-----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, FrUzPsdIrSP4FrThXKCzUXFL+47sug1oSvXlID4tsGpz3iIbA9zOR636idXv7h2X kYvtKHnCnwMV4edLjwcgIA== 0000895345-97-000269.txt : 19970813 0000895345-97-000269.hdr.sgml : 19970813 ACCESSION NUMBER: 0000895345-97-000269 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 SROS: NONE 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08461 FILM NUMBER: 97657172 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 10-Q 1 ================================================================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 --------------- Commission File No. 1-8461 --------------- GULFSTREAM AEROSPACE CORPORATION P. O. Box 2206 500 Gulfstream Road Savannah, Georgia 31402-2206 Telephone: (912) 965-3000 State of incorporation: Delaware IRS identification number: 13-3554834 --------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of August 2, 1997, there were 74,127,742 shares of Gulfstream Aerospace Corporation Common Stock outstanding. ================================================================= GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page No. -------- ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets June 30, 1997 and December 31, 1996 3 Consolidated Statements of Income Three and six months ended June 30, 1997 and 1996 4 Consolidated Statement of Stockholders' Equity Six months ended June 30, 1997 5 Consolidated Statements of Cash Flows Six months ended June 30, 1997 and 1996 6 Notes to Consolidated Financial Statements 7-8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 13 ITEM 2. CHANGES IN SECURITIES 13 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13 ITEM 5. OTHER INFORMATION 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14 Signature 15 GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)
June 30, December 31, 1997 1996 ----------- ----------- ASSETS Cash and cash equivalents $ 249,310 $ 233,172 Accounts receivable (less allowance for doubtful accounts: $1,153 and $3,243) 105,479 137,342 Inventories 609,835 655,237 Prepaids and other assets 9,185 7,915 ----------- ----------- Total current assets 973,809 1,033,666 Property and equipment, net 122,331 126,503 Tooling 45,705 47,677 Goodwill, net of accumulated amortization: $7,861 and $7,322 35,260 35,799 Other intangible assets, net 53,021 55,556 Other assets and deferred charges 16,077 14,014 ----------- ----------- Total Assets $1,246,203 $1,313,215 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt $ 50,833 $ 20,000 Accounts payable 150,197 129,410 Accrued liabilities 92,495 111,243 Customer deposits - current portion 464,834 634,922 ----------- ----------- Total current liabilities 758,359 895,575 Long-term debt 342,500 380,000 Accrued postretirement benefit cost 112,113 108,705 Customer deposits - long-term 132,768 109,037 Other long-term liabilities 8,106 8,709 Commitments and contingencies Stockholders' equity Common stock; $.01 par value; 300,000,000 shares authorized; 86,053,679 shares issued in 1997 and 85,890,212 shares issued in 1996 860 859 Additional paid-in capital 334,334 333,686 Accumulated deficit (389,437) (468,971) Minimum pension liability (1,464) (1,464) Unamortized stock plan expense (1,447) (2,432) Less: Treasury stock: 11,978,439 shares in 1997 and 1996 (50,489) (50,489) ----------- ----------- Total stockholders' equity (107,643) (188,811) ----------- ----------- Total Liabilities and Stockholders' Equity $1,246,203 $1,313,215 =========== ===========
See notes to consolidated financial statements GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------------- ---------------------------- 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Net revenues $522,906 $243,609 $898,532 $458,672 Cost and expenses Cost of sales 446,896 186,569 752,048 354,841 Selling and administrative 22,982 22,746 45,597 45,190 Stock option compensation expense 463 5,078 985 5,200 Research and development 5,294 18,720 3,774 34,746 Amortization of intangibles and deferred charges 1,826 1,881 3,646 3,763 ----------- ----------- ----------- ----------- Total costs and expenses $477,461 $234,994 $806,050 $443,740 ----------- ----------- ----------- ----------- Income from operations 45,445 8,615 92,482 14,932 Interest income 2,239 4,118 5,362 7,593 Interest expense (7,680) (3,451) (15,810) (7,166) ----------- ----------- ----------- ----------- Income before income taxes 40,004 9,282 82,034 15,359 Provision for income taxes 500 - 2,500 - ----------- ----------- ----------- ----------- Net Income $ 39,504 $ 9,282 $ 79,534 $ 15,359 =========== =========== =========== =========== Earnings Per Share: Net income per share $ .50 $ .12 $ 1.01 $ .20 =========== =========== =========== =========== Weighted average common and common equivalent shares outstanding 78,719 78,535 78,638 78,535 =========== =========== =========== ===========
See notes to consolidated financial statements GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands) (Unaudited)
Additional Minimum Unamortized Total Common Paid-In Accumulated Pension Stock Plan Treasury Stockholders' Stock Capital Deficit Liability Expense Stock Equity ----------------------------------------------------------------------------------- Balance as of December 31, 1996 $859 $333,686 $(468,971) $(1,464) $(2,432) $(50,489) $(188,811) Net income 79,534 79,534 Amortization of stock plan expense 985 985 Exercise of common stock options 1 648 649 ----------------------------------------------------------------------------------- Balance as of June 30, 1997 $860 $334,334 $(389,437) $(1,464) $(1,447) $(50,489) $(107,643) ===================================================================================
See notes to consolidated financial statements GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (Unaudited)
Six months ended June 30, -------------------------- 1997 1996 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 79,534 $ 15,359 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,901 12,242 Postretirement benefit cost 3,408 3,320 Provision for loss on pre-owned aircraft 800 Non-cash stock option compensation expense 985 5,200 Other, net (1,659) 201 Change in assets and liabilities: Accounts receivable 33,522 (16,784) Inventories 45,402 (175,381) Prepaids, other assets, and deferred charges (3,904) (844) Accounts payable and accrued liabilities 2,039 11,845 Customer deposits (146,357) 285,269 Other long-term liabilities (603) (1,347) ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 28,268 139,880 CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for property and equipment (4,734) (7,518) Dispositions of property and equipment 22 Expenditures for tooling (1,378) (899) ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES (6,112) (8,395) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of common stock options 649 78 Principal payments on long-term debt (6,667) (26,533) Repurchase of preferred stock (18,938) Dividends paid on preferred stock (96,136) ---------- ---------- NET CASH USED IN FINANCING ACTIVITIES (6,018) (141,529) Increase (decrease) in cash and cash equivalents 16,138 (10,044) Cash and cash equivalents, beginning of period 233,172 223,312 ---------- ---------- Cash and cash equivalents, end of period $ 249,310 $ 213,268 ========== ==========
See notes to consolidated financial statements GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules of the Securities and Exchange Commission ("SEC") and, in the opinion of the Company, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of financial position, results of operations and cash flows. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules. The operating results for the three and six months ended June 30, 1997 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1996 included in the Company's 1996 Annual Report to Stockholders. NOTE 2. NET INCOME PER SHARE Net income per share is based on net income divided by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of the Company's stock issuable upon exercise of common stock options determined using the treasury stock method. For the 1996 periods, net income per share is calculated based on historical net income and assuming the Company's initial public offering and related transactions that occurred during October 1996 and the issuance of stock options in 1996 had occurred as of the beginning of the respective reporting period. NOTE 3. INVENTORIES Inventories consisted of the following at:
June 30, December 31, 1997 1996 ----------- ----------- (In thousands) Work in process $348,955 $355,198 Raw materials 111,454 108,041 Vendor progress payments 76,954 104,318 Pre-owned aircraft 72,472 87,680 -------- -------- $609,835 $655,237 ======== ========
NOTE 4. COMMITMENTS AND CONTINGENCIES In the normal course of business, lawsuits, claims and proceedings have been or may be instituted or asserted against the Company relating to various matters, including products liability. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to the Company, management has made provision for all known probable losses related to lawsuits and claims and believes that the disposition of all matters which are pending or asserted will not have a material adverse effect on the financial statements of the Company. The Company is involved in a tax audit by the Internal Revenue Service covering the years ended December 31, 1991 and 1990. The revenue agent's report includes several proposed adjustments involving the deductibility of certain compensation expense, items relating to the initial capitalization of the Company, the allocation of the original purchase price for the acquisition by the Company of the Gulfstream business, including the treatment of advance payments with respect to and the cost of aircraft that were in backlog at the time of the acquisition, and the amortization of amounts allocated to intangible assets. The Company believes that the ultimate resolution of these issues will not have a material adverse effect on its financial statements because the financial statements already reflect what the Company currently believes is the expected loss of benefit arising from the resolution of these issues. The Company is currently engaged in the monitoring and cleanup of certain ground water at its Savannah facility under the oversight of the Georgia Department of Natural Resources. Expenses incurred for cleanup have not been significant. The Company received in 1992, at its Long Beach facility, two inquiries from the U.S. Environmental Protection Agency and, in 1991, at its Oklahoma facility, a soil contamination inquiry. The Company believes other aspects of the Savannah facility, as well as other Gulfstream properties, are being carefully monitored and are in substantial compliance with current federal, state and local environmental regulations. The Company believes the liabilities, if any, that will result from the above environmental matters will not have a material adverse effect on its financial statements. NOTE 5. NEW ACCOUNTING STANDARD In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE, which will be effective for the Company's 1997 annual financial statements. SFAS No. 128 simplifies the standards for computing earnings per share (EPS) information and makes the computation comparable to international EPS standards. SFAS No. 128 replaces the presentation of "primary" (and when required "fully diluted") EPS with a presentation of "basic" and "diluted" EPS. Pro forma amounts under the provisions of SFAS No. 128 are set forth below:
Three months ended Six months ended June 30, June 30, ----------------- ----------------- 1997 1996 1997 1996 ------ ------ ------ ------ Basic EPS $0.53 $0.13 $1.07 $0.21 Diluted EPS $0.50 $0.12 $1.01 $0.20
NOTE 6. INCOME TAXES The Company recorded a provision for income taxes (principally alternative minimum tax) of $0.5 million and $2.5 million for the quarter and six months ended June 30, 1997, respectively, and no provision for income taxes for the quarter and six months ended June 30, 1996, principally as a result of the utilization of net operating loss carryforwards. The Company had available at June 30, 1997 net operating loss carryforwards for regular federal income tax purposes of approximately $160 million which will begin expiring in 2006. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Notes to Consolidated Financial Statements beginning on page 7 and with Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and the audited Consolidated Financial Statements and Notes to Consolidated Financial Statements appearing in the Company's 1996 Annual Report to Stockholders. COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 NET REVENUES. Net revenues increased by $279.3 million, or 115%, to $522.9 million in the second quarter of 1997 from $243.6 million in the second quarter of 1996. The significant increase resulted primarily from the delivery of 12 new aircraft, five Gulfstream IV-SPs and seven Gulfstream Vs, as compared with six aircraft, all Gulfstream IV-SPs, in the second quarter of 1996. Another contributing factor to higher revenues was an increase of $87.8 million in pre-owned aircraft revenues to $123.6 million in the second quarter of 1997 from $35.8 million in the second quarter of 1996. During the six months ended June 30, 1997, total net revenues increased by $439.8 million, or 96%, to $898.5 million from $458.7 million for the six months ended June 30, 1996. For the six months ended June 30, 1997, Gulfstream delivered 23 new aircraft, ten Gulfstream IV-SPs and 13 Gulfstream Vs, up from 11 Gulfstream IV-SPs in the same period of 1996. Also contributing to the revenue increase was the sale of ten pre- owned aircraft for the six months as compared to seven in the corresponding period in 1996. COST OF SALES. Total cost of sales increased $260.3 million to $446.9 million in the second quarter of 1997 from $186.6 million in the second quarter of 1996, and increased $397.2 million to $752.0 million for the six months ended June 30, 1997 from $354.8 million for the six months ended June 30, 1996. These increases were a result of the higher number of new aircraft and pre-owned aircraft deliveries discussed above. Excluding pre-owned aircraft, which generally are sold at break- even levels, the gross profit percentage for the second quarter of 1997 was 18.2% compared to 28.0% for the second quarter of 1996, and for the six months ended June 30, 1997, the gross profit percentage was 19.0% compared to 26.9% for the comparable period in 1996. The decline in gross profit percentage is primarily attributable to the introduction of the Gulfstream V aircraft into production and the higher costs associated with the early stages of the Gulfstream V production program. The Company expects the margin on the Gulfstream V to approach those of the Gulfstream IV-SP over the next 18-24 months. SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense of $23.0 million in the second quarter of 1997 was relatively unchanged compared to $22.7 million for the second quarter of 1996. For the six months ended June 30, 1997, selling and administrative expense was $45.6 million as compared to $45.2 million for the six months ended June 30, 1996. As a percentage of net revenues, selling and administrative expense decreased to 4.4% during the second quarter of 1997 compared to 9.3% in the second quarter of 1996, and decreased to 5.1% during the six months ended June 30, 1997 versus 9.9% in the comparable period of 1996, both as a result of higher revenues in 1997. STOCK OPTION COMPENSATION EXPENSE. The issuance of options to purchase common stock of the Company resulted in a non-cash compensation charge of $0.5 million and $1.0 million during the second quarter of 1997 and the six months ended June 30, 1997, respectively, compared to $5.1 million and $5.2 million for the comparable periods in 1996. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense decreased by $13.4 million to $5.3 million for the second quarter of 1997 from $18.7 million for the second quarter of 1996, principally as a result of the substantial completion of the Gulfstream V development program. For the six month period ended June 30, 1997, research and development expense decreased by $30.9 million to $3.8 million from $34.7 million for the corresponding period in 1996. Research and development expense for the six months ended June 30, 1997 is net of a $10.0 million credit for launch assistance funds received from a vendor participating in the development of the Gulfstream V. INTEREST INCOME AND EXPENSE. Interest income decreased by $1.9 million to $2.2 million in the second quarter of 1997 and decreased by $2.2 million to $5.4 million in the six months ended June 30, 1997. In each case, the decrease was a result of lower average cash balances invested during the 1997 periods. Interest expense increased by $4.2 million to $7.7 million for the second quarter of 1997 and by $8.6 million to $15.8 million for the six months ended June 30, 1997, respectively, over the comparable periods in 1996. This increase was principally due to the increase in average long-term borrowings resulting from the Company's new credit facilities. PROVISION FOR INCOME TAXES. The Company recorded a provision for income taxes, principally alternative minimum tax, of approximately $0.5 million for the second quarter of 1997, and $2.5 million for the six months ended June 30, 1997. No provision for income taxes was made for the second quarter or six months ended June 30, 1996, principally as a result of the utilization of net operating loss carryforwards. In compliance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES, and assuming operating trends continue, the Company is anticipating the release of its deferred tax valuation allowance in the third quarter 1997. This would result in a one-time, non- cash benefit of approximately $65.0 million in reported earnings for the third quarter 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity needs arise from working capital requirements, capital expenditures, and principal and interest payments on long-term debt. During the six months ended June 30, 1997, the Company relied on its available cash balances to fund these needs. The Company had cash and cash equivalents totaling $249.3 million at June 30, 1997 and available borrowings of $200.0 million under a revolving credit facility. Net cash generated by operating activities during the six months ended June 30, 1997 and 1996, was $28.3 million and $139.9 million, respectively. The reduction in 1997 is primarily attributable to the timing of progress payments on aircraft in backlog for the comparable periods. A partially offsetting factor was the decline in inventories in 1997 as a result of Gulfstream V deliveries, versus the temporary build up in Gulfstream V related inventory during the same period in 1996. Capital expenditures for property and equipment and tooling were $4.7 million and $1.4 million, respectively, during the six months ended June 30, 1997. As a result of continued strong demand for its products, and the Company's objective to make deliveries sooner to its new aircraft customers, Gulfstream announced, during the fourth quarter of 1996, plans to increase its annual production rate to approximately 60 aircraft by 1999, a twofold increase over its 1996 annual production rate. As a result, in 1997 and 1998, the Company's capital expenditures are expected to increase by a total of $25 to $35 million above previously planned annual levels of approximately $15 million to meet the requirements of the increased production capacity. The Company continually monitors its capital spending in relation to current and anticipated business needs. As circumstances dictate, facilities are added, consolidated, or modernized. At June 30, 1997, borrowings under the Company's credit facilities were $393.3 million. The Company made scheduled payments on its long-term debt of $6.7 million during the six months ended June 30, 1997, and scheduled repayments remaining are $13.3 million in 1997, $75.0 million in each of the years 1998 through 2001, and $80.0 million in 2002. The Credit Agreement contains customary affirmative and negative covenants including restrictions on the ability of the Company and its subsidiaries to pay cash dividends, as well as financial covenants under which the Company must operate. At June 30, 1997 the Company was in compliance with the covenants of its existing credit agreement. In connection with orders for 27 Gulfstream V aircraft in the backlog, the Company has offered customers trade-in options (which may or may not be exercised) under which the Company will accept trade-in aircraft, primarily Gulfstream IVs and Gulfstream IV-SPs, at a guaranteed minimum trade-in price. In light of the current market for pre-owned Gulfstream aircraft, management believes that the fair market value of such aircraft exceeds the specified trade-in values. As such, Gulfstream does not believe the existence of such commitments will have a material adverse effect on its results of operations, cash flow or financial position. On October 10, 1996, the Company reached an agreement in principle with the Pension Benefit Guaranty Corporation (the "PBGC") concerning funding of the Company's defined benefit pension plans. Pursuant to this agreement, the Company contributed an additional $20 million in 1996, and $12.5 million during the six months ended June 30, 1997. Further, the Company has agreed to contribute $12.5 million for the remainder of 1997 and a total of $25 million annually from 1998 through 2000 to its pension plans, which payments are expected to result in such plans being fully funded. The payments to be made under this agreement were already part of the Company's overall financial planning, and therefore, are not expected to have a material effect on the Company's financial statements. The Company's principal source of liquidity, both on a short- term and long-term basis, is cash flow provided by operations, including customer progress payments and deposits on new aircraft orders. Occasionally, however, the Company may borrow against the credit agreement to supplement cash flow from operations. The Company believes that based upon its analysis of its consolidated financial position, its cash flow during the past 12 months and the expected results of operations in the future, operating cash flow and available borrowings under the credit agreement will be adequate to fund operations, capital expenditures and debt service for at least the next 12 months. The Company intends to repay its remaining indebtedness primarily with cash flow from operations. There can be no assurance, however, that future industry specific developments or general economic trends will not adversely affect the Company's operations or its ability to meet its cash requirements. CONTRACTUAL BACKLOG At June 30, 1997, Gulfstream had a firm contract backlog of approximately $3.1 billion of revenues, representing a total of 98 aircraft. The Company includes an order in backlog only if the Company has entered into a purchase contract (with no contingencies) with the customer and has received a significant (generally non-refundable) deposit from the customer. The Company continually monitors the condition of its backlog and believes, based on the nature of its customers and its historical experience, that there will not be a significant number of cancellations. However, to the extent that there is a lengthy period of time between a customer's aircraft order and its delivery date, there may be increased uncertainty as to changes in business and economic conditions which may affect customer cancellations. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Stockholders on May 14, 1997. The following matters were voted upon: Proposal 1: Election of Directors. The following nominees were elected to serve as Class I Directors of the Company, to serve until the annual meeting of stockholders in 2000 and until their successors are elected and qualified, by the following vote: NOMINEE VOTES FOR VOTES WITHHELD --------------------- ---------- -------------- Charlotte L. Beers 65,234,002 114,565 Thomas D. Bell, Jr. 65,234,002 114,565 Chris A. Davis 65,234,000 114,567 Nicholas C. Forstmann 65,234,002 114,565 Bryan T. Moss 65,234,002 114,565 Roger S. Penske 61,355,161 3,993,406 Donald H. Rumsfeld 64,963,102 385,465 Proposal 2: Amended and Restated 1990 Stock Option Plan. The Amended and Restated 1990 Stock Option Plan was approved by the following vote: VOTES FOR VOTES AGAINST ABSTENTIONS BROKER NON-VOTES ---------- ------------ ----------- ---------------- 51,439,558 13,853,744 33,765 21,500 Proposal 3: Ratification of Appointment of Auditors. The appointment of Deloitte & Touche, LLP to serve as auditors of the Company for 1997 was ratified by the following vote: VOTES FOR VOTES AGAINST ABSTENTIONS BROKER NON-VOTES ---------- ------------- ----------- ---------------- 60,000,862 5,325,025 13,480 9,200 ITEM 5. OTHER INFORMATION Certain statements contained in this Form 10-Q contain "forward-looking" information that involves risk and uncertainty, including, but not limited to, statements regarding planned future deliveries and expenditures. Actual future results and trends may differ materially depending on a variety of factors. For discussion of these factors, see Exhibit 99, CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are filed as part of this report: Exhibit 10.24 Outfitted Gulfstream V Sales Agreement dated June 13, 1997 between Gulfstream Aerospace Corporation and Allen E. Paulson. Exhibit 10.25 Marketing Services Agreement dated June 13, 1997 between Gulfstream Aerospace Corporation and Allen E. Paulson. Exhibit 10.26 Gulfstream IV Aircraft Purchase Agreement and Amendment to Outfitted Gulfstream V Sales Agreement dated August 1, 1997 between Gulfstream Aerospace Corporation and Allen E. Paulson. Exhibit 10.27 Amended and Restated Gulfstream Aerospace Corporation 1990 Stock Option Plan, as further amended through July 30, 1997. Exhibit 11.1 Computation of Earnings per Common Share. Exhibit 27.1 Financial Data Schedule. Exhibit 99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. (b) Report on No reports on Form 8-K were filed Form 8-K during the quarter ended June 30, 1997. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 12, 1997 GULFSTREAM AEROSPACE CORPORATION /s/ Chris A. Davis ----------------------------------------- Chris A. Davis Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) EXHIBIT INDEX EXHIBITS Exhibit 10.24 Outfitted Gulfstream V Sales Agreement dated June 13, 1997 between Gulfstream Aerospace Corporation and Allen E. Paulson. Exhibit 10.25 Marketing Services Agreement dated June 13, 1997 between Gulfstream Aerospace Corporation and Allen E. Paulson. Exhibit 10.26 Gulfstream IV Aircraft Purchase Agreement and Amendment to Outfitted Gulfstream V Sales Agreement dated August 1, 1997 between Gulfstream Aerospace Corporation and Allen E. Paulson. Exhibit 10.27 Amended and Restated Gulfstream Aerospace Corporation 1990 Stock Option Plan, as further amended through July 30, 1997. Exhibit 11.1 Computation of Earnings per Common Share. Exhibit 27.1 Financial Data Schedule. Exhibit 99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. EX-10.24 2 [LOGO] GULFSTREAM AEROSPACE CORPORATION OUTFITTED GULFSTREAM V SALES AGREEMENT CONDITIONS Subject to the Terms of Gulfstream V Sales Agreement contained in Addendum I, which is incorporated herein and made a part hereof by reference, the BUYER and GULFSTREAM AEROSPACE CORPORATION ("GULFSTREAM") agree as follows: ARTICLE 1 DEFINITIONS The following definitions shall apply to the following terms used in the Terms and Conditions of the Gulfstream V Sales Agreement: "Agreement" shall mean the Terms of the Gulfstream V Sales Agreement and the Conditions of the Gulfstream V Sales Agreement. "Aircraft" shall mean the Gulfstream V aircraft, more fully described in Addendum I. "Aircraft Service Changes" are GULFSTREAM published documents under the same name which provide detailed instructions for modifications to the Aircraft. "Authorized Warranty Repair Facility" shall mean an independently owned aircraft repair facility which has entered into a Gulfstream Authorized Warranty Repair Agreement with GULFSTREAM to provide certain warranty services at specific terms and conditions. The identity and location of the current Gulfstream Authorized Warranty Repair Facilities are available upon request from GULFSTREAM. GULFSTREAM reserves the right to add and delete facilities from its Gulfstream Authorized Warranty Repair Facility list at its sole discretion. "Certificate of Airworthiness" shall mean the FAA document confirming the Aircraft has been inspected and found to conform to the Type Certificate, is safe for operation, and has been shown to meet the requirements of the applicable comprehensive and detailed airworthiness code as provided by Annex 8 to the Convention on International Civil Aviation. "Components" shall mean components, systems, accessories, equipment, or parts of the Aircraft not otherwise included in the definition of Primary and Secondary Structure. "Delivery Time" is the date the BUYER and GULFSTREAM execute the Memorandum of Delivery pursuant to the terms of Article 2. "Discrepancy" shall mean a condition in the Aircraft which does not conform to the Product Specification or warranted condition of the Aircraft. "FAA" shall mean the United States of America, Department of Transportation, Federal Aviation Administration. "Operational Delivery" shall mean the first flight of the Aircraft following the Aircraft's Outfitting. "Outfitting" or "Outfitted" shall refer to the initial addition of interior furnishings and equipment and external paint to the Aircraft. "Gulfstream Interior Interface Specification" is a document licensed by aircraft serial number by GULFSTREAM entitled Gulfstream Interior Interface Specification, which will be in form and substance similar to GIV Outfitting Interface Specification (Report #1159C-GER-023, Revision 4 dated November 2, 1993). "Preliminary Acceptance Time" is the date the BUYER executes the Memorandum of Preliminary Acceptance pursuant to the terms of Article 2. "Primary and Secondary Structure" shall mean the aluminum, steel, and/or graphite or fiberglass composite materials, including the fasteners attached thereto, which form the fuselage, wings, vertical and horizontal stabilizers, flight control surfaces, fairings, doors, and engine mounts including attachment and support structures found within these areas. "Service Bulletins" shall mean GULFSTREAM published documents under the same name which give general advice to operators of the Aircraft. ARTICLE 2 DELIVERY SECTION 2.1 PRELIMINARY DELIVERY AND ACCEPTANCE (a) GULFSTREAM shall tender the Green Aircraft to BUYER for Preliminary Acceptance at GULFSTREAM's plant in Savannah, Georgia on or about the Scheduled Preliminary Acceptance Date. GULFSTREAM shall give BUYER not less than five (5) days advance written notice of the actual tender date at which time the Aircraft shall have a valid Certificate of Airworthiness and be available for immediate flight testing. Within fifteen (15) days of receipt of GULFSTREAM's notice, BUYER, at its sole discretion, shall elect either to inspect the Green Aircraft per the procedures set forth below or accept the Aircraft for purposes of identifying it as the Aircraft to be Outfitted under this Agreement without inspection at this time by executing a Memorandum of Preliminary Acceptance, reserving all BUYER's rights to further inspections. (b) If BUYER elects to inspect the Aircraft under Section 2.1(a), the Green Aircraft shall be made available for inspection and initial flight test of not more than two (2) hours duration participated in by not more than two (2) of the BUYER's representatives to confirm that the Green Aircraft meets its requirements as identified in this Agreement and is acceptable to BUYER for further Outfitting. Following the completion of this initial flight test and correction of Discrepancies, if any, BUYER shall execute a Memorandum of Preliminary Acceptance which may list deferred Discrepancies, but otherwise reserves BUYER's rights to require that the identified Aircraft meet the terms of this Agreement at the Delivery Time. (c) The BUYER, at its sole election, may require GULFSTREAM to deliver to BUYER an FAA Bill of Sale or a Warranty Bill of Sale at the Preliminary Acceptance Time if all current payment obligations under Addendum I have been met. SECTION 2.2 FINAL DELIVERY AND ACCEPTANCE (a) Following the completion of the Outfitting, GULFSTREAM shall tender the Aircraft to BUYER for final inspection and flight testing at the Completion Facility and delivery at the Completion Facility or other mutually agreed location on or about the Scheduled Delivery Date. GULFSTREAM shall give BUYER not less than five (5) days advance written notice of the actual tender date at which time the Aircraft will have been reissued a Certificate of Airworthiness and be in the condition warranted by GULFSTREAM under Article 6 hereof. Within fifteen (15) days of receipt of GULFSTREAM's notice, BUYER shall commence inspection of the Aircraft and flight testing of the Aircraft of not more than two (2) hours duration by not more than two (2) of BUYER's representatives to confirm that the Aircraft meets the terms of this Agreement. Any Discrepancies discovered during this flight test or inspection shall be promptly corrected by GULFSTREAM at no cost to BUYER. Following the correction of a Discrepancy, the Aircraft shall be reinspected or flight tested as appropriate. (b) Upon the completion of the inspection and flight tests reasonably required by BUYER to confirm that the Aircraft meets the terms and conditions of this Agreement and is free of Discrepancies, the BUYER shall execute a Memorandum of Delivery. Upon BUYER's execution of the Memorandum of Delivery, BUYER shall remit the balance of the Total Purchase Price as determined under Addendum I, and GULFSTREAM shall deliver possession of the Aircraft to BUYER together with the Bills of Sale required under this Agreement to the extent not previously delivered. SECTION 2.3 Upon delivery by GULFSTREAM to BUYER of a Bill of Sale under either Section 2.1 or 2.2, all risks of loss or damage to the Aircraft shall be borne by BUYER, and further, title to the Aircraft shall pass from GULFSTREAM to BUYER. Upon BUYER's execution of the Memorandum of Delivery and final payment under Addendum I, title to all Outfitting shall pass to BUYER free and clear of any security interest or other lien or encumbrance liens. GULFSTREAM warrants that the transfer of title in the Aircraft to BUYER under this Section shall vest full title in BUYER free and clear of any security interest or other lien or encumbrance against the Aircraft. SECTION 2.4 If BUYER does not meet its obligations to execute a Memorandum of Preliminary Acceptance, inspect or flight test the Aircraft, or execute a Memorandum of Delivery, then (1) any unpaid balance of the Total Purchase Price as determined under Addendum I shall become due and payable, (2) all risk of loss or damage to the Aircraft shall thereafter be borne by BUYER, and (3) GULFSTREAM shall provide the Aircraft with suitable outside storage and routine maintenance at the expense of BUYER. Further, upon ten (10) days prior written notice to BUYER, GULFSTREAM may terminate this Agreement no sooner than twenty- five (25) days after the unpaid balance of the Total Purchase Price has become due, and payable under this Section 2.4 and pursue its remedies under Section 9.2. SECTION 2.5 All fuel costs and pilot expenses associated with flight tests conducted under this Article 2 shall be at the expense of GULFSTREAM. All fuel costs and pilot expenses associated with ferry flights conducted after the Preliminary Acceptance Time shall be at the expense of BUYER. SECTION 2.6 If after the Delivery Time, the Aircraft remains in or is returned to GULFSTREAM's care, custody, or control for any purpose, BUYER shall retain risk of loss and hereby agrees to waive on behalf of itself and its insurance carrier(s) any aircraft hull or property claim, by way of subrogation or otherwise, against GULFSTREAM for damages to or loss of the Aircraft while in flight arising out of or by reason of such care, custody, or control, including claims that such damages or loss are the result of GULFSTREAM' own negligence. Nothing in this Section 2.6 shall be deemed to release GULFSTREAM of its obligations for third parties claims for personal injuries or deaths alleged to be caused by GULFSTREAM's negligence. ARTICLE 3 TAXES AND PAYMENT OBLIGATIONS SECTION 3.1 Time is of the essence in the payment of all obligations under this Agreement. All payments not received when due shall bear interest at two (2) percentage points above the prime rate charged by the Chemical Bank, New York, New York or its successor on the date due, provided such interest rate shall not exceed the maximum rate permitted by law. SECTION 3.2 A. The Total Purchase Price does not include any sales, use, personal property, excise, or other similar taxes or assessments which may be imposed by any governmental authority upon this sales transaction, the Aircraft itself, or the use thereof by BUYER. BUYER agrees to pay any and all such taxes or assessments (or at its sole expense to defend against the imposition of any such taxes) which it is or may be held obligated by law to pay. GULFSTREAM shall notify BUYER of any such tax that any governmental authority is seeking to collect from GULFSTREAM, and BUYER may assume the defense thereof at its sole expense. If BUYER does not defend, GULFSTREAM may pay the asserted tax and BUYER shall thereupon be obligated to reimburse GULFSTREAM for said tax and all reasonable expenses related thereto. B. The Total Purchase Price includes all sales, excise, or similar taxes assessed on the sale of materials or equipment to GULFSTREAM for incorporation into the Aircraft and any personal property taxes assessed against the Aircraft or any part thereof prior to the Delivery Time, and the BUYER is not responsible for any additional payment in respect thereto. GULFSTREAM shall also pay any taxes imposed by the United States government, or any political subdivision thereof, on the income resulting from the sale of the Aircraft. ARTICLE 4 TECHNICAL DATA SECTION 4.1 At the Delivery Time, GULFSTREAM shall deliver to BUYER one (1) copy (together with all amendments to date, where applicable) of each of the following: (a) FAA Bill of Sale, (b) Warranty Bill of Sale in the form attached hereto as Appendix B, (c) Flight Manual approved by the FAA (including a Cruise Control Manual), (d) Maintenance Manual (including Chapter 5 "Time Limits/ Maintenance Checks"), (e) Wiring Diagrams, (f) Parts Catalog, (g) Service Bulletins and Aircraft Service Changes currently applicable to the Aircraft, (h) Airframe, Engines and Auxiliary Power Unit Logbook, (i) FAA Certificate of Airworthiness, (j) Weight and Balance Manual, (k) Structural Repair Manual. SECTION 4.2 Commencing on the date of execution of this Agreement, GULFSTREAM will deliver to BUYER, from time to time, printed copies of Service Bulletins and Aircraft Service Changes applicable to the Aircraft. GULFSTREAM, from and after the Delivery Time, will also furnish to BUYER, at no additional charge, any amendments to the manuals and catalog described in Section 4.1 applicable to the Aircraft for a period of ten (10) years after the Delivery Time. SECTION 4.3 It is understood that all of the publications, data, drawings, or other information described in this Article 4 or in the Product Specification are proprietary to GULFSTREAM and that all intellectual property rights belong to GULFSTREAM, shall be kept confidential by BUYER, and shall not be disclosed, used, or transmitted to others except for the purpose of permitting BUYER or any subsequent owner to maintain, operate or repair the Aircraft, or make any permitted installation or alteration thereto. ARTICLE 5 SPARE PARTS SECTION 5.1 GULFSTREAM shall maintain a reasonable stock of suitable and interchangeable spare parts for the Aircraft for routine repairs and replacements for a period of twenty (20) years after the date GULFSTREAM delivers its last production model of the Gulfstream V Aircraft. ARTICLE 6 WARRANTY SECTION 6.1 GENERAL - A. Subject to the limitations and conditions hereinafter set forth, GULFSTREAM warrants that the Primary and Secondary Structure and the Components of the Aircraft supplied hereunder shall (a) at the Delivery Time be free from: (i) defects in material or workmanship, (ii) defects arising from the selection of material or process of manufacture, (iii) defects inherent in the design thereof in view of the state of the art at the time of design thereof; (b) at the Delivery Time and throughout the periods identified in Section 6.2, be free from: (i) defects arising from the failure to conform to the Product Specification as it may be changed pursuant to this Agreement, except failure to conform to such portions of the Product Specification stated to be estimates, approximations, design objectives or design criteria, or described as not guarantees, and (ii) defects arising from the failure to conform to the FAA Type Certificate, as the Type Certificate existed at the Delivery Time; and (c) at the Delivery Time and throughout the periods identified in the BMW Rolls-Royce GmbH warranty provided under Section 6.7, be free from: (i) defects in workmanship furnished by GULFSTREAM in the process of installation of the engines and nacelles, and (ii) defects inherent in the design of the installation of the engines and nacelles in view of the state of the art at the time of the design thereof. B. Subject to the limitations and conditions hereinafter set forth, GULFSTREAM warrants that the Outfitting of the Aircraft supplied hereunder shall, at the Delivery Time, be free from: (1) defects arising from the failure to conform to the Completion Specification, (2) defects in materials or workmanship of Primary or Secondary Structure or Components manufactured by GULFSTREAM, (3) defects in workmanship furnished by GULFSTREAM in the process of installation of Components, and (4) defects inherent in the design of the installation of Components, in view of the state of the art at the time of the design thereof. SECTION 6.2 DURATION - A. The extent of GULFSTREAM's liability under Section 6.1 (A) Warranty as to defects in the Primary and Secondary Structure is limited to the repair under Section 6.3 of all such defects in the Aircraft which are discovered within a period from the date the initial Certificate of Airworthiness is issued of twenty (20) years or twenty thousand (20,000) hours of flight operation of the Aircraft, whichever is shorter. B. The extent of GULFSTREAM's liability under Section 6.1 (A) Warranty as to defects in all Components other than the Components listed in Section 6.7 is limited to the repair under Section 6.3 of all such defects which become apparent in the Aircraft within a period of six years from the date the initial Certificate of Airworthiness is issued. C. Notwithstanding the foregoing Section 6.2(A) and (B), the extent of GULFSTREAM's liability under Section 6.1(B) Warranty for the Outfitting is limited to correction at its expense of all such defects which become apparent in the Aircraft within a period from the Delivery Time of twelve (12) months. SECTION 6.3 REPAIRS - A. GULFSTREAM's obligation for a breach of a warranty provided under Section 6.1 during the periods described in Section 6.2 shall be to repair, replace, or correct, at GULFSTREAM's sole election, the defective part or condition with reasonable care and dispatch. All parts and labor required to support the disassembly and/or removal of the defective Primary or Secondary Structure or Component and installation and reassembly of the corrected Primary or Secondary Structure or Component shall be at GULFSTREAM's expense, provided such work is performed at GULFSTREAM's facilities or an Authorized Warranty Repair Facility. B. The cost of a temporary or interim repair, replacement, or correction of a defect covered under this Article 6 Warranty and authorized by GULFSTREAM by facsimile, telex, or otherwise in writing shall be at GULFSTREAM's expense. C. GULFSTREAM's obligation under this Section 6.3 shall include correction or repair for defects to the Primary and Secondary Structure or Components documented by Service Bulletins or Aircraft Service Changes to the extent such defects would otherwise be covered under this Article 6 Warranty. D. All transportation costs, including the costs associated with ferrying the Aircraft to and from GULFSTREAM's facilities or an Authorized Warranty Repair Facility or the shipment of defective or repaired, replaced, or corrected parts or Components under this Article 6 Warranty, shall be at BUYER's expense. SECTION 6.4 EXCLUSIONS - GULFSTREAM's obligations under Section 6.3 above exclude the following: (a) Routine inspections other than those specifically required by GULFSTREAM or a governmental authority to inspect for known design or manufacturing defects, (b) Routine maintenance as specified in the Aircraft's Maintenance Manuals or GULFSTREAM's Computerized Maintenance Program, including scheduled replacement of life limited components, (c) Repair or replacement due to normal wear and tear, (d) Repair or replacement of consumable parts and materials, (e) Repair or replacement of defective Components covered by the BMW Rolls-Royce GmbH warranty identified in Section 6.7, or (f) After expiration of the twelve (12) month warranty in Section 6.2C above repair or replacement of defective Components incorporated into the Aircraft as part of the Outfitting that were not manufactured by GULFSTREAM. SECTION 6.5 EXCLUSION FOR MISUSE - The warranties set forth in this Section 6.1 shall not apply to any defect in the Aircraft or parts thereof (1) which is the proximate result of an accident, misuse, neglect, improper installation, improper repair, or improper modification by persons other than GULFSTREAM, its agents or employees, or an Authorized Warranty Repair Facility; (2) if the Aircraft parts were not obtained by BUYER from GULFSTREAM, its agents or employees, or an Authorized Warranty Repair Facility or a source authorized by GULFSTREAM; or (3) if the Aircraft or parts thereof have not been operated or maintained in accordance with GULFSTREAM's approved operating and maintenance manuals, instructions, or bulletins issued in respect of the Aircraft. SECTION 6.6 BUYER'S OBLIGATIONS - To be entitled to the benefits of the warranty set forth in this Article 6, (a) BUYER shall report all failures or defects in writing, by telegram, or by facsimile to GULFSTREAM prior to the alleged defect being corrected and within sixty (60) days following such failure or defect becoming apparent, and (b) BUYER shall maintain complete records of operations and maintenance of the Aircraft and engines and make those records available to GULFSTREAM for GULFSTREAM's inspection. Failure to maintain such records shall relieve GULFSTREAM of its warranty obligation hereunder. SECTION 6.7 BMW ROLLS-ROYCE GMBH WARRANTY - Except to the extent identified in Section 6.1(A)(C), GULFSTREAM's liability under Section 6.1 and obligations under Sections 6.2 and 6.3 do not apply to the BMW Rolls-Royce BR 710 Engines, nacelles, and spare parts. However, GULFSTREAM represents that the separate warranty from BMW Rolls-Royce GmbH is attached hereto and will be extended by BMW Rolls-Royce GmbH for these items to BUYER. SECTION 6.8 DISCLAIMER AND RELEASE OF OTHER OBLIGATIONS - A. THE WARRANTIES SET FORTH IN THIS ARTICLE 6 ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES (EXCEPT FOR THE WARRANTY OF TITLE) AND REPRESENTATIONS EXPRESS, IMPLIED, OR STATUTORY, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS (INCLUDING FITNESS FOR A PARTICULAR PURPOSE). These warranties are also in lieu of all other obligations and warranties (including without limitation, the implied warranties of merchantability and fitness for a particular purpose) related to any modifications, repairs, replacement parts, or service change kits which may hereafter be furnished by GULFSTREAM to BUYER for use on the Aircraft either pursuant to this Article 6 or otherwise. B. Except for the obligations expressly undertaken by GULFSTREAM herein, BUYER hereby waives and releases all rights, claims, and remedies with respect to any and all warranties express, implied or statutory (including without limitation, the implied warranties of merchantability and fitness), duties, obligations, and liabilities in tort or contract arising by law or otherwise including (1) liability for GULFSTREAM's own negligence, (2) strict liability or product liability, and (3) any obligations of GULFSTREAM with respect to incidental or consequential damages, damages for loss of use, or change in market value of the Aircraft. C. If an alleged defect which would be covered by this Article 6 Warranty causes the destruction of the Aircraft beyond economical repair, then and only then, BUYER hereby waives and releases for itself and its insurers all rights, claims, and remedies with respect to any claims for the recovery of the value of the Aircraft or for loss of use of the Aircraft with respect to any and all warranties expressed (including those provided in this Article 6), implied or statutory (including without limitation, the implied warranties of merchantability and fitness), duties, obligations, and liabilities in tort or contract arising by law or otherwise including (1) liability for GULFSTREAM's own negligence or (2) strict liability or product liability. This Section 6.8 (C) shall not be interpreted to affect in any way GULFSTREAM's obligations, if any, for third party claims for property damage, personal injury, or wrongful death. SECTION 6.9 150 HOUR INSPECTION - GULFSTREAM shall perform GULFSTREAM's recommended 150 hour post production warranty inspection on the Aircraft at no charge to BUYER. Such inspection shall be performed at GULFSTREAM's facility or an Authorized Warranty Repair Facility. Transportation costs shall be at BUYER's expense. SECTION 6.10 ASSIGNMENT - The warranties set forth in this Article 6 shall run to BUYER, its successors, assigns, and to all persons whom title to the Aircraft may be transferred during the warranty period set forth in this Article 6, provided that the subsequent purchaser agrees in writing to all terms and conditions contained within this Article 6 and performs all obligations of BUYER hereunder. SECTION 6.11 MODIFICATION - No agreement or understanding varying or extending these warranties will be binding upon GULFSTREAM unless in writing, signed by a duly authorized representative of GULFSTREAM. ARTICLE 7 CHANGES SECTION 7.1 Prior to the Delivery Time, GULFSTREAM shall have the right, without the prior written consent of BUYER, to make changes in the Aircraft or Product Specification and to substitute equivalent equipment, accessories or materials in the Aircraft where such changes or substitutions are deemed necessary by GULFSTREAM to prevent delays in manufacture or delivery or to improve the performance, producibility, stability, control, utility, safety, pilot workload, maintenance, or appearance of the Aircraft provided that such changes or substitutions shall not adversely affect the Delivery Time or the performance of the Aircraft. All costs of any such changes shall be borne by GULFSTREAM. SECTION 7.2 GULFSTREAM will make any changes in the Aircraft which are required by applicable law or interpretation thereof by the FAA established after the execution date of this Agreement and before the Delivery Time to permit GULFSTREAM to obtain the appropriate Certificate of Airworthiness as referred to in Section 2.1. GULFSTREAM will give notice to BUYER upon obtaining knowledge of such requirement. BUYER shall remit to GULFSTREAM at the Delivery Time one-half of the amount of the reasonable costs incurred by GULFSTREAM to effect the change, or give GULFSTREAM notice prior to the Delivery Time of its intention not to remit its portion of such costs. Upon receiving such notice GULFSTREAM may elect to either bear all costs arising under this Section and complete performance under this Agreement or terminate this Agreement by giving BUYER prompt notice of such termination. If GULFSTREAM terminates this Agreement under this Section, GULFSTREAM shall return to BUYER all payments (without interest) previously made by BUYER which are applicable to the Total Purchase Price of the Aircraft and neither party shall have any further liability to the other resulting from this Agreement. ARTICLE 8 EXCUSABLE DELAYS SECTION 8.1 GULFSTREAM shall not be charged with any liability for failure or delay in the performance of this Agreement when the failure or delay is due to causes beyond the reasonable control of GULFSTREAM or without its fault or negligence. Such causes include but are not limited to: Acts of God; force majeure; any act of government, including FAA certification delays or delays in relevant non-U.S. government aviation certification; delay in transportation; strikes or labor trouble causing cessation, slow-down or interruption of work; or the inability after due and timely diligence of GULFSTREAM to procure materials, accessories, equipment, or parts. The occurrence of such a cause of GULFSTREAM's failure or delay shall extend the Scheduled Delivery Date by the period of time required for GULFSTREAM to correct the cause of the failure or delay by using its best efforts to eliminate such cause or to overcome the effect thereof. However, if the period of time required for correction shall be more than six (6) months, either party may terminate this Agreement by giving written notice to the other party within a fifteen (15) day period immediately following such six (6) month period. In the event of a termination under this Section 8.1, or if the cause of the failure or delay is such as to render performance impossible, GULFSTREAM shall return to BUYER all payments previously made by BUYER (without interest) which are applicable to the Total Purchase Price of the Aircraft and neither party shall have any further liability to the other, resulting from this Agreement. ARTICLE 9 TERMINATION SECTION 9.1 This Agreement may be terminated by GULFSTREAM prior to the Delivery Time: (a) under Section 2.4, (b) under Section 7.2, (c) under Section 8.1, (d) upon the failure of the BUYER to make payments as specified in Addendum I, (e) upon breach or default by BUYER of any other Terms or Conditions of this Agreement and the failure of BUYER to cure or remedy such breach or default promptly after receipt of notice thereof from GULFSTREAM, or (f) without prior notice to BUYER, upon the occurrence of any of the following events: (i) the insolvency of BUYER, (ii) the institution by or against BUYER of any involuntary proceedings not dismissed within sixty (60) days or any voluntary proceeding under any insolvency or bankruptcy law, (iii) the adjudication of BUYER as a bankrupt or an insolvent, (iv) the appointment of a receiver of BUYER's property, or (v) an assignment by BUYER for the benefit of its creditors. SECTION 9.2 Upon the termination of this Agreement due to any of the events set forth in Section 9.1(a), (d) or (e), GULFSTREAM may elect, in GULFSTREAM's sole discretion: (a) To resell the Aircraft to a third party in a commercially reasonable transaction. Upon such a sale, GULFSTREAM will first apply the amount received from the resale to satisfy GULFSTREAM's reasonable expenses, including the expense of the sale of the Aircraft (including sales commissions), storage charges, ordinary maintenance expenses, and other costs which resulted from BUYER's failure to commence flight testing and inspection or to accept the Aircraft. GULFSTREAM shall refund to BUYER the amount received through the resale up to the amount of payments made by BUYER under Addendum I less reasonable expenses incurred in resale as defined above and less the difference between the Total Purchase Price and the resale price, if and only if, the latter price is less than the former price; (b) to recover, as liquidated damages and not as a penalty, (i) prior to the Scheduled Preliminary Acceptance Date, the amount of ONE MILLION U.S. DOLLARS ($1,000,000.00) by retaining the non-refundable down payment, (ii) after the Scheduled Preliminary Acceptance Date, FOUR MILLION U.S. DOLLARS ($4,000,000.00), by: (A) retaining the non-refundable down payment in the amount of ONE MILLION U.S. DOLLARS ($1,000,000.00) and THREE MILLION U.S. DOLLARS ($3,000,000.00) from the previously received payments, or (B) retaining the non-refundable down payment in the amount of ONE MILLION U.S. DOLLARS ($1,000,000.00) and returning to BUYER the Trade-In Aircraft, GIV Serial Number 1042, upon receipt from BUYER of an additional THREE MILLION U.S. DOLLARS ($3,000,000.00), or (C) reselling the Trade-In Aircraft, GIV Serial Number 1042, free and clear of any and all other obligations to BUYER and retaining from the non-refundable down payment and proceeds from the resale FOUR MILLION U.S. DOLLARS ($4,000,000.00) and returning to BUYER the remaining proceeds collected from the resale. (c) such other legal remedies as may be available to GULFSTREAM. SECTION 9.3 This Agreement may be terminated by BUYER prior to the Delivery Time: (a) under Section 8.1; (b) upon the default or breach by GULFSTREAM of any of the Terms and Conditions hereof and the failure of GULFSTREAM to cure or remedy such default or breach promptly after receipt of notice thereof from BUYER provided, however, that a delay of less than three (3) months beyond the Scheduled Delivery Date shall not be deemed to be a default or breach within the meaning of this paragraph (b) unless GULFSTREAM fails to use reasonable efforts to remove the causes of the delay and to resume performance of this Agreement with dispatch when such causes are removed; and provided, further, that BUYER at all times shall have the right to refrain from exercising its right to termination under this paragraph (b), and, except as provided in Section 9.5, to require specific performance by GULFSTREAM of this Agreement; and (c) immediately, and without prior notice to GULFSTREAM, upon the occurrence of any of the following events: (i) the insolvency of GULFSTREAM, (ii) the institution by or against GULFSTREAM of any involuntary proceedings not dismissed within sixty (60) days or any voluntary proceedings under any insolvency or bankruptcy law, (iii) the adjudication of GULFSTREAM as a bankrupt or an insolvent, (iv) the appointment of a receiver of GULFSTREAM'S property, or (v) an assignment by GULFSTREAM for the benefit of creditors. SECTION 9.4 In the event BUYER elects to terminate this Agreement pursuant to Section 9.3 (b), GULFSTREAM shall promptly return to BUYER all payments made by BUYER which are applicable to the Total Purchase Price plus interest at the prime rate charged by Chemical Bank, New York, New York or its successor from the time of receipt the funds by GULFSTREAM to the time of refund to BUYER, and neither party shall have any further liability to the other resulting from this Agreement. SECTION 9.5 This Agreement shall terminate upon the destruction or damage beyond economic repair (as GULFSTREAM may determine) of the Aircraft. In the event this Agreement is terminated pursuant to this Section 9.5, GULFSTREAM shall promptly return to BUYER all payments (without interest) theretofore made by BUYER which are applicable to the Total Purchase Price and neither party shall thereafter have any further liability to the other resulting from this Agreement. ARTICLE 10 MISCELLANEOUS SECTION 10.1 Any notice given under this Agreement shall be sent by registered or certified mail, air courier delivery service, or telegraph to the recipient party at the address shown on Addendum I or by facsimile to a telephone number provided by the recipient party. A notice shall be deemed given when received. SECTION 10.2 The Terms and Conditions of this Agreement constitute the entire agreement between the parties hereto with respect to the purchase and sale of the Aircraft and shall supersede all communications, representations or agreements, either oral or written, between the parties hereto with respect to the subject matter hereof. No agreement or understanding varying the terms and conditions hereof shall be binding upon either party hereto unless in writing attached hereto and signed by duly authorized representatives of both parties. SECTION 10.3 This Agreement shall be construed and interpreted in accordance with the laws of the State of Georgia. SECTION 10.4 This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, but this Agreement may not be voluntarily assigned in whole or in part by BUYER without the prior written consent of GULFSTREAM. SECTION 10.5 Any controversy or claim between the parties arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in Savannah, Georgia by three (3) arbitrators under the Commercial Arbitration Rules of the American Arbitration Association ("AAA") and administered by the AAA. Each party shall appoint one (1) arbitrator. The two (2) arbitrators thus appointed shall choose the third arbitrator, who shall act as chairman. If within thirty (30) days after the receipt of a party's notification of the appointment of its arbitrator the other party has not notified the first party of the arbitrator he has appointed, the first party may request the AAA to appoint the second arbitrator. If within thirty (30) days after the appointment of the second arbitrator the two arbitrators have not agreed on the choice of the third arbitrator, either party may request the AAA to appoint the third arbitrator from the panel of the AAA pursuant to Rule 15 of the Commercial Arbitration Rules of the AAA. GULFSTREAM AEROSPACE CORPORATION MR. ALLEN E. PAULSON - -------------------------------- ------------------------------ (BUYER) /s/ W.W. Boisture, Jr. /s/ Allen E. Paulson - -------------------------------- ------------------------------ SIGNATURE OF GULFSTREAM's SIGNATURE OF BUYER's AUTHORIZED REPRESENTATIVE AUTHORIZED REPRESENTATIVE ADDENDUM I TERMS OF OUTFITTED GULFSTREAM V SALES AGREEMENT THIS GULFSTREAM V SALES AGREEMENT is made and entered into this 13th day of June, 1997, BETWEEN: MR. ALLEN E. PAULSON 6001 CLUBHOUSE DRIVE RANCHO SANTA FE, CALIFORNIA 92067 ("BUYER") AND: GULFSTREAM AEROSPACE CORPORATION, a Georgia corporation, located at Savannah International Airport, Savannah, Georgia, and its mailing address at 500 Gulfstream Road, P. O. Box 2206, Savannah, Georgia 31402 - 2206 ("GULFSTREAM"). Subject to GULFSTREAM's Conditions of Contract, which are incorporated herein and made a part hereof by reference, BUYER hereby agrees to purchase the following described Outfitted Aircraft from GULFSTREAM pursuant to the following terms. Terms defined in this Addendum I will have the same definition for purposes of the Conditions of Outfitted Gulfstream V Sales Agreement. If there is any inconsistency between the Terms of Outfitted Gulfstream V Sales Agreement and the Conditions of Outfitted Gulfstream V Sales Agreement, these Terms of the Outfitted Gulfstream V Sales Agreement shall control. Section 1 SUBJECT MATTER OF SALE Aircraft: One Gulfstream V manufactured by GULFSTREAM in accordance with the Product Specification, which specification is incorporated herein and made a part hereof as Appendix A. Product Specification: Gulfstream Product Specification for Serial Number 501, dated February 20, 1997. Serial Number: Gulfstream V Flight Test Aircraft Serial Number 501. Completion Specification: Number 606060. The Completion Specification number will be changed by GULFSTREAM, without amendment to this Agreement, to specifically identify BUYER's individual specification. Any modification to the Completion Specification will be treated as a Work Change Request (WCR) with pricing and Delivery Date adjusted accordingly. Completion Facility: Gulfstream Aerospace Corporation, Long Beach, California. Scheduled Preliminary Acceptance Date: Fourth Quarter 1997 or First Quarter 1998. The Scheduled Preliminary Acceptance Date may be any date designated by GULFSTREAM during the Fourth Quarter 1997 or First Quarter 1998. GULFSTREAM shall provide BUYER with at least thirty (30) days prior written notice of the Scheduled Preliminary Acceptance Date. Scheduled Delivery Date: Second Quarter 1998 or Third Quarter 1998. The Scheduled Delivery Date may be any date during the Second Quarter 1998 or Third Quarter 1998. GULFSTREAM shall provide BUYER with at least thirty (30) days prior written notice of the Scheduled Delivery Date. The Scheduled Delivery Date identified herein is contingent upon BUYER's documented approval of the following documents by the date identified: (a) Completion Specification: No later than sixteen (16) weeks prior to the Scheduled Preliminary Acceptance Date; (b) Design Package (includes 1/20 Scale Floor Plan): No later than sixteen (16) weeks prior to the Scheduled Preliminary Acceptance Date; (c) Material and Color Board: No later than sixteen (16) weeks prior to the Scheduled Preliminary Acceptance Date; (d) External Paint Scheme: No later than nine (9) weeks prior to the scheduled induction of the Aircraft into the Completion facility. When the Aircraft completes its initial production schedule it is commonly referred to as the "Green Aircraft." Upon conclusion of the work defined in the Completion Specification, the Aircraft is referred to as the "Outfitted Aircraft." When necessary in the Agreement to differentiate between the "Green Aircraft" and the "Outfitted Aircraft," these terms will be used. Upon definition of the work requirements specified in the Completion Specification, such work may be changed by mutual agreement of BUYER and GULFSTREAM. Such an agreement shall be embodied in a Work Change Request on a form to be provided by GULFSTREAM. In the event of a conflict between the above-listed documents, the more specific shall control the more general one, provided that in all cases this Agreement shall ultimately control unless otherwise expressly provided herein. Section 2 PURCHASE PRICE AND PAYMENT TERMS Section 2.1 Total Purchase Price: THIRTY-ONE MILLION FIVE HUNDRED THOUSAND U.S. DOLLARS ($31,500,000.00). Section 2.2 All cash payments of the Total Purchase Price shall be paid in United States Dollars by wire transfer to a bank specified by GULFSTREAM. Section 2.3 The Total Purchase Price shall be paid in accordance with the following schedule: (A) A non-refundable down payment deposit of ONE MILLION U.S. DOLLARS ($1,000,000.00) shall be paid on execution of this Agreement. (B) A second payment of EIGHTEEN MILLION FIVE HUNDRED THOUSAND U.S. DOLLARS ($18,500,000.00) shall be due on or before the Scheduled Preliminary Acceptance Date. To satisfy this payment obligation, BUYER is granted the option to trade in Gulfstream IV Aircraft, Serial Number 1042, pursuant to Section 8. (C) At the Delivery Time, the following shall be due and payable: (i) The unpaid balance of the Total Purchase Price in the amount of TWELVE MILLION U.S. DOLLARS ($12,000,000.00) shall be due: (aa) in cash, or (bb) in accordance with the Promissory Note attached at Exhibit B, so long as the Marketing Services Agreement is in full force and effect at the Delivery Time. (ii) Balance of any work change requests shall be paid in cash. This payment schedule is non-assignable. Section 3 COMPUTERIZED MAINTENANCE PROGRAM ("CMP") Section 3.1 GULFSTREAM shall provide BUYER, at no additional charge, participation in the Gulfstream V Computerized Maintenance Program commencing at the Delivery Time and terminating twenty-four (24) months after the Operational Delivery. Thereafter, BUYER may elect to continue such participation by the payment of GULFSTREAM's customary charges in effect from time to time. Section 4 TRAINING Section 4.1 GULFSTREAM shall provide at Savannah, Georgia, to trainees as designated by BUYER, at no additional charge to BUYER, the following training for the Aircraft: (a) an initial ground school course in the operation and maintenance of the Aircraft for up to three (3) pilots, including simulator training, provided by a qualified training organization designated by GULFSTREAM; and (b) an initial ground school course in the operation and maintenance of the Aircraft for up to three (3) mechanics, including three (3) hours simulator training for each mechanic, provided by a qualified training organization designated by GULFSTREAM. Section 4.2 After the Delivery Time, GULFSTREAM shall provide through a qualified training organization designated by GULFSTREAM initial instruction to proficiency in BUYER's aircraft for three (3) pilots designated by BUYER; such instruction shall be conducted in Savannah, Georgia. Such instruction shall be without charge to BUYER except that BUYER shall reimburse GULFSTREAM for cost of any fuel, oil or maintenance furnished for the Aircraft during the training period. Section 4.3 GULFSTREAM's obligation to provide the training described in Sections 4.1 and 4.2 above shall expire twelve (12) months after the Operational Delivery. No credit or other financial adjustment shall be made for any unused training as specified in this Section 4. Section 5 IN SERVICE PILOT ASSISTANCE Section 5.1 GULFSTREAM shall provide the following pilot assistance with respect to Outfitting check flights of the Aircraft: If the Outfitting was performed at the GULFSTREAM's facilities in Savannah, Georgia or Long Beach, California, all pilot services required by BUYER are provided free of any further charge. Section 5.2 Immediately following Outfitting, GULFSTREAM shall provide five (5) days, excluding pilot positioning travel days, of pilot services for initial in-service assistance. The reasonable expenses of GULFSTREAM's provided pilots for travel, meals, lodging, and related expenses shall be reimbursed to GULFSTREAM by BUYER. Section 6 MEDAIRE, INC. GULFSTREAM shall provide to BUYER, starting upon delivery of the Outfitted Aircraft, to the following services of MedAire, Inc., to the extent then currently available: 1. A five (5) year subscription to MedLink Worldwide. 2. Management of Inflight Illness and Injury training for five crew members. (Training for up to eight (8) crew members when the session is held at the customer's site. Travel expenses will be invoiced to the customer). 3. One (1) MedAire Aircraft First Aid Kit aboard each Gulfstream V. 4. Five (5) years of MedTrack service for the Aircraft First Aid Kit. (MedTrack helps keep kits up to date by monitoring and replacing expired refill-type items, plus replenishing used items with new supplies, after notification of use.) Section 7 INSURANCE GULFSTREAM shall continue to insure the Aircraft while in GULFSTREAM's Completion Center; provided, however, that BUYER shall reimburse GULFSTREAM for the reasonable costs (not to exceed U.S. $40,000.00) of insuring the Aircraft's hull while the Aircraft is in GULFSTREAM's Completion Center and through the Delivery Time. Section 8 TRADE-IN OPTION BUYER is granted the option, exercisable no later than December 1, 1997, to trade in Gulfstream IV Aircraft, Serial Number 1042 (the "Trade-In Aircraft"), at the Scheduled Preliminary Acceptance Date, for a Trade-In Value of EIGHTEEN MILLION FIVE HUNDRED THOUSAND U.S. DOLLARS ($18,500,000.00), pursuant to the terms and conditions of the Aircraft Trade-In Agreement attached at Exhibit A. The Trade-In Value shall be applied to offset any payment or appropriate part of any payment owed at the Scheduled Preliminary Acceptance Date. Prior to the option exercise date, GULFSTREAM is the exclusive representative for the Trade- In Aircraft, except as provided in the Remarketing Agreement, and will market the Trade-In Aircraft at any price acceptable to BUYER pursuant to the terms of the attached Remarketing Agreement at no charge to BUYER other than reimbursement of GULFSTREAM expenses as defined in the Remarketing Agreement. Should the Trade-In Aircraft be resold by GULFSTREAM prior to the Scheduled Delivery Date, then BUYER shall be entitled to receive, in addition to the above Trade-In Value, an additional amount, if any, by which the resale price exceeds the Trade-In Value, after deduction for GULFSTREAM's reasonable and customary expenses associated with the resale, which may include: Advertising and marketing expenses; A Standard Pre-Owned Aircraft Warranty reserve; Paint and training reserves or expenses; GULFSTREAM internal sales force commission expenses; Third party brokerage commissions, if any; Prepurchase inspection and discrepancy expenses; Non-reimbursable aircraft demonstration expenses; Aircraft modifications which are included in the resale price; and Any other expenses agreed to by the parties. Section 9 FLIGHT TEST AIRCRAFT BUYER acknowledges that the Aircraft purchased pursuant to this Agreement is being used by GULFSTREAM in its Gulfstream V Certification Flight Test Program. GULFSTREAM estimates that the Aircraft will have no more than 1200 flight hours and 700 cycles on its airframe, and 900 flight hours and 1300 cycles on its engines as of the Preliminary Acceptance Time. Actual figures will be provided at the Preliminary Acceptance Time. Section 10 LETTER OF CREDIT BUYER, at the Delivery Time, agrees to provide GULFSTREAM a Letter of Credit in the initial amount of TWELVE MILLION U.S. DOLLARS ($12,000,000.00) to secure payments under the Promissory Note provided under Section 2.3(C)(i)(bb) of this Addendum I, so long as such Promissory Note remains unpaid. Such Letter of Credit will be in the form attached at Exhibit C (Letter of Credit), or other form satisfactory to GULFSTREAM in its sole discretion. Prior to each renewal date of the Letter of Credit (or at quarterly intervals at the request of BUYER). GULFSTREAM shall review the amounts then outstanding under the Promissory Note, including any offsets for amounts otherwise due BUYER from GULFSTREAM under this Agreement or the Marketing Services Agreement between the parties of even date herewith, and permit the amendment or renewal of the Letter of Credit to be in the maximum amount then remaining due under the Promissory Note. GULFSTREAM shall return the original Letter of Credit to BUYER upon full payment of the Promissory Note. All costs of the Letter of Credit will be borne by BUYER. Section 11 GULFSTREAM'S USE OF THE AIRCRAFT BUYER agrees to provide GULFSTREAM with use of the Aircraft subsequent to the Delivery Time for a total of 200 hours per year for a term of three (3) years in accordance with the terms and conditions of the Non-Exclusive Use Agreement attached at Exhibit D. Section 12 LEASEBACK OF TRADE-IN AIRCRAFT GULFSTREAM hereby agrees to lease back to BUYER, at a nominal charge under an "Aircraft Lease Agreement" attached at Exhibit E, GIV Aircraft Serial Number 1042 from the acceptance date of the Trade-In Aircraft as defined in Exhibit A, through the Delivery Time of the Gulfstream V Aircraft. Section 13 CONFIDENTIALITY The terms set out in this Agreement and the information made available as a result of the negotiations which preceded the consummation of the transactions contemplated by this Agreement are strictly confidential and are personal, trade, or business secrets of the parties. The parties shall not disclose to any other person the nature, terms or conditions of this Agreement or any information concerning the respective parties unless necessary for either party to carry out its obligations or enforce its rights pursuant to this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their duly authorized representatives on the date first above written. GULFSTREAM AEROSPACE CORPORATION MR. ALLEN E. PAULSON ------------------------ (BUYER) BY: /s/ W.W. Boisture, Jr. BY: /s/ Allen E. Paulson --------------------- ---------------------- TITLE: TITLE: --------------------- --------------------- EX-10.25 3 June 13, 1997 Mr. Allen E. Paulson 6001 Clubhouse Drive Rancho Santa Fe, California 92067 Re: MARKETING SERVICES AGREEMENT Dear Allen: This letter confirms and sets out our agreement with you to provide Gulfstream with certain marketing and sales services. 1. During the period that this agreement is in effect you shall represent Gulfstream Aerospace Corporation and its affiliated and associated companies ("Gulfstream") exclusive of any other aircraft manufacturer, and shall, in consultation with me or my designee, promote without reservation Gulfstream's interest in selling Gulfstream V Aircraft to potential customers. Specifically, you will assist Gulfstream and its employees in establishing and maintaining favorable relationships and channels of communication with potential customers that you identify or have a close relationship with and perform such other liaison services that Gulfstream may request you to perform in connection with selling Gulfstream Aircraft. You will also provide product development services as specified in Exhibit 1 to this Agreement. 2. You shall earn success fees as specified in Exhibit 1 for sales of Gulfstream V Aircraft in which you are actively and materially involved and for certain product development activities that result in a commercially viable product to which Gulfstream obtains exclusive marketing and service and support rights as described in Exhibit 1 to this Agreement. 3. This agreement shall be effective from the date hereof until the earlier of four years or such time that Gulfstream has received from you (whether by payment, offset of success fees or other offsets) the final payment due under the Outfitted Gulfstream V Sales Agreement dated June 13, 1997, and no outstanding balance remains. Upon termination neither party shall have any further obligations or duties to the other under this agreement. 4. It is understood and agreed that no part of the success fee paid to you will be paid directly or indirectly to a government official or employee or any official or employee of any customer, potential customer or Gulfstream. 5. It is understood that this agreement is personal in character and cannot be assigned. 6. Given the unique relationship and trust Gulfstream enjoys with all of its customers, we reserve the right to disclose to any customer you become involved with that we have an agreement with you to pay a success fee upon the successful sale of a Gulfstream Aircraft to them after consultation with you. Other than this disclosure, and other than disclosure pursuant to U.S. federal securities laws and regulations, both parties agree to make every reasonable effort to avoid any publicity relative to this agreement and agree not to divulge or disclose to persons outside this relationship the details of this agreement, provided, however, that in the event publicity does occur, or unless either party is lawfully required to disclose the payment of a success fee or the details of this agreement to any regulatory agency or governmental authority of any government entitled to such information, both parties hereby consent to such disclosure and acknowledge that no claim or action by either party against the other party or its representatives shall arise. 7. We have asked you to execute the attached FINDER FCPA CERTIFICATION, and have thoroughly briefed you on our high ethical standards in commercial and governmental transactions. We know you share these values and hereby commit to each other to uphold them during the term of this agreement. 8. It is understood and agreed that you will keep confidential, without limits to time, all matters related to this agreement, as well as any and all of Gulfstream's documents, data, or information that may come into your possession during our association. 9. It is further understood and agreed that for the purpose of this agreement you are an independent contractor, and that Gulfstream shall have no liability for any suits or claims brought against you by virtue of the association contemplated herein. 10. Finally, it is understood and agreed that in the absence of an express written corporate authorization you may not bind or commit Gulfstream in any manner whatsoever, and in particular, without limitation, you shall not engage or retain any third-parties as sub-agents or in any other capacity in any manner to bind or commit Gulfstream. 11. The construction of this agreement and its performance shall be in accordance with the laws of the State of Georgia. Any dispute between us will be resolved pursuant to the Commercial Rules of Arbitration of the American Arbitration Association in Savannah, Georgia. If the foregoing accurately reflects our agreement, would you please so indicate by signing and returning the enclosed duplicate original of this letter. I look forward to working with you and will be your principal contact during the course of this agreement. Very truly yours, /s/ W. W. Boisture, Jr. ----------------------- W. W. Boisture, Jr. Agreed and accepted: /s/ Allen E. Paulson - --------------------------- Date: --------------------- EX-10.26 4 [LOGO] Gulfstream Aerospace GULFSTREAM IV AIRCRAFT PURCHASE AGREEMENT AND AMENDMENT TO OUTFITTED GULFSTREAM V SALES AGREEMENT THIS AGREEMENT made and entered into this _______ day of August, 1997 by and between SELLER: Please include: MR. ALLEN E. PAULSON Street & Mailing 6001 CLUBHOUSE DRIVE Address, City, State, RANCHO SANTA FE, CA 92067 Zip Code and Country: and GULFSTREAM: Please include: GULFSTREAM AEROSPACE CORPORATION Street & Mailing 500 GULFSTREAM ROAD Address, City, State, SAVANNAH, GA 31408 Zip Code and Country: WHEREAS, SELLER owns the following described Aircraft: Manufacturer, Model: GIV Airframe Serial Number: 1042 Aircraft Registration Number: TBD With the following attached engines together with the equipment items listed in Attachment A together referred to as the "Aircraft": Manufacturer, Model: ROLLS-ROYCE TAY MK611-8 Engine Serial Numbers: LEFT: 16189, RIGHT: 16190 NOW, THEREFORE, in consideration of the mutual covenants and representations herein contained, and other good and valuable consideration, the parties hereby agree as follows: ARTICLE 1 SUBJECT MATTER OF SALE Equipment The items listed in Attachment A, "Equipment Items" will be delivered with the Aircraft at the Delivery Time, in a condition consistent with the representations stated therein. ARTICLE II DELIVERY A. Tender and Condition of Aircraft for Delivery SELLER shall tender the Aircraft to GULFSTREAM in Savannah Georgia, or a mutually agreed upon location, on or about August 15, 1997 (the "Scheduled Delivery Date"), in the following condition: (1) The Aircraft shall be fully serviceable and in an airworthy condition in accordance with the Federal Aviation Administration ("FAA") Part 135 Regulations for Civil Aircraft, normal wear and tear excepted. (2) All Aircraft systems shall be fully functional and operational as required by the Airframe or Engine manufacturers maintenance manuals. (3) The Aircraft must be delivered with a current FAA Standard Certificate of Airworthiness. (4) The Aircraft maintenance shall be current and in complete compliance with GULFSTREAM's recommended maintenance schedule for such aircraft model which will include but may not be limited to: (a) Airframe, Engine, and APU component overhaul periods shall be complied with. Any replacement items will have been completely overhauled and at zero time when installed, with complete and accurate supporting technical documentation, such as log book entries and serviceable tags that verify the component(s) origin and its condition at installation. (b) All Airframe, Engine, APU and Accessory FAA Airworthiness Directives applicable to the Aircraft shall be incorporated prior to the Delivery Time. (c) All Airframe, Engine, APU, and Component Mandatory Service Bulletins or "Active" Customer Bulletins applicable to the Aircraft shall be embodied prior to the Delivery Time. (5) The Aircraft's Weight and Balance Schedule shall be current and represent the Aircraft's configuration at the Delivery Time. (6) The Aircraft will have no known corrosion and will have suffered no structural damage that requires an entry to be placed within the Aircraft's maintenance records. (7) The Aircraft will not have incurred any reduction to either its specified fatigue life or routine maintenance inspections as determined by the Engineering Department of GULFSTREAM. (8) CMP must be paid in full, current, and assignable at no cost to GULFSTREAM. (9) All applicable maintenance engine maintenance service plans including but not limited to, Power by the Hour, MSP, and JSS must be paid in full, current, and assignable at no cost to GULFSTREAM. (10) All airframe, engine, APU, component, and associated equipment maintenance records and manuals shall be surrendered by SELLER to GULFSTREAM which shall include but not be limited to: (a) Log books, work cards NDT radiographs, computerized maintenance history and any engineering instructions issued by the Aircraft manufactuer's Engineering Department. (b) Component serviceability tags or Certificates of Conformity (c) Copies of FAA approved STC's, 337 alteration forms, and interior burn certifications. (d) All manuals conveyed to GULFSTREAM which are subject to periodic revision shall be fully up to date and current to the latest revision standard. (11) Prior to the Tender of the Aircraft SELLER shall allow GULFSTREAM access to the Aircraft and its records to perform a preliminary assessment. SELLER will also supply GULFSTREAM an inventory list of all loose equipment, tools, manuals, log books and any other associated Aircraft records or documentation which will be conveyed to GULFSTREAM at delivery. B. Inspection of Aircraft and Correction of Discrepancies Prior to acceptance by GULFSTREAM, the Aircraft shall be subject to the following inspections by GULFSTREAM and at GULFSTREAM's expense: (1) A flight test by GULFSTREAM (or approved Designee) of at least three hours duration. (2) A ground inspection and records review in accordance with GULFSTREAM's procedures. (3) Any routine maintenance that GULFSTREAM considers necessary which may not be due but could result in the discovery of discrepant conditions. If the Aircraft does not conform to the specifications in Article I, or does not meet the standards and conditions as set forth in Article II, Section A, or has discrepancies discovered by the inspection and flight test, then GULFSTREAM shall not be obligated to accept the Aircraft unless SELLER corrects, at its expense, any discrepancies disclosed by such flight test and ground inspection. Upon the correction of the discrepancies as verified by follow-on inspections or flight tests, if any, GULFSTREAM shall accept the Aircraft. C. Failure of SELLER to Correct Discrepancies If SELLER does not correct the discrepancies disclosed by GULFSTREAM's inspection to the satisfaction of GULFSTREAM, this Agreement shall be terminated, and, if applicable, title transferred back to SELLER, and neither Party shall have any obligation to the other or liability resulting from this Agreement. D. Delivery Time When the Aircraft is tendered to GULFSTREAM in the condition required of it by Article II Section (A) with an FAA Standard Airworthiness Certificate and upon correction of any discrepancies identified under Section B of this Article II to GULFSTREAM's satisfaction, this shall be referred to herein as the "Delivery Time." E. GULFSTREAM's Acceptance At the Delivery Time: (i) the parties shall execute a Memorandum of Delivery, identified as "Attachment B," attached hereto, (ii) GULFSTREAM shall pay to SELLER the Purchase Price for the Aircraft as set forth in Article III A and B, (iv) the parties shall execute a Warranty Bill of Sale, identified as "Attachment C," attached hereto, and (iii) SELLER shall cause an FAA Bill of Sale to be filed with the FAA Aircraft Registry. This exchange of documents and payment of the Purchase Price shall constitute acceptance of the Aircraft by GULFSTREAM. Upon GULFSTREAM's acceptance, title to the Aircraft shall pass from SELLER to GULFSTREAM and all risk of loss or damage to the Aircraft shall thereafter be borne by GULFSTREAM. ARTICLE III AIRCRAFT PURCHASE PRICE A. Purchase Price The Purchase Price for the Aircraft shall be: TWENTY-ONE MILLION U.S. DOLLARS ($21,000,000.00), subject to GULFSTREAM's receipt and written acceptance of an Attachment A for this Agreement. B. Form of Payment The Purchase Price shall be paid by GULFSTREAM at the Delivery Time by wire transfer to a bank specified by SELLER . ARTICLE IV TECHNICAL DATA Prior to execution of this Agreement, SELLER shall furnish a complete and accurate Aircraft Specification Sheet which will include the interior floor plan of the Aircraft. The Aircraft Specification information supplied by SELLER as Attachment A to the Agreement determines the Purchase Price of the Aircraft as shown in Article III, Section A above. ARTICLE V WARRANTIES A. Title SELLER warrants that it has clear and indefeasible title to the Aircraft, the right to transfer the Aircraft to GULFSTREAM, and that the Aircraft is free and clear of all liens, charges, and encumbrances and claims. If the SELLER cannot produce clear and indefeasible title to GULFSTREAM at the Delivery Time then this Agreement shall be terminated. In addition, SELLER warrants that it has no knowledge of any undisclosed defects in the Aircraft. B. Assignment of Other Warranties In the event any warranties remain in effect with respect to the Aircraft, SELLER shall assign them to GULFSTREAM without recourse to SELLER to the extent such warranties are assignable by SELLER . C. Disclaimer of Other Warranties ALL WARRANTIES WHETHER EXPRESS, IMPLIED, OR STATUTORY, SUCH AS WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OF PURPOSE ARE HEREBY EXCLUDED AND DISCLAIMED EXCEPT ONLY FOR THE WARRANTY OF GOOD TITLE PROVIDED UNDER THIS ARTICLE V WHICH WARRANTY COMPRISES SELLER'S EXCLUSIVE AND ENTIRE RESPONSIBILITY WITH RESPECT TO THE AIRCRAFT OR ANY FAILURE OR DEFECT THEREIN, TO THE EXCLUSION OF ALL LIABILITY IN TORT (WHETHER FOR NEGLIGENCE OR OTHERWISE) OR IN CONTRACT, INCLUDING WITHOUT LIMITATION, ANY LIABILITY OF SELLER WITH RESPECT TO INCIDENTAL OR CONSEQUENTIAL DAMAGES, OR DAMAGES FOR LOSS OF USE. ARTICLE VI MISCELLANEOUS A. Taxes (1) State Sales Taxes GULFSTREAM indemnifies and holds SELLER harmless from the payment of or assessment of any sales tax, related penalties, and attorney's fees which results from the application of the provisions of the Georgia Sales Tax or any other similar state sales tax law to the transaction contemplated herein, at the place and time of delivery of the Aircraft; provided however, that GULFSTREAM shall receive timely notice of any proposed assessment and shall have the opportunity at its option and expense to contest the collection of such sales taxes. At Delivery Time, GULFSTREAM shall provide SELLER a valid certificate of exemption as a dealer under Georgia Sales Tax Law, if the Aircraft is delivered in the state of Georgia. (2) Other Taxes SELLER indemnifies and holds GULFSTREAM harmless from the payment or assessment of any other tax applicable to the sale and normally imposed upon SELLER, related penalties and attorney's fees, including all duties, imposts, tariffs, or other similar levies applicable to the sale of the Aircraft or to the use, ownership, or transportation of the Aircraft before the Delivery Time; provided however, that SELLER shall receive timely notice of any proposed assessment and shall have the opportunity at its option and expense to contest the collection of such taxes. B. Notice Any notice given under this Agreement shall be sent by registered mail, certified mail, or facsimile to the recipient Party at the address shown on page one. A notice shall be deemed given when received. For purposes of this agreement, any notice sent to GULFSTREAM shall be sent to Vice President, Pre-Owned Aircraft, 500 Gulfstream Road, Savannah GA 31408. Telephone 912-965-3118, facsimile 912-965-3986. C. Assignment This Agreement shall inure to the benefit of and be binding upon the Parties, their successors and assigns, provided however, that GULFSTREAM shall have right of assignment prior to the Delivery Time. D. Scope of Agreement The terms and conditions contained in this Agreement constitute the entire Agreement between the parties with respect to the purchase and sale of the Aircraft and shall supersede all communications, representations, or agreements, either oral or written, between the Parties. E. Modification of Agreement This Agreement may not be changed or modified except by an instrument in writing executed subsequent to the date hereof by authorized representatives of both parties. F. Section Headings Section headings used herein are merely descriptive and used for convenience only. No amplification or limitation of language contained in a particular section shall be implied from the section heading thereof. G. Governing Law This Agreement shall be construed and interpreted in accordance with the laws of the State of Georgia. H. Arbitration Any controversy or claim between the parties arising out of or relating to this Agreement, or breach thereof, shall be settled by arbitration in Savannah, Georgia by three (3) arbitrators under the Commercial Arbitration Rules of the American Arbitration Association ("AAA") and administered by the AAA. Each party shall appoint one (1) arbitrator. The two (2) arbitrators thus appointed shall choose the third arbitrator, who shall act as chairman. If within thirty (30) days after the receipt of a party's notification of the appointment of its arbitrator the other party has not notified the first party of the arbitrator he has appointed, the first party may request the AAA to appoint the second arbitrator. If within thirty (30) days after the appointment of the second arbitrator the two arbitrators have not agreed on the choice of the third arbitrator, either party may request the AAA to appoint the third arbitrator from the panel of the AAA pursuant to the Rule 15 of the Commercial Arbitration Rules of the AAA. Any award issued under this Section shall be entitled to enforcement in any court having jurisdiction. I. Counterparts This Agreement may be executed in counterparts, each of which when executed, shall, irrespective of the date of its execution and delivery, be deemed an original, and said counterparts together shall constitute one and the same agreement. ARTICLE VII AMENDMENT TO OUTFITTED GULFSTREAM V SALES AGREEMENT The parties hereby agree to amend Addendum I Terms of the Outfitted Gulfstream V Sales Agreement, as follows: A. Section 2.3(B) is amended by deleting the last sentence thereof. B. Sections 8 and 12 are deleted. IN WITNESS WHEREOF, the Parties have caused this GULFSTREAM IV Aircraft Purchase Agreement and Amendment to Outfitted Gulfstream V Sales Agreement to be signed by their duly authorized representatives on the date first written above. GULFSTREAM AEROSPACE CORPORATION MR. ALLEN E. PAULSON BY: /s/Mike Ellis BY: /s/Allen E. Paulson ------------------------------- -------------------------- TITLE: V.P. Pre-Owned Sales TITLE: Owner ---------------------------- ----------------------- DATE: July 31, 1997 DATE: Aug. 1, 1997 ----------------------------- ----------------------- EX-10.27 5 AMENDED AND RESTATED GULFSTREAM AEROSPACE CORPORATION 1990 STOCK OPTION PLAN, AS FURTHER AMENDED THROUGH JULY 30, 1997 1. Purpose. The purpose of the Gulfstream Aerospace Corporation Stock Option Plan is to provide financial incentives to key employees of the Corporation and its Subsidiaries and such consultants, advisors and members of the Board of Directors of the Corporation and its Subsidiaries whose entrepreneurial and management talents and commitments are essential for the continued growth and expansion of the Corporation's business. The Options granted under the Plan are not intended to qualify as Incentive Stock Options within the meaning of Section 422 of the Code. 2. Definitions. For purposes of this Plan: (a) "Affiliate" means any person directly or indirectly controlling, controlled by, or under common control with the person of which it is an Affiliate. (b) "Board" means the Board of Directors of the Corporation. (c) "Common Stock" means the Common Stock, par value $.0l per share, of the Corporation and any other stock or securities into which such shares are changed or for which such shares are exchanged as described in Section 7 hereof. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means a committee, as described in Section 3, appointed by the Board from time to time to administer the Plan and to perform the functions set forth herein. (f) "Corporation" means Gulfstream Aerospace Corporation, a Delaware corporation, and any successor to Gulfstream Aerospace Corporation by merger, consolidation, acquisition of substantially all the assets thereof or otherwise. (g) "Eligible Person" means any individual employee or director of, or consultant or advisor to, the Corporation or its Subsidiaries whom the Committee designates as eligible to receive Options. (h) "FL & Co. Companies" means individually and collectively Gulfstream Partners, Gulfstream Partners II, L.P. and Forstmann Little & Co. Subordinated Debt and Equity Management Buyout Partnership - IV, each a New York limited partnership. (i) "Nonemployee Director" means a director of the Corporation who is a "nonemployee director" within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended. (j) "Option" means an option granted under the Plan. (k) "Optionee" means a person to whom an Option has been granted. (l) "Option Price" means the price at which a share of Common Stock can be purchased pursuant to an Option. (m) "Original Shareholders" means individually and collectively the FL & Co. Companies and Allen E. Paulson. (n) "Outside Director" means a director of the Corporation who is an "outside director" within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. (o) "Parent" means a parent corporation within the meaning of Section 424(e) of the Code. (p) "Plan" means the Gulfstream Aerospace Corporation Stock Option Plan as set forth in this instrument and as it may be amended from time to time. (q) "Stock Option Agreement" means the written agreement between an Optionee and the Corporation evidencing the grant of an Option and setting forth the terms and conditions of that Option. (r) "Stockholder's Agreement" means the Stockholder's Agreement governing the rights, duties and obligations of present or former employees, directors, consultants or advisors of the Corporation or its Subsidiaries with respect to shares of Common Stock granted or sold to such persons, or issued pursuant to options granted or sold to such persons, substantially in the form attached hereto, or such other form as is in use by the Corporation at the time of exercise of any Option or any part thereof and which the Corporation elects to require the Optionee to execute in connection with his exercise of the Option. All references herein or in any Stock Option Agreement to sections of the Stockholder's Agreement refer to sections of the Stockholder's Agreement attached hereto or to the corresponding sections of any Stockholder's Agreement in use by the Corporation at the time of exercise of any Option and which the Corporation elects to require the Optionee to execute in connection with his exercise of the Option. (s) "Subsidiary" means a subsidiary corporation of the Corporation within the meaning of Section 424(f) of the Code, substituting "issuing" for "employer" references therein. (t) "Successor Corporation" means a corporation, or a Parent or Subsidiary of such corporation, which issues or assumes a stock option in a transaction to which Section 424(a) of the Code applies. (u) "Third Party" means any person who is not an Affiliate or a partner of the Original Shareholders or an Affiliate of such partner. 3. Administration. The Plan shall be administered by the Committee, which shall hold meetings at least annually, and shall keep minutes of its meetings. The Committee shall have all of the powers necessary to enable it to carry out its duties under the Plan properly, including the power and duty to construe and interpret the Plan and to determine all questions arising under it. The Committee's interpretations and determinations shall be conclusive and binding upon all persons. The Committee may also establish, from time to time, such regulations, provisions, procedures and conditions regarding the Options and granting of Options which in its opinion may be advisable in administering the Plan. A quorum shall consist of not fewer than two members of the Committee and a majority of a quorum may authorize any action. Any decision or determination reduced to writing and signed by a majority of all of the members of the Committee shall be as fully effective as if made by a majority vote at a meeting duly called and held. The Committee shall consist of at least two (2) directors of the Corporation and may consist of the entire Board; provided, however, that (A) if the Committee consists of less than the entire Board, each member shall be a Nonemployee Director and (B) to the extent necessary for any Option intended to qualify as performance-based compensation under Section 162(m) of the Code to so qualify, each member of the Committee, whether or not it consists of the entire Board, shall be an Outside Director. 4. Shares Available for Option. (a) The Corporation shall reserve for the purposes of the Plan, out of its authorized but unissued Common Stock or out of shares of Common Stock held in the Corporation's treasury, or partly out of each, as shall be determined by the Board, a total of 9,688,550 shares of Common Stock (or the number and kind of shares of stock or other securities into which those 9,688,550 shares are changed or for which those 9,688,550 shares are exchanged in accordance with Section 7 hereof). (b) In any calendar year, no Eligible Person may be granted Options in the aggregate in respect of more than 500,000 Shares. (c) In the event that an Option granted under the Plan to any Eligible Person expires, or is for any other reason terminated and unexercised as to any shares of Common Stock covered by the Option, those shares of Common Stock shall thereafter be available for the granting of future Options under the Plan. 5. Granting Options. (a) Subject to the provisions of the Plan, the Committee shall have full and final authority to select those Eligible Persons who will receive Options. The Committee may also grant more than one Option to a given Eligible Person during the term of the Plan, either in addition to, or in substitution for, one or more Options previously granted that Eligible Person. Options shall be issued pursuant to a Stock Option Agreement executed by the Corporation and the Optionee. (b) The Committee, in its sole discretion, shall establish the per share Option Price at the time an Option is granted. (c) The terms of each Option granted under the Plan may differ from those of other Options granted under the Plan at the same time, or at some other time; provided that in no event shall the term of any Option granted under the Plan exceed ten years and one day. (d) Subject to the provisions of the Plan and the Stock Option Agreement, an Option granted under this Plan shall be exercisable immediately or in accordance with a schedule determined by the Committee in its sole discretion, and the Committee may accelerate the exercisability of any Option at any time. (e) Unless set forth in the Stock Option Agreement evidencing the Option at the time of grant or at any time thereafter, an Option granted hereunder shall not be transferable by the Optionee to whom granted except by will or the laws of descent and distribution of the state of the Optionee's domicile at the time of his death, and an Option may be exercised during the lifetime of such Optionee only by the Optionee or his or her guardian or legal representative. The terms of such Option shall be final, binding and conclusive upon the beneficiaries, executors, administrators, heirs and successors of the Optionee. (f) Subject to the terms and conditions and within the limitations of the Plan, the Committee may modify, extend, replace or renew outstanding Options granted under the Plan, or accept the surrender of outstanding Options (to the extent they have not yet been exercised) and grant new Options in substitution for them. Notwithstanding the foregoing, however, no modification of an Option shall adversely alter or impair any rights or obligations under any Option granted under the Plan without the affected Optionee's consent. 6. Exercise Of Options. (a) To exercise an Option, in whole or in part, the Optionee shall deliver to the Committee a written notice of exercise specifying the number of shares of Common Stock in respect of which the Option is being exercised. The Option Price shall be paid in full in cash for those shares of Common Stock with respect to which the Option is being exercised. The Stock Option Agreement shall set forth the minimum number of shares of Common Stock, if any, which may be purchased at any one time upon the exercise of an Option. Each share of Common Stock purchased upon exercise of an Option shall be issued and delivered at the principal office of the Corporation to the person entitled to receive it. An Optionee shall not be deemed the holder of any shares of Common Stock subject to the Option or have any rights of a stockholder with respect thereto until such shares of Common Stock have been issued and delivered to such Optionee. The Stock Option Agreement may contain such other conditions to the exercise of an Option as the Committee from time to time shall determine and may also contain provisions relating to the ownership of the shares of Common Stock issued upon the exercise of the Option or may require the Optionee, as a condition of exercise of the Option, to execute a Stockholder's Agreement. (b) Except as provided in the Stock Option Agreement, any Options held by an Optionee shall not be exercisable after the termination of the Optionee's employment with the Corporation or its Subsidiaries or his membership on the Board, as the case may be. During an Optionee's lifetime, Options granted under the Plan shall be exercisable only by the Optionee. In the event of an Optionee's death, any Options held by the Optionee shall be exercisable, to the extent provided in the Plan or under the Stock Option Agreement, by the legatee or legatees under his will or by his personal representatives or distributees. (c) All certificates representing shares of Common Stock issued pursuant to the exercise of an Option shall bear the following legend: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or any securities regulatory authority of any state, and may not be sold, transferred, assigned, exchanged, pledged, encumbered or otherwise disposed of except in accordance with the provisions of a Stockholder's Agreement with the Corporation, a copy of which is available for inspection at the offices of the Corporation." or such other legend to the same effect as approved by the Committee. (d) To the extent that an Option is not exercised prior to the expiration of its term or such shorter period of time prescribed by the Plan and the Stock Option Agreement, the Option shall lapse and all rights of the Optionee with respect thereto shall terminate. 7. Changes in Common Stock. In the event that the outstanding shares of Common Stock are changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation, whether through merger, consolidation, reorganization, recapitalization, stock dividend, stock split-up or other substitution of securities of the Corporation, the Committee shall make appropriate adjustments to the maximum number and class of shares of stock as to which Options may be granted under the Plan and the number and class of shares of stock with respect to which Options have been granted under the Plan, the Option Price for such shares and any other economic terms of the Option. In the event that any shares of Common Stock are issued after the date of the Plan to any of the FL & Co. Companies for less than fair consideration, as determined conclusively by the Committee, the Committee shall make appropriate adjustments to the maximum number of shares of stock as to which Options may be granted under the Plan and the number of shares of stock with respect to which Options have been granted under the Plan and the Option Price for such shares. The Committee's adjustment shall be final and binding for all purposes of the Plan and each Stock Option Agreement entered into under the Plan. No adjustment provided for in this Section 7 shall require the Corporation to issue a fractional share, and with respect to each Stock Option Agreement the total adjustment as to the number of shares for which Options have been granted shall be effected by rounding down to the nearest whole number of shares. 8. Amendment or Termination of Plan. The Board shall have the right to amend, suspend or terminate the Plan at any time, provided that, to the extent necessary under applicable law, an amendment shall not be effective unless approved by the stockholders of the Company in accordance with applicable law. The rights of an Optionee under any Option granted prior to an amendment, suspension or termination of the Plan shall not be adversely affected by any such action of the Board except with the consent of the Optionee. 9. Indemnification of Stock Option Committee. The members of the Committee shall be indemnified by the corporation against all losses, claims, damages and liabilities, joint or several (including all legal and other expenses reasonably incurred in connection with the preparation for, or defense of, any claim, action or proceeding, whether or not resulting in any liability), for any acts or omissions which are within the scope of such member's duties as a member of the Committee to the full extent permitted under the General Corporation Law of the State of Delaware, as amended from time to time. 10. Compliance with Law and Other Conditions. All Options and Stock Option Agreements shall be governed by the laws of the State of New York to the extent not superseded by the laws of the United States. Notwithstanding anything herein or in any agreements pursuant to which Options are granted to the contrary, the Corporation shall not be required to issue shares pursuant to the exercise of any Option granted under the Plan unless the Corporation's counsel has advised the Corporation that such exercise and issuance comply with all applicable laws including, without limitation, all applicable federal and state securities laws. 11. Miscellaneous. Nothing in the Plan or in any Stock Option Agreement shall (a) confer on any employee any right to continue in the employ of the Corporation, any of its Subsidiaries or any Successor corporation; or (b) affect the right of the Corporation, any of its Subsidiaries or any Successor Corporation to terminate his employment at any time. 12. Withholding of Taxes. At such times as an Optionee recognizes taxable income in connection with the receipt of Shares hereunder (a "Taxable Event"), the Optionee shall pay to the Corporation an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld by the Corporation in connection with the Taxable Event prior to the issuance of such Shares. 13. Effective Date and Duration of Plan. The effective date of the Plan shall be the date of its adoption by the Board, subject only to the approval of the stockholders of the Corporation. No options may be granted under the Plan after September 12, 2010. 14. Taxes. At such times as an Optionee recognizes taxable income in connection with the exercise of Options hereunder (a "Taxable Event"), the Optionee shall pay to the Corporation an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld by the Corporation in connection with the Taxable Event (the "Withholding Taxes") prior to the issuance of Common Stock. In satisfaction of the obligation to pay Withholding Taxes to the Corporation, the Optionee may make a written election, which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the Common Stock then issuable to him or her in connection with the exercise of Options hereunder having an aggregate Fair Market Value equal to the Withholding Taxes. For purposes of this Section 14, "Fair Market Value" on any date means the closing sales prices of the shares of Common Stock on such date on the principal national securities exchange on which such shares of Common Stock are listed or admitted to trading, or, if the shares of Common Stock are not so listed or admitted to trading, the average of the per share of Common Stock closing bid price and per share of Common Stock closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System or such other market in which such prices are regularly quoted, or, if there have been no published bid or asked quotations with respect to the Common Stock on such date, the Fair Market Value shall be the value established by the Board in good faith. EX-11.1 6 EXHIBIT 11.1 GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES Computation of Earnings per Common Share (In thousands, except per share data) (Unaudited)
Three months ended Six months ended June 30, June 30, ----------------- ----------------- 1997 1996 1997 1996 ------- ------ ------ ------- Net income applicable to common shares $39,504 $9,282 $79,534 $15,359 ======= ====== ======= ======= Shares: Average shares issued and outstanding (after giving effect to the Recapitalization) 74,068 65,403 73,994 65,403 Exercise of certain stock options with the Offering - 3,949 - 3,949 Incremental shares applicable to stock options outstanding after the exercise of certain stock options with the Offering 4,651 4,624 4,644 4,624 Shares issued pursuant to the Offering - 4,559 - 4,559 ------- ------ ------ ----- Weighted average common and common equivalent shares outstanding 78,719 78,535 78,638 78,535 ======= ====== ====== ====== Net income per common and common equivalent share $ .50 $ .12 $ 1.01 $ .20 ======= ====== ====== ====== Note: Shares and stock options issued prior to October 16, 1996, the date of the Offering (see Note 10 to the consolidated financial statements included in the 1996 Annual Report to Stockholders), are treated as outstanding for all reported periods.
EX-27.1 7
5 6-MOS DEC-31-1997 JUN-30-1997 249 0 105 1 610 974 122 102 1,246 758 343 0 0 1 (109) 1,246 899 904 752 806 0 0 10 82 2 80 0 0 0 80 1.01 1.01 Amounts inapplicable or not disclosed as a separate line on the Statement of Financial Position or Results of Operations are reported as 0 herein. Notes and accounts receivable - trade are reported net of allowances for doubtful accounts in the Consolidated Balance Sheet. Property, plant and equipment are reported net of accumulated depreciation in the Consolidated Balance Sheet.
EX-99.1 8 EXHIBIT 99.1 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES REFORM ACT OF 1995 ------------------------------------------------------- Gulfstream Aerospace Corporation (the "Company" or "Gulfstream") cautions readers that the important factors set forth below, as well as factors discussed in other documents filed by the Company with the Securities and Exchange Commission (the "SEC"), among others, could cause the Company's actual results to differ materially from statements contained in this report, future filings by the Company with the SEC, the Company's press releases and oral statements made by or on behalf of the Company. The words "estimate", "project", "anticipate", "expect", "intend", "believe", and similar expressions are intended to identify forward looking statements. Aircraft Production While the Company generally receives non-refundable deposits in connection with each order, an order may be cancelled (and the deposit returned) under certain conditions if the delivery of a Gulfstream V aircraft is delayed more than six months after a customer's scheduled delivery date. An extended delay in the production process could cause an increase in the number of cancellations of orders, which could have an adverse effect on the Company's results of operations. In contrast to its historical practice of discontinuing prior models, the Company will continue to manufacture and sell Gulfstream IV-SPs at the same time that it manufactures and sells Gulfstream Vs. The Company expects to increase its aircraft production rate in 1997 as compared to its aircraft production rate in 1996. In addition, the Company has announced its plan to increase its annual production rate to approximately 60 aircraft by 1999, a two-fold increase over its 1996 annual production rate. No assurance can be given as to the extent to which the Company can successfully increase its rate of production. The Business Jet Aircraft Market The Company's principal business is the design, development, manufacture and marketing of large and ultra-long range business jet aircraft. Because of the high unit selling price of its aircraft products and the availability of commercial airlines and charters as alternative means of business travel, a downturn in general economic conditions could result in a reduction in the orders received by the Company for its new and pre-owned aircraft. The Company would not be able to rely on sales of other products to offset a reduction in sales of its aircraft. If a potential purchaser is experiencing a business downturn or is otherwise seeking to limit its capital expenditures, the high unit selling price of a new Gulfstream aircraft could result in such potential purchaser deferring its purchase or changing its operating requirements and electing to purchase a competitor's lower priced aircraft. Since the Company relies on the sales of a relatively small number of high unit selling price new aircraft to provide approximately 55% to 65% of its revenues, small decreases in the number of aircraft delivered in any year could have a material adverse effect on the results of operation for that year. The Company believes that its reputation and the exemplary safety record of its aircraft are important selling points for new and pre-owned Gulfstream aircraft. However, if one or a number of catastrophic events were to occur with the Gulfstream fleet, Gulfstream's reputation and sales of Gulfstream aircraft could be adversely affected. In many cases, the Company has agreed to accept, at the customer's option, the customer's pre-owned aircraft as a trade- in in connection with the purchase of a Gulfstream V. Based on the current market for pre-owned aircraft, the Company expects to continue to be able to resell such pre-owned aircraft, and does not expect to suffer a loss with respect to the possible trade-in of such aircraft. However, an increased level of pre-owned aircraft or changes in the market for pre-owned aircraft may increase the Company's inventory costs and may result in the Company receiving lower prices for its pre-owned aircraft. The market for large cabin business jet aircraft is highly competitive. The Gulfstream IV-SP competes in the large cabin business jet aircraft market segment, principally with Dassault Aviation S.A. (which has announced that it will merge with Aerospatiale SA) and Bombardier Inc. ("Bombardier"). The Gulfstream V competes in the ultra-long range business jet aircraft market segment, primarily with the Global Express, which is being marketed by Canadair, a subsidiary of Bombardier, and which, according to published reports, is scheduled for certification in May 1998, 18 months after the initial delivery of the Gulfstream V. The Boeing Company, in partnership with General Electric Co., is marketing a version of the Boeing 737 into the ultra-long range business jet aircraft market segment. Boeing has indicated that it expects this aircraft to be available for delivery in the fourth quarter of 1998. In June 1997, Airbus Industrie announced it would market a version of the Airbus A319 into this market segment as well. Airbus has indicated it expects the aircraft to be available in early 1999. The Company's competitors may have access to greater resources (including, in certain cases, governmental subsidies) than are available to the Company. The Company's ability to compete successfully in the large business jet and ultra-long range business jet aircraft markets over the long term requires continued technological and performance enhancements to Gulfstream aircraft. No assurance can be given that the Company's competitors will not be able to produce aircraft capable of performance comparable or superior to Gulfstream aircraft in the future. Purchased Materials and Equipment Approximately 70% of the production costs of both the Gulfstream IV-SP and the Gulfstream V consist of materials and equipment purchased from other manufacturers. While the Company's production activities have never been materially affected by its inability to obtain components, and while the Company maintains business interruption insurance in the event that such a disruption should occur, the failure of the Company's suppliers to meet the Company's performance specifications, quality standards, pricing terms or delivery schedules could have a material adverse impact on the profitability of the Company's new aircraft sales or the ability of the Company to timely deliver new aircraft to customers. Possible Fluctuations in Quarterly and Annual Results The Company records revenue from the sale of a new "green" aircraft (i.e., before exterior painting and installation of customer selected interiors and optional avionics) when that aircraft is delivered to the customer. As a result, a delay or an acceleration in the delivery of new aircraft may affect the Company's revenues for a particular quarter or year and may make quarter-to-quarter or year-to-year comparisons difficult. In addition, the Company's production schedule may be affected by many factors, including timing of deliveries by suppliers. Pending Tax Audit The Company is involved in a tax audit by the Internal Revenue Service covering the years ended December 31, 1991 and 1990. The revenue agent's report includes several proposed adjustments involving the deductibility of certain compensation expense, items relating to the initial capitalization of the Company as well as the allocation of the original purchase price for the acquisition by the Company of the Gulfstream business, including the treatment of advance payments with respect to and the cost of aircraft that were in backlog at the time of the acquisition and the amortization of amounts allocated to intangible assets. The Company believes that the ultimate resolution of these issues will not have a material adverse effect on its financial statements because the financial statements already reflect what the Company currently believes is the expected loss of benefit arising from the resolution of these issues. However, because the revenue agent's report is proposing adjustments in amounts materially in excess of what the Company has reflected in its financial statements and because it may take several years to resolve the disputed matters, the ultimate extent of the Company's expected loss of benefit and liability with respect to these matters cannot be predicted with certainty and no assurance can be given that the Company's financial position or results of operations will not be adversely affected. Leverage and Debt Service The degree to which the Company is leveraged at a particular time could have important consequences to the Company, including the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, product development, acquisitions, general corporate purposes or other purposes may be impaired; (ii) a portion of the Company's and its subsidiaries' cash flow from operations must be dedicated to the payment of the principal of and interest on its indebtedness; (iii) the Company's credit agreement contains certain restrictive financial and operating covenants, including, among others, requirements that the Company satisfy certain financial ratios; (iv) a significant portion of Gulfstream's borrowings will be at floating rates of interest, causing Gulfstream to be vulnerable to increases in interest rates; (v) the Company's degree of leverage may make it more vulnerable in a downturn in general economic conditions; and (vi) the Company's financial position may limit its flexibility in responding to changing business and economic conditions. -----END PRIVACY-ENHANCED MESSAGE-----