SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-6867
LYNTON GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-2688055
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9 AIRPORT ROAD
MORRISTOWN MUNICIPAL AIRPORT 07960
MORRISTOWN, NEW JERSEY (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 292-9000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK ($.30 PAR VALUE)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of December 20, 1996, the aggregate market value of the Common Stock held by
non-affiliates of the Registrant (1,126,140 shares) was approximately $387,111
(based upon the average bid and asked prices of such stock on October 20, 1995,
the most recent date on which bid and ask prices were available). The number of
shares outstanding of the Common Stock ($.30 par value) of the Registrant as of
the close of business on December 20, 1996 was 6,394,872.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 1997 Annual Meeting of
Stockholders are incorporated by reference into Part III hereof.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Unless otherwise indicated by the context, the terms "Company" or
"Registrant" refer to Lynton Group, Inc. and its consolidated subsidiaries.
The Company, operating from its primary bases in the New York and London
metropolitan regions, performs aviation sales and services for an international
list of customers. Services provided by the Company include the management,
charter, maintenance, hangarage and refueling of corporate helicopters and
fixed wing aircraft. In addition, the Company's sales operations perform
aircraft sales and brokerage services to customers located in markets
throughout the world.
Lynton Group, Inc. was incorporated in the State of Delaware in August
1971 under the name of Decair Corporation. In June 1989, the Company changed
its name to Lynton Group, Inc. Prior to May 1989, the Company's operations
consisted primarily of performing helicopter maintenance, management and
charter services through its subsidiaries Ramapo Helicopters, Inc. ("Ramapo")
and Rockland Aviation, Inc. (later renamed Lynton Aviation Charter, Inc.
("Lynton Aviation Charter") and now known as LynStar Aviation, Inc.).
In May 1989, the Company acquired (the "Limited Acquisition") all of the
issued and outstanding shares of Lynton Group Limited, a company organized
under the laws of England ("Limited"). Limited, a London based company founded
in 1984, is currently a holding company with two wholly-owned operating
subsidiaries, Lynton Aviation Limited ("Aviation Limited"), a wholly-owned
subsidiary at the time of the Limited Acquisition, and European Helicopters
Limited ("EHL"), a 40% owned affiliate at the time of the Limited Acquisition,
each a company organized under the laws of England. In August 1990, the
Company acquired (the "EHL Acquisition") the remaining 60% of the capital stock
of EHL. Aviation Limited is primarily involved in the sale, management and
charter of corporate helicopters and fixed wing aircraft while EHL is primarily
involved in the rebuilding, sale and maintenance of corporate helicopters.
Simultaneous with the consummation of the EHL Acquisition, Lynton Jet
Centre, Inc. ("Lynton Jet Centre"), a wholly-owned subsidiary of the Company
incorporated in April 1990 under the laws of the State of New Jersey, acquired
substantially all of the assets of the Linpro Jet Centre (the "Jet Centre"),
including its ground lease on a hangar facility located at the Morristown
Municipal Airport, Morristown, New Jersey (the "Jet Centre Acquisition"). The
Jet Centre is a fixed base operation of approximately 132,000 square feet of
hangar and office space, and provides hangarage and fueling services to
corporate helicopters and fixed wing aircraft at the Morristown Municipal
Airport. Following the acquisition, the Jet Centre was renamed the Lynton Jet
Centre.
In August 1990, the Company incorporated a wholly-owned subsidiary,
Lynton Aviation, Inc., a New Jersey corporation ("Lynton Aviation"), and in
April 1992, incorporated a wholly-owned subsidiary, Lynton Aviation Services,
Inc., a New Jersey corporation ("Lynton Services"), to provide aviation charter
and management services and corporate aircraft sales services through
operations based at the Jet Centre.
In July 1992, the Company sold its interest in Lynton Aviation Charter to
LynStar Holdings, Inc., a New Jersey corporation which is 20% owned by the
Company and formed for the purpose of effecting the acquisition of all of the
shares of capital stock of Lynton Aviation Charter. Thereafter, and also in
July 1992, Lynton Aviation Charter changed its name to LynStar Aviation, Inc.
In January 1994, the Company acquired (the "Dollar Air Acquisition") all
of the issued and outstanding shares of Dollar Air Services Limited, a company
organized under the laws of England ("Dollar Air"). At the time of the Dollar
Air Acquisition, Dollar Air owned a 75% equity interest in Black Isle
Helicopters Limited, a company organized under the laws of Scotland ("Black
Isle"). In September 1994, the remaining 25% of Black Isle's capital stock was
acquired by the Company.
<PAGE>
In March 1994, the Company incorporated Lynton Properties, Inc., a New
Jersey corporation and a special purpose wholly-owned subsidiary of Lynton Jet
Centre ("Lynton Properties"), in order to effect a leasehold mortgage financing
transaction.
In August 1995, substantially all the business, assets and liabilities of
Dollar Air and Black Isle were transferred to a newly formed company, PLM
Dollar Group Limited ("PDG"), a company organized under the laws of Scotland,
in exchange for 50% of the capital stock of PDG. Simultaneously with the
consummation of the transaction, substantially all of the business, assets and
liabilities of P.L.M. Helicopters Limited ("PLM") were transferred to PDG and
the shareholders of PLM were issued the remaining 50% of the capital stock of
PDG. PDG operates a fleet of 13 helicopters from bases primarily in Scotland
and England, and provides helicopter support services for industrial and
utility applications in the United Kingdom. Although no assurance can be given,
the Company intends to dispose of its interest in PDG as soon as practicable
(see Part II Item 7).
(b) Financial Information About Industry Segments
The Company primarily operates in one industry segment, i.e. aviation and
aviation related services.
(c) Narrative Description of Business
FLIGHT OPERATIONS
In the United Kingdom, the Company through Aviation Limited, performs
charter and management services for corporate helicopters and fixed wing
aircraft. A typical management contract will require the Company to staff an
aircraft with a crew and arrange for maintenance of the aircraft for a
management fee. The Company in turn charters the aircraft to outside customers
and pays to the owner of the aircraft a percentage of the revenues received.
The Company currently operates 8 helicopters and 3 fixed wing aircraft under
such arrangements. Contracts for management and general services may be
canceled on a short-term basis. Management believes that the loss of any single
management contract or charter customer in the United Kingdom would not have a
material effect on the Company.
Also in the United Kingdom, PDG, which is 50% owned by the Company,
performs helicopter support services for the construction, fish farming,
forestry, mining and oil industries and for various utilities. These services
are primarily provided to companies under short and medium term contracts. PDG
currently owns 8 aircraft and has an additional 5 aircraft under short term
lease arrangements.
In the United States, the Company performs aircraft management services
through its subsidiaries Lynton Jet Centre, Lynton Services and Lynton
Aviation.
MAINTENANCE OPERATIONS
The Company operates two helicopter maintenance facilities through its
subsidiaries EHL, located in Denham, Middlesex, outside of London, England and
Ramapo, located at Morristown Municipal Airport, Morristown, New Jersey. The
principal maintenance activities consist of routine and major helicopter
maintenance, component overhaul, and aircraft parts sales.
EHL is one of a few facilities in the United Kingdom licensed by the
Civil Aviation Authority ("CAA") as a Repair Station entitled to maintain,
overhaul and repair helicopters. EHL's maintenance operations are based in
part on a certificate from Eurocopter Corporation for helicopters produced by
it. These certificates are of indefinite duration but are subject to
cancellation, suspension or revocation if, in the case of the manufacturer's
certificate, EHL fails to provide satisfactory maintenance facilities and
levels of service or, in the case of the CAA certificate, EHL fails to meet
Joint Airworthiness Requirements as mandated by the Joint Airworthiness
Authorities of the European Community and administered by the CAA. EHL
currently meets all requirements for both the CAA and the manufacturer's
certificates. Management believes that the loss of any of the foregoing
certificates or licenses could have a material effect on the Company.
<PAGE>
Ramapo is one of numerous facilities in the United States licensed by the
Federal Aviation Administration ("FAA") as a Repair Station entitled to
maintain, overhaul and repair all helicopter models with a gross weight under
12,500 pounds. Ramapo's maintenance operation is based in part on certificates
from Bell Helicopter/Textron which cover most Bell model helicopters and
certificates from American Eurocopter Corporation for the AS350, AS355 and
AS365 Series helicopters. These certificates are of indefinite duration but
are subject to cancellation, suspension or revocation if, in the case of the
manufacturers' certificate, Ramapo fails to provide satisfactory maintenance
facilities and levels of service or, in the case of the FAA certificate, Ramapo
fails to meet FAA maintenance and employment requirements. Ramapo currently
meets all requirements for both the FAA and manufacturers' certificates.
Management believes that the loss of any of the foregoing certificates or
licenses would not have a material effect on the Company.
The Company currently services and maintains approximately 17 helicopters
and 3 fixed wing aircraft for individuals and corporations in the New York and
London regions. Management believes that the loss of any single maintenance
customer would not have a material effect on the Company.
AIRCRAFT SALES OPERATIONS
The Company, through both its United States and United Kingdom
subsidiaries, performs sales and brokerage services related to the purchase and
sale of corporate helicopters and fixed wing aircraft between owners and buyers
of such aircraft located throughout the world. The Company will generally
receive a fixed commission or a percentage of the amount of such transactions
from the buyer and/or seller of the aircraft. The Company also purchases
aircraft for resale in instances where it believes the aircraft may be resold
at a profit. For aircraft sales transactions in which the Company acts as
principal, the Company records the full sales price of the aircraft as revenue
and the cost of the aircraft as a charge to direct costs, resulting in a
relatively low gross margin percentage. In other transactions, the Company may
act strictly as a broker and record as revenue only the commissions on these
sales transactions, generating a relatively high gross margin percentage.
Consequently, the performance of these operations can best be gauged by the
gross margins achieved for each period. Gross margins generated by aircraft
sales operations have a material impact on the operating results of the Company
and have historically varied significantly from period to period. The level of
aircraft sales transactions is, to a significant degree, reflective of overall
economic conditions.
FIXED BASE OPERATIONS
The Company through Lynton Jet Centre and Lynton Properties, is engaged
in the operation of an aviation fixed base operation ("FBO") at the Morristown
Municipal Airport, Morristown, New Jersey. Services performed at the FBO
consist of the hangarage and refueling of aircraft operated primarily by
corporate flight departments located in the New York/New Jersey metropolitan
area, as well as refueling of transient customers stopping at the airport. The
facility has thirteen tenants with non-cancelable operating leases with terms
remaining ranging from one to eleven years. (see Note 9 to the Consolidated
Financial Statements annexed hereto for information on the lease arrangements
between the Company and Hanson North America, Inc. and Millennium America
Holdings, Inc.). The loss of either of the largest two tenants (with leases
which expire in February 2006 and June 1999 for the largest and second largest
tenant, respectively) could have a material effect on the Company.
The Company through Ramapo, operates an additional FBO business out of a
hangar/office facility also located at the Morristown Municipal Airport,
Morristown, New Jersey. Services performed are similar to those provided at the
Jet Centre. The facility has thirteen tenants of which five have non-cancelable
operating leases with three year terms. The remaining tenants rent on a month
to month basis. In addition, Ramapo conducts its maintenance operation from
this facility.
COMPETITION
The Company generally experiences significant competition in all areas of
its business from a number of domestic and international competitors.
<PAGE>
The Company competes both in the United States and United Kingdom with
numerous other organizations which perform similar services related to the
management, charter, and sales of corporate helicopters and fixed wing
aircraft, some of which are larger than the Company in terms of the number of
aircraft under management and some of which have greater financial resources
than those of the Company. Competition in the industry is principally affected
by quality of service and price. The Company has, in the opinion of
management, maintained a reputation for excellent service in the management,
charter, and sales of aircraft and has remained price competitive for the
comparative level of service.
The Company's maintenance operations in the United States and United
Kingdom each compete with several other maintenance organizations within their
geographic regions, ranging from small sole proprietorships to larger
facilities, several of which are as large or larger than the Company in terms
of the number of helicopters under maintenance, several of which have greater
financial resources than those of the Company, and most of which compete with
the Company in its major services. In addition, the manufacturers themselves
and certain corporate aircraft owners operate their own maintenance facilities.
Competition in the industry is principally based upon price and the quality of
the services provided. The Company has remained price competitive and in the
opinion of management has historically maintained a reputation for excellence
in its maintenance work.
The Company's FBO operation competes one other FBO at Morristown
Municipal Airport, Morristown, New Jersey, as well as numerous FBO's located at
several airports within the New York/New Jersey metropolitan region.
Competition consists primarily of obtaining tenants for the facility and
attracting transient customers to use the facility primarily for refueling.
Many of the Company's competitors are as large or larger than the Company and
several have financial resources as great or greater than the Company.
Competition in the industry is principally based upon price and the quality of
accommodation and service at the facility. The Company has remained price
competitive with the other FBO's in the area and has, in the opinion of
management, maintained a level of accommodation and service that is as good or
better than its competitors.
BACKLOG
The Company, through Aviation Limited and EHL, have entered into
contracts to provide certain aviation support services to customers. Such
contracts expire at various dates in fiscal 1997 and have provisions which
allow for early termination on a short-term basis.
A portion of Lynton Jet Centre's, Lynton Properties' and Ramapo's
operating revenue is obtained from tenants through rental payments provided for
under non-cancelable operating leases. The leases typically provide for
guaranteed minimum rentals and other charges to cover certain operating costs
in excess of base amounts.
The following is a schedule of minimum future rentals on non-cancelable
operating leases, including the lease agreement with Hanson North America, Inc.
and Millennium America Holdings, Inc. as referenced in Note 9 to the
Consolidated Financial Statements, as of September 30, 1996 (thousands of
dollars):
<TABLE>
<CAPTION>
<S> <C>
1997 $3,314
1998 2,785
1999 2,128
2000 1,468
2001 1,414
Thereafter 4,503
Total $15,612
</TABLE>
GOVERNMENT REGULATION
The Company is subject to the jurisdiction of the FAA in the United
States and the CAA in the United Kingdom related to its authorization to
operate aircraft maintenance facilities and to operate as an air carrier. No
assurance can be given that the authorizations mentioned above will be
maintained in the future. Management believes that the loss of the above
mentioned authorization in the United States would not have a material effect
<PAGE>
on the Company while the loss of any of the United Kingdom authorizations could
have a material effect on the Company.
HAZARDS AND INSURANCE
The operation of helicopters and fixed wing aircraft involves a
substantial level of risk. Hazards such as aircraft accidents, collisions and
fire are inherent in the providing of aviation services and may result in
losses of life, equipment and revenues.
The Company maintains insurance of types customary to the aviation
services industry and in amounts deemed adequate by the Company to protect the
Company and its property. These policies include aircraft liability, aviation
spares/equipment, all risks, hull, products liability, hangar keepers
liability, property and casualty, automobile and workers' compensation. The
Company has not experienced significant difficulty in obtaining insurance and
has not incurred any insured losses in excess of its property and liability
coverage. While the Company believes that its insurance coverage is adequate
for its operations, there can be no assurance that such insurance coverage is
now, or will be, adequate to cover any claims to which it may be subject or
that such levels of insurance may be obtained at comparable rates in the
future.
PERSONNEL
In addition to its principal officers, the Company presently has
approximately 40 employees in the United States and approximately 50 employees
in the United Kingdom, consisting principally of managers, pilots, mechanics,
aviation services personnel and administrative staff and which are primarily
employed on a full-time basis.
ITEM 2. PROPERTIES
The Company operates the Jet Centre business out of the Company's
hangar/office facility of approximately 132,000 square feet, owned by the
Company, located at the Morristown Municipal Airport, Morristown, New Jersey,
on a site leased pursuant to a ground lease with an initial term expiring on
December 31, 2010 and with options to extend the term of the lease for five
additional terms of five years each. The rental payments due under the lease
are generally based upon increases in the consumer price index through the year
2020 and based upon fair market value thereafter. The Company maintains its
executive offices at the Jet Centre facility.
The Company also leases an additional facility of approximately 36,000
square feet at the Morristown Municipal Airport, Morristown, New Jersey, with
an initial term expiring on May 31, 1998, with an option to renew for an
additional three years. Ramapo conducts its maintenance operation from this
facility.
The Company operates Aviation Limited and EHL principally out of a hangar
facility of approximately 20,000 square feet located in Denham, Middlesex,
which is located outside of London. The hangar is owned by the Company and is
located on a site leased pursuant to a ground lease which expires in 2012. In
addition, the Company leases on a month-to-month basis office space of
approximately 2,000 square feet from a company which is wholly-owned by the
Company's Chief Executive Officer.
Management believes that the current facilities are sufficient to operate
the Company's business at its current level.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock is traded, effective October 20, 1995, in
the over-the-counter market and is quoted in the "pink sheets" promulgated by
the National Quotation Bureau, Inc. Until October 20, 1995, the Company's
Common Stock was listed on the Nasdaq Small-Cap Market under the symbol "LYNG".
The following chart sets forth the range of the high and low bid
quotations for the Company's Common Stock for each period indicated. The
quotations represent prices between dealers and do not include retail markups,
markdowns, commissions or other adjustments and may not represent actual
transactions.
<TABLE>
<CAPTION>
BID PRICES
PERIOD HIGH LOW
<S> <C> <C>
Fiscal year ended September 30, 1995:
Oct. 1, 1994 to Dec. 31, 1994 15/16 7/8
Jan. 1, 1995 to March 31, 1995 1-7/16 15/16
April l, 1995 to June 30, 1995 1-1/8 3/4
July 1, 1995 to Sept. 30, 1995 3/4 1/8
Fiscal year ended September 30, 1996:
Oct. 1, 1995 to Oct. 20, 1995 3/16 1/8
</TABLE>
According to the records of the National Quotation Bureau, Inc., there
have been no available bid and ask prices for the Company's Common Stock
subsequent to October 20, 1995.
(b) As of December 20, 1996, there were approximately 525 record holders
of the Company's Common Stock.
(c) The Company has never declared any cash dividends on its Common Stock
and does not anticipate declaring cash dividends in the foreseeable future.
ITEM 6.SELECTED FINANCIAL DATA
(000'S EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
Fiscal year ended September 30: (1)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Revenue $22,786 $27,221 $27,361 $21,121 $17,623
Net income (loss) before
extraordinary item 119 (2,320) (1,231) 119 (1,792)
Extraordinary item-gain (loss)
related to early
extinguishment of debt 287 - (166) - -
Net income (loss) 406 (2,320) (1,397) 119 (1,792)
PRIMARY EARNINGS PER SHARE:
Net income (loss) per common
before extraordinary item .06 (1.30) (.72) (.01) (1.73)
Extraordinary item .15 - (.09) - -
Net income (loss) per common
share (2) .21 (1.30) (.81) (.01) (1.73)
Working capital (deficit) (2,159) (2,748) (3,790) (2,210) (2,841)
Total assets 24,373 23,912 31,725 25,178 27,199
Long term debt, net of
current portion 12,873 17,411 18,332 15,378 18,941
</TABLE>
(1) This table should be read in conjunction with Part I, Item 1(a) for
information on historical acquisitions of the Company, and in conjunction with
the Consolidated Financial Statements and related notes thereto.
(2) Adjusted for the one-for-six reverse stock split effected in June 1994.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The table below sets forth operating results information for each of the
Company's operations and on a consolidated basis for the three years ended
September 30, 1996 (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995 1994
<S> <C> <C> <C> <C> <C>
Flight operations revenues - historical operations $7,894 $6,619 $7,222
Gross margin $931 $927 $500
Gross margin % 11.8% 14.0% 6.9%
Flight operations revenues - Dollar Air (1) $0 $4,875 $6,722
Gross margin $0 $205 $899
Gross margin % 0.0% 4.2% 13.4%
Maintenance operations revenues $6,238 $5,290 $4,502
Gross margin $924 $848 $819
Gross margin % 14.8% 16.0% 18.2%
Aircraft sales operations revenues $834 $3,288 $2,526
Gross margin - prior to writedown of
aircraft held for resale $466 $488 $674
Writedown of aircraft held for resale - - 180
Gross margin - net $466 $488 $495
Gross margin % 55.9% 14.8% 19.6%
Fixed base operations revenues $7,820 $6,702 $6,288
Gross margin $2,836 $2,678 $2,589
Gross margin % 36.3% 40.0% 41.2%
Other net revenues $0 $447 $101
Consolidated revenues $22,786 $27,221 $27,361
Consolidated direct costs 17,629 21,628 21,957
Consolidated gross margin 5,157 5,593 5,404
Selling, general & administrative expenses 2,432 3,473 3,747
Depreciation 662 933 1,072
Amortization of goodwill & intangible assets 127 200 221
Writedown of goodwill - 1,338 -
Operating income (loss) 1,936 (351) 364
Amortization of debt discount & issuance costs 139 139 135
Interest expense 1,336 1,772 1,432
Equity in loss of jointly-owned company - 58 -
Write-off of amount due from affiliate 191 - -
Income (loss) before tax provision and
extraordinary item 270 (2,320) (1,203)
Income tax provision 151 - 28
Income (loss) before extraordinary item 119 (2,320) (1,231)
Extraordinary item - Gain (loss) related to early
extinguishment of debt 287 - (166)
Net income (loss) $406 $(2,320) $(1,397)
</TABLE>
(1) See Note 3 to the Consolidated Financial Statements.
<PAGE>
The following discussions of results of operations for the Company
include results of operations for United Kingdom ("UK") subsidiaries translated
from pounds sterling ("sterling") to US dollars at the average rate of exchange
during the respective periods. The average value of sterling decreased by
approximately 2% in fiscal 1996 compared to fiscal 1995 and increased by
approximately 5% in fiscal 1995 compared to fiscal 1994. The effect on
consolidated results of operations resulting from changes in the exchange rate
of sterling as compared to a constant exchange rate from period to period has
been to report lower revenues and expenses for UK subsidiaries when the value
of sterling decreased and to report higher revenues and expenses for UK
subsidiaries when the value of sterling increased. Fluctuations in the value
of sterling will continue to have an effect on the results of operations for UK
subsidiaries as reported in US dollars and the resulting consolidated results
of operations for the Company.
1996 COMPARED TO 1995
Revenues for fiscal 1996 decreased to $22,786,000 as compared to revenues
in fiscal 1995 of $27,221,000, a decrease of $4,435,000 or 16.3%. This decrease
consists of the exclusion of revenues of Dollar Air Services Limited ("Dollar
Air") of $4,875,000 due to its transfer into a jointly-owned company (see
details below), reduced revenue from aircraft sales of $2,454,000, the receipt
in 1995 of proceeds from insurance policies over book value on aircraft
involved in accidents and rendered unserviceable of $447,000, offset by
increased revenues from flight operations of $1,275,000, from fixed base
operations of $1,118,000 and from maintenance operations of $948,000, (see
discussion of each operational area below).
The Company reported operating income for fiscal 1996 of $1,936,000 as
compared to an operating loss of $351,000 for fiscal 1995, an increase of
$2,287,000. This change resulted primarily from the writedown in fiscal 1995
of the carrying value of the unamortized goodwill arising on the acquisition of
Dollar Air amounting to $1,338,000, and increased operating income from the
Company's fixed base operations and UK flight operations. In August 1995,
substantially all the business, assets and liabilities of Dollar Air were
transferred to PLM Dollar Group Limited ("PDG"), in exchange for 50% of the
capital stock of PDG (see details below). In connection with this transfer, the
carrying value of the unamortized goodwill arising from the acquisition of
Dollar Air was written off in fiscal 1995 and amounted to $1,338,000. Included
in fiscal 1995 was a charge of $263,000 for the loss sustained on the sale of a
Company-owned aircraft which was sold in that year. In 1994, the Company had
reclassified this aircraft from fixed assets to aircraft held for resale and
had recorded a charge of $180,000 to reduce its carrying value to estimated
fair market value.
Interest expense for fiscal 1996 decreased to $1,336,000 as compared to
$1,772,000 for fiscal 1995, a decrease of $436,000 or 24.6%. This decrease
primarily represents interest paid on reduced levels of outstanding borrowings.
In fiscal 1996, the Company repurchased a portion of its 10% Senior
Subordinated Convertible Debentures due December 31, 1998 (the "Debentures") in
the principal amount of $540,000 for cash payments totaling $162,000. The
Company realized a gain on redemption of $287,000, net of related debt issuance
costs, on these repurchases.
The Company had net income of $406,000 for fiscal 1996 as compared to a
net loss of $2,320,000 for fiscal 1995, an increase in profit of $2,726,000.
The primary causes for this increase were increased operating income and
reduced interest costs resulting from the transfer of Dollar Air, the writedown
in fiscal 1995 of the carrying value of unamortized goodwill in Dollar Air, the
gain on redemption of convertible debt of $287,000, and increased operating
income for the Company's fixed base operations and UK flight operations.
The Company's ability to improve earnings is primarily dependent on the
enhancement of revenues and margins from its operations. The performance of
each operation is affected by different market conditions and varies as to
stability and degree of predictability. Below is a discussion of each of the
Company's operating areas and the factors which have historically, and will
continue, to affect performance.
<PAGE>
FLIGHT OPERATIONS
Certain revenues and costs relating to aviation management services
provided to HM Industries, Inc. ("HM Industries") which had been provided by
the Company to HM Industries at cost, were included in prior years in revenues,
direct costs and selling, general and administrative expenses. These amounts
have been excluded from revenues, direct costs and selling, general and
administrative expenses for fiscal 1996 and results for the fiscal years 1995
and 1994 have been reclassified to reflect their exclusion.
Revenues from flight operations overall increased by $1,275,000 or 19.3%
for fiscal 1996 as compared to fiscal 1995. This improvement was primarily due
to increased fixed-wing charter revenues in the UK, partly offset by a reduced
level of helicopter charter in the UK. The performance of these operations has
been and will continue to be primarily affected by demand for both helicopter
and fixed-wing charter within the UK market and between the UK and
international destinations. Such demand may vary significantly from period to
period.
In August 1995, substantially all the business, assets and liabilities of
Dollar Air was transferred to PLM Dollar Group Limited ("PDG"), in exchange for
50% of the capital stock of PDG. Simultaneously with the consummation of this
transaction, substantially all of the business, assets and liabilities of
P.L.M. Helicopters Limited ("PLM"), were transferred to PDG and the
shareholders of PLM were issued the remaining 50% of the capital stock of PDG.
Accordingly, the operating results set forth above reflect consolidated
operating results for Dollar Air, which was acquired in January 1994, through
August 31, 1995. The Company's 50% share in the operating results of PDG for
the year ended September 30, 1996 and the one month ended September 30, 1995
have not been consolidated but are recorded as equity in jointly-owned company.
The carrying value of the unamortized goodwill arising on the acquisition of
Dollar Air was written off in fiscal 1995 in the amount of $1,338,000. Although
no assurance can be given, the Company intends to dispose of its interest in
PDG as soon as practicable. The Company estimates that it will not sustain a
loss upon such disposition. Accordingly, the asset has been reclassified as
investment in jointly-owned company, held for resale, and therefore, the
Company's share of the gain or loss in the jointly-owned company will no longer
be recognized under the equity method of accounting. The Company's equity in
the loss of jointly-owned company was immaterial in fiscal 1996.
MAINTENANCE OPERATIONS
Revenues from maintenance operations increased by $948,000 or 17.9% in
fiscal 1996 as compared to fiscal 1995, primarily due to an increased volume of
maintenance sales related to customer aircraft. Gross margin percentage from
these operations declined in fiscal 1996 as compared to fiscal 1995 due to
increased market competitiveness in the helicopter maintenance area. Revenues
from maintenance operations are affected by the level of the Company's flight
operations, which impact on the maintenance requirements for the Company's
operational aircraft, thereby reducing available capacity for maintenance of
customer aircraft.
AIRCRAFT SALES OPERATIONS
Revenues from aircraft sales operations decreased by $2,454,000 in fiscal
1996 as compared to fiscal 1995. Significant fluctuations in revenues and
gross margin percentages from aircraft sales operations may occur from period
to period based upon the role the Company takes in such transactions in which
it is involved. For aircraft sales transactions in which the Company acts as
principal, the Company records the full sales price of the aircraft as revenue
and the cost of the aircraft as a charge to direct costs, resulting in a
relatively low gross margin percentage. In other transactions, the Company may
act strictly as a broker and record as revenue only the commissions on these
sales transactions, generating a relatively high gross margin percentage.
Consequently, the performance of these operations can best be gauged by the
gross margins achieved for each period. Gross margins generated by aircraft
sales operations have a material impact on the operating results of the Company
and have historically varied significantly from period to period. The level of
aircraft sales transactions is, to a significant degree, reflective of overall
economic conditions.
<PAGE>
FIXED BASE OPERATIONS
Revenues from fixed base operations increased by $1,118,000 or 16.7% in
fiscal 1996 as compared to fiscal 1995. This change is primarily attributable
to an increase in the level of fuel sales volume and tenant occupancy at the
Company's fixed base operations in Morristown, New Jersey. The performance of
these operations to a significant degree is based upon the level of tenant
occupancy with tenant leases ranging in term from one year to eleven years.
High occupancy levels for such facilities in the New York/New Jersey
metropolitan area have allowed the financial performance of these operations to
consistently improve during the last several years.
1995 COMPARED TO 1994
Revenues for fiscal 1995 decreased to $27,221,000 as compared to revenues
in fiscal 1994 of $27,361,000, a decrease of $140,000 or 0.1%. This decrease
consists of reduced revenues from the operations of Dollar Air of $1,847,000,
reduced revenues from flight operations of $603,000, offset by increased
revenues from maintenance operations of $788,000, from aircraft sales of
$762,000, from fixed base operations of $414,000 and the excess of proceeds
from insurance policies over book value on aircraft involved in accidents and
rendered unserviceable of $447,000.
The Company reported an operating loss for fiscal 1995 of $351,000 as
compared to operating income of $364,000 for fiscal 1994, a decrease of
$715,000. This change resulted primarily from the writedown in fiscal 1995 of
the carrying value of the unamortized goodwill arising on the acquisition of
Dollar Air amounting to $1,338,000, partly offset by increased operating income
from the Company's UK flight operations. Included in fiscal 1995 was a charge
of $263,000 for the loss sustained on the sale of a Company-owned aircraft
which was sold in that year. In 1994, the Company had reclassified this
aircraft from fixed assets to aircraft held for resale and had recorded a
charge of $180,000 to reduce its carrying value to estimated realizable value.
Interest expense for fiscal 1995 increased to $1,772,000 as compared to
$1,432,000 for fiscal 1994, an increase of $340,000 or 23.7%. This increase
primarily represents increased interest rates paid on outstanding levels of
borrowing, as well as an increase in indebtedness to HM Holdings of $500,000
from October 1994.
In August 1995, substantially all the business, assets and liabilities of
Dollar Air were transferred to PDG in exchange for 50% of the capital stock of
PDG. In connection with this transfer, the carrying value of the unamortized
goodwill arising from the acquisition of Dollar Air was written off in fiscal
1995 and amounted to $1,338,000.
The Company had a net loss of $2,320,000 for fiscal 1995 as compared to a
net loss of $1,397,000 for fiscal 1994, an increase in loss of $923,000. The
primary causes for this increase were the writedown of the carrying value of
unamortized goodwill in Dollar Air, increased operating losses and associated
interest costs of Dollar Air, partially offset by increased operating income
for the Company's UK flight operations.
FLIGHT OPERATIONS
Revenues from flight operations overall decreased by $603,000 or 8.3% for
fiscal 1995 as compared to fiscal 1994. While revenue levels were reduced due
to competitive pressures, primarily in the UK, gross margin levels and
percentages increased as a result of improvements in the UK operations in the
areas of management contract margins, cost reductions put into effect and
elimination of operational costs for fixed wing aircraft owned by the Company.
Flight operations for Dollar Air decreased by $1,847,000 or 27.5%,
primarily due to the cessation of operations in overseas locations. During the
first quarter of fiscal 1995, two of the aircraft owned and operated by Dollar
Air in Peru were involved in accidents and rendered unserviceable. Revenues
from flight operations for the year were reduced as a result. The excess of
proceeds from insurance policies over book value on these aircraft amounted to
$447,000 and is shown as other net revenues for the year ended September 30,
1995. Gross margins were reduced by $694,000 primarily as a result of reduced
activity levels as well as from costs incurred in the discontinuance of the
Company's operations in overseas locations.
In August 1995, substantially all the business, assets and liabilities of
Dollar Air were transferred to PDG in exchange for 50% of the capital stock of
PDG (see details above). Accordingly, the operating results set forth above
reflect consolidated operating results for Dollar Air, which was acquired in
January 1994, for the nine months ended September 30, 1994 and for the eleven
months ended August 31, 1995. The Company's 50% share in the operating results
of PDG for the year ended September 30, 1996 and the one month ended September
30, 1995 have not been consolidated but are shown under equity in jointly-owned
company. The carrying value of the unamortized goodwill arising on the
acquisition of Dollar Air was written off in fiscal 1995 in the amount of
$1,338,000.
MAINTENANCE OPERATIONS
Revenues from maintenance operations increased by $788,000 or 17.5% in
fiscal 1995 as compared to fiscal 1994, primarily due to an increased volume of
maintenance sales related to customer aircraft. Gross margin percentage from
these operations declined in fiscal 1995 as compared to fiscal 1994 due to
increased market competitiveness in the helicopter maintenance area.
AIRCRAFT SALES OPERATIONS
Revenues from aircraft sales operations increased by $762,000 in fiscal
1995 as compared to fiscal 1994. As discussed above, significant fluctuations
in revenues and gross margin percentages from aircraft sales operations may
occur from period to period based upon the role the Company takes in such
transactions in which it is involved.
FIXED BASE OPERATIONS
Revenues from fixed base operations increased by $414,000 or 6.6% in
fiscal 1995 as compared to fiscal 1994. This change is primarily attributable
to an increase in the level of tenant occupancy and fuel sales volume at the
Company's fixed base operation in Morristown, New Jersey.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had a working capital deficit of
$2,159,000 and stockholders' equity of $3,399,000. The Company had net cash
provided by operating activities of $1,761,000 in fiscal 1996 compared to
$1,878,000 in fiscal 1995. This decrease in cash flow from operating
activities is primarily due to the effect of the disposal of company owned
aircraft in 1995, reduced inventory and an increase in deferred revenue, offset
by improvements in operating profitability.
Pursuant to a Credit Agreement, as amended, entered into in August 1990
(the "Credit Agreement"), HM Holdings, Inc., an indirect wholly-owned
subsidiary of Hanson PLC ("HM Holdings"), had provided secured debt financing
("the Loans") in the aggregate amount of $17,000,000 to the Company and Lynton
Jet Centre, Inc. ("Lynton Jet Centre"). Prior to the completion of the Debt
Discharge Transaction (as described below), the principal amount owing to HM
Holdings at September 30, 1996 under the Loans was $6,605,923.
On November 8, 1996, a Debt Discharge Agreement (the "Debt Discharge
Agreement") was entered into by and among Hanson North America, Inc. ("Hanson
North America"), Millennium America Inc. (formerly named Hanson America Inc.)
("Millennium America"), and the Company, Lynton Jet Centre and Lynton
Properties, Inc. ("Lynton Properties"), a wholly-owned subsidiary of Lynton Jet
Centre. Prior thereto, Hanson North America had succeeded to HM Holdings as
lender under the Credit Agreement and had acquired certain assets of HM
Holdings including the equity securities described below. Pursuant to the Debt
Discharge Agreement and on November 13, 1996, Hanson North America was paid the
sum of $3,500,000, and in consideration thereof (plus other consideration
described below), (i) cancelled the Loans and discharged all obligations under
the Credit Agreement except for certain indemnification obligations stated
therein to survive termination of the Loans, (ii) surrendered to the Company
<PAGE>
848,454 shares of common stock, par value $.30 per share (the "Common Stock"),
of the Company, (iii) surrendered Warrants to purchase an aggregate of 247,513
shares of Common Stock of the Company, and (iv) surrendered 2,000 shares of
Series D Preferred Stock of the Company (the "Debt Discharge Transaction").
The foregoing shares and Warrants represented Hanson North America's entire
equity interest in the Company. As provided in the Debt Discharge Agreement,
the foregoing transactions were deemed to have occurred as of September 30,
1996.
In connection with the Debt Discharge Transaction, Hanson North America
also released all security and liens under the Credit Agreement, including its
First Leasehold Mortgage (the "Leasehold Mortgage") and Assignment of Rents on
the Jet Centre facility operated by Lynton Jet Centre at the Morristown
Municipal Airport, Morristown, New Jersey. In addition, Millennium America,
which previously guaranteed certain obligations of Lynton Jet Centre which were
also secured by the First Leasehold Mortgage, terminated and released its
interests in the Leasehold Mortgage. Millennium America continues to guarantee
certain obligations of Lynton Jet Centre to Massachusetts Mutual Life Insurance
Company (see below).
Simultaneously with the completion of the Debt Discharge Transaction, and
in order to pay Hanson North America $3,500,000 in connection therewith, Lynton
Jet Centre, as borrower, entered into a Loan and Security Agreement dated
November 13, 1996 with Finova Capital Corporation ("Finova"), as Lender,
pursuant to which Finova made a secured loan to Lynton Jet Centre in the
principal amount of $4,000,000 (the "Finova Loan").
The Finova Loan, together with interest thereon at the interest rate of
10.7% per annum shall be repaid in 96 equal consecutive monthly payments
consisting of (a) principal and interest in an amount that will fully amortize
65% of the Finova Loan plus (b) interest only, on the remaining 35% of the
principal balance of the Finova Loan calculated at 10.7% per annum. The
remaining unpaid principal balance ($1,400,000) of the Finova Loan shall be
payable on December 1, 2004. The Finova Loan requires compliance with certain
covenants, financial and otherwise, as defined in the loan agreement, including
maintaining a minimum tangible net worth and a minimum earnings, before
interest, taxes, depreciation and amortization, coverage ratio by both Lynton
Jet Centre as borrower and Lynton Group, Inc. as guarantor.
In December 1993, the Company completed an off-shore placement of
$2,500,000 principal amount of 10% Senior Subordinated Convertible Debentures
due December 31, 1998 (the "Debentures"). The Debentures were originally
convertible into shares of the Company's Common Stock at the option of the
holder at any time prior to maturity at a price of $3.75 per share. The
Debentures may also be redeemed by the Company at any time or from time to time
commencing July 1995, at the Company's option, in whole or in part at the
redemption prices (expressed as percentages of the principal amount) ranging
from 109% to 100%. Prior to December 31 of each of the years from 1996 to
1998, inclusive, the Company has agreed to pay to the trustee for the
Debentures, as a sinking fund payment, cash in the amount of 1/3 of the
aggregate principal amount of the issued Debentures, provided that Debentures
converted or reacquired or redeemed by the Company may be used, at the
principal amount thereof, to reduce the amount of any sinking fund payment. In
fiscal 1996, the Company repurchased a portion of its Debentures in the amount
of $540,000 for cash payments totaling $162,000. The Company realized a gain on
redemption of $287,000, net of related debt issuance costs, on these
repurchases. In addition, the remaining holders of the Debentures have been
given the opportunity to convert the Debentures into shares of Common Stock of
the Company at a conversion price of $.33 per share. Prior to completion of
the Debt Discharge Transaction and refinancing of the Jet Centre facility
described above, there were Debentures in the principal amount of $1,960,000
outstanding. Two holders of the Debentures, who are affiliates of the Company,
issued their consent to convert the Debentures held by them (in the principal
amount of $1,065,000) into 3,227,273 shares of Common Stock (effective at
September 30, 1996). The Debentures acquired in the above transactions will be
applied against the sinking fund obligations for December 31, 1996 and 1997.
During the period from June 30, 1995 through January 22, 1996, the
Company was not in compliance with the minimum net worth requirements under the
Debentures. As of January 23, 1996, in connection with such requirements, a
majority of the debenture holders agreed to waive any and all such net worth
requirements for fiscal 1995 and 1996 and the first quarter of fiscal 1997. No
assurances can be given as to the Company's ability to meet future net worth
requirements under the Debenture Agreement or that additional waivers will be
received at appropriate times.
<PAGE>
The Company expects to continue meeting all of its obligations in the
coming year by focusing on its established operations. Cash flows from these
operations are expected to be sufficient to meet all of its operating
requirements and, significantly reduced, debt service requirements.
Aircraft are financed primarily through short and medium term notes
payable to banks and financing companies and are generally collateralized by
such aircraft. The Company anticipates no material capital expenditures will
be required in fiscal 1997.
In June 1994, Lynton Properties issued to Connecticut Mutual Life
Insurance Company ("Connecticut Mutual") a $9,000,000 mortgage note at 6.69%
due January 3, 2006 (the "Mortgage Note") with scheduled monthly payments of
principal and interest. The Mortgage Note is secured by a Leasehold Mortgage
and Security Agreement and an Assignment of Leases and Rents on a lease between
a certain tenant and Lynton Properties relating to a hangar and office facility
located at the Lynton Jet Centre. Massachusetts Mutual Life Insurance Company
is an assignee of Connecticut Mutual under this loan.
The Company has unused federal net operating loss carryforwards at
September 30, 1996 of approximately $777,000, which expire through September
30, 2010. As a result of the Jet Centre acquisition, the related issuance of a
warrant to HM Holdings and the conversion of the Debentures and Preferred Stock
into common stock referred to above, utilization of the net operating loss
carryforwards is substantially restricted under Section 382 of the Internal
Revenue Code of 1986, as amended. Future realization of the restricted net
operating loss carryforwards will be limited annually to an amount generally
calculated by multiplying the value of the Company immediately preceding the
issuance of the warrant to HM Holdings in August 1990, and the conversion of
the Debentures and Preferred Stock into common stock effective September 30,
1996 by the long-term tax exempt rates at those dates.
Inflation has not significantly impacted the Company's operations.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is included elsewhere in
this report (see Part IV, Item 14).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by Item 9 has been previously reported in the
Company's Current Report on Form 8-K, dated July 19, 1996.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated by reference herein information which will be
contained in the Registrant's definitive proxy statement to be filed within 120
days of the Registrant's year end in connection with the 1997 Annual Meeting of
Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated by reference herein information which will be
contained in the Registrant's definitive proxy statement to be filed within 120
days of the Registrant's year end in connection with the 1997 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated by reference herein information which will be
contained in the Registrant's definitive proxy statement to be filed within 120
days of the Registrant's year end in connection with the 1997 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated by reference herein information which will be
contained in the Registrant's definitive proxy statement to be filed within 120
days of the Registrant's year end in connection with the 1997 Annual Meeting of
Stockholders.
<PAGE>
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) (1)(2) Consolidated Financial Statements and Financial Statement Schedules.
The Consolidated Financial Statements and Schedules filed as part of this
report are listed in the Index to Consolidated Financial Statements and
Schedules annexed hereto and made a part hereof.
(a) (3) Exhibits.
3.1 Registrant's restated certificate of incorporation (7)
3.2 Registrant's by-laws1(1)
4.1 Indenture dated as of December 21, 1993 between the Registrant and
American Stock Transfer & Trust Company, as Trustee, relating to
Registrant's 10% Senior Subordinated Convertible Debentures due
December 31, 1998, together with form of Debenture (6)
10.1 Ground Lease for premises at Morristown Municipal Airport,
Morristown, New Jersey (4)
10.2 Employment Agreement dated August 30, 1996 with Christopher Tennant
10.3 1993 Stock Option Plan (5)
21.0 Lynton Group, Inc., parent and subsidiaries (6)
99.1 Stockholders' Agreement dated as of August 14, 1990 by and among
the Registrant, HM Holdings, Inc. and Christopher Tennant (3)
99.2 First Amendment to Stockholders' Agreement dated December 22, 1992
by and among Lynton Group, Inc., HM Holdings, Inc., Brae Group,
Inc., James Niven and Task Holdings, Inc. (2)
99.3 Note Agreement dated as of June 22, 1994 between Lynton Properties,
Inc. and Connecticut Mutual Life Insurance Company relating to a
$9.0 million 6.69% mortgage note due January 3, 2006 (6)
99.4 Business Acquisition Agreement between Dollar Air Services Limited
and PLM Dollar Group Limited (7)
99.5 Debt Discharge Agreement dated as of November 8, 1996 by and among
Hanson North America, Inc., Millennium America Inc., Lynton Group,
Inc., Lynton Jet Centre, Inc. and Lynton Properties, Inc. (8)
99.6 Loan and Security Agreement dated November 13, 1996 by and between
Lynton Jet Centre, Inc., as Borrower, and Finova Capital
Corporation, as Lender (8)
-------------------------------------------------------------------------
(1) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1991, and incorporated by reference
herein.
(2) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
December 22, 1992, and incorporated by reference herein.
<PAGE>
(3) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
August 14, 1990, and incorporated by reference herein.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1990, and incorporated by reference
herein.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993, and incorporated by reference
herein.
(6) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994, and incorporated by reference
herein.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995, and incorporated by reference
herein.
(8) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
November 13, 1996, and incorporated by reference herein.
(b) Reports on Form 8-K.
Listed below are reports on Form 8-K filed during the last quarter
of the period covered by this report:
<TABLE>
<CAPTION>
<S> <C> <C>
ITEMS REPORTED FINANCIAL STATEMENTS FILED DATE OF REPORT
Changes in Registrant's None July 19, 1996
Certifying Accountant
</TABLE>
(c) Exhibits.
See Item 14(a)(3) above.
(d) See Index to Consolidated Financial Statements and Schedules annexed hereto
and made a part hereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LYNTON GROUP, INC.
(Registrant)
By: /S/ CHRISTOPHER TENNANT
Christopher Tennant,
President
Date: 1/14/97
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/S/ CHRISTOPHER TENNANT President, Chief Executive 1/14/97
Christopher Tennant Officer, Director (Principal
Executive Officer)
/S/ RICHARD HAMBRO Co-Chairman of the Board, 1/14/97
Richard Hambro Director
/S/ JAMES G. NIVEN Co-Chairman of the Board, 1/14/97
James G. Niven Director
/S/ NICHOLAS R. H. TOMS Director 1/14/97
Nicholas R. H. Toms
/S/ PAUL R. DUPEE, JR. Director 1/14/97
Paul R. Dupee, Jr.
/S/ NIGEL PILKINGTON Director 1/14/97
Nigel Pilkington
/S/ PAUL BOYD Principal Financial Officer 1/14/97
Paul Boyd
/S/ BRIAN T. MCCLOSKEY Corporate Controller 1/14/97
Brian T. McCloskey (Controller)
<PAGE>
Lynton Group, Inc. and Subsidiaries
Index to Consolidated Financial Statements and Schedule
September 30, 1996
Reports of Independent Certified Public Accountants...........F-l
Reports of Independent Auditors...............................F-2
Consolidated Financial Statements
Consolidated Balance Sheets...................................F-3
Consolidated Statements of Operations.........................F-5
Consolidated Statements of Changes in Stockholders' Equity....F-7
Consolidated Statements of Cash Flows.........................F-9
Notes to Consolidated Financial Statements....................F-10
Schedules
Reports of Independent Certified Public Accountants..........F-29
Reports of Independent Auditors..............................F-30
Schedule II - Valuation and Qualifying Accounts..............F-31
Schedules other than those listed above are omitted since they are not
required, are not applicable or the information is included in the consolidated
financial statements and notes thereto.
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
Lynton Group, Inc.
We have audited the accompanying consolidated balance sheet of Lynton Group,
Inc. and subsidiaries as of September 30, 1996 and the related consolidated
statement of operations, changes in stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lynton Group,
Inc. and subsidiaries at September 30, 1996, and the consolidated results of
their operations and their consolidated cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Parsippany, New Jersey
December 24, 1996
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Lynton Group, Inc.
We have audited the accompanying consolidated balance sheet of Lynton Group,
Inc. and subsidiaries as of September 30, 1995 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the two years in the period ended September 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lynton Group,
Inc. and subsidiaries at September 30, 1995, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
December 21, 1995, except for the twelfth
and the twenty third paragraphs of Note
4, as to which the dates are January 5,
1996 and January 23, 1996, respectively
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30
1996 1995
<S <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,268,475 $137,322
Accounts receivable (net of allowance for doubtful
accounts of $21,000 in 1996 and $22,000 in 1995) 2,336,549 1,948,368
Due from HM Industries, Inc. - 156,396
Inventories 822,339 1,019,810
Prepaids, principally insurance, and other
current assets 396,605 299,181
Total current assets 4,823,968 3,561,077
Property, plant and equipment:
Aircraft 1,286,139 1,208,117
Buildings 14,068,240 14,082,497
Furniture and equipment 1,205,295 1,137,008
Motor vehicles 344,946 357,164
Leasehold improvements 481,799 495,892
17,386,419 17,280,678
Less accumulated depreciation and amortization 3,977,517 3,453,387
13,408,902 13,827,291
Due from affiliate - 191,308
Funds held in escrow 150,000 150,000
Investment in jointly-owned company held for resale 1,182,376 1,201,248
Long-term ground lease, less accumulated amortization
of $357,000 in 1996 and $299,000 in 1995 1,992,606 2,051,351
Goodwill, less accumulated amortization
of $461,000 in 1996 and $396,000 in 1995 2,213,635 2,284,408
Other assets and deferred charges, less accumulated
amortization of $153,000 in 1996 and $161,000 in 1995 601,690 645,757
$24,373,177 $23,912,440
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facilities - $240,533
Current portion of capital lease obligations $34,225 26,701
Current portion of long-term debt 986,506 924,580
Accounts payable 3,206,504 2,530,551
Accrued expenses 888,972 1,419,380
Accrued income taxes 154,000 -
Advances from customers 150,051 107,199
Deferred revenue 1,563,166 1,059,904
Total current liabilities 6,983,424 6,308,848
Obligations under capital leases, less current portion 34,580 18,487
Deferred revenue, less current portion 960,000 -
Long-term debt, less current portion 12,838,491 17,392,361
Deferred income taxes 157,812 -
Commitments and contingencies
Stockholders' equity:
Preferred Stock, authorized 3,000,000 shares:
Series C Convertible Preferred Stock par value $.01 a
share; issued and outstanding 1,000 shares in 1995 - 10
Series D Preferred Stock, par value $.01 a share;
issued and outstanding 2,000 shares in 1995 - 20
Common Stock, par value $.30 a share: authorized
10,000,000 shares; issued 6,394,872 shares in 1996
and 1,957,177 shares in 1995 1,918,462 587,153
Additional paid-in capital 9,779,823 8,321,055
Accumulated deficit (8,233,475) (8,624,285)
Translation adjustment (54,592) (80,709)
3,410,218 203,244
Common stock held in Treasury at cost; 850,454
shares in 1996 and 2,000 shares in 1995 (11,348) (10,500)
Total stockholders' equity 3,398,870 192,744
$24,373,177 $23,912,440
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1996 1995 1994
<S> <C> <C> <C>
Net revenue:
Flight operations $7,894,484 $11,494,202 $13,943,370
Maintenance operations 6,237,913 5,290,253 4,501,643
Aircraft sales operations 833,781 3,287,761 2,525,779
Fixed base operations 7,820,148 6,702,505 6,288,429
Other - 446,751 101,800
22,786,326 27,221,472 27,361,021
Expenses:
Direct costs of operations:
Flight operations 6,963,692 10,361,889 12,544,675
Maintenance operations 5,313,666 4,441,887 3,682,375
Aircraft sales operations 367,819 2,800,526 1,851,097
Fixed base operations 4,984,026 4,023,434 3,698,958
Writedown in value of aircraft
held for resale - - 180,000
17,629,203 21,627,736 21,957,105
Selling, general and administrative 2,432,063 3,473,641 3,746,864
Depreciation 661,572 932,603 1,071,885
Amortization of ground lease
and goodwill 126,960 200,280 220,584
Writedown of goodwill - 1,338,302 -
Operating income (loss) 1,936,528 (351,090) 364,583
Amortization of debt discount
and issuance costs 139,475 139,450 135,032
Interest expense 1,336,137 1,772,028 1,431,959
Write-off of amount due from
affiliate 191,308 - -
Equity in loss of jointly-owned
company - 57,585 -
Income (loss) before income tax
provision and extraordinary item 269,608 (2,320,153) (1,202,408)
Income tax provision 151,206 - 28,175
Income (loss) before extraordinary
item 118,402 (2,320,153) (1,230,583)
Extraordinary item-gain (loss) related
to early extinguishment of debt 287,408 - (166,000)
Net income (loss) 405,810 (2,320,153) (1,396,583)
Dividends on Preferred Stocks - (214,424) (178,029)
Net income (loss) attributable to
Common Stock $405,810 $(2,534,577) $(1,574,612)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995 1994
<S> <C> <C> <C>
Average number of common shares
outstanding 1,961,760 1,957,177 1,932,676
Primary earnings per share
Income (loss) per common share
before extraordinary item $.06 $(1.30) $(.72)
Extraordinary item .15 - (.09)
Net income (loss) per common share $.21 $(1.30) $(.81)
Fully diluted earnings per share
Income (loss) per common share
before extraordinary item $.09 $(1.30) $(.72)
Extraordinary item .13 - (.09)
Net income (loss) per common share $.22 $(1.30) $(.81)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders'
Equity
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
SERIES C
CONVERTIBLE SERIES D
PREFERRED PREFERRED
STOCK STOCK COMMON STOCK TREASURY STOCK
SHARES AMT SHARES AMT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
September 30,1993 1,000 $10 2,000 $20 1,885,510 $565,653 2,000 $(10,500)
Issuance of shares
of Common Stock
related to
acquisition of
Dollar Air
Services Limited 71,667 21,500
Net loss for year
ended September
30, 1994
Dividends on
Preferred Stocks
Translation
adjustment at
September 30, 1994
Balance at September
30, 1994 1,000 $10 2,000 $20 1,957,177 $587,153 2,000 $(10,500)
Net loss for year
ended September
30, 1995
Dividends on
Preferred Stocks
Translation
adjustment at
September 30, 1995
Balance at September
30,1995 1,000 $10 2,000 $20 1,957,177 $587,153 2,000 $(10,500)
Issuance of shares of
Common Stock related
to acquisition of
Dollar Air Services
Limited 5,000 1,500
Net income for year
ended September
30, 1996
Underaccrual of prior
years dividends
Issuance of shares of
Common Stock in
exchange for Series
C Preferred Stock (1,000) (10) 2,053,876 616,163
Surrender of Series
D Preferred Stock (2,000)(20)
Issuance of shares
of Common Stock
related to
redemption of
convertible
debentures 3,227,273 968,182
Surrender of shares
of Common Stock
to company (848,454) (254,536) 848,454 (848)
Discharge of debt
due HM Industries,
net of related
taxes and costs
Translation
adjustment at
September 30, 1996
Balance at September
30, 1996 0 $0 0 $0 6,394,872 $1,918,462 850,454 $(11,348)
1996
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Changes in
Stockholders' Equity (Continued)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
CAPITAL DEFICIT ADJUSTMENT EQUITY
<S> <C> <C> <C> <C>
Balance at September
30, 1993 $8,198,805 $(4,515,096) $(72,290) $4,166,602
Issuance of shares of
Common Stock related to
acquisition of Dollar Air
Services Limited 122,250 143,750
Net loss for year ended
September 30, 1994 (1,396,583) (1,396,583)
Dividends on
Preferred Stocks (178,029) (178,029)
Translation adjustment at
September 30, 1994 (11,667) (11,667)
Balance at September
30, 1994 $8,321,055 $(6,089,708) $(83,957) $2,724,073
Net loss for year ended
September 30, 1995 (2,320,153) (2,320,153)
Dividends on
Preferred Stocks (214,424) (214,424)
Translation adjustment at
September 30, 1995 3,248 3,248
Balance at September
30, 1995 $8,321,055 $(8,624,285) $(80,709) $192,744
Issuance of shares of
Common Stock related
to acquisition of Dollar
Air Services Limited 3,500 5,000
Net income for year ended
September 30, 1996 405,810 405,810
Underaccrual of prior
years dividends (15,000) (15,000)
Issuance of shares of
Common Stock in exchange
for Series C
Preferred Stock (616,153) -
Surrender of Series D
Preferred Stock 20 -
Issuance of shares of
Common Stock related to
redemption of convertible
debentures 100,045 1,068,227
Surrender of shares of
Common Stock to company 255,384 -
Discharge of debt due HM
Industries, net of
related taxes and costs 1,715,972 1,715,972
Translation adjustment at
September 30, 1996 26,117 26,117
Balance at September
30, 1996 $9,779,823 $(8,233,475) $(54,592) $3,398,870
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1996 1995 1994
<S <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $405,810 $(2,320,153) $(1,396,583)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 928,007 1,272,333 1,427,501
Equity in loss of jointly-owned company - 57,585 -
Write-off of amount due from affiliate 191,308 - -
(Gain) loss on early extinguishment
of debt (287,408) - 166,000
Writedown in value of aircraft held
for resale - - 180,000
Writedown of goodwill - 1,338,302 -
Changes in certain assets and
liabilities, excluding effect from
acquisitions and divestitures:
Accounts receivable (405,409) 20,510 (399,154)
Due from (to) affiliates 44,775 229,530 (131,712)
Inventories 182,479 346,418 (16,425)
Aircraft held for resale - 1,605,635 -
Prepaids and other current assets 116,960 (33,799) (97,904)
Accounts payable and accrued expenses 265,548 (923,672) (714,768)
Advances from customers and
deferred revenue 319,084 285,793 62,437
Net cash provided by (used in)
operating activities 1,761,154 1,878,482 (920,608)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for shares of Dollar Air
Services Limited and related
acquisition costs - - (800,495)
Capital expenditures (273,263) (425,357) (747,829)
Disposal of fixed assets 52,472 1,017,114 -
Net cash (used in) provided by
investing activities (220,791) 591,757 (1,548,324)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends on preferred stocks - (214,424) (178,029)
(Redemption of) proceeds from
issuance of senior subordinated
convertible debt (162,000) - 2,186,425
Proceeds from issuance of 6.69%
mortgage note, net of issuance
costs and escrow funds - - 8,359,674
Proceeds of borrowings from finance
company, net of issuance costs 3,850,000 - -
(Repayment to) borrowings of debt
from HM Holdings, Inc. (3,500,000) 500,000 (7,342,500)
Repayment of long-term debt (610,868) (2,607,396) (292,923)
Proceeds from notes payable 34,700 - 50,776
Repayment of note payable-affiliate - (68,081) (91,685)
Reduction of capital lease obligations (28,592) (86,705) (345,858)
Net cash (used in) provided by
financing activities (416,760) (2,476,606) 2,345,880
Effect of exchange rate changes
on cash flow 7,550 - -
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,131,153 (6,367) (123,052)
Cash and cash equivalents,
beginning of year 137,322 143,689 266,741
Cash and cash equivalents,
end of year $1,268,475 $137,322 $143,689
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include
the accounts of Lynton Group, Inc. and its
directly and indirectly wholly-owned
subsidiaries (the "Company"), Lynton Jet
Centre, Inc. ("Lynton Jet"); Lynton Aviation,
Inc.; Lynton Aviation Services, Inc.; Ramapo
Helicopters, Inc.("Ramapo"); LynStar
Aviation, Inc. ("LynStar"): Lynton
Properties, Inc. ("Lynton Properties");
Lynton Group Limited ("Limited"); Lynton
Aviation Limited; European Helicopters
Limited ("EHL"); Dollar Air Services Limited
("Dollar Air") (see Note 3); Black Isle
Helicopters Limited ("Black Isle");
Helicopters Dollar Interamericas SA and
Dollar Air's 70% owned subsidiary, Servicios
de Helicopteros SA. Since August 1995,
Dollar Air and Black Isle are 50% indirectly
owned by the Company. All significant
intercompany accounts and transactions have
been eliminated in consolidation.
PRINCIPAL BUSINESS ACTIVITY
The Company and its subsidiaries are engaged
primarily in the performance of aviation
sales and services in the United States and
the United Kingdom. Services include the
charter, management and operation of aircraft
for corporate, industrial and utility
applications ("flight operations");
maintenance of aircraft ("maintenance
operations"); sale and brokerage of aircraft
("aircraft sales operations"); and hangarage
and refueling of aircraft ("fixed base
operations"). Additionally, as part of the
Company's flight operations, the Company
provided industrial and utility helicopter
support services to customers in South
America and other international markets,
through December 31, 1994, when the Company
ceased these operations.
LIQUIDITY
References made to pages 12, 13 and 14 of
this Form 10-K for a discussion of certain
liquidity issues facing the Company.
REVENUE RECOGNITION
Revenues for maintenance and flight
operations are recognized when services have
been performed. Revenues related to aircraft
sales and commissions are recognized at the
time title is transferred. Rental revenues
related to tenant leases are recognized
pursuant to the terms of the respective
leases.
AIRCRAFT HELD FOR RESALE AND INVENTORIES
Aircraft held for resale and inventories
(principally aircraft maintenance parts) are
valued at the lower of cost (first-in, first-
out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost.
Depreciation and amortization are computed on
the straight-line
<PAGE>
method over the estimated useful lives
indicated below.
Aircraft 10-15 years
Buildings 40 years
Furniture and equipment 5 years
Motor vehicles 5 years
Leasehold improvements Term of leases
GROUND LEASE, DEFERRED CHARGES AND GOODWILL
Ground lease and deferred charges, in
connection with the acquisition of the assets
of the Linpro Jet Centre in 1990 and its
related refinancing (as described in Note 4),
are being amortized on a straight-line basis
over terms of forty and seven years,
respectively.
Goodwill resulting from the excess of the
purchase price over the net assets of
businesses acquired is being amortized over a
forty-year period on the straight-line
method. The carrying value of the long-lived
assets are reviewed if the facts and
circumstances suggest that it may be
permanently impaired, in accordance with
Statement of Financial Accounting Standards
No. 121, "Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of". Such
review is based upon the undiscounted
expected future operating cash flows derived
from such businesses and, in the event such
result is less than the carrying value of the
long lived assets, including goodwill, the
carrying value of such assets would be
reduced to an amount that reflects the
expected future benefit. During 1995, a
writedown of $1,338,302 of goodwill
originally recorded in connection with the
Dollar Air acquisition was recorded.
INCOME TAXES
The Company applies an asset and liability
approach to accounting for income taxes.
Deferred income tax assets and liabilities
arise from differences between the tax basis
of an asset or liability and its reported
amount in the consolidated financial
statements. Deferred tax balances are
determined by using the tax rates expected to
be in effect when the taxes will actually be
paid or refunds received.
FOREIGN CURRENCY TRANSLATIONS
Assets and liabilities of foreign
subsidiaries are translated at rates of
exchange in effect at the close of the
period. Revenues and expenses are translated
at the weighted average of exchange rates in
effect during the year. The effects of
exchange rate fluctuations on translating
foreign currency assets and liabilities into
US dollars are included as part of the
foreign currency translation adjustment
component of stockholders' equity. Losses and
gains realized from foreign currency
transactions resulted in a loss of $26,000
and gains of $152,000 and $149,000 in 1996,
1995 and 1994, respectively, and are included
in the consolidated statements of operations.
EARNINGS PER SHARE
Income (loss) per common share is computed by
dividing the net income (loss) attributable
to Common Stock by the weighted average
number of shares of Common Stock and other
common stock equivalents outstanding during
the year, unless the effect of including such
common stock equivalents would be anti-
dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments
(principally consisting of cash and cash
equivalents, accounts receivable and long-
term debt) approximate fair value.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
SFAS No. 123, "Accounting for Stock-Based
Compensation, " is required to be implemented
in fiscal years beginning after December 15,
1995 (fiscal 1997) and introduces a choice of
the method of accounting used for stock-based
compensation. Entities may use the "intrinsic
value" method currently based on APB No. 25
or the "fair value" method contained in SFAS
No. 123. The Company intends to implement
SFAS No. 123 in 1997 by continuing to account
for stock-based compensation under APB No.
25. As required by SFAS No. 123, the pro-
forma effects on net income and earnings per
share will be determined, as if the fair
value method had been applied, in the
financial statement. The effects of SFAS No.
123 have not yet been determined by the
Company.
USING ESTIMATES IN FINANCIAL STATEMENTS
In preparing financial statements in
conformity with generally accepted accounting
principles, management is required to make
estimates and assumptions that affect the
reported amounts of assets and liabilities
and the disclosure of contingent assets and
liabilities at the date of the financial
statements and revenues and expenses during
the reporting period. Among the significant
estimates made by management included in
these Consolidated Financial Statements are
the useful lives of long-lived assets, the
fair value of financial instruments, the fair
value of the Company's Common Stock, the
realizable value of the investment in PDG,
the estimated fair value of the aircraft at
the end of the lease-which is guaranteed by
the Company, and the adequacy of the
insurance coverage. Actual results could
differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to
the prior year financial statements in order
to conform to the current presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include investments
in highly liquid securities having an
original maturity date of three months or
less. Cash, at September 30, 1996, includes
approximately $700,000 on deposit in the
United Kingdom.
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
2. STOCKHOLDERS' EQUITY
REVERSE STOCK SPLIT
On June 1, 1994, the shareholders of the
Company approved amendments to the Company's
Certificate of Incorporation to increase the
number of authorized shares of Common Stock,
par value $.05 per share, of the Company from
20,000,000 to 60,000,000 and to effectuate a
reverse split of one-for-six of the Company's
Common Stock which reduced the number of
authorized shares from 60,000,000 to
10,000,000 and increased the par value per
share from $.05 to $.30. Such reverse split
became effective June 2, 1994. All
references to shares of Common Stock and
earnings per share herein have been adjusted
to reflect the effect of the reverse stock
split.
WARRANT
In connection with the execution of the 1990
Credit Agreement (see Note 4), the Company
issued to HM Holdings Inc., an indirect
wholly owned subsidiary of Hanson PLC ("HM
Holdings"), a Warrant (the "Original
Warrant") to purchase 996,334 shares of
Common Stock. The Original Warrant was
exercisable at any time during the period in
which the Loans were outstanding, and for a
period of 90 days after repayment of the
Loans, at an exercise price of $1,000,000 in
the aggregate. The Original Warrant was
valued at the estimated fair market value at
the date of grant of the shares, to be
received, less the exercise price. On
December 22, 1992, HM Holdings exercised a
portion of the Original Warrant amounting to
848,455 shares (see Recapitalization
Agreement below).
Concurrently with the delivery of the
Original Warrant, HM Holdings, the Company
and Christopher Tennant, a director and Chief
Executive Officer of the Company, executed a
Stockholders' Agreement that provides for
certain rights of first refusal, rights of
inclusion and rights to compel sales in
connection with certain sales of securities
of the Company by HM Holdings and Mr.
Tennant. The Stockholders' Agreement further
provides that upon exercise of the Original
Warrant and as long as HM Holdings
beneficially owned at least 25% of the
outstanding shares of Common Stock of the
Company, the Board of Directors of the
Company should consist of nine directors and
HM Holdings shall have the right to nominate
four directors. In connection therewith, Mr.
Tennant agreed in the Stockholders' Agreement
to vote his shares for the nominees of HM
Holdings, as directors. In addition, HM
Holdings agreed to vote its shares for Mr.
Tennant, as a director, so long as Mr.
Tennant owned not less than 5% of the
outstanding shares of Common Stock of the
Company.
Pursuant to the Debt Discharge Agreement (see
Note 4) and on November 13, 1996, Hanson
North America (as successor to HM Holdings)
surrendered to the Company all its
outstanding Warrants to purchase an aggregate
of 247,513 shares of Common Stock of the
Company.
RECAPITALIZATION AGREEMENT
Pursuant to a Recapitalization Agreement
dated as of December 22, 1992 among the
Company, Lynton Jet, HM Holdings, a director
of the Company, and two additional investors,
(i) the Company sold in aggregate to the
director and two additional investors 1,000
shares of Series C Convertible Preferred
Stock of the Company for $1,000,000 in cash,
(ii) HM Holdings (a) purchased 2,000 shares
of Series D Preferred Stock of the Company
for $2,000,000 in cash which was applied to
reduce the Company's indebtedness to HM
Holdings, (b) exercised a portion of its
Original Warrant for 848,454 shares of Common
Stock of the Company for an exercise price of
$851,577 in cash which was applied to reduce
the Company's indebtedness to HM Holdings,
and (c) was issued a New Warrant to purchase
up to an additional 99,634 shares of Common
Stock of the Company for $.30 per share at
any time. The number of shares of Common
Stock for which the New Warrant and the price
at which such shares were to be purchased was
subject to adjustment upon the occurrence of
certain events.
Effective September 30, 1996, Hanson North
America (as successor to HM Holdings)
surrendered to the Company 2,000 shares of
Series D Preferred Stock of the Company as
part of the discharge settlement (the "Debt
Discharge Agreement", see Note 4). The
Company paid dividends on the Series D
Preferred Stock of approximately $154,000 and
$118,000 in fiscal 1995 and 1994,
respectively. No dividends were paid in
fiscal 1996.
The four holders of all of the outstanding
shares of Series C Convertible Preferred
Stock (the "Series C Preferred Stock") have
been offered by the Company and have agreed
(effective September 30, 1996) to convert all
of the Series C Preferred Stock into an
aggregate of 2,053,876 shares of Common
Stock. Two of such holders are James G.
Niven, Co-Chairman and a director of the
Company, and J. O. Hambro Nominees Limited,
which may be deemed to be controlled by
Richard Hambro, Co-Chairman and a director of
the Company. This transaction has been
accounted for as an exchange of equity
instruments with no gain or loss recognized.
The Company paid dividends on its Series C
Convertible Preferred Stock aggregating
$60,000 in both fiscal 1995 and 1994. No
dividends were paid in fiscal 1996.
3. ACQUISITION AND TRANSFER
ACQUISITION OF DOLLAR AIR SERVICES LIMITED
Pursuant to a Share Purchase Agreement dated
January 13, 1994 (the "Dollar Purchase
Agreement") among the Company, Limited, a
wholly-owned subsidiary of the Company and
all of the shareholders (the "Dollar
Shareholders") of Dollar Air, a company
organized under the laws of England, the
Company, through Limited, acquired on such
date all of the issued and outstanding shares
of capital stock of Dollar Air. At the time
of the Dollar Air acquisition, Dollar Air
owned a 75% equity interest in Black Isle.
In September 1994, the remaining 25% of the
capital stock of Black Isle was acquired by
the Company.
The consideration paid related to the above
transactions was 424,000 Pounds Sterling
(approximately $642,000) (including certain
expenses of the Dollar Shareholders) paid in
cash and the issuance of 71,667 shares of
Common Stock of the Company. An additional
5,000 shares of Common Stock of the Company
were issued in 1996 to complete the
transaction.
TRANSFER OF DOLLAR AIR SERVICES LIMITED
In August 1995, pursuant to a Business
Transfer Agreement with PDG, a company
organized under the laws of Scotland,
substantially all the business, assets and
liabilities of Dollar Air and Black Isle were
transferred to PDG in exchange for 50% of the
capital stock of PDG. Simultaneously with the
F-14
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
consummation of the transaction,
substantially all of the business, assets and
liabilities of P.L.M. Helicopters Limited, a
company organized under the laws of Scotland
("PLM") were transferred to PDG and the
shareholders of PLM were issued the remaining
50% of the capital stock of PDG. PDG operates
a fleet of 15 helicopters from bases
primarily in Scotland and England, and
provides helicopter support services for
industrial and utility applications in the
United Kingdom. Accordingly, the Company's
net investment in PDG at September 30, 1995
is shown as investment in jointly-owned
company in the accompanying consolidated
balance sheet and the Company's proportionate
share of the results of operations of PDG
since the transfer date were reflected in the
accompanying consolidated statement of
operations under the equity method of
accounting.
Although no assurance can be given, the
Company intends to dispose of its interest in
PDG as soon as practicable. The Company
expects that it will not sustain a loss upon
such disposition. Accordingly, the asset has
been reclassified as investment in jointly-
owned company held for resale, and therefore,
the Company's share of the gain or loss in
the jointly-owned company will no longer be
recognized under the equity method of
accounting. The Company's equity in the loss
of jointly-owned company was immaterial in
fiscal 1996.
F-15
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
4. NOTES PAYABLE AND LONG TERM DEBT
Notes payable at September 30, 1996 and 1995
consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revolving credit facilities with banks
with interest at Sterling LIBOR rate
(6.81% at September 30, 1995) plus 2.5%,
due on demand. - $240,533
Long-term debt at September 30, 1996 and 1995
consists of the following:
Term loans due to HM Holdings with interest
at Eurodollar LIBOR rate (5.88% at
September 30, 1995) plus 3.26%. - $2,905,923
Balance outstanding under revolving credit
facility with HM Holdings with interest at
Eurodollar LIBOR rate (5.88% at September
30, 1995) plus 3.26%. - 3,700,000
Mortgage due to bank with interest at
Sterling LIBOR rate (5.94% at September
30, 1996) plus 2.0%, due in monthly
installments through April, 2001. $340,989 408,608
Mortgage Note payable to Massachusetts
Mutual Life Insurance Company with an
interest rate of 6.69% due in monthly
installments through January 3, 2006. 8,010,980 8,501,447
Mortgage Note payable to Finova Capital
Corp. with an interest rate of 10.7%
due in monthly installments through
December 1, 2004, with a final installment
payment of $1,400,000 due December 1, 2004. 4,000,000 -
Senior Subordinated Convertible Debentures
with interest at 10%, payable in the amount
of 1/3 of the aggregate principal amount
prior to December 31 of each of the years
from 1996 to 1998. 895,000 2,500,000
Note payable to finance company with
interest at Sterling LIBOR rate (6.81% at
September 30, 1995) plus 3.0% due
September 30, 1996. - 372,914
Note payable to finance company with
interest at Sterling LIBOR rate (5.94% at
September 30, 1996) plus 4.5% payable in
monthly installments through August, 1999. 546,035 -
Notes payable due to finance company with
an interest rate of 10.5%, due in monthly
installments through February, 2000. 31,993 -
$13,824,997 $18,388,892
Less:
Unamortized discount on HM Holdings debt - (71,951)
Amount due within one year (986,506) (924,580)
$12,838,491 $17,392,361
</TABLE>
F-16
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
Maturities of long-term debt for the fiscal
years ending September 30 are as follows:
1997 $ 986,506
1998 1,105,412
1999 1,225,159
2000 1,905,145
2001 1,250,713
Thereafter 7,352,062
$13,824,997
Note payable due to financing company of
$546,000 is collateralized by aircraft with
an aggregate book value of approximately
$782,000. The mortgage of $341,000 is
collateralized by buildings with a net book
value of approximately $650,000.
At September 30, 1996 and 1995, the weighted
average interest rates on short-term
borrowings was 9.2% and 9.3%, respectively.
HM HOLDINGS DEBT
Simultaneous with the acquisition of the Jet
Centre in 1990 the Company entered into a
Credit Agreement dated August 14, 1990 ("the
Credit Agreement") with HM Holdings in order
to provide the Company and Lynton Jet with
funds to be used in part to finance the Jet
Centre Acquisition and to finance a portion
of the ongoing working capital needs of the
Company and the Jet Centre. The Credit
Agreement financing consisted of term loans
in the amount of $2,000,000 and $10,800,000
to the Company and Lynton Jet, respectively,
and a revolving credit facility to Lynton Jet
which provided for up to $4,200,000 in
borrowings (together, the "Loans").
In connection with the June 22, 1994 issuance
of the Mortgage Note discussed below,
$8,000,000 of the net proceeds therefrom were
applied to the repayment of the Loans. The
Company's term loan was repaid in full
together with all principal payments on the
Lynton Jet term loan except for the final
payment in the principal amount of $2,905,923
which would be due on September 30, 1997.
The Credit Agreement also provided that the
revolving credit loans of $3,200,000 would
also be due on September 30, 1997. The
Company recorded an extraordinary charge
during the year ended September 30, 1994 of
$166,000, representing the unamortized debt
discount and issuance costs related to the
repaid portion of the Loans. In October 1994,
HM Holdings loaned the Company an additional
$500,000 under an additional revolving credit
facility, increasing the aggregate amount of
the revolving credit facility to $3,700,000.
As a result, prior to the completion of the
Debt Discharge Transaction (as described
below), the principal amount owing to HM
Holdings at September 30, 1996 under the
Loans was $6,605,923.
On November 8, 1996, a Debt Discharge
Agreement (the "Debt Discharge Agreement")
was signed by and among Hanson North America,
Inc. ("Hanson North America"), Millennium
America Inc. (formerly named Hanson America
Inc.) ("Millennium America"), and the
Company, Lynton Jet and Lynton Properties, (a
wholly-owned subsidiary of Lynton Jet). Prior
thereto, Hanson North America had succeeded
to HM Holdings as lender under the Credit
Agreement and had acquired certain assets of
HM Holdings including the equity securities
F-17
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
described below. Pursuant to the Debt
Discharge Agreement and on November 13, 1996,
Hanson North America was paid the sum of
$3,500,000, and in consideration thereof
(plus other consideration described below and
in Note 9), (i) cancelled the Loans and
discharged all obligations under the Credit
Agreement except for certain indemnification
obligations stated therein to survive
termination of the Loans, (ii) surrendered to
the Company 848,454 shares of Common Stock of
the Company, (iii) surrendered Warrants to
purchase an aggregate of 247,513 shares of
Common Stock of the Company, and (iv)
surrendered 2,000 shares of Series D
Preferred Stock of the Company (the "Debt
Discharge Transaction"). The foregoing
shares and Warrants represented Hanson North
America's entire equity interest in the
Company. As provided in the Debt Discharge
Agreement, the foregoing transactions were
deemed to have occurred at September 30,
1996, and the net amount of debt discharged
($6,605,923), less consideration given, is
recorded as a credit to Additional Paid-In
Capital.
In connection with the Debt Discharge
Transaction, Hanson North America also
released all security and liens under the
Credit Agreement, including its First
Leasehold Mortgage (the "Leasehold Mortgage")
and Assignment of Rents on the Jet Centre
facility operated by Lynton Jet at the
Morristown Municipal Airport, Morristown, New
Jersey. In addition, Millennium America,
which previously guaranteed certain
obligations of Lynton Jet which were also
secured by the First Leasehold Mortgage,
terminated and released its interests in the
Leasehold Mortgage. Millennium America
continues to guarantee certain obligations of
Lynton Jet to MassMutual.
Interest expense related to the borrowings
from HM Holdings was approximately $455,000,
$607,000 and $735,000 for the years ended
September 30, 1996, 1995 and 1994,
respectively.
On January 12, 1995, in connection with the
minimum net worth requirements under the
Credit Agreement, HM Holdings agreed to waive
any and all such net worth requirements for
fiscal 1994, fiscal 1995 and the first
quarter of fiscal 1996. On January 5, 1996,
in connection with these requirements, HM
Holdings agreed to waive any and all such net
worth requirements for the remainder of
fiscal 1996 and the first quarter of fiscal
1997. The Company received waivers of the
interest coverage ratio requirements under
the Credit Agreement for each quarter of the
fiscal years ended September 30, 1995 and
1996 and the first quarter of fiscal 1997.
Finova Loan
Simultaneously with the completion of the
Debt Discharge Transaction, and in order to
pay Hanson North America $3,500,000 in
connection therewith, Lynton Jet, as
borrower, entered into a Loan and Security
Agreement dated November 13, 1996 with Finova
Capital Corporation ("Finova"), as Lender,
pursuant to which Finova made a secured loan
to Lynton Jet in the principal amount of
$4,000,000 (the "Finova Loan").
The Finova Loan is collateralized by a
security interest in substantially all of the
assets and properties of Lynton Jet,
including a Leasehold Mortgage on the Jet
Centre facility (excluding the portion of the
facility subject to a Leasehold Mortgage held
by Massachusetts Mutual Life Insurance
Company). In addition, the obligations of
Lynton Jet under the Finova Loan have been
guaranteed by the Company and certain other
subsidiaries of the Company.
F-18
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
The Finova Loan, together with interest
thereon at the interest rate of 10.7% per
annum shall be repaid in 96 equal consecutive
monthly payments consisting of (a) principal
and interest in an amount that will fully
amortize 65% ($2,600,000) of the Finova Loan
plus (b) interest only, on the remaining
(35%) of the principal amount ($1,400,000) of
the Finova Loan calculated at 10.7% per
annum. The remaining unpaid principal (35%)
of the Finova Loan, $1,400,000, shall be
payable on December 1, 2004.
The Finova Loan requires compliance with
certain covenants, financial and otherwise,
as defined in the loan agreement, including
maintaining a minimum tangible net worth and
a minimum earnings, before interest, taxes,
depreciation and amortization, coverage ratio
by both Lynton Jet, as borrower, and Lynton
Group, Inc. as guarantor.
THE MASSMUTUAL MORTGAGE NOTE
On June 22, 1994, Lynton Properties issued to
Connecticut Mutual Life Insurance Company
("Connecticut Mutual") a $9,000,000, 6.69%
mortgage note due January 3, 2006 (the
"Mortgage Note") with varying scheduled
monthly payments of principal and interest.
The Mortgage Note is collateralized by a
Leasehold Mortgage and Security Agreement and
an Assignment of Leases and Rents, each dated
June 22, 1994, on a lease between a certain
tenant and Lynton Properties relating to a
hangar and office facility located on the
property at the Jet Centre. Massachusetts
Mutual Life Insurance Company ("MassMutual")
is an assignee of Connecticut Mutual under
this loan.
In addition, the obligations of Lynton
Properties under the Mortgage Note are
guaranteed by Lynton Jet pursuant to a
Guaranty Agreement dated June 22, 1994,
between Lynton Jet and Connecticut Mutual
(the "Jet Centre Guaranty"). Further, the
obligations of Lynton Jet under the Jet
Centre Guaranty, other than certain
environmental and related obligations, are,
and continue to be, guaranteed by Millennium
America pursuant to a Guaranty Agreement
dated June 22, 1994, between Millennium
America and Connecticut Mutual (the
"Millennium America Guaranty"). Further,
Millennium America received a one-time fee of
$100,000, in 1994, in connection with the
issuance of the Millennium America Guaranty.
MassMutual is the assignee of Connecticut
Mutual.
At September 30, 1996, 1995 and 1994, the
Company had $150,000 in interest-bearing
funds, accruing to the Company, held in
escrow, as additional security to the
Mortgage Note.
10% SENIOR SUBORDINATED CONVERTIBLE
DEBENTURES
In December 1993, the Company completed an
off-shore placement of $2,500,000 principal
amount of 10% Senior Subordinated Convertible
Debentures due December 31, 1998 (the
"Debentures"). The Debentures were
convertible into shares of the Company's
Common Stock at the option of the holder at
any time prior to maturity at a price of
$3.75 per share. The Debentures may also be
redeemed by the Company at any time or from
time-to-time commencing July 1995 at the
Company's option, in whole or in part, at the
redemption prices (expressed as percentages
of the principal amount) set forth below,
plus accrued and unpaid interest at the
redemption date (and subject to the right of
any record holder to receive the interest
payable on the applicable interest payment
date that is on or prior to the redemption
date). If
F-19
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
redeemed during the periods indicated below,
the applicable redemption percentage will be:
<TABLE>
<CAPTION>
FROM THROUGH PERCENTAGE
<S> <C> <C>
July 1, 1996 June 30, 1997 106%
July 1, 1997 June 30, 1998 103%
July 1, 1998 and thereafter 100%
</TABLE>
Prior to December 31 of each of the years
from 1996 to 1998, inclusive, the Company has
agreed to pay to the trustee for the
Debentures, as a sinking fund payment, cash
in the amount of 1/3 of the aggregate
principal amount of the issued Debentures,
provided that Debentures converted,
reacquired or redeemed by the Company may be
used, at the principal amount thereof, to
reduce the amount of any sinking fund
payment.
In connection therewith, the Company paid
Value Investing Partners, Inc., the placement
agent for such offering (the "Placement
Agent"), a commission of $225,000
representing nine percent (9%) of the gross
proceeds. In addition, the Placement Agent
received from the Company warrants
exerciseable for a period of ten years for
the purchase of 125,000 shares of the Common
Stock of the Company at an exercise price
equal to $3.825 per share. In addition, the
Placement Agent was granted a right of first
refusal for a period of three years from
December 1993 with respect to any private or
public equity or debt placement by the
Company through an underwriter or placement
agent during such period.
During the period from June 30, 1995 through
January 22, 1996, the Company was not in
compliance with the minimum net worth
requirements of the Debenture Agreement. As
of January 23, 1996, in connection with such
requirements, a majority of the debenture
holders agreed to waive any and all such net
worth requirements for fiscal 1995 and 1996.
No assurances can be given as to the
Company's ability to meet future net worth
requirements under the Debenture Agreement or
that additional waivers will be received at
appropriate times.
In fiscal 1996, the Company repurchased a
portion of its Debentures in the principal
amount of $540,000 for cash payments totaling
$162,000. The Company realized a gain on
redemption of $287,000, net of related debt
issuance costs, on these repurchases. In
addition, the remaining holders of the
Debentures have been given the opportunity to
convert the Debentures into shares of Common
Stock of the Company at a conversion price of
$.33 per share. Prior to completion of the
Debt Discharge Transaction and refinancing of
the Jet Centre facility described above,
there were Debentures in the principal amount
of $1,960,000 outstanding. Two holders of
the Debentures, who are affiliates of the
Company, issued their consent to convert the
Debentures held by them (in the principal
amount of $1,065,000) into 3,227,273 shares
of Common Stock (effective retroactively to
September 30, 1996). The Debentures acquired
in the above transactions will be applied
against the sinking fund obligations for
December 31, 1996 and 1997. A charge has been
recorded to reflect the value of additional
consideration provided by the Company as an
inducement to the above conversion, however,
such amount is immaterial.
5. FOREIGN OPERATIONS
Following is a summary of the consolidated
financial position at September 30, 1996 and
1995 and consolidated results of operations
for each of the three years ended September
30, 1996, 1995 and 1994 of the Company's
F-20
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
wholly-owned foreign subsidiary, Limited,
located in the United Kingdom, and its
subsidiaries.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Summary of financial position:
Current assets $2,855,814 $1,342,944
Property, plant and equipment, net 1,792,667 1,884,302
Goodwill, investment in jointly-owned
company held for resale and other assets 1,431,855 1,461,967
Total assets $6,080,336 $4,689,213
Current liabilities $4,115,839 $3,717,942
Long-term liabilities 828,988 367,566
Equity 1,135,509 603,705
Total liabilities and equity $6,080,336 $4,689,213
</TABLE>
Revenues from foreign subsidiaries
represented 57%, 55% and 58% of consolidated
net revenues in 1996, 1995 and 1994,
respectively, and were derived from
geographic regions as specified below:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
1996 1995 1994
<S> <C> <C> <C>
Net revenues:
United States $10,192,128 $8,854,266 $8,255,302
United Kingdom and other European 12,594,198 17,864,880 17,712,043
countries
Africa - - 371,578
South America - 502,326 1,022,098
$22,786,326 $27,221,472 $27,361,021
Income (Loss) before income tax
provision and extraordinary item:
Domestic $(273,537) $(156,122) $(375,546)
Foreign 543,145 (2,164,031) (826,862)
$269,608 $(2,320,153) $(1,202,408)
</TABLE>
There were no dividends from foreign
subsidiaries during 1996, 1995 or 1994.
F-21
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Minimum future obligations under operating
leases in effect at September 30, 1996 are as
follows:
<TABLE>
<CAPTION>
Year Ending September 30:
<S> <C>
1997 $519,278
1998 300,782
1999 157,968
2000 157,968
2001 157,968
Thereafter 1,421,712
Total minimum lease payments $2,715,676
</TABLE>
Rental expense for the years ended September
30, 1996, 1995 and 1994 was approximately
$486,000, $456,000 and $442,000,
respectively.
CAPITAL LEASES
Subsidiaries of the Company in the United
Kingdom lease automobiles which have been
accounted for as capital leases. Aggregate
future minimum lease payments under capital
leases at September 30, 1996, by fiscal year,
are as follows:
<TABLE>
<S> <C>
1997 $39,244
1998 20,938
1999 18,736
Total minimum lease payments 78,918
Less interest portion 10,113
Present value of net minimum lease payments $68,805
</TABLE>
AIRCRAFT LEASE GUARANTEE
In fiscal 1994, the Company acted as broker
in an aircraft leasing transaction between an
aircraft leasing company and a customer of
the Company. Under the terms of the
transaction, the Company has guaranteed to
the leasing company that the Company will
fund any shortfall if the aircraft is sold
below a specified sales price at the
termination of the lease. Management
believes that the fair market value of the
aircraft at the termination of the lease will
exceed the specified sales price, and thus no
provision for such guarantee has been made in
the accompanying financial statements.
F-22
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
HAZARDS AND INSURANCE
The operation of helicopters and fixed wing
aircraft involves a substantial level of
risk. Hazards such as aircraft accidents,
collisions and fire are inherent in the
providing of aviation services and may result
in losses of life, equipment and revenues.
The Company maintains insurance of types
customary to the aviation services industry
and in amounts deemed adequate by the Company
to protect the Company and its property.
These policies include aircraft liability,
aviation spares/equipment, all risks, hull,
products liability, hangar keepers liability,
property and casualty, automobile and
workers' compensation. The Company has not
experienced significant difficulty in
obtaining insurance and has not incurred any
insured losses in excess of its property and
liability coverage. While the Company
believes that its insurance coverage is
adequate for its operations, there can be no
assurance that such insurance coverage is
now, or will be, adequate to cover any claims
to which it may be subject or that such
levels of insurance may be obtained at
comparable rates in the future.
7. INCOME TAXES
The Company and its wholly-owned United
States subsidiaries file Federal income tax
returns on a consolidated basis. Limited and
its subsidiaries file separate tax returns in
the United Kingdom.
Deferred income taxes recorded in the
consolidated balance sheet at September 30,
1996 and 1995 include deferred tax assets,
primarily related to net operating loss
carryforwards, of $310,000 and $1,122,000,
respectively, which have been fully offset by
valuation allowances. The valuation
allowances have been established equal to the
full amount of the deferred tax assets, as
the Company is not assured at either
September 30, 1996 and 1995, that it is more
likely than not that these benefits will be
realized. Deferred tax liabilities resulted
primarily from different book and tax basis
of accumulated depreciation of fixed assets
in the United Kingdom.
The Company's effective tax rate differs from
the U.S. statutory rate (34%) due to the
following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1996 1995 1994
<S> <C> <C> <C>
Expected provision (benefit) at 34% $91,667 $(788,852) $(465,259)
Foreign income taxes 151,206 - -
Foreign withholding taxes - - 28,175
Benefit not recognized (utilized) on
operating losses:
Domestic (91,667) 53,082 184,126
Foreign - 735,770 281,133
Total tax provision $151,206 $0 $28,175
</TABLE>
The Company has unused Federal net operating
loss carryforwards at September 30, 1996 of
approximately $770,000 which expire through
September 30, 2010. As a result of the Jet
F-23
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
Centre acquisition and the related issuance
of the Original Warrant to HM Holdings (see
Note 2), and the conversion of the Debentures
into Common Stock (see Note 2), the
utilization of the Company's net operating
loss carryforwards is substantially
restricted under Section 382 of the Internal
Revenue Code of 1986, as amended. Future
realization of the restricted net operating
loss carryforwards will be limited annually
to an amount generally calculated by
multiplying the value of the Company
immediately preceding the issuance of the
Original Warrant and the conversion of the
Debentures into Common Stock, respectively,
by the long-term tax exempt rates at those
dates.
8. EMPLOYMENT AGREEMENT/STOCK OPTIONS
The Company has an employment agreement with
its Chief Executive Officer extending through
March 31, 1998 providing for a base salary of
$180,000 annually. The term of this
agreement may be extended for an additional
three years under certain conditions relating
to a merger or change of control of the
Company.
In August 1993, the Board of Directors
adopted the 1993 Stock Option Plan (the "1993
Plan") for employees, officers, consultants
or directors of the Company or its
subsidiaries to purchase up to 250,000 shares
of Common Stock of the Company. Options
granted under the 1993 Plan may either be
"incentive stock options" as defined in
Section 422 of the Code, or non-statutory
stock options. Any incentive stock options
granted under the 1993 Plan shall be granted
at no less than 100% of the fair market value
of the Common Stock of the Company at the
time of the grant. As of September 30, 1996,
options to acquire 46,669 shares of Common
Stock have been granted under the 1993 Plan
and 203,331 options were available for future
grant.
Information with respect to the 1993 Plan and
other options granted, under similar
provisions, to certain directors and officers
of the Company is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
1996 1995 1994
<S> <C> <C> <C>
Outstanding at beginning of year 94,176 75,842 110,842
Granted 5,001 26,668 -
Cancelled (35,837) (8,334) (35,000)
Exercised - - -
Outstanding at end of year 63,340 94,176 75,842
Exerciseable at end of year 43,340 74,176 75,842
Average price of options outstanding $1.54 $2.34 $2.84
</TABLE>
F-24
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
9. RELATED PARTY TRANSACTIONS
HANSON TRANSACTIONS
Under the Management Agreement with HM
Industries, Inc. ("HM Industries'), an
affiliate of HM Holdings, the Company was
obligated to provide complete aviation
management services, including flight
scheduling, aircraft utilization management,
provision of pilots, repair and maintenance,
fueling, catering and bookkeeping and
accounting through June, 1995. From June 30,
1995, until September 30, 1996 under this
agreement, the Company was obligated to
provide fueling, catering and bookkeeping and
accounting services. HM Industries reimbursed
the Company for actual costs of performing
these services, less $125,000 per annum
through June 30, 1994. Subsequent to June
30, 1994, in accordance with the amendment to
the lease dated July 1, 1994, there was no
deduction in the reimbursement amount. HM
Industries' reimbursements to the Company for
the years ended September 30, 1996, 1995, and
1994 were $3,985,000, $6,417,000, and
$5,732,000 respectively. These reimbursements
have been excluded from revenues, direct
costs and selling, general and administrative
expenses in the accompanying consolidated
financial statements. At September 30, 1995,
reimbursements receivable from HM Industries
was $141,000. No amount was due from HM
Industries at September 30, 1996.
Under the terms of an Agreement of Lease
entered into August 1990, as amended in July
1994 ("the Lease"), Lynton Jet has been
leasing to HM Industries office and hangar
space at the Jet Centre facility in
Morristown, New Jersey.
In connection with the Debt Discharge
Transaction, and on November 8, 1996, Lynton
Jet Centre entered into a Second Amendment to
the Lease and Partial Assignment and
Assumption of the Lease (the "Second
Amendment") with Hanson North America (which
prior thereto had merged with HM Industries
with Hanson North America being the surviving
entity) and Millennium America Holdings, Inc.
("Millennium Holdings"). Under the terms of
the Second Amendment, Hanson North America
assigned to Millennium Holdings an undivided
one-half interest in and to the Lease. The
Second Amendment provides that the term of
the Lease shall end on November 7, 2001 and
that no rent is or shall be due for the
remainder of the term. This rent reduction
is considered additional consideration given
under the Debt Discharge Agreement and is
recorded as a reduction in the credit to
Additional Paid-In Capital, resulting from
the debt discharge (see Note 4), and is
recorded as deferred revenue, current and
long-term, in the accompanying consolidated
balance sheet. The Second Amendment also
provides that if at any time during the term
of the Lease, space sufficient to accommodate
an additional aircraft shall become available
at the Jet Centre facility for rental, Hanson
North America and Millennium Holdings shall
have the right of first refusal with respect
to such available space to lease such space
for a period of five years at a predetermined
annual rate. The lease also provides for
liquidating damages payable by the Jet Centre
in the event of the termination of the lease
other than by reason of default by Hanson
North America and or Millennium Holdings.
In conjunction with the Second Amendment,
Lynton Jet, Hanson North America and
Millennium Holdings entered into a Jet Fuel
Agreement on November 8, 1996 whereby Lynton
Jet agreed to sell jet fuel to Hanson North
America and Millennium Holdings at the Jet
Centre facility at a predetermined price,
based on Lynton Jet's actual cost of such
fuel, for so long as aircraft of Hanson North
America and Millennium Holdings are based at
the Jet Centre facility.
F-25
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
OTHER TRANSACTIONS
The Company rents office space in London from
a company which is wholly-owned by the
Company's Chief Executive Officer. For the
years ended September 30, 1996, 1995 and
1994, rental expense for this space was
$46,000, $48,000 and $64,000, respectively.
At September 30, 1995 the Company had non-
interest bearing receivables from an entity
controlled by the Chief Executive Officer of
the Company in the amount of $191,308. This
amount was written off in fiscal 1996,
pursuant to a Board of Director's resolution
dated September 10, 1996.
The Company paid $25,000, $27,000 and $50,000
in 1996, 1995 and 1994, respectively, to a
company owned by one of the Company's
directors for management and advisory
services rendered.
10. SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
In connection with the acquisition of Dollar
Air in 1994, the Company acquired assets and
assumed liabilities as follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired (including goodwill of $2,115,848) $5,467,345
Value of Common Stock issued (140,000)
Liabilities assumed (4,526,850)
Cash paid $800,495
</TABLE>
Other non-cash investing and financing
activities for the years ended September 30
are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996
Conversion of senior subordinated convertible debentures for
common stock $1,065,000
Cancellation of debt to HM Holdings, Inc. $6,605,923
Payment to HM Holdings, Inc. for cancellation of debt (3,500,000)
Deferred revenue for future rental obligation (1,200,000)
Unamortized debt discount (35,951)
Tax impact of transaction (154,000)
Net credit to Additional Paid-In Capital from discharge
of debt $1,715,972
1995
Transfer of assets to jointly-owned company $3,533,893
Liabilities assumed by jointly-owned company (2,275,060)
Investment in jointly-owned company $1,258,833
</TABLE>
F-26
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C>
1994
Transfer of fixed assets to aircraft held for resale $1,529,757
Value of Common Stock issued in connection with the
acquisition of Dollar Air and related minority
interest $143,750
</TABLE>
Cash paid for interest and income taxes
during the fiscal years were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Interest $1,509,512 $1,768,959 $1,949,048
Income taxes - - 28,175
</TABLE>
11. ACCRUED EXPENSES
As of September 30, 1996 and 1995,
accrued expenses are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accrued purchases $120,877 $190,312
Aircraft maintenance reserves 231,448 12,712
Payroll and payroll taxes 200,718 166,888
Interest 9,689 183,064
Sales taxes 59,110 319,807
Professional fees 92,971 129,313
Dividends on preferred stocks - 57,945
Aircraft management and charter costs 38,849 187,025
Site cleanup cost 40,000 40,000
Other 95,310 132,314
$888,972 $1,419,380
</TABLE>
12. EMPLOYEE BENEFIT PLANS
The Company has a voluntary savings plan
covering substantially all of its
domestic employees. The plan qualifies
under Section 401(k) of the Internal
Revenue Code. Eligible employees may
elect to contribute up to 15% of their
salaries to an investment trust.
Effective October 1, 1990, the Company
contributes an amount equal to 100% of
the first 4% of employee contributions.
Contributions related to this plan were
$47,000, $68,000, and $73,000 for fiscal
1996, 1995 and 1994, respectively.
The Company also has a voluntary savings
plan covering eligible employees of its
subsidiaries in the United Kingdom.
Eligible employees may elect to
contribute up to 17.5% of their salaries
to an investment trust. The Company
contributes an amount equal to 100% of
the first 4% of employee contributions.
F-27
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
Contributions related to this plan were
approximately $47,000, $68,000 and
$66,000 for fiscal 1996, 1995, and 1994,
respectively.
13. RENTAL INCOME
A portion of Lynton Jet's, Lynton
Properties' and Ramapo's operating
revenue is obtained from tenants through
rental payments as provided for under
noncancellable operating leases. The
leases typically provide for guaranteed
minimum rentals and other charges to
cover certain operating costs in excess
of base amounts.
The following is a schedule, by fiscal
year, of minimum future rental income
under noncancellable tenant operating
leases as of September 30, 1996:
<TABLE>
<CAPTION>
<S> <C>
1997 $3,314,270
1998 2,784,895
1999 2,128,045
2000 1,467,761
2001 1,414,246
Thereafter 4,503,233
Total minimum future rentals $15,612,450
</TABLE>
The above schedule includes deferred
annual revenues from Hanson North America
and Millennium Holdings, through 2001,
pursuant to the lease agreement discussed
in Note 9.
F-28
<PAGE>
Report of Independent Certified Public
Accountants on Schedule
Lynton Group, Inc.
In connection with our audits of the
consolidated financial statements of
Lynton Group, Inc. and subsidiaries as of
September 30, 1996, we have also audited
the consolidated schedule included in
this Annual Report (Form l0-K).
In our opinion, the consolidated schedule
referred to above presents fairly, in all
material respects, the information
required to be stated therein.
/s/
Grant
Thornton
LLP
Parsippany, New Jersey
December 24, 1996
F-29
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Lynton Group, Inc.
In connection with our audits of the
consolidated financial statements of
Lynton Group, Inc. and subsidiaries as of
September 30, 1995 and for each of the
two years in the period ended September
30, 1995, we have also audited the
consolidated schedule included in this
Annual Report (Form l0-K).
In our opinion, the consolidated schedule
referred to above presents fairly, in all
material respects, the information
required to be stated therein.
/s/
Ernst &
Young
LLP
MetroPark, New Jersey
December 21, 1995
F-30
<PAGE>
Lynton Group, Inc. and Subsidiaries
Schedule II-Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1996:
Allowance for doubtful account $21,808 - $(343) (1) $21,465
Year ended September 30, 1995:
Allowance for doubtful accounts $291,103 $15,916 $(285,211) (2) $21,808
Year ended September 30, 1994:
Allowance for doubtful accounts $10,874 $284,267 $(4,038) $291,103
</TABLE>
(1) Represents effect of exchange rate
differences.
(2) Represents the write-off of doubtful
receivables of $285,211.
In addition, during fiscal 1996, the
Company wrote off approximately $191,000
due from an entity controlled by the
President and CEO of the Company.
F-31
<PAGE>
(a) (3) Exhibits
10.2 Employment Agreement dated
August 30, 1996 with
Christopher Tennant
EMPLOYMENT AGREEMENT, made as
of the 30th day of August, 1996, by and
between LYNTON GROUP, INC., a corporation
organized and existing under the laws of
the State of Delaware (the "Company"),
and CHRISTOPHER TENNANT (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Company
acknowledges and recognizes that the
Executive's skills, ability, experience
and knowledge are special and unique and
are of great value to the Company; and
WHEREAS, the Company desires
to employ the Executive to perform
services for the Company, any present or
future parent, subsidiary, or affiliate
of the Company (collectively, the "Lynton
Companies"), upon the terms and
conditions hereinafter set forth and the
Executive desires to accept such
employment.
NOW, THEREFORE, the parties
hereto hereby agree as follows:
1. Employment. The Company
agrees to employ and retain the
Executive, and the Executive in turn
agrees to be employed by the Company,
upon the terms and conditions of this
Agreement.
2. Term. The employment of
the Executive hereunder shall commence
and be effective as of October 1, 1996
(the "Commencement Date") and, unless
earlier terminated pursuant hereto, shall
continue for a period of eighteen (18)
months thereafter. Notwithstanding the
foregoing, if at any time during the term
hereof, the Company and the Lynton
Companies, substantially as an entirety,
merge, consolidate with or are acquired
by another entity, or substantially all
of their assets are sold, or at any time
during the term hereof there is a change
of the majority of the members of the
Board of Directors of the Company for any
reason (each event referred to herein as
a Merger or Change of Control Event ),
then and in such event, the term hereof
shall be automatically extended (unless
earlier terminated pursuant hereto) for a
period of three (3) years from the date
of a Merger or Change of Control Event
provided (i) the Executive voted against
the Merger or Change of Control Event in
his capacity as a shareholder and/or
director of the Company, and (ii) the
Executive is not offered employment with
the Company (or any acquiror or successor
thereto) beyond the initial eighteen (18)
month term provided herein at terms
acceptable to the parties thereto.
3. Nature of the Executive's
Services.
(a) The Executive shall
serve as the President and
<PAGE>
Chief Executive Officer of the Company,
or in lieu thereof, in such other
positions as have substantially the same
responsibilities, and shall serve as an
executive officer for any of the other
Lynton Companies when and as requested by
the Board of Directors of the Company.
The Executive further agrees, if
requested, to continue to serve on the
Board of Directors of the Company and/or
any of the Lynton Companies. The
Executive shall have general management
responsibility and authority for the day-
to-day operations of the Company in all
areas of its business, shall provide
direction and oversight with respect
thereto, and shall be its senior
executive officer, subordinate to the
Chairman thereof and shall perform all
such tasks and duties as may from time to
time be requested. The Executive hereby
agrees to accept such appointments and
diligently to perform the duties of such
positions subject to the supervision of
the Chairman of the Board of the Company
and its Board of Directors.
(b) The Executive
agrees that he will at all times, to the
best of his ability, experience and
talent, perform all of the duties that
may be required of him pursuant to the
express and implicit terms hereof, and
will devote substantially all of his
working time, energies and skills to the
performance of such duties, provided,
however, that the Company recognizes that
the Executive's services on the boards of
Lynton International Limited and all its
associated companies (collectively,
Lynton International ) requires a small
portion of his working time and that
notwithstanding anything to the contrary
contained herein, the Executive shall be
entitled to spend up to 10% of his
working hours in the discharge of his
fiduciary duties as a board member of
Lynton International.
4. Restrictive Covenants
during the Term of Employment Hereunder.
The Executive expressly agrees that,
during the term of his employment
hereunder, he will not, without the prior
written consent of the Board of Directors
of the Company, render services for
compensation, or otherwise, to any other
person or legal entity which is engaged
in a business competitive with or similar
to that of the Company or any of the
Lynton Companies, as an employee,
principal, agent, officer, director,
independent contractor, or in any other
capacity, nor enter into any other
business affiliation competitive with or
similar to that of the Company or any of
the Lynton Companies, including, without
limitation, the establishment of a
proprietorship or the direct or indirect
participation in a partnership or joint
venture, nor directly or indirectly
acquire a financial interest in any
enterprise which is engaged in a business
competitive with or similar to that of
the Company or any of the Lynton
Companies provided, however, that nothing
herein contained shall be deemed to (i)
prevent or limit the right of the
Executive to purchase not more than one
(1%) percent of the capital stock or
other securities of any corporation whose
stock or securities are regularly traded
on any public exchange or over-the-
counter, or (ii) prevent the Executive
from investing, or limit the Executive's
right to invest, in any company,
business, entity or real estate or other
investment which is not competitive with
the business of the Company or any of the
Lynton Companies as of the date hereof,
or (iii) prevent the Executive from
engaging in philanthropic, eleemosynary
or similar activities, so long as each of
the foregoing activities does not require
the Executive to devote to that activity
such time as shall in any way inhibit the
Executive from performing his obligations
under this Agreement.
5. Compensation.
(a) As of the
Commencement Date, the Company and/or any
of the Lynton Companies shall pay the
Executive, and the Executive agrees to
accept, as compensation for his services
performed under this Agreement, a salary
at an aggregate annual rate of One
Hundred Eighty Thousand (U.S. $180,000)
Dollars. This amount shall include any
and all amounts which may be paid from
time to time to Lynton International for
office space rented to any of the Lynton
Companies or for any other purposes as
the parties may agree. The Executive's
salary shall be increased on each
anniversary date of the Commencement Date
by any such annual cost of living
increase, based on the Consumer Price
Index for the New York Metropolitan Area
published from time to time by the United
States Bureau of Labor Statistics, or any
successor index, however designated, as
may be determined by the Board of
Directors of the Company. The salary
shall be payable in equal monthly
installments or on such other periodic
basis as the parties may agree.
(b) In addition
thereto, the Executive's performance will
be reviewed by the Compensation Committee
(or if a Compensation Committee does not
exist, by the Board of Directors) of the
Company at least annually in order to
determine whether to pay the Executive
bonus compensation based upon such
performance. Such determination
including the amount of bonus
compensation, if any, shall be made in
the sole discretion of the Compensation
Committee or the Board of Directors of
the Company, as the case may be.
6. Other Benefits. During
the term hereof:
(a) The Executive shall
be enrolled in all group insurance plans
that are maintained for the senior
executives of the Company and/or any of
the Lynton Companies. Such plans shall
in all cases include medical and
hospitalization plans, the premiums for
which shall be paid by the Company and/or
any of the Lynton Companies;
(b) The Executive shall
be entitled to participate in the pension
plan of the Company, and/or any of the
Lynton Companies, if any, in effect from
time to time;
(c) The Executive shall
be provided with the use of an automobile
for normal and reasonable purposes, and
shall be reimbursed for all normal and
reasonable expenses incurred in
connection with the use of such
automobile, including, but not limited
to, gasoline, parking, tolls, automobile
repairs, insurance, subject to submission
to and approval by the Company, or any of
the Lynton Companies, as the case may be,
of expense accounts supported by
appropriate documentation. In addition
thereto, the Executive shall be
reimbursed for any federal and state
taxes imposed upon the Executive for his
use of such automobile for normal and
reasonable purposes.
(d) The Executive shall
be eligible to participate in any stock
option plans maintained by the Company
for its key employees.
7. Expenses. In addition to
the reimbursement of expenses provided
for in Section 6(c) hereof, the Company
and/or any of the Lynton Companies shall
reimburse the Executive for any and all
other necessary, customary and usual
expenses reasonably incurred by the
Executive incident to the rendering of
services by him hereunder. Such
reimbursement shall be subject to
submission to and approval by the Company
and/or any of the Lynton Companies of
expense accounts supported by appropriate
documentation.
8. Vacation and Holidays.
The Executive shall be entitled to twenty
(20) business days of paid vacation per
year. Unused vacation time shall not be
carried over to subsequent years. In
addition, the Executive shall be entitled
to observe all legal holidays of the
State of New Jersey.
9. Termination.
(a) This Agreement
shall be terminated in the event of the
death of the Executive, or of his
disability to perform substantially those
functions to be performed by the
Executive pursuant to the terms of this
Agreement for a period of ninety (90)
consecutive days or an aggregate of one
hundred eighty (180) days in any twelve
(12) month period, such determination to
be made in good faith by the Company's
Board of Directors. In the event the
Executive disagrees with such
determination, the Executive and the
Company shall each appoint its own
physician who shall each promptly examine
the Executive and consult with one
another. In the event the two physicians
do not agree on the status of the
Executive's disability, they shall,
promptly and jointly, appoint a third
physician, whose determination shall be
binding on all the parties hereto. After
any termination under this subsection,
neither party will have any obligation to
the other hereunder, except for the
Executive's continuing obligations under
Section 18 hereof.
(b) This Agreement may
be terminated immediately for cause by
the Company upon written notice. Cause
shall include, without limitation, the
Executive's criminal activity, habitual
absenteeism or willful or habitually
negligent disregard of his obligations
hereunder or such other conduct as may be
materially injurious to the business or
affairs of the Company or any of the
Lynton Companies. The Executive shall
thereafter be entitled to no additional
compensation or other benefits of
employment, nor, respectively, shall the
Company and/or any of the Lynton
Companies be entitled to any further
services. After any termination under
this subsection, neither party will have
any obligation to the other hereunder,
except for the Executive's continuing
obligations under Section 18 hereof.
(c) The Company may
also terminate this Agreement, without
cause, upon no less than six (6) months'
prior written notice to the Executive,
such notice being effective six (6)
months from the date it is given. In
such event, the Executive shall continue
to perform his services to the Company
and/or any of the Lynton Companies until
the effective date of such notice only in
the event that the Company, in its sole
discretion, so requests. After any
termination under this subsection,
neither party will have any obligation to
the other hereunder except that the
Company shall be obligated to pay the
Executive the compensation due under
Section 5(a) hereof, in the equal monthly
installments specified in such Section,
for the balance of the term of this
Agreement unless the Executive violates
his continuing obligations under Sections
12 or 18 hereof.
10. Notices. All notices
required hereby or given under this
Agreement shall be in writing and shall
be served by hand-delivery, certified
mail, return receipt requested, or
nationally recognized overnight courier
service, at the following addresses, or
at such other address as the parties may
designate to one another in writing:
If to the Company:
Lynton Group, Inc.
9 Airport Road
Morristown Municipal Airport
Morristown, New Jersey 07960
Attn: Chairman of the Board
With a copy to:
David M. Kaye, Esq.
Danzig, Garubo & Kaye
75 Livingston Avenue
Roseland, New Jersey 07068
<PAGE>
If to Executive:
Christopher Tennant
73 Elizabeth Street
London SW1W 9PJ England
Each such notice shall be deemed given at
the time delivered by hand, if personally
delivered; five business days after being
deposited in the mail, postage prepaid,
if mailed; and the next business day
after timely delivery to the courier, if
sent by overnight courier.
11. Arbitration. Except as
may be otherwise provided in Section
12(b) hereof, any dispute or controversy
between the parties regarding this
Agreement including, without limitation,
whether the right to compel arbitration
has been waived or whether grounds exist
for the revocation of this Agreement,
shall be determined by arbitration in New
Jersey pursuant to the rules of the
American Arbitration Association then in
effect, and judgment upon the award
rendered may be entered in any court
having jurisdiction thereof. Any
petition, process or notice of motion or
other application to a court or to a
judge thereof may be served outside the
State of New Jersey by registered mail or
certified mail, return receipt requested,
or by personal service, reasonable time
for appearance allowed.
12. Noncompetition by
Executive.
(a) Upon termination of
the Executive's employment hereunder for
any reason, including the end of the term
as provided in Section 2 hereof, the
Executive agrees not to compete, in the
manner described hereinafter, with the
business of the Company or any of the
Lynton Companies within the States of
Connecticut, New Jersey, New York or
Pennsylvania, anywhere within the United
Kingdom, or any other states or
jurisdictions in which the Company or any
of the Lynton Companies may operate or
transact business on the termination
date, for a period of six months
following the effective date of such
termination, except that, in the event
the Executive is terminated pursuant to
Subsection 9(c) hereof, such six month
period shall begin on the expiration of
the term of this Agreement as provided in
Section 2 hereof. The Executive agrees
that, during such six month period, he
will not be employed by, work for,
advise, consult with, serve or assist in
any way, directly or indirectly, any
party whose business is competitive with
the activities or business of the Company
or any of the Lynton Companies. The
Executive agrees further that he will
not, during such six month period,
purchase or otherwise acquire, directly
or indirectly, any interest of any kind
in any such business which is competitive
with that of the Company or any of the
Lynton Companies. The foregoing
restrictions on competition by the
Executive shall be operative for the
benefit of the Company and the Lynton
Companies and of any business owned or
controlled by the Company or the Lynton
Companies, or any successor or assign of
any of the foregoing. In the event that
the provisions of this Section 12 should
ever be deemed to exceed the time or
geographic limitations permitted by
applicable laws, then such provisions
shall be reformed to the maximum time or
geographic limitations permitted by
applicable laws.
(b) The parties hereto,
recognizing that irreparable injury will
result to the Company and the Lynton
Companies, their business and property in
the event of the Executive's breach of
his covenant herein not to compete, and
that such covenant is a material part of
the consideration upon which this
Agreement is founded, agree that in the
event of the Executive's breach of this
covenant, the Company and the Lynton
Companies shall be entitled, in addition
to any other remedies and damages
available to them, to an injunction to
restrain the violation thereof by the
Executive, his partners, agents,
servants, employers, employees and all
persons acting for or with him. The
Executive represents and admits that in
the event of the termination of his
employment hereunder, the enforcement of
a remedy for a violation of this Section
12 by way of injunction will not prevent
him from earning a livelihood.
13. Waiver. Failure to
insist upon strict compliance with any of
the terms, covenants or conditions hereof
shall not be deemed a waiver of such
term, covenant or condition, nor shall
any waiver or relinquishment of any right
or power hereunder at any one time or
more times be deemed a waiver or
relinquishment of such right or power at
any other time or times.
14. Severability. The
invalidity or unenforceability of any
provision hereof shall in no way affect
the validity or enforceability of any
other provision. The parties to this
Agreement agree and intend that this
Agreement shall be enforced as fully as
it may be enforced consistent with
applicable statutes and rules of law.
15. Benefit. The
Executive's rights and interest hereunder
may not be assigned, pledged or
encumbered by him. This Agreement shall
inure to the benefit of and be binding
upon the Company, its successors and
assigns, including, without limitation,
any corporation which may acquire all or
substantially all of the Company's assets
or business or with or into which the
Company may be consolidated or merged,
and to the benefit of, and be binding
upon, the Executive, his heirs,
executors, administrators and legal
representatives.
16. Entire Agreement. This
Agreement sets forth the entire
understanding of the parties hereto with
respect to the subject matter hereof, may
be modified only by a written instrument
duly executed by each party, and
supersedes all existing agreements
between them concerning such subject
matter, provided, however, that the
Employment Agreement dated June 1, 1993
between the parties hereto (the "1993
Employment Agreement") shall be binding
and remain in effect until the
Commencement Date, after which the 1993
Employment Agreement shall be of no
further force and effect.
17. Applicable Law. This
Agreement shall be governed by, and
construed and enforced in accordance
with, the laws of the State of New
Jersey, without giving effect to
principles of conflicts of law.
18. Nondisclosure of
Information Concerning Business. It is
understood and conclusively agreed
between the parties hereto that, during
the term of his employment, the Executive
will be dealing with confidential
information used by the Company and/or
any of the Lynton Companies in the course
of their respective businesses. The
Executive specifically agrees that he
will not at any time, during or after the
term of this Agreement, in any fashion,
form or manner, either directly or
indirectly, divulge, disclose or
communicate to any person, firm or
corporation or use other than in the
necessary course of his employment, any
information of any kind, nature or
description, pertaining to such
confidential matters affecting or
relating to the business of the Company
and/or any of the Lynton Companies,
including, without limitation, their
manner of operation, their customer and
supplier lists, plans and financial or
other data of any kind, nature or
description. For purposes of this
provision, "confidential information"
shall not include information (a) which
is presently public knowledge or which
hereafter becomes public knowledge
through no fault of the Executive nor
through his violation of this Agreement,
or (b) which is properly provided to the
Executive without restriction by an
independent third party, or (c) which the
Executive can clearly demonstrate was
already in his possession at the time of
its receipt from the Company and/or any
of the Lynton Companies. The parties
hereto stipulate that, as between them,
the foregoing matters are important,
material and confidential and gravely
affect the effective and successful
conduct of the business of the Company
and the Lynton Companies, and their
goodwill, and that any breach of the
terms of this Section 18 is a material
breach of this Agreement. The terms of
this Section 18 shall survive the
expiration or other termination of this
Agreement.
19. Negotiated Agreement.
This is a negotiated agreement. This
Agreement shall not be construed against
the Company by reason of this Agreement
being prepared by counsel to the Company.
IN WITNESS WHEREOF, the
parties have executed this Agreement as
of the date first above written.
LYNTON GROUP, INC.
By: /s/Richard Hambro
Name: Richard Hambro
Title: Chairman
/s/Christopher Tennant
Christopher Tennant
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM LYNTON GROUP, INC.'S AUDITED ANNUAL
REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERNECE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-1-1995
<PERIOD-END> SEP-30-1996
<CASH> 1,268,475
<SECURITIES> 0
<RECEIVABLES> 2,358,014
<ALLOWANCES> 21,465
<INVENTORY> 822,339
<CURRENT-ASSETS> 4,823,968
<PP&E> 17,386,419
<DEPRECIATION> 3,977,517
<TOTAL-ASSETS> 24,373,177
<CURRENT-LIABILITIES> 6,983,424
<BONDS> 12,838,491
<COMMON> 1,918,462
0
0
<OTHER-SE> 1,491,756
<TOTAL-LIABILITY-AND-EQUITY> 24,373,177
<SALES> 22,786,326
<TOTAL-REVENUES> 22,786,326
<CGS> 17,629,203
<TOTAL-COSTS> 20,849,798
<OTHER-EXPENSES> 330,783
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,336,137
<INCOME-PRETAX> 269,608
<INCOME-TAX> 151,206
<INCOME-CONTINUING> 118,402
<DISCONTINUED> 0
<EXTRAORDINARY> 287,408
<CHANGES> 0
<NET-INCOME> 405,810
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.22
</TABLE>
