<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------- ---------------
Commission File No. 0-23224
GREAT LAKES AVIATION, LTD.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
IOWA 42-1135319
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1965 330TH STREET, SPENCER, IOWA 51301
- - ----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (712) 262-1000
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 November 6, 1998 there were 8,590,843 shares of Common Stock, par value
$.01 per share, issued and outstanding.
1
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,940 $ 6
Restricted funds - interest bearing deposits - 2,247
Accounts Receivable, net allowance for doubtful accounts
of approximately $923 and $923 respectively 11,467 5,473
Inventories, net 15,143 12,288
Prepaid expenses and other current assets 31 818
------------------ -----------------
Total Current Assets 28,581 20,832
PROPERTY AND EQUIPMENT:
Flight Equipment 44,012 46,781
Other Property and Equipment 4,475 4,185
Less - Accumulated Depreciation and Amortization (7,284) (9,656)
------------------ -----------------
Total Property and Equipment 41,203 41,310
OTHER ASSETS 1,651 1,616
------------------ -----------------
$ 71,435 $ 63,758
------------------ -----------------
------------------ -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt $ 12,654 10,306
Accounts Payable 11,463 9,462
Deferred lease payments 627 1,367
Accrued liabilities and unearned revenue 5,423 5,291
------------------ -----------------
Total Current Liabilities 30,167 26,426
LONG-TERM DEBT, net of current maturities 28,438 28,471
DEFERRED LEASE PAYMENTS 2,625 3,247
DEFERRED CREDITS 4,302 4,487
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares
authorized, 8,590,843 and 7,589,121 shares issued and
outstanding at September 30, 1998 and December 31, 1997 86 76
Paid-in Capital 31,569 29,577
Accumulated Deficit (25,752) (28,526)
------------------ -----------------
Total Stockholders' Equity 5,903 1,127
------------------ -----------------
$ 71,435 $ 63,758
------------------ -----------------
------------------ -----------------
</TABLE>
Note: The Balance Sheet at December 31, 1997, has been derived from the audited
financial statements as of that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. See condensed notes to the
unaudited interim consolidated financial statements.
2
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30
(Unaudited)
(in thousands, except share and per share information)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
--------------------------------- -------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger $ 30,493 $ 18,159 $ 68,086 $ 60,559
Public Service 4,201 1,623 10,865 3,820
Freight, charter and other 1,490 592 3,551 2,003
----------- ----------- ----------- -----------
Total operating revenues 36,184 20,374 82,502 66,382
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Salaries, wages and benefits 7,830 4,539 20,779 16,333
Aircraft fuel 4,091 2,515 10,151 10,141
Aircraft maintenance materials and component
repairs 2,709 909 6,702 4,684
Commissions 1,772 1,285 4,132 4,456
Depreciation and amortization 972 940 2,441 3,489
Aircraft rental 4,336 1,850 11,935 7,489
Other rentals and landing fees 1,820 1,206 4,357 4,325
Other operating expenses 6,872 4,250 16,620 16,905
Shutdown and other nonrecurring expenses - 2,638 - 6,855
----------- ----------- ----------- -----------
Total operating expenses 30,402 20,132 77,117 74,677
----------- ----------- ----------- -----------
Operating income (loss) 5,782 242 5,385 (8,295)
INTEREST EXPENSE 781 1,287 2,469 4,360
----------- ----------- ----------- -----------
Income (Loss) before income taxes 5,001 (1,045) 2,916 (12,655)
INCOME TAX EXPENSE (BENEFIT) 140 - 140 -
----------- ----------- ----------- -----------
Net Income (Loss) $ 4,861 $ (1,045) $ 2,776 $ (12,655)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER SHARE:
Basic $ 0.61 $ (0.14) $ 0.36 $ (1.67)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted $ 0.56 $ (0.14) $ 0.33 $ (1.67)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE SHARES USED IN
COMPUTATION
Basic 7,916,930 7,589,121 7,700,247 7,588,680
Diluted 8,690,412 7,589,121 8,473,729 7,588,680
</TABLE>
The accompanying condensed notes to the unaudited consolidated interim financial
statements are an integral part of these statements.
3
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 2,776 $ (12,655)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 2,100 4,125
Change in current operating items:
Accounts receivable, net (5,994) (988)
Inventories, net (2,855) (616)
Prepaid expenses and deposits 787 814
Accounts payable and accrued liabilities 2,133 1,358
----------- -----------
Net cash flows used in operating activities (1,053) (7,962)
----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (1,628) (234)
Proceeds from certificate of deposit 2,247 -
----------- -----------
Net cash flows provided by (used in)
investing activities 619 (234)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of debt 5,582 5,204
Repayment of debt (4,716) (1,865)
Proceeds from sale of common stock 1,502 -
----------- -----------
Net cash flows used in financing activities 2,368 3,339
----------- -----------
NET CHANGE IN CASH 1,934 (4,857)
CASH:
Beginning of Period 6 6,676
----------- -----------
End of Period $ 1,940 $ 1,819
----------- -----------
----------- -----------
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 1,745 $ 203
----------- -----------
----------- -----------
Noncash transactions-
Issuance of Common Stock for
repayment of indebtedness $ 500 $ -
----------- -----------
----------- -----------
Deferred manufacturer's incentives received as:
Property and equipment $ - $ (200)
----------- -----------
----------- -----------
</TABLE>
The accompanying condensed notes to the unaudited consolidated interim financial
statements are an integral part of these statements
4
<PAGE>
GREAT LAKES AVIATION, LTD.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
GENERAL
The consolidated financial statements included herein have been prepared by
Great Lakes Aviation, Ltd. (the "Company"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. The information
furnished in the consolidated financial statements includes normal recurring
adjustments and reflects all adjustments, which are, in the opinion of
management, necessary for a fair presentation of such consolidated financial
statements. The Company's business is seasonal and, accordingly, interim results
are not necessarily indicative of results for a full year. Certain information
and footnote disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial statements for
the year ended December 31, 1997 and the notes thereto included in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
The foregoing financial statements contain an opinion by the Company's
independent public accountants indicating substantial doubt as to the Company's
ability to continue as a going concern.
The consolidated financial statements include the accounts of Great Lakes
Aviation, Ltd. and its wholly owned subsidiary "RDU Inc.", referred to
collectively as the Company. All significant inter-company transactions and
balances have been eliminated in consolidation. RDU, Inc. currently has no
activity and is not being utilized by the Company.
Under terms of a consent order (the Order) with the Federal Aviation
Administration (FAA), the Company temporarily suspended its flight operations on
May 16, 1997 and resumed flight operations on a limited basis on May 23, 1997.
The FAA notified the Company in June 1998 that it had met all the provisions set
forth in the Order. Due to the suspension of operations during 1997, the
operating results for the third quarter of 1998 are not directly comparable to
the prior period.
During the first six months of 1998, the Company operated scheduled passenger
and airfreight service under two marketing identities. The Company operates
under a cooperative marketing agreement ("United Express Agreement") with United
Airlines, Inc. ("United"). During the first half of 1997, the Company also
operated as Midway Connection under a code sharing agreement with Midway
Airlines Corporation, and in the Southwestern United States and Mexico
independently under its own code as Great Lakes Airlines. The service provided
under these two operating identities was discontinued on May 16, 1997, although
the Company continued to operate as Great Lakes Airlines on one route in the
Midwest. On June 15, 1998, service on that route was converted, so that all
passenger service currently provided by the Company is operated as United
Express.
5
<PAGE>
Revenues during the quarter ended September 30, 1998 were derived 99.7% from
United Express operations and 0.3% from Great Lakes Airlines operations.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1. OVERVIEW
The discussion and analysis in this section and in the notes to the financial
statements contain certain forward-looking terminology such as "believes,"
"anticipates," "will," and "intends," or comparable terminology. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those projected. Potential purchasers of the Company's
securities are cautioned not to place undue reliance on such forward-looking
statements which are qualified in their entirety by the cautions and risks
described herein and in other reports filed by the Company with the Securities
and Exchange Commission.
The Company began providing air charter service in 1979, and has provided
scheduled passenger service in the Upper Midwest since 1981. In April 1992, the
Company began operating as a United Express carrier under a cooperative
marketing agreement with United that expired December 31, 1997. (See United
Express Relationship, discussed below.) As of September 30, 1998, the Company
served 68 destinations in 13 states with 422 scheduled departures each weekday.
Prior to the most recent quarter, the Company had suffered significant recurring
losses and negative cash flows, which have raised doubts about its ability to
continue as a going concern. The Company is heavily dependent on Raytheon
Aircraft Company and United for its liquidity requirements, however neither
Raytheon Aircraft Company nor United is under any current obligation to provide
further financing to the Company. (See Liquidity and Capital Resources,
discussed below.) The Company's viability as a going concern depends upon its
ability to remain profitable.
The Company has significantly expanded its route structure within the United
Express Marketing Relationship during 1998. The Company is maximizing its
operating advantage at Chicago's O'Hare Airport where the Company controls 74
operating slots and revenue passenger yields are highest. The Company's current
focus is on expansion of service at United's Denver hub.
2. ESSENTIAL AIR SERVICE
The Airline Deregulation Act of 1978 ("The Deregulation Act") allowed airlines
great freedom to introduce, increase and generally reduce or eliminate service
to existing markets. Under the Essential Air Service Program, which is
administered by the Department of Transportation (DOT), certain communities that
received scheduled air service prior to the passage of the Deregulation Act are
guaranteed specified levels of "essential air service." The DOT may authorize
federal subsidies to compensate a carrier providing essential air service in
otherwise unprofitable or minimally profitable markets. If these subsidies are
reduced or eliminated the Company may discontinue service to some or all of the
subsidized communities.
6
<PAGE>
At September 30, 1998, the Company served 29 essential air service communities
on a subsidized basis. The Company received $4.2 million and $1.6 million in
essential air service subsidies for the quarters ended September 30, 1998 and
1997, respectively. An airline serving a community that qualifies for essential
air services is required to give the DOT advance notice before it may terminate,
suspend or reduce service. Depending on the circumstances, the DOT may require
the continuation of existing service until a replacement carrier is found. The
Company has negotiated increases in rates and added additional cities and flight
frequencies for which it receives subsidy revenue. Subsidy rates currently in
effect are expected to generate essential air service revenues of approximately
$17.3 million on an annualized basis, as follows:
<TABLE>
<CAPTION>
ANNUAL
SUBSIDY
RATE
ORDER # (IN THOUSANDS) EXPIRES
--------- -------------- --------
<S> <C> <C> <C>
Dickinson, ND 98-03-27 330 3/31/00
Fairmont, MN/Brookings, Yankton, SD/
Devils Lake, Jamestown, ND/Norfolk, NE 97-08-09 4,070 7/31/99
Ironwood, MI 97-07-06 359 6/30/00
Manistee, MI 96-12-42 159 12/28/98
Mattoon, IL 97-05-03 218 2/28/99
Ottumwa, IA/Sterling-Rock Falls, IL 97-01-14 923 9/30/98
Mount Vernon, IL 98-07-08 480 *
Lamar, CO/Goodland, KS/Alliance, Chadron
Kearney, McCook, NE 97-10-10 5,579 6/30/99
Cortez, CO/Dodge City, Garden City, Great
Bend, Hays, Liberal, KS 98-03-32 2,907 9/30/99
Alamosa, CO/Laramie, Rock Springs,
Worland, WY 98-04-25 2,303 4/30/00
--------------
TOTAL $ 17,328
--------------
--------------
</TABLE>
* Rate effective until further Department action
7
<PAGE>
3. YEAR 2000 UPDATE
The Company has reviewed its computer systems and application programs for
Year 2000 compliance, and has established a database to monitor the hardware
and software modifications necessary to make all systems Year 2000 compliant.
Certain modifications have been made as part of this process. The cost of
completing these modifications has not yet been determined, but it is not
expected to be material. The Company has identified third party sources for
information and critical vendors upon which the Company must rely, including
aircraft manufacturers, governmental agencies, and United, and has begun the
compliance inquiry process. It is anticipated that this process will be
complete by December 31, 1998, and any remediation costs determined by April
1, 1999. As a result of the code sharing relationship, the Company's business
is sensitive to events and risks affecting United. Failure by United to
become Year 2000 compliant could have a material adverse effect on the
Company's business and financial conditions. The Company's business,
financial condition, and results of operations could be materially adversely
affected by the failure of its systems and applications or those operated by
others. The Company is developing a contingency plan for Year 2000 exposure,
and intends to incorporate the plan as part of its overall efforts to ensure
that its systems are Year 2000 compliant by mid-1999.
8
<PAGE>
4. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
The following table sets forth certain financial information regarding the
Company:
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
For the Three Months Ended September 30
----------------------------------------------------------------------
1998 1997
---------------------------------------- -------------------------
Cents % Increase Cents
Amount Per (decrease) Amount Per
(in 000s) ASM from 1997 (in 000s) ASM
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
TOTAL OPERATING REVENUES 36,184 25.7 77.6% $20,374 21.8
---------- ---------- ---------- ---------- ----------
Salaries, Wages and Benefits 7,830 5.6 72.5 4,539 4.9
Aircraft Fuel 4,091 2.9 62.7 2,515 2.7
Aircraft Parts and Component Repair 2,709 1.9 198.0 909 1.0
Commissions 1,772 1.3 37.9 1,285 1.4
Depreciation and Amortization 972 0.7 3.4 940 1.0
Aircraft Rental 4,336 3.1 134.4 1,850 2.0
Other Rentals and Landing Fees 1,820 1.3 50.9 1,206 1.3
Other Operating Expense 6,872 4.9 61.7 4,250 4.5
Shutdown and other nonrecurring expenses - - - 2,638 2.8
---------- ---------- ---------- ---------- ----------
Total Operating Expenses 30,402 21.6 51.0% 20,132 21.6
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Operating Income 5,782 4.1 - 242 0.2
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Interest Expense (net) 781 0.6 (39.3)% 1,287 1.4
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
SELECTED OPERATING DATA Increase/(Decrease)
1998 from 1997 1997
------------------- --------------------------- --------------------
<S> <C> <C> <C>
Available Seat Miles (000s) 140,777 50.6% 93,447
Revenue Passenger Miles (000s) 80,622 63.6% 49,276
Passenger Load Factor 57.3% 4.6pts 52.7%
Passengers Carried 277,709 73.0% 160,512
Average Yield per Revenue Passenger Mile 37.8CENTS 2.4% 36.9CENTS
Passenger Revenue per Available Seat Mile 21.7CENTS 11.9% 19.4CENTS
</TABLE>
OPERATING REVENUES
Operating revenues increased 77.6% to $36.2 million in the third quarter of 1998
from $20.4 million during the third quarter of 1997. The increase in operating
revenues resulted from the increase in revenue passenger miles flown by 63.6 %
to 80.6 million in the third quarter of 1998 from 49.3 million during the third
quarter of 1997 in conjunction with a 50.6% increase in capacity to 140.8
million ASMs in the third quarter of 1998 from 93.4 million ASMs during the
third quarter of 1997. In addition, public service revenue increased 158.8% to
$4.2 million in the third quarter of 1998 from $1.6 million in the third quarter
of 1997. Load factors and revenues in the third quarter of 1998 were favorably
impacted by the pilot strike against Northwest Airlines, Inc. which, management
believes increased revenues by approximately $1 million.
9
<PAGE>
OPERATING EXPENSES
Total operating expenses increased to $30.4 million, or 21.6 cents per ASM, in
the third quarter of 1998 from $20.1 million, or 21.5 cents per ASM in the third
quarter of 1997. The 1998 increase is primarily a result of the Denver expansion
during the second quarter of 1998.
Salaries, wages, and benefits expense increased to 5.6 cents per ASM during the
third quarter of 1998, from 4.9 cents per ASM during the third quarter of 1997,
due to pay increases incurred as a result of the new labor agreements in late
1997 with the Company's pilots and mechanics, and additional staffing associated
with the Denver expansion.
Aircraft fuel expense per ASM increased to 2.9 cents in the third quarter of
1998 from 2.7 cents in the third quarter of 1997, primarily due to the higher
unit cost at certain locations within the Company's route structure, including
the Denver expansion.
Maintenance materials and component repairs expense increased to 1.9 cents per
ASM during the third quarter of 1998 from 1.0 cents per ASM during the third
quarter of 1997. This is mainly due to utilization and maintenance of the entire
aircraft fleet during the third quarter of 1998. In the third quarter of 1997,
only selected aircraft with lower maintenance needs were being operated as a
part of the phased return to service following the voluntary suspension in May
1997.
Aircraft rental expense increased to 3.1 cents per ASM in the third quarter of
1998 from 2.0 cents per ASM in the third quarter of 1997. The increase is
primarily due to an increase in the number of aircraft under operating leases,
and the upgrade of the Company's Beechcraft fleet from 1900C aircraft to 1900D
aircraft.
Other operating expenses increased to 4.9 cents per ASM in the third quarter of
1998 from 4.5 cents in the third quarter of 1997. The higher costs in 1998
result from additional general and administrative costs associated with the
significant expansion at the Denver hub.
PROVISION FOR INCOME TAXES
The provision for income taxes in the third quarter of 1998 relates primarily to
state income taxes in certain jurisdictions where the Company does not have tax
loss carryforwards. In recognition of the Company's financial results of recent
periods and the uncertainties of the airline competitive environment, the
Company has not recognized a benefit for existing federal and state net
operating loss carryforwards.
10
<PAGE>
5. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
The following table sets forth certain financial information regarding the
Company:
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
For the Nine Months Ended September 30
---------------------------------------------------------------------
1998 1997
---------------------------------------- ------------------------
Cents % Increase Cents
Amount Per (decrease) Amount Per
(in 000s) ASM from 1996 (in 000s) ASM
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
TOTAL OPERATING REVENUES $ 82,502 23.6 24.3% $ 66,382 19.2
---------- ---------- ---------- ---------- ----------
Salaries, Wages and Benefits 20,779 5.9 27.2 16,333 4.7
Aircraft Fuel 10,151 2.9 0.1 10,141 2.9
Aircraft Parts and Component Repair 6,702 1.9 43.1 4,684 1.4
Commissions 4,132 1.2 (7.3) 4,456 1.3
Depreciation and Amortization 2,441 0.7 (30.0) 3,489 1.0
Aircraft Rental 11,935 3.4 59.4 7,489 2.2
Other Rentals and Landing Fees 4,357 1.2 0.7 4,325 1.2
Other Operating Expense 16,620 4.8 (1.7) 16,905 4.9
Shutdown and other nonrecurring expenses - - - 6,855 2.0
---------- ---------- ---------- ---------- ----------
Total Operating Expenses 77,117 22.0 3.3% 74,677 21.6
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Operating Income 5,385 1.6 - (8,295) (2.4)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Interest Expense (net) 2,469 0.7 (43.4)% 4,360 1.3
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
SELECTED OPERATING DATA Increase/(Decrease)
1998 from 1997 1997
------------------- --------------------------- --------------------
<S> <C> <C> <C>
Available Seat Miles (000s) 349,807 1.2% 345,678
Revenue Passenger Miles (000s) 181,982 15.8% 157,196
Passenger Load Factor 52.0% 6.5pts 45.5%
Passengers Carried 627,102 19.5% 524,618
Average Yield per Revenue Passenger Mile 37.4CENTS (2.9)% 38.5CENTS
Passenger Revenue per Available Seat Mile 19.5CENTS 11.4% 17.5CENTS
</TABLE>
OPERATING REVENUES
Operating revenues increased 24.3 percent to $82.5 million in the first three
quarters of 1998 from $66.4 million during the first three quarters of 1997. The
increase in operating revenues resulted from the increase in revenue passenger
miles flown by 15.8 % to 182.0 million in the first three quarters of 1998 from
157.2 million during the first three quarters of 1997 in conjunction with a 1.2%
increase in capacity to 349.8 million ASMs in the first three quarters of 1998
from 345.7 million ASMs during the first three quarters of 1997. In addition,
public service revenue increased 184.4% to $10.9 million in the first three
quarters of 1998 from $3.8 million in the first three quarters of 1997.
11
<PAGE>
OPERATING EXPENSES
Total operating expenses increased 3.3% to $77.1 million in the first three
quarters of 1998 from $74.7 million in the first three quarters of 1997. Total
operating expenses increased to 22.0 cents per ASM in the first three quarters
of 1998 from or 21.6 cents per ASM in the first three quarters of 1997, due to
the costs associated with the Company's expansion of service at it's Denver hub.
Salaries, wages, and benefits expense increased to 5.9 cents per ASM during the
first three quarters of 1998, from 4.7 cents per ASM during the first three
quarters of 1997, partially due to pay increases incurred as a result of the new
labor agreements in late 1997 with the Company's pilots and mechanics. In
addition, the Denver hub expansion has resulted in increased hiring and training
of pilots, and hiring and training of additional customer service personnel.
Aircraft fuel expense per ASM was 2.9 cents for the first three quarters of 1998
and 2.9 cents for the first three quarters of 1997.
Maintenance materials and component repairs expense increased to 1.9 cents per
ASM during the first three quarters of 1998, from 1.4 cents per ASM in the first
three quarters of 1997, mainly due to utilization and maintenance of the entire
aircraft fleet during 1998. Following the voluntary suspension of service in May
1997, only selected aircraft with lower maintenance needs were being operated as
a part of the phased return to service during 1997.
Aircraft rental expense increased to 3.4 cents per ASM in the first nine months
of 1998 from 2.2 cents per ASM in the first nine months of 1997. The increase is
primarily due to an increase in the number of aircraft under operating leases,
and the upgrade of the Company's Beechcraft fleet from 1900C aircraft to 1900D
aircraft.
Other operating expenses decreased to 4.8 cents per ASM in the first three
quarters of 1998 from 4.9 cents per ASM in the first three quarters of 1997.
6. LIQUIDITY AND CAPITAL RESOURCES
Cash increased to $1.9 million at September 30, 1998 from $0.06 million at
December 31, 1997. Net cash flows used in operating activities were $1.0 million
and $8.0 million in the first three quarters of 1998 and 1997, respectively. The
major use of such cash flows in the first three quarters of 1998 was a $6.0
million increase in accounts receivable, and a $2.9 million increase in
inventories, partially offset by an increase in accounts payable and accrued
expenses.
Capital expenditures related to aircraft and equipment totaled $1.6 million in
the first three quarters of 1998 and $234,000 during the first three quarters of
1997. Principal repayments on notes payable and long-term debt were $5.2 million
and new short-term borrowings were $5.6 million in the first three quarters of
1998.
Long-term debt, net of current maturities of $2.3 million, totaled $28.4 million
at September 30, 1998 compared to $27.7 million, net of current maturities of
$6.1 million, at September 30, 1997.
12
<PAGE>
On August 31, 1998, the Company sold one million shares of its Common Stock
for aggregate consideration of $2 million consisting of approximately
$500,000 as the cancellation of outstanding debt obligations, with the
balance in cash. (See Part II, Item 2. Below.)
Prior to the most recent quarter, the Company had suffered recurring losses and
negative cash flows, which have raised doubt about its ability to continue as a
going concern. The Company is heavily dependent on Raytheon Aircraft Company and
its financing affiliates ("Raytheon") and United for its liquidity requirements,
however neither Raytheon nor United is under any current obligation to provide
further financing to the Company. These matters have raised doubt about the
Company's ability to continue as a going concern and, as a result, the Report of
Independent Public Accountants on the financial statements for the year ended
December 31, 1997, contains a statement to this effect.
Raytheon is the Company's primary aircraft supplier and largest creditor. The
Company has financed its Beechcraft 1900 aircraft and one of its Brasilia
aircraft under related lease and debt agreements with Raytheon, and Raytheon
has also extended the Company a $5 million working capital line of credit
which has been fully utilized, and a $5 million short term loan maturing
December 31, 1998, both of which are collateralized by all Beech aircraft
spare parts and equipment and accounts receivable. In addition, Raytheon was
granted a warrant for a period of ten years, exercisable commencing July 16,
1998, to purchase one million shares of Great Lakes common stock at a price
of $.75 per share. Raytheon has not exercised the warrant as of the date of
this filing.
The table below shows the number and type of aircraft operated by the Company on
January 1, 1998 and September 30, 1998 and the number and type of aircraft
acquired or retired from the Company's fleet during the nine months ended
September 30, 1998.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
January 1, September 30, September 30, 1998
1998 Acquisitions Retirements 1998 Owned Leased
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beechcraft 1900C 19 5 19 5 - 5
- - -------------------------------------------------------------------------------------------------------
1900D 18 22 - 40 6 34
- - -------------------------------------------------------------------------------------------------------
Embraer 120 10 - 2 8 4 4
- - -------------------------------------------------------------------------------------------------------
Total 47 27 21 53 10 43
- - -------------------------------------------------------------------------------------------------------
</TABLE>
In the second quarter of 1998, the Company purchased six Beechcraft 1900D
aircraft and concurrently sold its seven owned Beechcraft 1900C aircraft to
Raytheon. In addition, the Company acquired 16 1900D aircraft under long term
operating leases. As part of the agreements, Raytheon agreed to accept the
return of 12 1900C aircraft also operated under operating leases. The Company
is currently leasing five 1900C aircraft for use in contracted mail service
and as spare passenger service aircraft. Raytheon provided financing for the
above acquisitions.
During the first half of 1998, the Company disposed of two Brasilia aircraft by
an agreed upon termination of the underlying leases and transferring possession
to another carrier. In connection with the disposition of one of these aircraft,
the Company guaranteed the continued payment of certain purchase incentive
payments by an agency of the Brazilian government to the lessor, which incentive
payments had previously been received by the Company. The Company
13
<PAGE>
obtained an opinion from Brazilian counsel to the effect that the disposition by
the Company would not effect the obligations of the Brazilian Government agency
to continue to make these incentive payments.
7. UNITED EXPRESS RELATIONSHIP
The Company's code sharing agreement with United expired in December 1997.
The Company believes its relationship with United is satisfactory, as
evidenced by United's recent selection of the Company as the United Express
carrier for additional routes serving the Denver airport. Since December 31,
1997, the Company has been operating as if the principal day-to-day
operational provisions of the previous code sharing agreement are still
effective. The Company and United have entered into negotiations to renew the
code sharing agreement. As part of their negotiations, United has
restructured its operating relationships with certain of its United Express
carriers, pursuant to which the Company has began providing service to Denver
from 21 additional cities since April 23, 1998. As a result of United's
restructuring, the Company has become the only United Express carrier
providing service with nineteen seat aircraft at the Chicago and Denver hubs.
While the Company expects a new code sharing agreement to be finalized on a
mutually advantageous basis, no assurance can be given that this actually
will be accomplished. Any failure to enter into a new code sharing agreement
with United, any material adverse change in terms from the prior code sharing
agreement, or any substantial decrease in the number of routes served by the
Company under this agreement could have a material adverse effect on the
Company's business. As a result of the code sharing relationship with United,
the Company's business is sensitive to events and risks affecting United. If
adverse events affect United's business, the Company's business may also be
adversely affected.
ITEM 3 Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Under a purchase agreement dated August 31, 1998, the Company sold one
million shares of its Common Stock to two investors, one of which is an
entity controlled by Mr. Douglas G. Voss, the President of the Company. The
aggregate consideration received by the Company was $2 million consisting
of approximately $500,000 as the cancellation of outstanding debt
obligations to the entity controlled by Mr. Voss, with the balance in
cash. The private placement transaction was exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended, as the transaction
did not constitute a public offering and Rule 506 of Regulation D.
14
<PAGE>
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
ITEM 5 Other Information
Not applicable.
ITEM 6 Other Information
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 10 Stock Purchase Agreement, dated August 31, 1998, by and
between the Company and Iowa Great Lakes Flyers, Inc. and Tennebaum &
Co. LLC.
Exhibit 27 Financial Data Schedule
b) The Company filed the following documents with the Commission during
the quarter for which this report is filed:
(1) The Company's Current Report on Form 8-K filed on September 10,
1998 (File No. 23224) relating to the Company meeting the
necessary requirements to be listed on the Nasdaq SmallCap
Market.
15
<PAGE>
SIGNATURES
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, thereunder duly authorized.
GREAT LAKES AVIATION, LTD.
Dated: November 10, 1998 By /s/ Douglas G. Voss
---------------------------------
Douglas G. Voss
President and Chief Executive Officer
By /s/ Richard A. Hanson
---------------------------------
Richard A. Hanson
Vice President and Controller
16
<PAGE>
--------------------------------
GREAT LAKES AVIATION, LTD.
--------------------------------
STOCK PURCHASE AGREEMENT
--------------------------------
August 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Authorization of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Sale and Purchase of Securities . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Closing; Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. Restriction on Transfer of Securities . . . . . . . . . . . . . . . . . . . . . 2
4.1 Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.2 Legend; Stop Transfer Order . . . . . . . . . . . . . . . . . . . . . . . 2
4.3 Removal of Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . 3
5.1 Organization, Standing, etc . . . . . . . . . . . . . . . . . . . . . . . 3
5.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.3 Authorization; Non-Contravention; Approvals . . . . . . . . . . . . . . . 3
5.4 Status of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.5 SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.6 Forecast. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.7 Litigation; Governmental Proceedings. . . . . . . . . . . . . . . . . . . 5
5.8 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.9 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . 6
5.10 Debt Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.11 Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.12 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6. Representations and Warranties of Purchasers. . . . . . . . . . . . . . . . . . 6
6.1 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 Location of Principal Office and Qualification as Accredited Investor . . 7
6.3 Acts and Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.4 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7. Registration Statement on Form S-3. . . . . . . . . . . . . . . . . . . . . . . 8
7.1 Demand Registration Right . . . . . . . . . . . . . . . . . . . . . . . . 8
7.2 Limitation on Resales . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.3 Eligibility for S-3 Registration. . . . . . . . . . . . . . . . . . . . .10
7.4 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
7.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
7.6 Registrable Securities Defined; Applicability of Registration Right . . .12
i
<PAGE>
8. General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
9. Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
10. Changes, Waivers. etc . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
11. Understanding Among Purchasers. . . . . . . . . . . . . . . . . . . . . . . . .13
12. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
13. Survival of Representations and Warranties etc . . . . . . . . . . . . . . . .13
14. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
15. Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
16. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
17. Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Schedule A - List of Purchasers
Exhibit 1 - Fairness Opinion
Exhibit 2 - Co-Sale Agreement
</TABLE>
ii
<PAGE>
GREAT LAKES AVIATION, LTD.
STOCK PURCHASE AGREEMENT
As of August 31, 1998
To Each of the Persons Named in
Schedule A to this Agreement
(the "Purchasers")
Gentlemen:
In consideration of the agreement of the Purchasers to purchase the Shares
(as hereinafter defined), as provided for herein, the undersigned GREAT LAKES
AVIATION, LTD., an Iowa corporation (the "Company"), hereby agrees with each of
the Purchasers as follows:
1. AUTHORIZATION OF SECURITIES. The Company proposes to authorize, issue
and sell an aggregate of up to 1,000,000 shares of its common stock, par value
$.01 per share (the "Shares").
2. SALE AND PURCHASE OF SECURITIES. Subject to the terms and conditions
hereof, the Company hereby agrees to sell to each Purchaser, and each Purchaser
hereby agrees to purchase from the Company, the number of Shares set forth
opposite such Purchaser's name in Schedule A hereto, at the purchase price set
forth opposite such Purchaser's name in Schedule A hereto.
3. CLOSING; PAYMENT. The closing of the sale to, and purchase by, the
Purchasers of the Shares (the "Closing") shall occur at the offices of Briggs
and Morgan, Professional Association, 2400 IDS Center, 80 South Eighth Street,
Minneapolis, Minnesota, at the hour of 5:00 P.M., Minneapolis time, on
August 31, 1998 or on such other day or at such other time or place as the
Purchasers and the Company shall agree upon (the "Closing Date").
As soon as practicable after the Closing, the Company will deliver to the
Purchasers certificates representing the Shares being purchased by the
Purchasers, registered in their respective names as stated in Schedule A hereto
(or in the names of their respective nominees as may be specified to the Company
at least 48 hours prior to the Closing Date).
Each Purchaser will deliver to the Company checks or wire transfers in the
amounts set forth after their respective names in Schedule A hereto, against
delivery of the certificates for the Shares, in payment of the total purchase
price of the Shares being purchased by the
<PAGE>
Purchasers; provided, however, that with respect to Iowa Great Lakes Flyers,
Inc. ("Flyers"), one of the Purchasers, payment shall be made by the
cancellation of indebtedness of the Company owed to Flyers in an amount of up to
$550,000, with the balance paid in cash. Flyers agrees to execute and deliver
such documents as may be reasonably requested by counsel to the Company to
evidence such cancellation of indebtedness.
4. RESTRICTION ON TRANSFER OF SECURITIES.
4.1 RESTRICTIONS. The Shares are transferable only pursuant to (a) a
public offering registered under the Securities Act of 1933 (the "Securities
Act"), (b) Rule 144 (or any similar rule then in effect) adopted under the
Securities Act, if such rule is available, and (c) subject to the conditions
elsewhere specified in this Section 4, any other legally available means of
transfer.
4.2 LEGEND; STOP TRANSFER ORDER.
(a) LEGEND. Each certificate representing Shares shall be
endorsed with the following legend:
"The securities evidenced hereby were not issued in a transaction
registered under the Securities Act of 1933 or any applicable
state securities laws, and may not be transferred except (i)
pursuant to an exemption from the registration requirements of
the Securities Act of 1933 and all applicable state securities
laws or (ii) such registration."
The aforesaid legend shall be removed with respect to securities
held for at least two years by a person who has not been an affiliate
of the Company (as defined in Rule 144 under the Securities Act)
during the three months preceding the request for removal of such
legend. The foregoing legend removal requirement is based on Rule
144(k) under the Securities Act as currently in force, and assumes
that such Rule (or a successor thereto) in substantially its current
form shall be in effect at the time of any such request for legend
removal.
(b) STOP TRANSFER ORDER. A stop transfer order shall be placed
with the Company's transfer agent preventing transfer of any of the
securities referred to in paragraph (a) above pending compliance with
the conditions set forth in any such legend (except as otherwise
provided in paragraph (a) above).
2
<PAGE>
4.3 REMOVAL OF LEGEND. Any legend endorsed on a certificate or
instrument evidencing a security pursuant to Section 4.2 hereof shall be
removed, and the Company shall issue a certificate or instrument without such
legend to the holder of such security, (a) in accordance with Section 4.2(a)
hereof, (b) if such security is being disposed of pursuant to registration under
the Securities Act and any applicable state acts or pursuant to Rule 144 or any
similar rule then in effect, or (c) if such holder provides the Company with an
opinion of counsel satisfactory to the Company to the effect that a sale,
transfer, assignment, offer pledge or disposition for value of such security may
be made without registration and that such legend is not required to satisfy the
applicable exemption from registration.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Purchasers as follows:
5.1 ORGANIZATION, STANDING, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Iowa, and has the requisite corporate power and authority to own its properties
and to carry on its business in all material respects as it is now being
conducted. The Company has the requisite corporate power and authority to issue
the Shares and to otherwise perform its obligations under this Agreement. The
copies of the Articles of Incorporation and Bylaws of the Company made available
or delivered to the Purchasers or their agents prior to the execution of this
Agreement are true and complete copies of the duly and legally adopted Articles
of Incorporation and Bylaws of the Company in effect as of the date of this
Agreement.
5.2 QUALIFICATION. The Company is duly qualified or licensed as a
foreign corporation in good standing in each jurisdiction wherein the nature of
its activities or of its properties owned or leased makes such qualification or
licensing necessary and failure to be so qualified or licensed would have a
material adverse impact on its business, properties or prospects.
5.3 AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) The execution, delivery and performance of this Agreement
has been approved by the board of directors of the Company. No additional
corporate proceedings on the part of the Company are necessary to authorize
the execution and delivery of this Agreement and the consummation by the
Company of the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Company, and, assuming the
due authorization, execution and delivery by the Purchasers, constitutes
the valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights or by general
equitable
3
<PAGE>
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(b) The execution and delivery of this Agreement by the Company
does not, and the consummation by the Company of the transactions
contemplated hereby will not, conflict, violate or result in a breach of
any provision of, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under any of the terms, conditions
or provisions of (i) the Articles of Incorporation or Bylaws of the
Company, (ii) any law applicable to the Company or any of its properties or
assets or (iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company is now
a party or by which the Company or any of its properties or assets may be
bound or affected.
(c) Except for such filings as are required under federal or
state securities laws, no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any governmental
authority, court or other third party is necessary for the execution and
delivery of this Agreement by the Company or the performance of and
consummation by the Company of the transactions contemplated hereby.
5.4 STATUS OF SHARES. The Shares to be issued to each Purchaser
pursuant to this Agreement are duly authorized and, when issued in accordance
with the terms of this Agreement, will be validly issued, fully paid and
nonassessable and free and clear of all encumbrances, except for encumbrances
resulting from restrictions on transferability imposed by federal and state
securities laws.
5.5 SEC FILINGS. The Company has filed with the SEC all material
forms, statements, reports and documents required to be filed by it prior to the
date hereof under each of the Securities Act, the Securities Exchange Act of
1934 (the "Exchange Act"), and the respective rules and regulations thereunder,
(a) all of which, as amended, if applicable, complied when filed in all material
respects with all applicable requirements of the applicable Act and the rules
and regulations thereunder, and (b) none of which, as amended, if applicable,
including any financial statements or schedules included therein, contains any
untrue statement of material fact or omits to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading. True
and correct copies of the forms, statements, reports and documents filed by the
Company with the SEC since December 31, 1997 (the "SEC Reports," with the
Company's Form 10-Q for the quarter ended June 30,
4
<PAGE>
1998 being referred to as the "Most Recent SEC Report"), together with any and
all responses by the SEC thereto, have been furnished to the Purchasers. The
consolidated statements of financial position and the related consolidated
statements of income, shareholders' equity and cash flows (including the related
notes thereto) of the Company included in the SEC Reports (the "Financial
Statements") complied as to form in all material respects with applicable
accounting requirements and the rules and regulations of the SEC with respect
thereto, are in accordance with the books and records of the Company, have been
prepared in accordance with GAAP applied on a basis consistent with prior
periods, and, except for the absence of notes to the unaudited Financial
Statements, present fairly the consolidated financial position of the Company as
of their respective dates, and the results of its operations and cash flows for
the periods presented therein.
5.6 FORECAST. The 1998-1999 forecast dated August 3, 1998 (the
"Forecast") furnished to the Purchasers, by way of a disclosure letter dated
August 7, 1998, was prepared by the Company and is based on assumptions which
management believes, to the best of their knowledge, are reasonable under the
circumstances. Based on information as of the date of this Agreement, the
Company expects to meet or exceed the forecasted results for the months of July
and August, 1998.
5.7 LITIGATION; GOVERNMENTAL PROCEEDINGS. Except as described in a
separate schedule furnished to the Purchasers, by way of a disclosure letter
dated August 7, 1998, there are no legal actions, suits, arbitrations or other
legal, administrative or governmental proceedings or investigations pending
involving the Company or any officer of the Company (to the extent it pertains
to any officer's duties involving the Company) or, to the knowledge of the
Company, threatened against the Company, its properties, assets or business.
The Company is not in default with respect to any judgment, order or decree of
any court or any governmental agency or instrumentality. The Company has not
been threatened with any action or proceeding under any ordinance, law or
regulation.
5.8 CAPITAL STOCK. The authorized , issued and outstanding capital
stock of the Company, without giving effect to the sale of the Shares, is as set
forth in the Most Recent SEC Report. All of the outstanding shares of capital
stock of the Company were duly authorized and validly issued and are fully paid
and nonassessable. There are no outstanding subscriptions, options, warrants,
calls, contracts, demands, commitments, convertible securities or other
agreements or arrangements of any character or nature whatever, except as
disclosed in the SEC Reports (and except for employee stock options granted
under the Company's 1993 Stock Option Plan since the date of the Most Recent SEC
Report) under which the Company is or may be obligated to issue capital stock or
other securities of any kind representing an ownership interest or contingent
ownership interest in the Company.
5
<PAGE>
5.9 NO MATERIAL ADVERSE CHANGE. Since the date of the Most Recent
SEC Report and the preparation of the Forecast, the business of the Company has
been carried on in the ordinary and usual course, and the Company has not
sustained since such date any material loss or interference with its business
from fire, explosion, accident, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or government action, order or
decree. Since the date of the Most Recent SEC Report there has not been any
material change or, to the actual knowledge of any executive officer of the
Company, any development involving a prospective material change, in the
business, operations, results of operations or financial condition of the
Company.
5.10 DEBT OBLIGATIONS. The Pro Forma Summary of Notes Payable and
Long-Term Debt dated as of August 31, 1998 previously furnished to the
Purchasers, by way of a disclosure letter dated August 28, 1998, is a complete
and accurate description of all the Company's debt obligations. As of the date
hereof, the Company is not in default under any debt obligation.
5.11 FAIRNESS OPINION. Attached hereto as Exhibit 1, is a complete
and accurate copy of the fairness opinion prepared by Dougherty Summit
Securities LLC, which was received by the Company, pertaining to the sale of the
Shares.
5.12 DISCLOSURE. Neither this Agreement nor any certificate,
schedule, statement or other document furnished or to be furnished to any
Purchaser pursuant hereto or in connection with the transactions contemplated
hereby contains or will contain any untrue statement of a material fact or omits
or will omit to state any material fact required to be stated herein or therein
or necessary to make the statements herein or therein not misleading.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASERS. Each of the Purchasers
severally and not jointly represents and warrants for itself that:
6.1 INVESTMENT INTENT. The Shares being acquired by such Purchaser
hereunder are being purchased for such Purchaser's own account (except with
respect to Tennenbaum & Co., LLC which intends to transfer the right to a
portion of its Shares to certain of its employees who will hold such Shares for
investment purposes) and not with the view to, or for resale in connection with,
any distribution or public offering thereof within the meaning of the Securities
Act. Such Purchaser understands that the Shares have not been registered under
the Securities Act or any applicable state laws by reason of their issuance or
contemplated issuance in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act and such laws, and that
the reliance of the Company upon this exemption is predicated in part upon this
representation and warranty. Such Purchaser further understands that the Shares
may not be transferred or resold without
6
<PAGE>
(a) registration under the Securities Act and any applicable state securities
laws, or (b) an exemption from the requirements of the Securities Act and
applicable state securities laws.
Such Purchaser understands that a sale of the Shares pursuant to Rule
144 may not be effected prior to the expiration of a one-year period after such
Purchaser has acquired the Shares. Such Purchaser understands that any sales
pursuant to Rule 144 may only be made in full compliance with the provisions of
Rule 144.
6.2 LOCATION OF PRINCIPAL OFFICE AND QUALIFICATION AS ACCREDITED
INVESTOR. The state in which such Purchaser's principal office (or domicile, if
such Purchaser is an individual) is located is set forth in such Purchaser's
address in Schedule A hereto. Unless otherwise indicated on such Purchaser's
Certification attached to this Agreement, such Purchaser qualifies as an
accredited investor within the meaning of Rule 501 under the Securities Act for
the reasons specified on such Certification. Such Purchaser has such knowledge
and experience in financial and business matters that such Purchaser is capable
of evaluating the merits and risks of the investment to be made hereunder by
such Purchaser. Such Purchaser has and has had access to all of the Company's
material books and records and access to the Company's executive officers has
been provided to such Purchaser or to such Purchaser's qualified agents. Such
Purchaser specifically acknowledges that the Forecast which has been furnished
to Purchaser constitutes a "forward-looking statement" as defined in the Private
Securities Litigation Reform Act of 1995 and that many factors may cause the
Company's actual results to differ substantially from such forecast, including:
general industry conditions, changes in fuel prices or fuel availability, labor
difficulties, changes in local or national economic conditions, changes in the
Company's relationship with United Airlines, changes in public subsidy rates for
the Essential Air Service Program, and other risks detailed from time to time in
the Company's SEC Reports.
6.3 ACTS AND PROCEEDINGS. This Agreement has been duly authorized by
all necessary action on the part of such Purchaser, has been duly executed and
delivered by such Purchaser, and is a valid and binding agreement upon the part
of such Purchaser, except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting the enforcement of creditors' rights generally, and except for
judicial limitations on the enforcement of the remedy of specific enforcement
and other equitable remedies.
6.4 NO BROKERS OR FINDERS. No person, firm or corporation has or
will have, as a result of any act or omission by such Purchaser, any right,
interest or valid claim against the Company for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this Agreement. Such Purchaser will
indemnify and hold the Company harmless against any and all liability with
respect to any such commission, fee or other compensation which may be payable
or
7
<PAGE>
determined to be payable as a result of the actions of such Purchaser in
connection with the transactions contemplated by this Agreement.
7. REGISTRATION STATEMENT ON FORM S-3.
7.1 DEMAND REGISTRATION RIGHT. Upon receipt of a written request
from any Purchaser at any time after August 31, 1999, the Company shall file
with the SEC a Registration Statement on Form S-3 or any successor short-form
registration statement promulgated by the SEC ("Registration Statement") to
register the resale by the Purchasers of the Registrable Securities or any
portion thereof (as defined in Section 7.6 below) under the Securities Act.
After the Registration Statement is filed, the Company shall use reasonable best
efforts to (i) have the Registration Statement declared effective by the SEC,
(ii) thereafter prepare and file, as the Company shall determine may be required
under the Securities Act and the rules and regulations thereunder, a prospectus
supplement or supplements to the prospectus contained in the Registration
Statement or a post-effective amendment or amendments to the Registration
Statement and, with respect to any post-effective amendment, cause such
post-effective amendment to be declared effective by the SEC, (iii) maintain the
effectiveness of the Registration Statement until the earlier of (A) the date
two years from the date of effectiveness of the Registration Statement, (B) the
sale of all of the Registrable Securities pursuant to the Registration
Statement, or (C) such time as the Purchaser having Registrable Securities
included in the Registration Statement is eligible to sell all of such
Registrable Securities within a single three month period pursuant to Rule 144
under the Securities Act. The Company further agrees that it will (i) furnish
to the Purchasers and to the underwriters of the Registrable Securities, if any,
such reasonable number of copies of the Registration Statement, preliminary
prospectus and prospectus supplement, final prospectus and prospectus supplement
and such other documents as such Purchasers may reasonably request in order to
facilitate the public offering of the Registrable Securities, (ii) use its
reasonable best efforts to register or qualify the Registrable Securities
covered by the Registration Statement under such state securities or blue sky
laws of such jurisdictions as the Purchasers may reasonably request in writing
within 20 days following the original filing of the Registration Statement,
except that the Company shall not for any purpose be required to execute a
general consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified, (iii) notify the
Purchasers, promptly after it shall receive notice thereof, of the time when the
Registration Statement has become effective or a supplement to any prospectus
forming a part of the Registration Statement has been filed, (iv) notify the
Purchasers promptly of any request by the SEC for the amending or supplementing
of the Registration Statement or prospectus or prospectus supplement or for
additional information, (v) prepare and file with the SEC, promptly upon the
request of any Purchaser, any amendments or supplements to the Registration
Statement or prospectus or prospectus supplement which, in the opinion of
counsel for the Purchasers (and concurred in by counsel for the Company), is
required under
8
<PAGE>
the Securities Act or the rules and regulations thereunder in connection with
the distribution of the Registrable Securities by such Purchaser, (vi) prepare
and promptly file with the SEC and promptly notify the Purchasers of the filing
of such amendment or supplement to the Registration Statement or prospectus or
prospectus supplement as may be necessary to correct any statements or omissions
if, at the time when a prospectus relating to such securities is required to be
delivered under the Securities Act, any event shall have occurred as the result
of which any such prospectus or any other prospectus or prospectus supplement as
then in effect would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances in which they were made, not misleading, and (vii) advise
the Purchasers, promptly after the Company shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the SEC suspending the
effectiveness of the Registration Statement or the initiation or threatening of
any proceeding for that purpose and promptly use its reasonable best efforts to
prevent the issuance of any stop order or to obtain its withdrawal if such stop
order should be issued. Each Purchaser hereby agrees to cooperate with all
reasonable requests by the Company necessary to effectuate the preparation and
filing of the Registration Statement and agrees to provide the Company with all
information required in connection therewith in a timely manner and to comply
with the procedures specified in Section 7.2 below. Notwithstanding anything in
this Section 7.1 to the contrary, the Company's obligation to register the
Registrable Securities shall terminate with respect to each Purchaser at such
time as such Purchaser is eligible to sell all of its shares within any single
three month period pursuant to Rule 144 under the Securities Act.
7.2 LIMITATION ON RESALES. Prior to any sales of Registrable
Securities under the Registration Statement by a Purchaser, the Purchaser
contemplating the sales will provide the Company with written notice of such
intention, addressed to the Company's Chief Financial Officer (a "Sale Notice").
The Company will notify such Purchaser within two (2) business days following
receipt of the Sale Notice as to whether sales by the Purchaser may be made or
will be limited as provided below. Upon notice from the Company permitting sales
by the Purchaser, for a period beginning on the date of receipt by the Purchaser
of such notice and ending 45 days thereafter (the "Window Period"), the
Purchaser may offer and sell Registrable Securities from time to time pursuant
to the Registration Statement. Anything in this Agreement to the contrary
notwithstanding, the ability of a Purchaser to sell Registrable Securities
pursuant to the Registration Statement and this Agreement shall be suspended in
the event that, upon receiving a Sale Notice or during any Window Period, the
Company's Chief Financial Officer certifies to the Purchasers that, in the good
faith judgment of such officer (upon consultation to the extent practicable with
the Board of Directors of the Company), (A) the sale would interfere in any
material respect with any financing, acquisition, corporate reorganization or
other similar material transaction under consideration by the Company, or (B)
there is some other material development relating to the condition (financial or
otherwise) of the Company that has not been generally publicly
9
<PAGE>
disclosed and as to which the Company deems advisable upon the advice of counsel
at the time of the Sale Notice not to publicly disclose; provided, however,
that, upon any such event specified in (A) or (B) above, the Company may not
suspend sales by Purchasers under the Registration Statement for a period of
more than ninety (90) days from the date of such certification by the Company's
Chief Financial Officer. If, upon receipt of the Sale Notice, the Company has
reasonably determined that it is necessary to file and cause to be declared
effective a post-effective amendment to the Registration Statement or file a new
or amended prospectus supplement or to otherwise cause disclosure to be made
under the Exchange Act and incorporated by reference into the Registration
Statement, and the Company determines not to rely on the proviso set forth in
the preceding sentence in order to delay the making of such disclosure, the
Company will take such action within seven (7) business days following receipt
of the applicable Sale Notice. Nothing in this Section 7.2 shall restrict a
Purchaser in selling any shares in a sale not made under the Registration
Statement, including without limitation any private sales or sales pursuant to
Rule 144 under the Securities Act.
7.3 ELIGIBILITY FOR S-3 REGISTRATION. If at any time following the
first anniversary of the Closing Date, the Company shall be ineligible to
register its securities on Form S-3 (other than by reason of gross negligence or
willful violation of the Company's obligations hereunder) then (i) the Company
shall not be obligated to effect any registration of the Registrable Securities
under Section 7.1 until such time as the Company becomes eligible to use Form
S-3 (provided, however, that if at the time such eligibility is restored all of
the Registrable Securities held by a Purchaser are then eligible for sale during
any given three (3) month period under Rule 144 under the Securities Act, the
Company will have no further registration obligation under Section 7.1 with
respect to such Purchaser's Registrable Securities); and (ii) if the
Registration Statement has become effective under the Securities Act, the
Company may file an amendment to the Registration Statement deregistering any
Registrable Securities remaining unsold at the time that the Company became
ineligible to use Form S-3. In the event that the Company becomes ineligible to
use Form S-3 through its gross negligence or willful misconduct and such
ineligibility remains uncured for a period of 10 days, the Company's obligation
to register the Registrable Securities will be deemed to extend to registration
on Form S-1, S-2 or other applicable forms promulgated by the SEC. The Company
will provide prompt notice to the Purchasers of any ineligibility to use Form
S-3 and of any deregistration of the Registrable Securities under this Section.
7.4 FEES AND EXPENSES. In connection with the registration of the
Registrable Securities, the Company shall bear the following fees, costs and
expenses: all registration and filing fees, NASD and Nasdaq or exchange listing
fees, printing expenses, fees and disbursements of counsel and accountants for
the Company, all internal Company expenses and all legal fees and disbursements
and other expenses of complying with state securities or blue sky laws of any
jurisdictions in which the Registrable Securities are to be registered or
qualified. Fees and disbursements of counsel and accountants for the
10
<PAGE>
Purchasers, underwriting discounts and commissions and transfer taxes relating
to the Registrable Securities included in the offering, and any other expenses
incurred by the Purchasers not expressly included above, shall be borne by the
Purchasers.
7.5 INDEMNIFICATION. With respect to such registration:
(a) Subject to compliance with Section 7.2, the Company will
indemnify and hold harmless each Purchaser having Registrable
Securities included in the Registration Statement, and any underwriter
(as defined in the Securities Act) for such Purchaser and each person,
if any, who controls such Purchaser or such underwriter within the
meaning of the Securities Act, from and against, and will reimburse
such Purchaser and each such underwriter and controlling person with
respect to, any and all loss, damage, liability, cost and expense to
which such Purchaser or any such underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any prospectus or prospectus
supplement contained therein or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided,
however, that the Company will not be liable in any such case to the
extent that any such loss, damage, liability, cost or expense arises
out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with
information furnished by such Purchaser, such underwriter or such
controlling person in writing specifically for use in the preparation
thereof.
(b) Each Purchaser having Registrable Securities included in the
Registration Statement will indemnify and hold harmless the Company,
its directors and officers, and any controlling person thereof and any
underwriter from and against, and will reimburse the Company, its
directors and officers, and any such controlling person and any
underwriter with respect to, any and all loss, damage, liability, cost
or expense to which the Company or any controlling person and any
underwriter may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are
caused by any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any prospectus or prospectus
supplement contained therein or any amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged omission
11
<PAGE>
to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to
the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission
was so made in reliance upon and in strict conformity with written
information furnished by such Purchaser specifically for use in the
preparation thereof.
7.6 REGISTRABLE SECURITIES DEFINED; APPLICABILITY OF REGISTRATION
RIGHT. For the purposes of this Section 7, the term "Registrable Securities"
shall mean (i) the Shares, and (ii) any shares of common stock issued or
issuable with respect to such Shares by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or a sale of substantially all of the
Company's assets. It is specifically agreed that the obligation of the Company
to register the Registrable Securities is personal to the Purchasers and may not
be assigned or transferred in any manner without the prior express written
consent of the Company.
8. GENERAL INDEMNITY. The Company hereby agrees to indemnify and hold
the Purchasers harmless from and against any and all loss, damage, liability,
cost and expense (including reasonable attorneys' fees and disbursements)
arising out of any third party claims relating to the Purchasers' purchase of
Shares pursuant to this Agreement.
9. OTHER AGREEMENTS.
(a) AGREEMENT AMONG PURCHASERS. Contemporaneously with the
execution of this Agreement, Tennenbaum & Co., LLC, one of the
Purchasers ("TCO"), Flyers and Douglas G. Voss, the sole shareholder
of Flyers, have entered into that certain Co-Sale Agreement attached
hereto as Exhibit 2, pursuant to which Flyers and Mr. Voss have
granted TCO certain rights of co-sale on their shares of the Company's
common stock.
(b) AMENDMENT OF CERTAIN LETTER AGREEMENT. Contemporaneously
with the execution of this Agreement, Tennenbaum Securities, LLC, an
affiliate of TCO, and the Company have agreed to amend that certain
letter agreement dated December 11, 1997 between Tennenbaum
Securities, LLC and the Company.
10. CHANGES, WAIVERS. ETC. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by a
statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
12
<PAGE>
11. UNDERSTANDING AMONG PURCHASERS. The determination by each of the
Purchasers to purchase the Shares pursuant to this Agreement has been made by
such Purchaser independent of the other Purchasers, and independent of any
statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects or condition (financial or otherwise) of the
Company which may have been made or given by the other Purchaser or by any agent
or employee of the other Purchaser. In addition, it is acknowledged by each of
the Purchasers that the other Purchaser has not acted as such Purchaser's agent
in connection with making its investment hereunder.
12. NOTICES. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered, or
mailed first-class postage prepaid, registered or certified mail,
(a) if to any Purchaser, addressed to such Purchaser at its
address as shown on Schedule A hereto, or at such other address as
such holder may specify by written notice to the Company, or
(b) if to the Company, addressed to the Company, 1965 330th
Street, Spencer, Iowa 51301, attention Chief Financial Officer, or to
such other address as the Company may specify by written notice to the
Purchasers,
and such notices and other communications shall for all purposes of this
Agreement be treated as being effective or having been given if delivered
personally, or, if sent by mail, when received.
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES ETC. All representations
and warranties contained herein shall survive the execution and delivery of this
Agreement and the sale and purchase of the Shares and payment therefor.
14. HEADINGS. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
15. CHOICE OF LAW. It is the intention of the parties that the laws of
the state of Iowa shall govern the validity of this Agreement, the construction
of its terms and the interpretation of the rights and duties of the parties.
16. COUNTERPARTS. This Agreement may be executed concurrently in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13
<PAGE>
17. PUBLIC ANNOUNCEMENTS. The Company agrees not to issue any press
release or make any other public announcement concerning this Agreement which
identifies a Purchaser without first receiving the prior consent of such
Purchaser, which consent shall not be unreasonably withheld, provided, however,
that nothing herein shall limit the Company's right to make such disclosures as
may be required under the Securities Act or Exchange Act (including the filing
of this Agreement as an Exhibit to any Exchange Act report).
[THIS SPACE INTENTIONALLY LEFT BLANK]
14
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding contract among you and
the undersigned.
Very truly yours,
GREAT LAKES AVIATION, LTD.
By: /s/ Rolly Bergeson
-------------------------------------
Its: Chief Operating Officer
-----------------------------------
***Stock Purchase Agreement dated August 31, 1998***
<PAGE>
The foregoing Agreement is hereby accepted as of the date first above
written.
Iowa Great Lakes Flyers, Inc.
By: /s/ Douglas G. Voss
-------------------------------------
Its: President
-----------------------------------
Tennenbaum & Co., LLC
By: /s/ Michael E. Tannenbaum
-------------------------------------
Its: Managing Member
-----------------------------------
***Stock Purchase Agreement dated August 31, 1998***
<PAGE>
PURCHASER CERTIFICATION
The undersigned, in connection with the Stock Purchase Agreement dated
August 31, 1998 among Great Lakes Aviation, Ltd. (the "Company") and certain
Purchasers listed in Schedule A thereto, hereby makes each of the
representations contained in Section 6 of such Stock Purchase Agreement. The
undersigned further represents that: he/she/it qualifies as an "accredited
investor", as that term is used in Regulation D promulgated under the Securities
Act of 1933 (the "Act"), because (check one):
(1)____ it is a bank as defined in Section 3(a)(2) of the Act, or a savings
and loan association or other institution as defined in Section
3(a)(5) of the Act, whether acting in its individual or fiduciary
capacity; a broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; an insurance company as defined in
Section 2(13) of the Act; an investment company registered under the
Investment Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of that act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of 1958; a
plan established and maintained by a state, its political
subdivisions, or any instrumentality of a state or its subdivisions,
for the benefit of its employees, if such plan has total assets in
excess of $5,000,000; an employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in Section
3(21) of such act, which is either a bank, savings and loan
association, insurance company or registered investment adviser, or if
the employee benefit plan has total assets in excess of $5,000,000 or,
if a self-directed plan, with investment decisions made solely by
persons that are accredited investors;
(2)____ it is a private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(3)____ it is an organization described in Section 501(c)(3) of the Internal
Revenue Code, a corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000;
(4)____ he or she is a director or executive officer of the Company,
<PAGE>
(5)____ he or she is an individual who has an individual net worth, or Joint
net worth with his or her spouse, in excess of $1,000,000;
(6)____ he or she is an individual who had an income in excess of $200,000 in
each of the two most recent years or joint income with his or her
spouse in excess of $300,000 in each of those years and who reasonably
expects an income in excess of the same level in the current year;
(7)____ it is a trust with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) under the Act, or
(8)____ it is an entity, all of whose equity owners are accredited investors;
or
Signature:
---------------------------------
Print Name:
---------------------------------
---------------------------------
---------------------------------
SSN or EIN:
---------------------------------
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Price
Shares per Aggregate
Names and Addresses of Purchasers To Be Purchased Share Purchase Price
- - --------------------------------- --------------- ----- --------------
<S> <C> <C> <C>
Iowa Great Lakes Flyers, Inc. 500,000 $2.00 $1,000,000
Attn: Douglas G. Voss
1965 330th Street
Spencer, IA 51301
Tennenbaum & Co., LLC 500,000 $2.00 $1,000,000
1999 Avenue of the Stars, Suite 1010
Los Angeles, CA 90067-6022
</TABLE>
A-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,940
<SECURITIES> 0
<RECEIVABLES> 11,467
<ALLOWANCES> 0
<INVENTORY> 15,143
<CURRENT-ASSETS> 28,581
<PP&E> 48,487
<DEPRECIATION> 7,284
<TOTAL-ASSETS> 71,435
<CURRENT-LIABILITIES> 30,167
<BONDS> 0
0
0
<COMMON> 86
<OTHER-SE> 5,989
<TOTAL-LIABILITY-AND-EQUITY> 71,435
<SALES> 0
<TOTAL-REVENUES> 82,502
<CGS> 0
<TOTAL-COSTS> 77,117
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,469
<INCOME-PRETAX> 2,916
<INCOME-TAX> 140
<INCOME-CONTINUING> 2,776
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,776
<EPS-PRIMARY> .36
<EPS-DILUTED> .33
</TABLE>
