program internationally. Such a program could expand the Company's presence in international markets and assist the Company in selling pre-owned Gulfstream IV and Gulfstream IV-SP aircraft acquired by the Company from trade-ins on Gulfstream V deliveries. AIRCRAFT COMPLETION When the Company sells a new Gulfstream V or Gulfstream IV-SP, it generally contracts with its customer to deliver a green aircraft and a completed interior. The Company's completion services include painting and installing customer selected interiors and optional avionics. The Company believes that its completion services improve customer satisfaction while enhancing the Company's profitability. The Company is the only company possessing the technology and specifications to complete the Gulfstream V. Although other companies offer completion services for the Gulfstream IV-SP, the Company believes it has an advantage over other suppliers due to Gulfstream's understanding of its own aircraft and the interface requirements necessary for installation of custom-designed interiors and optional avionics systems. The Company believes that it also provides superior craftsmanship in designing and building customized interiors. Gulfstream has increased its completion order rate on new aircraft as a percentage of green aircraft orders from 70% in 1990 to approximately 95% in 1995. In an effort to simplify the selling process and to capture completion business, the Company currently markets its aircraft to customers on a completed basis. As part of this effort, the Company has developed an aircraft completion program that offers customers a customized interior using core standardized design elements. The use of these standardized elements allows the Company to more accurately predict and reduce costs, cut cycle times and increase consistency of production. This, together with its integrated marketing strategy, has allowed the Company to perform substantially all of the completion services for its green aircraft since 1993. The Company's completion centers, located in Savannah, Georgia; Brunswick, Georgia; and Long Beach, California, offer full completion and refurbishing services. The Company's completion centers located in Savannah, Long Beach and Brunswick can accommodate an aggregate of up to 20 aircraft at one time. 36 PREMIUM PRE-OWNED GULFSTREAM AIRCRAFT AND OTHER PRE-OWNED AIRCRAFT Pre-owned aircraft are routinely accepted in trade to facilitate the sale of new Gulfstream IV-SPs and Gulfstream Vs. The Company uses pre-owned Gulfstream aircraft as a significant tool in expanding the Company's potential market and competing with lower priced, new aircraft products. The Company has assembled a new, experienced management team and has introduced a number of initiatives which have enhanced the marketability of its pre-owned aircraft. The Company refurbishes pre-owned Gulfstream aircraft and markets these aircraft as a branded product of the Company. Pursuant to this program, the Company backs pre-owned Gulfstream aircraft with a 5 year warranty on the airframe structure and a 12 month warranty on virtually all other parts, including the engines under a separate warranty from Rolls-Royce Commercial Aero Engines Limited. Recently, the Company obtained certification of Gulfstream IIIs, Gulfstream IVs and Gulfstream IV-SPs for use in the Commonwealth of Independent States (the former Soviet Union) as a part of the Company's efforts to develop select international markets through the introduction of lower priced, pre-owned Gulfstreams. Trade-in values for pre-owned aircraft are based on estimated fair market value ("FMV") at the time the trade-in will actually occur. If the trade-in time is greater than twelve months into the future, the Company's current practice is to reserve the right to determine FMV not more than six months prior to delivery of the green aircraft. Trade-in aircraft are always entered into inventory at the lower of cost or estimated realizable value. Any excess value offered to a customer above estimated realizable value is recognized as a reduction in the revenue received in the new aircraft sale transaction. Through its trade-in agreements, the Company reserves the right to pre-market the trade-in aircraft prior to acceptance of title from the customer. Over the past several years, the Company has generally been successful in entering sales agreements on trade-in aircraft prior to acceptance of title. If market conditions change, however, no assurances can be made that the Company can continue this practice even though the Company's strategy may remain the same. The Company has provided a portion of its Gulfstream V customers whose contracts are currently in backlog with an option to trade in a Gulfstream aircraft at the time of their Gulfstream V aircraft delivery. These options may be at a specified dollar amount or at FMV "to be determined six months prior to green delivery" of the Gulfstream V. The Company continues to assess those options which are at a fixed dollar amount in light of market conditions and has determined such fixed dollar options are no higher than the FMV estimated for the time of Gulfstream V aircraft delivery. Although no assurance can be given that the fixed dollar trade-in aircraft values will remain at or below FMV at the time of trade, any adjustments required for values in excess of FMV will be appropriately reflected in the new aircraft sales transaction and the pre-owned inventory will be stated on the Company's books at the lower of cost or estimated realizable value. AIRCRAFT SERVICES, PARTS AND TECHNICAL SUPPORT The Company is committed to supporting, servicing and expanding the Gulfstream aircraft fleet as part of its refocused customer-oriented strategy. The Company provides worldwide service and support by integrating a network of Company-owned service centers, three levels of authorized third party service providers, worldwide parts depots, worldwide service representatives and 24 hour-a-day technical/AOG (aircraft on the ground) support. The Company believes that the service business offers potential for future expansion and growth as the Gulfstream fleet grows and that the high level of service the Company provides results in significant repeat business. SERVICE CENTERS. The Company operates service centers in Savannah and Brunswick, Georgia and Long Beach, California for aircraft maintenance functions, including modifications and major repairs. In 1996, the Company opened a new 200,000 square foot, state-of-the-art, service facility in 37 Savannah, Georgia, with capacity for 12 to 20 Gulfstream Vs and Gulfstream IVs. See "-- Properties". Training, level of service and business practices have been significantly improved and standardized across the Company's service centers since 1994. Additionally, the Company has license agreements with Marshalls of Cambridge (Cambridge, England), Chrysler's Pentastar Aviation subsidiary (Ypsilanti, Michigan) and Jet Aviation (Singapore) to provide service, maintenance and repairs for Gulfstream aircraft. The licensees provide additional geographic service locations for the expanding Gulfstream fleet. Royalty fees are paid to the Company by the licensees based on labor hours expended. In addition, Associated Airlines (Melbourne, Australia) and Jet Aviation Business Jets (Geneva and Basel, Switzerland) serve as authorized warranty centers. PARTS. Parts are provided to aircraft owners through a network of five Company parts depots. Proprietary initiatives (including cancellation of discounts to third party outlets, a gradual adjustment of parts pricing for high use items, and a gradual elimination of international price premiums) have been undertaken in the last 18 months to develop, improve and sustain the Company's competitive advantage in the fragmented parts market and to improve customer service levels. TECHNICAL INFORMATION. The Company markets aircraft support publications and technical documents to its customers and to third party service facilities. Additionally, a proprietary computerized maintenance program (CMP) is offered as a subscription service to customers for the management and tracking of the maintenance status of their aircraft. Approximately 90% of the Company's customers utilize this service. Recently, the Company instituted a policy requiring third party maintenance facilities to purchase factory technical support for scheduled maintenance performed on customer aircraft. This is expected to offset the cost of providing this technical support and further strengthen the competitive position of the Company's own service centers. The Company is in the process of establishing its ServiceCare program, the first comprehensive airframe, engine and avionics maintenance program to be offered in the business aircraft market, which will provide customers of new Gulfstream IV-SPs with scheduled and unscheduled maintenance at guaranteed costs. Coverage will be provided on a world-wide basis, with all work to be accomplished at Gulfstream or Gulfstream authorized service centers. The program is expected to be implemented by year-end 1996. AIRCRAFT MAINTENANCE SERVICES. In 1995 the Company's estimated market share (based on service center visits) of the maintenance services market for the Gulfstream fleet was approximately 40%. The Company has assembled a new, experienced management team for its maintenance services operations. Under this new team, the Company has developed a proactive marketing and sales effort and made investments in training and facilitates, which are expected to increase its market share significantly by the end of 1998. During the first half of 1996, the Company increased its revenues from maintenance, parts, services and facilities by 21% over the comparable period in 1995. TRAINING AND FACILITIES. The Company provides pilot and maintenance training services to its customers as an integral component of the sale of new Gulfstream IV-SP, Gulfstream V and pre-owned Gulfstream aircraft. The Company has long-term agreements with FlightSafety International ("FSI") for the provision of this high quality training service. FSI maintains and operates training facilities co-located with the Company's Savannah and Long Beach operations and has recently announced its intention to build a new 86,000 square foot training facility adjacent to the recently constructed Gulfstream Service Center in Savannah. This training center will be fully funded by FSI and will house classrooms and simulators (including the new Gulfstream V simulator) supporting the entire Gulfstream product line (Gulfstream I through Gulfstream V). Gulfstream, in conjunction with FSI, facilitates the operation of a Customer Training Advisory Board which provides direct customer and original equipment manufacturer input to FSI's training curriculums and course content. 38 Additionally, pilot and maintenance training services are provided to Gulfstream customers by SimuFlight Training International ("SimuFlight") located at Dallas-Fort Worth International Airport, Texas. SimuFlight provides training services for Gulfstream II, Gulfstream III and Gulfstream IV aircraft. Gulfstream, in conjunction with SimuFlight, facilitates the operation of an additional Customer Training Advisory Board which provides direct customer and original equipment manufacturer input to SimuFlight training curriculums and course content. AIRCRAFT FINANCING ARRANGEMENTS The Company, through its subsidiary Gulfstream Financial Services Corporation ("GFSC"), provides customers with access to customized financial products to support the worldwide sale of Gulfstream new and pre-owned aircraft. GFSC representatives typically consult with potential customers to develop the most effective means of financing the purchase of a Gulfstream jet for each such customer's specialized needs. The financial products (including capital and operating leases, loans, tax advantaged leases, like-kind exchange options, and Export-Import Bank support) are provided on a competitive basis through a proprietary, private label relationship with a prominent provider of aircraft financing (the "Financing Provider"), that has full credit review and approval rights and assumes all credit risk with no recourse to the Company. Additionally, the Company and the Financing Provider have entered into a re-marketing arrangement which enables the Company to manage the resale of any Gulfstream aircraft whose lease financing period has ended. This private label agreement has a term of five years with a lending commitment of $250 million annually, and can be extended by mutual agreement of the parties. The Company believes that the access provided by GFSC to financing sources for customers throughout the world serves to expedite and increase sales of new and pre-owned aircraft and also enables the Company to effectively manage the residual values of the Gulfstream fleet. BACKLOG AND NEW ORDERS Typically, the Company begins taking orders and building backlog two to three years prior to beginning production of a new aircraft model and receives a significant number of orders prior to delivering its initial aircraft in a program. At August 29, 1996, the Company had a contract backlog of approximately $2.9 billion of revenues plus executed contracts with financing contingencies of approximately $250 million of potential revenues, representing a total of 65 contracts for Gulfstream Vs and 31 contracts for Gulfstream IV-SPs. The Company includes an order in backlog only if the Company has entered into a purchase contract (with no contingencies) with the customer and has received a significant (generally non-refundable) deposit from the customer. Contracts with financing contingencies are converted to backlog upon receipt of financing by the purchaser, which generally occurs within 120 days. In addition to excluding contracts with financing contingencies, the Company's contract backlog excludes options and letters of intent for which definitive contracts have not been executed. At August 29, 1996, the Company had letters of intent with deposits for a total of 3 Gulfstream Vs and 2 Gulfstream IV-SPs, representing approximately $160 million of additional potential revenues. In total, approximately 50% of the Gulfstream V contracts in backlog have scheduled deliveries beyond 1997. At December 31, 1993, 1994 and 1995, the Company had a contract backlog of approximately $0.9 billion, $1.5 billion and $1.9 billion, respectively, representing 3, 3 and 7 Gulfstream IV-SP units and 24, 40 and 50 Gulfstream V units, respectively. Generally, at the signing of a Gulfstream IV-SP or Gulfstream V contract, a customer makes a non-refundable deposit with the Company. Subsequently, the customer makes a series of significant progress payments, with the balance of the purchase price due at delivery of the green aircraft. Since the Company began taking orders for Gulfstream Vs in 1992, only 4 contracts have been cancelled, 3 of which were the result of declines in the business performance of the customer and one of which was a result of adverse economic conditions in a foreign country. New orders for the Gulfstream V and the Gulfstream IV-SP totaled 12 and 30, respectively, in 1995, 16 and 25 in 1994 and 17 and 26 in 1993. Orders tend to vary from year to year reflecting a number of 39 factors, including competitive circumstances, worldwide economic and geopolitical conditions and the timing of customer decisions in placing new orders due to budget planning and specific transportation needs. CUSTOMERS AND MARKETING The majority of the Company's aircraft are sold to national and multinational corporations and governments. Gulfstream's aircraft are operated by customers in a wide spectrum of industries and customer groups, including: pharmaceuticals, consumer goods, high technology, energy, industrial manufacturing, finance, insurance, real estate, mining, transportation, communications, public utilities, retail trade, the United States government, other sovereign entities, and individuals. Seventy-eight percent of the Gulfstream fleet is based in North America and 22% of the fleet is based in 45 countries worldwide. Current owners of Gulfstream aircraft include 25 of the Fortune 50 companies and 115 of the Fortune 500 companies. In addition, the United States government, including all branches of the United States military, and 39 foreign governments operate Gulfstream aircraft. Gulfstream aircraft provide air transportation for the President, Vice President and other senior members of the United States government. Over 48 Gulfstream aircraft are currently in operation with various United States government agencies, including the FAA. The diverse Gulfstream customer base combined with wide geographic distribution requires an integrated marketing, communications and sales approach. The Company's marketing and communications program is designed to create general awareness of the Company, its products and services, while the sales approach is highly personalized and focused on the key decision makers, as well as flight departments and other managers within the customer's organization. In 1994, the Company fundamentally changed its sales and marketing processes to include market segmentation, analysis of customer potential, prospect tracking and weekly reviews of specific sales and pricing strategies with senior management. Additionally, with the introduction of GFSC, the Company began including strategic planning for sales transactions in order to better integrate customer financing and budgeting requirements. The Company believes these enhanced processes have been a major contributor to its success in obtaining orders and growing backlog. Also in 1994, Gulfstream established an International Advisory Board of 16 prominent international business executives and senior statesmen to advise the Company on international activities in support of the Company's strategic initiatives to further penetrate the international markets. See "Management -- International Advisory Board". In early 1995, to strengthen its overall position in the market and effectively focus the resources of the Company on its customers, the Company created Gulfstream Aircraft Incorporated ("GAI") as a wholly owned subsidiary of the Company. GAI is responsible for all functions directly related to customers including: marketing, sales, completions, service and product support. By closely integrating these activities, customers are provided a high level of personalized service on the schedule they require. This organization allows the Company to respond appropriately to scheduled and unscheduled customer needs while maintaining the engineering expertise and focused business environment required for the development and manufacture of its high quality products in the balance of the organization. In addition, it facilitates the direct involvement of senior leadership in the sales and marketing process. The Company's marketing and communications program is a carefully integrated combination of business and trade advertising, direct mail, press coverage, trade shows and special events. These activities are specifically developed and executed through GAI to create personal selling opportunities for the sales team and senior management with assistance from the Board of Directors and International Advisory Board. The Company has 22 sales executives located in: New York; New Jersey; Washington, D.C.; Atlanta, Georgia; Dallas, Texas; Los Angeles, California; Chicago, Illinois; Columbus, Ohio; Miami, Florida; Savannah, Georgia; London; Cairo; Singapore; Monaco; and Hong Kong. In the case of international operations, these executives are responsible for the Company's relationships with 33 international agents who facilitate business transactions in selected local markets. The Company's sales executives 40 are compensated through a commission program which compliments the Company's overall strategic objectives of maintaining the current customer base and expanding market share. The program is based on annual orders and provides an additional incentive for capturing orders from new customers, as well as a reduction in potential compensation for orders lost to competitors. The Company pursues government and special mission business opportunities worldwide with a two person sales team located in Washington, D.C. These sales executives are specifically suited by their background and experience to deal with military and government customers. The Company's government relations function also involves two people with experience in regulatory, legislative and appropriations processes essential to the conduct of the Company's business with the United States Government. No single customer accounted for more than 10% of sales revenues during the year ended December 31, 1995. The following table sets forth for the periods indicated information concerning the Company's net revenues:
SIX MONTHS ENDED JUNE YEAR ENDED DECEMBER 31, 30, ----------------------------------------------- ---------------------- 1994 1995 1996 ---------------------- ----------------------- ---------------------- (DOLLARS IN MILLIONS) United States........................................ $ 778.8 86% $ 824.5 79% $ 365.1 80% International........................................ 122.8 14 217.0 21 93.6 20 --------- --- ---------- --- --------- --- Total net revenues............................... $ 901.6 100% $ 1,041.5 100% $ 458.7 100% --------- --- ---------- --- --------- --- --------- --- ---------- --- --------- ---
For a description of the Company's export sales by geographical area, see Note 15 to the Company's Consolidated Financial Statements included elsewhere in this Prospectus. COMPETITION The business aircraft market generally is divided into four segments (light, medium, large and ultra-long range) of aircraft either designed or converted for business use. The Gulfstream IV-SP competes in the large cabin business jet aircraft market segment, principally with Dassault Aviation S.A. (which recently announced that it will merge with Aerospatiale SA) and Bombardier Inc. The Gulfstream V competes in the ultra-long range business jet aircraft market segment, primarily with the Global Express, which is being marketed by Canadair, a subsidiary of Bombardier, and which is scheduled for certification at least 12 months after the anticipated initial delivery of the Gulfstream V. In addition, in July 1996, Boeing, in partnership with General Electric Co., publicly announced that it intends to begin to market a version of the Boeing 737 into the ultra-long range business jet aircraft market segment. Boeing has indicated that it expects that this aircraft could be available for delivery in late 1998 or 1999. The Company's competitors may have access to greater resources (including, in certain cases, governmental subsidies) than are available to the Company. The Company believes, however, that it competes favorably with its competitors on the basis of the performance characteristics of its aircraft, the quality, range and timeliness of the service it provides and its innovative marketing techniques, and that it has the leading market share in both the large cabin and ultra-long range business jet aircraft market segments. The Company believes its aircraft's operating costs are comparable to or lower than those of its competitors and that its products are competitively priced. RESEARCH AND DEVELOPMENT The Company conducts an internally funded research and development program primarily for the enhancement of the existing Gulfstream aircraft fleet and for the development of new aircraft. The Company's research and development expenditures are cyclical and tend to be relatively high several years prior to the introduction of a new aircraft model and to decrease significantly as that product cycle matures. All amounts expended on research and development are expensed as incurred. 41 The Company's research and development program is based on product and process improvement to satisfy changing customer needs and changing regulatory requirements. The Company's research and development efforts have focused on improving operating efficiencies, performance, safety and reliability, reducing pilot workloads, realizing environmental benefits, reducing weight and improving ease of manufacture. The Company believes that its emphasis on product improvements for aircraft in the Gulfstream fleet has provided and will continue to provide added value for the Gulfstream customer. For aircraft already produced and in service, aircraft changes, which incorporate product improvements, are generally made available for purchase by existing owners of Gulfstreams. In 1994 and 1995, the Company spent $57.4 million and $63.1 million, respectively, on research and development primarily relating to the Gulfstream V. As a result of the completion of the Gulfstream V development project, the Company's total research and development expenditures are expected to decline to $6.5 million in 1997 from an anticipated $59.3 million in 1996. Research and development expenditures in 1997 and the near-term future will stem principally from product and process improvements rather than new aircraft development. MATERIALS AND COMPONENTS Approximately 70% of the production costs of both the Gulfstream IV-SP and the Gulfstream V consist of purchased materials and equipment. Many materials and items of equipment used in the production of the Company's aircraft, such as the engines, wings, landing gear and avionics systems, are purchased from other manufacturers, generally pursuant to long-term purchase orders. For the Gulfstream V, the Company has entered into revenue sharing agreements for the wing and empennage. Under these agreements, the revenue share partner is responsible for the detailed design, tooling and manufacture of the systems in exchange for a fixed percentage of revenues of each Gulfstream V sold. As is typical among general aviation aircraft manufacturers, the Company relies on single source suppliers for complex aircraft components and systems. These single sources are selected based on overall aircraft systems requirements, quality and certification requirements and competitiveness in the market. The Company's suppliers include Rolls-Royce Commercial Aero Engines Limited (Gulfstream IV-SP engines), BMW Rolls-Royce GmbH (Gulfstream V engines), Honeywell Incorporated (Gulfstream IV-SP and Gulfstream V flight management systems/avionics), Textron Aerostructures (Gulfstream IV-SP wing), Northrop Grumman Corporation (Gulfstream V wing revenue share partner through its Vought Aircraft Company subsidiary and Gulfstream IV-SP nacelle supplier), Fokker Aviation B.V. (Gulfstream V empennage revenue share partner), The B.F. Goodrich Co. (Gulfstream IV-SP and Gulfstream V landing gears and air speed sensors), Sundstrand Corp. (Gulfstream V electrical system and actuators) and AlliedSignal, Inc. (Gulfstream IV-SP and Gulfstream V auxiliary power unit and environmental control systems and Gulfstream IV-SP electrical systems). Fokker Aviation B.V., the provider of the Gulfstream V empennage, was formed upon the bankruptcy of Fokker Aerospace. To date, the Company has not suffered any adverse impact from the Fokker reorganization and does not anticipate any future adverse impact due to the announced Stork NV acquisition of Fokker Aviation B.V. See "Risk Factors -- Reliance on Single Source Suppliers". Suppliers are selected on the basis of their ability to produce high quality systems and components at competitive prices on a timely basis. The Company has had continuing relationships with most of its major suppliers since the inception of the Gulfstream II program in 1966. Ongoing supplier relationships are dependent on cooperation, performance and the maintenance of competitive pricing. From time to time suppliers have been replaced as the quality of such suppliers' products declined or the costs associated therewith failed to remain competitive. While the Company's production activities have not been materially affected by the inability to obtain essential components, and while it maintains business interruption insurance in the event that such a disruption should occur, the failure of certain suppliers or subcontractors to meet the Company's performance specifications, quality standards or delivery schedules could adversely impact the Company's operations. In addition, the Company's ability to significantly increase its production rate could be limited by the ability or willingness of its key suppliers to 42 increase their delivery rates; however, in the past, the Company's ability to maintain or increase production has not been significantly limited by suppliers' performance. In addition, under many of its supply contracts, the Company is permitted to increase or decrease the quantity of components or systems being ordered at no cost on six months' notice. The Company has negotiated multi-year agreements with its major Gulfstream IV-SP suppliers, who account for approximately 70% of the purchased material cost used in a Gulfstream IV-SP. All of the agreements allow schedule flexibility and have no cost termination clauses at the Company's option, subject to certain conditions and prior notification periods. In aggregate, the terms of these agreements provide for what is anticipated to be slightly deflationary pricing through 1999. Contracts are in place for over 95% of the purchased material required for the Gulfstream V program. Supply arrangements for all major components and systems are under long-term agreements, have annual delivery commitments based on production requirements and allow schedule flexibility. The terms of the revenue share agreements with Northrop Grumman Corporation for the wing and Fokker Aviation B.V. for the empennage continue so long as the Company is manufacturing the Gulfstream V. All other major supply contracts have no cost termination clauses at the Company's option, subject to certain conditions and notification periods. PAST AIRCRAFT PRODUCT OFFERINGS GULFSTREAM IV The Gulfstream IV, launched in 1983, has a range of 4,220 nautical miles and was the first truly intercontinental business jet aircraft. The Gulfstream IV was designed and built to incorporate the most current technologies in aerodynamics, propulsion, digital electronics and automated flight management systems and represented a significant technological advancement over the Gulfstream III and every other business jet aircraft available at the time. Like the Gulfstream IV-SP, the Gulfstream IV is equipped with twin Rolls-Royce Tay engines and an advanced avionics suite. The Gulfstream IV meets current FAA Stage 3 and ICAO Chapter 3 noise limits. The Company produced 213 Gulfstream IVs from 1985 through 1992, all of which are still in service. GULFSTREAM III In December 1979, the Company introduced the Gulfstream III, a twin-engine fanjet aircraft powered by two Rolls-Royce Spey engines with a cabin accommodating up to 19 passengers, a range of 3,600 nautical miles and a cruising speed of Mach .80. The Gulfstream III incorporated an advanced design utilizing NASA developed winglet technology to provide greater range and fuel efficiency than the Gulfstream II. When production ended in January 1987, 202 Gulfstream IIIs had been built, 99% of which remain in service today. GULFSTREAM II AND IIB In 1966, the Company introduced the Gulfstream II, which was the first business jet aircraft capable of carrying business passengers non-stop, coast-to-coast. The Gulfstream II is a twin-engine fanjet aircraft powered by two Rolls-Royce Spey engines with a range of 2,400 nautical miles and a cruising speed of Mach .80. Beginning in 1981, the Company modified 43 Gulfstream IIs to Gulfstream IIBs by retrofitting customers' Gulfstream II aircraft with the Gulfstream III's advanced design wing which enhanced the range capability of the aircraft to 3,400 nautical miles at Mach .80. When production of the Gulfstream II ended in December 1979, 256 units had been produced, 95% of which remain in service. Several specially modified Gulfstream IIs are still used regularly to train NASA's space shuttle astronauts. GULFSTREAM I The Company's product line originated in 1958 with the introduction of the Gulfstream I, a large twin-engine turboprop powered aircraft built by Grumman which was the first aircraft of its size and type designed specifically for business use. The Gulfstream I is powered by Rolls-Royce Dart engines and has a range of more than 1,700 miles. When production of the Gulfstream I ended in 1966, 200 Gulfstream Is had been built, 72% of which remain in service today. 43 Since the introduction in 1966 of the Company's first jet aircraft, the Gulfstream II, Gulfstream jet aircraft have accumulated in excess of 4,000,000 hours of operation. No Gulfstream jet aircraft accident involving serious injury or substantial aircraft damage has been attributed to aircraft design or mechanical failure by any investigating government authority in over 20 years. REGULATION In order for an aircraft model to be manufactured for sale, the FAA must issue a Type Certificate and a Production Certificate for the aircraft model and, in order for an individual aircraft to be operated, an Airworthiness Certificate. Type Certificates are issued by the FAA when an aircraft model is determined to meet certain performance, environmental, safety and other technical criteria. The Production Certificate ensures that the aircraft is built to specifications approved under the Type Certificate. An Airworthiness Certificate is issued for a particular aircraft when it is certified to have been built in accordance with specifications approved under the Type Certificate for that particular model aircraft. If the FAA were to suspend or rescind the Type Certificate or the Production Certificate for an aircraft model, sales of that aircraft model would be adversely affected or terminated. Gulfstream has never had a Type Certificate or a Production Certificate suspended, nor had any jet aircraft grounded as the result of regulatory action. All of the Company's aircraft models comply with all currently applicable federal laws and regulations pertaining to aircraft noise and engine emissions. Due to their weight (under 75,000 pounds), all Gulfstream II, III, IV and IV-SP aircraft are currently exempt from the FAA Stage 3 noise requirements. Notwithstanding federal requirements, foreign and local jurisdictions and airport authorities may establish more stringent restrictions pertaining to aircraft noise. Such local and foreign regulations in several locations currently restrict the operation of certain jet aircraft, including the Gulfstream II, IIB and III and certain of their competitors from landing or taking off during late evening and early morning hours. Each of the Gulfstream IV, IV-SP and V aircraft produce noise levels below the FAA's Stage 3 and ICAO's Chapter 3 noise ceilings. The extent to which regulations pertaining to aircraft noise and engine emissions may continue to be adopted or modified and the effect they may have on the operation of business jet aircraft cannot be predicted. EMPLOYEES The Company has a 29 year history of operation in Savannah, Georgia, and has access to the skilled labor force from nearby military bases. The Company's Bethany, Oklahoma and Long Beach, California facilities also attract a similar quality work force. At June 30, 1996, the Company employed approximately 4,600 persons, of whom approximately 3,390 were employed at the Company's Savannah, Georgia facility, 60 were employed at the Brunswick, Georgia facility, 580 were employed at the Bethany, Oklahoma facility, 360 were employed at the Long Beach, California facility and 210 were employed at the Mexicali, Mexico facility. None of the workers at the Savannah, Brunswick, Long Beach, or Mexicali facilities are unionized. On August 12, 1996, the Company entered into a new 5-year contract with the International Union of United Automobile Aerospace & Agricultural Implement Workers of America, which represents certain of the Company's employees at its Bethany, Oklahoma plant. The Company considers its overall employee relations to be good. PROPERTIES The Company's production and service facilities are located in Savannah and Brunswick, Georgia; Bethany, Oklahoma; Long Beach, California; and Mexicali, Mexico. The Savannah facility occupies approximately 1,450,000 square feet, including a new 200,000 square foot service center, and is the location of the Company's executive offices. Functions performed at the Savannah complex include Gulfstream IV-SP and Gulfstream V manufacturing, assembly and completion, product support, service, repair and overhaul of customer-owned Gulfstream aircraft and new product design, engineering and development. The Savannah completion center, occupying approximately 120,000 square feet, is adjacent to the aircraft production line and simultaneously accommodates completion of up to 10 Gulfstream IV-SP or 6 Gulfstream V aircraft. All of the land and buildings constituting the Savannah facility are owned by the Company. Any prolonged disruption in the use of the Savannah facility due to the destruction of or material damage to such facility, or other reasons, could have an adverse effect on the Company's operations. 44 The Company maintains property and business interruption insurance to protect against any such disruption, but there can be no assurance that the proceeds of such insurance would be adequate to repair or rebuild its facilities in such event or to compensate the Company for losses incurred during the period of any such disruption. The Company leases approximately 51,500 square feet of hangar and adjacent office space in Brunswick, Georgia. The Brunswick facility is both a service center facility and completion facility and has the capacity for four aircraft. The lease term, which is renewable annually at Gulfstream's option, extends to May 1998. The Bethany facility occupies approximately 500,000 square feet, all of which are in buildings leased under leases expiring in 2007. At the Bethany facility, the Company manufactures over 17,000 different detail parts for each of the Gulfstream IV-SP and the Gulfstream V. The 250,000 square foot Long Beach facility consists of a completion facility, which has capacity for 8 aircraft and a service center facility which has capacity for 10 aircraft. The Long Beach facility also has facilities for design and administrative functions. The Company owns the buildings and leases the land at the Long Beach facility; the lease expires in 2014. The Company recently expanded its completion capacity at the Long Beach facility through the lease of an additional 22,000 square feet at an adjacent facility. The Company's Mexicali, Mexico plant occupies approximately 50,000 square feet of leased space under leases expiring in December 1998 and assembles electrical products, including wire harnesses, used in Gulfstream production, and performs repair and service operations, as well as other electrical subcontracting. During the last five and one half years (January 1, 1991 to June 30, 1996), the Company has invested approximately $70 million in capital improvements at its facilities. Such capital improvements are expected to enhance the Company's ability to build and service its aircraft. The Company believes that its facilities are adequate for its present requirements. PATENTS AND TRADEMARKS While the Company pursues an active policy of seeking patents for new products and designs, it believes that its success is primarily dependent upon the recognition of the quality of its aircraft and upon the Company's management, technical knowledge, engineering skill, production techniques and service capabilities. The Company does not believe that the expiration of any patent would have a material adverse effect on its business. The Company owns and uses a number of registered trademarks around the world relating to the name GULFSTREAM (including Gulfstream Shares-TM-) which are used in connection with its business. The Company believes such trademarks are widely recognized as representing its advanced design and related technologies. The Company is not aware of any actions against its trademarks and has not received any notice or claims of infringement in respect of its trademarks. ENVIRONMENT The Company uses hazardous substances and generates solid and hazardous waste in the ordinary course of its business. Consequently, the Company's operations, in common with those of the industry generally, are subject to various laws and regulations governing, among other things, the handling and disposal of solid and hazardous materials, wastewater discharges and the remediation of contamination associated with the use and disposal of hazardous substances. Because of the nature of its business, the Company has incurred, and will continue to incur, costs relating to compliance with such environmental laws. Although the Company believes that it is in substantial compliance with such environmental requirements, and has not in the past been required to incur material costs in connection therewith, there can be no assurance that the Company's costs to comply with such requirements will not increase in the future. Although the Company is unable to predict what legislation or regulations may be adopted in the future with respect to environmental protection and waste disposal, compliance with existing legislation and regulations has not had, and is not expected to have, a material adverse effect on its capital expenditures, results of operations, or competitive position. 45 For the year ended December 31, 1995, the Company's expenses for remedial environmental matters and capital outlays for environmental compliance aggregated less than $1.0 million. The Company received in 1992, at its Long Beach facility, two inquiries from the U. S. Environmental Protection Agency (the "EPA") regarding (i) documentation errors subject to the Resource Conservation and Recovery Act ("RCRA"), and (ii) possible shipments of hazardous wastes to two storage facilities whose operators are under EPA investigation pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). The Company estimates that potential fines regarding these inquires, and a 1991 soil contamination inquiry at the Oklahoma facility, will not have a material adverse effect on the Company's results of operations. The Company participates as a Potentially Responsible Party and a De Minimis Generator Committee member in respect of two cleanup sites, one operated by the Mountaineer Refinery and the other operated by Omega Chemical Company. Based on the Company's limited involvement with such sites, the Company believes that it will not incur material costs in respect of such cleanup sites. The Company is currently engaged in the monitoring and cleanup of certain groundwater at its Savannah facility under the oversight of the Georgia Department of Natural Resources. The principal expenses for the cleanup have been incurred. The Company believes other aspects of the Savannah facility, as well as other Gulfstream properties, are being carefully monitored and are in substantial compliance with current federal, state and local environmental regulations. Like the Savannah facility, certain of the Company's other facilities have been in operation for a number of years and, over such time, these facilities have used substances or generated and disposed of wastes which are or may be considered hazardous. As a result, it is possible that the Company could become subject to additional environmental liabilities in the future in connection with these sites. LEGAL PROCEEDINGS The Company is a defendant in a lawsuit instituted on December 12, 1992 and pending in Oklahoma styled KMC LEASING, INC. ET AL. V. GULFSTREAM AEROSPACE CORPORATION ET AL. (District Court, State of Oklahoma, Oklahoma County, Case No. CJ 92 10313). This action, which may be certified as a class action on behalf of twin-engine Commander aircraft owners, arises from claims relating to potential damage from corrosion and fatigue fractures on wing spars and requirements to inspect and possibly replace wing spars in those aircraft. While there are currently more than 2,500 twin engine Commander aircraft owners, the Company does not believe all of these owners would qualify as members of any such class. This product line was discontinued in 1985 and sold during 1989. This lawsuit is not an insured claim. Other than an allegation that the plaintiffs' damages exceed jurisdictional requirements, the plaintiffs have not specified a dollar value of the extent of their damages. The Company believes it has meritorious defenses to all these claims based upon the facts and merits that underlie them. The Company does not expect the results in this action to have a material adverse effect on its financial condition or results of operations. Although there are other lawsuits pending involving the Company's discontinued light aircraft product lines, those claims are (i) covered by the General Aviation Revitalization Act of 1994, which is a federal statute of repose, (ii) the responsibility of the purchasers of those light aircraft product lines, or (iii) covered by the Company's product liability insurance. There are no accident or incident claims pending with respect to any Gulfstream jet aircraft. The Company maintains product liability insurance coverage of $250 million per occurrence and in the aggregate per year, subject to $10 million of self-insurance retention. Management believes this coverage is adequate. The Company has paid less than $100,000, other than claim expenses and insurance premiums, with respect to product liability occurrences taking place since January 1, 1991. The Company is involved in a tax audit by the Internal Revenue Service covering the years ended December 31, 1990 and 1991. The revenue agent's report includes several proposed adjustments involving the deductibility of certain compensation expense and items relating to the capitalization of the Company as well as the allocation of the purchase price in connection with the Acquisition, including the 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 46 have a material adverse effect on its financial statements because the financial statements already reflect what the Company currently believes is the expected loss of benefit arising from the resolution of these issues. However, because the revenue agent's report is proposing adjustments in amounts materially in excess of what the Company has reflected in its financial statements and because it may take several years to resolve the disputed matters, the ultimate extent of the Company's expected loss of benefit and liability with respect to these matters cannot be predicted with certainty and no assurance can be given that the Company's financial position or results of operations will not be adversely affected. The Company is also involved in other litigation, including product and general liability matters, and governmental proceedings arising in the ordinary course of its business, the ultimate disposition of which in the opinion of the Company's management, will not have a material adverse effect on the financial position or results of operations of the Company. 47 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Set forth below are the directors and executive officers of each of the Company, GAI and GFSC as of the date hereof. The Company does not have a Chief Executive Officer, but operates principally through a five-member management committee (the "Management Committee") chaired by Theodore J. Forstmann and comprised of four other key executives who share reponsibility for strategic decisions, management and oversight of the Company's operations. Each Management Committee member is also individually responsible for leadership of specific organizations within the Company, such as engineering and manufacturing, finance and information technology, sales and marketing and service. Officers serve at the discretion of the Board of Directors.
NAME AGE POSITION - ------------------------------------------------ --- --------------------------------------------------------- Theodore J. Forstmann (a),(g),(h)............... 56 Chairman of the Board and Director of the Company; Chairman of the Management Committee Fred A. Breidenbach (a),(g)..................... 49 President, Chief Operating Officer and Director of the Company; Management Committee member Bryan T. Moss (e)............................... 56 Vice Chairman of the Board and Director of the Company; Vice Chairman and Chief Executive Officer of GAI; Management Committee member W.W. Boisture, Jr. (a),(f)...................... 51 Executive Vice President and Director of the Company; President and Chief Operating Officer of GAI; Management Committee member Chris A. Davis.................................. 46 Executive Vice President, Chief Financial Officer and Secretary of the Company; Executive Vice President and Chief Financial Officer of GAI; President and Chief Operating Officer of GFSC; Management Committee member William R. Acquavella (f)....................... 58 Director Robert Anderson (b),(g)......................... 75 Director Charlotte L. Beers (e).......................... 61 Director Thomas D. Bell, Jr. (e)......................... 46 Director Nicholas C. Forstmann (d),(e),(h)............... 49 Director Sandra J. Horbach (a),(c),(f)................... 35 Director Drew Lewis (g).................................. 64 Director Allen E. Paulson (f)............................ 74 Director Roger S. Penske (b),(e)......................... 59 Director Colin L. Powell (f)............................. 59 Director Gerard Roche (c),(d),(g)........................ 65 Director Donald H. Rumsfeld (b),(e)...................... 64 Director George P. Shultz (f)............................ 75 Director Robert S. Strauss (c),(d),(g)................... 77 Director
- -------------- (a) Member of Executive Committee. 48 (b) Member of Audit Committee. (c) Member of Compensation Committee. (d) Member of Employee Benefit Plan Committee. (e) Class I director. (f) Class II director. (g) Class III director. (h) Nicholas C. Forstmann and Theodore J. Forstmann are brothers. Theodore J. Forstmann has served as Chairman of the Board of the Company since November 1993. Mr. Forstmann has been a general partner of FLC Partnership, L.P. since he co-founded Forstmann Little in 1978. He is also a director of General Instrument Corporation ("General Instrument") and Department 56, Inc. ("Department 56"). Fred A. Breidenbach has served as President, Chief Operating Officer and a director of the Company since April 1993. Prior to joining the Company, he was Vice President and General Manager of General Electric Co.'s Electronics Systems Division from 1991 to 1993. He is also a director of the Aerospace Industries Association of America, Inc. and the Vice Chairman of the General Aviation Manufacturing Association. Bryan T. Moss has served as Vice Chairman of the Company and Chief Executive Officer of GAI since March 1995. Prior to joining the Company, he was President of Bombardier Business Aircraft Division where he was responsible for the Challenger and Global Express business jet programs from 1989 to March 1995. W.W. Boisture, Jr. has served as Executive Vice President since February 1994 and as a director of the Company since February 1995. He is also President and Chief Operating Officer of GAI. Prior to joining the Company, he was President and Chief Executive Officer of British Aerospace Corporate Jets from October 1992 through 1993 where he was responsible for the "Hawker" business jet product line and its worldwide marketing, sales and support organization. From early 1990 to 1992, Mr. Boisture was Chairman, President and Chief Executive Officer of Butler Aviation, a nationwide aviation services company. Chris A. Davis has served as Executive Vice President and Chief Financial Officer of the Company since July 1993 and Secretary of the Company since August 8, 1996. She is also President and Chief Operating Officer of GFSC. Prior to joining the Company, she was Chief Financial Officer for General Electric Co.'s Electronic Systems Division from 1990 to 1993. William R. Acquavella has been a director of the Company since March 1990. He has been the owner and operator of Acquavella Galleries, Inc. and Acquavella Contemporary Art, Inc. since 1963 and the general partner of Acquavella Modern Art since May 1990. Robert Anderson has been a director of the Company since March 1990. He has served as Chairman Emeritus of Rockwell Corporation since February 1990. Mr. Anderson is also a director of Optical Data Systems, Inc. and the Timken Company. Charlotte L. Beers has been a director of the Company since July 1993. She has been Chairman of Ogilvy & Mather Worldwide, Inc. ("Ogilvy & Mather") since April 1992 and was Chief Executive Officer of Ogilvy & Mather from April 1992 to September 1996. Ms. Beers was Chairman/Chief Executive Officer of Thatham RSCG from 1982 to 1992. Thomas D. Bell, Jr. has been a director of the Company since April 1994. Mr. Bell has been President and Chief Executive Officer of Burson-Marsteller, a division of Young & Rubicam Inc., since May 1995. 49 Mr. Bell was Vice Chairman of the Company from April 1994 to April 1995. From 1991 to 1994, Mr. Bell served as Vice Chairman and Chief Operating Officer of Burson-Marsteller. Mr. Bell is also a director of Lincoln National Corporation. Nicholas C. Forstmann has been a director of the Company since March 1990. He has been a general partner of FLC Partnership, L.P. since he co-founded Forstmann Little in 1978. He is also a director of General Instrument and Department 56. Sandra J. Horbach has been a director of the Company since September 1994. She has been a general partner of FLC Partnership, L.P. since January 1993. She joined Forstmann Little in August 1987. She is also a director of Department 56. Drew Lewis has been a director of the Company since March 1990. He has served as Chairman and Chief Executive Officer of Union Pacific Corporation since October 1, 1987. He is also a director of American Express Company, Dal-Tile International Inc., Ford Motor Company, Lucent Technologies, FPL Group, Inc., Gannett Co., Inc., Mafco Consolidated Group Inc., and Union Pacific Resources Group, Inc. Allen E. Paulson has been a director of the Company since March 1990. He served as Chairman, Chief Executive Officer and a director of Gulfstream Aerospace Corporation (a Georgia corporation and wholly owned indirect subsidiary of the Company) and its predecessors from 1978, when he purchased the corporate jet division of Grumman Aerospace and began Gulfstream American (a predecessor of the Company), to 1992. He has also served as Chairman of the Company from March 1990 and Chief Executive Officer of the Company from January 1992 to August 1992. He is also a director of Cardio-Dynamics International Corp. and Full House Resorts, Inc. Roger S. Penske has been a director of the Company since December 1993. Mr. Penske has been Chairman, Chief Executive Officer, President and a director of Penske Transportation, Inc. since 1969 and Chairman, Chief Executive Officer and a director of Detroit Diesel Corporation since 1987. Mr. Penske is also a director of Penske Mortorsports, Inc., Philip Morris Companies Inc. and General Electric Company. Colin L. Powell has been a director of the Company since May 1996. Mr. Powell served as the Chairman of the Joint Chiefs of Staff from October 1989 to September 1993. Prior to that, Mr. Powell served as the National Security Adviser from December 1987 to January 1989. Since his retirement from military service on September 30, 1993, Mr. Powell has written his autobiography, "My American Journey". Gerard Roche has been a director of the Company since January 1993. Mr. Roche has been Chairman of Heidrick & Struggles, Inc. since 1981. Mr. Roche is also a director of Morrison Knudsen Corporation. Donald H. Rumsfeld has been a director of the Company since January 1993. Mr. Rumsfeld has been in private business since August 1993. From October 1990 to August 1993, Mr. Rumsfeld served as Chairman, Chief Executive Officer and President of General Instrument. Mr. Rumsfeld is also a director of ABB AB, Gilead Sciences, Inc., Kellogg Company, Metricom, Inc. and Sears Roebuck & Co. He is currently on leave of absence as a director of Tribune Company. George P. Shultz has been a director of the Company since November 1991. Mr. Shultz served as the United States Secretary of State from July 1983 until January 1989 and is a Distinguished Fellow of the Hoover Institute. Mr. Shultz is also a director of AirTouch Communications, Inc. and Gilead Sciences, Inc. Robert S. Strauss has been a director of the Company since April 1993. Mr. Strauss is a founder of and partner in the law firm of Akin, Gump, Strauss, Hauer & Feld ("Akin Gump") and served as U.S. Ambassador to the Soviet Union, and upon its dissolution, to the Russian Federation from August 1991 to November 1992. In November 1992, Mr. Strauss returned to Akin Gump. Mr. Strauss is also a director of Archer-Daniels-Midland Co. and General Instrument. 50 INTERNATIONAL ADVISORY BOARD In 1994, the Company established an International Advisory Board of 16 prominent international business executives and senior statesmen to counsel the Company and assist in its strategic initiatives to further penetrate international markets. The International Advisory Board, which meets twice a year, is comprised of the following individuals, representing the principal geographic areas of the world:
NAME PRINCIPAL AFFILIATION GEOGRAPHIC AREA - ------------------------------------ --------------------------------------------- ---------------------------- George P. Shultz (Co-Chairman)...... Former U.S. Secretary of State; Distinguished USA Fellow, Hoover Institute Robert S. Strauss (Co-Chairman)..... Former Ambassador to the Soviet Union and USA Russian Federation; Partner, Akin, Gump, Strauss, Hauer & Feld Theodore J. Forstmann............... Chairman of the Company and Co-founder of USA Forstmann Little Conrad M. Black..................... Chairman and Chief Executive Officer of Canada Hollinger Inc. Claudio X. Gonzalez................. Chairman and Chief Executive Officer of Mexico Kimberly Clark de Mexico, S.A. de C.V. Gustavo A. Cisneros................. President and Chief Executive Officer of South America Cisneros Group of Companies Julio Mario Santo Domingo........... Chairman of the Board of Bavaria, S.A. South America Alex Wildenstein.................... Chief Executive Officer of Wildenstein & Co. Europe Karl Otto Pohl...................... Former Head of The Bundesbank; Partner, Sal. Germany Oppenheim Jr. & Cie Henry H. Keswick.................... Chairman of Matheson & Co. Limited; Chairman United Kingdom/Europe of The Hong Kong Association Lord Jacob Rothschild............... Chairman of J. Rothschild Group United Kingdom/Europe Fouad Said.......................... Chairman of Unifund Switzerland Hiroshi Toyokawa.................... President of Okura & Co., Ltd. Japan David K. P. Li...................... Director and Chief Executive of The Bank of Hong Kong/China East Asia, Limited Bernard Duc......................... Senior Partner, H.M.I. Ltd. Southeast Asia Fouad M.T. Alghanim................. Chariman of Alghanim Group Saudi Arabia
INFORMATION REGARDING THE BOARD OF DIRECTORS The Restated Certificate of Incorporation provides for a classified Board of Directors consisting of three classes. Each class will consist, as nearly as possible, of one-third of the total number of directors constituting the entire Board. The term of the initial Class I directors will terminate on the date of the 1997 annual meeting of stockholders; the term of the initial Class II directors will terminate on the date of the 1998 annual meeting of stockholders; and the term of the initial Class III directors will terminate on the date of the 1999 annual meeting of stockholders. Beginning in 1997, at each annual meeting of stockholders, successors to the class of directors whose term expires at that annual meeting will be elected for a three-year term and until their respective successors are elected and qualified. A director may only be removed with cause by the affirmative vote of the holders of a majority of the outstanding shares of capital stock entitled to vote in the election of directors. Directors who are neither executive officers of the Company nor general partners in FLC Partnership, L.P. have been granted options to purchase Common Stock in connection with their election to the Board. In addition, in 1996 each of Theodore J. Forstmann and Sandra J. Horbach were granted options 51 to purchase Common Stock in consideration of extraordinary service to the Company. See "-- Compensation Committee Interlocks and Insider Participation". Directors do not receive any fees for serving on the Company's Board, but are reimbursed for their out-of-pocket expenses arising from attendance at meetings of the Board and committees thereof. EXECUTIVE COMPENSATION The following table sets forth the compensation of each of the members of the Company's Management Committee, which includes the Chairman of the Board and the four most highly paid executive officers of the Company who were serving as executive officers at December 31, 1995 (the "named executive officers") for fiscal 1995. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION -------------- AWARDS -------------- ANNUAL COMPENSATION SECURITIES --------------------------------------- UNDERLYING OTHER ANNUAL STOCK ALL OTHER NAME AND PRINCIPAL POSITION BASE SALARY BONUS* COMPENSATION OPTIONS (#) COMPENSATION - ---------------------------------------------- ------------ --------- -------------- -------------- -------------- Theodore J. Forstmann ........................ -- -- -- -- -- Chairman of the Board Bryan T. Moss ................................ $ 619,432(1) $ 638,100(2) -- 675,000 $ 440,375(3) Vice Chairman of the Board Fred A. Breidenbach .......................... 500,011 312,500 $ 236,521(4) 19,304(5) President and COO W.W. Boisture, Jr. ........................... 274,056 171,875 225,000 2,433(6) Executive Vice President Chris A. Davis ............................... 274,056 171,875 187,500 3,000(6) Executive Vice President and CFO
- ------------------ * Bonuses were paid in January 1996 in respect of fiscal 1995 under a management incentive plan. (1) Represents base salary, plus commissions paid for 1995 sales of aircraft. (2) Represents a management incentive plan bonus ($312,500) and a signing bonus ($325,600). (3) Represents a nonrecurring payment in respect of the value of vested stock options with previous employer ($437,375) and the Company's contribution to the 401(k) plan ($3,000). (4) Represents tax gross-up relating to vesting of annuity contract purchased by the Company for Mr. Breidenbach in 1993. (5) Represents the Company's contribution to an executive life insurance plan ($16,304) and the 401(k) plan ($3,000). (6) Represents the Company's contribution to the 401(k) plan. 52 The following table sets forth the stock option grants to each of the named executive officers for fiscal 1995. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE --------------------------------------------------------- VALUE AT ASSUMED NUMBER OF ANNUAL RATES OF STOCK SECURITIES % OF TOTAL PRICE APPRECIATION FOR UNDERLYING OPTIONS GRANTED EXERCISE/ OPTION TERM(2) OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ---------------------- NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% 10% - --------------------------------- ------------ ---------------- ----------- ------------ ---------- ---------- Theodore J. Forstmann............ -- -- -- -- -- -- Bryan T. Moss.................... 675,000(3) 38.79% $ 4.10 03/14/2005 $1,740,466 $4,410,682 Fred A. Breidenbach.............. -- -- -- -- -- -- W.W. Boisture, Jr................ 150,000(4) 8.62% $ 4.10 02/06/2005 386,770 980,145 75,000(5) 4.31% $ 4.10 06/30/2005 193,385 490,073 Chris A. Davis................... 187,500(5) 10.78% $ 4.10 06/30/2005 483,463 1,225,181
- ------------------ (1) All awards listed on table were in the form of option grants made pursuant to the Company's Stock Option Plan. (2) Sets forth potential option gains based on assumed annualized rates of stock price appreciation from the exercise price at the date of grant of 5% and 10% (compounded annually) over the full term of the grant with appreciation determined as of the expiration date. The 5% and 10% assumed rates of appreciation are mandated by the rules of the Securities and Exchange Commission, and do not represent the Company's estimate or projection of future Common Stock prices. (3) This grant was made on March 14, 1995. One fourth of the total number of options granted became exercisable immediately, another fourth became exercisable on the first anniversary of the grant date, and an additional fourth is exercisable on each of the second and third anniversaries of the grant date. (4) This grant was made on February 6, 1995. One third of the total number of options granted became exercisable on the first anniversary of the grant date; an additional one third is exercisable on each of the second and third anniversary dates. (5) This grant was made on June 30, 1995. One third of the total number of options granted was exercisable on the first anniversary of the grant date; an additional one third is exercisable on each of the second and third anniversary dates. 53 The following table sets forth the stock option exercises for the fiscal year ended December 31, 1995 and the stock option values as of December 31, 1995, in each case, for each of the named executive officers. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OPTION VALUES AS OF DECEMBER 31, 1995
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT SHARES FISCAL YEAR-END FISCAL YEAR-END ACQUIRED ON VALUE (#) ($)* EXERCISE REALIZED ---------------------------- ---------------------------- NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---------------------------- ------------- ----------- ------------ -------------- ------------ -------------- Theodore J. Forstmann....... -- -- -- -- -- -- Bryan T. Moss............... -- -- 168,750 506,250 3,189,375 9,568,125 Fred A. Breidenbach......... -- -- 703,125 234,375 13,985,156 4,661,719 W.W. Boisture, Jr........... -- -- 187,500 412,500 3,543,750 7,796,250 Chris A. Davis.............. -- -- 196,875 253,125 3,915,844 4,849,031
- -------------- * Sets forth values for "in the money" options that represent the positive spread between the respective exercise/base prices of outstanding stock options and the value of the Company's Common Stock as of December 31, 1995 based on an assumed initial public offering price of $23.00 per share. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Theodore J. Forstmann, Sandra J. Horbach and Daniel F. Akerson administered the Company's compensation program during 1995. Mr. Forstmann is the Chairman of the Company and Ms. Horbach served as Vice President, Assistant Treasurer and Assistant Secretary of the Company until August 8, 1996. Mr. Akerson resigned as a director of the Company in March 1996. On August 8, 1996, the Company appointed a new Compensation Committee to administer the cash portion of the Company's compensation program, comprised of Sandra J. Horbach, Gerard Roche and Robert S. Strauss, and a new Employee Benefit Plan Committee, to administer the Company's employee benefit plans, comprised of Nicholas C. Forstmann, Gerard Roche and Robert S. Strauss. Theodore J. Forstmann, Sandra J. Horbach and Nicholas C. Forstmann are general partners of FLC Partnership, L.P. Daniel F. Akerson was a general partner of FLC Partnership, L.P. until his withdrawal in March 1996. Under a usage agreement Gulfstream pays an affiliate of FLC Partnership, L.P. for use of a Gulfstream IV in connection with sales demonstrations, customer support and other Gulfstream business. Total payments for 1993, 1994 and 1995 and the first six months of 1996 were $4.6 million, $2.3 million, $2.3 million and $1.2 million, respectively. In August 1996, Gulfstream entered into agreements with Mr. Theodore J. Forstmann pursuant to which Gulfstream will provide Mr. Forstmann with the use of a Gulfstream V for a period of ten years. Until the Gulfstream V becomes available, Gulfstream will make available to Mr. Forstmann a Gulfstream IV (by purchasing at fair market value, or assuming a lease at fair market value for, a Gulfstream IV from an affiliate of FLC Partnership, L.P.). Mr. Forstmann has agreed to pay Gulfstream up to $1.0 million annually for non-Company use of the aircraft. If Mr. Forstmann is no longer serving as a director or official of Gulfstream, he has agreed to reimburse Gulfstream $1,800 per hour for all use of the aircraft, or other such rate required so as not to exceed FAA regulatory requirements. Gulfstream purchased approximately $1.7 million, $1.5 million and $1.8 million in inventory items relating to lighting from Grimes Aerospace Corp., an affiliate of FLC Partnership, L.P., during 1993, 1994 and 1995 and has purchased approximately $0.9 million in inventory in 1996 pursuant to existing purchase orders. During 1994, Gulfstream sold three aircraft on normal commercial terms for an aggregate purchase price totaling $58.6 million to two corporations whose presidents are directors of the Company and also sold a Gulfstream II to an affiliate of FLC Partnership, L.P., for $6.7 million. From time to time the Company provides maintenance and support services, all on standard commercial terms, to FL Aviation Corp., an affiliate of FLC Partnership, L.P. that operates Gulfstream aircraft. For providing such services Gulfstream was paid approximately $0.2 million, $0.5 million, $0.5 million and 54 $0.1 million in 1993, 1994, 1995 and the first six months of 1996, respectively. Moran Printing, a company owned by relatives of Theodore J. Forstmann and Nicholas C. Forstmann, has a 3 year contract (which commenced in November 1995) to provide printing services on standard commercial terms to the Company. For the first six months of 1996, the Company received services and paid $633,458 therefor, under such contract. The Company believes the terms of the transactions described in this paragraph are at least as favorable to the Company as those which could be obtained from an unrelated third party. The Forstmann Little Partnerships are entitled to the benefits of the Registration Rights Agreement described under "Shares Eligible For Future Sale - -- Registration Rights". Each director and officer who currently holds options exercisable for Common Stock is entitled to the benefits of a stockholder's agreement described under "-- Stock Options". In May 1996, in consideration of extraordinary service to the Company, Theodore J. Forstmann and Sandra J. Horbach received options to purchase 375,000 and 75,000 shares of Common Stock, respectively, in each case at an exercise price of $4.10 per share. STOCK OPTIONS STOCK OPTION PLAN GENERAL. The following summary description of the Stock Option Plan does not purport to be complete and is qualified in its entirety by the full text of the Stock Option Plan. On September 12, 1990, the Board of Directors of the Company, and the Company's stockholders, adopted the Gulfstream Aerospace Corporation Stock Option Plan (the "Stock Option Plan"). The Stock Option Plan provides for the granting of options to purchase shares of Common Stock to any employee or director of, or consultant or advisor to, the Company or its subsidiaries, which options are not intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). While all employees (approximately 4,600 persons) are eligible to participate under the Stock Option Plan, the Company has historically granted options to only a portion of its employees. Generally, the Company's current practice is to limit option grants to members of management, directors and advisors of the Company. No options may be granted under the Stock Option Plan after September 12, 2010. The maximum number of shares of Common Stock which can be granted under the Stock Option Plan is 8,218,104; at June 30, 1996, options for approximately 7,485,466 shares of Common Stock were outstanding under the Stock Option Plan. In the event that any option granted under the Stock Option Plan is terminated and unexercised as to any shares of Common Stock covered by the option (other than due to adjustments made by the Committee (as defined below) because of merger, consolidation, reorganization, recapitalization, stock dividend, stock split-up or other substitution of securities), such shares will thereafter be available for the granting of future options under the Stock Option Plan. The purpose of the Stock Option Plan is to provide financial incentives to key employees of the Company and its subsidiaries and such consultants, advisors and members of the Board of Directors whose entrepreneurial and management talents and commitments are essential for the continued growth and expansion of the Company's business. The Stock Option Plan provides that options will be granted by a committee appointed by the Company's Board of Directors (the "Committee"). The Committee will determine the terms and conditions of options granted pursuant to the Stock Option Plan, including the per share exercise price and the time or times at which the options become exercisable. While the terms of each option under the Stock Option Plan may differ from others granted under the Stock Option Plan, in no event will the term of any option granted under the Stock Option Plan exceed ten years and one day. Under the Stock Option Plan, the options are exercisable during an optionee's lifetime only by the optionee and are not transferable except, in certain cases, by will to certain permitted transferees who agree to be bound by the Stock Option Agreements or under the laws of descent and distribution of the state of domicile of the optionee if the optionee dies intestate. Except as otherwise provided in the Stock Option Agreement (as defined below), the options are not exercisable after the termination of the optionee's employment or directorship. To exercise an option, the optionee 55 must deliver payment in full for the shares with respect to which the option is being exercised and a fully executed Stockholder's Agreement (as described below). The Stock Option Plan is currently administered by the Employee Benefit Plan Committee of the Board of Directors of the Company. The Board of Directors of the Company may amend, suspend or terminate the Stock Option Plan at any time provided that (except for adjustments due to merger consolidation, reorganization, recapitalization, stock dividend, stock split-up or other substitution of securities) no amendment may: (a) increase the total number of shares which may be issued and sold pursuant to the exercise of options granted under the Stock Option Plan, (b) extend the period for granting or exercising any option, or (c) change the classes of persons eligible to receive options, unless such amendment is made by or with the approval of a majority of the outstanding shares of Common Stock. The rights of an optionee under any option granted prior to an amendment, suspension or termination of the Stock Option Plan may not be adversely affected by Board action without the optionee's consent. STOCK OPTION AGREEMENTS. The options which have been granted under the Stock Option Plan have been granted pursuant to stock option agreements ("Stock Option Agreements"), and each option is exercisable into one share of Common Stock at a price set forth in each Stock Option Agreement. The options generally vest and become exercisable in three equal amounts on each of the first, second and third anniversaries of the grant date, or in four equal amounts on the grant date and each of the first, second and third anniversaries of the grant date. Certain of the options were fully vested and exercisable on the grant date. Generally, the unvested portion of an option expires on the date of the optionee's termination of employment, and vested options expire after the termination of employment as described below. Except as set forth in the individual Stock Option Agreements, an option may not be exercised after termination of the optionee's employment. The Stock Option Agreements generally provide for the redemption by the Company, at the Company's option, of the vested portion of an option in the event of a termination or permit the optionee to exercise such portion following the termination within a period of time specified in such Stock Option Agreement. The option expires at the end of such period of time. The Stock Option Agreements provide that the Company will notify the optionee within a specified number of days prior to a "Terminating Event" or a "Partial Sale." A Terminating Event includes (a) the merger or consolidation of the Company into another corporation (other than a merger or consolidation in which the Company is the surviving corporation and which does not result in a capital reorganization, reclassification or other change of the then outstanding shares of Common Stock), (b) liquidation of the Company, (c) sale to a third party of all or substantially all of the Company's assets or (d) sale to a third party of Common Stock (including through one or more public offerings); but only if, in the case of the events described in (a), (b) and (d), the Forstmann Little Partnerships cease to own a specified percentage (ranging from zero to 51%, depending on the particular Stock Option Agreement) of the outstanding shares of the voting stock of the Company. A Partial Sale means a sale by the Forstmann Little Partnerships of all or a portion of their shares of Common Stock (including through a public offering) to a third party (other than a Terminating Event). The Offerings will not constitute a Terminating Event. Upon receipt of a notice of a Partial Sale, the optionee may, within a specified period of time after receiving such notice, exercise his or her options only for purposes of participating in the Partial Sale, whether or not such options were otherwise exercisable, with respect to the excess, if any, of (a) the number of shares with respect to which the optionee would be entitled to participate in the Partial Sale under the Stockholder's Agreement, which permits proportional participation with the Forstmann Little Partnerships in a public offering or sale to a third party (as described below), over (b) the number of shares previously issued upon exercise of such options and not previously disposed of in a Partial Sale. The Offerings constitute a Partial Sale. Upon receipt of a notice of a Terminating Event, the optionee may, within ten days of receiving such notice (or such shorter time as determined by the Committee), exercise all or part of his or her options, whether or not such options were otherwise exercisable. In connection with a Terminating Event involving the merger, consolidation or liquidation of the Company or the sale of Common Stock by the Forstmann Little Partnerships, the Company, in the Committee's discretion, may redeem the unexercised portion of the options, in lieu of permitting the optionee to exercise the options, for a price equal to the 56 price received per share of Common Stock in the Terminating Event, less the exercise price of the options. Any unexercised portion of an option will terminate upon the consummation of a Terminating Event, unless the Company provides for the continuation thereof. In the event a Terminating Event or Partial Sale is not consummated, any option which the optionee had exercised in connection with such Terminating Event or Partial Sale will be deemed not to have been exercised and will be exercisable thereafter only to the extent it would have been exercisable if notice of such Terminating Event or Partial Sale had not been given to the optionee. The optionee has no independent right to require the Company to register under the Securities Act the shares of Common Stock subject to such options. STOCKHOLDER'S AGREEMENT. Upon exercise of an option (or portion thereof) under the Stock Option Plan, an optionee is required to enter into a Stockholder's Agreement with the Company. The form of Stockholder's Agreement currently contemplated to be used in connection with the Stock Option Plan governs the optionee's rights and obligations as a stockholder (the "Stockholder"). The Stockholder's Agreement provides that, generally, the shares issued upon exercise of the options may not be sold, transferred, assigned, exchanged, pledged, encumbered or otherwise disposed of, except as specifically provided in the Stockholder's Agreement. The Stockholder's Agreement provides that the Stockholder shall participate proportionately in any sale by the Forstmann Little Partnerships of all or a portion of their shares of Common Stock to any person who is not a partner or affiliate thereof, and the Stockholder shall participate proportionately in a public offering of shares of Common Stock by the Forstmann Little Partnerships, by selling the same percentage of the Stockholder's shares that the Forstmann Little Partnerships are selling of their shares. The sale of shares of Common Stock in such a transaction must be for the same price and otherwise on the same terms and conditions as the sale by the Forstmann Little Partnerships. If the Forstmann Little Partnerships sell or exchange all of their Common Stock in a bona fide arm's-length transaction, the Stockholder is required to sell all of his, her or its shares for the same price and on the same terms and conditions as the sale of Common Stock by the Forstmann Little Partnerships and, if stockholder approval of the transaction is required, to vote his, her or its shares in favor thereof. If, however, one or more public offerings result in the Forstmann Little Partnerships owning, in the aggregate, less than 25% of the then outstanding voting stock of the Company, the Stockholder is generally entitled to sell, transfer or hold his shares of Common Stock free of the restrictions and rights contained in the Stockholders Agreement. It is anticipated that immediately after the Offerings, the Forstmann Little Partnerships, in the aggregate, will not own less than such percentage. The following table sets forth the amount of shares of Common Stock subject to outstanding options under the Stock Option Plan as of July 31, 1996 held by: (a) each of the Named Executive Officers; (b) current executive officers; (c) current directors who are not executive officers; and (d) all current employees, including all current officers who are not either current executive officers or named executive officers. The Committee has not determined to grant any other options under the Stock Option Plan. 57 GULFSTREAM STOCK OPTION PLAN TABLE
NUMBER OF SHARES NAME AND POSITION UNDERLYING OPTIONS - --------------------------------------------------------------------------------------------- ------------------- Theodore J. Forstmann ....................................................................... 375,000 Chairman of the Board Bryan T. Moss ............................................................................... 675,000 Vice Chairman of the Board Fred A. Breidenbach ......................................................................... 937,500 President and COO W. W. Boisture, Jr .......................................................................... 675,000 Executive Vice President Chris A. Davis .............................................................................. 450,000 Executive Vice President and CFO All executive officers as a group (5 persons) ............................................... 3,112,500 All current directors who are not executive officers as a group (13 persons) ................ 1,627,140 All employees, including all current officers who are not executive officers as a group (240 persons).................................................................................... 3,262,528
CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion is a brief summary of the principal United States federal income tax consequences under current federal income tax laws relating to options awarded under the Stock Option Plan. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign income and other tax consequences. An optionee will not recognize any taxable income upon the grant of a nonqualified option and the Company will not be entitled to a tax deduction with respect to such grant. Upon exercise of an option, the excess of the fair market value of the Common Stock on the exercise date over the exercise price will be taxable as compensation income to the optionee. Subject to the optionee including such excess amount in income or the Company satisfying applicable reporting requirements, the Company should be entitled to a tax deduction in the amount of such compensation income. The optionee's tax basis for the Common Stock received pursuant to the exercise of an option will equal the sum of the compensation income recognized and the exercise price. In the event of a sale of Common Stock received upon the exercise of a nonqualified option, any appreciation or depreciation after the exercise date generally will be taxed as capital gain or loss and will be long-term gain or loss if the holding period for such Common Stock was more than one year. Special rules may apply to optionees who are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Under certain circumstances the accelerated vesting or exercise of options in connection with a change of control of the Company might be deemed an "excess parachute payment" for purposes of the golden parachute tax provisions of Section 280G of the Code. To the extent it is so considered, the optionee may be subject to a 20% excise tax and the Company may be denied a tax deduction. Section 162(m) of the Code generally disallows a federal income tax deduction to any publicly held corporation for compensation paid in excess of $1 million in any taxable year to the chief executive officer or any of the four other most highly compensated executive officers who are employed by the Company on the last day of the taxable year. Compensation attributable to options granted under the Company's Stock Option Plan prior to the Company's first stockholder meeting in which directors are elected in the year 2000 should not be subject to the deduction limitation. The Employee Benefit Plan Committee will determine whether or not to administer the Stock Option Plan so that compensation attributable to options granted thereafter would not be subject to such deduction limitation. 58 OTHER OPTIONS GENERAL. The Company has entered into individual stock option agreements (the "Non-Plan Option Agreements") with certain of its current and former directors, advisors and consultants (the "Non-Plan Optionees"). Currently, Non-Plan Option Agreements exercisable for 2,168,658 shares of Common Stock are in effect. The options granted pursuant to the Non-Plan Option Agreements are not intended to qualify as incentive stock options under Section 422 of the Code and were not issued pursuant to the Stock Option Plan. Certain of the options were fully vested and exercisable on the date of grant. The other options generally become exercisable in three equal amounts on each of the first, second and third anniversaries of the date of grant. No option may be exercised following the tenth anniversary or, under certain of the Director Option Agreements, the day after the tenth anniversary of the date of grant. Certain of the options are transferable during the Non-Plan Optionee's lifetime to certain permitted transferees, who generally must agree in writing to be bound by the Non-Plan Option Agreement. The rights and obligations of the Company and the Non-Plan Optionees are otherwise similar to those under the Stock Option Agreements, including with respect to Terminating Events and Partial Sales. Upon exercise of the option, the optionee is required to enter into a stockholder's agreement with the Company upon terms substantially similar to the terms contained in the Stockholder's Agreements. STOCK APPRECIATION RIGHTS The Company has granted an aggregate of 21,304 stock appreciation rights ("SARs") to certain employees of the Company ("Grantees") pursuant to SAR agreements (the "SAR Agreements"). The SARs permit a Grantee whose employment with the Company has terminated after a specified date (generally one year after the grant of the SAR) as a result of death or disability, termination without cause or retirement on or after reaching age 65 to receive with respect to each vested reference share to which the SAR relates (the "Reference Shares") an amount in cash (an "Appreciation Amount") equal to the difference between the base price ($3.52 or $4.10) of the Reference Shares and the market price per share of the Common Stock. In the event that the Forstmann Little Partnerships sell all or a portion of the shares of Common Stock owned by them to a Third Party (including in a public offering), the Grantees may elect to receive payment in respect of that percentage of the Grantees' Reference Shares outstanding immediately prior to the closing of such transaction equal to the same percentage of Reference Shares of the Grantee then outstanding as the shares of Common Stock the Forstmann Little Partnerships propose to sell bears to the aggregate number of shares of Common Stock owned by the Forstmann Little Partnerships. The amount of such payment is based on the per share Common Stock price received in such transaction over the SAR base price. RETIREMENT PLAN GULFSTREAM PENSION PLAN. The Gulfstream Aerospace Corporation Pension Plan (the "Pension Plan") was amended and restated effective January 1, 1989. The Pension Plan is a defined benefit plan maintained by Gulfstream Aerospace Corporation (a Georgia corporation and wholly owned indirect subsidiary of the Company) ("Gulfstream Georgia"), for the benefit of the employees of Gulfstream Georgia and certain of its affiliates that have adopted the Pension Plan (each, a "Participating Employer"). The Pension Plan covers full time employees who have attained age 21 and have completed at least one year of service. Pension costs are borne by the Participating Employer and determined from time to time on an actuarial basis, with contributions made accordingly. Participants' benefit accruals under the Pension Plan are based on their gross amount of earnings, but exclude items such as overtime pay, bonuses and commissions. Generally, a participant's accrued annual retirement benefit, assuming retirement at or after age 65 and a minimum of five years of service, is equal to the total of the benefit accrued for each year of benefit service, which for each of the named executive officers will be determined for each such year under the following benefit formula: the sum of (x) 2.65% of the first $17,000 of the participant's wage base earnings as adjusted by the rate used to 59 increase the taxable wage base for old age, survivors and disability insurance (currently at $20,100) for such year and (y) 3% of the participant's earnings in excess of such adjusted wage base earnings. Payments made under the Pension Plan are not subject to any deduction for Social Security or other offset amounts. Participants who have attained age 60 with at least 5 years of service or age 50 with at least 20 years of service may retire early with an actuarially reduced retirement benefit. No benefits are payable under the Pension Plan with respect to a participant who dies prior to commencement of his or her benefits thereunder subject to certain specified exceptions. Benefits are paid, absent a contrary election, in the form of a single life annuity or qualified joint and survivor annuity depending on the marital status of the participant. Participants vest 100% in their accrued benefits, which are non-forfeitable except upon death or re-employment of the participant, after five years of service. Each participant in the Pension Plan is subject to the maximum benefit limitations provided for under the Code and pursuant to the Pension Plan. As of December 31, 1995, the estimated annual benefits payable upon retirement for W.W. Boisture, Jr., Fred A. Breidenbach, Chris A. Davis and Bryan T. Moss, Jr. are $66,447, $79,738, $97,457 and $17,719, respectively, assuming retirement at age 65 and the retiree's lifetime annuity payout option without available modifications. 60 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock (i) immediately prior to the consummation of the Offerings, giving effect to the Recapitalization and (ii) as adjusted to reflect the sale of the shares of Common Stock pursuant to the Offerings by (a) each person who is known to the Company to be the beneficial owner of more than five percent of the Company's Common Stock after the Offerings, (b) each director of the Company, (c) each other named executive officer, (d) all directors and executive officers of the Company as a group and (e) each other Selling Stockholder participating in the Offering. Except as otherwise indicated, the persons or entities listed below have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them, except to the extent such power may be shared with a spouse.
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED PRIOR TO OFFERINGS (1) NUMBER OF AFTER OFFERINGS (1) ---------------------------- SHARES -------------------------- NAME NUMBER PERCENT (2) OFFERED (1) NUMBER PERCENT (2) - ------------------------------------------ ------------- ------------- ------------- ------------- ----------- 5% STOCKHOLDERS: MBO-IV (3)................................ 39,054,678 59.9% 11,785,598 27,269,080 37.9% Gulfstream Partners (3)................... 10,914,130 16.7% 3,815,069 7,099,061 9.9% Gulfstream Partners II, L.P. (3).......... 15,234,375 23.4% 5,643,617 9,590,758 13.3% DIRECTORS: (4) William R. Acquavella .................... 55,410 * 12,364 43,046 * Robert Anderson .......................... 111,660 * 24,914 86,746 * Charlotte L. Beers ....................... 56,250 * 12,551 43,699 * Thomas D. Bell, Jr. ...................... 225,000 * 50,203 174,797 * W.W. Boisture, Jr. ....................... 356,250 * 133,876 222,374 * Fred A. Breidenbach ...................... 937,500 1.4% 209,182 728,318 1.0% Nicholas C. Forstmann (3)................. 65,203,183 99.9% 21,244,284 43,958,899 61.1% Theodore J. Forstmann (3)................. 65,578,183 99.9% 21,244,284 44,333,899 61.3% Sandra J. Horbach (3)..................... 26,223,505 40.2% 9,458,686 16,764,819 23.3% Drew Lewis (3)............................ 55,410 * 12,364 43,046 * Bryan T. Moss ............................ 337,500 * 150,611 186,889 * Allen E. Paulson ......................... 600,000 * 133,876 466,124 * Roger S. Penske .......................... 75,000 * 25,101 49,899 * Colin L. Powell .......................... -- -- -- -- -- Gerard Roche ............................. 37,500 * 12,551 24,949 * Donald H. Rumsfeld (5).................... 112,500 * 25,102 87,398 * George P. Shultz ......................... 92,910 * 24,914 67,996 * Robert S. Strauss ........................ 92,910 * 24,914 67,996 * OTHER NAMED EXECUTIVE OFFICERS: Chris A. Davis............................ 325,000 * 100,407 224,593 * All Directors and Executive Officers as a Group (19 persons) (3)................... 69,123,983 100.0% 22,197,214 46,926,769 62.6% ADDITIONAL SELLING STOCKHOLDERS: 261 additional Selling Stockholders, each of whom is selling less than 280,000 shares in the Offerings and will beneficially own less than 1% of the outstanding Common Stock after the Offerings................................ 3,444,621 5.0% 1,020,186 2,424,435 3.3%
- -------------- * The percentage of shares of Common Stock beneficially owned does not exceed one percent of the outstanding shares of Common Stock. 61 (1) For purposes of this table, information as to the shares of Common Stock assumes that the Underwriters' over-allotment options are not exercised. For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares of Common Stock which such person has the right to acquire within 60 days after the date of this Prospectus. For purposes of computing the percentage of outstanding shares of Common Stock held by each person or group of persons named above, any shares which such person or persons has the right to acquire within 60 days after the date of this Prospectus is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Each Selling Stockholder other than the Forstmann Little Partnerships (an "Other Selling Stockholder") has the right to participate with the Forstmann Little Partnerships in the Offerings. Other Selling Stockholders may participate in the Offerings with respect to their options regardless of whether they beneficially own the shares subject to such options for purposes of this table. Information about the shares being offered, beneficial ownership after the Offerings and the Selling Stockholders is subject to change pending final confirmation of Selling Stockholder participation in the Offerings, prior to pricing of the Offerings. (2) Based on 67,192,757 shares of Common Stock outstanding prior to the consummation of the Offerings and 71,975,357 shares of Common Stock outstanding after the consummation of the Offerings. (3) Forstmann Little & Co. Subordinated Debt and Equity Management Buyout Partnership-IV ("MBO-IV"), Gulfstream Partners and Gulfstream Partners II, L.P., c/o Forstmann Little & Co., 767 Fifth Avenue, New York, New York, are the Forstmann Little Partnerships and are New York limited partnerships. The general partner of MBO-IV is FLC Partnership, L.P., a limited partnership of which Theodore J. Forstmann, Nicholas C. Forstmann, Steven B. Klinsky, Sandra J. Horbach and Winston W. Hutchins are general partners. The general partner of Gulfstream Partners is FLC XXI Partnership, a general partnership of which Wm. Brian Little, Nicholas C. Forstmann, Steven B. Klinsky, Winston W. Hutchins, John A. Sprague, Wm. Brian Little IRA, Winston W. Hutchins IRA, John A. Sprague IRA and TJ/JA L.P., a Delaware limited partnership ("TJ/JA L.P."), are general partners. The general partner of TJ/JA L.P. is Theodore J. Forstmann. The general partner of Gulfstream Partners II, L.P. is FLC XXIV Partnership, a general partnership of which Theodore J. Forstmann, Nicholas C. Forstmann, Wm. Brian Little, John A. Sprague, Steven B. Klinsky, Sandra J. Horbach and Winston W. Hutchins are general partners. Accordingly, each of such individuals and partnerships may be deemed the beneficial owners of shares owned by MBO-IV, Gulfstream Partners and/or Gulfstream Partners II, L.P., in which such individual or partnership is a partner. For the purposes of this table, such beneficial ownership is included. Ms. Horbach does not have any voting or investment power with respect to, or any economic interest in, the shares of Common Stock held by MBO-IV, and accordingly, Ms. Horbach is not deemed to be the beneficial owner thereof. William R. Acquavella, Drew Lewis and Roger S. Penske are limited partners in Gulfstream Partners and William R. Acquavella and Roger S. Penske are limited partners in Gulfstream Partners II, L.P. There are other limited partners in each of MBO-IV, Gulfstream Partners and Gulfstream Partners II, L.P., none of which is otherwise affiliated with the Company or FLC Partnership, L.P. See "Certain Transactions". (4) Except as discussed in note 3, no director or executive officer currently owns shares of Common Stock; all shares beneficially owned by directors and executive officers are attributable to options exercisable currently or within 60 days of the date of this Prospectus. Not included in the table are shares of Common Stock issuable upon the exercise of options not exercisable within 60 days after the date of this Prospectus in the following amounts: W.W. Boisture, Jr. -- 293,750 shares; Bryan T. Moss -- 337,500 shares; Roger S. Penske -- 37,500 shares; Colin L. Powell -- 56,250 shares; Gerard Roche -- 18,750 shares; George P. Shultz -- 18,750 shares; Robert S. Strauss -- 18,750 shares; and Chris A. Davis -- 125,000 shares. (5) Shares are beneficially owned by an irrevocable trust for the benefit of certain members of Mr. Rumsfeld's family. Mr. Rumsfeld disclaims beneficial ownership of such shares. 62 CERTAIN TRANSACTIONS THE ACQUISITION; SUBSEQUENT EVENTS On February 12, 1990, the Company, through its wholly owned subsidiary GA Acquisition Corp. ("GA"), a corporation formed by an investor group led by Forstmann Little, entered into a stock purchase agreement to acquire from Chrysler the Predecessor Business, in the form of Gulfstream Delaware (then Gulfstream Aerospace Corporation), for a cash purchase price of $850 million (including acquisition costs of $25 million, $8.25 million of which represented a fee payable to Forstmann Little). The Acquisition was consummated on March 19, 1990. The purchase price was funded by the issuance of 25,000,000 shares of common stock (without giving effect to the 1996 Recapitalization), for an aggregate purchase price of $100 million, and $300 million aggregate principal amount of debentures (the "Original Debentures") in three series with maturity dates, respectively, of March 31, 2001, March 31, 2002 and March 31, 2003, with the balance of the purchase price supplied by bank borrowings. Gulfstream Delaware was capitalized with $100 million of its common stock subscribed for by the Company, a $300 million long-term note payable to the Company and bank borrowings. Upon consummation of the Acquisition, GA was merged into Gulfstream Delaware and Gulfstream Delaware became a wholly owned subsidiary of the Company. The Company's only asset is its investment in Gulfstream Delaware. On August 31, 1992, MBO-IV and Gulfstream Partners II, L.P. purchased 16,250,000 additional shares of common stock (without giving effect to the 1996 Recapitalization), for an aggregate purchase price of $100 million, and MBO-IV purchased an additional $150 million aggregate principal amount of the Company's debentures (the "Additional Debentures") at par. The Additional Debentures were issued in three series with maturity dates, respectively, of September 30, 2003, September 30, 2004 and September 30, 2005. Of the proceeds of these issuances, $50 million was contributed to the capital of Gulfstream Delaware, $50 million of the proceeds was used to repurchase the shares of common stock of the Company held by Allen E. Paulson, and $150 million of the proceeds was loaned by the Company to Gulfstream Delaware. This loan was evidenced by a long-term note payable by Gulfstream Delaware to the Company. On November 30, 1993, MBO-IV exchanged the Original Debentures and the Additional Debentures, and all indebtedness represented thereby, including accrued interest, for (i) 7% Cumulative Preferred Stock issued by the Company with a stated value of $468,937,500 and 11,045,833 shares of Class B Common Stock (without giving effect to the 1996 Recapitalization). The 7% Cumulative Preferred has a liquidation preference equal to its stated value, plus all accrued and unpaid dividends. The Company's Certificate of Incorporation was amended to reclassify the Company's common stock outstanding prior to November 30, 1993 as Class A Common Stock. Each share of Class A Common Stock issued on or after August 31, 1992 was designated as a share of Series A-1 Common Stock, and each share of Class A Common Stock which was issued prior to August 31, 1992 was designated as a share of Series A-2 Common Stock. Also on November 30, 1993, the long-term notes payable by Gulfstream Delaware to the Company in principal amounts of $300 million and $150 million, respectively, were contributed to the capital of Gulfstream Delaware. After providing for the 7% Cumulative Preferred Stock, the Class A Common Stock has a preference with respect to dividends, other distributions and in liquidation over all other classes of common stock of the Company currently outstanding in the amount of approximately $186 million. After providing for the 7% Cumulative Preferred Stock and the Class A Common Stock preferences, the Class A Common Stock is entitled to 75% and the Class B Common Stock is entitled to 25% of any dividends and other distributions or in liquidation. On June 30, 1996, the Company repurchased approximately 4 shares of 7% Cumulative Preferred Stock at their stated value of $18,937,500, and paid accumulated dividends of $96,135,587. Funds for the redemption and dividends were provided by the Company's operations. Immediately prior to, or simultaneously with, the closing of the Offerings, (i) the Company will repurchase all of the remaining outstanding 7% Cumulative Preferred Stock, (ii) all of the Class A Series A-2 Common Stock and Class B Common Stock will be exchanged for shares of Class A Series A-1 Common Stock on a 1.0308-for-1 and a 1.0183-for-1 basis, respectively, (iii) the Class A 63 Series A-1 Common Stock will be redesignated as Common Stock and (iv) there will be a 1.5-for-1 split of the Common Stock. The exchange ratios set forth in clause (ii) above for the exchange of shares of Class A Series A-2 and Class B Common Stock for shares of Class A Series A-1 Common Stock have been calculated based on an assumed initial public offering price of $23.00 per share (the mid-point of the range of the initial public offering prices set forth on the cover of this Prospectus). The actual exchange ratios will be determined at the time of pricing of the Offerings, based on the actual initial public offering price. See "Description of Capital Stock". RELATED PARTY TRANSACTIONS Thomas D. Bell, a director and former Vice Chairman of the Company is President and Chief Executive Officer of, and during 1994 and part of 1995 served as an executive officer of, Burson-Marstellar, an advertising and public relations services firm. See "-- Directors and Executive Officers". Gulfstream paid to Burson-Marstellar approximately $2.7, $3.8, and $1.0 million, in 1994, 1995 and the first six months of 1996, respectively, for advertising and public relations services. The Company believes the terms of such transactions were at least as favorable to the Company as those which could have been obtained from an unrelated third party. Drew Lewis, Colin L. Powell, Donald H. Rumsfeld, George P. Shultz and Robert S. Strauss, directors of the Company, are members of an advisory committee to FLC Partnership, L.P. Gulfstream leased from Allen E. Paulson, one of its directors, through August 1993, an aircraft used for sales demonstrations and customer support purposes. Total lease expense for 1993 was $834,000. The Company believes the terms of such lease were at least as favorable to the Company as those which could have been obtained from an unrelated third party. See also "Management -- Compensation Committee Interlocks and Insider Participation". 64 DESCRIPTION OF CAPITAL STOCK GENERAL Pursuant to the Company's Amended and Restated Certificate of Incorporation, the Company's authorized capital stock currently consists of (i) 10,000,000 shares of preferred stock, par value $.01 per share ("Preferred Stock"), approximately 96 shares of which are outstanding as of the date of this Prospectus, (ii) 109,273,000 shares of common stock, par value $.01 per share, of which 93,493,000 shares are designated Class A Common Stock, Series A-1 and Series A-2, and 15,780,000 shares are designated Class B Common Stock. As of June 30, 1996 (which is prior to the exchange and reclassification described below), 33,139,500 and 11,045,833 shares of Class A Common Stock (Series A-1 and Series A-2) and Class B Common Stock, respectively, were issued and outstanding and held of record by an aggregate of 5 stockholders. Immediately prior to, or simultaneous with, the closing of the Offerings (i) all of the outstanding Preferred Stock will be repurchased, (ii) each outstanding share of Class A Series A-2 Common Stock will be exchanged for 0.9701 shares of Class A Series A-1 Common Stock and each outstanding share of Class B Common Stock will be exchanged for 0.9821 shares of Class A Series A-1 Common Stock, (iii) the Class A Series A-1 Common Stock will be redesignated as Common Stock and adjusted for a stock split of the Common Stock on a 1.5-for-1 basis and the Certificate of Incorporation will be amended and restated (the "Restated Certificate of Incorporation") to reflect a single class of common stock par value $.01 per share (the "Common Stock"), and (iv) the number of authorized shares of Common Stock and Preferred Stock will be increased (collectively, the "1996 Recapitalization"). Pursuant to the Restated Certificate of Incorporation, the Company's authorized capital stock will consist of (i) 300,000,000 shares of Common Stock of which 72,133,976 shares will be issued and outstanding upon completion of the Offerings (assuming the Underwriters' over-allotment options are not exercised) and (ii) 20,000,000 shares of Preferred Stock, none of which will be issued and outstanding upon completion of the Offerings. All outstanding shares of the Common Stock are, and the shares offered hereby will be, when issued and sold, validly issued, fully paid and nonassessable. After the consummation of the Offerings, the Forstmann Little Partnerships will beneficially own approximately 61.2% of the Common Stock (55.4% on a fully diluted basis) or 55.7% (50.9% on a fully diluted basis), assuming that the Underwriters' over-allotment options are exercised in full. As long as the Forstmann Little Partnerships continue to own in the aggregate more than 50% of the Company's outstanding shares of Common Stock, they will collectively have the power to elect the entire Board of Directors of the Company and, in general, to determine (without the consent of the Company's other stockholders) the outcome of any corporate transaction or other matter submitted to the stockholders for approval, including mergers, consolidations and the sale of all or substantially all of the Company's assets, to prevent or cause a change in control of the Company, and to approve substantially all amendments to the Restated Certificate of Incorporation. See "Risk Factors -- Control by Principal Stockholders; Limitations on Change of Control; Benefits to Principal Stockholders". COMMON STOCK Each holder of Common Stock is entitled to one vote for each share owned of record on all matters submitted to a vote of stockholders. There are no cumulative voting rights. Accordingly, the holders of a majority of the shares voting for the election of directors can elect all the directors if they choose to do so, subject to any voting rights of holders of Preferred Stock to elect directors. Subject to the preferential rights of any outstanding series of Preferred Stock, and to the restrictions on payment of dividends imposed by the Credit Agreement (as described in "Dividend Policy" and "Description of Credit Agreement"), the holders of Common Stock will be entitled to such dividends as may be declared from time to time by the Board of Directors from funds legally available therefor, and will be entitled, after payment of all prior claims, to receive pro rata all assets of the Company upon the liquidation, dissolution or winding up of the Company. Holders of Common Stock have no redemption or conversion rights or preemptive rights to purchase or subscribe for securities of the Company. 65 The Common Stock has been approved for listing on the New York Stock Exchange under the symbol "GAC", subject to official notice of issuance. PREFERRED STOCK The authorized capital stock of the Company includes 20,000,000 shares of Preferred Stock, none of which are currently issued or outstanding. The Company's Board of Directors is authorized to divide the Preferred Stock into series and, with respect to each series, to determine the preferences and rights and the qualifications, limitations or restrictions thereof, including the dividend rights, conversion rights, voting rights, redemption rights and terms, liquidation preferences, sinking fund provisions, the number of shares constituting the series and the designation of such series. The Board of Directors could, without stockholder approval, issue Preferred Stock with voting and other rights that could adversely affect the voting power of the holders of Common Stock and which could have certain anti-takeover effects. The Company has no present plans to issue any shares of Preferred Stock. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Restated Certificate of Incorporation provides that a director of the Company will not be personally liable to the Company or its stockholders for monetary damages for any breach of fiduciary duty as a director, except in certain cases where liability is mandated by the Delaware General Corporation Law (the "DGCL"). The Restated Certificate of Incorporation and the By-Laws of the Company provide for indemnification, to the fullest extent permitted by the DGCL, of any person who is or was involved in any manner in any pending, threatened or completed investigation, claim or other proceeding by reason of the fact that such person is or was a director or officer of the Company or, at the request of the Company, is or was serving as a director or officer of another entity, against all expenses, liabilities, losses and claims actually incurred or suffered by such person in connection with the investigation, claim or other proceeding. The Company and Gulfstream Delaware have entered into, or intend to enter into, agreements to provide indemnification for the Company's directors and certain officers in addition to the indemnification provided for in the Restated Certificate of Incorporation and the By-Laws. These agreements, among other things, will indemnify the Company's directors and certain officers to the fullest extent permitted by Delaware law for certain expenses (including attorneys' fees) and all losses, claims, liabilities, judgments, fines and settlement amounts incurred by such person arising out of or in connection with such person's service as a director or officer of the Company or another entity for which such person was serving as an officer or director at the request of the Company. There is no pending litigation or proceeding involving a director, officer, employee or other agent of the Company or any other entity as to which indemnification is being sought from the Company, and the Company is not aware of any pending or threatened litigation that may result in claims for indemnification by a director, officer, employee or other agent. DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS Upon completion of the Offerings, the Company will be subject to the provisions of section 203 ("Section 203") of the DGCL. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns (or, in certain cases, within three years prior, did own) 15% or more of the corporation's voting stock. Under Section 203, a business combination between the Company and an interested stockholder is prohibited unless it satisfies one of the following conditions: (i) the Company's Board of Directors must have previously approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder, or (ii) on consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the Company outstanding at the time the transaction commenced (excluding, for purposes of determining the number of shares outstanding, shares owned by (a) persons who are directors and also officers and (b) employee stock plans, in certain instances) or (iii) the business combination is approved 66 by the Board of Directors and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. The Restated Certificate of Incorporation provides for a classified Board of Directors consisting of three classes. Each class will consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The term of the initial Class I directors will terminate on the date of the 1997 annual meeting of stockholders; the term of the initial Class II directors will terminate on the date of the 1998 annual meeting of stockholders; and the term of the initial Class III directors will terminate on the date of the 1999 annual meeting of stockholders. Beginning in 1997, at each annual meeting of stockholders, successors to the class of directors whose term expires at that annual meeting will be elected for a three-year term and until their respective successors are elected and qualified. A director may only be removed with cause by the affirmative vote of the holders of a majority of the outstanding shares of capital stock entitled to vote in the election of directors. LIMITATIONS ON CHANGES IN CONTROL The Restated Certificate of Incorporation provides for a classified Board of Directors consisting of three classes serving staggered three-year terms. The Restated Certificate of Incorporation also provides that a director may only be removed for cause by the affirmative vote of the holders of a majority of the shares entitled to vote for the election of directors. These provisions, when coupled with the provisions in the Restated Certificate of Incorporation and the Company's By-laws authorizing the Board of Directors to fill newly created directorships and vacancies on the Board of Directors, will preclude stockholders from removing incumbent directors without cause and simultaneously gaining control of the Board of Directors by filling the vacancies created by such removal with their nominees. The foregoing provisions, the provisions authorizing the Board of Directors to issue Preferred Stock without stockholder approval, and the provisions of Section 203 of the DGCL, could have the effect of delaying, deferring or preventing a change in control of the Company or the removal of existing management. In addition, the Company's By-Laws establish advance notice procedures for stockholders to make nominations of candidates for election as directors, or bring other business before an annual meeting of stockholders of the Company (the "Stockholder Notice Procedures"). The Stockholder Notice Procedures provide that only persons who are nominated by or at the direction of the Company's Board of Directors, or by a stockholder who has given timely written notice to the Secretary of the Company prior to the meeting at which directors are to be elected, will be eligible for election as directors of the Company. The Stockholder Notice Procedures also provide that at an annual meeting only such business may be conducted as has been specified in the notice of the meeting given by, or at the direction of, the Company's Board of Directors (or any duly authorized committee thereof) or by a stockholder who has given timely written notice to the Secretary of the Company of such stockholder's intention to bring such business before such meeting. Under the Stockholder Notice Procedures, notice of stockholder nominations to be made or business to be conducted at an annual meeting must be received by the Company not less than 60 days nor more than 90 days prior to the date of the annual meeting or, in the event that less than 70 days notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, then notice must be received by the close of business on the tenth day following the day on which such notice was mailed or such public disclosure was made, whichever first occurs. Under the Stockholder Notice Procedures, notice of a stockholder nomination to be made at a special meeting at which directors are to be elected must be received by the Company not later than the close of business on the tenth day following the day on which such notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. TRANSFER AGENT The transfer agent for the Common Stock will be ChaseMellon Shareholder Services, L.L.C. 67 DESCRIPTION OF CREDIT AGREEMENT In connection with the Offerings, Gulfstream Delaware has received a Commitment Letter pursuant to which Chase and CSI have agreed, subject to the terms and conditions thereof, to provide the Bank Facility, consisting of the $400 million Term Loan Facility and the $250 million Revolving Credit Facility. The Commitment Letter provides that the closing of the funding under the Credit Agreement is to be consummated concurrently with the consummation of the Offerings. The commitments of Chase to provide the financing pursuant to the Bank Facility expire on December 31, 1996, unless the closing thereunder has previously occurred. The following summary of the Credit Agreement, which is expected to be entered into simultaneously with the Offerings, does not purport to be complete and is qualified in its entirety by reference to the Credit Agreement a copy of which will be filed as an exhibit to the Registration Statement of which this Prospectus is a part. Each capitalized term used in this Section but not defined herein has the meaning ascribed to the term in the Credit Agreement. TERM LOAN The Bank Facility will include a $400 million term loan. The term loan will be repayable in consecutive quarterly installments commencing on June 30, 1997 with a final maturity of September 30, 2002, in aggregate amounts for each of the following periods as follows (with the installments within each year being equal):
YEAR AMOUNT - ------------------------------------------------------------------------------ -------------- 1997.......................................................................... $ 20,000,000 1998.......................................................................... $ 75,000,000 1999.......................................................................... $ 75,000,000 2000.......................................................................... $ 75,000,000 2001.......................................................................... $ 75,000,000 2002.......................................................................... $ 80,000,000
The Term Loans may be prepaid at any time, in whole or in part, without premium or penalty. In addition, the Bank Facility provides for mandatory prepayments, subject to certain exceptions, of the Term Loan out of the net proceeds of the sale or disposition of certain assets. REVOLVING CREDIT FACILITY The Revolving Credit Facility is a $250 million revolving credit facility. A portion of the Revolving Credit Facility, in an amount not to exceed $150 million, may be used (to the extent available) for standby and commercial letters of credit, and up to $200 million of the Revolving Credit Facility will be made available to the Company by Chase to provide cash borrowings. In addition, up to $20 million of the Revolving Credit Facility may be used pursuant to a swing line facility. Revolving Credit Loans may be prepaid and commitments may be reduced by Gulfstream Delaware in minimum amounts of $2,500,000 or whole multiples of $1,000,000 in excess thereof. USE OF PROCEEDS The proceeds from the Term Loan Facility, together with the proceeds of the Offerings, will be used to fund (i) the repurchase of all the Company's 7% Cumulative Preferred Stock plus approximately $7.9 million of unpaid dividends, (ii) the repayment of outstanding indebtedness under the Company's existing credit facilities (which was $119.8 million at June 30, 1996) and (iii) the payment of fees and expenses incurred in connection with the Offerings and refinancing of the Company's indebtedness. Borrowings under the Revolving Credit Facility will be used for the same purposes for which Term Loans may be used and to finance the customary working capital needs of Gulfstream Delaware and for other general corporate purposes. INTEREST RATE The Loans will bear interest at a rate equal to, at the Company's option, (i) a base rate (the "ABR") equal to the greater of (A) the Chase prime or reference rate and (B) the overnight federal funds rate plus 68 .5% in effect from time to time plus the Applicable Margin for ABR Loans (the "ABR Loans"); or (ii) the Eurodollar rate (the "Eurodollar Rate") for the respective interest period plus the Applicable Margin for Eurodollar Loans (the "Eurodollar Loans"). All swing line loans will bear interest based upon the ABR or money market rates quoted by Chase as the swing line lender (in each case plus the Applicable Margin for ABR Loans). The Applicable Margin initially will be set at 0.75% for ABR Loans and 1.75% for Eurodollar Loans, and will vary depending upon the Company's ratio of Total Consolidated Debt to Consolidated EBITDA (which, as defined in the Credit Agreement, adds back Gulfstream V research and development expenses to Consolidated EBITDA) and whether such loan is an ABR Loan or a Eurodollar Loan, as set forth below:
RATIO OF TOTAL CONSOLIDATED EURODOLLAR DEBT TO CONSOLIDATED EBITDA ABR LOANS LOANS - --------------------------------------------------------------------------------------------- ----------- ------------- Equal to or greater than 3.50 to 1........................................................... 1.00% 2.00% Equal to or greater than 3.00 to 1 but less than 3.50 to 1................................... 0.75% 1.75% Equal to or greater than 2.50 to 1 but less than 3.00 to 1................................... 0.50% 1.50% Equal to or greater than 2.00 to 1 but less than 2.50 to 1................................... 0.25% 1.25% Equal to or greater than 1.50 to 1 but less than 2.00 to 1................................... 0% 1.00% Less than 1.50 to 1.......................................................................... 0% 0.75%
Interest on ABR Loans will be payable quarterly in arrears. Interest on Eurodollar Loans will be payable on the last day of each relevant interest period and, in the case of any interest period of six months, on the date three months after the first day of such interest period. Overdue principal, interest, fees and other amounts shall bear interest at 2% above the rate otherwise applicable thereto (or the ABR Rate, in the case of amounts other than principal). FEES Gulfstream Delaware will be required to pay commitment fees on the average daily unutilized portion of the Term Loan Facility and the Revolving Credit Facility, which will initially be set at .375% and which may range from .250% to .500% per annum based on the Company's ratio of Total Consolidated Debt to Consolidated EBITDA. The Commitment Letter provides for additional customary fees and charges, including (i) an arrangement fee on the aggregate amount of the Term Loan Facility and Revolving Credit Facilities payable on the Closing Date, (ii) a commitment fee on the aggregate amount of the Term Loan Facility and Revolving Credit Facility from the date of the initial syndication to the earlier of the Closing Date or the termination of the commitments under the Commitment Letter and (iii) an annual administrative agent's fee. GUARANTEES The Credit Agreement will be guaranteed by the Company and by each of the Company's direct and indirect subsidiaries which have a total asset value which exceeds $20 million (and the stock of such subsidiaries will be pledged in support of such guarantee), other than foreign subsidiaries or other subsidiaries if more than 65% of the assets of such subsidiaries are securities of foreign subsidiaries. In addition any subsidiary of the Company that becomes a Material Subsidiary (as defined in the Credit Agreement) must guarantee amounts owed under the Credit Agreement and the Company must pledge its stock in such subsidiary in support of such obligations. CONDITIONS The initial funding by the Lenders under the Credit Agreement will be subject to a number of conditions, including among other things, (a) the repayment of outstanding indebtedness under the Company's existing credit facilities, (b) the absence of any material adverse change in the business, assets, operations, condition (financial or otherwise) or prospects of Gulfstream Delaware and its subsidiaries taken as a whole, (c) the successful consummation of the Offerings, including net proceeds to the Company of at least $75 million and (d) other conditions customary for transactions similar to those contemplated by the Credit Agreement. 69 COVENANTS The Credit Agreement will contain customary affirmative and negative covenants, including limitations on the ability of the Company and its subsidiaries to pay cash dividends, as well as financial covenants, under which the Company must operate. Failure to comply with any of such covenants will permit the Administrative Agent to accelerate, subject to the terms of the Credit Agreement, the maturity of all amounts outstanding under the Credit Agreement, and to terminate Gulfstream Delaware's ability to borrow under the Revolving Credit Facility. EVENTS OF DEFAULT The Credit Agreement will contain customary events of default appropriate in the context of the proposed transaction, including nonpayment of principal, interest, fees or other amounts, violation of covenants, material inaccuracy of representations and warranties, cross-default of indebtedness in excess of $10 million, bankruptcy, final judgment unpaid or not pending appeal in excess of $10 million and not covered by insurance, certain ERISA liabilities, invalidity of loan documents or security interests, incurrence of liabilities or conduct of business by the Company and change of control. The Credit Agreement is expected to provide that a change in control will occur (i) if the Company ceases to own 100% of the issued and outstanding capital stock of Gulfstream Delaware, (ii) until the aggregate outstanding principal amount of Term Loans has been reduced to $200 million or less or the Leverage Ratio is 1.5 to 1.0 or less, if the Forstmann Little Partnerships and their affiliates beneficially own less than 25% of the outstanding voting stock of Gulfstream Delaware, or (iii) if at any time that the Forstmann Little Partnerships and their affiliates beneficially own less than a majority, but more than 25%, of the outstanding voting stock of Gulfstream Delaware, any event occurs that would result in any person or group acquiring beneficial ownership of a percentage of the outstanding voting stock of Gulfstream Delaware or the Company greater than the percentage beneficially owned by the Forstmann Little Partnerships and their affiliates, or (iv) if at a time that the Forstmann Little Partnerships and their affiliates beneficially own less than 25% of the outstanding voting stock of Gulfstream Delaware, any event occurs that would result in any person or group (other than the Forstmann Little Partnerships and their affiliates) acquiring beneficial ownership of 25% or more of the outstanding voting stock of Gulfstream Delaware or the Company, or (v) if any person or group (other than the Forstmann Little Partnerships and their affiliates) at any time has the right to designate or elect a majority of the Board of Directors of Gulfstream Delaware or the Company. 70 SHARES ELIGIBLE FOR FUTURE SALE Upon the consummation of the Offerings, the Company will have approximately 72,133,976 shares of Common Stock outstanding, assuming no exercise of the Underwriters' over-allotment options. Of these shares, only the 28,000,000 shares of Common Stock sold in the Offerings will be freely tradeable without registration under the Securities Act and without restriction by persons other than "affiliates" of the Company (as defined below). The 44,120,230 shares of Common Stock held by the Forstmann Little Partnerships after the Offerings will be "restricted" securities under the meaning of Rule 144 under the Securities Act ("Rule 144") and may not be sold in the absence of registration under the Securities Act, unless an exemption from registration is available, including exemptions pursuant to Rule 144 or Rule 144A under the Securities Act. In general, under Rule 144 as currently in effect, if two years have elapsed since the later of the date of acquisition of restricted shares from the Company or any affiliate of the Company, the acquiror or subsequent holder is entitled to sell, within any three-month period, that number of shares that does not exceed the greater of 1% of the then outstanding shares of Common Stock or the average weekly trading volume of the shares of Common Stock on all exchanges and/or reported through the automated quotation system of a registered securities association during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission (the "Commission"). Sales under Rule 144 are also subject to certain restrictions relating to manner of sale, notice requirements and the availability of current public information about the Company. If three years have elapsed since the later of the date of acquisition of restricted shares from the Company or from any affiliate of the Company, and the acquiror or subsequent holder thereof is deemed not to have been an affiliate of the Company at any time during the 90 days preceding a sale, such person would be entitled to sell such shares in the public market under Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information requirements or notice requirements. The Commission has proposed amendments to Rule 144, including amendments to reduce the Rule 144 holding period from two years to one year and the Rule 144(k) holding period from three years to two years. The Company cannot predict whether or when any of the proposed amendments will be adopted. As defined in Rule 144, an "affiliate" of an issuer is a person that directly or indirectly controls, or is controlled by, or is under the common control with, such issuer. The Company has agreed, during the period beginning from the date of this Prospectus and continuing to and including the date 180 days after the date of this Prospectus, not to offer, sell, contract to sell or otherwise dispose of, or file a registration statement (other than a registration statement on Form S-8 with respect to an employee benefit plan) with respect to, any Common Stock, or any securities of the Company (other than pursuant to employee stock option and incentive plans and agreements, upon conversion of outstanding convertible securities or grants of options to directors), which are substantially similar to the Common Stock or any other securities which are exercisable or exchangeable for, convertible into or whose exercise or settlement price is derivable from the price of, Common Stock or any such securities substantially similar to the Common Stock. The Selling Stockholders and all directors and executive officers of the Company have agreed not to offer, sell or otherwise dispose of any Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Goldman, Sachs & Co., except for certain transfers to immediate family members, trusts for the benefit of the Selling Stockholder and his or her immediate family, charitable foundations and controlled entities so long as the transferee agrees to be bound by the foregoing restrictions. Pursuant to Rule 144 and after giving effect to the agreements described in the immediately preceding paragraph, the 44,120,230 shares held by the Forstmann Little Partnerships will be eligible for sale in the public market beginning 180 days after the date of this Prospectus, subject to the volume limitations under Rule 144 described above. 71 REGISTRATION RIGHTS Pursuant to the Registration Rights Agreement, the Forstmann Little Partnerships have the right, under certain circumstances and subject to certain conditions, to require the Company to effect up to six registrations under the Securities Act covering all or a portion of the shares of Common Stock held by them. Under the Registration Rights Agreement, the Company will pay all expenses (other than underwriting discounts and commissions) in connection with such registrations made at the request of the Forstmann Little Partnerships. In addition, whenever the Company proposes to register any of its securities under the Securities Act, the Forstmann Little Partnerships have the right to include all or a portion of their shares in such registration. The Company will pay all expenses in connection with such registrations. The Registration Rights Agreement also provides that the Company will indemnify the Forstmann Little Partnerships against certain liabilities, including liabilities under the Securities Act, incurred in connection with such registrations. The Forstmann Little Partnerships have informed the Company that they have no present intention of exercising their registration rights after this Offering, and they have agreed not to exercise such rights for a period of 180 days after the date of this Prospectus. None of the Company's other stockholders or optionees has an independent right to require the Company to register shares of Common Stock under the Securities Act. Pursuant to agreements between the holders of stock or options and the Company, such holders have, subject to certain conditions, the right to participate in sales, including through registered public offerings, of shares of Common Stock by the Forstmann Little Partnerships (and to have their expenses paid on the same basis as the expenses of the Forstmann Little Partnerships). See "Management -- Stock Options -- Stock Option Plan -- Stockholder's Agreement". Prior to the Offerings, there has been no public market for the Common Stock. Trading of the Common Stock is expected to commence following the consummation of the Offerings. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price prevailing from time to time. However, sales by the Forstmann Little Partnerships of substantial amounts of Common Stock, or the perception that such sales could occur, could adversely affect prevailing market prices of the Common Stock and could impair the Company's future ability to raise capital through an offering of its equity securities. VALIDITY OF COMMON STOCK The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional corporations), One New York Plaza, New York, New York 10004-1980, and for the Underwriters by Sullivan & Cromwell, 125 Broad Street, New York, New York 10004-2498. Fried, Frank, Harris, Shriver & Jacobson renders legal services to Forstmann Little on a regular basis. EXPERTS The financial statements as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995 included in this Prospectus and the related financial statement schedules included elsewhere in the Registration Statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and elsewhere in the Registration Statement, and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement (which term shall encompass any amendments thereto) under the Securities Act with respect to the securities offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto, to which reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete; with 72 respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. Upon completion of the Offerings, the Company will be subject to the informational requirements of the Exchange Act, and, in accordance therewith, will file reports and other information with the Commission. The Registration Statement, the exhibits and schedules forming a part thereof and the reports and other information filed by the Company with the Commission in accordance with the Exchange Act may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available for inspection and copying at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Copies of such material will also be available for inspection at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. 73 INDEX TO FINANCIAL STATEMENTS
PAGE ----- Independent Auditors' Report............................................................................... F-2 Consolidated Balance Sheets as of December 31, 1994 and 1995 and (Unaudited) June 30, 1996................. F-3 Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and (Unaudited) for the six-month periods ended June 30, 1995 and 1996.................................................... F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1994 and 1995 and (Unaudited) for the six-month period ended June 30, 1996.................................................. F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and (Unaudited) for the six-months periods ended June 30, 1995 and 1996................................................... F-6 Notes to Consolidated Financial Statements................................................................. F-7
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Gulfstream Aerospace Corporation: We have audited the accompanying consolidated balance sheets of Gulfstream Aerospace Corporation and its subsidiaries as of December 31, 1994 and 1995 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries at December 31, 1994 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Atlanta, Georgia February 2, 1996 F-2 GULFSTREAM AEROSPACE CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
DECEMBER 31, JUNE 30, ---------------------------- 1996 1994 1995 ------------- ------------ -------------- (UNAUDITED) (NOTE 1) ASSETS Cash and cash equivalents........................................... $ 23,605 $ 223,312 $ 213,268 Accounts receivable (less allowance for doubtful accounts:-- $1,312, $3,437 and $3,521)................................................ 176,936 82,613 99,247 Inventories......................................................... 289,331 393,125 567,706 Prepaids and other assets........................................... 3,130 2,362 2,496 ------------ -------------- ------------- Total current assets............................................ 493,002 701,412 882,717 Property and equipment, net......................................... 117,621 127,151 126,118 Tooling............................................................. 20,719 46,412 47,311 Goodwill, net of accumulated amortization:--$5,166, $6,244 and $6,783............................................................ 37,956 36,877 36,339 Other intangible assets, net........................................ 65,699 60,628 58,092 Other assets and deferred charges................................... 10,764 8,773 8,794 ------------ -------------- ------------- Total Assets........................................................ $ 745,761 $ 981,253 $ 1,159,371 ------------ -------------- ------------- ------------ -------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt................................... $ 31,814 $ 53,065 $ 39,798 Accounts payable.................................................... 56,153 58,191 62,528 Accrued liabilities................................................. 69,974 79,911 87,420 Customer deposits--current portion.................................. 33,148 153,269 460,463 ------------ -------------- ------------- Total current liabilities....................................... 191,089 344,436 650,209 Long-term debt...................................................... 146,331 93,266 80,000 Accrued postretirement benefit cost................................. 95,626 102,021 105,341 Customer deposits--long-term........................................ 60,512 158,325 136,400 Other long-term liabilities......................................... 63,253 65,665 64,318 Commitments and contingencies (Note 14) Stockholders' equity Preferred stock, Series A, 7%--cumulative; par value $.01; shares authorized: 10,000,000; shares issued: 100 in 1994 and 1995 and 96 in 1996; Liquidation preference, $546,282,058 in 1995 and $450,000,000 in 1996.............................................. 468,938 468,938 450,000 Common stock, Class A, Series A-1 and A-2, par value $.01; shares authorized: 93,493,000; shares issued: 41,345,833 in 1994, 41,347,833 in 1995 and 41,360,333 in 1996......................... 413 413 414 Common stock, Class B, par value $.01; shares authorized: 15,780,000; shares issued: 11,045,833............................. 110 110 110 Additional paid-in capital.......................................... 210,621 210,631 219,751 Accumulated deficit................................................. (439,507) (410,613) (491,390) Minimum pension liability........................................... (1,136) (1,450) (1,450) Unamortized stock plan expense...................................... (3,843) Treasury stock, Common stock, Class A, Series A-2, 8,220,833 shares............................................................ (50,489) (50,489) (50,489) ------------ -------------- ------------- Total stockholders' equity...................................... 188,950 217,540 123,103 ------------ -------------- ------------- Total Liabilities and Stockholders' Equity.................. $ 745,761 $ 981,253 $ 1,159,371 ------------ -------------- ------------- ------------ -------------- -------------
See notes to consolidated financial statements F-3 GULFSTREAM AEROSPACE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED JUNE YEARS ENDED DECEMBER 31, 30, --------------------------------------- ------------------------ 1993 1994 1995 1995 1996 ----------- ----------- ------------- ----------- ----------- (UNAUDITED) Net Revenues................................. $ 887,113 $ 901,638 $ 1,041,514 $ 474,884 $ 458,672 Costs and Expenses Cost of sales.............................. 737,361 710,554 835,547 378,022 354,841 Selling and administrative................. 97,011 82,180 93,239 42,651 45,190 Stock option compensation expense.......... 5,200 Research and development................... 47,990 57,438 63,098 34,076 34,746 Amortization of intangibles and deferred charges.................................. 27,613 7,583 7,540 3,777 3,763 Restructuring charge....................... 203,911 ----------- ----------- ------------- ----------- ----------- Total Costs and Expenses................. 1,113,886 857,755 999,424 458,526 443,740 ----------- ----------- ------------- ----------- ----------- Income (Loss) From Operations........ (226,773) 43,883 42,090 16,358 14,932 Interest income.............................. 486 367 5,508 1,426 7,593 Interest expense............................. (48,940) (20,686) (18,704) (9,945) (7,166) ----------- ----------- ------------- ----------- ----------- Net Income (Loss).................... $ (275,227) $ 23,564 $ 28,894 $ 7,839 $ 15,359 ----------- ----------- ------------- ----------- ----------- ----------- ----------- ------------- ----------- ----------- Pro forma, for 1996 recapitalization and offerings, net income (loss) per share (Unaudited) (Note 1)....................... $ .18 $ (.02) $ .08 ------------- ----------- ----------- ------------- ----------- ----------- Pro forma, for 1996 recapitalization and offerings, common shares outstanding (Unaudited) (Note 1)....................... 78,228 78,228 78,228 ------------- ----------- ----------- ------------- ----------- -----------
See notes to consolidated financial statements F-4 GULFSTREAM AEROSPACE CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
COMMON STOCK -------------------------------- ADDITIONAL PREFERRED STOCK CLASS A PAID-IN ACCUMULATED SERIES A SERIES A-1 & A-2 CLASS B CAPITAL DEFICIT ---------------- ------------------- ----------- ----------- ------------- BALANCE AS OF JANUARY 1, 1993........... $ 413 $ 210,621 $ (187,734) Net Loss................................ (275,227) Issuance of common stock................ $ 110 (110) Purchase of treasury stock.............. Issuance of preferred stock............. $ 468,938 Minimum pension liability adjustment.... ---------------- ----- ----- ----------- ------------- BALANCE AS OF DECEMBER 31, 1993......... 468,938 413 110 210,621 (463,071) Net Income.............................. 23,564 Minimum pension liability adjustment.... ---------------- ----- ----- ----------- ------------- BALANCE AS OF DECEMBER 31, 1994......... 468,938 413 110 210,621 (439,507) Net Income.............................. 28,894 Minimum pension liability adjustment.... Issuance of stock pursuant to stock options............................... 10 ---------------- ----- ----- ----------- ------------- BALANCE AS OF DECEMBER 31, 1995......... 468,938 413 110 210,631 (410,613) Net Income (Unaudited).................. 15,359 Issuance of stock pursuant to stock options (Unaudited)................... 1 77 Repurchase of preferred stock (Unaudited)........................... (18,938) Preferred stock dividend (Unaudited).... (96,136) Issuance of compensatory common stock options (Unaudited)................... 9,043 ........................................ ---------------- ----- ----- ----------- ------------- BALANCE AS OF JUNE 30, 1996 (UNAUDITED)........................... $ 450,000 $ 414 $ 110 $ 219,751 $ (491,390) ---------------- ----- ----- ----------- ------------- ---------------- ----- ----- ----------- ------------- MINIMUM UNAMORTIZED TOTAL PENSION STOCK PLAN TREASURY STOCKHOLDERS' LIABILITY EXPENSE STOCK EQUITY ----------- ------------- ----------- -------------- BALANCE AS OF JANUARY 1, 1993........... $ (50,000) $ (26,700) Net Loss................................ (275,227) Issuance of common stock................ 0 Purchase of treasury stock.............. (489) (489) Issuance of preferred stock............. 468,938 Minimum pension liability adjustment.... $ (2,127) (2,127) ----------- ------------- ----------- -------------- BALANCE AS OF DECEMBER 31, 1993......... (2,127) 0 (50,489) 164,395 Net Income.............................. 23,564 Minimum pension liability adjustment.... 991 991 ----------- ------------- ----------- -------------- BALANCE AS OF DECEMBER 31, 1994......... (1,136) 0 (50,489) 188,950 Net Income.............................. 28,894 Minimum pension liability adjustment.... (314) (314) Issuance of stock pursuant to stock options............................... 10 ----------- ------------- ----------- -------------- BALANCE AS OF DECEMBER 31, 1995......... (1,450) 0 (50,489) 217,540 Net Income (Unaudited).................. 15,359 Issuance of stock pursuant to stock options (Unaudited)................... 78 Repurchase of preferred stock (Unaudited)........................... (18,938) Preferred stock dividend (Unaudited).... (96,136) Issuance of compensatory common stock options (Unaudited)................... $ (3,843) 5,200 ........................................ 0 ----------- ------------- ----------- -------------- BALANCE AS OF JUNE 30, 1996 (UNAUDITED)........................... $ (1,450) $ (3,843) $ (50,489) $ 123,103 ----------- ------------- ----------- -------------- ----------- ------------- ----------- --------------
See notes to consolidated financial statements. F-5 GULFSTREAM AEROSPACE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)....................................... $(275,227) $ 23,564 $ 28,894 $ 7,839 $ 15,359 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................... 47,866 24,151 23,094 11,530 12,242 Postretirement benefit cost........................... 17,086 6,624 6,395 3,220 3,320 Provision for loss on pre-owned aircraft.............. 6,100 208 2,050 1,450 800 Restructuring charge.................................. 203,911 Non-cash stock option compensation expense............ 5,200 All other operating activities........................ (1,652) 453 2,277 133 201 Change in assets and liabilities: Accounts receivable................................. (9,443) (84,613) 91,817 5,945 (16,784) Inventories......................................... (24,131) 155,009 (105,844) (6,868) (175,381) Prepaids and other assets........................... 689 (48) 768 (1,288) (134) Other assets and deferred charges................... (3,670) 1,179 600 360 (710) Notes payable....................................... (10,490) (29,682) Accounts payable.................................... 38,784 (32,303) 2,038 (2,704) 4,337 Accrued liabilities................................. (10,382) 2,099 9,937 5,586 7,508 Customer deposits................................... 48,688 (3,109) 217,934 76,232 285,269 Other long-term liabilities......................... 9,557 5,506 2,412 (6,791) (1,347) --------- --------- --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES............... 37,686 69,038 282,372 94,644 139,880 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment..................... (10,685) (9,946) (25,186) (5,884) (7,518) Dispositions of property and equipment.................. 79 447 18 19 22 Additions to tooling.................................... (4,560) (17,265) (25,693) (19,875) (899) --------- --------- --------- --------- --------- NET CASH USED IN INVESTING ACTIVITIES................... (15,166) (26,764) (50,861) (25,740) (8,395) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock.................. 10 78 Repurchase of preferred stock........................... (18,938) Purchase of common stock................................ (489) Proceeds from term loans................................ 80,000 Repayment of term loans................................. (114,113) (31,814) (5,282) (26,533) Payment of dividends on preferred stock................. (96,136) Proceeds from revolving credit loans.................... 612,000 432,000 Payments on revolving credit loans...................... (592,000) (460,000) --------- --------- --------- --------- --------- NET CASH USED IN FINANCING ACTIVITIES................... (14,602) (28,000) (31,804) (5,282) (141,529) --------- --------- --------- --------- --------- Increase in cash and cash equivalents................... 7,918 14,274 199,707 63,622 (10,044) Cash and cash equivalents, beginning of year............ 1,413 9,331 23,605 23,605 223,312 --------- --------- --------- --------- --------- Cash and cash equivalents, end of year.................. $ 9,331 $ 23,605 $ 223,312 $ 87,227 $ 213,268 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
See notes to consolidated financial statements F-6 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS Gulfstream Aerospace Corporation (the "Company") is primarily engaged in the design, development, production, and sale of large business jet aircraft. The Company is also engaged in a number of related businesses, including: product support and services for customer-owned aircraft, which include maintenance services and replacement parts for the Company's world-wide fleet; aircraft completion services, which involve the installation of customized interiors and optional avionics as well as exterior painting; and the sale of pre-owned aircraft. The majority of the Company's aircraft are sold to domestic and multinational corporations and domestic and foreign governments. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany transactions and balances have been eliminated. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make assumptions and estimates that directly affect the amounts reported in the consolidated financial statements. Significant estimates for which changes in the near term are considered reasonably possible and that may have a material effect on the financial statements are addressed in these notes to the consolidated financial statements. REVENUE RECOGNITION POLICY Contracts for new aircraft are segmented between the manufacture of the "green" aircraft (i.e., before exterior painting and installation of customer selected interiors and optional avionics) and its completion. Sales of new Gulfstream green aircraft are recorded as deliveries are made to the customer prior to the aircraft entering the completion process. In connection with recorded sales of new aircraft, at December 31, 1995, and June 30, 1996 the Company has agreed to accept pre-owned aircraft totaling $19.4 million and $47.3 million, respectively. With respect to completed aircraft, any costs related to parts to be installed and services to be performed under the contract, after the delivery of the aircraft, which are not significant, are included as cost of sales at the time of the sale of the new aircraft. Sales of all other products and services, including pre-owned aircraft, are recognized when delivered or the service is performed. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of highly liquid financial instruments which have maturities of less than three months upon purchase. INVENTORIES Inventories of work in process and finished goods for aircraft are stated at the lower of cost (based on estimated average unit costs of the number of units in a production lot) or market. Raw materials, material components of other work in process and substantially all purchased parts inventories are stated at the lower of cost (first-in, first-out method) or market. Pre-owned aircraft acquired in connection with the sale of new aircraft are recorded at the lower of the trade-in value or estimated net realizable value. F-7 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated by the straight-line method over their estimated useful lives ranging from 15 to 25 years for buildings and improvements and 4 to 12 years for all other property and equipment. The cost of maintenance and repairs is charged to operations as incurred; significant renewals and betterments are capitalized. TOOLING Tooling is stated at cost and represents primarily production tooling relating to the Gulfstream V aircraft program. Tooling associated with the Gulfstream V will be amortized to cost of sales on a unit basis over the first 200 units of the Gulfstream V program. INTANGIBLES AND OTHER ASSETS Goodwill is being amortized on a straight-line basis over 40 years. Other intangible assets consisting of after market service and product support (i.e., customer lists) are being amortized on a straight-line basis over the expected useful lives which range from 10 to 21 years. The Company periodically assesses the recoverability of intangibles based on its expectations of future profitability and undiscounted cash flow of the related operations. These factors, along with management's plans with respect to the operations are considered in assessing the recoverability of goodwill and other purchased intangibles. The costs of obtaining bank financing have been included in other assets and deferred charges and are being amortized over the lives of the related bank borrowings. RESEARCH AND DEVELOPMENT Research and development expenses are charged directly to operations as incurred. PRODUCT WARRANTIES Product warranty expense is recorded as aircraft are delivered based upon the estimated aggregate future warranty costs relating to the aircraft. CUSTOMER DEPOSITS Substantially all customer deposits represent advance payments for new aircraft purchases. The deposits on aircraft that are expected to be delivered in the following year are classified as current in the accompanying consolidated balance sheets. CONCENTRATIONS OF CREDIT Financial instruments which may potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade and contract receivables. The Company places its temporary cash investments with high credit quality financial institutions. Concentrations of credit risk with respect to trade and contract receivables are limited due to the Company's large number of customers and their dispersion across many industries and geographic regions. INCOME TAXES The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, effective January 1, 1993. SFAS No. 109 was adopted on a prospective basis and prior periods were not restated. The cumulative effect at the date of adoption was not material to the results of operations or the financial position of the Company. F-8 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company provides for deferred income taxes based on the difference between the financial statement and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets in accordance with the provisions of SFAS No. 109. NEW ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 addresses issues surrounding the measurement and recognition of losses when the value of certain assets has been deemed to be permanently impaired. The Company adopted the Statement as of January 1, 1996 and there was no material effect on its financial position or results of operations from adoption. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123 establishes a method of accounting for stock compensation plans based on fair value of employee stock options and similar equity instruments. Adoption of a fair value method of accounting is not required and the Company plans to continue accounting for stock-based compensation using the method set forth in Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, which is based on the intrinsic value of equity instruments. However, beginning in 1996, the new Statement requires disclosure in annual financial statements of pro forma net income and earnings per share as if a fair value method included in SFAS No. 123 had been used to measure compensation cost. UNAUDITED INTERIM FINANCIAL STATEMENTS The financial statements as of June 30, 1996 and for the six months ended June 30, 1995 and 1996 were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for these periods. Operating results for the interim periods included herein are not necessarily indicative of the results that may be expected for the entire year. PRO FORMA PER SHARE INFORMATION (UNAUDITED) Pro forma net income (loss) per share amounts are calculated for 1996 recapitalization and offerings (as discussed in Note 16) based upon pro forma net income, after giving effect to the 1996 recapitalization and offerings, divided by the pro forma weighted average number of common and common equivalent shares outstanding assuming that all options to purchase common stock were exercised (applying the treasury stock method assuming an initial public offering price of $23.00 per share) and assuming the proposed 1996 recapitalization and the sale of shares in the offerings were completed at the beginning of all periods. Options to purchase common stock issued or granted in the twelve months ended June 30, 1996 were treated as outstanding for all periods reported. Historical net income (loss) per common and common equivalent share is not presented as it is not relevant. NOTE 2. RESTRUCTURING During 1993, the Company recorded a $203.9 million charge for a restructuring plan based upon the Company's reassessment of its business plan and its products from which it expected improved operating efficiencies, reduced costs, and overall increased profitability of the Company. This charge included, among other items, payments for severance or early retirement of employees, acceleration of certain employee benefit programs, costs associated with re-aligning manufacturing capacity through F-9 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 2. RESTRUCTURING (CONTINUED) selected outsourcing, lease terminations of administrative facilities, and the accelerated amortization of aircraft design intangibles and related Gulfstream IV aircraft tooling. The charge, determined in part based on expected future cash flows and net realizable values, is comprised of $146.2 million of accelerated amortization for aircraft design and related tooling, $24.8 million of special termination benefits and $32.9 million of other items. NOTE 3. INVENTORIES Inventories consisted of the following at:
DECEMBER 31, JUNE 30, ------------------------ 1996 1994 1995 (UNAUDITED) ----------- ----------- ------------ (IN THOUSANDS) Finished goods....................................................... $ 60,800 $ 17,996 $ 33,146 Pre-owned aircraft................................................... 11,750 57,750 91,700 Work in process...................................................... 77,473 173,756 253,790 Raw materials........................................................ 72,975 75,768 85,859 Vendor progress payments............................................. 66,333 67,855 103,211 ----------- ----------- ------------ $ 289,331 $ 393,125 $ 567,706 ----------- ----------- ------------ ----------- ----------- ------------
During December 1994, the Company amended the payment provisions pertaining to one of its major supplier contracts. The amendment canceled $36.8 million of notes payable associated with vendor progress payments. The Company leases pre-owned aircraft under agreements which are short-term in nature to customers who are purchasers of Gulfstream IV aircraft. NOTE 4. PROPERTY AND EQUIPMENT The major categories of property and equipment consisted of the following at:
DECEMBER 31, JUNE 30, ------------------------ 1996 1994 1995 (UNAUDITED) ----------- ----------- ------------ (IN THOUSANDS) Land................................................................. $ 4,109 $ 4,109 $ 4,109 Buildings and improvements........................................... 76,926 78,445 94,369 Machinery and equipment.............................................. 86,337 97,405 101,685 Furniture and fixtures............................................... 9,653 9,729 10,296 Construction in progress............................................. 2,915 14,862 1,314 ----------- ----------- ------------ Total................................................................ 179,940 204,550 211,773 Less accumulated depreciation........................................ (62,319) (77,399) (85,655) ----------- ----------- ------------ $ 117,621 $ 127,151 $ 126,118 ----------- ----------- ------------ ----------- ----------- ------------
F-10 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 5. OTHER INTANGIBLE ASSETS Other intangible assets are comprised of the following at:
DECEMBER 31, JUNE 30, ---------------------- 1996 1994 1995 (UNAUDITED) ---------- ---------- ------------ (IN THOUSANDS) After market--Service Center.......................................... $ 15,000 $ 15,000 $ 15,000 After market--Product Support......................................... 75,000 75,000 75,000 ---------- ---------- ------------ Total................................................................. 90,000 90,000 90,000 Less accumulated amortization......................................... (24,301) (29,372) (31,908) ---------- ---------- ------------ $ 65,699 $ 60,628 $ 58,092 ---------- ---------- ------------ ---------- ---------- ------------
NOTE 6. ACCRUED LIABILITIES Accrued liabilities are comprised of the following at:
DECEMBER 31, JUNE 30, ------------------------- 1996 1994 1995 (UNAUDITED) --------- -------------- ------------ (IN THOUSANDS) Employee compensation and benefits................................ $ 18,373 $ 18,732 $ 22,777 Uncompleted work on delivered aircraft............................ 8,645 12,655 19,685 Accrued warranty.................................................. 9,086 9,637 10,225 Deferred income................................................... 7,504 19,945 13,801 Other............................................................. 26,366 18,942 20,932 --------- -------------- ------------ $ 69,974 $ 79,911 $ 87,420 --------- -------------- ------------ --------- -------------- ------------
NOTE 7. LONG-TERM DEBT Long-term debt consisted of the following at:
DECEMBER 31, JUNE 30, ------------------------ 1996 1994 1995 (UNAUDITED) ----------- ----------- ------------ (IN THOUSANDS) Term loans........................................................... $ 178,145 $ 146,331 $ 119,798 Less current portion................................................. (31,814) (53,065) (39,798) ----------- ----------- ------------ $ 146,331 $ 93,266 $ 80,000 ----------- ----------- ------------ ----------- ----------- ------------
As of December 31, 1995 and June 30, 1996, the Company operated under two credit agreements with a consortium of lenders. The initial credit agreement provided the Company with term loans of $385.0 million and a revolving credit commitment of up to $265.0 million including letters of credit. The term loans are payable in quarterly installments in increasing amounts through March 1997. The revolving credit loans are payable the earlier of March 31, 1998, or one year following the date the term loans are paid in full. The credit agreement provides for a commitment fee of 1/2 of 1% per year on the average daily amount of unused revolving credit commitment. The revolving credit commitment available at December 31, 1995 and June 30, 1996 was $240.6 million and $251.3 million, respectively. F-11 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 7. LONG-TERM DEBT (CONTINUED) The initial credit agreement, as amended, generally provides that the revolving credit loans and the term loans can be comprised of a combination of domestic-sourced borrowings and Eurodollar borrowings. The interest rate for domestic-sourced borrowings is 1% plus the greater of (i) the lead bank's reference rate and (ii) the Federal funds rate plus 1/2%, and the interest rate for Eurodollar borrowings is the Eurodollar Rate plus 2%. The Company is required to enter into interest rate protection arrangements during periods when certain interest rate environments exist. At December 31, 1995 and June 30, 1996, the rate environments were such that no interest rate protection agreements were required. In November 1993, the Company entered into an additional $80 million credit agreement, with maturities of $40 million on September 30, 1997 and $40 million on March 31, 1998. The proceeds of this credit agreement were used to prepay the term loans under the initial credit agreement in the stated order of their scheduled maturities. The new credit agreement generally follows the same covenants, restrictions and composition as the initial credit agreement. The interest rate for domestic-sourced borrowings is 2% plus the greater of (i) the lead bank's reference rate and (ii) the Federal funds rate plus 1/2%, and the interest rate for Eurodollar borrowings is the Eurodollar Rate plus 3%. Both credit agreements include restrictions as to, among other things, the amount of additional indebtedness, capitalized lease obligations, contingent obligations, capital expenditures, foreign exchange contracts and dividends which can be incurred or paid by the Company. At December 31, 1995 and June 30, 1996, the Company and its subsidiaries were not permitted to pay any dividends without the permission of the banks. The credit agreements also require maintenance of minimum levels of net worth, interest coverage, and liquidity; some of which are increasing minimum levels. Also, the net proceeds in excess of $10 million received from sales of assets and businesses approved by the lending banks (other than certain permitted sales) must be used to prepay the term loans. The common stock of the Company and its subsidiaries, as well as an intercompany note between the Company and one of its subsidiaries, are pledged as collateral for the borrowings under the credit agreements. The Company has also guaranteed the obligations of its subsidiaries under the credit agreements. At December 31, 1995, aggregate annual maturities for all long-term debt maturing by calendar year were as follows (in thousands): 1996, $53.1 million; 1997, $53.3 million; 1998, $40 million. The weighted average interest rates on both the revolving credit loans and term loans at December 31, 1994 and 1995 were 8.64% and 8.42%, respectively, and at June 30, 1995 and 1996 were 8.94% and 8.32%, respectively. Interest payments were $41.8 million, $19.0 million, $19.4 million for 1993, 1994 and 1995, and $10.6 million and $7.5 million for the six months ended June 30, 1995 and 1996, respectively. During November 1993, pursuant to a recapitalization of the Company, newly issued shares of its 7% Cumulative Preferred Stock and Class B Common Stock were exchanged for all of the $450 million of subordinated debentures, including accrued interest of $18.9 million. F-12 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 8. INCOME TAXES The tax effects of significant items comprising the Company's deferred income taxes are as follows:
YEARS ENDED DECEMBER 31, ---------------------------------------- 1993 1994 1995 ------------ ------------ ------------ (IN THOUSANDS) DEFERRED TAX ASSETS Net operating loss carryforwards.......................................... $ 64,673 $ 61,066 $ 54,985 Postretirement benefits................................................... 28,928 35,037 37,381 Intangible assets......................................................... 30,780 24,789 18,764 Pension and other benefits................................................ 6,894 13,763 8,670 Inventory................................................................. 3,825 3,010 2,525 Restructuring charges..................................................... 11,175 2,238 811 Other..................................................................... 6,663 7,778 11,031 ------------ ------------ ------------ Total..................................................................... 152,938 147,681 134,167 Less valuation allowance.................................................. (147,660) (138,492) (124,843) ------------ ------------ ------------ 5,278 9,189 9,324 DEFERRED TAX LIABILITY Property and equipment, principally due to basis difference............... (5,278) (9,189) (9,324) ------------ ------------ ------------ Net deferred tax asset.................................................... $ -0- $ -0- $ -0- ------------ ------------ ------------ ------------ ------------ ------------
At December 31, 1995, the Company had available a net operating loss carryforward for regular federal income tax purposes of approximately $150 million which will expire beginning in 2006. Although the Company recorded net income during 1994 and 1995, no provision for income taxes was recorded, principally as a result of utilization of net operting loss carryforwards. The Company has recorded a full valuation allowance for its net deferred tax assets. In estimating the realizability of its net deferred tax assets, the Company considers both positive and negative evidence and gives greater weight to evidence that is objectively verifiable. Due to the Company's cumulative losses for federal income tax purposes, the Company currently believes that the realization of its net deferred tax assets is uncertain. The Company will continue to monitor the realizability of such deferred tax assets on a quarterly basis. The Company is involved in a tax audit by the Internal Revenue Service covering the years ended December 31, 1990 and 1991. The revenue agent's report includes several proposed adjustments involving the deductibility of certain compensation expense and items relating to the capitalization of the Company as well as the allocation of the purchase price in connection with the Acquisition, including the cost of aircraft that were in backlog at the time of the Acquisition and the amortization of amounts allocated to intangible assets. The Company believes that the ultimate resolution of these issues will not have a material adverse effect on its financial statements because the financial statements already reflect what the Company currently believes is the expected loss of benefit arising from the resolution of these issues. NOTE 9. LEASES The Company has various operating leases for both real and personal property including the Company's demonstrator aircraft. Rental expense for 1993, 1994 and 1995 was $22.4 million, $16.6 F-13 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 9. LEASES (CONTINUED) million and $14.9 million, respectively. The Company also receives sub-lease rental income under an operating lease, which the approximate annual future minimum sub-rentals are $2.5 million through November 1999. Future minimum lease payments for all noncancelable operating leases having a remaining term in excess of one year at December 31, 1995 aggregated $51.5 million, and payments during the next five years are: 1996, $8.2 million; 1997, $8.0 million; 1998, $7.5 million; 1999, $6.9 million; 2000, $3.9 million. NOTE 10. EMPLOYEE BENEFIT PLANS PENSION PLANS The Company maintains three noncontributory plans covering substantially all employees. Benefits paid to retirees are based primarily on age at retirement, years of credited service, and compensation earned during employment. The Company's funding policy complies with the requirements of Federal law and regulations. The Company's total pension fund contributions were $800,000, $9.8 million and $14.3 million in 1993, 1994 and 1995, respectively. The Company's contributions are made to a master trust and invested in a diversified portfolio consisting primarily of equity and debt securities. In accordance with the provisions of Statement of Financial Accounting Standards No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS, the Company has recorded an additional minimum liability at December 31, 1994 and 1995 representing the excess of the accumulated benefit obligation over the fair value of plan assets and accrued pension liability. The additional liability has been offset by intangible assets to the extent of previously unrecognized prior service cost. Amounts in excess of previously unrecognized prior service cost are recorded as a reduction of stockholders' equity of $2.1 million, $1.1 million and $1.5 million in 1993, 1994 and 1995, respectively. Net periodic pension cost was as follows:
1993 1994 1995 ----------- ----------- ----------- (IN THOUSANDS) Service cost--benefits earned during the period....................... $ 8,290 $ 10,210 $ 9,232 Interest cost on projected benefit obligation......................... 10,997 12,533 13,158 Actual return on plan assets.......................................... (7,505) (5,384) (15,937) Net amortization and deferral......................................... (1,237) (2,857) 5,570 ----------- ----------- ----------- $ 10,545 $ 14,502 $ 12,023 ----------- ----------- ----------- ----------- ----------- -----------
Actuarial assumptions used were:
1993 1994 1995 ----------- ----------- ----------- Discount rate......................................................... 7.50% 8.50% 8.00% Rate of increase in future compensation levels........................ 4.25% 5.00% 4.75% Long-term rate of return on plan assets............................... 8.50% 9.00% 9.50%
F-14 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 10. EMPLOYEE BENEFIT PLANS (CONTINUED) The following table sets forth the funded status at December 31:
1993 1994 1995 ----------- ----------- ----------- (IN THOUSANDS) Actuarial present value of benefits: Vested.............................................................. $ 128,317 $ 115,424 $ 136,922 Nonvested........................................................... 12,362 12,498 16,597 ----------- ----------- ----------- Accumulated benefit obligaton......................................... $ 140,679 $ 127,922 $ 153,519 ----------- ----------- ----------- Projected benefit obligation.......................................... $ 172,371 $ 158,411 $ 190,858 Plan assets at fair value............................................. 106,965 112,527 136,582 ----------- ----------- ----------- Projected benefit obligation in excess of plan assets................. 65,406 45,884 54,276 Unrecognized prior service cost....................................... (1,767) (1,627) (4,479) Contributions......................................................... (1,420) (97) Unamortized loss resulting from changes in plan experience and actuarial assumptions............................................... (26,389) (121) (9,269) Adjustment required to recognize additional minimum liability........................................................... 2,119 1,305 1,511 ----------- ----------- ----------- Accrued pension cost.................................................. $ 39,369 $ 44,021 $ 41,942 ----------- ----------- ----------- ----------- ----------- -----------
OTHER POSTRETIREMENT BENEFITS In addition to pension benefits, the Company provides certain health care insurance benefits to retired Company employees and their dependents. The Company currently funds these plans on a pay-as-you-go basis. Substantially all of the Company's salaried employees and certain hourly employees become eligible for such benefits when they attain certain age and service requirements while employed by the Company. The following tables set forth the components of the accumulated postretirement benefit obligation and the net periodic postretirement benefit cost (in thousands): F-15 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 10. EMPLOYEE BENEFIT PLANS (CONTINUED) Net periodic postretirement benefit cost included the following at December 31:
1993 1994 1995 --------- --------- ----------- (IN THOUSANDS) Accumulated postretirement benefit obligation: Retirees.............................................................. $ 41,444 $ 34,181 $ 46,090 Full eligible active plan participants................................ 1,516 1,353 1,644 Other active plan participants........................................ 44,243 40,070 32,073 --------- --------- ----------- Accumulated postretirement benefit obligation in excess of plan assets................................................................ 87,203 75,604 79,807 Unrecognized prior service cost......................................... 10,927 12,080 8,496 Accrued postretirement benefit cost..................................... (9,128) 7,942 13,718 --------- --------- ----------- $ 89,002 $ 95,626 $ 102,021 --------- --------- ----------- --------- --------- -----------
Net postretirement benefit cost included the following components:
1993 1994 1995 --------- --------- ----------- (IN THOUSANDS) Service cost--benefits attributed to service during the period.......... $ 3,771 $ 4,413 $ 3,795 Interest cost of postretirement benefit obligation...................... 5,676 5,949 6,268 Other net amortization and deferral..................................... (823) (952) (1,139) --------- --------- ----------- $ 8,624 $ 9,410 $ 8,924 --------- --------- ----------- --------- --------- -----------
The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.50% in 1993, 8.50% in 1994 and 8.00% in 1995. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation pre-age 65 is 13.0% in 1993, 10.75% in 1994 and 10.0% in 1995, declining annually .75% to a rate of 5.5%; and for post-age 65 is 11.0% in 1993, 8.75% in 1994 and 8.00% in 1995, declining annually .75% to a rate of 5.0%. If the health care cost trend rate assumptions were increased by 1%, the accumulated postretirement benefit obligation as of December 31, 1995 would be increased by 14.5%. The effect of this change on the sum of the service cost and interest cost components would be an increase of 16.6%. INVESTMENT PLAN The Company sponsors a voluntary 401(k) investment plan designed to enhance existing retirement plans. The Company contributes amounts equal to 50% of the employee's contributions, up to a maximum of 4% of the employee's base salary. Total expense for the plan was $2.0 million, $1.9 million and $2.1 million for 1993, 1994 and 1995, respectively. OTHER EMPLOYEE BENEFITS The Company has supplemental benefit plans covering certain key executives. These plans provide for benefits which supplement those provided by the Company's other retirement plans. The Supplemental Executive Retirement Plans are unfunded plans of deferred compensation for certain key executives. These supplemental plans are non-qualified and are being provided for by charges to operations sufficient to meet the projected benefit obligation. The Executive Insurance Plan provides additional F-16 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 10. EMPLOYEE BENEFIT PLANS (CONTINUED) death benefits to certain key executives. The Company acquired life insurance policies or annuity contracts to provide funding of the benefits. The costs for these plans are based on substantially the same actuarial methods and economic assumptions as those used for the defined benefit pension plans. The Company's expense for these plans was $1.4 million in both 1993 and 1994 and $1.3 million in 1995. The accumulated benefit obligation related to these plans totaled approximately $3.9 million, $4.1 million and $4.4 million at December 31, 1993, 1994 and 1995, respectively, and is recorded in other long-term liabilities. The Company has an Incentive Compensation Plan administered by the Compensation Committee of the Board of Directors which provides for payment of cash awards to officers and key employees based upon achievement of specific goals by the Company and the participating employees. For the years ended 1993, 1994 and 1995, provisions of approximately $1.5 million, $4.0 million and $4.5 million, respectively, were charged against income related to the plan. Payouts are based entirely on achievement of financial and business objectives. NOTE 11. STOCKHOLDERS' EQUITY In November 1993, the Company amended and restated its certificate of incorporation to authorize the issuance of 93,493,000 shares of Class A Common Stock, par value $.01 per share, consisting of 67,682,000 shares of Series A-1 and 25,811,000 shares of Series A-2, and 15,780,000 shares of Class B Common Stock, par value $.01 per share, and 10,000,000 shares of Preferred Stock, par value $.01 per share. The Class A and Class B Common Stock have equal voting rights. Each common share issued immediately prior to the recapitalization was designated as either Series A-1 shares (16,250,000) or Series A-2 shares (25,095,833). In November 1993, the Company issued 100 shares of 7% Series A Cumulative Preferred Stock with a par value of $.01 per share (Series A Preferred Stock) and 11,045,833 shares of Class B Common Stock with a par value of $.01 per share (see Note 7). Accumulated deficit was charged with the par value of the Class B Common Stock issued of $110,458. The Series A Preferred Stock has a stated value of $4,689,375 per share, and a liquidation preference equal to the stated value per share plus all accumulated dividends ($77.3 million at December 31, 1995) subsequent to October 1, 1993. The dividends are payable quarterly, when, as and if, declared by the Company's Board of Directors. No payments in liquidation may be made with respect to Common Stock unless all accumulated dividends on the Series A Preferred Stock and the liquidation preference on the Series A Preferred Stock have been paid in full. After provision for the Series A Preferred Stock, the Class A Common Stock has preference with respect to dividends, other distributions and in liquidation over all other classes of common stock currently outstanding in the amount of approximately $186 million. After the provision for the Preferred Stock and the Class A Common Stock preferences as described above, the Class A Common Stock is entitled to 75% and the Class B Common Stock is entitled to 25% of any dividends and other distributions or in liquidation. Under certain circumstances, holders of the Series A Preferred Stock are entitled to limited voting rights. In addition, under certain circumstances, including an initial public offering of the Company's common stock, the Series A-2 Common Stock and the Class B Common Stock shall be exchanged for Series A-1 Common Stock. Under a Stock Option Plan adopted by its stockholders effective March 20, 1990, the Company has granted options to purchase its common stock to certain Company employees with an option price which, prior to 1996, was not less than the fair value of the stock at the date of grant. Generally, the options vest 25% on date of issuance, 25% on or before the first anniversary of the date of issuance, and F-17 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 11. STOCKHOLDERS' EQUITY (CONTINUED) 25% annually thereafter. Effective July 1, 1994, generally the vesting schedule was changed to 33% on and after the first anniversary of the date of issuance, an additional 33% on and after the second anniversary of the date of issuance and the last 33% after the third anniversary of the date of issuance. In addition, the Company has granted options to purchase its common stock to its directors and advisors with vesting periods up to three years. Generally, such options expire ten years from date of grant. The option price per share ranges from approximately $5 to $6. At December 31, 1995 and June 30, 1996, options for 3,811,200 shares and 4,841,428 shares, respectively, are exercisable and 6,816,750 shares and 6,949,250 shares, respectively, of Class A Common Stock are reserved for issuance upon the exercise of the options under the Stock Option Plan and to the Company's directors and advisors. The Company recorded compensation expense related to stock option grants of $5.2 million during the six months ended June 30, 1996. The Company's stock option transactions were as follows:
GRANTS TO DIRECTORS STOCK OPTION PLAN AND ADVISORS ----------------- --------------------------- NUMBER OF NUMBER OF SHARES SHARES ----------------- --------------------------- Balance at January 1, 1993.............. 2,570,550 587,500 Granted................................. 11,750 318,750 Canceled or expired..................... (779,100) ----------------- ---------- Balance at December 31, 1993............ 1,803,200 906,250 Granted................................. 2,180,875 450,000 Canceled or expired..................... (37,500) ----------------- ---------- Balance at December 31, 1994............ 3,946,575 1,356,250 Granted................................. 1,160,000 Exercised............................... (2,000) Canceled or expired..................... (618,000) (37,500) ----------------- ---------- Balance at December 31, 1995............ 4,486,575 1,318,750 Granted (Unaudited)..................... 535,000 145,000 Exercised (Unaudited)................... (12,500) Canceled or expired (Unaudited)......... (10,000) ----------------- ---------- Balance at June 30, 1996 (Unaudited) 5,011,575 1,451,250 ----------------- ---------- ----------------- ----------
The Company has granted stock appreciation rights (SARs) to certain officers and key employees. There were 22,312 and 14,312 SARs outstanding as of December 31, 1995 and June 30, 1996, respectively, with a base price ranging from approximately $5 to $6. The Company recorded compensation expense related to SARs of $165,000 during the six months ended June 30, 1996. These SARs vest 50% on the first anniversary date of issuance, and 25% annually thereafter. NOTE 12. RELATED PARTY TRANSACTIONS Entities related to Forstmann Little & Co. ("Forstmann Little") currently beneficially own substantially all of the Company's common stock. Under a usage agreement, the Company pays an affiliate of F-18 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 12. RELATED PARTY TRANSACTIONS (CONTINUED) Forstmann Little for the use of a Gulfstream IV. Total expenses associated with this agreement totalled $4.6 million for 1993 and $2.3 million for 1994 and 1995. This aircraft is utilized as a demonstrator aircraft. The Company also procures certain inventory items from another Forstmann Little affiliate engaged in the aircraft industry. During 1994, the Company sold three aircraft totaling $58.6 million to two corporations whose presidents are directors of the Company and also sold a Gulfstream II to an affiliate of Forstmann Little for $6.7 million. Additionally, the Company leased from one of its directors, through August 1993, an aircraft used for sales demonstration, and customer support purposes. Total expense for the year ended December 31, 1993 was $834,000. Management believes all these transactions with related parties are on terms similar to those of other customers and vendors. In August 1996, Gulfstream entered into agreements with Mr. Theodore J. Forstmann pursuant to which Gulfstream will provide Mr. Forstmann with the use of a Gulfstream V for a period of ten years. Until the Gulfstream V becomes available, Gulfstream will make available to Mr. Forstmann a Gulfstream IV (by purchasing at fair market value, or assuming a lease at fair market value for, a Gulfstream IV from an affiliate of FLC Partnership, L.P.). Mr. Forstmann has agreed to pay Gulfstream up to $1.0 million annually for non-Company use of the aircraft. If Mr. Forstmann is no longer serving as a director or official of Gulfstream, he has agreed to reimburse Gulfstream $1,800 per hour for all use of the aircraft, or other such rate required so as not to exceed FAA regulatory requirements. NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of the fair value of certain financial instruments. Cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are reflected in the financial statements at fair value because of the short-term maturity of these instruments. The Company estimates that the carrying value of its long-term debt, based on current interest rates and terms, approximates fair value. NOTE 14. COMMITMENTS AND CONTINGENCIES In the normal course of business, lawsuits, claims and proceedings have been or may be instituted or asserted against the Company relating to various matters, including product liability. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to the Company, management has made provision for all known probable losses related to lawsuits and claims and believes that the disposition of all matters which are pending or asserted will not have a material adverse effect on the financial statements of the Company. The Company is currently engaged in the monitoring and cleanup of certain ground water at its Savannah facility under the oversight of the Georgia Department of Natural Resources. Expenses incurred for cleanup have not been significant. The Company received in 1992, at its Long Beach facility, two inquiries from the U.S. Environmental Protection Agency and, in 1991, at its Oklahoma facility, a soil contamination inquiry. The Company believes other aspects of the Savannah facility, as well as other Gulfstream properties, are being carefully monitored and are in substantial compliance with current federal, state and local environmental regulations. The Company believes the liabilities, if any, that will result from the above environmental matters will not have a material adverse effect on its financial statements. The Company has agreements with certain of its suppliers to procure major aircraft components such as engines, wings, and avionics. The agreements vary in length from three to five years and generally provide for price and quantity of components to be supplied. In connection with the Gulfstream F-19 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED) V program, the Company has entered into revenue sharing agreements with two suppliers. One of these suppliers has reorganized, and the Gulfstream revenue sharing agreement was assigned to the successor corporation which was formed from the remaining business divisions. The terms of such agreements require the supplier to design, manufacture and supply certain aircraft components in exchange for a fixed percentage of the revenues of each Gulfstream V sold. Progress payments under the revenue sharing agreements are generally required to be made on a pro rata basis concurrent with the associated deposits received on Gulfstream V contracts. In connection with the sale of 28 aircraft as of December 31, 1995, and 30 aircraft as of June 30, 1996, the Company has offered customers trade-in options (which may or may not be exercised) pursuant to which the Company will accept trade-in aircraft (primarily Gulfstream IVs and IV-SPs) at a guaranteed minimum trade-in price. Management believes that the fair market value of such aircraft will exceed the specified trade-in value. At December 31, 1995 and June 30, 1996, the Company had outstanding letters of credit (which support performance guarantees) totaling $24.4 million and $13.7 million, respectively. The Company purchases its major aircraft components from a limited number of suppliers. Although the Company purchases from a limited number of suppliers, management believes that there are other suppliers who could provide similar components on comparable terms without significant disruption of its production. Management of the Company expects that its new Gulfstream V aircraft will be certified by the Federal Aviation Administration by the end of 1996. While a significant delay in such certification could have near term adverse consequences, management believes that certification will occur on schedule. NOTE 15. EXPORT SALES Foreign sales by geographical area consisted of the following at:
DECEMBER 31, JUNE 30, ------------------------------------- 1996 1993 1994 1995 (UNAUDITED) ----------- ----------- ----------- ------------ (IN THOUSANDS) Africa................................................. $ 7,512 $ 5,977 $ 6,773 $ 49,886 Latin America and Caribbean............................ 83,398 28,337 36,479 17,325 Asia................................................... 86,831 64,630 102,990 12,973 Europe................................................. 71,229 22,201 51,330 12,269 Canada................................................. 611 821 19,102 929 Other.................................................. 6,013 834 358 206 ----------- ----------- ----------- ------------ $ 255,594 $ 122,800 $ 217,032 $ 93,588 ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------
NOTE 16. SUBSEQUENT EVENTS The Company is currently pursuing an initial public offering which is expected to be effected during the fourth quarter of 1996. On August 9, 1996, the Company received a commitment from a bank for a new long-term credit agreement under which the lenders who are parties to the credit agreement would, effective upon the consummation of the initial public offering, make available to the Company a $400 million term loan and F-20 GULFSTREAM AEROSPACE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED) NOTE 16. SUBSEQUENT EVENTS (CONTINUED) $250 million revolving credit facility with substantially different terms but with similar restrictive covenants as the present credit agreements. Concurrently with entering into the credit agreement, the Company would repay all amounts outstanding under its present credit agreements and terminate such agreements. In connection with the initial public offering, the Company expects to effect a 1996 recapitalization immediately prior to, or simultaneous with, the closing of the offerings to: - repurchase all of its outstanding 7% Series A Cumulative Preferred Stock for a purchase price of $450 million plus approximately $7.9 million of unpaid dividends, - exchange all outstanding shares of Class A-2 and Class B Common Stock for Class A-1 Common Stock, - redesignate Class A-1 Common Stock into Common Stock, - effect a 1.5-for-1 stock split of the Common Stock, - sell 2,126,533 shares of Common Stock by the Company to certain option holders pursuant to existing option agreements, and - restate the Company's Certificate of Incorporation to authorize 300,000,000 shares of Common Stock, par value $.01 per share, and 20,000,000 shares of Preferred Stock. F-21 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Company and the Selling Stockholders have agreed to sell to each of the U.S. Underwriters named below, and each of such U.S. Underwriters, for whom Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated are acting as representatives, has severally agreed to purchase from the Company and the Selling Stockholders the respective number of shares of Common Stock set forth opposite its name below:
NUMBER OF SHARES OF COMMON UNDERWRITER STOCK - ----------------------------------------------------------------------------------------- ------------- Goldman, Sachs & Co...................................................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated................................................................... Morgan Stanley & Co. Incorporated........................................................ ------------- Total................................................................................ 22,400,000 ------------- -------------
Under the terms and conditions of the Underwriting Agreement, the U.S. Underwriters are committed to take and pay for all of the shares offered hereby, if any are taken. The U.S. Underwriters propose to offer the shares of Common Stock in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus, and in part to certain securities dealers at such price less a concession of $[ ] per share. The U.S. Underwriters may allow, and such dealers may reallow, a concession not in excess of $[ ] per share to certain brokers and dealers. After the shares of Common Stock are released for sale to the public, the offering price and other selling terms may from time to time be varied by the representatives. The Company and the Selling Stockholders have entered into an underwriting agreement (the "International Underwriting Agreement") with the underwriters of the international offering (the "International Underwriters") providing for the concurrent offer and sale of 5,600,000 shares of Common Stock in an international offering outside the United States. The offering price and aggregate underwriting discounts and commissions per share for the two offerings are identical. The closing of the offering made hereby is a condition to the closing of the International Offering, and vice versa. The representatives of the International Underwriters are Goldman Sachs International, Merrill Lynch International and Morgan Stanley & Co. International Limited. Pursuant to an Agreement between the U.S. and International Underwriting Syndicates (the "Agreement Between") relating to the two offerings, each of the U.S. Underwriters named herein has agreed that, as a part of the distribution of the shares offered hereby and subject to certain exceptions, it will offer, sell or deliver the shares of Common Stock, directly or indirectly, only in the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction (the "United States") and to U.S. persons, which term shall mean, for purposes of this paragraph: (a) any individual who is a resident of the United States or (b) any corporation, partnership or other entity organized in or under the laws of the United States or any political subdivision thereof and whose office most directly involved with the purchase is located in the United States. Each of the International Underwriters has agreed pursuant to the Agreement Between that, as a part of the distribution of the shares offered as a part of the international offering, and subject to certain exceptions, it will (i) not, directly or indirectly, offer, sell or deliver shares of Common Stock (a) in the United States or to any U.S. persons or (b) to any person who it believes intends to reoffer, resell or deliver the shares in the United States or to any U.S. persons, and (ii) cause any dealer to whom it may sell such shares at any concession to agree to observe a similar restriction. U-1 Pursuant to the Agreement Between, sales may be made between the U.S. Underwriters and the International Underwriters of such number of shares of Common Stock as may be mutually agreed. The price of any shares so sold shall be the initial public offering price, less an amount not greater than the selling concession. The Selling Stockholders have granted the U.S. Underwriters an option exercisable for 30 days after the date of this Prospectus to purchase up to an aggregate of 3,360,000 additional shares of Common Stock solely to cover over-allotments, if any. If the U.S. Underwriters exercise their over-allotment option, the U.S. Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares to be purchased by each of them, as shown in the foregoing table, bears to the 22,400,000 shares of Common Stock offered. The Selling Stockholders have granted the International Underwriters a similar option exercisable up to an aggregate of 840,000 additional shares of Common Stock. The Company has agreed that, during the period beginning from the date of this Prospectus and continuing to and including the date 180 days after the date of this Prospectus, it will not offer, sell, contract to sell or otherwise dispose of or file a registration statement (other than a registration statement on Form S-8 with respect to an employee benefit plan) with respect to any Common Stock, or any securities of the Company (other than pursuant to employee stock option and incentive plans and agreements, upon conversion of outstanding convertible securities or grants of options to directors) which are substantially similar to the Common Stock or any other securities which are exercisable or exchangeable for, convertible into or whose exercise or settlement price is derivable from the price of Common Stock or any such securities substantially similar to the Common Stock. The Selling Stockholders and all directors and executive officers of the Company have agreed not to offer, sell or otherwise dispose of any Common Stock for a period of 180 days after the date of the Offerings without the prior written consent of Goldman, Sachs & Co., except for certain transfers to immediate family members, trusts for the benefit of the Selling Stockholder and his or her immediate family, charitable foundations and controlled entities so long as the transferee agrees to be bound by the foregoing restrictions. The representatives of the Underwriters have informed the Company that they do not expect sales to discretionary accounts by the U.S. Underwriters to exceed five percent of the total number of shares of Common Stock offered by them. Prior to the Offerings, there has been no public market for the shares of Common Stock. The initial public offering price will be negotiated among the Company, the Selling Stockholders and the representatives of the U.S. Underwriters and the International Underwriters. Among the factors to be considered in determining the initial public offering price of the Common Stock, in addition to prevailing market conditions, will be the Company's historical performance, estimates of the business potential and earnings prospects of the Company, an assessment of the Company's management and the consideration of the above factors in relation to market valuation of companies in related businesses. The Common Stock has been approved for listing on the New York Stock Exchange under the symbol "GAC", subject to official notice of issuance. In order to meet one of the requirements for listing the Common Stock on the New York Stock Exchange, the U.S. Underwriters have undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial holders. The Company and the Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act. This Prospectus may be used by underwriters and dealers in connection with offers and sales of the Common Stock, including shares initially sold in the International Offering, to persons located in the United States. U-2 [INSIDE BACK COVER] Gulfstream IV-SPs and Gulfstream Vs are manufactured simultaneously at Gulfstream's main production facility in Savannah, GA. [Photo of Gulfstream's main production facility in Savannah, GA] Gulfstream's new state-of-the-art, 200,000 sq. ft. service center can handle up to 20 aircraft at one time. [Photo of Gulfstream's 200,000 sq ft. service center] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. -------------- TABLE OF CONTENTS
PAGE ----- Prospectus Summary................................. 3 Risk Factors....................................... 9 The Company........................................ 14 Use of Proceeds.................................... 14 Dividend Policy.................................... 15 Capitalization..................................... 16 Dilution........................................... 17 Pro Forma Condensed Financial Information.......... 18 Selected Financial Data............................ 20 Management's Discussion and Analysis of Financial Condition and Results of Operations............... 22 Business........................................... 30 Management......................................... 48 Principal and Selling Stockholders................. 61 Certain Transactions............................... 63 Description of Capital Stock....................... 65 Description of Credit Agreement.................... 68 Shares Eligible For Future Sale.................... 71 Validity of Common Stock........................... 72 Experts............................................ 72 Additional Information............................. 72 Index to Financial Statements...................... F-1 Underwriting....................................... U-1
THROUGH AND INCLUDING , 1996 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 28,000,000 SHARES GULFSTREAM AEROSPACE CORPORATION COMMON STOCK (PAR VALUE $.01 PER SHARE) ----------- [LOGO] ----------- GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. MORGAN STANLEY & CO. INCORPORATED REPRESENTATIVES OF THE UNDERWRITERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the estimated expenses to be borne by the Company, in connection with the issuance and distribution of the securities being registered hereby, other than underwriting discounts and commissions. SEC registration fee (actual)................................... $ 255,379 NYSE filing fee*................................................ NASD fees (actual).............................................. 30,500 Transfer agent and registrar fee and expenses*.................. Accounting fees and expenses*................................... Legal fees and expenses*........................................ Blue Sky expenses and counsel fees.............................. 26,000 Printing and engraving expenses*................................ Miscellaneous*.................................................. ---------- Total........................................................... $ ---------- ----------
- -------------- * To be filed by Amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Restated Certificate of Incorporation and By-Laws of the Company provide for indemnification, to the fullest extent permitted by the DGCL, of any person who is or was involved in any manner in any threatened, pending or completed investigation, claim or other proceeding, by reason of the fact that such person is or was a director or officer of the Company or is or was serving at the request of the Company as a director or officer of another entity, against all expenses, liabilities, losses and claims actually incurred or suffered by such person in connection with the investigation, claim or other proceeding. The By-Laws also provide that the Company shall advance expenses to a director or officer upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it is ultimately determined that the director or officer is not entitled to be indemnified by the Company. Article SIXTH of the Restated Certificate of Incorporation provides that directors of the Company shall not, to the fullest extent permitted by the DGCL, be liable to the Company or any of its stockholders for monetary damages for any breach of fiduciary duty as a director. The Certificate of Incorporation also provides that if the DGCL is amended to permit further elimination or limitation of the personal liability of directors, then the liability of the directors of the Company shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended. The Company has entered into agreements to indemnify its directors and officers in addition to the indemnification provided for in the Certificate and By-Laws. These agreements, among other things, indemnify the Company's directors and officers to the fullest extent permitted by Delaware law for certain expenses (including attorney's fees), liabilities, judgments, fines and settlement amounts incurred by such person arising out of or in connection with such person's service as a director or officer of the Company or an affiliate of the Company. Policies of insurance are maintained by the Company under which its directors and officers are insured, within the limits and subject to the limitations of the policies, against certain expenses in connection with the defense of, and certain liabilities which might be imposed as a result of, actions, suits or proceedings to which they are parties by reason of being or having been such directors or officers. II-1 The form of Underwriting Agreements filed as Exhibit 1.1 hereto provides for the indemnification of the Registrant, its controlling persons, its directors and certain of its officers by the Underwriters against certain liabilities, including liabilities under the Securities Act. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (WITHOUT GIVING EFFECT TO THE 1996 RECAPITALIZATION) On November 30, 1993, the Company sold 100 shares of its 7% Cumulative Preferred Stock and 11,045,833 shares of its Class B Common Stock to MBO-IV in return for the Original Debentures and the Additional Debentures. See "Certain Transactions -- The Acquisition; Subsequent Events." Such issuances were exempt from registration under the Securities Act pursuant to Section 4(2) thereof because they did not involve a public offering as the shares were issued only to a limited number of persons and were not offered to any other persons. Registration under the Securities Act also was not required because MBO-IV was an existing holder of the Company's securities and the sale did not involve any solicitation. Therefore, these exchanges are exempt from registration under the Securities Act under Section 3(a)(9) of the Securities Act. On June 30, 1995, the Company sold to a former officer of the Company 2,000 shares of Class A Common Stock, Series A-2, pursuant to a stock option granted to the former officer in May 1994. The purchase price for these shares was $10,240. This issuance was exempt from registration under the Securities Act pursuant to section 4(2) thereof because it did not involve a public offering as the shares were issued to one person and were not offered to another person. On May 13, 1996, the Company sold to an advisor of the Company 12,500 shares of Class A Common Stock, Series A-1, pursuant to a stock option granted to the advisor in May 1994. The purchase price for these shares was $76,875. This issuance was exempt from registration under the Securities Act pursuant to section 4(2) thereof because it did not involve a public offering as the shares were issued to one person and were not offered to another person. As part of the 1996 Recapitalization, (i) each outstanding share of Class A Series A-2 Common Stock and each outstanding share of Class B Common Stock will be exchanged for shares of Class A Series A-1 Common Stock, (ii) all Class A Series A-1 Common Stock will be redesignated Common Stock and (iii) the Common Stock will be adjusted for a 1.5-for-1 split of the Common Stock. See "Description of Capital Stock -- General". Registration under the Securities Act will not be required in respect of issuances pursuant to the 1996 Recapitalization because they will be made exclusively to existing holders of the Company's securities and will not involve any solicitation. Therefore, these issuances will be exempt from registration under the Securities Act pursuant to section 3(a)(9) of the Securities Act. No other sales of the Company's securities have taken place within the last three years. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES A. EXHIBITS 1.1 -- Proposed Form of Underwriting Agreements.* 2.1 -- Stock Purchase Agreement, dated as of February 12, 1990, between Electrospace Holding, Inc. and GA Acquisition Corp. 3.1 -- Form of Restated Certificate of Incorporation of the Company.* 3.2 -- Form of Restated By-Laws of the Company.* 4.1 -- Specimen Form of Company's Common Stock Certificate.** 5.1 -- Opinion of Fried, Frank, Harris, Shriver & Jacobson as to the validity of the securities being registered.** 10.1 -- Gulfstream Aerospace Corporation Pension Plan, amended and restated January 1, 1989, as amended.* + 10.2 -- Gulfstream Aerospace Corporation Supplemental Executive Retirement Plan, effective as of April 1, 1991.* +
II-2 10.3 -- Gulfstream Aerospace Corporation November 1, 1991 Supplemental Executive Retirement Plan.* + 10.4 -- Form of Indemnification Agreement between the Company and its directors and executive officers.* 10.5 -- Form of Outside Director Stock Option Agreement.* + 10.6 -- Form of Outside Director Stockholder's Agreement.* + 10.7 -- Gulfstream Aerospace Corporation Stock Option Plan.* + 10.8 -- Form of Employee Stock Option Agreement.* + 10.9 -- Form of Employee Stockholder's Agreement.* + 10.10 -- Form of Employee Stock Appreciation Right Agreement.* + 10.11 -- Lease Agreement, dated as of January 1, 1988, between Oklahoma City Airport Trust and Gulfstream Aerospace Corporation.* 10.12 -- Lease Agreement, dated as of March 14, 1989, between City of Long Beach and 7701 Woodley Avenue Corporation dba Gulfstream Aerospace.* 10.13 -- Form of Lease Agreements, dated January 1, 1994, between Immuebles El Vigia, S.A., and Interiores Aeros, S.A. De C.V.* 10.14 -- Lease Agreement, dated May 1, 1996 between Immuebles El Vigia, S.A., and Interiores Aeros, S.A. De C.V.* 10.15 -- Sublease Agreement, dated June 1, 1992, between Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation.* 10.16 -- Credit Agreement, dated as of 1996, among Gulfstream Delaware Corporation, Gulfstream Aerospace Corporation, The Chase Manhattan Bank and the banks and other financial institutions parties thereto.** 10.17 -- Registration Rights Agreement among Gulfstream Aerospace Corporation, Gulfstream Delaware Corporation, Gulfstream Partners, Gulfstream Partners II, L.P., and MBO-IV.* 10.18 -- Repurchase Agreement, dated as of May 15,1996, between Gulfstream Aerospace Corporation and MBO-IV.* 10.19 -- Repurchase Agreement, dated as of August 8, 1996, between Gulfstream Aerospace Corporation and MBO-IV.* 10.20 -- Amendment No. 1 to Sublease Agreement, dated May 23, 1994, by and between Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation.* 10.21 -- Amendment No. 2 to Sublease Agreement, dated May 25,1996, by and between Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation.* 10.22 -- Agreement, effective August 9, 1996, between Gulfstream Aerospace Technologies and the International Union, United Automobile, Aerospace & Agricultural Implement Workers of America Local #2130. 10.23 -- Lease Agreement, dated as of August 27, 1996, between Long Beach Million Air, Inc. and Gulfstream Aerospace Corporation. 11.1 -- Computation of Earnings per Common Share. 21.1 -- Subsidiaries of the Company.* 23.1 -- Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1).** 23.2 -- Consent of Deloitte & Touche LLP. 23.3 -- Consent of Aviation Week Group. 24.1 -- Powers of Attorney.*
- -------------- * Previously filed. ** To be filed by amendment. + Compensation Arrangement II-3 B. SCHEDULES
Independent Auditors Consent and Report on Schedules.................. S-1 Schedule I Condensed Financial Information of Registrant........... S-2 Schedule II Valuation and Qualifying Accounts (Company)............ S-4
All financial statement schedules other than the above have been omitted because they are not required or the information required to be set forth therein is included in the financial statements or in the notes thereto. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. (2) That insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant, pursuant to the provisions described in Item 14 or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by any such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether or not such indemnification is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (3) That for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (4) That for the purpose of determining any liability under the Securities Act, each posteffective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Gulfstream Aerospace Corporation has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Savannah and the State of Georgia on the 11th day of September, 1996. GULFSTREAM AEROSPACE CORPORATION By: /s/ CHRIS A. DAVIS ----------------------------------- Chris A. Davis EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------- ------------------------ * ------------------------------- Chairman of the Board; Director September 11, 1996 Theodore J. Forstmann * ------------------------------- President and Chief Operating Officer; Director September 11, 1996 Fred A. Breidenbach /s/ CHRIS A. DAVIS Executive Vice President, Chief Financial ------------------------------- Officer (Principal Financial Officer and September 11, 1996 Chris A. Davis Principal and Accounting Officer) * ------------------------------- Director September 11, 1996 William R. Acquavella * ------------------------------- Director September 11, 1996 Robert Anderson * ------------------------------- Director September 11, 1996 Charlotte L. Beers * ------------------------------- Director September 11, 1996 Thomas D. Bell, Jr. * ------------------------------- Executive Vice President; Director September 11, 1996 W.W. Boisture, Jr.
II-5
SIGNATURE TITLE DATE - --------------------------------------- ------------------------ * ------------------------------- Director September 11, 1996 Nicholas C. Forstmann * ------------------------------- Director September 11, 1996 Sandra J. Horbach * ------------------------------- Director September 11, 1996 Drew Lewis * ------------------------------- Vice Chairman of the Board; Director September 11, 1996 Bryan T. Moss * ------------------------------- Director September 11, 1996 Allen E. Paulson * ------------------------------- Director September 11, 1996 Roger S. Penske * ------------------------------- Director September 11, 1996 Colin L. Powell * ------------------------------- Director September 11, 1996 Gerard Roche * ------------------------------- Director September 11, 1996 Donald H. Rumsfeld * ------------------------------- Director September 11, 1996 George P. Shultz * ------------------------------- Director September 11, 1996 Robert S. Strauss *By /s/ CHRIS A. DAVIS ------------------------------- Chris A. Davis Attorney-In-Fact
II-6 INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES To the Board of Directors and Stockholders of Gulfstream Aerospace Corporation: We consent to the use in this Registration Statement of Gulfstream Aerospace Corporation on Form S-1 of our report dated February 2, 1996, appearing in the Prospectus, which is part of this Registration Statement and to the reference to us under the heading "Experts" in such Prospectus. Our audits of the financial statements referred to in our aforementioned report also included the consolidated financial statement schedules of Gulfstream Aerospace Corporation and its subsidiaries, listed in Item 16(B). These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Atlanta, Georgia August 6, 1996 S-1 GULFSTREAM AEROSPACE CORPORATION (PARENT COMPANY ONLY) SCHEDULE I -- CONDENSED FINANCIAL INFORMATION BALANCE SHEETS AS OF DECEMBER 31, 1994 AND DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) ASSETS
1994 1995 -------------- -------------- Investment in subsidiary.......................................................... $ 190,644 $ 219,234 -------------- -------------- Total Assets.................................................................. $ 190,644 $ 219,234 -------------- -------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY Payable to subsidiary............................................. $ 1,694 $ 1,694 ----------- ----------- Total Liabilities............................................... 1,694 1,694 ----------- ----------- Stockholders' Equity: Preferred stock, Series A, 7%-cumulative; par value $.01; shares authorized; 10,000,000; shares issued; 100 in 1994 and 1995, Liquidation preference, $546,282,056 in 1995..................... 468,938 468,938 Common stock, Class A, Series A-1 and A-2, par value $.01; shares authorized: 93,493,000; shares issued: 41,345,833 in 1994 and 41,347,833 in 1995;.............................................. 413 413 Common stock, Class B, par value $.01; shares authorized; 15,780,000; shares issued: 11,045,833 in 1994 and 1995........... 110 110 Additional paid-in capital........................................ 210,621 210,631 Accumulated deficit............................................... (439,507) (410,613) Minimum pension liability......................................... (1,136) (1,450) Treasury stock, Common stock, Class A, Series A-2, 8,220,833 shares in 1994 and 1995.......................................... (50,489) (50,489) ----------- ----------- Total Stockholders' Equity...................................... 188,950 217,540 ----------- ----------- Total Liabilities and Stockholders' Equity........................ $ 190,644 $ 219,234 ----------- ----------- ----------- -----------
Note to Schedule I: The Company accounts for its investment in its subsidiary using the equity method of accounting. No dividends were paid to the Company by its subsidiary during the two years ended December 31, 1995. S-2 GULFSTREAM AEROSPACE CORPORATION (PARENT COMPANY ONLY) SCHEDULE I -- CONDENSED FINANCIAL INFORMATION STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1993 1994 1995 ------------ --------- --------- Interest income.............................................................. $ (28,406) Interest expense............................................................. 28,406 ------------ --------- --------- Interest--net................................................................ 0 0 0 Net income (loss) of subsidiary.............................................. (275,227) $ 23,564 $ 28,894 ------------ --------- --------- Net income (loss)............................................................ $ (275,227) $ 23,564 $ 28,894 ------------ --------- --------- ------------ --------- ---------
Note: Statement of cash flows are not presented since the Company had no cash flows from operations. S-3 GULFSTREAM AEROSPACE CORPORATION SCHEDULE II -- CONSOLIDATED SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS (1) PERIOD - ----------------------------------------------------------- ----------- ----------- ----------------- ----------- Allowance for Doubtful Accounts: Year ended December 31, 1993............................. $ 1,255 $ 50 $ 153 $ 1,152 ----------- ----------- ----- ----------- Year ended December 31, 1994............................. 1,152 286 126 1,312 ----------- ----------- ----- ----------- Year ended December 31, 1995............................. 1,312 2,506 381 3,437 ----------- ----------- ----- -----------
(1) Deductions from the allowance for doubtful accounts represent the write-off of uncollectible accounts. S-4 INDEX TO EXHIBITS
EXHIBITS PAGE - ----------- --------- 1.1 -- Proposed Form of Underwriting Agreements.* 2.1 -- Stock Purchase Agreement, dated as of February 12, 1990, between Electrospace Holding, Inc. and GA Acquisition Corp. 3.1 -- Form of Restated Certificate of Incorporation of the Company.* 3.2 -- Form of Restated By-Laws of the Company.* 4.1 -- Specimen Form of Company's Common Stock Certificate.** 5.1 -- Opinion of Fried, Frank, Harris, Shriver & Jacobson as to the validity of the securities being registered.** 10.1 -- Gulfstream Aerospace Corporation Pension Plan, amended and restated January 1, 1989, as amended.* + 10.2 -- Gulfstream Aerospace Corporation Supplemental Executive Retirement Plan, effective as of April 1, 1991.* + 10.3 -- Gulfstream Aerospace Corporation November 1, 1991 Supplemental Executive Retirement Plan.* + 10.4 -- Form of Indemnification Agreement between the Company and its directors and executive officers.* 10.5 -- Form of Outside Director Stock Option Agreement.* + 10.6 -- Form of Outside Director Stockholder's Agreement.* + 10.7 -- Gulfstream Aerospace Corporation Stock Option Plan.* + 10.8 -- Form of Employee Stock Option Agreement.* + 10.9 -- Form of Employee Stockholder's Agreement.* + 10.10 -- Form of Employee Stock Appreciation Right Agreement.* + 10.11 -- Lease Agreement, dated as of January 1, 1988, between Oklahoma City Airport Trust and Gulfstream Aerospace Corporation.* 10.12 -- Lease Agreement, dated as of March 14, 1989, between City of Long Beach and 7701 Woodley Avenue Corporation dba Gulfstream Aerospace.* 10.13 -- Form of Lease Agreements, dated January 1, 1994 between Immuebles El Vigia, S.A., and Interiores Aeros, S.A. De C.V.* 10.14 -- Lease Agreement, dated May 1, 1996 between Immuebles El Vigia, S.A., and Interiores Aeros, S.A. De C.V.* 10.15 -- Sublease Agreement, dated June 1, 1992, between Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation.* 10.16 -- Credit Agreement, dated as of 1996, among Gulfstream Delaware Corporation, Gulfstream Aerospace Corporation, The Chase Manhattan Bank and the banks and other financial institutions parties thereto.** 10.17 -- Registration Rights Agreement among Gulfstream Aerospace Corporation, Gulfstream Delaware Corporation, Gulfstream Partners, Gulfstream Partners II, L.P., and MBO-IV.* 10.18 -- Repurchase Agreement, dated as of May 15,1996, between Gulfstream Aerospace Corporation and MBO-IV.* 10.19 -- Repurchase Agreement, dated as of August 8, 1996, between Gulfstream Aerospace Corporation and MBO-IV.* 10.20 -- Amendment No. 1 to Sublease Agreement, dated May 23, 1994, by and between Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation.* 10.21 -- Amendment No. 2 to Sublease Agreement, dated May 25,1996, by and between Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation.*
10.22 -- Agreement, effective August 9, 1996, between Gulfstream Aerospace Technologies and the International Union, United Automobile, Aerospace & Agricultural Implement Workers of America Local #2130. 10.23 -- Lease Agreement, dated as of August 27, 1996, between Long Beach Million Air, Inc. and Gulfstream Aerospace Corporation. 11.1 -- Computation of Earnings per Common Share. 21.1 -- Subsidiaries of the Company.* 23.1 -- Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1).** 23.2 -- Consent of Deloitte & Touche LLP. 23.3 -- Consent of Aviation Week Group. 24.1 -- Powers of Attorney.*
- -------------- * Previously filed. ** To be filed by amendment. + Compensation Arrangement EX-2.1 2 EXHIBIT 2.1 - -------------------------------------------------------------------------------- STOCK PURCHASE AGREEMENT BETWEEN ELECTROSPACE HOLDING, INC. AND GA ACQUISITION CORP. ____________________ STOCK OF GULFSTREAM AEROSPACE CORPORATION ____________________ FEBRUARY 12, 1990 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Article Page - ------- ---- 1. Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . .1 1.1. Sale and Purchase of the Shares . . . . . . . . . . . .1 1.2. Closing. . . . . . . . . . . . . . . . . . . . . . . . .1 1.2.1. Shares . . . . . . . . . . . . . . . . . . . .2 1.2.2 Purchase Price . . . . . . . . . . . . . . . .2 1.2.3. Intercompany Accounts. . . . . . . . . . . . .2 1.2.4. Other. . . . . . . . . . . . . . . . . . . . .3 1.3. Post-Closing Settlement of Intercompany Accounts . . . . . . . . . . . . . . . . . . . . . . .3 2. Representations and Warranties of the Seller . . . . . . . . . .4 2.1. Corporate Status; Authorization and Validity of Agreement . . . . . . . . . . . . . . . . . . . . . .4 2.2. No Conflicts, etc. . . . . . . . . . . . . . . . . . . .4 2.3. Capitalization . . . . . . . . . . . . . . . . . . . . .5 2.4. Litigation . . . . . . . . . . . . . . . . . . . . . . .5 2.5. Brokers . . .. . . . . . . . . . . . . . . . . . . . . .5 2.6. Organization, etc. . . . . . . . . . . . . . . . . . . .6 2.7. Financial Statements . . . . . . . . . . . . . . . . . .6 2.8. Absence of Undisclosed Liabilities . . . . . . . . . . .7 2.9. Absence of Certain Changes or Events. . . . . . . . . . 7 2.10. Compliance with Laws . . . . . . . . . . . . . . . . . .8 2.11. Transactions with Affiliates . . . . . . . . . . . . . .8 2.12. Insurance . . . . . . . . . . . . . . . . . . . . . . .9 2.13. Knowledge of Business. . . . . . . . . . . . . . . . . .9 3. Representations and Warranties of the Purchaser. . . . . . . . 10 3.1. Corporate Status; Authorization and Validity of Agreement . . . . . . . . . . . . . . . . . . . . . 10 3.2. No conflicts, etc. . . . . . . . . . . . . . . . . . . 10 3.3. Litigation . . . . . . . . . . . . . . . . . . . . . . 11 3.4. Purchase for Investment. . . . . . . . . . . . . . . . 11 3.5. Brokers. . . . . . . . . . . . . . . . . . . . . . . . 11 3.6. Financial Ability to Perform . . . . . . . . . . . . . 11 i Article Page - ------- ---- 4. Certain Covenants . . . . . . . . . . . . . . . . . . . . . . .11 4.1. Obligations of the Parties . . . . . . . . . . . . . . 11 4.2. Conduct of Business, etc. . . . . . . . . . . . . . . .12 4.3. Access and Information . . . . . . . . . . . . . . . . 13 4.4. Confidentiality. . . . . . . . . . . . . . . . . . . . 13 4.5. Continuing Support Services. . . . . . . . . . . . . . 14 4.6. Unwinding of Certain Intercompany Relationships. . . . 15 4.7. Employee Benefit Plans and Arrangements. . . . . . . . 15 5. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.1. Payments with Respect to Certain Taxes . . . . . . . . 18 5.2. Tax Matters. . . . . . . . . . . . . . . . . . . . . . 20 5.3. Section 338(h)(10) Election. . . . . . . . . . . . . . 27 5.4. Tax Dispute Resolution Mechanism . . . . . . . . . . . 30 6. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . 31 6.1. General. . . . . . . . . . . . . . . . . . . . . . . . 31 6.2. Condition to Obligations of Both Parties . . . . . . . 31 6.3. Conditions to Obligations of the Seller. . . . . . . . 32 6.3.1. Representations and Warranties of the Purchaser . . . . . . . . . . . . . . . . 32 6.3.2. Officer's Certificate. . . . . . . . . . . . 32 6.3.3. Opinion of Counsel . . . . . . . . . . . . . 32 6.4. Conditions to Obligations of the Purchaser . . . . . . 32 6.4.1. Representations and Warranties of the Seller. . . . . . . . . . . . . . . . . . 32 6.4.2. Officer's Certificate. . . . . . . . . . . . 32 6.4.3. Opinion of Counsel . . . . . . . . . . . . . 33 6.4.4. Resignations . . . . . . . . . . . . . . . . 33 6.4.5. FIRPTA Certificate . . . . . . . . . . . . . 33 6.4.6. Changes, etc. . . . . . . . . . . . . . . . .33 7. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 34 7.1. Survival of Representations and Warranties . . . . . . 34 7.2. Indemnification. . . . . . . . . . . . . . . . . . . . 34 7.2.1. By the Seller. . . . . . . . . . . . . . . . 34 ii Article Page - ------- ---- 7.2.2. By the Purchaser . . . . . . . . . . . . . . 36 7.2.3. Indemnification Procedure. . . . . . . . . . 38 8. General Provisions . . . . . . . . . . . . . . . . . . . . . . 40 8.1. Modification; Waiver . . . . . . . . . . . . . . . . . 40 8.2. Entire Agreement . . . . . . . . . . . . . . . . . . . 40 8.3. Termination. . . . . . . . . . . . . . . . . . . . . . 40 8.3.1. Termination By The Parties . . . . . . . . . 40 8.3.2. Continuing Obligations . . . . . . . . . . . 41 8.4. Expenses . . . . . . . . . . . . . . . . . . . . . . . 41 8.5. Further Actions. . . . . . . . . . . . . . . . . . . . 41 8.6. Post-Closing Access. . . . . . . . . . . . . . . . . . 41 8.7. Notices. . . . . . . . . . . . . . . . . . . . . . . . 42 8.8. Assignment . . . . . . . . . . . . . . . . . . . . . . 43 8.9. No Third Party Beneficiaries . . . . . . . . . . . . . 43 8.10. Severability . . . . . . . . . . . . . . . . . . . . . 43 8.11. Counterparts . . . . . . . . . . . . . . . . . . . . . 43 8.12. Headings; Table of Contents. . . . . . . . . . . . . . 44 8.13. Governing Law. . . . . . . . . . . . . . . . . . . . . 44 8.14. Specific Performance . . . . . . . . . . . . . . . . . 44 iii STOCK PURCHASE AGREEMENT, dated February 12, 1990, between ELECTROSPACE HOLDING, INC., a Michigan corporation (the "Seller"), and GA ACQUISITION CORP., a Delaware corporation (the "Purchaser"). W I T N E S S E T H: WHEREAS, the Seller is the owner of all of the issued and outstanding capital stock of Gulfstream Aerospace Corporation, a Delaware corporation ("Gulfstream"), consisting of 1,000 shares of common stock, no par value (the "Shares"); and WHEREAS, the Seller wishes to sell the Shares to the Purchaser, and the Purchaser wishes to purchase the Shares from the Seller, on the terms and conditions and for the consideration described in this Agreement; NOW, THEREFORE, in consideration of the mutual promises made herein and of the mutual benefits to be derived herefrom, the parties hereto agree as follows: ARTICLE I SALE AND PURCHASE 1.1. SALE AND PURCHASE OF THE SHARES. On the Closing Date (as defined in Section 1.2) and subject to the terms and conditions hereof, at the Closing (as defined in Section 1.2), the Seller will sell, transfer and deliver the Shares to the Purchaser, and the Purchaser shall purchase and accept the Shares from the Seller and deliver the Purchase Price (as defined in Section 1.2.2) to the Seller. 1.2. CLOSING. The closing of the purchase and sale of the Shares (the "Closing") will take place at the offices of Debevoise & Plimpton, 875 Third Avenue, New York, New York 10022 at 10:00 A.M., New York time on the later of March 15, 1990 and the second business day after all conditions to the respective obligations of the parties have been satisfied or waived or at such other place and time as the Purchaser and the Seller may agree (the "Closing Date"). At the Closing: 1.2.1. SHARES. The Seller will deliver the Shares to the Purchaser, and thereupon the Purchaser shall acquire, good and valid title to the Shares, free and clear of all liens, restrictions, imperfections of title or other encumbrances of any nature whatsoever ("Encumbrances"), by delivering the certificate or certificates representing the Shares, endorsed or accompanied by stock powers (executed in blank), and accompanied by all requisite stock transfer stamps; 1.2.2. PURCHASE PRICE. The Purchaser will pay the purchase price for the Shares in the amount of $825,000,000 (the "Purchase Price") by wire transfer of immediately available funds to a bank designated by the Seller; 1.2.3. INTERCOMPANY ACCOUNTS. All amounts owed by the Seller to Gulfstream and by Gulfstream to the Seller as recorded in the Intercompany Accounts (as hereinafter defined) as of the close of business on the day preceding the Closing Date will be paid on the Closing Date. Such net balance will be estimated by the Seller and provided to Gulfstream (and the Purchaser) at least one week prior to the Closing Date, specifying in reasonable detail the transactions and anticipated transactions between the Seller and Gulfstream recorded and to be recorded in the Intercompany Accounts from December 31, 1989 through the day preceding the Closing Date. On the day preceding the Closing Date, the Seller shall deliver to the Purchaser a certificate of the Seller, setting forth its good faith estimate of the net balance of the Intercompany Accounts as of the date of such certificate, specifying in reasonable detail any differences from the estimate referred to in the preceding sentence and certifying that such net balance was calculated on a basis consistent with the Financial Statements (as defined in Section 2.7). For purposes of this Section 1.2.3 and Section 1.3, "Seller" shall mean the Seller and all of its affiliates other than Gulfstream and all companies in which Gulfstream owns, directly or indirectly, more than 50% of the outstanding capital stock (the "Subsidiaries"), 2 "Gulfstream" shall mean Gulfstream and the Subsidiaries, and "Intercompany Accounts" shall mean the accounts maintained by the Seller and Gulfstream (in accordance with their customary practices, as such practices are reflected in the Financial Statements) in which there are recorded the amounts owed by the Seller to Gulfstream or by Gulfstream to the Seller, attributable to intercompany transactions to the Closing Date in respect of cash advances, intercorporate expense allocations or transactions in goods or services, whether provided by the Seller to Gulfstream or by Gulfstream to the Seller, but excluding such accounts related to Income Taxes (as defined in Section 5.2(g)); and 1.2.4. OTHER. The Purchaser and the Seller will deliver to each other any other documents required to be delivered by such party at the Closing pursuant to this Agreement. 1.3. POST-CLOSING SETTLEMENT OF INTERCOMPANY ACCOUNTS. All amounts owing by the Seller to Gulfstream and by Gulfstream to the Seller on account of the Intercompany Accounts that are not reflected in the certificate referred to in Section 1.2.3 will be calculated and billed in accordance with the past regular practice of the Seller and Gulfstream and will be paid by the Seller or Gulfstream, as the case may be, in cash within 15 days after the date of receipt of the bill, PROVIDED that with respect to intercompany accounts related to Income Taxes, payments shall be made only as provided in Article V. Any disagreement between the Seller and the Purchaser as to the determination of the amount of the final balance of the Intercompany Accounts or as to any error in the net balance shown on the certificate referred to in Section 1.2.3 will be submitted for resolution by the national office of Deloitte & Touche or other independent accountants of nationally recognized standing reasonably satisfactory to the Seller and the Purchaser (the "Neutral Accountants"), whose decision will be final, conclusive and binding on the Purchaser, the Seller and Gulfstream. Any payment to be made as a result of any such disagreement will be made on the third business day following the receipt by the Seller and the Purchaser of a written notice from the Neutral Accountants of their 3 determination. The fees and expenses of the Neutral Accountants in making any such determination will be borne equally by the Seller and the Purchaser. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER The Seller represents and warrants to the Purchaser as follows with the exceptions as are reflected in the Schedule, dated as of the date hereof and initialled by the parties or in the exhibits thereto or documents referred to therein (collectively, the "Schedule"), and subject to the provisions of Section 2.13: 2.1. CORPORATE STATUS; AUTHORIZATION AND VALIDITY OF AGREEMENT. The Seller is a corporation duly incorporated, validly existing and in good standing under the Laws (as defined in Section 2.10) of the State of Michigan and has the corporate power and authority to own the Shares and to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of the Seller and this Agreement has been duly executed and delivered by the Seller and constitutes the valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and by general principles of equity. 2.2. NO CONFLICTS, ETC. (a) The execution, delivery and performance of this Agreement by the Seller will not result in (i) any conflict with the charter documents or by-laws of any of the Seller, Gulfstream and the Subsidiaries or (ii) any breach or violation of or default under any Law or any material agreement, indenture or other instrument to which any of the Seller, Gulfstream and the Subsidiaries is a party or by which it or any of its properties or assets are bound. 4 (b) No consent, approval or authorization of or filing with any governmental authority is required on the part of the Seller in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. The representation by the Seller in the preceding sentence with respect to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") is made in reliance upon and subject to the accuracy of the Purchaser's representation in the second sentence of Section 3.2(b). 2.3. CAPITALIZATION. The authorized capital stock of Gulfstream consists of 1,000 shares of common stock, no par value per share, all of which are issued and outstanding. All such issued and outstanding shares are owned by the Seller, free and clear of all Encumbrances, have been duly authorized and validly issued and are fully paid and non-assessable. There are no outstanding options, warrants, conversion or other rights or agreements of any kind (other than this Agreement) for the purchase or acquisition from, or the sale or issuance by, the Seller or Gulfstream of any shares of capital stock of Gulfstream, and no authorization therefor has been given. 2.4. LITIGATION. There are no judicial or administrative actions, proceedings or investigations pending or, to the Seller's Knowledge, threatened, against the Seller, Gulfstream or any of the Subsidiaries which question the validity of this Agreement or any action taken or to be taken by the Seller, Gulfstream or any Subsidiary in connection herewith. For purposes of this Article II, "the Seller's Knowledge" shall mean the actual knowledge of the Seller, Chrysler Technologies Corporation and the following officers of Gulfstream: Albert H. Glenn, John W. Sandford, James L. Bradbury, Donald L. Mayer and Charles A. Struve. 2.5. BROKERS. The Seller has not retained any broker or finder in connection with the transactions contemplated herein so as to give rise to any valid claim against the Seller, the Purchaser, or Gulfstream for any brokerage or finder's commission, 5 fee or similar compensation, except for The First Boston Corporation, whose fees in respect hereof shall be paid by the Seller. 2.6. ORGANIZATION, ETC. (a) Each of Gulfstream and the Significant Subsidiaries (as defined in Section 2.6(b)) (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; (ii) is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the character of its assets or the conduct of its business makes such qualification necessary except where the failure to be so qualified and in good standing would not, individually or in the aggregate, have a material adverse effect on the business or financial condition of Gulfstream and the Subsidiaries taken as a whole (a "Material Adverse Effect"); and (iii) has all requisite corporate power and authority to own or lease and operate its assets and carry on its business as presently being conducted. The Subsidiaries which are not Significant Subsidiaries are not, individually or in the aggregate, material to the business of Gulfstream and the Subsidiaries taken as a whole. (b) The Schedule sets forth the name and jurisdiction of incorporation of each Subsidiary (each such Subsidiary on the Schedule with an asterisk by its name being referred to as a "Significant Subsidiary"). All of the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued, are fully paid and non-assessable and are owned, directly or indirectly, by Gulfstream, free and clear of all Encumbrances. There are no outstanding options, warrants, conversions or other rights or agreements of any kind for the purchase or acquisition from, or the sale or issuance by, Gulfstream or any Subsidiary of any shares of capital stock of such Subsidiary, and no authorization therefor has been given. Neither Gulfstream nor any subsidiary owns any equity interest in any person, corporation or other entity that is not a Subsidiary. 2.7. FINANCIAL STATEMENTS. The Seller has delivered to the Purchaser the consolidated balance sheet of Gulfstream and its subsidiaries as of December 31, 1989, and the related consolidated statements of earnings, retained earnings and cash flows for 6 the year ended on such date, including the related schedules and notes, audited by Deloitte & Touche (collectively, the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with that of prior periods, and fairly present the consolidated financial position, results of operations and cash flows of Gulfstream and its subsidiaries as of the date and for the period indicated. 2.8. ABSENCE OF UNDISCLOSED LIABILITIES. To the Seller's Knowledge, except for liabilities reflected or reserved against or otherwise disclosed in the Financial Statements, Gulfstream and the Subsidiaries have no liabilities or obligations of any kind whatsoever (whether or not accrued, contingent or absolute, asserted or unasserted) which are required by generally accepted accounting principles to be reflected or reserved against or otherwise disclosed in the consolidated financial statements of Gulfstream and its subsidiaries and which, individually or in the aggregate, are material to Gulfstream and the Subsidiaries taken as a whole, other than those arising in the ordinary course of business since December 31, 1989 or as contemplated by this Agreement. 2.9. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1989, except for the transactions contemplated by this Agreement, neither Gulfstream nor any Subsidiary has: (a) incurred obligations or liabilities (fixed or contingent) which, individually or in the aggregate, are material to Gulfstream and the Subsidiaries taken as a whole, except in the ordinary course of business; (b) declared or paid dividends or made redemptions or other distributions with respect to its capital stock, or made any payments to any of its affiliates (other than by a wholly-owned Subsidiary to Gulfstream or another wholly-owned Subsidiary) which, individually or in the aggregate, are material to Gulfstream and the Subsidiaries taken as a whole, except pursuant to contracts or arrangements disclosed in Section 2.11; 7 (c) sold, leased or otherwise disposed of assets which, individually or in the aggregate, are material to Gulfstream and the Subsidiaries taken as a whole, except for the sale of inventory in the ordinary course of business; (d) granted general wage or salary increases, or made increases in or commitments to increase any employee benefits or adopted or made commitments to adopt or amend any employee benefit plans or arrangements in each such case which, individually or in the aggregate, are material to Gulfstream and the Subsidiaries taken as a whole; (e) made or entered into any agreement to make any capital expenditures in excess of $1,000,000 in any one case; or (f) otherwise entered into any transactions which, individually or in the aggregate, are material to Gulfstream and the Subsidiaries, taken as a whole, except in the ordinary course of business. 2.10. COMPLIANCE WITH LAWS. (a) To the Seller's Knowledge, neither Gulfstream nor any Subsidiary is in violation of or default under any law, statute, ordinance, rule, regulation, decree or order ("Laws"), except for violations or defaults which, individually or in the aggregate, would not have a Material Adverse Effect, (b) Gulfstream and the Subsidiaries hold all licenses, permits and other governmental authorizations which, individually or in the aggregate, are material to the business of Gulfstream and the Subsidiaries taken as a whole as presently conducted, and (c) neither Gulfstream nor any Subsidiary has received any notice of any violation of any Law except for violations which, individually or in the aggregate, would not have a Material Adverse Effect. 2.11. TRANSACTIONS WITH AFFILIATES. Since December 31, 1989, neither Gulfstream nor any of the Subsidiaries has used or otherwise availed itself (including by purchase, borrowing or lease) of material assets or services provided by the Seller or any Non-Gulfstream Affiliate (as hereinafter defined). The Schedule sets forth all material 8 contracts (including any contract providing for Tax (as defined in Section 5.2(g)) sharing) or arrangements between Gulfstream or the Subsidiaries, on the one hand, and the Seller and its Non-Gulfstream Affiliates, on the other hand, including any such arrangements which result in entries to the Intercompany Accounts. Gulfstream and the Subsidiaries are the only affiliates of the Seller that sell business jets. For the purposes of this Agreement, "Non-Gulfstream Affiliate" shall mean any affiliate of the Seller other than Gulfstream and the Subsidiaries. 2.12. INSURANCE. The Schedule sets forth a list describing the categories of coverages of all material policies of insurance and fidelity or surety bonds insuring Gulfstream or any of the Subsidiaries or their business, assets, employees, officers and directors; to the Seller's Knowledge, all such policies and instruments providing such coverage are in full force and effect; Gulfstream and the Subsidiaries are in compliance with the terms of such policies and instruments in all material respects; all such policies cover Gulfstream and/or the Subsidiaries exclusively; coverage thereunder will not be affected by the transactions contemplated hereby; there are no claims by Gulfstream or any of the subsidiaries against any of such policies as to which any insurance company is denying liability or defending under a reservation of rights clause; and none of the Seller, Gulfstream and the Subsidiaries has received notice of any pending or threatened termination of any of such policies or any premium increases for the current policy period with respect to any of such policies. 2.13. KNOWLEDGE OF BUSINESS. The Purchaser shall have no claim for or right of indemnity pursuant to this Agreement based on any inaccuracy or breach of any representation or warranty if Mr. Allen E. Paulson, Forstmann Little & Co., FLC Partnership or any general partner of Forstmann Little & Co. or FLC Partnership had actual knowledge of such breach or inaccuracy, or of any information or facts which form the basis of such breach or inaccuracy, prior to the Closing Date. 9 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Seller as follows: 3.1. CORPORATE STATUS; AUTHORIZATION AND VALIDITY OF AGREEMENT. The Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of the Purchaser and this Agreement has been duly executed and delivered by the Purchaser and constitutes the valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and by general principles of equity. 3.2. NO CONFLICTS, ETC. (a) The execution, delivery and performance of this Agreement by the Purchaser will not result in (i) any conflict with the charter documents or by-laws of the Purchaser, or (ii) any breach or violation of or default under any Law or any material agreement, indenture or other instrument to which the Purchaser is a party or by which it or any of its properties or assets are bound. (b) No consent, approval or authorization of or filing with any governmental authority is required on the part of the Purchaser in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby other than a filing under the HSR Act in connection with the formation of the Purchaser. The acquisition of the Shares is not subject to the reporting requirements and waiting period of the HSR Act because (a) the Acquiring Person (as defined by 16 C.F.R. Section 801.2(a)) has neither prior sales nor a regularly prepared balance 10 sheet, and its assets at the time of the Closing are less than $10 million, exclusive of any sums to be paid the Seller at the time of the Closing plus any expenses incidental to the acquisition contemplated hereby and (b) no entity that has either prior sales or total assets of $10 million or more controls the Acquiring Person, as "control" is defined in 16 C.F.R. Section 801.1(b). 3.3. LITIGATION. There are no judicial or administrative actions, proceedings or investigations pending or, to the knowledge of the Purchaser, threatened against the Purchaser, which question the validity of this Agreement or any action taken or to be taken by the Purchaser in connection herewith. 3.4. PURCHASE FOR INVESTMENT. The Purchaser acknowledges that the Shares have not been registered under the Securities Act of 1933, as amended, or under any state or foreign securities laws. The Purchaser is purchasing the Shares for its own account and not with a view to the distribution thereof. 3.5. BROKERS. The Purchaser has not retained any broker or finder in connection with the transactions contemplated herein so as to give rise to any valid claim against the Seller, the Purchaser, or Gulfstream for any brokerage or finder's commission, fee or similar compensation. 3.6. FINANCIAL ABILITY TO PERFORM. The Purchaser will have available on the Closing Date sufficient funds to enable it to consummate the transactions contemplated by this Agreement. ARTICLE IV CERTAIN COVENANTS 4.1. OBLIGATIONS OF THE PARTIES. The parties shall apply for and diligently prosecute all applications for, and shall use their best efforts promptly to obtain, such consents, authorizations and approvals from such governmental authorities as shall 11 be necessary to permit the consummation of the transactions contemplated by this Agreement, and shall use their best efforts to bring about the satisfaction as soon as practicable of all the conditions contained in Article VI and to effect the consummation of the transactions contemplated by this Agreement. 4.2. CONDUCT OF BUSINESS, ETC. (a) Until the Closing, except as permitted by this Agreement or as otherwise consented to by the Purchaser in writing, such consent not to be unreasonably withheld or delayed, the Seller shall cause each of Gulfstream and the Subsidiaries to: (i) carry on its business in the ordinary course in substantially the same manner in which it previously has been conducted and use all commercially reasonable efforts to preserve intact its present business organization and to preserve its relationships with customers, suppliers and others having business dealings with it; (ii) maintain its books of account and records in its usual, regular and ordinary manner, consistent with its past practice; (iii) maintain its assets, machinery and equipment in sufficient operating condition and repair to enable it to operate its business in all material respects in the manner in which the business is currently operated; (iv) continue all existing policies of insurance (or comparable insurance) in full force and effect; and (v) use commercially reasonable efforts to keep available the services of its present officers, employees and agents (as a group). (b) From the date hereof and prior to the Closing, the Seller will cause each of Gulfstream and the Subsidiaries not to: (i) amend its charter or by-laws; (ii) declare or pay any dividend or make any other redemption or other distribution with respect to its capital stock, or make any payments to any of its 12 affiliates (other than by a wholly-owned Subsidiary to Gulfstream or another wholly-owned Subsidiary) except pursuant to contracts or arrangements disclosed pursuant to Section 2.11 or except pursuant to arm's-length transactions in the ordinary course of business in accordance with past practice; or (iii) except as required by Law (A) increase the compensation or fringe benefits of any director, officer or employee (other than, in the case of employees, compensation increases in accordance with its customary compensation practices and scheduled progressions and customary or scheduled changes in fringe benefits); (B) enter into any new or amend any existing bonus or incentive agreement or similar arrangement with any of its directors, officers or other employees; (C) enter into any new employment, collective bargaining, severance, consulting or other compensation agreement with any existing director, officer, employee or employee representative; or (D) enter into a new or commit itself to any additional benefit plan or amend or terminate or renew or commit itself to amend or terminate or renew any benefit plan in existence on the date hereof. 4.3. ACCESS AND INFORMATION. The Seller shall cause Gulfstream and the Subsidiaries to give the Purchaser and its representatives access at all reasonable times to the properties, books and records of Gulfstream and the Subsidiaries and to the outside auditors of Gulfstream and the Subsidiaries and their workpapers and to furnish such additional information and documents, all as the Purchaser may reasonably request. The Seller shall, upon the reasonable request of the Purchaser, deliver to Gulfstream at its principal place of business (or to such other location as the Purchaser shall request) all books and records pertaining to Gulfstream or any of the Subsidiaries or copies thereof which are not otherwise in the possession of Gulfstream or the Subsidiaries. 4.4. CONFIDENTIALITY. (a) Unless and until the Closing occurs, any information provided to the Purchaser or its representatives pursuant hereto shall be subject to the terms and conditions of the letter agreement between First Boston 13 Corporation, on behalf of Chrysler Corporation ("Chrysler"), and Forstmann Little & Co., dated January 11, 1990 (the "Confidentiality Agreement"). (b) Any information that the Seller obtains in connection herewith with respect to the Purchaser or any of its affiliates shall be subject to the same provisions of the Confidentiality Agreement as if the Seller were "the Purchaser" and the information concerning the Purchaser were information concerning the Seller, Gulfstream or the Subsidiaries. (c) At the Closing, the Confidentiality Agreement shall terminate and become void and have no effect. At the Closing, the Seller shall assign, without warranty, to the Purchaser all assignable rights of the Seller under all confidentiality agreements between the Seller and persons other than the Purchaser that were entered into in connection with or relating to a possible sale of Gulfstream and the Subsidiaries, including, without limitation, the right to enforce all terms of such confidentiality agreements, and shall certify that it has not waived any of its or Gulfstream's rights thereunder. At the closing, the Seller shall deliver to the Purchaser the original executed copies of all such confidentiality agreements. 4.5. CONTINUING SUPPORT SERVICES. (a) Upon the request of the Purchaser prior to the Closing Date, the Seller will agree to enter into reasonable arrangements to provide Gulfstream and the Subsidiaries for an interim period certain of the support services currently provided to them (the "Support Services") at prevailing market rates, PROVIDED that in no event will the Seller or any of its affiliates provide any insurance or cash management services to the Purchaser, Gulfstream or any Subsidiary after the Closing Date. Any Support Services that are not continued pursuant to the preceding sentence shall be terminated as of the Closing. (b) Gulfstream will continue Pentastar Aviation, Inc. ("Pentastar") as a named insured on any policy of insurance held by Gulfstream on which Pentastar is 14 currently so named until September 1, 1990, PROVIDED that Pentastar will reimburse Gulfstream for any deductible amount paid by Gulfstream on account of a Pentastar loss. 4.6. UNWINDING OF CERTAIN INTERCOMPANY RELATIONSHIPS. (a) At or prior to the Closing, Gulfstream will enter into a guaranty of the Oklahoma facility lease referred to in Section 2.11 of the Schedule. To the extent requested by Chrysler after the Closing, the Purchaser and Gulfstream will cooperate with Chrysler (at Chrysler's expense) in obtaining a release of Chrysler from its guaranty of such lease and in any sale by Chrysler of the bonds issued in connection with the financing of such facility. (b) At or prior to the Closing, Gulfstream will assume Chrysler's guaranty of Commander Air Company's indebtedness under a line of credit extended by Chrysler Capital Corporation to Commander Air Company. (c) At or prior to the closing, Gulfstream will assume the obligations of Chrysler International Services S.A. ("CISSA") under its London office lease. To the extent requested by Chrysler after the Closing, the Purchaser and Gulfstream will cooperate with CISSA (at CISSA's expense) in obtaining a release of Chrysler from such lease. At or prior to the Closing, Gulfstream will transfer the two Gulfstream sales representatives employed by CISSA to Gulfstream or a subsidiary of Gulfstream. 4.7. EMPLOYEE BENEFIT PLANS AND ARRANGEMENTS. (a) PENSION PLANS. The Seller shall cause the trustee of the master trust in which the Gulfstream Aerospace Corporation Pension Plan, the Gulfstream Aerospace Technologies Salaried Employees Pension Plan and the Gulfstream Aerospace Technologies Hourly Employees Pension Plan (the "Pension Plans") participate (the "Master Trust"), as of the Master Trust's valuation date next following the Closing Date (the "Valuation Date"), to value, in a manner consistent with its prior practice, the share of the assets of the Master Trust attributable to the Pension Plans (the "Asset Value"). As soon as practicable after the determination of the Asset Value, the Seller shall cause the trustee of the Master Trust to transfer to a successor trustee designated by the Purchaser an amount (the "Transfer 15 Amount") in cash and guaranteed investment contracts attributable to the Pension Plans equal to the Asset Value increased by interest during the period from the Valuation Date to the date of transfer at an interest rate equal to the interest rate credited from time to time during such period on short term investments held in the Master Trust. (b) 401(k) PLAN. (i) The Purchaser shall, as soon as practicable after the Closing, establish or designate a defined contribution plan (the "Purchaser's Investment Plan") for the benefit of those employees of Gulfstream and the Subsidiaries who, on the Closing Date, are participants in the Chrysler Hourly Deferred Pay Plan (the "Chrysler Plan") (such participants referred to herein as the "Transferred Investment Participants"). (ii) As soon as practicable after the later of the expiration of 30 days following the filing of Form 5310 with the Internal Revenue Service (the "IRS") in respect of the Purchaser's Investment Plan and the Chrysler Plan, and (B) the receipt by the Seller of (I) a satisfactory opinion of counsel (subject to any amendments that may be required by (x) reason of amendments made to the Code (as hereinafter defined) by reason of the Tax Reform Act of 1986 or any subsequent legislation, which amendments are not required to be adopted as of the date of such opinion letter, or (y) the IRS) or (II) a determination letter issued by the IRS, in either case, to the effect that the Purchaser's Investment Plan meets, in form, the applicable requirements of Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), the Seller shall cause the trustee of the Chrysler Plan to transfer to the trust forming a part of the Purchaser's Investment Plan cash and/or other property acceptable to the Purchaser which is held in the trust forming a part of the Chrysler Plan, in an amount equal to the account balances of Transferred Investment Participants as of the monthly valuation date of such plan immediately preceding the date of such transfer. (iii) The Seller shall, prior to the Closing Date, use commercially reasonable efforts to obtain or cause to be obtained any necessary consent of the 16 International Union, United Automobile, Aerospace and Agricultural Implement Workers of America Local #2130 with respect to the replacement of the Chrysler Plan by the Purchaser's Investment Plan and the transfer contemplated in Section 4.7(b)(ii). (c) CHRYSLER STOCK AGREEMENTS. The Seller agrees that it will deliver or will cause to be delivered prior to the Closing Date (or, if later, in the case of shares to be delivered in respect of performance in 1989, as soon as practicable following the determination of the number of shares due) to each of the individuals listed in Section 4.7 of the Schedule hereto, the number of shares of Chrysler Corporation common stock (adjusted for any stock splits or other changes in capitalization of Chrysler Corporation) earned by the individual (together with any dividends or dividend equivalents on such shares and any interest earned thereon) for each calendar year from 1986 through 1989 pursuant to letter agreements between Gulfstream and such individuals. Gulfstream agrees to assume the Seller's rights, duties and obligations (including the obligation to deliver to such individuals any additional shares of Chrysler Corporation common stock) under said letter agreements in respect of performance during calendar year 1990. (d) CHRYSLER CORPORATION CAR LEASE PROGRAM. The Seller agrees that it will continue, or will cause to be continued, the furnishing of vehicles currently provided under each car leasing arrangement and the product evaluation program on terms substantially similar to those in effect on the date hereof for the benefit of currently participating employees and retirees of Gulfstream and the Subsidiaries through September 30, 1990, PROVIDED that Gulfstream shall reimburse the Seller in the amount of $425 per month (pro-rated for partial months) for each car subject to the product evaluation program and the amount of the required lease payments for each leased vehicle. (e) INDEMNIFICATION BY THE SELLER. The Seller shall indemnify and hold harmless the Purchaser, Gulfstream, each of their respective affiliates and subsidiaries, shareholders, directors, officers, employees, and agents and each of the heirs, executors, 17 successors, and assigns of any of the foregoing against any Damages (as defined in Section 7.2.1) (including any excise and penalty Taxes) incurred or suffered by any of them arising out of or relating to the funding, operation, administration, amendment or termination of, and the withdrawal or partial withdrawal from, any employee benefit plan established, maintained or contributed to by the Seller or any person or entity under common control or affiliated with (as defined in sections 414(b), (c), (m) or (o) of the Code or section 4001(b)(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and regulations promulgated thereunder) the Seller (other than Gulfstream and the Subsidiaries), whether arising out of or relating to any event or state of facts occurring or existing before or after the Closing Date and including, but not limited to, Damages arising under Title IV of ERISA, section 302 of ERISA and sections 412 and 4971 of the Code. ARTICLE V TAXES 5.1. PAYMENTS WITH RESPECT TO CERTAIN TAXES. On the Closing Date, the Tax sharing agreement between Gulfstream and Chrysler corporation shall be terminated, and no additional payments shall be made thereunder, PROVIDED that the parties to such agreement shall be obligated to make all payments required pursuant to the terms thereof as and when due thereunder with respect to federal Income Taxes attributable to all periods beginning on or after January 1, 1990 and ending on or prior to the Closing Date (the "Stub Periods"), and PROVIDED, FURTHER, that the obligation to make such payments with respect to the Stub Periods shall be based solely on the Returns for the Stub Periods as originally filed with the Internal Revenue Service. If any payment was made pursuant to the terms of such Tax sharing agreement after December 31, 1989 with respect to any period ending on or before such date, the party that received such payment shall, on or 18 before the Closing Date, refund such payment to the party that made such payment. With respect to all state, local and foreign Income Taxes relating to Gulfstream or any Subsidiary that are described as being the responsibility of the Seller in Section 5.2(a)(ii) attributable to the Stub Periods, as between Gulfstream and the Subsidiaries, on the one side, and the Seller and the Non- Gulfstream Affiliates, on the other side, the combined, consolidated or unitary Income Taxes shall be allocated in a manner consistent with sections 1.1502- 33(d)(2)(ii) and 1.1552-(i)(a) of the Income Tax Regulations, and (a) Gulfstream shall pay to the Seller the amount of such Taxes allocated to Gulfstream and the Subsidiaries, or (b) if Gulfstream and the Subsidiaries have losses or credits that are used to reduce the amount of such Taxes, the Seller shall pay to Gulfstream an amount equal to such reduction, PROVIDED that the obligation to make such payments with respect to the Stub Periods shall be based solely on the Returns for the Stub Periods as originally filed with the applicable taxing authorities. For all purposes of this Section 5.1, Tax liabilities on a separate return basis shall be computed consistent with past practices, and such Tax liabilities shall not include any amounts of Tax arising solely from (i) Gulfstream's or any Subsidiary's ceasing, as a result of the sale of the Shares pursuant to this Agreement, to be a member of the Seller's Group (as defined in Section 5.2(a)) or any group filing combined, consolidated or unitary Returns that includes the Seller or any Non-Gulfstream Affiliate, including, without limitation, the restoration of gain on any deferred intercompany transaction and the inclusion in income of any excess loss account, or (ii) any income or recapture of credits resulting from the deemed sale of assets and other deemed transactions arising from the Section 338(h)(10) Election (as defined in Section 5.3(a)) and all comparable elections under state and local Tax law. Any disagreement between the Seller and the Purchaser as to the determination of such Tax liabilities shall be resolved pursuant to the Tax Dispute Resolution Mechanism (as defined in Section 5.4). 19 5.2. TAX MATTERS. (a) RESPONSIBILITY FOR PAYMENT. The Seller shall pay or cause to be paid (without duplication of amounts otherwise payable, and excluding any interest, penalties and additions to tax arising from any act or omission after the Closing by the Purchaser, Gulfstream or any of the Subsidiaries if such act or omission was negligent, in bad faith or in violation of Law) (i) all federal Income Taxes payable with respect to Gulfstream and the Subsidiaries for all periods ending on or prior to the Closing Date for which they are includible in the Return of the consolidated group of which the Seller is a member (the "Seller's Group"), (ii) all state, local and foreign Income Taxes with respect to which Gulfstream or any of the Subsidiaries has filed or is required to file pursuant to Section 5.2(b)(i) a combined, consolidated or unitary Return with the Seller or any of the Non-Gulfstream Affiliates, payable with respect to Gulfstream and such Subsidiaries for all periods ending on or prior to the Closing Date, (iii) all state, local and foreign Income Taxes payable with respect to Gulfstream and the Subsidiaries for all periods ending on or prior to December 31, 1989 other than those Taxes described in clause (ii) above, but only to the extent of the net increase in the amount of such Taxes that may arise from the disallowance of Tax benefits that resulted from the election under section 338 of the Internal Revenue Code of 1954 and comparable elections under state and local Tax law made in respect of the 1985 purchase of the stock of Gulfstream by Chrysler Corporation (the "1985 Elections"), (iv) all Income Taxes arising directly from the deemed sales of assets and the other deemed transactions resulting from the 1985 Elections and (v) all Taxes for which Gulfstream or any of the Subsidiaries may be held liable as a member of the Seller's Group pursuant to section 1.1502-6(a) of the Income Tax Regulations or as a member of any combined, consolidated or unitary group of which the Seller or any of the Non-Gulfstream Affiliates is or was a member pursuant to any similar provision of any state, local or foreign law with respect to Income Taxes. The Purchaser shall pay or cause to be paid all Taxes of or imposed on Gulfstream or any of the Subsidiaries or on the assets thereof (for which Gulfstream or any of the Subsidiaries 20 has primary liability) that are not described as being the responsibility of the Seller in the first sentence of this Section 5.2(a). (b) RETURNS. (i) The Seller and the Purchaser shall cause Gulfstream and the Subsidiaries, to the extent permitted by law, to join, for all taxable periods ending on or prior to the Closing Date, in (x) the consolidated federal Income Tax Returns of the Seller's Group and (y) the combined, consolidated or unitary Returns for state, local and foreign Income Taxes with respect to which Gulfstream or any of the Subsidiaries (I) filed such a Return for the most recent taxable period for which a Return has been filed prior to the Closing Date and may file such a Return for subsequent taxable periods or (II) is required to file such a Return. The income, deductions and credits of Gulfstream and such Subsidiaries for periods on or prior to the Closing Date shall be included in the consolidated federal Income Tax Returns of the Seller's Group and in such combined, consolidated and unitary Returns where applicable. The Seller shall file, or cause to be filed, all other Returns relating to the business or assets of Gulfstream and the Subsidiaries required to be filed on or before the Closing Date. (ii) The Purchaser shall file, or cause to be filed, all Returns relating to the business or assets of Gulfstream and the Subsidiaries other than those Returns described in Section 5.2(b)(i) (including, without limitation, any federal Income Tax Return filed by the consolidated group of which the Purchaser is a member with respect to any taxable period ending after the Closing Date). The income, deductions and credits of Gulfstream and the Subsidiaries, other than those required to be included in the Returns described in Section 5.2(b)(i), shall be included in the Returns described in the immediately preceding sentence, including, without limitation, (x) items for periods on or prior to the Closing Date with respect to state, local and foreign Income Taxes that are not required to be included in combined, consolidated or unitary Returns or in Returns required to be filed on or before the Closing Date pursuant to Section 5.2(b)(i) and (y) all items for periods after the Closing Date. Any such Returns for which the Purchaser is 21 responsible shall, insofar as they relate to items for periods ended on or prior to December 31, 1989 and to the extent permitted by applicable Tax law, be on a basis consistent with the last previous such Returns filed in respect of Gulfstream and the Subsidiaries. (iii) The Purchaser and the Seller shall cooperate, and the Purchaser shall cause Gulfstream and the Subsidiaries to cooperate with the Seller, with respect to the preparation and filing of any Return for which the other is responsible pursuant to this Section 5.2(b). (c) REFUNDS. Subject to the provisions of this Section 5.2(c), (i) the Seller shall be entitled to retain, or receive immediate payment from Gulfstream or the Purchaser of, any refund or credit with respect to Taxes (including, without limitation, refunds and credits arising by reason of amended Returns filed after the Closing Date), plus any interest received with respect thereto from the applicable taxing authority, relating to Gulfstream or any Subsidiary that are described as being the responsibility of the Seller in Section 5.2(a), and (ii) the Purchaser or Gulfstream shall be entitled to retain, or receive immediate payment from the Seller of, any refund or credit with respect to Taxes, plus any interest received with respect thereto from the applicable taxing authority, relating to Gulfstream or any Subsidiary that are described as being the responsibility of the Purchaser in Section 5.2(a), PROVIDED that (x) neither Gulfstream nor any Subsidiary shall elect to carry back any item of loss, deduction or credit from a Return described as being the responsibility of the Purchaser in Section 5.2(b)(ii), to a Return described as being the responsibility of the Seller in Section 5.2(b)(i) (other than the last sentence thereof), and notwithstanding any other provision of this Section 5.2(c), the Seller shall be entitled to retain any refund or credit with respect to Taxes that results from any such item that Gulfstream or such Subsidiary could have elected not to so carry back, and the Purchaser or Gulfstream shall be entitled to receive immediate payment from the Seller of any refund or credit with respect to Taxes that results from any such item that Gulfstream or such Subsidiary was required to so carry back unless such requirement resulted from a 22 carryback election by any affiliate of Gulfstream or such Subsidiary, (y) the Seller shall not pursue any refund claim relating to Gulfstream or any of the Subsidiaries with respect to (I) federal Income Taxes for periods during which Gulfstream and the Subsidiaries were includible in the Return of the Seller's Group or (II) state, local or foreign Income Taxes covered by the Returns for which Gulfstream or any of the Subsidiaries has filed or is required to file pursuant to Section 5.2(b)(i) a combined, consolidated or unitary Return with the Seller or any of the Non-Gulfstream Affiliates, to the extent such refund claim relates to additional amounts that were included in income in such Returns because of deductions relating to customer deposits claimed by Gulfstream and the Subsidiaries in federal, state, local or foreign Income Tax Returns for periods ending on or prior to the closing date of the 1985 purchase of the stock of Gulfstream by Chrysler Corporation, and (z) the Seller shall, or shall allow the Purchaser to, pursue a refund claim or claims with respect to the matters set forth in clause (y) of this proviso if, when and to the extent that it is finally determined that the deductions claimed by Gulfstream and the Subsidiaries set forth in such clause (y) are disallowed, and if any refund is received by the Seller or any Non-Gulfstream Affiliate as a result of such refund claim (the Purchaser and the Seller hereby agreeing that the Seller or a Non-Gulfstream Affiliate shall have the right to receive all such refunds from the applicable taxing authorities), the Seller shall pay to the Purchaser an amount (which shall be treated as an adjustment of the purchase price of the Shares, except as may be otherwise required by any applicable taxing authority) equal to (I) the amount of such refund, plus (II) any interest received by the Seller or any Non-Gulfstream Affiliate with respect to such refund from the applicable taxing authority (reduced by any Taxes payable on such interest by the Seller or any Non-Gulfstream Affiliate), MINUS (III) any Taxes on any net additional income or gains resulting from the sale of the Shares pursuant to this Agreement and the deemed sale of assets and other deemed transactions arising from the Section 338(h)(10) Election and all comparable elections under state and local Tax law (if such elections are made) because 23 of the reduction of the amounts included in income as set forth in such clause (y) giving rise to such refund, because of the disallowance of the deductions set forth in such clause (y) or because of the adjustment of the purchase price of the Shares arising from the Seller's payment to the Purchaser under this clause (z). The Purchaser and the Seller shall cooperate, and the Purchaser shall cause Gulfstream and the Subsidiaries to cooperate with the Seller, with respect to claiming any refund or credit with respect to Taxes referred to in this Section 5.2(c). Such cooperation shall include providing all relevant information available to the Seller or the Purchaser (through Gulfstream or otherwise), as the case may be, with respect to any such claim; filing and diligently pursuing such claim (including by litigation, if appropriate); paying over to the Seller or the Purchaser, as the case may be, and in accordance with this provision, any amount received by the Purchaser (or Gulfstream or any of the Subsidiaries) or the Seller, as the case may be, with respect to such claim; and, in the case of the party filing such a claim, consulting with the other party prior to agreeing to any disposition of such claim, PROVIDED that the foregoing shall be done in a manner so as not to interfere unreasonably with the conduct of the business of the parties. The party that is to enjoy the economic benefit of a refund under this Section 5.2(c) shall bear the out-of- pocket expenses of the other party reasonably incurred in seeking such refund. If one party is to enjoy the economic benefit of a refund under this Section 5.2(c) but the refund involves an issue that could have a Material Adverse Tax Effect (as defined in Section 5.2(g)) on the other party, the party that would enjoy the economic benefit shall give notice to the other party of such issue, with respect to which the parties, each at its own expense, shall jointly pursue such issue, and any disagreement between them as to such issue shall be resolved pursuant to the Tax Dispute Resolution Mechanism. (d) AUDITS. Each of the Purchaser and the Seller shall promptly notify the other in writing within ten days from its receipt of notice of (i) any pending or threatened Tax audits or assessments of Gulfstream or any of the Subsidiaries, as long as any taxable periods ending on or prior to the Closing 24 Date remain open, and (ii) any pending or threatened Tax audits or assessments of the Purchaser or the Seller, or any of the affiliates thereof, that may affect the tax liabilities of Gulfstream or any of the Subsidiaries, in each case for taxable periods ending on or prior to the Closing Date. The Seller shall have the right to represent the interests of Gulfstream and the Subsidiaries in any Tax audit or administrative or court proceeding to the extent relating to Taxes that are described as being the responsibility of the Seller in Section 5.2(a)(i), 5.2(a)(ii) or 5.2(a)(v), and to employ counsel of its choice at its expense, PROVIDED that the Seller shall give notice to the Purchaser with respect to any issue relating to such audit or proceeding that could have a Material Adverse Tax Effect on the Purchaser, Gulfstream or the Subsidiaries, with respect to which issue the Seller and the Purchaser, each at its own expense, shall jointly have the right to represent the interests of Gulfstream and the Subsidiaries, and any disagreement between the Seller and the Purchaser as to such issue shall be resolved pursuant to the Tax Dispute Resolution Mechanism. The Purchaser shall have the right to represent the interests of Gulfstream and the Subsidiaries in any Tax audit or administrative or court proceeding not described in the immediately preceding sentence and to employ counsel of its choice at its expense, PROVIDED that to the extent that such audit or proceeding relates to Taxes that are described as being the responsibility of the Seller in Section 5.2(a)(iii) or 5.2(a)(iv), with respect to any issue that could have a Material Adverse Tax Effect on the Seller, the Purchaser and the Seller, each at its own expense, shall jointly have the right to represent the interests of Gulfstream and the Subsidiaries, and any disagreement between the Purchaser and the Seller as to such issue shall be resolved pursuant to the Tax Dispute Resolution Mechanism. The Purchaser and the Seller shall cooperate, and the Purchaser shall cause Gulfstream and the Subsidiaries to cooperate with the Seller, with respect to any Tax audit or administrative or court proceeding relating to Taxes referred to in this Section 5.2(d). Such cooperation shall include providing all relevant information available to the Seller or the Purchaser (through Gulfstream or 25 otherwise), as the case may be, with respect to any such audit or proceeding and making personnel available at and for reasonable times, PROVIDED that the foregoing shall be done in a manner so as not to interfere unreasonably with the conduct of the business of the parties. (e) CONDUCT OF BUSINESS. Notwithstanding any other provision of this Section 5.2, the Purchaser shall be responsible for Taxes that arise due to the failure, following the Closing, of the Purchaser to cause Gulfstream and the Subsidiaries to carry on their business on the Closing Date only in the ordinary course and in substantially the same manner as heretofore conducted. (f) TRANSACTION-RELATED TAXES. Notwithstanding any other provision of this Agreement, neither the Seller nor any of the Non-Gulfstream Affiliates shall bear any Taxes that relate to a Section 338 Election (as defined in Section 5.2(g)). The Purchaser and the Seller shall bear equally any Taxes that relate to the purchase and sale of the Shares pursuant to this Agreement (other than applicable stock transfer Taxes and Income Taxes or Taxes on gains resulting from such sale, which shall be borne by the Seller), except as may specifically be provided to the contrary in this Agreement. (g) DEFINITIONS. (i) "Tax" or "Taxes" means all federal, state, local, foreign and other income, franchise, capital, withholding, unemployment insurance, social security, gross receipts, sales and use, excise, real and personal property, stamp, transfer, workers' compensation and other similar taxes (including all interest and penalties thereon and additions thereto); (ii) "Income Tax" or "Income Taxes" means a Tax or Taxes computed in whole or in part by reference to net income (including all interest and penalties thereon and additions thereto); (ii) "Return" or "Returns" means all federal, state, local and foreign Tax returns, reports, declarations and forms relating to the business or assets of Gulfstream and the Subsidiaries; (iv) An issue shall have a potential "Material Adverse Tax Effect" if (x) it could by itself result in the aggregate payment by one party with respect to Taxes that are described as being the responsibility of such party 26 in Section 5.2(a) of an amount in excess of $250,000 or (y) it is not an issue described in clause (x) above, but, together with all other issues not described in such clause (x) also arising in connection with the audit of the particular Return with respect to which such issue arises, it could result in the aggregate payment by such party with respect to such Taxes of an amount in excess of $500,000; and (v) "Section 338 Election" means an election or deemed election pursuant to section 338 of the Code or any similar provision under any state or local Tax law with respect to the purchase and sale of the Shares pursuant to this Agreement and the resulting indirect purchase and sale of the shares of stock of the Subsidiaries, other than any such election made together with a Section 338(h)(10) Election and any comparable elections under state and local Tax law. 5.3. SECTION 338(h)(10) ELECTION. (a) ELECTION; PAYMENT. If the Purchaser shall give notice to the Seller on or before September 15, 1990, to the effect that the Purchaser has determined that an election pursuant to section 338(h)(10) of the Code should be made with respect to the purchase and sale of the Shares pursuant to this Agreement (a "Section 338(h)(10) Election"), then (i) the Seller shall cause the common parent of the Seller's Group to join in the Section 338(h)(10) Election and shall, or shall cause the proper Non- Gulfstream Affiliate to, join in all comparable elections under state and local Tax laws, and (ii) on the date on which the Seller shall deliver to the Purchaser the required forms for making the Section 338(h)(10) Election, properly executed by the common parent of the Seller's Group, the Purchaser shall pay to the Seller the amount of $2,750,000 by wire transfer of immediately available funds to a bank designated by the Seller, which payment shall be treated as an adjustment of the purchase price for the Shares, except as may be otherwise required by any applicable taxing authority. (b) FORMS. Together with the notice provided to the Seller pursuant to Section 5.3(a), the Purchaser shall provide to the Seller drafts of all forms, together with all attachments thereto, required for making the Section 338(h)(10) Election and all comparable elections under state and local Tax laws (the "Election Forms"). The Seller 27 and the Purchaser shall cooperate in drafting and making final the Election Forms, and any dispute with respect thereto shall be resolved pursuant to the Tax Dispute Resolution Mechanism. The Purchaser shall be responsible for filing the Election Forms with the proper taxing authorities. (c) ALLOCATION. On or before March 15, 1991, the Purchaser shall provide to the Seller a proposed allocation of the purchase price for the deemed sale of assets resulting from the making of the Section 338(h)(10) Election, together with a report in support of such allocation prepared by a firm of independent appraisers of nationally recognized reputation, the fees and expenses of which shall be borne by the Purchaser, setting forth the estimated fair market values of the assets of Gulfstream and, to the extent relevant to such deemed sale, the Subsidiaries. The Seller and the Purchaser shall cooperate in determining a final allocation (the "Final Allocation"), and any dispute with respect thereto shall be resolved pursuant to the Tax Dispute Resolution Mechanism, PROVIDED that if the Purchaser's position with respect to such dispute shall be reasonable and, except to the extent otherwise required under applicable Tax law, not significantly different in methodology from the position taken by Chrysler Corporation with respect to the allocation of the purchase price for the deemed sales of assets resulting from the making of the 1985 Elections, then the dispute shall be resolved in favor of the Purchaser's position. The Seller agrees (i) that the Seller will cooperate with the Purchaser, prior to the Purchaser's providing to the Seller the notice set forth in Section 5.3(a), in developing a tentative allocation of the purchase price for the deemed sale of assets that would result from the making of the Section 338(h)(10) Election, and (ii) that the Purchaser may provide to the Seller a proposed allocation and report in support thereof prior to providing to the Seller the notice set forth in Section 5.3(a), and that if the Purchaser so provides such allocation and report to the Seller, the Seller will cooperate with the Purchaser in attempting to determine the Final Allocation on or prior to September 15, 1990, PROVIDED that if the Seller shall so cooperate with the Purchaser but 28 the Purchaser shall determine that the Section 338(h)(10) Election should not be made, then the Purchaser shall pay to the Seller the reasonable expenses of the Seller (not exceeding $25,000) in providing such cooperation. (d) MODIFICATION; REVOCATION. The Purchaser and the Seller agree that neither of them shall, or shall permit any of their affiliates to, take any action to modify the Election Forms following the execution thereof, or to modify or revoke the Section 338(h)(10) Election or any comparable election under state and local Tax law following the filing of the Election Forms, without the written consent of the Seller and the Purchaser, as the case may be. (e) CONSISTENT TREATMENT. The Purchaser and the Seller shall, and shall cause their respective affiliates to, file all Returns in a manner consistent with the information contained in the Election Forms as filed and the Final Allocation, unless otherwise required because of a change in applicable Tax law. (f) TAXES AND EXPENSES RESULTING FROM ELECTION. Notwithstanding any other provision of this Agreement, to the extent resulting from the making of the Section 338(h)(10) Election and all comparable elections under state and local Tax law, (i) the Seller shall be responsible for all federal Income Taxes, all state and local Income Taxes with respect to which Gulfstream or any of the Subsidiaries files a combined, consolidated or unitary Return for the period that includes the Closing -Date, and all state and local Income Taxes imposed on the Seller or any Non-Gulfstream Affiliate (for which Gulfstream or any of the Non-Gulfstream Affiliates has primary liability), and (ii) the Purchaser shall be responsible for all Taxes that are not described as being the responsibility of the Seller in clause (i) above. Notwithstanding any other provision of this Agreement, the Purchaser and its affiliates (including Gulfstream and the Subsidiaries following the Closing), on the one side, and the Seller and the Non-Gulfstream Affiliates, on the other side, shall bear their respective administrative, legal, accounting and similar 29 expenses resulting from the making of the Section 338(h)(10) Election and all comparable elections under state and local Tax laws. (g) NOTICES, ETC. All notices and other materials required to be provided pursuant to this Section 5.3 shall be provided as set forth in Section 8.7, but if to the Seller, additional copies shall be sent to each of Robert E. Glass, Esq., Chrysler Corporation, 12000 Chrysler Drive, Highland Park, Michigan 48288-1919, and Robert J. Cubitto, Esq., Debevoise & Plimpton, 875 Third Avenue, New York, New York 10022. 5.4. TAX DISPUTE RESOLUTION MECHANISM. Wherever in this Article V it shall be provided that a dispute shall be resolved pursuant to the "Tax Dispute Resolution Mechanism," such dispute shall be resolved as follows: (a)The parties will in good faith attempt to negotiate a settlement of the dispute. (b) If the parties are unable to negotiate a resolution to the dispute within 30 days, the dispute will be submitted to the national office of Deloitte & Touche or other independent accountants of nationally recognized standing reasonably satisfactory to the Seller and the Purchaser (the "Tax Dispute Accountants"). (c) The parties will present their arguments to the Tax Dispute Accountants within 15 days after submission of the dispute to the Tax Dispute Accountants. (d) The Tax Dispute Accountants will resolve the dispute, in a fair and equitable manner and in accordance with the applicable Tax law, within 30 days after the parties have presented their arguments to the Tax Dispute Accountants, whose decision shall be final, conclusive and binding on the parties. (e) Any payment to be made as a result of the resolution of a dispute shall be made, and any other action to be taken as a result of the resolution of a dispute shall be taken, on or before the later of (i) the date on which such payment or action would otherwise be required or (ii) the third business day following the date on which the dispute is resolved (in the case of a dispute resolved by the Tax Dispute Accountants, such date being the date on which the parties receive written notice from the Tax Dispute Accountants of their resolution). (f) The fees and 30 expenses of the Tax Dispute Accountants in resolving a dispute will be borne equally by the Seller and the Purchaser. ARTICLE VI CONDITIONS PRECEDENT 6.1. GENERAL. The respective obligations set forth herein of the Seller and the Purchaser to consummate the sale and purchase of the Shares and the other transactions to be consummated at the Closing hereunder shall be subject to the fulfillment, on or before the Closing Date, in the case of the Seller, of the conditions set forth in Sections 6.2 and 6.3, and in the case of the Purchaser, of the conditions set forth in Sections 6.2 and 6.4, PROVIDED that a party shall be precluded from asserting that a condition hereinafter set forth in this Article VI has not been satisfied by reason of any matter, fact, failure or circumstance set forth in the Schedule or disclosed in writing to such party and not objected to by such party within five business days thereafter, and PROVIDED, FURTHER, that a party shall not be so precluded if any matters, facts, failures or circumstances so disclosed, together with any matters, facts, failures or circumstances subsequently disclosed, in the aggregate constitute the failure of a condition to be satisfied unless not objected to by such party within five business days after such subsequent disclosure. 6.2. CONDITION TO OBLIGATIONS OF BOTH PARTIES. 6.2.1. HSR ACT. The applicable waiting period under the HSR Act shall have expired or been terminated. 6.2.2. LEGAL PROCEEDINGS. No Law shall have been enacted since the date hereof and no order shall have been entered and not vacated by a court or governmental authority, which enjoins, makes illegal or prohibits consummation of the transactions contemplated hereby; and there shall be no action, suit or proceeding pending by a governmental authority seeking to do any of the foregoing. 31 6.3. CONDITIONS TO OBLIGATIONS OF THE SELLER. 6.3.1. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser's representations and warranties in Article III shall be true and correct when made and (other than Section 3.3) At and as of the Closing with the same effect as though made at and as of such time, with such exceptions as are not individually or in the aggregate material. The Purchaser shall have duly performed and complied in all material respects with all agreements contained herein required to be performed or complied with by it at or before the Closing. 6.3.2. OFFICER'S CERTIFICATE. The Purchaser shall have delivered to the Seller a certificate, dated the Closing Date and signed by its President or a Vice President, (a) as to the fulfillment of the conditions set forth in Section 6.3.1 and (b) certifying that the Purchaser has no actual knowledge of any misrepresentation by the Seller hereunder. 6.3.3. OPINION OF COUNSEL. The Seller shall have received from Fried, Frank, Harris, Shriver & Jacobson, counsel for the Purchaser, an opinion, dated the Closing Date and addressed to the Purchaser, in substantially the form previously delivered and initialled by the parties. 6.4. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. 6.4.1. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller's representations and warranties in Article II shall be true and correct when made and (other than Section 2.4) at and as of the Closing with the same effect as though made at and as of such time, with such exceptions as do not individually or in the aggregate have a Material Adverse Effect. The Seller shall have duly performed and complied in all material respects with all agreements contained herein required to be performed or complied with by it at or before the Closing. 6.4.2. OFFICER'S CERTIFICATE. The Seller shall have delivered to the Purchaser a certificate, dated the Closing Date and signed by its President or a Vice President, as to the fulfillment of the conditions set forth in Section 6.4.1. 32 6.4.3. OPINION OF COUNSEL. The Purchaser shall have received from the General Counsel of Chrysler Corporation an opinion, dated the Closing Date and addressed to the Purchaser, in substantially the form previously delivered and initialled by the parties. 6.4.4. RESIGNATIONS. The directors of Gulfstream specified in a notice delivered by the Purchaser to the Seller at least five days prior to the Closing shall have submitted their resignations from the Board of Directors of Gulfstream effective upon the Closing Date. 6.4.5. FIRPTA CERTIFICATE. The Seller shall have delivered to the Purchaser a certificate that shall meet the requirements of section 1.1445- 2(b)(2) or section 1.1445-2(c)(3) of the Income Tax Regulations. 6.4.6. CHANGES, ETC. Since the date of this Agreement, Gulfstream and the Subsidiaries taken as a whole shall not have suffered any change or changes or the occurrence of any event or events (except for changes or events resulting from or in any way attributable to general economic or market conditions, or from the consummation of the transactions contemplated hereby and the ownership or management by the Purchaser of Gulfstream, changes in the management personnel of Gulfstream, or changes or events affecting the commercial aviation industry generally) which, individually or in the aggregate, have a material adverse effect on the business, financial condition or prospects of Gulfstream and the Subsidiaries taken as a whole as presently conducted or constituted. The Purchaser hereby represents that neither the Purchaser nor any of the other parties referred to in Section 2.13 has any knowledge of any such change or event or any basis therefor as of the date of this Agreement. 33 ARTICLE VII INDEMNIFICATION 7.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in Articles II and III of this Agreement shall survive until the first anniversary of the Closing Date, and no claim for indemnification for any breach of such representations and warranties under this Article VII shall be valid unless asserted in writing by such date, such writing to specify in reasonable detail (i) the representation or warranty that is alleged to have been inaccurate or to have been breached and (ii) the basis for such allegation, including, without limitation, the provision of supporting documentation to the extent then available. 7.2. INDEMNIFICATION. 7.2.1. BY THE SELLER. From and after the Closing and subject to the survival provisions of Section 7.1, the Seller shall indemnify and hold harmless the Purchaser, its affiliates (including Gulfstream and the Subsidiaries), their respective officers, directors, employees, agents and representatives and any person claiming by or through any of them on an after-tax basis from and against any and all losses, damages, costs and expenses, including reasonable attorneys' fees (collectively, "Damages"), incurred by any of them (i) relating to, arising out of or resulting from any inaccuracy or breach of any representation or warranty on the part of the Seller under this Agreement (except as provided in Section 2.13 and except to the extent corrected or disclosed in writing to, and not objected to pursuant to Section 6.1 by, the Purchaser prior to the Closing) or (ii) any failure by the Seller to perform any of its covenants or agreements contained in this Agreement. The Purchaser's rights to indemnification under this Article VII shall be limited as follows: 34 (a) All indemnity payments hereunder shall be treated as an adjustment of the purchase price for the Shares, except as may be otherwise required by any applicable taxing authority. The phrase "on an after-tax basis" shall mean that the amount of any Damages incurred by the Purchaser shall be (i) reduced by an amount equal to the Tax benefits, if any, attributable to such Damages and (ii) increased by an amount equal to the Taxes, if any, attributable to the receipt of any indemnity payment pursuant to the provisions hereof in respect of such Damages, but only to the extent that such Tax benefits are actually realized, or such Taxes are actually paid, as the case may be, by the Purchaser or Gulfstream, or any consolidated, combined or unitary group of which either thereof is a member, during any taxable period after the Closing Date. (b) The amount of any Damages incurred by the Purchaser shall be reduced by the net amount the Purchaser or Gulfstream recovers on an after-tax basis (after deducting all attorneys' fees, expenses and other costs of recovery) from any insurer or other party liable for such Damages, and the Purchaser shall use reasonable efforts to effect any such recovery. There shall be no duplicative payments or indemnities by the Seller. (c) The Purchaser shall be entitled to indemnification under Section 7.2.1(i) only to the extent of the excess, if any, of the aggregate amount of such Damages (adjusted as provided in paragraphs (a) and (b) of this Section 7.2.1) over one percent of the Purchase Price, PROVIDED the aggregate amount of such indemnification shall not exceed $25,000,000. (d) The indemnity provided in this Section 7.2.1 shall be the sole and exclusive remedy of the Purchaser after the Closing for monetary damages for any inaccuracy or breach of any representation or warranty on the part of the Seller. (e) Notwithstanding the provisions of Sections 7.2.1(a) and (b), the Seller shall not decline or be obligated to pay any amount otherwise payable pursuant to Section 7.2.1 on the grounds that such payment might be subsequently reduced or 35 increased as provided in Section 7.2.1(a) or (b). If the amount of any limitation pursuant to this Section 7.2.1 is determined after payment by the Seller of any amount otherwise required to be paid pursuant to this Article VII, the Purchaser shall repay to the Seller, promptly after such determination, any amount that the Seller would not have had to pay pursuant to this Article VII had such determination been made-at the time of such payment. (f) The Seller shall not have any liability under Section 7.2.1(i) for any Damages to the extent that any such Damages result from any action or failure to act of the Purchaser, Gulfstream or any Subsidiary after the Closing Date if such action or failure to act occurred after any of the Purchaser, Gulfstream or any Subsidiary had knowledge of any inaccuracy or breach of any representation or warranty on the part of the Seller under this Agreement or if such action or failure to act was negligent, in bad faith or in violation of Law. In no event shall the Seller be liable for unforeseen or consequential damages. The Purchaser shall take and cause Gulfstream and the Subsidiaries to take all reasonable steps to mitigate any Damages upon becoming aware of any event which could reasonably be expected to give rise thereto. 7.2.2. BY THE PURCHASER. From and after the Closing and subject to the survival provisions of Section 7.1, the Purchaser shall, and shall cause Gulfstream to, indemnify and hold harmless the Seller, its affiliates, their respective officers, directors, employees, agents and representatives and any person claiming by or through any of them on an after-tax basis from and against any Damages incurred by any of them (i) relating to, arising out of or resulting from any inaccuracy or breach of any representation or warranty on the part of the Purchaser under this Agreement (except to the extent corrected or disclosed in writing to, and not objected to pursuant to Section 6.1 by, the Seller prior to the Closing) or (ii) any failure by the Purchaser to perform any of its covenants or agreements contained in this Agreement. 36 The Seller's rights to indemnification under this Article VII shall be limited as follows: (a) All indemnity payments hereunder shall be treated as an adjustment of the purchase price for the Shares, except as may be otherwise required by any applicable taxing authority. The phrase "on an after-tax basis" shall mean that the amount of any Damages incurred by the Seller shall be (i) reduced by an amount equal to the Tax benefits, if any, attributable to such Damages and (ii) increased by an amount equal to the Taxes, if any, attributable to the receipt of any indemnity payment pursuant to the provisions hereof in respect of such Damages, but only to the extent that such Tax benefits are actually realized, or such Taxes are actually paid, as the case may be, by the Seller or any consolidated, combined or unitary group of which the Seller is a member, during any taxable period after the Closing Date. (b) The amount of any Damages incurred by the Seller shall be reduced by the net amount the Seller recovers on an after-tax basis (after deducting all attorneys' fees, expenses and other costs of recovery) from any insurer or other party liable for such Damages, and the Seller shall use reasonable efforts to effect any such recovery. There shall be no duplicative payments or indemnities by the Purchaser. (c) The Seller shall be entitled to indemnification under Section 7.2.2(i) only to the extent of the excess, if any, of the aggregate amount of such Damages (adjusted as provided in paragraphs (a) and (b) of this Section 7.2.2) over one percent of the Purchase Price, PROVIDED the aggregate amount of such indemnification shall not exceed $25,000,000. (d) The indemnity provided in this Section 7.2.2 shall be the sole and exclusive remedy of the Seller after the Closing for monetary damages for any inaccuracy or breach of any representation or warranty on the part of the Purchaser. (e) Notwithstanding the provisions of Sections 7.2.2(a) and (b), the Purchaser shall not decline or be obligated to pay any amount otherwise payable pursuant 37 to Section 7.2.2 on the grounds that such payment might be subsequently reduced or increased as provided in Section 7.2.2(a) or (b). If the amount of any limitation pursuant to this Section 7.2.2 is determined after payment by the Purchaser of any amount otherwise required to be paid pursuant to this Article VII, the Seller shall repay to the Purchaser, promptly after such determination, any amount that the Purchaser would not have had to pay pursuant to this Article VII had such determination been made at the time of such payment. (f) In no event shall the Purchaser be liable for unforeseen or consequential damages. The Seller shall take all reasonable steps to mitigate any Damages upon becoming aware of any event which could reasonably be expected to give rise thereto. 7.2.3. INDEMNIFICATION PROCEDURES. (a) NOTICE. A party entitled to indemnification hereunder shall herein be referred to as an "Indemnitee." A party obligated to indemnify an Indemnitee hereunder shall herein be referred to as an "Indemnitor." Promptly after receipt by an Indemnitee of written notice of any claim or the commencement of any action by a third party (a "Third Party Claim"), or upon discovery of any facts which an Indemnitee believes may give rise to a claim for indemnification from an Indemnitor hereunder, such Indemnitee shall, if a claim in respect thereof is to be made against an Indemnitor under this Article VII, notify such Indemnitor in writing in reasonable detail of the claim or the commencement of such action, PROVIDED that the failure to provide such notice shall not relieve the Indemnitor of any of its obligations hereunder except to the extent that the Indemnitor is prejudiced by such failure. (b) PROCEDURE WITH RESPECT TO THIRD PARTY CLAIMS. If any Third Party Claim shall be asserted or brought against such Indemnitee which may give rise to a right of indemnification hereunder, it shall notify the Indemnitor thereof, and the Indemnitor shall be entitled to 38 participate therein, to assume the defense thereof with counsel reasonably satisfactory to the Indemnitee, and to settle or compromise such claim or action, PROVIDED that such settlement or compromise shall be effected only with the consent of the Indemnitee, which consent shall not be unreasonably withheld. After written notice to the Indemnitee of the Indemnitor's election to assume the defense of such claim or action, the Indemnitor shall not be liable to the Indemnitee under this Article VII for any legal expenses subsequently incurred by the Indemnitee in connection with the defense thereof, other than reasonable costs of investigation, PROVIDED that the Indemnitor diligently pursues the defense thereof, and PROVIDED, FURTHER, that the Indemnitee shall have the right to employ counsel to represent it, which fees and expenses of such separate counsel shall be paid by the Indemnitee. If the Indemnitor does not elect to assume the defense of such claim or action, the Indemnitee shall act in accordance with its good faith business judgment with respect thereto, and shall not settle or compromise any such claim or action without the consent of the Indemnitor, which consent shall not be unreasonably withheld. The parties hereto agree to render to each other such assistance as may reasonably be requested in order to insure the proper and adequate defense of any such claim or proceeding. (c) PAYMENT. With respect to Third Party Claims for which indemnification is payable, such indemnification shall be paid by the Indemnitor promptly upon (i) the entry of a judgment against the Indemnitee and the expiration of any applicable appeal period; (ii) the entry of a non-appealable judgment or final appellate decision against the Indemnitee; or (iii) the closing under any settlement permitted pursuant to this Section 7.2.3. Notwithstanding the foregoing, provided that there is no dispute as to whether the Indemnitee is entitled to indemnification hereunder, (x) expenses of the Indemnitee for which the Indemnitor is responsible shall be reimbursed on a current basis by the Indemnitor, and (y) indemnification other than with respect to Third Party Claims shall be paid promptly after notice thereof. 39 ARTICLE VIII GENERAL PROVISIONS 8.1. MODIFICATION; WAIVER. This Agreement may be modified only by a written instrument executed by the parties hereto. Any of the terms and conditions of this Agreement may be waived in writing at any time on or prior to the Closing Date by the party entitled to the benefits thereof. 8.2. ENTIRE AGREEMENT. This Agreement, the Confidentiality Agreement and the Schedule contain the entire understanding of the parties in respect of the subject matter of this Agreement. This Agreement supersedes all other prior agreements, negotiations, correspondence, undertakings, communications, memoranda, understandings, representations and warranties, oral or written, between the parties hereto in respect of the subject matter hereof. 8.3. TERMINATION. 8.3.1. TERMINATION BY THE PARTIES. This Agreement may be terminated: (a) at any time prior to the Closing Date by mutual consent of the Purchaser and the Seller, (b) by either the Purchaser or the Seller, if the Closing shall not have taken place on or before March 31, 1990 or such later date as the parties may have agreed to in writing, PROVIDED that the nonoccurrence of the Closing is not attributable to a breach of the terms hereof by the party seeking termination, or (c) by either the Purchaser or the Seller, if there has been a material default, misrepresentation or breach on the part of the other party in its representations and warranties set forth in this Agreement or the due and timely performance of any of its covenants and agreements in this Agreement and such default, misrepresentation or breach cannot be cured by the Closing Date and has not been waived. 40 8.3.2. CONTINUING OBLIGATIONS. If this Agreement is terminated pursuant to Section 8.3.1, The obligations of the parties hereunder shall terminate, except that the obligations set forth in Sections 2.5 And 3.5 (Brokers), 4.4 (Confidentiality) and 8.4 (Expenses) shall survive, PROVIDED that, if this Agreement is terminated by one party because one or more of the conditions to such party's obligations hereunder is not satisfied as a result of the other party's failure to comply with any provision of this Agreement, the terminating party's right to pursue all legal remedies for breach of contract and damages shall also survive such termination unimpaired. 8.4. EXPENSES. Whether or not the transactions contemplated herein shall be consummated, each party shall pay its own expenses incident to the preparation and performance of this Agreement. 8.5. FURTHER ACTIONS. Each party shall execute and deliver such certificates and other documents and take such other actions as may reasonably be requested by the other party in order to consummate or implement the transactions contemplated hereby. 8.6. POST-CLOSING ACCOUNTS. In connection with any matter relating to any period prior to, or any period ending on, the Closing Date, the Purchaser shall, upon the request and at the expense of the Seller, permit the Seller and its representatives full access at all reasonable times to the books and records of Gulfstream which shall have been transferred to the Purchaser to the extent that such access is reasonably required by the Seller in connection with (a) the preparation of any required Returns or financial reports or (b) any claim, litigation, audit or investigation or any other proper purpose arising out of the Seller's ownership of Gulfstream and the Subsidiaries prior to the Closing, PROVIDED that the foregoing shall be done in a manner so as not to unreasonably interfere with the conduct of the business of Gulfstream or the Subsidiaries, as the case may be. The Purchaser shall not dispose of such books and records during the seven-year period beginning with the Closing Date without first giving 60 days' prior written 41 notice to the Seller offering to surrender the same to the Seller at the Seller's expense. The Purchaser shall have the same rights, and the Seller the same obligations, as are set forth in this Section 8.6 with respect to any books and records of the Seller pertaining to Gulfstream or any of the Subsidiaries, copies of which are retained by the Seller. 8.7. NOTICES. In addition to the notice to be provided pursuant to Section 5.3(g), all notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered or mailed, certified or registered mail, first-class postage paid, return receipt requested, or any other delivery service with proof of delivery; if to the Seller: Electrospace Holding, Inc. c/o Chrysler Corporation 12000 Chrysler Drive Highland Park, Michigan 48288-1919 ATTENTION: William J. O'Brien, Esq. with a copy to: Debevoise & Plimpton 875 Third Avenue New York, New York 10022 Attention: Paul H. Wilson, Jr., Esq. if to the Purchaser: GA Acquisition Corp. c/o Forstmann Little & Co. 767 Fifth Avenue New York, New York 10053 Attention: Mr. Theodore J. Forstmann with copies to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Attention: Stephen Fraidin, P.C. 42 Gibson, Dunn & Crutcher 1801 California Street Suite 4200 Denver, Colorado 80202 Attention: George W. Bermant, Esq. or to such other address or to such other person as either party hereto shall have last designated by notice to the other party. 8.8. ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but shall not be assignable, by operation of law or otherwise, by either party hereto without the prior written consent of the other party, except that the Purchaser may, at its election, assign this Agreement to any one or more of its direct or indirect wholly-owned subsidiaries so long as the representations and warranties of the Purchaser made herein are equally true of such assignee and the Purchaser continues to remain liable on this Agreement. Such assignee shall execute a counterpart of this Agreement Agreeing to be bound by the provisions hereof as "the Purchaser" jointly and severally with the Purchaser. 8.9. NO THIRD PARTY BENEFICIARIES. Except as otherwise provided herein, nothing in this Agreement shall confer any rights upon any person or entity which is not a party or a successor or permitted assignee of a party to this Agreement. 8.10. SEVERABILITY. If any provision of this Agreement is held to be unenforceable for any reason, it shall be modified rather than voided, if possible, in order to achieve the intent of the parties to this Agreement to the extent possible. In any event, all other provisions to this Agreement shall be deemed valid and enforceable to the full extent possible. 8.11. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall constitute one and the same instrument. 43 8.12. HEADINGS; TABLE OF CONTENTS. The article and section headings of this Agreement and the table of contents at the forepart of this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. 8.13. GOVERNING LAW. This Agreement shall be construed, performed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be performed wholly within such jurisdiction. 8.14. SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges and agrees that the other party hereto would be irreparably damaged in the event any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. Accordingly, each of the parties hereto agrees that the other shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to specifically enforce this Agreement and the terms and provisions hereof, in addition to any other remedy to which such party may be entitled, at law or in equity. IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be executed as of the date first above written. ELECTROSPACE HOLDING, INC. BY ______________________________________ GA ACQUISITION CORP. By ______________________________________ By ______________________________________ 44 Forstmann Little & Co. ("FL & Co.") and FLC Partnership ("FLC"), jointly and severally, hereby agree to cause the Purchaser to fully perform and observe its covenants and other obligations under this Agreement and to be responsible for any breach by the Purchaser of any of its representations, warranties, covenants and agreements pursuant to his Agreement, and shall be entitled to enforce directly any benefit of this Agreement accruing to the Purchaser. The obligations and rights of FL & Co. and FLC contained in the preceding sentence shall terminate at the Closing. The obligations of FL & Co. and FLC pursuant to the first sentence of this paragraph are direct and primary, and FL & Co. and FLC agree that the last sentence of Section 3.1 hereof is applicable to it as if it were "the Purchaser" and this paragraph were "the Agreement." For purposes of the first sentence of this paragraph, the term "Purchaser" shall include GA Acquisition Corp. and any of its successors and assigns. FORSTMANN LITTLE & CO. By FLC PARTNERSHIP, its general partner By ______________________________________ General Partner FLC PARTNERSHIP By ______________________________________ General Partner 45 Effective as of the Closing, Gulfstream shall jointly and severally with the Purchaser assume all obligations of the Purchaser under this Agreement. GULFSTREAM AEROSPACE CORPORATION By _____________________________________ Title: Chrysler Corporation hereby agrees to cause the Seller to fully perform and observe its covenants and other obligations under this Agreement and to be responsible for any breach by the Seller of any of its representations, warranties, covenants and agreements pursuant to this Agreement, and shall be entitled to enforce directly any benefit of this Agreement accruing to the Seller. The obligations of Chrysler Corporation pursuant to the preceding sentence are direct and primary, and Chrysler Corporation agrees that the last sentence of Section 2.1 hereof is applicable to it as if it were "the Seller" and this paragraph were "the Agreement." CHRYSLER CORPORATION By _____________________________________ Title: 46 EX-10.22 3 EXHIBIT 10.22 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AGREEMENT between GULFSTREAM AEROSPACE TECHNOLOGIES and the INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE & AGRICULTURAL IMPLEMENT WORKERS OF AMERICA LOCAL #2130 Effective August 9, 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE 1 RECOGNITION. . . . . . . . . . . . . . . . . . . . . . . . 6 Section 1 - Recognition. . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 2 AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 1 - Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE 3 UNION REPRESENTATION . . . . . . . . . . . . . . . . . . . 8 Section 1 - Committeeperson - Number, Qualification and Election. . . . . . . . . . . . . . . . . . . . . . . .8 Section 2 - Committeepersons - Duties, Responsibilities and Privileges . . . . . . . . . . . . . . . . . . . . . . 8 Section 3 - Union Officials. . . . . . . . . . . . . . . . . . . . . . 9 Section 4 - Bargaining Committee . . . . . . . . . . . . . . . . . . .10 ARTICLE 4 MANAGEMENT PREROGATIVES. . . . . . . . . . . . . . . . . .11 Section 1 - Reserved Rights. . . . . . . . . . . . . . . . . . . . . .11 ARTICLE 5 GRIEVANCE PROCEDURE. . . . . . . . . . . . . . . . . . . .12 Section 1 - Grievance Defined. . . . . . . . . . . . . . . . . . . . .12 Section 2 - Grievance Procedure. . . . . . . . . . . . . . . . . . . .12 Section 3 - Medical Dispute. . . . . . . . . . . . . . . . . . . . . .16 Section 4 - General Provisions . . . . . . . . . . . . . . . . . . . .17 ARTICLE 6 NOTICES, BULLETIN BOARDS . . . . . . . . . . . . . . . . .18 Section 1 - Notices. . . . . . . . . . . . . . . . . . . . . . . . . .18 Section 2 - Bulletin Boards. . . . . . . . . . . . . . . . . . . . . .18 Section 3 - Notice of Employee's Address . . . . . . . . . . . . . . .19 ARTICLE 7 STRIKES AND LOCKOUTS . . . . . . . . . . . . . . . . . . .20 Section 1 - No Strike or Lockout . . . . . . . . . . . . . . . . . . .20 ARTICLE 8 SENIORITY. . . . . . . . . . . . . . . . . . . . . . . . .22 Section 1 - Basis of Seniority and Establishment of Seniority Rights . . . . . . . . . . . . . . . . . . . . .22 Section 2 - General Layoff . . . . . . . . . . . . . . . . . . . . . .22 Section 3 - Temporary Layoff . . . . . . . . . . . . . . . . . . . . .23 Section 4 - Top Seniority for Layoff Only. . . . . . . . . . . . . . .23 Section 5 - Recall From Layoff . . . . . . . . . . . . . . . . . . . .24 Section 6 - Selection of Group Leaders . . . . . . . . . . . . . . . .24 Section 7 - Physically Handicapped Employees . . . . . . . . . . . . .25 Section 8 - Loss of Seniority. . . . . . . . . . . . . . . . . . . . .25 Section 9 - Priority in Filling Available Openings . . . . . . . . . .25 Section 10 - Available Opening. . . . . . . . . . . . . . . . . . . . .26 ARTICLE 9 SABOTAGE AND SECURITY REGULATIONS. . . . . . . . . . . . .28 Section 1 - Cooperation. . . . . . . . . . . . . . . . . . . . . . . .28 ARTICLE 10 HEALTH AND SAFETY. . . . . . . . . . . . . . . . . . . . .29 Section 1 - Maintenance of Safe Conditions . . . . . . . . . . . . . .29 Section 2 - Safety Shoes . . . . . . . . . . . . . . . . . . . . . . .29 Section 3 - Safety Glasses . . . . . . . . . . . . . . . . . . . . . .30 Section 4 - Safety Committee . . . . . . . . . . . . . . . . . . . .31 Section 5 - Transportation . . . . . . . . . . . . . . . . . . . . . .31 Section 6 - Investigations and Right of Information. . . . . . . . . .31 Section 7 - Training and Drills. . . . . . . . . . . . . . . . . . . .32 ARTICLE 11 LEAVE OF ABSENCE . . . . . . . . . . . . . . . . . . . . .33 Section 1 - Granting of Leave. . . . . . . . . . . . . . . . . . . . .33 Section 2 - Prolonged Disability . . . . . . . . . . . . . . . . . . .33 Section 3 - Misuse of Leave of Absence . . . . . . . . . . . . . . . .33 Section 4 - Military Leaves. . . . . . . . . . . . . . . . . . . . . .34 Section 5 - Union Business Leave . . . . . . . . . . . . . . . . . . .34 ARTICLE 12 WAGE RATES . . . . . . . . . . . . . . . . . . . . . . . .35 Section 1 - Wages. . . . . . . . . . . . . . . . . . . . . . . . . . .35 Section 2 - Periodic Increases . . . . . . . . . . . . . . . . . . . .35 ARTICLE 13 HOURS AND SPECIAL PAY PROVISIONS . . . . . . . . . . . . .37 Section 1 - Hours of Work. . . . . . . . . . . . . . . . . . . . . . .37 Section 2 - Premium Pay Provisions . . . . . . . . . . . . . . . . . .37 Section 3 - Overtime Assignment. . . . . . . . . . . . . . . . . . . .38 Section 4 - Rotation Roster . . . . . . . . . . . . . . . . . . . . . 39 Section 5 - Augmentation of Overtime . . . . . . . . . . . . . . . . .40 Section 6 - Shift Differential . . . . . . . . . . . . . . . . . . . .40 Section 7 - Call-in and Report Pay . . . . . . . . . . . . . . . . . .41 Section 8 - Lost Time. . . . . . . . . . . . . . . . . . . . . . . . .41 Section 9 - Group Leaders. . . . . . . . . . . . . . . . . . . . . . .41 Section 10 - Pay Rates - Promotions and Demotions . . . . . . . . . . .41 Section 11 - Rest Periods . . . . . . . . . . . . . . . . . . . . . . .42 ARTICLE 14 PAY PERIODS AND PAY DAYS . . . . . . . . . . . . . . . . .43 Section 1 - Pay Checks . . . . . . . . . . . . . . . . . . . . . . . .43 Section 2 - Pay Days . . . . . . . . . . . . . . . . . . . . . . . . .43 ARTICLE 15 HOLIDAYS . . . . . . . . . . . . . . . . . . . . . . . . .44 Section 1 - Holidays . . . . . . . . . . . . . . . . . . . . . . . . .44 Section 2 - Pay for Holiday Not Worked . . . . . . . . . . . . . . . .44 Section 3 - Pay for Holiday Worked . . . . . . . . . . . . . . . . . .44 Section 4 - Holiday Work Voluntary . . . . . . . . . . . . . . . . . .44 Section 5 - Conditions for Holiday Pay . . . . . . . . . . . . . . . .44 Section 6 - Days for Recognizing Holidays. . . . . . . . . . . . . . .45 Section 7 - Holiday During Vacation Periods. . . . . . . . . . . . . .45 ARTICLE 16 VACATION. . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 1 - Definitions. . . . . . . . . . . . . . . . . . . . . . . .46 Section 2 - Vacation Allowance . . . . . . . . . . . . . . . . . . . .46 Section 3 - Prorated Vacation. . . . . . . . . . . . . . . . . . . . .47 Section 4 - Scheduling . . . . . . . . . . . . . . . . . . . . . . . .47 Section 5 - Unused Vacation. . . . . . . . . . . . . . . . . . . . . .48 ARTICLE 17 COST OF LIVING . . . . . . . . . . . . . . . . . . . . . .49 Section 1 - Determination, Adjustments, or Readjustments, Amount, Continuance . . . . . . . . . . . .49 ARTICLE 18 SICK PAY . . . . . . . . . . . . . . . . . . . . . . . . .51 Section 1 - Definitions. . . . . . . . . . . . . . . . . . . . . . . .51 Section 2 - Sick Pay Allowance . . . . . . . . . . . . . . . . . . . .51 Section 3 - Payment of Sick Pay. . . . . . . . . . . . . . . . . . . .51 Section 4 - Payment of Unused Sick Pay . . . . . . . . . . . . . . . .52 ARTICLE 19 BEREAVEMENT PAY. . . . . . . . . . . . . . . . . . . . . .53 Section 1 - Bereavement Pay. . . . . . . . . . . . . . . . . . . . . .53 ARTICLE 20 GROUP INSURANCE PLAN . . . . . . . . . . . . . . . . . . .54 Section 1 - Group Insurance Plan . . . . . . . . . . . . . . . . . . .54 ARTICLE 21 RETIREMENT PLAN. . . . . . . . . . . . . . . . . . . . . .55 Section 1 - Retirement Plan. . . . . . . . . . . . . . . . . . . . . .55 Section 2 - 401K Deferred Pay Plan . . . . . . . . . . . . . . . . . .55 ARTICLE 22 JURY DUTY. . . . . . . . . . . . . . . . . . . . . . . . .56 Section 1 - Pay for Jury Duty. . . . . . . . . . . . . . . . . . . . .56 Section 2 - Notice to Report . . . . . . . . . . . . . . . . . . . . .56 ARTICLE 23 SCOPE OF AGREEMENT . . . . . . . . . . . . . . . . . . . .57 Section 1 - Scope. . . . . . . . . . . . . . . . . . . . . . . . . . .57 ARTICLE 24 SPECIFIC PERFORMANCE . . . . . . . . . . . . . . . . . . .58 Section 1 - Agreement Performance. . . . . . . . . . . . . . . . . . .58 ARTICLE 25 DURATION . . . . . . . . . . . . . . . . . . . . . . . . .59 Section 1 - Term of Agreement. . . . . . . . . . . . . . . . . . . . .59 Section 2 - Modifications and Amendments . . . . . . . . . . . . . . .59 Section 3 - Negotiations . . . . . . . . . . . . . . . . . . . . . . .59 Section 4 - Termination. . . . . . . . . . . . . . . . . . . . . . . .59 ARTICLE 26 SOLE AGREEMENT . . . . . . . . . . . . . . . . . . . . . .60 Section 1 - Waiver and Past Practices. . . . . . . . . . . . . . . . .60 ARTICLE 27 SEPARABILITY . . . . . . . . . . . . . . . . . . . . . . .61 Section 1 - Separability . . . . . . . . . . . . . . . . . . . . . . .61 ARTICLE 28 EQUAL OPPORTUNITY. . . . . . . . . . . . . . . . . . . . .62 Section 1 - Equal Opportunity. . . . . . . . . . . . . . . . . . . . .62 ARTICLE 29 COPIES OF AGREEMENT. . . . . . . . . . . . . . . . . . . .63 Section 1 - Copies of Agreement. . . . . . . . . . . . . . . . . . . .63 ARTICLE 30 UNION SECURITY . . . . . . . . . . . . . . . . . . . . . .64 Section 1 - Conditions of Employment . . . . . . . . . . . . . . . . .64 Section 2 - Dues, Initiation/Reinstatement Fees, Deduction . . . . . .65 Section 3 - Non Discrimination . . . . . . . . . . . . . . . . . . . .68 Section 4 - Notification . . . . . . . . . . . . . . . . . . . . . . .68 Section 5 - Indemnification. . . . . . . . . . . . . . . . . . . . . .68 Section 6 - New Member Orientation . . . . . . . . . . . . . . . . . .68 Section 7 - UAW V-CAP Check-off. . . . . . . . . . . . . . . . . . . .68 Section 8 - H.E.L.P. . . . . . . . . . . . . . . . . . . . . . . . . .71 ARTICLE 31 EMPLOYEE RELATIONS COMMITTEE . . . . . . . . . . . . . . .72 Section 1 - Employee Relations Committee . . . . . . . . . . . . . . .72 ARTICLE 32 TEMPORARY TRANSFERS AND LOANS. . . . . . . . . . . . . . .73 Section 1 - Temporary Transfers and Loans. . . . . . . . . . . . . . .73 ARTICLE 33 TUITION REFUND . . . . . . . . . . . . . . . . . . . . . .74 Section 1 - Tuition Refund . . . . . . . . . . . . . . . . . . . . . .74 ARTICLE 34 NEW OR CHANGED JOB . . . . . . . . . . . . . . . . . . . .75 Section 1 - New or Changed Job . . . . . . . . . . . . . . . . . . . .75 ARTICLE 35 JOB DESCRIPTIONS . . . . . . . . . . . . . . . . . . . . .76 Section 1 - Joint Statement of Policy for Application of Job Descriptions. . . . . . . . . . . . . . . . . . .76 ARTICLE 36 SUB-CONTRACTING. . . . . . . . . . . . . . . . . . . . . .78 Section 1 - Sub-contracting. . . . . . . . . . . . . . . . . . . . . .78 ARTICLE 37 HARDSHIP (SHIFTS) . . . . . . . . . . . . . . . . . . . .80 Section 1 - Hardship (Shifts) . . . . . . . . . . . . . . . . . . . .80 ARTICLE 38 DISCIPLINE NOTICES . . . . . . . . . . . . . . . . . . . .81 Section 1 - Discipline Notices . . . . . . . . . . . . . . . . . . . .81 ARTICLE 39 SHIFT TRANSFERS. . . . . . . . . . . . . . . . . . . . . .82 Section 1 - Shift Transfers. . . . . . . . . . . . . . . . . . . . . .82 APPENDIX "A" LABOR GRADES AND RATE RANGES . . . . . . . . . . . . . . .83 APPENDIX "B" ATTENDANCE CONTROL . . . . . . . . . . . . . . . . . . . .84 APPENDIX "C" POLICIES . . . . . . . . . . . . . . . . . . . . . . . . .88 APPENDIX "D" SERVICENTER NON-STANDARD WORK WEEK FOR LINE SERVICE TECHNICIAN . . . . . . . . . . . . . . . . . . .89 ARTICLE 1 RECOGNITION Section 1 - RECOGNITION 1.11 The Company recognizes the Union as the sole and exclusive bargaining representative for employees described in the National Labor Relations Board Certification in Case No. 16-RC-7991, with respect to wages, hours and conditions of employment. These employees are all hourly-rated production and maintenance employees, including Group Leaders, at the Employer's facilities located in the greater Oklahoma City area, but excluding all other employees, including professional employees, technical employees, office clerical employees, Human Resources Department, Accounting Department, the process engineering analysts, production planners, blueprint control, production release groups, warehouse clericals, spare parts warehouse clericals, Purchasing Department clericals, tool design section, quality control office clerical, inspection planners, inspection vendor surveillance personnel, engineering division clericals, sales division, Service Department clericals, technical publications group, time keepers, service center clericals, guards and supervisors as defined in the Act, as amended. Where the masculine term is used in this Agreement, it shall apply with equal force and effect to the feminine gender. ARTICLE 2 AGREEMENT Section 1 - AGREEMENT 2.11 This Agreement is made and entered into this 12th day of August, 1996, by and between Gulfstream Aerospace Corporation, an Oklahoma Corporation, dba Gulfstream Aerospace Technologies and hereinafter called "the Company" and the International Union, United Automobile, Aerospace & Agricultural Implement Workers of America, UAW and its unit, Local Union No. 2130, all of which are signatories to this Agreement, and are hereinafter collectively referred to as "the Union". ARTICLE 3 UNION REPRESENTATION Section 1 - COMMITTEEPERSON - NUMBER, QUALIFICATIONS AND ELECTIONS 3.11 There shall be one (1) Union Committeeperson on each shift for every one hundred (100) employees or fraction thereof. Committeepersons shall have at least one (1) year continuous seniority with the Company and shall be selected from employees regularly assigned to work on the same shift as the employees he represents. On the second or third shift if fifteen (15) or more employees are assigned to a shift a Committeeperson will be authorized. In unusual circumstances the number, location, and seniority requirements of the Union Committeeperson may be adjusted by mutual agreement between the Company and the Union. 3.12 At a time designated by the Union, not to exceed one (1) election per year (including run-offs), the Company shall permit all employees to vote for Committeepersons, Chairperson, and Executive Board Officers on Company property during working hours. The vote shall be conducted under rules and regulations established by the Union. The place and time of balloting shall be by mutual agreement between the parties. In the event the Committeeperson, Chairperson, or Executive Board Officer is replaced, an election of same, will not be conducted during working hours. 3.13 The Union, by written notice, shall keep the Company promptly and currently informed as to the employees designated as Union Committeepersons. Upon the request of the Human Resources Department, the Union will promptly deliver to the Company a current list of Committeepersons by district. In the event that there are more Committeepersons in a district on each shift than are provided for in this section, the Union, upon request of the Company, shall promptly designate the Committeeperson or Committeepersons who are to remain in such capacity. If the Company has not received written notification of such designation by the Union within five (5) calendar days subsequent to the Company's request, the Committeeperson or Committeepersons in the district where the surplus exists who have the most seniority automatically will retain status as Committeeperson or Committeepersons and the remainder will lose such status. 3.14 Districts will be established by geographic zones whenever possible. Section 2 - COMMITTEEPERSONS - DUTIES, RESPONSIBILITIES AND PRIVILEGES 3.21 Committeepersons will be permitted to take necessary time off during working hours, with pay, to perform the following Company/Union business: (a) Attending meetings with the appropriate Foreman/Supervisor or Manager as provided in Article 5. (b) Discuss with appropriate Foreman/Supervisor or Manager emergency complaints and grievances of employees. (c) Discuss matters with Industrial Relations. (d) Contact employees who have filed grievances and/or meet with employees with complaints. (e) Discuss with the Regional Director or his designated representative when the latter finds it necessary to contact the Committee Chairperson, or Committeepersons on Company/Union business. (f) The Committee Chairperson and/or his designated representative, and President will be allowed to receive or send direct telephone calls as necessary to conduct Union Business. (g) The Company will furnish the Union with an adequate office, with telephone, desks and file cabinets. 3.22 Each Committeeperson has full-time work to perform in the plant as assigned by the Company. Union duties will be handled expeditiously by the Committeeperson and the time will be kept to a minimum. 3.23 Committeepersons, when leaving their work areas, will notify their Foreman/Supervisor the nature of the Union business to be conducted. Committeepersons entering a department other than their own will notify the Foreman/Supervisor of that department the nature of the Union business to be conducted. 3.24 When the Company has received two (2) working days written notice of the Committeeperson's appointment by the Union, the Committeeperson shall not be transferred by the Company from one shift to another, one work week to another or from one department to another or loaned out of his district except with the consent of the Committee Chairperson. The Committee Chairperson and President shall not be transferred by the Company from one shift to another, one work week to another or from one department to another or loaned out of his assigned classification without their consent. 3.25 Alternate Committeepersons will function only in the absence of the regular Committeeperson. The Company will be notified in writing of the names of each alternate Committeeperson and the district represented. Section 3 - UNION OFFICIALS 3.31 The Regional Director or his designated Representative shall have access to the Company's plants or to the departments of the Company's plants to which they are assigned for the purpose of contacting Committeepersons, Committee Chairperson or President. Such visits shall be subject to security regulations and regulations that may be made from time to time by the Company. The Company shall not impose regulations which will exclude the Union Official from the plant nor render ineffective the intent of this provision. The Regional Director or his designated Representative will be issued a permanent badge to enter the plant. 3.32 The designated Representative when investigating grievances or complaints will notify the employee's Foreman/Supervisor he is in the area. 3.33 All other Union Representatives must clear through the Industrial Relations Department prior to entering the Plant. Section 4 - BARGAINING COMMITTEE 3.41 The Union Bargaining Committee shall be composed of the Regional Director, and/or his designated Representative, President, Committee Chairperson and two (2) Committeepersons and one (1) Alternate. The two (2) Committeepersons and one (1) Alternate shall be elected from all the Committeepersons by the membership. ARTICLE 4 MANAGEMENT PREROGATIVES Section 1 - RESERVED RIGHTS 4.11 (a) The right to plan, direct, control, increase, decrease or to discontinue operations in whole or in part; to determine the products to be manufactured or processed; processes or types of work or methods in or out of the Plant; to subcontract work; to change machines, methods and facilities or introduce any methods, techniques, and/or machines and products; to discharge and otherwise discipline employees for just cause; to promote or demote employees; to assign employees to shifts; to make and enforce reasonable rules and regulations. To schedule the number of hours to be worked and the work force; to lay-off or recall employees; to determine who it shall hire, the number of employees it shall employ at any time and the qualifications necessary for any of the jobs it may have or may create in the future; to assign work duties in accordance with the determination of the needs of the job; to move, sell, close, liquidate or consolidate the Plant in whole or in part; to determine the number, location and type of plants. The Company will take no action, as herein described, that would serve to be in conflict with any of the provisions of this agreement. (b) The Corporation agrees that if the Company is sold as an ongoing business during the term of the current Agreement, it would require the buyer to assume the Gulfstream Aerospace Technologies/UAW Collective Bargaining Agreement. (c) Company and Union must mutually agree to a reduced work week in lieu of layoff. (d) New Technology - Active employees will be afforded the opportunity to qualify for new jobs created by new technologies within the job bidding system. Trainee positions will be posted when no qualified candidates are available in house. Related experience in similar operations and seniority will be the deciding factor in selection for trainee positions. Laid off employees affected by new technology will be recalled and trained before the Company can hire new employees. (e) Nonbargaining unit employees will not perform bargaining unit work except in emergencies or in the instruction of employees. ARTICLE 5 GRIEVANCE PROCEDURE Section 1 - GRIEVANCE DEFINED 5.11 The term grievance is hereby defined as a dispute or controversy arising concerning the interpretation or application of an Article, Section, or Paragraph of this Agreement. Such dispute or controversy shall be treated as a grievance and shall be processed in accordance with Section 2 below. Any challenge to the reasonableness of any policy shall be considered a policy grievance and shall be initiated at Step 3. Section 2 - GRIEVANCE PROCEDURE 5.21 An employee believing a dispute exists will present the dispute to his Foreman/Supervisor orally, alone or with his Committeeperson present. If the dispute or controversy is directly against his Foreman/Supervisor, the employee will discuss the dispute or controversy with his Committeeperson with or without his Foreman/Supervisor being present. Such disputes or controversy shall, whenever possible, be resolved within the department. In order to accomplish this objective, the Committeeperson shall discuss the dispute or controversy with the employee, or the employee and immediate Foreman/Supervisor. When an employee requests to see his Committeeperson, the Foreman/Supervisor will send for the Committeeperson without undue delay, and without further discussion of the dispute or controversy. If a Committeeperson has discussed a dispute or controversy with the employee and/or Foreman/Supervisor, he may consult with the Committee Chairperson in an effort to resolve the complaint before filing a written grievance. An employee or Committeeperson who wishes to present a grievance shall reduce the grievance to writing on a form to be mutually agreed upon by the Union and the Company, setting forth a statement of the dispute or controversy, the facts on which it is based, the Article, Section, and Paragraph of the Agreement that was allegedly violated, the date and time of its occurrence and the remedy or correction desired. This form will be signed and dated by the employee. The Employee's Committeeperson shall deliver such grievance to the Foreman/Supervisor. The Foreman/Supervisor shall deliver his answer in writing to the Committeeperson within three (3) working days after receipt of the written grievance. Grievances must be presented within five (5) working days after the cause of the grievance arose and/or within five (5) working days after receipt of documentation by the Union or employee making them aware of a grievance or the grievance shall be considered null and void. 5.22 Step 1 If a settlement has not been reached after complying with the provisions of Section 2 above, and the Union desires to proceed further with the grievance, it may within three (3) working days of the receipt of the Foreman/Supervisor's answer, proceed to Step 1 by delivering a copy of the written grievance to the Foreman/Supervisor's Manager. It is understood that Manager means the individual the Foreman/Supervisor reports to. The Company will keep the Union advised of these individuals. The Manager and the Committeeperson shall use their best efforts to settle the grievance. The Manager shall deliver his answer in writing to the Committeeperson within three (3) working days after receipt of the written grievance. The Company shall not attempt to discuss or adjust a written grievance with any individual employee unless his affected Committeeperson has been given the opportunity to be present. Grievances which may contain continuing liability shall be given priority with respect to handling or processing through the grievance procedure. 5.23 Step 2 If a settlement has not been reached by Step 1 and the Union desires to proceed further with the grievance, it may, within seven (7) working days of the receipt of the Manager's answer, proceed to Step 2 by delivering a copy of the written grievance to the Company's Industrial Relations Department. After an investigation by the Industrial Relations Department, the Committee Chairperson or, in his absence, his designated representative and a representative of Industrial Relations shall meet and use their best efforts to reach a settlement of the grievance. If the Company or Union request an interview with the grievant or witnesses, at such meeting to verify facts, such an interview shall be conducted jointly by the Industrial Relations representative and the Committee Chairperson. The Industrial Relations Department shall deliver its answer in writing to the Union within seven (7) working days after receipt of the grievance. 5.24 Step 3 When a grievance has proceeded to Step 2 of the grievance procedure and it cannot be settled by the Committee Chairperson and a representative of the Industrial Relations Department, the grievance will be referred to a Grievance Committee prior to proceeding to Step 4 of the grievance procedure. The purpose of the Grievance Committee will be to resolve Step 2 grievances referred to the Committee in an expeditious manner not to exceed seven (7) working days. The Grievance Committee can call individuals involved in the grievance for clarification of information contained in the grievance or for additional information that may be needed to reach a decision regarding the settlement of the grievance. The Grievance Committee will have six (6) members, three (3) for the Union and three (3) for the Company. The Grievance Committee will consist of the Chairman of the Grievance Committee, Union President and the affected District Committeeperson or, in their absence, a designated representative for the Union. The Company's committee members will be comprised of representatives of Senior Management, Industrial Relations and/or Human Resources and the affected department. Alternates will be named for each member of the Committee to provide the ability to convene the Committee without being dependent on one or two individuals presence in the facility. The UAW International Representative shall be allowed to attend all meetings. Any grievance that cannot be settled by the Grievance Committee may be appealed to proceed to Step 4 of the Grievance Procedure if so elected by the Union Committee Chairperson. A Grievance arising out of discharge, layoff, reinstatement or policy shall be initiated at Step 3 as follows: The employee shall deliver his signed grievance to the Committeeperson who may deliver such grievance to the Industrial Relations Office and proceed as set forth in Step 3 of this section. Unless the written grievance signed by the employee has been delivered to the Industrial Relations Office within five (5) working days after discharge, layoff, or reinstatement complained of, the grievance shall be deemed to be waived. A Committeeperson and/or Chairperson must be present when an employee is being disciplined, suspended or discharged. If the employee does not want Union Representation, he will sign a memo so stating. Time spent by a discharged employee in presenting a problem to his appropriate Union Representative will not be paid for by the Company. 5.25 Step 4 If a settlement has not been reached at Step 3, the Union may appeal the grievance within five (5) working days after receipt of the Grievance Committee's answer. The Company will be informed in writing of the Union's decision to appeal a grievance to Step 4. The Appeals Committee shall consist of, for the Union, the International Representative, Union President and the Committee Chairperson or, in his absence, a designated representative; for the Company, a representative of Senior Management and Industrial Relations and/or Human Resources. Meeting of the Appeals Committee shall be held within fourteen (14) calendar days of receipt of the appealed grievance and scheduled through the Director of Human Resources. 5.26 Arbitration (a) GRIEVANCES SUBJECT TO ARBITRATION Any grievance which has not been settled at Step 4, and which involves a claim of an alleged breach of any provision of this Agreement, may be appealed to arbitration by the Union by serving written notice of intent to appeal to arbitration upon the Company within fifteen (15) calendar days after Step 4 has been completed. If no such notice of appeal is served within such fifteen (15) calendar day period, such grievance shall be deemed to be waived. (b) SELECTION OF ARBITRATOR After receipt of notice of appeal to arbitration, representatives of the Company and the Union shall meet within five (5) working days to select an arbitrator by mutual agreement. If they are unable to agree upon an arbitrator, they shall request the Federal Mediation and Conciliation Service to submit a list of seven (7) persons from whom the arbitrator will be chosen. The Company and the Union shall alternately strike one (1) name from such list until only one (1) name remains and that person shall be the arbitrator. The right to strike the first name shall be determined by flip of coin. (c) SUBMISSION TO ARBITRATOR Within ten (10) working days after selection of the arbitrator the parties shall jointly submit the grievance to an arbitrator for his decision. If the parties are unable to agree on the submission statement, each party shall submit a separate submission. The joint or separate submission shall state the issue or issues to be heard and the specific provision or provisions of the Agreement which the arbitrator is to interpret or apply. The arbitrator shall have authority to consider only grievances presenting solely an arbitrable issue under this Agreement. Decision on the issue or issues to be heard or the arbitrability shall be made by the arbitrator before either party may proceed with the merits of the case. (d) JURISDICTION OF THE ARBITRATOR The arbitrator shall afford to the Company, the Union and the employee or employees involved, a reasonable opportunity to present evidence, witnesses, and arguments. The jurisdiction of the arbitrator and his decision shall be confined to a determination of the facts and the interpretation or application of the specific provision or provisions of this Agreement at issue. The arbitrator shall have no authority to add to, subtract from, modify, or amend any provision of this Agreement or to establish any terms or conditions except as provided in Article 34, Paragraph 34.15. (e) EXPENSES OF ARBITRATION The fees and expenses of the Arbitrator shall be shared equally by the Company and the Union. The Chairperson, and the President or their duly designated Representative of the Local Union shall be paid for time spent in Arbitration, if it occurs during their regular working hours. In addition, the Company will pay for time lost from regular working hours of two (2) additional employees if required, as a witness in Arbitration. Either party may, at their option, employ the services of a stenographer and/or court reporter at all such hearings to make a record of the proceedings. The cost will be shared equally if mutually agreed on prior to the hearing. (f) The arbitrator shall render his findings and award in writing to the parties within thirty (30) calendar days after conclusion of the hearing or the filing of briefs, whichever occurs later. (g) The decision of the arbitrator shall be final and binding on the Company, the Union, and the employee or the employees involved. Section 3 - MEDICAL DISPUTE 5.31 In the event of a medical dispute (when an employee's doctor releases him to return to work or not return to work and the Company doctor disagrees) regarding the physical or mental condition of the employee, the Company and Union agree to refer such dispute to a third licensed medical physician that has been mutually agreed upon between the parties. This physician will be provided all relevant medical data as determined by the parties pertaining to the disputed medical condition. The fee shall be paid by the Company. 5.32 The Physician's determination shall be limited to medical findings concerning the disputed physical or mental condition of the employee and such medical findings shall be submitted to the Company and the Union. 5.33 The Company will make reasonable efforts to place the employee in an available job that the employee can do consistent with such medical findings. The Committee Chairperson and Industrial Relations or designee will meet and decide whether employment is possible based on the releasing Doctor's statement. PERMANENT DISABILITY - In the event medical findings indicate a permanent disability which restricts function(s) required by their job description, the regulations as set forth in the Americans with Disability Act will prevail. TEMPORARY DISABILITY - Where light duty has been specified by the releasing Doctor, an employee returning to work from any illness or injury (personal or work related) will be whenever possible provided work compatible with their restrictions. Should the temporary disability extend beyond six (6) weeks and the employee is working in a classification other than their own, the employee will be reclassified to the classification they are working. They will be returned to their old classification upon medical clearance to return to full duty. Section 4 - GENERAL PROVISIONS 5.41 FAILURE TO PROCEED WITHIN TIME LIMITS Failure of the Union or any employee to proceed within any time limit set forth in this Article 5 shall constitute a waiver of the grievance. Failure of the Company to act within the time limit set forth in this Article 5 shall entitle the Union to proceed to the next step. Any time limit specified in this Article 5 may be extended by mutual agreement in any particular case. 5.42 RETROACTIVITY OF AWARDS OR SETTLEMENTS Awards or settlements of grievances shall in no case be made retroactive beyond fifteen (15) working days prior to the date the grievance was first delivered in writing to the Company in Step 1 of the Grievance Procedure. The Company reserves the right to credit, against any retroactive pay awards any earnings or compensation paid to the employee during the period the grievance is going through the appeals process. ARTICLE 6 NOTICES, BULLETIN BOARDS Section 1 - NOTICES 6.11 Any notices provided by this Agreement, except as specified in Paragraph 6.21 below, shall be mailed, postage prepaid, registered or certified mail, return receipt requested or delivered by hand to the Industrial Relations Department, Gulfstream Aerospace Technologies, 7400 N.W. 50, P.O. Box 22500, Oklahoma City, OK 73l23, for services upon the Company and to the Union Representative, International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW), 2300 S.W. 89th Suite B, Oklahoma City, OK 73159-6354 for services upon the Union. 6.12 Any notice given under Article 5 hereof shall be deemed served when mailed, postage prepaid, or delivered by hand to the Industrial Relations Department at Gulfstream Aerospace Technologies, Oklahoma City, Oklahoma. 6.13 The date of receipt shown on the return of the registered or certified mail or the date of written receipt of personal service shall be the controlling date for all purposes under this Agreement. Section 2 - BULLETIN BOARDS 6.21 Space shall be provided at locations mutually agreed upon between the Union and the Company for the Union bulletin boards for the posting of the following types of notices: (a) Notices of Union recreational and social affairs; (b) Notice of Union elections; (c) Notices of Union appointments and result of Union elections; (d) Notices of Union meeting; (e) Such other notices as may be mutually agreed upon by the Union and the Company. (f) Any correspondence from the International Union. 6.22 The Union shall not distribute or post, nor permit its members to distribute or post, any Union materials anywhere on the Company's property, except as herein provided. The Company may remove such bulletin boards in the event of repeated violation of this section. Section 3 - NOTICE OF EMPLOYEE'S ADDRESS 6.31 Failure on the part of any employee to keep the Company informed of his correct address and current telephone number relieves the Company of the responsibility of any notification to such employee required by the Agreement. ARTICLE 7 STRIKES AND LOCKOUTS Section 1 - NO STRIKE OR LOCKOUT 7.11 During the term of this Agreement the Local Union and the International Union, or either of them, shall not authorize, cause, engage in, sanction or assist in any slowdown, work stoppage or strike against the Company. 7.12 In the event any employee who is employed in the bargaining unit as set forth in Article 1 of this Agreement shall call, engage in, sanction or assist in any unauthorized slowdown, work stoppage or strike against the Company or shall refuse to perform services duly assigned when directed to do so by the Company, the Local Union and the International Union and their officers and representatives agree to the following: (a) That the Company may take whatever disciplinary action it deems appropriate up to and including discharge; and (b) That each of them jointly and severally shall immediately disavow and refuse to recognize any picket line or lines established as a result of said unauthorized slowdown, work stoppage or strike against the Company or refusal to perform services: That each of them will issue instructions not to respect or recognize any said picket line or lines; and in addition, each will do everything within their respective powers to secure the disestablishment and disbanding of any said picket line or lines; and (c) That each of them jointly and severally shall immediately take or cause to be taken all affirmative action to demand, cause, and require performance of the terms and conditions of this Agreement. 7.13 In the event of any unauthorized slowdown, work stoppage or strike against the Company or refusal to perform services duly assigned when directed to do so by the Company, the Company agrees that it will not file or prosecute any action for damages arising out of said unauthorized slowdown, work stoppage, strike or refusal to perform services against the Local Union, its officers, representatives or individual members, provided that the Local Union, its officers and representatives perform their obligations and responsibilities as set forth in this section, or against the International Union, its officers, representatives or individual members, provided that the International Union, its officers and representatives perform their obligations and responsibilities as set forth in this section. 7.14 Nothing in Section 1, paragraph 7.13 above shall preclude any right to which the Company previously was entitled to seek legal or other redress of any individual who has caused damage to or injury to or loss of Company property nor does the Company cede any rights in this regard to which it may be entitled by future legislation. 7.15 During the term of this Agreement the Company shall not cause, permit or engage in any lockout of its employees. ARTICLE 8 SENIORITY Section 1 - BASIS OF SENIORITY AND ESTABLISHMENT OF SENIORITY RIGHTS 8.11 Seniority shall be the relative status of employees in respect to the length of service with the Company since the most recent date of hire. Seniority of employees with the same seniority date will be determined by the alphabetical order of their names (surname first, then given name, then middle name) with the beginning of the alphabet having greater seniority. 8.12 An employee who prior to or subsequent to the date of this Agreement has been transferred from a job classification covered by this Agreement to a job classification not covered by this Agreement will have six (6) months from April 24, 1992, to exercise their seniority and return to the unit. Any bargaining unit employee who is transferred or promoted to a job or classification not covered by this Agreement after April 24, 1992, for six (6) months or less, and returns to the bargaining unit, will be credited only with his/her seniority prior to leaving the unit. Employees transferred out of the bargaining unit for more than six (6) months will no longer retain seniority in the bargaining unit. 8.13 A new employee shall be regarded as a probationary employee and shall not have seniority status under this Agreement until he has completed ninety (90) calendar days of service on the active payroll of the Company. A probationary employee shall be considered temporary and shall not be allowed to bid for job vacancies. A probationary employee, after completion of said period, shall receive seniority credit as of his/her most recent date of hire. Section 2 - GENERAL LAYOFF 8.21 Employees shall be designated surplus in order of seniority within a job classification, provided the senior employees are qualified to perform the work remaining. 8.22 An employee with seniority being laid off may bump into any lateral or lower rated classification for which he has seniority and qualifications. Employees so affected may accept layoff in lieu of downgrade. It is the intent of this provision that an employee, in order to displace a less senior employee in a lateral or lower rated classification not previously held by him, must be qualified without a training or learning period. However, such employee shall be entitled to a ten (10) working day trial period. An employee who if found not qualified during the ten (10) working day trial period shall be designated as a surplus employee. It is the intent of this provision that an employee will be allowed one bump within his present labor grade and one bump per lower labor grade. An employee who has exercised all of his bumping rights will be reclassified to the last job classification for which he was qualified and laid off without further displacement rights. Employees being loaned for thirty (30) cumulative working days or more will be considered to have qualifying experience to bump the job loaned to, seniority providing. The Chairperson will be present when employees are being surplused, laid off, or recalled. 8.23 The Company will notify the Committee Chairperson in writing ten (10) working days in advance of a layoff. Section 3 - TEMPORARY LAYOFF 8.31 Temporary layoffs for lack of work may be made for periods not to exceed fifteen (15) working days. Such layoff and recalls shall be made by seniority. Layoffs will be effective at the end of the shift on the last scheduled work day of the week. All benefits will continue during such temporary layoff. Employees on temporary layoff shall not have displacement rights as provided in Section 2, above. Section 4 - TOP SENIORITY FOR LAYOFF ONLY 8.41 The following Union members shall be deemed to have top seniority for the purpose of General and temporary layoff in the following order: (a) President (b) Committee Chairperson (c) Committeeperson 8.42 For purposes of applying temporary and general layoffs, the President and Committee Chairperson shall have top seniority within the plant. Committeepersons will have top seniority within their classification and district represented, as long as they hold their respective title and provided they are qualified to perform the work remaining. 8.43 The application of 8.41 and 8.42 above shall only apply if the Company has had five (5) working days advance written notice of such status as a Committeeperson. 8.44 If the application of a layoff will result in the retention of more Committeepersons in a group or district than are provided for in Article 3, Section 1, of this Agreement, the Committeepersons shall be eliminated as provided in such Article and Section. Section 5 - RECALL FROM LAYOFF 8.51 The following Union members shall be deemed to have top seniority for the purpose of recall in the following order: (a) President (b) Committee Chairperson (c) Committeeperson 8.52 For purpose of recall the President and Chairperson shall have top seniority within the plant. Committeepersons shall have top seniority within their classification and district represented, as long as they hold their respective title and provided they are qualified to perform the work available. 8.53 Laid off employees in any job classification shall be recalled in order of seniority by classification including employees who were loaned for thirty (30) cumulative working days or more. 8.54 For the purpose of this section, the recall list of any job classification shall be all employees laid-off in such job classifications who have not lost their seniority through the application of any provision of Article 8, Section 8, and shall include all employees who accepted placement in a lateral or lower rated classification or previously held classification, and employees who were loaned for thirty (30) cumulative working days or more. 8.55 If, because of sickness, injury or causes beyond his control, a laid-off employee fails to report for work at, or before, a time specified by the Company on the seventh (7th) working day after the date on which the Company shall have sent a notice by registered mail or certified mail, (postmarked receipt will be provided to the Chairperson of the Union) to such employee at his last address filed with the Human Resources Department or at such other date thereafter as the Company may designate, the employee shall not be entitled to the job but shall be entitled to hold his place on the seniority list and to be considered for the next vacancy for which he is eligible. The employee shall be required to furnish evidence of sickness or injury, or causes beyond his control, to the satisfaction of the Company. Section 6 - SELECTION OF GROUP LEADERS 8.61 The Company no longer has Group Leaders. Section 7 - PHYSICALLY HANDICAPPED EMPLOYEES 8.71 An employee who becomes physically handicapped may be retained or reinstated by seniority, at the discretion of the Company. Any dispute concerning this section shall be referred to the Medical Dispute Section of the grievance procedure. Section 8 - LOSS OF SENIORITY 8.81 An employee's seniority shall be lost only by the occurrence of any of the following: (a) Quits (b) Retires (c) Discharged for Just Cause (d) Absent three (3) working days without notifying the Company. (Unless a satisfactory reason for such failure to notify.) (e) If, after a layoff, the employee is notified to report for work, by certified mail or registered mail, (postmarked receipt will be provided to the Chairperson of the Union) addressed to him at the last address filed by him with the Company, and fails within seven (7) working days from the start of the next regular work day after a notice is sent by the Company or such additional time as the Company may grant; (f) Failure to report for work at the time designated by the Company; (g) Layoff for a period of forty-eight (48) consecutive months. Section 9 - PRIORITY IN FILLING AVAILABLE OPENINGS 8.91 Available openings in a job classification shall be filled by employees in the following categories in the order stated: (a) Employees who are being surplused in accordance with the layoff procedure and who are eligible for placement in the job classification in which the opening exists. (b) Employees on the recall list, as defined in Section 5, of the classification in which the opening exists; the names of the employees in these two groups shall be combined and placement shall be given to the most senior, qualified employee. Such placement under the application of (a) and (b) above shall not result in an upgrade, unless an upgrade is due to the classification being upgraded while the employee was laid off. (c) Employees eligible for promotion as provided in Article 8, Section 10. (d) Prior to hiring new employees, the Company will, by seniority consider laid off employees who it determines may be capable of performing the work, but who have no recall rights within the classification where the vacancies occur. Employees being laid off may submit a request, at the time of layoff, on a form mutually agreed to by the parties, requesting to be considered for classifications in which they have no recall rights. (e) New hires. Section 10 - AVAILABLE OPENING 8.101 When vacancies occur that are not filled in accordance with Section 9 above, such jobs shall be posted on a specific bulletin board as designated by the Company. All such vacancies shall be posted for five (5) working days on specific posting days, specifying the number of openings, the job title, the rate range, the qualifications required, description number, the department number in which the opening exists, and the shift. Each vacancy shall specify a deadline date after which no further bids will be accepted. Such date shall not be less than five (5) working days after posting date. The Company will furnish enclosed (glass front) bulletin boards inside the plant, for the posting of job bids. Bulletin boards will be placed in all areas of the plant where bargaining unit employees are assigned. 8.102 Any bargaining unit employee may bid on or submit a transfer request for a posted vacancy. Each bid and transfer request will be given equal consideration. An employee must apply at the Human Resources Department prior to the deadline date. In filling vacancies, where qualifications are equal, seniority will be the controlling factor. Employees who have been loaned for thirty (30) cumulative working days or more will be considered to have qualifying experience. 8.103 In selecting an employee for such promotion or transfer to an available opening, the following standards shall apply: (a) Release for promotion or transfer will not be granted when an employee has been promoted or transferred to his present classification within the past six (6) months. This would not be applicable, however, in instances where such openings would have to be filled by new hires. (b) Production requirements shall be considered insofar as they pertain to the release of an employee from his present job when such promotion or transfer involves a transfer between departments. An employee's release for promotion or transfer will not exceed ten (10) working days. (c) The names of successful bidders will be posted on the next posting day after bid is awarded. (d) If there are no successful bidders, the Company will post that information on the next posting day after such determination. If the bid is reopened for candidates at a later time, it will be re-posted. 8.104 An employee transferred or reclassified from one classification to another classification within the bargaining unit and who after a minimum of ten (10) working days, is found not to possess the qualifications required to perform the work of this new classification shall be returned to his former classification, provided his seniority is greater than that of other employees then employed in such former classification. An employee will be returned to his former job classification, department and shift. 8.105 If there are no qualified bidders on the job posting, employees will be entitled to a transfer by seniority prior to hiring new employees. 8.106 The Company will give the Union Chairperson the following information the day following the first payroll for the month: (a) Two (2) Activity Code Report, including: 1. Terminations 2. Hires 3. Transfers 4. Retirees 5. Recalls 6. Employees Laid Off 7. Bereavement 8. Jury Duty 9. Leaves of Absence (b) Two (2) Seniority Tab Runs (c) Three (3) Department Tab Runs (d) The following will be given within five (5) working days: 1. Bid Lists 2. Employee awarded bids 3. Employee bids rejected ARTICLE 9 SABOTAGE AND SECURITY REGULATIONS Section 1 - COOPERATION 9.11 The Union and its members agree to report to the Company any acts of sabotage, subversive activities, theft, damage to, or taking of, any employee's, customer's, Company's or Government property, or work in process or material, or any known threat of sabotage, subversive activities or damage to, or taking of such property. ARTICLE 10 HEALTH AND SAFETY Section 1 - MAINTENANCE OF SAFE CONDITIONS 10.11 The Company will maintain sanitary, safe and healthful conditions in all its working establishments in accordance with applicable laws. The Union will promote health and safety in conjunction with the Company for its employee's health and safety. The Union cannot be held liable for any unsafe working conditions. 10.12 Proper and modern safety devices, equipment, and/or clothing shall be provided by the Company for employees assigned to areas or job functions where hazards as defined by applicable laws, regulations or standards exist with preference for technological changes rather than the use of protective equipment when economically feasible. 10.13 The Company will furnish regular ear plugs, regular safety glasses, gloves and side shields. 10.14 No employee shall be discharged for refusing work on a job which is not safe or sanitary or endangers his health from hazards as defined by applicable laws, regulations, or standards and the Company has not provided the proper safety equipment to protect the employee from the hazard(s). 10.15 Safety Equipment supplied by the Company must be worn by employees who are assigned to work in areas which have hazards identified. Section 2 - SAFETY SHOES 10.21 The Company will furnish a safety shoe allowance to all employees working in areas identified as foot hazard areas. The Company will pay $110.00, less applicable payroll tax toward the purchase of safety steel toe shoes that have an ANSI class 75 rating from a vendor of the employee's choice. The employee is responsible for shoe costs exceeding the allowance. On August 1 of each even numbered year (1996, 1998, etc.) employees whose last name begin with A through M will receive a Company check for the safety shoe allowance. On November 1 of each odd numbered year, employees whose last name begins with N through Z will receive a Company check for the safety shoe allowance. 10.22 Employees presenting valid medical documentation restricting them from wearing safety shoes will be required to wear the steel shoe caps commonly referred to as "Clackers". The shoe caps will be provided by the Company and the employee will not be eligible to receive the safety shoe allowance. 10.23 New hire or probationary employees will be afforded the same benefit as regular employees. If the new hire or probationary employee terminates employment at Gulfstream while on probation, the amount of the shoe allowance will be deducted from employees final check. 10.24 Employees assigned to the following departments are required to wear safety steel toe shoes and must have them prior to beginning work: 020 Facilities 130 Saw & Shear 160 Warehouse 230 Quality Assurance 231 Quality Assurance - ServiCenter 232 Quality Assurance 234 Quality Assurance 235 Quality Assurance 250 Tooling 251 Tool Stores 252 Tool Crib 511 Manufacturing Expediters 544 ServiCenter Shop 545 Paint Shop 549 Assembly Production Control 551 Small Parts Assembly 555 Manufacturing Fabrication 557 Glass Form/Fiberglass 572 BAe Wing Area The above list will be updated as departments identified as foot hazard departments are added or deleted. 10.25 In instances where safety shoes, as a result of a work related incident, need to be replaced prior to the two years provided by the contract, the Safety Manager and Union Safety Chairperson will review the need to replace. Section 3 - SAFETY GLASSES 10.31 The Company will provide prescription safety glasses to permanent employees working on a job or in an area where eye protection is a Company requirement, provided the employee furnishes a prescription from his/her doctor or optometrist. The Company will replace such glasses if damaged by a cause attributable to the employee's employment or if the employee presents a new and different prescription from his/her doctor or optometrist (Limited one pair per 12 month period). The Company will establish the standard and specifications and the manufacturing source. 10.32 The parties agree that a one hundred percent (100%) Eye Safety Program is desirable in certain areas of the plant(s) and the Union will support such programs where they are warranted for safety reasons. Section 4 - SAFETY COMMITTEE 10.41 The Company and Union agree to the establishment of a Safety Committee consisting of six (6) Management representatives and six (6) Union appointed representatives. The Company will recognize the Union's designated Chairperson of this Committee. The President of the local Union will be one (1) of the Union's appointed representatives. The number of members may be increased or decreased by mutual agreement between the Company and Union. 10.42 The Committee is organized to review, address, and to the maximum possible, resolve health and safety issues of interest and concern to the Company and the Union. 10.43 The Committee will conduct periodic housekeeping and safety inspections to ensure that facilities and operations are maintained and conducted in a safe, sanitary, and healthful manner. 10.44 The Committee will meet at least once each month at a mutually agreeable time and place to review inspection results and other safety and health issues. Inspection action items and a summary of meeting discussion items will be provided each member of the committee. Section 5 - TRANSPORTATION 10.51 Employees who become ill or injured while at work will be given suitable transportation to the hospital, other suitable treatment facility, or the employee's home when the Foreman/Supervisor or safety Department deems such transportation is required. 10.52 In the case of an Industrial injury, an employee will be permitted to received required medical treatment during working hours when scheduled by the treating physician, when an appointment after working hours cannot be made. Section 6 - INVESTIGATIONS AND RIGHT OF INFORMATION 10.61 The Union Health and Safety Chairman and/or his designated representative will, in conjunction with the Company's Safety Representative, be provided the opportunity to investigate accidents as soon as possible after their happening, including a review of the accident site as required. 10.62 The Union Health and Safety Chairperson and/or his designated representative will have the right to observe and monitor all test(s) concerning health and safety that are conducted by outside agencies. The Union will be furnished with results of the test(s) upon request. 10.63 The Union Health and Safety Chairperson and/or his designated representative will be allowed to attend all meetings, training classes, etc., pertaining to health and safety that involve members of the bargaining unit. 10.64 The Union Health and Safety Chairperson and/or his designated representative shall receive any and all information pertaining to health and safety, if requested. Section 7 - TRAINING AND DRILLS 10.71 The Company will provide the Union's Health and Safety Committee with Health and Safety classes. These classes will be mutually agreed to by the Union and Company and be instructed by UAW/Company approved instructors. There will be four (4) classes per year for which the Company will pay the fees and provide during working hours. 10.72 The Company will conduct emergency drills for fire, severe weather, bomb threats, etc., as required by applicable regulations. ARTICLE 11 LEAVE OF ABSENCE Section 1 - GRANTING OF LEAVE 11.11 The Company will grant leaves of absence to employees without pay and without loss of seniority upon written request and upon good cause being shown for a definite period of not more than thirty (30) days per calendar year. 11.12 Good cause shall mean death in the employee's family, sickness in the home, settling estates, and such other similar situations over which the employee has no control and which necessitate the employee's absence from work. 11.13 For good cause and/or prolonged disability the period of the leave of absence may be extended, seniority will accumulate during such extensions. 11.14 The Company may grant leaves of absence to employees without pay and without loss of seniority upon written request for other reasons for a definite period of not more than fifteen (15) working days per calendar year. 11.15 The Company will grant a leave of absence, without pay, to an employee who has been appointed or elected to a State or Federal office. Seniority will accumulate during such leave. 11.16 By mutual agreement between the Union and the Company, the Company may grant lack of work days to employees on a voluntary basis by seniority, by job classification, by department and between shifts, without loss of seniority or benefits, and the employee shall not be counted absent. Section 2 - PROLONGED DISABILITY 11.21 An employee shall not be terminated because of illness or injury (industrial or non-industrial), supported by satisfactory evidence, when the period of absence does not exceed twenty-four (24) months. Upon being determined to be physically and mentally fit, he shall be reinstated to the same or a substantially equivalent classification within the plant in which he holds seniority, if he has greater seniority than the least senior employee in the same or substantially equivalent classification if he is qualified to do the work available. Section 3 - MISUSE OF LEAVES OF ABSENCE 11.31 Employees who, while on leave of absence, use such leave of absence for purposes other than those for which the leave of absence was granted shall be deemed to have terminated voluntarily. Section 4 - MILITARY LEAVES 11.41 Employees enlisting in or entering into Military Service of the United States pursuant to the provisions of the Uniformed Services, Employment, and Reemployment Rights Act (USERRA) shall be granted all rights and privileges provided by the act. 11.42 The National Guard and the Military units of the Armed Forces frequently require short term active duty. When ordered to active duty for training or emergency purposes, you will be granted a leave of absence for the required time. When the period is for fifteen (15) working days or less in a calendar year, the Company will reimburse you the difference between your total Government pay and your regular straight time earnings. Employees will make the necessary arrangement for the leave through their Foreman/Supervisor and the Human Resources Department. Official orders must accompany a request for Military leave. Section 5 - UNION BUSINESS LEAVE 11.51 Leaves of absence without pay shall be granted to employees for Union business. It is understood that no more than ten (10) such employees designated by the Union, will be absent for this purpose at any given time. The Union agrees that no more than five (5) employees will be absent from the same department at the same time with the exception of Department 555. It is understood and agreed that the Union will furnish the Company with one (1) working day prior written notification, if possible, indicating those employees who will be absent on Union business and the number of days employees will be on Union leave. The Union will provide the Company with a listing of standing committees and its members and the scheduled meetings for those committees. Seniority will accumulate during Union leaves. 11.52 An employee's election or appointment to conduct Union business shall be considered as sufficient cause for obtaining an extended leave not to exceed one (1) year. It is understood that absence for this purpose will be granted upon mutual agreement between the parties and shall be extended each year thereafter upon request. Seniority shall accumulate during Union leaves. ARTICLE 12 WAGE RATES Section 1 - WAGES 12.11 The rate ranges and basic hourly rate for each job classification shall be as set forth in Appendix A hereof for the duration of this Agreement, subject to the remaining provisions of this Article 12, Section 1. 12.12 The base rate of pay for each employee in the bargaining unit who is on the active payroll of the Company, on leave of absence, or on layoff, upon the signing of this Agreement shall be increased in accordance with the following schedule; provided, however, that no employee's base rate of pay shall be increased to a rate in excess of the newly established maximum for his rate range as provided in Appendix A. (a) GENERAL INCREASES (1) Effective January 6, 1997, each rate range as set forth in Appendix A and the basic hourly rate of each employee shall be increased three percent (3.0%) per hour. (2) Effective January 5, 1998, each rate range as set forth in Appendix A and the basic hourly rate of each employee shall be increased three percent (3.0%) per hour. (3) Effective January 4, 1999, each rate range as set forth in Appendix A and the basic hourly rate of each employee shall be increased three percent (3.0%) per hour. (4) Effective January 3, 2000, each rate range as set forth in Appendix A and the basic hourly rate of each employee shall be increased three percent (3.0%) per hour. (5) Effective January 1, 2001, each rate range as set forth in Appendix A and the basic hourly rate of each employee shall be increased three percent (3.0%) per hour. Section 2 - PERIODIC INCREASES 12.21 Each employee on the active payroll of the Company who has completed his probationary period shall receive an automatic increase of ten cents ($.10) per hour on the first Monday following the end of each calendar quarter until the maximum rate of his job classification has been reached. No employee shall be paid more than the top rate of the rate range of the job classification in which he is classified. 12.22 The Company may, at its discretion, at any time review the performance of an employee and/or grant increases within the classification in the event of a change of work or other conditions which may warrant such action, as long as, it does not exceed the maximum of Labor Grade provided in Appendix A. ARTICLE 13 HOURS AND SPECIAL PAY PROVISIONS Section 1 - HOURS OF WORK 13.11 Five (5) days, Monday through Friday, shall constitute the standard work week. 13.12 Eight (8) hours shall constitute the normal day's work to be performed within nine (9) consecutive hours. 13.13 The standard first shift shall be 7:30 a.m. to 4:00 p.m. The standard second shift shall be 4:00 p.m. to 12:30 a.m. and the standard third shift shall be 12:30 a.m. to 7:30 a.m. 13.14 Any deviations from the standard shift hours may only be made by mutual agreement between the Union and the Company. At least five (5) working days notice will be given to employees by the Company of any change in the starting or stopping time of shifts. The Company will first request volunteers by seniority. Lacking volunteers, the least senior employee will be assigned. Plant Maintenance and Line Service Technicians in the ServiCenter may have a special shift for a limited number of employees. Lacking volunteers by seniority, the least senior employee will be assigned. 13.15 Employees with five (5) or more years of seniority will receive an additional five cents ($.05) per hour longevity premium. Employees with ten (10) or more years of seniority will receive an additional ten cents ($.10) per hour longevity premium. Employees with fifteen (15) or more years of seniority will receive an additional fifteen cents ($.15) per hour longevity premium pay. Section 2 - PREMIUM PAY PROVISIONS 13.21 Hours worked in excess of eight (8) straight-time hours in any one day on the first and second shifts, and hours worked in excess of six and one-half (6 l/2) hours on the third shift, shall be paid at one and one-half (1 1/2) times the employee's regular hourly rate. Including any and all Company paid benefit time (sick leave, vacation, workers compensation, jury duty, or part day bereavement) shall be counted toward any time worked for any given shift. 13.22 An employee shall be paid one and one-half (l 1/2) times his regular rate of pay for all hours worked on Saturday, including call-in or report-to-work time. 13.23 An employee shall be paid two (2) times his regular rate of pay for all hours worked on Sunday, including call-in or report-to-work time. 13.24 No Pyramiding or Duplicating when two or more types of overtime or premium compensation are applicable to the same hours of work, only the higher rate of compensation will be paid. In no case will overtime or premium compensation be duplicated or pyramided. 13.25 Overtime shall be computed at the rate of one-tenth (1/10th) of the employee's regular rate of pay plus shift bonus, if any, for one-tenth (1/10th) of an hour or fraction thereof. Section 3 - OVERTIME ASSIGNMENT 13.31 Extra work in periods of overtime operations shall be rotated among employees within an overtime group. In accordance with the foregoing, when it is deemed necessary to establish overtime group(s), the composition of the group will be reduced to writing and jointly reviewed by Industrial Relations and the Chairperson of the Grievance Committee. 13.32 It is the intent of the Company to rotate overtime opportunities equally among employees within overtime groups. Overtime distribution will be corrected only through actual work performance. Should an employee raise the question of alleged unequal overtime distribution, then the matter shall be corrected through the assignment of the next available scheduled overtime. Problems associated with the scheduling of the next available overtime will be addressed by Industrial Relations and the Chairperson of the Grievance Committee, and if not corrected with the next available scheduled overtime, the employee(s) will be paid overtime hours equal to the number of overtime hours missed. 13.33 An employee working in excess of three (3) hours into another shift, on Saturdays, Sundays, and holidays will, beginning after three (3) hours, constitute a displacement provided there is a follow-on shift and there are employees on the succeeding shift in the classification of the work performed who normally perform the work in question. If such displacement occurs, the displaced employee will be afforded the next available scheduled overtime. Problems associated with the scheduling of the next available overtime will be addressed by Industrial Relations and the Chairman of the Grievance Committee, and if not corrected with the next available scheduled overtime, the employee(s) will be paid overtime hours equal to the number of overtime hours missed. 13.34 Committeepersons will be allowed to examine overtime rotation rosters kept by the Foremen/Supervisor, and a copy of the rotation roster will be provided to the committeeperson if requested. 13.35 Employees will be requested, on a voluntary basis to work overtime as necessary to maintain production schedules. If the required personnel are not available following the initial request for volunteers, the necessary number of employees will be assigned to work the overtime in the order listed on the overtime rotation roster. In no event will assigned/mandatory overtime assignments to work Saturday overtime exceed three (3) consecutive assignments. Mandatory overtime constitutes the mandate of all employees within a department, classification, or group, to work required overtime. 13.36 An employee called in prior to the start of his regularly assigned shift will be permitted to complete such shift. 13.37 The Company will make every reasonable effort to notify employees of: any daily overtime assignment two (2) hours prior to assignment; and, any weekend overtime assignment prior to the end of shift the preceding Thursday. If the Company fails to notify any employee in advance of such assignment, the overtime will be voluntary. All refused overtime will be recorded as refused. An employee who is absent on the day overtime is offered is responsible for notifying his Foreman/Supervisor of his availability to work within the first four (4) hours of his scheduled shift. An employee's failure to notify his Foreman/Supervisor of his availability will be passed over and the lost opportunity will be recorded as overtime refused. 13.38 Committeepersons working on a Saturday or Sunday will be allowed to handle grievances in their area; that occur on Saturday or Sunday. If there is a complaint or grievance in any area where there is no Committeeperson present, then a Committeeperson from another area will handle the grievance. If there are no Committeepersons assigned to work on Saturday or Sunday and Twenty-five (25) or more employees are working, a Committeeperson designated by the Chairperson will be allowed to work. The Chairperson will notify the Company who the Committeeperson will be for Saturday or Sunday overtime. Section 4 - ROTATION ROSTERS 13.41 The Company will rotate overtime opportunities among employees within an overtime group utilizing an employee roster. An employee roster will identify all employees within the overtime group. When an employee enters a new overtime group, he will be added to the bottom of the overtime rotation roster. 13.42 The employee overtime roster for each overtime group will be openly displayed in such a manner that the employees involved may check their standing. Overtime will be recorded on the rotation roster as overtime worked or refused. 13.43 Separate overtime rotation rosters will be maintained for pre and post shift overtime; Saturday overtime; Sunday and Holiday overtime. 13.44 The overtime rotation roster(s) for pre- and post-shift overtime will be utilized during the work week for scheduled overtime. 13.45 For unscheduled overtime only, employees may be allowed to complete a specific job (work continuation) to allow for the completion of a job in a timely and efficient manner. Unscheduled overtime will be noted by employee name and clock number on a monthly log. The log will be submitted to Industrial Relations on a monthly basis and compared to assure that a limited number of employees are not being utilized for the majority of unscheduled overtime. 13.46 The overtime rotation roster(s) for Saturday will be utilized for Saturday overtime only. The number of employees scheduled for Saturday overtime will be determined proportionately to the percentage of employees each shift represents. In the event of a one shift operation, first shift employees will start at 5:30 a.m. Second and third shift employees will start at 7:30 a.m. Overtime rotation rosters for second and third shift will be combined for rotation purposes in the event of a one shift operation. 13.47 The overtime rotation rosters for Sunday and holidays will be comprised of all employees within the department, classification or group, regardless of shift. Overtime shall be voluntary on Sundays, and holidays as set forth in Article 15. 13.48 No employee will be transferred for the purpose of equalizing the distribution of overtime. Section 5 - AUGMENTATION OF OVERTIME 13.51 When it becomes necessary to augment an overtime group with employees outside the group, the selection of such employees will be from another overtime group in the same classification and shift and who are next in line on the rotation roster. 13.52 An employee will not be scheduled to work overtime if he cannot perform the overtime work without a break-in or familiarization period. Employees replacing other employees for overtime work must be able to perform such work immediately. 13.53 An employee on loan will not work overtime unless all the employees in the overtime group who normally perform the work have been asked to work overtime or are scheduled to work overtime. 13.54 Any overtime worked by an employee on loan will be recorded on the overtime rotation roster of his assigned overtime group and will be by-passed in rotation until all other employees in the overtime group have been offered an equal amount of overtime opportunities. 13.55 A probationary employee will not be scheduled for overtime unless everyone in the same overtime group is asked to work overtime or are scheduled for overtime. Section 6 - SHIFT DIFFERENTIAL 13.61 An employee regularly assigned to commence his work day between the hours of 4:00 a.m. and 10:59 a.m. is considered to be assigned to the first shift. An employee regularly assigned to commence his work day between the hours of 11:00 a.m. and 8:29 p.m. is considered to be assigned to the second shift. An employee regularly assigned to commence his work day between the hours of 8:30 p.m. and 3:59 a.m. is considered to be assigned to the third shift. 13.62 An employee regularly assigned to the second shift shall receive an additional fifty cents ($.50) per hour for work during such shift, effective first pay period after ratification. Beginning January 2, 2001 an additional ten cents ($.10) an hour for work during such shift will be added. 13.63 An employee regularly assigned to the third shift shall receive eight (8) hours' pay plus Eighteen cents ($.18) an hour for working six and one-half (6 1/2) hours during such shift. Pay for an employee who works less than six one- half (6 1/2) hours will be prorated in accordance with actual hours worked. Section 7 - CALL-IN AND REPORT PAY 13.71 An employee called to work other than his regular shift shall receive the applicable overtime rate for all hours worked, but not less than four (4) hours. 13.72 In the event an hourly-paid employee reports to work on his regular shift without previously having been notified not to report, he shall be paid four (4) hours; provided, however, that if work reasonable within his capacity to perform is available, he will be required to perform such work to qualify for the four (4) hours' pay. However, the provisions of this section will not apply should work not be available by reason of acts of God, fire, flood, outside power failure or labor disturbances; however, the Company will make a reasonable effort to notify the employees of any such acts. Section 8 - LOST TIME 13.81 Deductions for time off, whether due to tardiness or other causes, shall be at the rate of one-tenth (1/10th) of an hour's pay for each tenth of an hour or fraction thereof lost from work. Section 9 - GROUP LEADERS 13.91 The Company no longer has Group Leaders, reference Article 8, 8.61. Section 10 - PAY RATES - PROMOTIONS AND DEMOTIONS 13.101 An employee promoted to a classification which he has not previously held, shall receive the minimum rate of pay for the new classification or a ten cent ($.10) per hour increase, whichever is greater. An employee promoted to a classification which he previously held shall be given the same in-grade rate which he held when last previously in that classification, or his then current rate, whichever is the higher. 13.102 An employee downgraded to a lower classification shall receive his current rate if it is within the rate range of the lower classification. An employee being downgraded, and his current rate exceeds the maximum of the labor grade to which he is being downgraded, the employee shall receive the maximum of the labor grade. Section 11 - REST PERIODS 13.111 Each employee shall be given a ten (10) minute rest period during each half of the standard first and second shift at such times as are designated by the Company. There shall be one ten (10) minute rest period on the third shift. ARTICLE 14 PAY PERIODS AND PAY DAYS Section 1 - PAY CHECKS 14.11 Pay checks to employees shall be issued within eight (8) days after the end of the pay period and shall represent the earnings of the employee from Monday through Sunday of such pay period. No hourly employees will distribute pay checks. Section 2 - PAY DAYS 14.21 Pay day will be customarily on Thursday for night shift employees and Friday for day shift employees except that, where operating conditions warrant, the Company may pay on a different day and will notify the Union accordingly. Employees may receive their pay checks, if available, by noon Wednesday if they are going to be absent from work on Thursday and Friday, for reasons of Union business, lack of work, vacations, bereavement, leave of absence, layoffs, or jury duty. ARTICLE 15 HOLIDAYS Section 1 - HOLIDAYS 15.11 The following holidays are recognized as legal holidays during the term of this Agreement. In addition to the five (5) holidays common to each calendar year, (Memorial Day, Independence Day, Labor Day, Thanksgiving Day and the day following Thanksgiving), there will be a Christmas through New Years Plant shutdown, with the following days observed: FIRST YEAR: DECEMBER 24, 25, 26, 27, 30, 31, 1996 AND JANUARY 1, 1997 SECOND YEAR: DECEMBER 24, 25, 26, 29, 30, 31, 1997 AND JANUARY 1, 2, 1998 THIRD YEAR: DECEMBER 24, 25, 28, 29, 30, 31, 1998 AND JANUARY 1, 1999 FOURTH YEAR: DECEMBER 24, 27, 28, 29, 30, 31, 1999 (JANUARY 1 FALLS ON SATURDAY AND IS OBSERVED ON FRIDAY. FIFTH YEAR: DECEMBER 25, 26, 27, 28, 29, 2000 AND JANUARY 1, 2001. Section 2 - PAY FOR HOLIDAY NOT WORKED 15.21 An employee who does not work on one of the above holidays shall be paid eight (8) hours at his regular straight-time rate of pay. Section 3 - PAY FOR HOLIDAY WORKED 15.31 An employee who works on one of the above holidays shall receive, in addition to his holiday pay provided for in Section 2, double time (2) for all hours worked on the holiday. Section 4 - HOLIDAY WORK VOLUNTARY 15.41 Work by an employee on a holiday shall be voluntary except for an employee who may be required to work on essential plant maintenance or functions necessary for the protection of the plant and equipment. Section 5 - CONDITIONS FOR HOLIDAY PAY 15.51 To receive holiday pay as provided in Section 1, 2, or 3, an employee must work his regularly scheduled work shift the day preceding the holiday. An employee absent because of jury duty, bereavement, temporary layoff, previously scheduled vacation, Union business, or a bona fide illness (either paid or unpaid) on the day before the holiday will receive holiday pay; however, if the absence is due to a bona fide illness, the employee must submit to the Human Resources Department a written report as to his illness from a licensed medical physician, Doctor of Osteopathic or Doctor of Chiropractic. 15.52 An employee will not be paid holiday pay when the holiday occurs during an employee's personal leave, paid sick leave, or medical leave. 15.53 An employee who is laid off within seven (7) calendar days prior to a holiday shall receive his or her Holiday pay. Employees working at least ten (10) working days in either November or December shall receive Holiday pay for the calendar month in which qualifying work is performed. This includes pay for New Year's Day as a part of the December holiday pay. Section 6 - DAYS FOR RECOGNIZING HOLIDAYS 15.61 Should a recognized holiday fall upon a Sunday, the Monday following, rather than the Sunday, shall be observed as the holiday. 15.62 Should a recognized holiday fall upon a Saturday, the Friday preceding, rather than the Saturday, shall be observed as the holiday. Section 7 - HOLIDAY DURING VACATION PERIODS 15.71 Should a recognized Holiday fall during an employee's vacation, the Friday preceding or the Monday after his or her vacation shall be added to his or her vacation. ARTICLE 16 VACATIONS Section 1 - DEFINITIONS 16.11 CONTINUOUS SERVICE: Continuous service shall include those periods of service since his most recent date of hire for which an employee is paid by the Company for performing work for the Company. Continuous service shall also include leaves of absences of sixty (60) days or less in the eligibility year. 16.12 ELIGIBILITY DATE: All employees shall have a January 1 eligibility date. Employees with less than one year's continuous service shall accrue a vacation allowance as of January 1, but shall not earn, or take such vacation allowance until they have completed twelve (12) months continuous service with the Company. Recalled employees who are returning to work will be allowed to use vacation accrued in the year in which they return as of January 1 of the following year. 16.13 FULL-TIME EMPLOYEE: An employee regularly scheduled to work a normal work week. 16.14 VACATION PAY: An employee's regular hourly rate of pay he is earning at the time vacation is taken. Section 2 - VACATION ALLOWANCE 16.21 All employees completing a full year of continuous service will be entitled to an annual vacation allowance with pay at the appropriate rate in accordance with the following: YEARS OF UNINTERRUPTED SERVICE VACATION ALLOWANCE 1 to 5 years ............................... 80 hours 6 years .................................... 88 hours 7 years .................................... 96 hours 8 years .................................... 104 hours 9 years .................................... 112 hours 10 years ................................... 120 hours 11 years ................................... 128 hours 12 years ................................... 136 hours 13 years ................................... 144 hours 14 years ................................... 152 hours 15 years ................................... 160 hours 16 years ................................... 168 hours 17 years ................................... 176 hours 18 years ................................... 184 hours 19 years ................................... 192 hours 20 years ................................... 200 hours Maximum of 25 days (5 weeks) Section 3 - PRORATED VACATION 16.31 Any full-time employee laid off indefinitely as a result of a reduction in force, retirement, entering the Armed Forces, voluntary terminations, or upon death of the employee, after accumulating one (1) or more years of continuous service, shall be paid prorated vacation allowance in accordance with Section 2 above based on length of service for each completed month's continuous service since his last eligibility date. Upon death of the employee any accrued vacation allowance in accordance with the above shall be paid to his estate, unless otherwise indicated by Employee. 16.32 Prorated vacation allowance will be determined on the basis of continuous service completed in the eligibility year in accordance with the following schedule: CONTINUOUS ANNUAL VACATION ALLOWANCE SERVICE ------------------------- (FULL MONTH*) 10 DAYS 15 DAYS 20 DAYS 25 DAYS - ------------- ------- ------- ------- ------- 0-2 1 Day 2 Days 3 Days 4 Days 3-4 3 Days 4 Days 6 Days 8 Days 5-6 5 Days 7 Days 9 Days 12 Days 7-8 7 Days 10 Days 13 Days 16 Days 9-10 8 Days 12 Days 16 Days 20 Days 11-12 10 Days 15 Days 20 Days 25 Days * For purposes of determining prorated sick and vacation pay, a full month constitutes continuous service from one date to the same date of the following month. Section 4 - SCHEDULING 16.41 Vacation shall not be accumulated but must be taken within the year of service after the eligibility date. 16.42 Vacation allowance for two (2) different calendar years shall not be scheduled consecutively. 16.43 A vacation shall be taken when it will least interfere with production. When scheduling vacations, preference will be given to the employees with the greatest seniority. 16.44 All vacations, except for ten (10) days must be scheduled prior to June 30th of each calendar year. Priority will be given to pre-scheduled vacations. An employee may schedule vacation of less than a full week. Employees may be granted one-half (1/2) day vacations in half day increments up to the equivalent of ten (10) full days vacations. Approved one (1) day or one-half (1/2) day vacations may be taken provided notice is given no later than lunch period the preceding day. If the day and/or half day requested is also a holiday eligibility day the request must be made five (5) days prior to the eligibility day. Only previously scheduled partial week vacations will be allowed to be taken on a qualifying day for holiday pay. 16.45 There shall be no pay in lieu of vacation. Section 5 - UNUSED VACATION 16.51 An employee who has unused vacation earned from the previous year, who terminates for any reason shall receive such unused vacation at the time of termination. ARTICLE 17 COST OF LIVING In addition to the base rate of pay of each employee and subject to the conditions and provisions set forth in this section, a cost-of-living allowance (COLA) will be paid to each employee based upon changes in the cost-of-living as follows: Section 1 - DETERMINATION, ADJUSTMENTS, OR READJUSTMENTS, AMOUNT, CONTINUANCE 17.11 The cost-of-living allowance, if any, will be determined in accordance with changes in the Consumers' Price Index for Urban Wage Earners and Clerical Workers (CPI-W), Revised Series (U.S. city average, all items, 1982-84 equals 100), published monthly by the Bureau of Labor Statistics, U.S. Department of labor (hereafter referred to as BLS Consumers' Price Index). 17.12 The cost-of-living allowance will be computed on the basis of one cent ($.01) for each four-tenths (0.4) point increase or decrease in the BLS Consumers' Price Index and will be calculated and made effective quarterly, as shown in the following table: EFFECTIVE BASED UPON INCREASE/DECREASE DATE OF: IN BLS CPI FOR QUARTER LISTED: - --------- ------------------------------ July 1, 1996 March, April, May, 1996 October 7, 1996 June, July, August, 1996 January 6, 1997 September, October, November, 1996 April 7, 1997 December, 1996, January, February, 1997 July 7, 1997 March, April, May, 1997 October 6, 1997 June, July, August, 1997 January 5, 1998 September, October, November, 1997 April 6, 1998 December, 1997, January, February, 1998 July 6, 1998 March, April, May, 1998 October 5, 1998 June, July, August, 1998 January 4, 1999 September, October, November, 1998 April 5, 1999 December, 1998, January, February, 1999 July 5, 1999 March, April, May, 1999 October 4, 1999 June, July, August, 1999 January 3, 2000 September, October, November, 1999 April 3, 2000 December, 1999, January, February, 2000 July 3, 2000 March, April, May, 2000 October 2, 2000 June, July, August, 2000 January 1, 2001 September, October, November, 2000 April 2, 2001 December, 2000, January, February, 2001 17.13 The amount of any cost-of-living allowance in effect at the time will be included in computing pay for overtime premium, vacation, holiday, call-in, jury duty, bereavement, sick leave and military duty. 17.14 In the event the Bureau of Labor Statistics does not issue the Consumers' Price Index on or before the effective dates referred to in the table above, any adjustments required will be made at the beginning of the first pay period after receipt of the index. 17.15 No adjustments, retroactive or otherwise, will be made due to any revision which may later be made in the published figures for the BLS Consumers' Price Index for any base month. 17.16 The Parties to this Agreement agree that this provision for a cost-of- living allowance is dependent upon the availability of the official monthly BLS Consumers' Price Index, as defined in 17.11 of this Agreement. The present Cost of Living Allowance of thirty five cents ($.35 per hour) will be folded into the base rate and added to the maximum of the labor grades in Appendix "A". Future cost-of-living adjustments will be added to the current cost-of-living float which is four cents ($.04) per hour payable from July 1, 1996. ARTICLE 18 SICK PAY Section 1 - DEFINITIONS 18.11 CONTINUOUS SERVICE: Continuous service shall be as defined in Article 16, Section 1. 18.12 ELIGIBILITY DATE: All Employees shall have a January 1 eligibility date. 18.13 EARNED SICK PAY: All sick pay to which an employee became entitled on the employee's last sick pay eligibility date. 18.14 SICK PAY RATE: Sick pay rate is defined as an amount equal to the employee's regular hourly pay rate in effect at the time the sick pay is taken until exhausted or the regular hourly pay rate in effect when the employee is paid for his unused sick pay at the end of the anniversary year. Employee(s) will not have the option to take "sick day - no pay". 18.15 ACCRUED SICK PAY: All sick pay which the employee has accrued since his last sick pay eligibility date. Section 2 - SICK PAY ALLOWANCE 18.21 All employees completing a full year of continuous service will earn sick pay allowance at the appropriate rate in accordance with the following schedule: YEARS UNINTERRUPTED SERVICE SICK PAY ALLOWANCE - --------------------------- ------------------ Less than Ten (10) 5 Days Ten (10) or more 7 1/2 Days Section 3 - PAYMENT OF SICK PAY 18.31 Sick pay will be paid only after it has been earned and the requirements in the appropriate categories below have been satisfied: (a) A full-time employee who is laid off indefinitely, retires, terminates voluntarily or enters the Armed Forces after accumulating one (1) or more years of continuous service shall be paid prorated (accrued) sick pay allowance in accordance with the following schedule: CONTINUOUS SERVICE ANNUAL SICK PAY ALLOWANCE - ------------------ ------------------------- (MONTHS) 5 DAYS 7.5 DAYS -------- ------ -------- 0-2 0 2 3-4 1 3 5-6 2 4 7-8 3 5 9-10 4 6 11-12 5 7.5 (b) In the event the employee is absent from work in excess of sixty (60) days in an eligibility year, he will be credited with prorated sick pay in accordance with the schedule in (a) above. (c) In the event an employee is placed on indefinite general layoff (layoff due to reduction in force), is discharged, voluntarily terminates, retires or enters the Armed Forces, he shall be paid all earned but unused sick pay. Upon death of an employee all earned and accrued sick pay shall be paid to his estate, unless otherwise indicated by the employee. (d) An employee must notify the Company of his illness or injury within four (4) hours from the time the employee is scheduled to report for work. (e) Sick pay must be taken in one (1) hour increments. Paid sick days will not be counted under the attendance control policy. Any employee with less than twelve (12) months seniority who has not lost his seniority in accordance with Article 8, Section 8, who returns to work from layoff shall be credited time for paid sick pay on the day of reinstatement. Section 4 - PAYMENT OF UNUSED SICK PAY 18.41 Payment for all unused earned sick pay will be made in January of each year or employees may carry earned unused sick pay from year to year. Sick pay carry-over will be capped at a maximum of thirty (30) days (240 hours). 18.42 All sick leave may be used in one (1) hour increments. ARTICLE 19 BEREAVEMENT PAY Section 1 - BEREAVEMENT PAY 19.11 In the event of a death in an employee's immediate family, the employee will be excused for a maximum of three consecutive work days, provided the funeral is held within the days involved and the employee must attend the funeral. Delayed funerals are handled under the same guidelines. The immediate family of an employee includes only spouse, parent, stepparent, parent of current spouse, stepparent of current spouse, child, stepchild, brother, stepbrother, half brother, brother-in-law, sister, stepsister, half sister, sister-in-law, grandchild, stepgrandchild, grandparents and grandparents of current spouse. The employee will make the request for bereavement, in writing, if present, through their supervisor. The notification will include the identification of the deceased. When the employee returns they will provide the company with evidence that he/she did attend the funeral (this being a funeral program or a statement from the funeral home) to obtain pay for such absence. They will take this to the Human Resources Department and fill out a "Bereavement Pay Request" to be turned in to Payroll. Employees may obtain an unpaid leave of absence to cover death in the employee's family under the conditions of Article 11, 11.12. ARTICLE 20 GROUP INSURANCE PLAN Section 1 - GROUP INSURANCE PLAN 20.11 The Group Insurance Programs (including Dental) agreed upon during negotiations, will remain in force for the life of this Agreement for employees and their dependents. There shall be no changes in these programs that would result in a loss of benefits to the employee or his dependents. Reference is made to weekly Sickness and Accident Insurance, which is covered in the 'EMPLOYEE BENEFIT PROGRAM' under Section 8, pages 8-1 through 8-6. These programs will be summarized in a separate booklet and will be furnished to all employees, within ninety (90) days after the signing of this Agreement. ARTICLE 21 RETIREMENT PLAN Section 1 - RETIREMENT PLAN 21.11 Employees will be covered by an hourly employee Pension Plan (Gulfstream Aerospace Technologies Hourly Employees Pension Plan). The Pension Plan will continue for the full term of the Agreement. There shall be no bargaining or no amendments to the Plan during the term of the collective bargaining Agreement, except by mutual agreement of the Company and the Union, or as required by Federal or State law. This Plan will be summarized in a separate booklet and will be furnished to all employees, within ninety (90) days after signing of this Agreement. Section 2 - 401K DEFERRED PAY PLAN 21.21 A 401K deferred pay plan for hourly employees will be set up and administered by Cher A. Bumps and Associates at no cost to the participant for custodial fees. An audit fee ($6.00) will be the employee's responsibility. Cost of the audit fee is equally divided between participants in the 401K plan. The Company will match thirty-seven and one-half percent (37 1/2%) of the first four percent (4%) of the employees' contribution on gross wages earned weekly. A $25.00 up front loan fee, capped at $75.00 is the employee's responsibility. ARTICLE 22 JURY DUTY Section 1 - PAY FOR JURY DUTY 22.11 When an employee is absent from work in order to serve as a juror or to report to the court in response to a jury duty summons, he shall be granted pay for those hours for which he is for such reason absent from work during his regular eight (8) hour day or regular five (5) day work week, less the fee or other compensation paid him with respect to such jury duty. Pay for such work time lost shall be computed at the employee's regular rate of pay at the time of such absence, excluding any overtime. In no case will payment be made for jury duty performed on the sixth (6th) or seventh (7th) day of an employee's regularly assigned work week or for hours in excess of the employee's regular eight (8) hour work day. 22.12 If an employee assigned to the second shift or third shift is absent from his work on such shift on the calendar day he serves as juror, such absence shall be deemed to be an absence from work in order to serve as a juror. Section 2 - NOTICE TO REPORT 22.21 An employee must promptly notify his Supervisor/Foreman of any notice to report for jury examination and/or duty. 22.22 To receive pay for work time lost, the employee must provide the Company with a statement signed by an official of the court certifying such employee reported for jury duty or that the employee served as a juror or reported to the Jury Commissioner for that purpose. The statement must show the time and dates of attendance and the compensation paid him exclusive of transportation allowance. 22.23 The Company will pay an employee the difference of eight (8) hours straight time pay and the amount received from a court whenever summoned as a witness for a legal hearing. The Company will not make up the difference in pay for an employee who must appear as a plaintiff, defendant or co-defendant in a legal hearing. For an employee to qualify for the above payment, they must submit a duly executed court summons and an official statement of fees received from the court for appearing. 22.24 Failure of any employee to notify the Human Resources Department promptly under Paragraph 22.21, 22.22 and 22.23 shall result in no obligation of the Company to make payment for any work time lost to the employee. ARTICLE 23 SCOPE OF AGREEMENT Section 1 - SCOPE 23.11 It is agreed that this contract reflects the entire Agreement between the parties hereto. There shall be no amendment or modifications of this Agreement unless mutually agreed upon, reduced to writing, and implemented by the parties. ARTICLE 24 SPECIFIC PERFORMANCE Section 1 - AGREEMENT PERFORMANCE 24.11 Either party hereto shall be entitled to require specific performance of the provisions of this Agreement. The parties acknowledge that during the negotiations which resulted in this Agreement each party had the unrestricted right and opportunity to present demands and proposals with respect to any matter subject to collective bargaining. Therefore, the Company and the Union freely agree that during the period of this Agreement neither party shall be obligated to bargain with respect to any matter or subject not covered or referred to in this Agreement, nor with respect to any matter or subject referred to in this Agreement except in the manner specified herein. It is agreed that the parties shall discuss situations of mutual interest that arise during the duration of this Agreement. ARTICLE 25 DURATION Section 1 - TERM OF AGREEMENT 25.11 This Agreement shall be effective APRIL 27, 1996, and shall remain in full force and effect to and including APRIL 27, 2001, and thereafter from year to year until modified, amended or terminated. Section 2 - MODIFICATIONS AND AMENDMENTS 25.21 Not more than seventy-five (75) days nor less than sixty (60) days prior to the expiration date of the Agreement or the expiration of any subsequent yearly period, either party may give to the other party written notice of desire for modifications or amendments. Such notice shall specify the modifications or amendments desired. Section 3 - NEGOTIATIONS 25.31 Negotiations shall commence within fifteen (15) days after the giving of the modification or amendment notice. It is the intent of the parties to confine negotiations to the modifications or amendments specified in the notice. Section 4 - TERMINATION 25.41 In the event of a failure to reach agreement upon the proposed modifications or amendments by the anniversary date of the Agreement, either party at any time thereafter may terminate the Agreement by giving written notice to the other specifying the date of termination five (5) days in advance of such date. ARTICLE 26 SOLE AGREEMENT Section 1 - WAIVER AND PAST PRACTICES 26.11 It is specifically understood and agreed by the parties hereto that prior to the execution of this Agreement there may have been certain benefits provided employees in the bargaining unit by the Company which are not expressly specified or provided for in this Agreement. The parties hereto expressly agree that the Company may, in its discretion, discontinue any of such benefits, at any time, which are not expressly provided for in this Agreement, any alleged past custom or practice to the contrary notwithstanding. ARTICLE 27 SEPARABILITY Section 1 - SEPARABILITY 27.11 Should any part of this Agreement or any provision contained therein be rendered or declared invalid by reason of any existing or subsequently enacted legislation or by a decree of a court of competent jurisdiction, such invalidation of such part or portion of this Agreement shall not invalidate remaining portions hereof and they shall remain in full force and effect. The Union and the Company shall, within fifteen (15) days, initiate renegotiation of the affected portion of this Agreement to conform to the aforementioned legislation or decree. ARTICLE 28 EQUAL OPPORTUNITY Section 1 - EQUAL OPPORTUNITY 28.11 The Company and the Union agree to promote the principles of equal employment opportunity without discrimination because of race, color, religion, sex, age, national origin, physical or mental handicap, or because the individual is a disabled or Vietnam-era Veteran in regard to hiring, tenure or other terms and conditions of employment subject to this Agreement. ARTICLE 29 COPIES OF AGREEMENT Section 1 - COPIES OF AGREEMENT 29.11 The Company will furnish each present and future employee a copy of the Agreement within ninety (90) days after signing of the Agreement. Time may be extended by mutual agreement. ARTICLE 30 UNION SECURITY Section 1 - CONDITIONS OF EMPLOYMENT 30.11 An employee in the bargaining unit on the effective date of this Agreement who is a member of the Union shall be required as a condition of continued employment to continue membership in the Union for the duration of this Agreement to the extent of tendering the membership dues uniformly required as a condition of retaining membership in the Union. 30.12 An employee in the bargaining unit who is not a member of the Union on the effective date of this Agreement shall be required, as a condition of continued employment, to become a member of the Union within forty (40) days following the effective date of this Agreement, and shall remain a member of the Union to the extent of tendering an initiation/reinstatement fee where required and the membership dues normally required as a condition of acquiring or retaining membership in the Union for the duration of this Agreement. 30.13 An employee entering the bargaining unit either by hire or by transfer after the effective date of this Agreement shall be required as a condition of continued employment to become a member of the Union to the extent of tendering an initiation/reinstatement fee where required and membership dues normally required as a condition of acquiring or retaining membership in the Union the duration of this Agreement within forty (40) calendar days following such entry into the bargaining unit. 30.14 Before any termination of employment pursuant to this Article becomes effective, the employee involved shall first be given notice in writing by the Union to pay the prescribed original initiation fee, reinstatement fee and/or required dues. If the employee fails to pay the original initiation fee, reinstatement fee and/or dues, the Union shall then notify the Company of the delinquency in writing. The Company shall then notify the employee to pay the fee and/or dues and if such dues and/or fees are tendered within forty-eight (48) hours after the employee receives this notification from the Company, dismissal hereunder shall not be required. 30.15 In the event the Union refuses to accept into membership any employee who has applied and offered the required dues and fees, the Union will then forfeit its right to demand termination of said employee under the terms of this Article. 30.16 If an employee who is a member of the Union leaves the bargaining unit during the term of this Agreement (e.g. layoff, quit, formal leave or transfer out) and returns to work on a job in the bargaining unit during the term of this Agreement on or before the start of the last payroll period ending in any month and has not had Union membership dues for that month deducted from any pay received in that month, Union membership dues for the month shall be deducted from the pay received by the employee in the next succeeding calendar month, provided the employee has an accurately effective Authorization for Checkoff of Dues form on file and the employee has sufficient remaining net earnings to cover such Union membership dues after making the regular Union membership dues deduction. 30.17 Monthly Union dues will be deducted from vacation checks, when an employee is on vacation during the period dues are deducted. Section 2 - DUES, INITIATION/REINSTATEMENT FEES DEDUCTION 30.21 The Company shall deduct Union membership dues, original initiation fees and reinstatement fees as applicable from the wages of employees upon the following conditions and at the times and in the manner hereinafter provided. WRITTEN AUTHORIZATION OF EMPLOYEE REQUIRED: Deductions will only be made from the wages of an employee who has executed and delivered to the Company upon entering the bargaining unit a written authorization on the following form: AUTHORIZATION FOR CHECK-OFF OF DUES To: Gulfstream Aerospace Technologies Date: __________ Hereinafter referred to as the "Company" I hereby assign to Local Union No. 2130, International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW), from any wages earned or to be earned by me or a regular supplemental unemployment benefit payable under its supplemental unemployment benefit plan as your employee (in my present or in any future employment by you), such sums as the Financial Officer of said Local Union No. 2130 may certify as due and owing from me as membership dues, including an initiation or reinstatement fee and monthly dues in such sum as may be established from time to time as union dues in accordance with the Constitution of the International Union, UAW. I authorize and direct you to deduct such amounts from my pay and to remit same to the Union at such times and in such manner as may be agreed upon between you and the Union at any time while this authorization is in effect. This assignment, authorization and direction shall be irrevocable for the period of one (1) year from the date of delivery hereof to you, or until the termination of the collective agreement between the Company and the Union which is in force at the time of delivery of this authorization, whichever occurs sooner; and I agree and direct that this assignment, authorization and direction shall be automatically renewed, and shall be irrevocable for successive periods of one (1) year each or for the period of each succeeding applicable collective agreement between the Company and the Union, whichever shall be shorter, unless written notice is given by me to the Company and the Union, not more than twenty (20) days and not less than ten (10) days prior to the expiration of each period of one (1) year, or of each applicable collective agreement between the Company and the Union whichever occurs sooner. This authorization is made pursuant to the provisions of Section 302 (c) of the Labor Management Relations Act of 1947 and otherwise. _____________________________________ ________________________________ (Signature of Employee here) (Address of Employee) _____________________________________ ________________________________ (Type or print name of Employee here) (City) (State) (Zip) _______________ _______________ ________________ _______________________ (Date of Sign.) (Emp Clock No.) (Soc Sec No.) (Del Date to Employer) 30.22 WHEN DEDUCTION IS TAKEN: Each current month's deduction as authorized will be deducted from the paycheck that an employee receives during the first payroll period in any month provided: (1) An authorization card has been received by payroll not later than noon on Monday of the first payroll period ending in the month as provided above, and has not been revoked. (2) The Union has certified in writing to the Company the amount of such dues. Certification and any changes thereto must be received no later than the tenth (10) day of any month to be effective the following month. Once the Union has certified the amount, such certification will remain in effect until changed by the Union. 30.23 DEDUCTION OF INITIATION OR REINSTATEMENT FEE: An original initiation fee or reinstatement fee will be deducted, as applicable, when the first month's membership dues are deducted from the wages of an employee, provided the Union has notified the Company of the amount of such initiation fee or reinstatement fee not later than the tenth (10th) day of the month to be effective the following months, and provided: (1) The Union has identified in writing to the Company those employees subject to an original initiation/reinstatement fee deduction no later than noon Monday of the first payroll period ending in any month. (A) In the event the amount of the original initiation fee should differ from the reinstatement fee, the Union will identify the appropriate deduction regarding each employee. Otherwise, the deductions will be treated as the same and will be reported as such. (B) The Company, without notification from the Union, will deduct the required fee from those employees hired into the bargaining unit who have had no previous Company service. 30.24 PICKUP DEDUCTION: In the event an employee's wages earned during the first payroll period ending in any month for which dues/fee are owed are insufficient to cover the deductions provided in 30.22 and 30.23 above, or the authorization card is received after the time specified in 30.22 (1) above, but before the start of the third payroll period of the month, the Company will deduct the amounts owing therefore from wages earned during one of the subsequent payroll periods ending in the same month (unless advised in writing by the Union not to make such deduction). Thereafter, the Company will make no further attempt to make such deductions. (1) The Union may identify in writing to the Company employees subject to an initiation/reinstatement fee no later than thirty (30) calendar days from the affected employee's last date or rehire or transfer into the bargaining unit. Once identified, the deduction will be subject to the provisions of paragraphs 30.22, 30.23 and 30.24. 30.25 REMITTANCE AND STATEMENT TO THE UNION: The Company shall furnish on or before the twentieth (20th) calendar day of each month, the Union dues, reinstatement/initiation fee, remittance and statement data for the current month. Pickup remittance and statement data shall be submitted on or about the first (1st) of each month for the preceding month. Remittance and statement data will be submitted to the Financial Secretary of the Local Union. 30.26 REMITTANCE AND STATEMENTS: The Company, in accordance with Article 30, Section 30.25 shall furnish the following information to the Financial Secretary of the Union: (1) The total amount of monthly dues deducted. (2) The total amount of original initiation fees deducted. (3) The total amount of reinstatement fees deducted. (4) The total amount of pickup deductions. (5) The names, employee numbers, and amounts from whose wages such deductions have been made. (6) The names of employees who were laid off, terminated or transferred out of the bargaining unit, and (7) The Company shall, at the same time, remit to the Financial Secretary of the Union its check for the amounts shown under items (1), (2), (3) and (4) above. Section 3 - NON-DISCRIMINATION 30.31 Neither the Union, its representatives or members, nor the Company or its representatives, will intimidate or coerce any employee or discriminate against any employee by reason of his membership or non-membership in any Union. Union membership or legitimate Union activity will not jeopardize an employee's standing with the Company or opportunity for advancement. Section 4 - NOTIFICATION 30.41 Both the Union and the Company shall have the right to notify employees of the provisions of this Article. At the time of hire, the Company will advise the new employee of the provisions of this Article, and will furnish a dues deduction authorization card and a copy of this Agreement. Section 5 - INDEMNIFICATION 30.51 The Union shall indemnify the Company and hold it harmless against any and all suits, claims, demands, and liabilities which may arise out of or by reason of any action taken or not taken by the Company for the purpose of complying with any of the provisions of this Article. Section 6 - NEW MEMBER ORIENTATION 30.61 The Company will allow the President and/or Chairperson a reasonable amount of time, paid by the Company, to talk to all new hires. This will be done at the plant and immediately after the Company has completed their interviews with the new employee. Section 7 - UAW V-CAP CHECK-OFF 30.71 1. CONTRIBUTIONS TO UAW V-CAP The Company agrees to deduct from the pay of each employee voluntary contributions to UAW V-CAP, provided that each such employee executes or has executed the following "Authorization for Assignment and Check-off of Contributions to UAW V-CAP" form; provided further, however, that the Company will continue to deduct the voluntary contributions to UAW V-CAP from the pay of each employee for whom it has on file an unrevoked "Authorization for Assignment and Check-off for Contributions to UAW V-CAP" form. Deductions shall be made only in accordance with the provisions of and in the amounts designated in said "Authorization for Assignment and Check-off of Contributions to UAW V-CAP" form, together with the provisions of this Section of the Agreement. A properly executed copy of "Authorization for Assignment and Check-off of Contributions to UAW V-CAP" form for each employee for whom voluntary contributions to UAW V-CAP are to be deducted hereunder, shall be delivered to the Company before any such deductions are made, except as to employees whose authorization have heretofore been delivered. Deductions shall be made thereafter, only under the applicable "Authorization for Assignment and Check- off of Contributions to UAW V-CAP" forms which have been properly executed and are in effect. Deductions shall normally be made, pursuant to the forms received by the Company, from the employee's third paycheck received in each and every month that the authorization remains in effect. 2. TERMINATION OF COMPANY OBLIGATION The Company's obligation to make such deductions shall terminate automatically upon the termination of the employee who signs the authorization, upon written request by the employee, or upon his transfer to a job not covered by this agreement. 3. REMITTANCE TO THE UNION The Company agrees to remit the following on a monthly basis: a. The total amount of V-CAP contributions deducted. b. The names, social security number and amounts from whose wages such deductions have been made. c. The Company shall, at the same time, remit to the Union its check for the amount shown under item (a) above, care of the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, UAW, Local 2130. The check should be made payable to UAW V-CAP fund and submitted to the UAW Accounting Department, 8000 East Jefferson Avenue, Detroit, Michigan 48214. The Company will provide the local union with a print-out each month, showing how much each member has contributed that month. 4. INDEMNIFICATION OF COMPANY The Union agrees that it will indemnify and save the Company harmless from any and all liability, claim, responsibility, damage, or suit which may arise out of any action taken by the Company in accordance with the terms of this article or in reliance upon the authorization mentioned herein. 5. SOLICITATION, COERCION, DISCRIMINATION There shall be no intimidation, coercion, or discrimination in any way by the Company or its agents or by the Union, its representatives or employees against any employee because he does or does not contribute to UAW V-CAP. 6. AUTHORIZATION FOR DEDUCTION AUTHORIZATION FOR ASSIGNMENT AND CHECKOFF OF CONTRIBUTIONS OF UAW V-CAP GULFSTREAM AEROSPACE TECHNOLOGIES I hereby assign to UAW V-CAP, from any wages earned or to be earned by me as your employee, the sum of: (check one) _______$.25 ________$.50 __________$1.00 _________ $ Other each and every month. I hereby authorize and direct you to deduct such amounts from my pay and to remit same to UAW V-CAP at such times and in such manner as may be agreed upon between you and the Union at any time while this authorization is in effect. This authorization is voluntarily made. I understand that the signing of this authorization and the making of payments to UAW V-CAP are not conditions of membership in the Union or of employment with the Company, that I have the right to refuse to sign this authorization and contribute to UAW V-CAP without any reprisal, and that UAW V-CAP will use the money it receives to make political contributions and expenditures in connection with Federal, State and Local elections, and that monies contributed to UAW V-CAP constitute a voluntary contribution to a joint fund-raising effort by the UAW and AFL-CIO. Name (Print)____________________________________________________________________ Date: __________________________________________________________________________ Address: _______________________________________________________________________ Social Security No: ____________________________________________________________ City: _____________________________ State ___________ Zip _____________ Signature: _____________________________________________________________________ UAW V-CAP is an independent political committee created by the UAW. This committee does not ask for or accept authorization from any candidate and no candidate is responsible for its activities. Section 8 - H.E.L.P. 30.81. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AUTHORIZATION FOR ASSIGNMENT & CHECKOFF OF CONTRIBUTIONS FOR H.E.L.P. COMMUNITY SERVICES OF LOCAL 2130 PROGRAM GULFSTREAM AEROSPACE TECHNOLOGIES I hereby assign to HELP, Community Services of Local 2130, from my wages earned or to be earned by me as your employee, the sum of: (check one) ________$.25 _________ $.50 ___________$1.00 ___________$ Other each and every week. I hereby authorize and direct you to deduct such amounts from my pay and to remit same to HELP, Community Services at such times and in such manner as may be agreed upon between you and the Union at any time while this authorization is in effect. INDEMNIFICATION OF THE COMPANY: The Union agrees that it will indemnify and save the Company harmless from any and all liability, claim, responsibility, damage, or suit which may arise out of any action taken by the Company in accordance with the terms of this article or in reliance upon the authorization mentioned herein. SOLICITATION, COERCION, DISCRIMINATION: There shall be no intimidation, coercion, or discrimination in any way by the Company or its agents or by the Union, its representatives or employees against any employee because he does or does not contribute to HELP, Community Services. NOTE: THIS CONTRIBUTION IS NOT TAX DEDUCTIBLE. Name: (Print) __________________________________________________________________ Address: _______________________________________________________________________ City: ________________________________ State: _______ ZIP: _____________ Social Security Number: ________________________________________________________ Signature _____________________________________ Date: _______________________ Department _______________________________ Shift: ___________________________ ARTICLE 31 EMPLOYEE RELATIONS COMMITTEE Section 1 - EMPLOYEE RELATIONS COMMITTEE 31.11 The Company and the Union agree that they shall meet at a mutually agreeable time, preferably on a monthly basis but not less than on a quarterly basis for the purpose of discussing matters of general interest to both parties which affect the welfare of the Company and the employees, but which do not constitute grievances as such. Neither party shall be obligated to meet more than once any calendar month. A written agenda will be jointly developed by the President of the Union and the Director of Human Resources at least three (3) working days prior to the scheduled meeting time. The length of the meeting shall be as mutually agreed upon by the parties on Company time. The committee shall consist of: for the Union; the President, Committee Chairperson and the International Representative: for the Company; the President of Gulfstream Aerospace Technologies, Vice President of Operations and Director of Human Resources. ARTICLE 32 TEMPORARY TRANSFERS AND LOANS Section 1 - TEMPORARY TRANSFERS AND LOANS 32.11 Temporary transfers and loans outside the employee's assigned classification will be made by seniority, and for no more than thirty (30) working days. Volunteers will be considered first in line on seniority. Absent any volunteers, the least senior employee will be loaned. 32.12 In the event of production interruption in particular work areas, including but not limited to fixture unavailability, assembly parts shortages or machine maintenance and repair, temporary loans may be made of these employees normally assigned to the interrupted area without regard to seniority if they cannot be effectively utilized elsewhere in their assigned department. 32.13 When an employee is loaned into a classification other than their own, this time will be documented and placed in the employee's personnel file and a copy given to the employee. It is the employee's responsibility to ask for this documentation. This cumulative time will be counted toward the time required for qualifying for job postings (bids), bumps, and recalls. 32.14 Loans of thirty one (31) working days or more must be submitted to the Union. The intent of the thirty one (31) day restriction is to assure that a temporary loan does not conflict with the recall rights of any surplused employee. 32.15 If an employee is loaned into a lower classification, the employee will not lose any benefits. ARTICLE 33 TUITION REFUND Section 1 - TUITION REFUND 33.11 For the purpose of encouraging the self-development of its active employees the Tuition Refund Program provides for, upon advance approval, the reimbursement of one hundred percent (100%) of allowable fees and expenses (per Policy HR-215-OK) of tuition cost(s) for successful completion of courses taken at an accredited college or university or trade school. The tuition reimbursement will be made for up to two (2) courses or nine (9) credit hours per semester for study at a local accredited college, university or trade school. Further, for courses to be approved for tuition reimbursement, such courses must enable the employee to better perform his or her present job or prepare the employee for advancement within the Company or be incorporated in a degree plan to help prepare the employee for advancement within the Company. To receive tuition reimbursement an employee must: (1) Submit application to the Company for approval prior to enrollment. (2) Following successful completion of the course(s), with a grade of "C," its equivalent or higher, submit a copy of the grade transcript and a copy of the paid tuition receipt to the Company with request for reimbursement. The employee will receive the tuition reimbursement check within thirty (30) days of submission of the grade transcript and copy of the paid tuition receipt. ARTICLE 34 NEW OR CHANGED JOB Section 1 - NEW OR CHANGED JOB 34.11 The job description and basic rate (within the existing rate structures) shall be established by the Company for each new job or any job where there has been a substantial change in the duties or requirements of such job. 34.12 The Union shall be furnished the new job description and rate, prior to the implementation of any new or changed jobs. 34.13 The Company may place the new job or changed job description and rate in effect ten (10) working days after meeting the requirements of paragraph 34.12 above. 34.14 The most senior, qualified employee shall be given the opportunity for transfer or placement in the new job classification. All such new job descriptions shall be posted in accordance with Article 8, Section 10, paragraph 8.101. 34.15 The Union may refer a dispute, as to the appropriate rate for such job, directly to arbitration within fifteen (15) calendar days from the date such description and rate were placed in effect. 34.16 The arbitrator shall have the authority to determine the proper position of the new or amended classification within the existing agreed upon rate structure on the sole basis of the relationship the new or amended job bears to the other jobs in the existing rate structure. Any change in the established rate resulting from the negotiations shall be retroactive to the date the rate was placed in effect. ARTICLE 35 JOB DESCRIPTIONS Section 1 - JOINT STATEMENT OF POLICY FOR APPLICATION OF JOB DESCRIPTIONS The following basic principles govern the preparation and use of the job descriptions: 35.11 The title selected for a job classification is that which most clearly indicates the general nature and character of the work performed, and yet serves to set the classification apart from others described. 35.12 The occupational summary developed for each classification is a brief description of the classification as a whole, the purpose of which is to set it forth in separation from other classifications. 35.13 The job description describes typical and normal requirements. These requirements are characteristic of the job, illustrate a level of difficulty of work, and are not intended to list or describe all work operations, or tasks within the classification. These requirements may not fit all specific individual work assignments, as the description when written was stated so as to be broad enough to include all variations of work in the classification as it existed throughout the Company. 35.14 The work operations, duties and other distinguishing characteristics described in a job description are those which are performed under guidance or instruction which is considered usual and normal for work described. 35.15 The descriptions were prepared on the basis: (1) That as part of promotional procedure a worker occasionally performs some of the work of higher-rated jobs under close guidance and instruction in order to qualify for advancement. (2) That a worker performs the work of a lower-rated job is required. (3) That the normal duties of any worker may include assistance to other workers on work operations. (4) That normal job relationships between workers include giving guidance and instruction to each other. 35.16 The job description is written to define and illustrate the job standard to be established and as such shall be interpreted and applied in its entirety as a composite picture of the job requirements. This means that the occupational summary, work performed (typical materials, tools and equipment used - when applicable), and knowledge and ability required, all must be considered in arriving at the proper classifications. 35.17 In order to secure, or hold the classification, the employee must be assigned regularly to that work, which distinguishes the classification from other classifications. 35.18 An employee's classification shall be determined in the light of the highest requirements for knowledge, ability and skill necessary to perform his regularly assigned duties. In making this determination, duties that are performed infrequently shall not be considered or made the basis of granting the higher classification. This would not be applicable, however, to intermittent duties of a higher level to which the employee is specifically assigned in an area where the prevailing day-to-day routine may fall in lower level requirements. If the employee on such an assignment is expected to possess and apply the knowledge, skill and ability necessary for performance of the higher level work, he is entitled to the higher classification even though the majority of his work time may be spent on the lower level work. In such cases, the employee is assigned to bring to the job the higher skills which he is expected to use as requirements demand. 35.19 The job descriptions, herein referred to, are of a composite nature and do not thereby require an individual employee to perform all of the work therein mentioned, except where the job description indicates otherwise. 35.20 The job descriptions are not intended for and should not be confused with operations sheets, work instructions, or other assignment sheets, etc. ARTICLE 36 SUB-CONTRACTING Section 1 - SUB-CONTRACTING 36.11 During the term of this Agreement and in line with the Company's right to subcontract, the Company agrees that it shall not displace or reduce the work force where the work can be performed in the plant with the existing work force and facilities or equipment. Job shoppers or contract labor can be utilized by the Company in Labor Grades 1, 2, or 3, in the tooling department only, and, in any event, only when attempts to hire qualified personnel to fill those jobs have been unsuccessful. It is the Company's intent to establish a training program, in conjunction with the area Vo-Tech Schools to develop in-house personnel to qualify for the job openings. The Company will meet with the Committee Chairperson when short term peak work load schedules require the utilization of job shoppers or contract labor to support the customer's needs. The Company will provide the Committee Chairperson with the following information; number of job shoppers/contract labor personnel required, length of time they will be utilized, jobs to which they will be assigned and the customer's schedule needs causing the requirements. No job shoppers or contract labor will be used if there are employees on layoff, recall, downgrade or loan who are qualified to perform the work. All jobs must be posted before any job shoppers or contract labor are allowed in the plant. The ServiCenter will have the right to continue to sub-contract work which it has not performed in the past or for which it does not have the capability to perform. The Company recognizes the bargaining unit's concern regarding utilization of sub-contract companies and personnel for upholstery and interior work in the ServiCenter and the future implications of this action as it relates to this bargaining unit work. To establish the Company's position for future work, we commit as follows: (1) Should Gulfstream Aerospace Technologies enter the production phase of an aircraft program, or, (2) Should Gulfstream Aerospace Technologies be assigned, under a joint venture program, the portion of the program involving upholstery work or, (3) Should Gulfstream Aerospace Technologies accept sub-contract work involving upholstery and interior work, or, (4) Should the ServiCenter interior and upholstery work increase to the level that bargaining unit employees could be utilized on a full time basis (the term "full time basis" is defined as upholstery/interior work tasks for refurbishing airplanes which require 40 hours or more per week during any continuous six (6) week period on work contracted by G.A.T.) Then, the Company commits this work will be done within the bargaining unit classification presently identified in the Collective Bargaining Agreement. ARTICLE 37 HARDSHIPS (SHIFTS) Section 1 - HARDSHIPS (SHIFTS) 37.11 Hardships cases will be looked at on an individual basis. Hardships may be granted by mutual agreement between the Chairperson and Industrial Relations; however, no hardship case will interfere or prevent any employee from exercising their seniority rights. ARTICLE 38 DISCIPLINE NOTICES Section 1 - DISCIPLINE NOTICES 38.11 All discipline notices will be considered removed from employee's personnel file twelve (12) months from date of issue. If after six (6) months on a verbal warning, if no other violations occur for the same offense, then the verbal warning will be considered removed from the employee's file, excluding Attendance Control Policy. ARTICLE 39 SHIFT TRANSFERS Section 1 - SHIFT TRANSFERS 39.11 An employee may request a shift transfer and shall, upon written request, be transferred within his classification within ten (10) working days to the shift desired; provided, however, all the following are met: (A) The employee has been on the shift for a period of at least six (6) consecutive months, unless moved involuntarily, and (B) There is a less senior employee in the same job classification on the shift requested. Probationary employees are exempt from displacement on any shift. There will be no shift rotation. When the Company populates an unpopulated shift it will be done by seniority. If the Company cannot get enough seniority employees, the least senior employee will have to go. Exceptions may be required for special skills where allocation of those skills over all shifts are necessary, but in no case will the seniority employee be assigned for more than ninety (90) calendar days. When the Company is doing away with a shift, employees will use their seniority to go to a shift of their choice. The Company must notify the Committee Chairperson at least ten (10) working days prior to the termination and/or establishment of such shift. APPENDIX "A" LABOR GRADES AND RATE RANGES
6/10/96 1/6/97 1/5/98 1/4/99 1/3/2000 1/1/2001 ------- ------ ------ ------ -------- -------- GRADE MIN. MAX. MIN. MAX. MIN. MAX. MIN. MAX. MIN. MAX. MIN. MAX. - ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 1. 11.16 16.24 11.49 16.73 11.83 17.23 12.18 17.75 12.55 18.28 12.93 18.83 2. 10.96 15.90 11.29 16.38 11.63 16.87 11.98 17.38 12.34 17.90 12.71 18.44 3. 10.83 15.59 11.15 16.06 11.48 16.54 11.82 17.04 12.17 17.55 12.54 18.08 4. 10.62 15.29 10.94 15.75 11.27 16.22 11.61 16.71 11.96 17.21 12.32 17.73 5. 10.42 14.91 10.73 15.36 11.05 15.82 11.38 16.29 11.72 16.78 12.07 17.28 6. 10.21 14.57 10.52 15.01 10.84 15.46 11.17 15.92 11.51 16.40 11.86 16.89 7. 9.97 14.23 10.27 14.66 10.58 15.10 10.90 15.55 11.23 16.02 11.57 16.50 8. 9.77 13.87 10.06 14.29 10.36 14.72 10.67 15.16 10.99 15.61 11.32 16.08 9. 8.44 13.50 8.69 13.91 8.95 14.33 9.22 14.76 9.50 15.20 9.79 15.66
APPENDIX "B" ATTENDANCE CONTROL SUBJECT: ATTENDANCE - HOURLY PAYROLL EMPLOYEES I. Purpose The Company staffs each department according to the effort it takes to accomplish the objectives and goals assigned to the department. Excessive tardiness and poor attendance disrupt work flow and scheduled customer shipments. This policy is designed to increase attendance and punctuality, establish a consistent and responsive standard of acceptable attendance, and provide guidelines to help supervisors/foreman determine when counseling, corrective action and discipline is appropriate. II. Definitions Absenteeism: The failure of employees to report to work when they are scheduled. Tardiness: The failure of employees to report to work within one hour after their scheduled start time. Early Out: Employees clocking out within one hour prior to their scheduled stop time. III. Policy Employees are expected to report to work punctually as scheduled and be at the proper work station ready to work at the assigned starting time. Management will closely control all absences and supervisors/foreman will make employees aware of their work schedules and the importance of reporting to work on time, as scheduled. Supervisor/foreman should act on potential absence problems as early as possible. When appropriate, the supervisor/foreman should counsel the employee on the importance of good attendance and warn that excessive tardiness or absences will lead to corrective action, up to and including termination. During the first ninety (90) days of employment, an employee with a below requirements attendance record will become subject to immediate disciplinary action including termination without formal verbal and written warnings. Regular employees will be subject to the progressive corrective action standard. The following causes for absence are not applicable when applying the corrective action standard: 1. Occupational Illness/Injury 2. Bereavement 3. Approved Leave of Absence 4. Jury Duty 5. Vacation 6. Holidays 7. Paid Sick Days/Hours 8. Union Business 9. Company Declared Lack-of-Work Days/Plant Closings. All other absences, tardies and early departures will be recorded on the employee's attendance record. The following standards are provided as corrective action standards for absences excluding tardies and/or early departures. When cumulative hours for absence equal the hours shown in the standards below, appropriate corrective action will be taken by the responsible Supervisor/Foreman. CORRECTIVE ACTION STANDARD UNEXCUSED HOURS (ABSENT NO PAY) CORRECTIVE ACTION 16 Verbal Counseling & Warning 24 Written Warning 32 Final Written Warning 40 Termination The following standards are provided as corrective action standards for tardies and/or early departures. When cumulative incidents of tardy or early departure equal the number shown in the standards below, appropriate corrective action will be taken by the responsible Supervisor/Foreman. CORRECTIVE ACTION STANDARD UNEXCUSED TARDIES/EARLY DEPARTURES CORRECTIVE ACTION 8 Verbal Counseling & Warning 10 Written Warning 12 Final Written Warning 14 Termination IV. For disciplinary purposes, the period to be considered is the past 12 months from current date of incident. Written disciplinary action should be taken when the standards are exceeded and there are not acceptable, justifiable or unusual circumstances. Acceptable, justifiable, or unusual circumstances will be reviewed by the Director of Human Resources and designated Union official with right of further appeal to the Vice President of Administration. V. PRORATE SCHEDULE FOR REINSTATEMENTS AND NEW HIRES In order to provide sick leave days during the period of time from the date of reinstatement or hire until December 31 of the year the reinstatement or hire occurs the following guidelines are provided. 1. Reinstatements An employee who is reinstated to the payroll and who at the time they were surplussed was paid for accrued sick leave will receive a credit for the greater of the accrued sick leave for which they were paid or the sick leave that would be accrued per the prorated schedule for the remaining calendar months of the year based on the employee's years of service. Time taken against the credited allowed day will not count against the employee for purposes of the absentee control policy. The time off will be without pay and there will be no carryover or pay for unused hours at the end of the calendar year. Beginning on January 2nd of the year following reinstatement, the standard sick leave policy will apply. 2. New Hires No sick leave allowance will be provided to a new hire until the ninety (90) day probationary period is completed. Thereafter, the number of days allowed will be in accordance with the following table: COMPLETED MONTHS OF SERVICE SICK PAY ALLOWANCE 90 Day Probationary Period 1.0 Day 4 Months 1.5 Days 5 Months 2.0 Days 6 Months 2.5 Days 7 Months 3.0 Days 8 Months 3.5 Days 9 Months 4.0 Days 10 Months 4.5 Days 11 Months 5.0 Days 12 Months 5.0 Days Time off charged to the sick pay allowance will not count against the employee for purposes of the absentee control policy. The time off will be without pay and there will be no carryover or pay for the unused hours at the end of the calendar year. Beginning on January 2nd of the year following hire, the standard sick leave policy will apply. APPENDIX "C" POLICIES The attendance control policy has been added to the Agreement as Appendix "B". No changes will be made to any Company policy that affects Union covered employees that violates or is inconsistent with any provision of the Agreement. The only exceptions are laws and regulations which are mandatory on the Company. All new policies and/or policy changes that affect the Union covered employees will be provided to the Union for review prior to implementation. New or changed policies that affect Union covered employees may be challenged through the Grievance and Arbitration Procedures. APPENDIX "D" SERVICENTER NON-STANDARD WORK WEEK FOR LINE SERVICE TECHNICIAN In order to provide line service coverage 365 days a year and maintain a competitive position with regard to the ServiCenter's full based operation (FBO) the following non-standard work week is agreed to: NON-STANDARD WORK WEEK Four (4) days, Wednesday through Saturday; hours for Wednesday through Friday will be 6:00 a.m. to 4:30 p.m. Saturday's hours will be 12:00 noon to 10:30 p.m. A second shift differential of $.50 will be paid for work commencing from 12:00 noon to 10:30 p.m. on the regularly scheduled shift. Beginning January 2, 2001 an additional Ten Cents ($.10) an hour for work during such shift will be added. Four (4) days, Saturday through Tuesday, hours for Saturday through Tuesday will be 6:00 a.m. to 4:30 p.m. Ten (10) hours shall constitute the normal day's work to be performed within eleven (11) consecutive hours. Non-standard work week and work hours may be modified to accommodate business and customer requirements. Deviations from the standard shift hours may only be made by mutual agreement between the Union and the Company. PREMIUM PAY PROVISIONS Hours worked in excess of ten (10) straight-time hours in any one day shall be at one and one-half (1 1/2) times the employee's regular hourly rate. An employee shall be paid one and one-half (1 l/2) times the employee's regular hourly rate of pay for all hours worked on the first two scheduled days off, including call-in or report-to-work time. An employee shall be paid two (2) times the employee's regular hourly rate of pay for all hours worked on the third scheduled day off, including call-in or report-to-work time. PAY FOR HOLIDAY An employee who works on one of the recognized holidays shall receive, in addition to his holiday pay of eight (8) hours, double time (2) for all hours worked on the holiday. VACATION AND SICK LEAVE Vacation and sick leave hours will be earned in accordance with Article 16 and 18. Vacation may be taken in five (5) hour increments. If applicable, only remaining vacation hours less than five (5) hour may be taken in one (1) hour increments. Sick leave may be taken in one (1) hour increments. CALL IN PAY Any time an employee is "called in" to perform line service functions either before or after normal work hours, on a week end, or a company recognized holiday. The employee will be paid a minimum of 2.0 hours or actual hours worked, whichever is greater. The appropriate overtime rate of pay will be paid for all hours. When a "call in" a minimum 2.0 hours overlaps into a normal work shift, only hours up to the start of the shift will be paid at the overtime rate. Exception would be if the employee was not working that normal shift. OTHER All other provisions shall apply. Employees currently on the payroll being surplused and bumping to the Line Service Technician classification will not be effected by this modification to the Agreement. ACCEPTED AND AGREED TO AUGUST 9, 1996 International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) /s/ Loyd Cox ---------------------------------------------- Loyd Cox - International Representative /s/ Jim Wells ---------------------------------------------- Jim Wells - Director, Region 5 LOCAL #2130 /s/ D.W. Schwenke ---------------------------------------------- D.W. Schwenke - Chairperson of Bargaining Unit /s/ T. W. Baker ---------------------------------------------- T. W. Baker - President, Local 2130 /s/ D. L. Williams ---------------------------------------------- D. L. Williams - Bargaining Committeeperson /s/ D. D. Phelps ---------------------------------------------- D. D. Phelps - Bargaining Committeeperson GULFSTREAM AEROSPACE CORPORATION /s/ Linda Hilderbrand ---------------------------------------------- Linda Hilderbrand - Manager, Human Resources /s/ Barbara J. Marrs ---------------------------------------------- B. J. Marrs - Director of Human Resources /s/ C. D. Martin ---------------------------------------------- C. D. Martin - Manager of Industrial Relations EX-10.23 4 EXHIBIT 10.23 LONG BEACH AIRPORT HANGAR/OFFICE LEASE This Lease is executed this 27th day of August, 1996, by and between LONG BEACH MILLION AIR, INC., hereinafter referred to as "Landlord", and GULFSTREAM AEROSPACE CORPORATION, hereinafter referred to as "Gulfstream". WHEREAS, Landlord, as successor to Air South, Inc., is a sublessee under a Lease Agreement dated April 1, 1992, with Petrowings Limited, a general partnership, hereinafter referred to as "Petrowings", and letter agreement dated August 1, 1996 (collectively hereinafter referred to as "the Sublease"). The sublease covers a certain parcel of land containing approximately 1.46 acres, located at Long Beach Municipal Airport, which real property is more particularly described on Exhibit "A" attached hereto; and WHEREAS, Petrowings is the lessee under a certain lease dated December 1, 1988, with the City of Long Beach as lessor (which lease is referred to herein as the "Master Lease"). The Master Lease covers a certain parcel of land containing approximately 3.56 acres, located at Long Beach Municipal Airport, which real property is more particularly described on Exhibit "B" attached hereto; and 1 WHEREAS, Landlord has furnished Gulfstream a true and correct copy of both the Master Lease and the Sublease, which are attached hereto and incorporated herein by reference as Exhibit "C"; and WHEREAS, Landlord desires to lease to Gulfstream, and Gulfstream desires to hire from Landlord, a two-bay hangar, adjacent offices, and an adjacent ramp area shown on Exhibit "D". NOW, THEREFORE, in consideration of the mutual covenants herein contained, and to be kept and performed by Landlord and Gulfstream, the parties do hereby as follows: 1. PREMISES. Landlord hereby leases to Gulfstream a two-bay hangar area, the adjoining office space and the ramp area located within Landlord's buildings, together with all on-site improvements and adjoining apron area and parking areas, which are hereinafter referred to as the "Premises", consisting of approximately 22,000 square feet of hangar space, 5,000 square feet of office space on the ground floor and top floor, and the adjoining apron giving access to taxiway J, together with the non-exclusive right to use the common areas as herein defined and taxiways and such rights to use the municipal airport facilities as are given to the Landlord under the 2 Sublease and Petrowings under the Master Lease, together with all easements, rights and appurtenances now or in the future existing which are necessary or convenient for Gulfstream's maximum use of the Premises, including rights of ingress and egress. 2. Gulfstream has inspected the Premises and acknowledges that it is in good condition and repair as of the date hereof. Gulfstream agrees to maintain the Premises in good condition and repair, and return possession to the Landlord on the termination of this lease in good condition and repair, normal wear and tear excepted. 3. TERM. The term of this Premises shall commence on September 1, 1996, and end March 31, 2000 (hereinafter referred to as "Initial Term"). 4. OPTION. Gulfstream will be entitled to one option to extend the Initial Term of the Lease for a period of five (5) years, beginning April 1, 2000, and ending March 31, 2005, at the same rental rates as provided herein, subject to any adjustments in accordance with Section 5 (G). Gulfstream must provide Landlord with written notice of Gulfstream's exercise of this Option no later than September 30, 1999. 3 5. RENT. (A) MONTHLY RENT. Gulfstream shall pay an annual rent of Four Hundred Twenty Thousand Dollars ($420,000.00), on a monthly basis at the rate of Thirty Five Thousand Dollars ($35,000.00) per month. All rentals due hereunder shall be paid monthly in advance and shall be due on the first (1st) day of each month, and if not received by the fifth (5th) day of each month shall be subject to a five percent (5%) late penalty. The rent for any partial month shall be prorated at a rate of one-thirtieth (1/30) of the monthly rent due, per day. (B) All rental payments due hereunder shall be made to the order of Landlord at 3333 East Spring Street, Long Beach, CA 90806 or at such other place as Landlord may from time to time designate in writing. (C) REIMBURSEMENT IMPROVEMENT. Landlord will pay Gulfstream, or its subcontractor at the direction of Gulfstream, Ten Thousand Dollars ($10,000.00) towards the installation of a sprinkler system at the Premises. (D) ADDITIONAL RENT. In addition to the rent set forth above, Gulfstream shall also pay Landlord sixty percent (60%) of the actual amounts 4 due for the costs set forth below and in accordance with the provisions set forth below (as if Gulfstream were acting as Tenant in these provisions): (1) Parking and common area maintenance pursuant to Section 10 of the Sublease. (2) Taxes pursuant to Section 8 of the Sublease. (3) Insurance as provided pursuant to Section 15 of the Sublease. Gulfstream shall promptly reimburse Landlord for Gulfstream's share of such charges after receipt of statements showing in detail such charges prepared by Landlord. Gulfstream may audit such charges billed if all or any part of the statement is disputed by Gulfstream. Landlord shall make available for inspection by Gulfstream and Gulfstream's representatives at its Long Beach offices all books, bills and statements relating to such charges. All such charges shall be reasonable and based upon competitive comparable charges in the Long Beach Airport area. (E) UTILITIES. Gulfstream shall be responsible for all water, gas, electricity, telephone services and trash pick-up resulting from Gulfstream's occupancy of the Premises, in accordance with Section 9 of the Sublease. 5 (F) AIRPORT GROSS FEE. In addition to the monthly rent, Gulfstream will pay to Landlord an Airport Gross Fee in an amount equal to three percent (3%) of the actual monthly rent for each month of this Lease Agreement. (G) In addition, the monthly rent shall be adjusted in accordance with Section 5.4 of the Sublease, as follows: Monthly rent shall be adjusted on the first day of each year of the term, (i.e., April l of each year - "Adjustment Date") in accordance with the increase, if any, in the Consumer Price Index during the preceding year ("Adjustment Period"). However, in no event shall the monthly rent be increased in an amount greater than twelve percent (12%) for any calendar year. The monthly rent, as so adjusted, shall be paid in accordance with Section 5 of this Lease until the next adjustment date. The monthly rent as so adjusted shall be determined as of and due on each adjustment date by multiplying the monthly rent then payable by a fraction, the denominator of which is the index figure for the month immediately preceding the commencement date and thereafter for the month immediately preceding each adjustment date as published in the U.S. Department of Labor, Bureau of Labor Statistics, Consumer 6 Price Index for all Urban Consumers Los Angels-Long Beach, Anaheim, Metropolitan Area all items (1967=100) ("The CPI-U") and the numerator of which is the CPI-U index figure for the month immediately preceding the month during which the particular adjustment date occurs. The index shall be the one reported in the U.S. Department of Labor's most comprehensive official index then in use and most nearly answering the foregoing description of the index to be used. If it is calculated from a base different from the base period 1967=100, figures used for calculating the adjustment shall first be converted under a formula supplied by the Bureau of Labor Statistics. If the described index shall no longer be published, another index generally recognized as authoritative shall be substituted by agreement between Landlord and Gulfstream. (H) Landlord shall deliver the Premises to Gulfstream free of all tenants, subtenants and their personal property. To the extent any such tenants remain after the beginning of this Lease, the monthly rent shall be adjusted to take into account the remaining subtenants. In addition, Landlord will assure that the Rockwell aircraft is removed from the Premises no later than September 1, 1996. Landlord will provide adequate levels of insurance insuring against any risks to 7 tenants, subtenants or their personal property which remain on the Premises after the beginning of this Lease. 6. USE OF PREMISES. The Premises may be used for fixed wing aircraft interior refurbishings of aircraft, completions and other service-related work for aircraft, or for any other use permitted under the Master Lease, or any other use required by Gulfstream and currently being conducted by Gulfstream on its adjacent leased property, without the consent of Landlord. 7. ASSIGNMENT AND SUBLETTING. Gulfstream shall have the right to assign, sublet or hypothecate this Premises only by first procuring the written consent of Landlord, which consent shall not be unreasonably withheld. Gulfstream shall be responsible to pay any attorney's fees incurred by Landlord in connection with reviewing the lease assignment agreement. Gulfstream may without the consent of Landlord assign its interest in this Lease through merger, consolidation, reorganization, or voluntary sale or transfer of substantially all of its assets, provided that such surviving entity assumes Gulfstream's obligations hereunder. 8 8. SECURITY DEPOSIT. Gulfstream will pay to Landlord a security deposit in the amount of ten percent (10%) of the annual rent, which equals Forty Two Thousand Dollars ($42,000.00). Upon termination of this Lease, provided Gulfstream is not in default hereunder, Landlord shall refund to Gulfstream any of the remaining balance of the security deposit, subject to final adjustments for payment of any rental required by this Lease. 9. IMPROVEMENTS TO PREMISES BY GULFSTREAM. Gulfstream may make certain improvements to the Premises and contemplate making certain improvements which may in effect be structural changes to the Premises. The parties recognize that Gulfstream is contemplating making the improvements shown on Exhibit "E", and Landlord Petrowings and the City of Long Beach hereby consent to Gulfstream making those improvements. Furthermore, it is understood that these improvements will be left with the Premises at the termination of the Lease, except as provided in Section 17. 10. RIGHT TO REMOVE EQUIPMENT OR PERSONAL PROPERTY. All personal property and all trade fixtures placed on the Premises at the direction or with the consent of Gulfstream, its employees, agents, licensees or invitees, 9 shall be the property of Gulfstream. Gulfstream may remove any such personal property or trade fixtures at the termination of the Lease; provided, however, should Gulfstream cause any damage to the Premises upon the removal of such personal property or trade fixtures, Gulfstream shall immediately repair the damage resulting from the removal of the personal property or trade fixtures. 11. EXCLUSION OF FUEL FARM. The Premises which are the subject of this Lease expressly excludes any real property or personal property which is or was a portion of the fuel farm, or which is or was used in connection with providing services for the fuel farm. Gulfstream shall not be entitled to any revenues that are generated as a result of sales from the fuel farm under the Sublease or Master Lease, and Gulfstream shall be expressly excluded from and held harmless against any liabilities that result from the sales of fuel on the fuel farm, whether those liabilities are environmental liabilities or otherwise. 12. INSURANCE. Except as provided in Section 5 (D), Gulfstream shall at all times during the term of this Lease keep in full force and effect comprehensive general legal liability insurance and hangarkeepers insurance and property insurance for the 10 facility at levels and through insurers that Gulfstream is currently using on its existing or future insurance policies. 13. MASTER LEASE AND SUBLEASE PROVISOS. It is expressly understood that only those provisions in the Master Lease and Sublease specifically referred to herein shall apply to this Lease Agreement. It is recognized that the following provisions of the Master Lease apply: Sections 11, 12, 14, 21, 22, 23, 25, 32, 33, 35, and 37. Should there be any inconsistency between the terms of this Lease Agreement and either the Master Lease or the Sublease, the terms of this Lease Agreement shall control. 14. SIGNS AND ADVERTISING. Gulfstream shall be entitled to locate identification signs for Gulfstream at the hangar area or the office area of the Premises, on either the interior or exterior areas of the Premises in accordance with the plans set forth on Exhibit "F". Gulfstream shall be solely responsible for all costs in maintaining the signs, and at Landlord's election, removing the signs at the termination of the Lease. 11 15. COVENANT OF QUIET ENJOYMENT. Landlord represents that it has full right and authority to lease the Premises, and that Gulfstream shall peacefully and quietly hold and enjoy the Premises for the full term hereof, provided that Gulfstream does not default in the performance of any terms hereof. Furthermore, Petrowings and the City of Long Beach also covenant that Gulfstream may peacefully and quietly hold and enjoy the Premises, provided that Gulfstream has paid rent in accordance with the provisions of this Lease. 16. NOTIFICATION CLAUSE. Notwithstanding any other provisions in this Lease Agreement, after September 1, 1998, Gulfstream is entitled to terminate this Lease prior to the Initial Lease Term by providing Landlord with one hundred eighty (180) days prior written notice of Gulfstream's desire to terminate the Lease term early, and by paying to Landlord a termination fee of Fifty Thousand Dollars ($50,000.00) at the early termination of the Lease. 17. CONVERSION OF OFFICE SPACE. Gulfstream may at its expense convert some or all of the office space located on the first floor of the Premises to shop space. Gulfstream upon the request of Landlord will 12 restore any such space to its original condition at the termination of the Lease. 18. NOTICES AND REQUESTS. All notices and requests hereunder shall be in writing and shall be deemed to be effective when received at the addresses listed below (or such other addresses as may hereafter be designated in writing). For Gulfstream: Kenneth D. Kelley General Manager - Long Beach Operations Gulfstream Aerospace Corporation 4150 Donald Douglas Drive Long Beach, CA 90808 For Landlord: Glenn Ray, President Million Air 4310 Donald Douglas Drive Long Beach, CA 90808 19. CONSENT TO LEASE. This Lease Agreement is contingent upon the receipt of consent to this Lease Agreement by Petrowings and the City of Long Beach. 20. PROPERTY TAXES. Real property taxes will not change as a result of this Lease, and Gulfstream will only be responsible to pay its portion of the real property taxes as set forth in Section 5 (D) of this Lease. 13 IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to sign this Lease Agreement. LONG BEACH MILLION AIR, INC. GULFSTREAM AEROSPACE CORPORATION By: /s/ GLENN RAY By: /s/ K.D. KELLEY ----------------------- ------------------------- Its: President Its: General Manager ----------------------- ------------------------- 14 EX-11.1 5 EXHIBIT 11.1 Exhibit 11.1 GULFSTREAM AEROSPACE CORPORATION Schedule Regarding Computation of Per Share Income (Loss) (In thousands, except per share amounts)
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, -------------------- 1995 1995 1996 -------------- --------- --------- Pro Forma for 1996 Recapitalization: Net Income - historical................................................. $ 28,894 $ 7,839 $ 15,359 Pro forma, for 1996 Recapitalization, adjustments: Interest expense...................................................... (14,693) (9,315) (9,112) -------------- --------- --------- Pro forma, for 1996 Recapitalization, net income (loss)................. $ 14,201 $ (1,476) $ 6,247 -------------- --------- --------- -------------- --------- --------- Average shares issued and outstanding..................................... 65,225 65,225 65,225 Exercise of certain stock options with the Offerings...................... 2,127 2,127 2,127 Incremental shares applicable to stock options outstanding after the exercise of certain stock options with the Offerings..................... 6,093 6,093 6,093 -------------- --------- --------- Pro forma, for 1996 Recapitalization, weighted average number of common and common equivalent shares............................................. 73,445 73,445 73,445 Pro forma, shares issued pursuant to the Offerings........................ 4,783 4,783 4,783 -------------- --------- --------- Pro forma, for 1996 Recapitalization and Offerings, weighted average number of common and common equivalent shares............................ 78,228 78,228 78,228 -------------- --------- --------- -------------- --------- --------- Pro forma, for 1996 Recapitalization and Offerings, net income (loss) per common and common equivalent share....................................... $ 0.18 $ (0.02) $ 0.08 -------------- --------- --------- -------------- --------- ---------
Note: Shares and stock options issued subsequent to June 30, 1995 are treated as outstanding for all reported periods. EX-23.2 6 EXHIBIT 23.2 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to use in this Amendment No. 2 to Registration Statement No. 333-09897 of Gulfstream Aerospace Corporation on Form S-1 of our report dated February 2,1996 appearing in the Prospectus, which is part of this Registration Statement, and of our report dated August 6, 1996 relating to the financial statement schedules appearing elsewhere in this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Atlanta, Georgia September 10, 1996 EX-23.3 7 EXHIBIT 23.3 EXHIBIT 23.3 [LETTERHEAD OF AVIATION WEEK GROUP] September 10, 1996 Mr. Donald L. Mayer, Esq. Gulfstream Aerospace Corporation P.O. Box 2206 Savannah, GA 31402-2206 Dear Mr. Mayer: This letter will confirm the consent of the newsletter, The Weekly of Business Aviation, and its publisher, for Gulfstream Aerospace Corporation to use the name of the newsletter and the information from it referenced in the attached letter of September 9, 1996, as part of the S-1 Registration Statement filed, as may be amended, by Gulfstream Aerospace Corporation with the Securities and Exchange Commission on August 29, 1996. Sincerely, /s/ Edmund Pinto [LETTERHEAD OF GULFSTREAM AEROSPACE CORPORATION] September 9, 1996 Mr. Ed Pinto The Weekly of Business Aviation 1200 G Street NW, Suite 200 Washington, DC 20005 Dear Mr. Pinto: As General Counsel for Gulfstream Aerospace Corporation, I would like to request a consent from Aviation Week Group to use the following information which was printed in the Business Aviation Weekly: "According to BUSINESS AVIATION WEEKLY, since 1982, the annual unit growth rate for the total business jet fleet worldwide averaged 4.2%." Gulfstream Aerospace Corporation is in the process of preparing a registration statement to submit to the Securities Exchange Commission to make a public offering. Would it be possible to obtain the consent today by fax? If there are any further questions, please give me a call at (912) 965-3206. Many thanks. Very truly yours, /s/ Don Mayer Donald L. Mayer -----END PRIVACY-ENHANCED MESSAGE-----