INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934 (Amendment No. 2)
Check the appropriate box:
[ X ] Preliminary information statement
[ ] Confidential, for use of the Commission only
(as permitted by Rule 14c-5(d)(2))
[ ] Definitive information statement
LYNTON GROUP, INC.
(Name of Registrant as Specified in Its Charter)
Payment of filing fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on the table below per Exchange Act Rules 14c-5(g)
and 0-11.
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
(1) Amount previously paid: N/A
(2) Form, schedule or registration statement no.: N/A
(3) Filing party: N/A
(4) Date filed: N/A
<PAGE>
LYNTON GROUP, INC.
9 Airport Road
Morristown Municipal Airport
Morristown, New Jersey 07960
_________________, 1998
Dear Stockholder:
The enclosed Information Statement is being furnished to stockholders
of Lynton Group, Inc., a Delaware corporation (the "Company"), in
connection with action to be taken by written consent of stockholders (the
"Written Action") with respect to the proposals set forth below. The Board
of Directors is not soliciting proxies in connection with the Written
Action and proxies are not requested from stockholders.
The proposals, subject of the enclosed Information Statement, are as
follows: (1) a proposal to approve an amendment to the Company's
Certificate of Incorporation (the "Certificate of Incorporation") to
increase the number of authorized shares of Common Stock, par value $.30
per share, of the Company (the "Common Stock") from 10,000,000 to
25,000,000 (the "Capitalization Amendment"), the purpose and effect of
which is to allow (i) the holders of the Company's 8.0% Subordinated
Convertible Debentures due December 31, 2007 (the "8.0% Debentures") issued
in December 1997 to convert the 8.0% Debentures into shares of Common
Stock, and (ii) the holders of the Company's 8.0% Subordinated Convertible
Debentures due December 31, 2007 (the "Additional 8.0% Debentures") issued
in September 1998 to convert the Additional 8.0% Debentures into shares of
Common Stock; and (2) a proposal to be implemented after the Capitalization
Amendment to approve (i) a 1-for-2,000 reverse stock split (the "Reverse
Stock Split") of the Company's Common Stock and (ii) an amendment to the
Company's Certificate of Incorporation to recapitalize the Company's Common
Stock and Preferred Stock as a result of the Reverse Stock Split (the
"Reverse Stock Split Amendment") which will reduce the number of authorized
shares of Common Stock from 25,000,000 shares to 12,500 shares, reduce the
number of authorized shares of Preferred Stock from 3,000,000 to 2,500, and
provide a cash payment of $1.00 per share of the currently outstanding
Common Stock in lieu of the issuance of any resulting fractional shares of
the new Common Stock to any stockholders who after the Reverse Stock Split
own less than one share of the new Common Stock.
If the proposed Reverse Stock Split is effected, the Company expects
to have fewer than 300 stockholders and will therefore cease the filing of
certain reports with the Securities and Exchange Commission.
THE BOARD OF DIRECTORS HAS FULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE PROPOSED REVERSE STOCK SPLIT AND UNANIMOUSLY DETERMINED
THAT THE PROPOSED REVERSE STOCK SPLIT, TAKEN AS A WHOLE, IS FAIR TO, AND IN
THE BEST INTERESTS OF, THE STOCKHOLDERS.
Paul R. Dupee, Jr, Christopher Tennant, Richard Hambro, James G.
Niven, and representatives of Consulta Special Funds Limited, Task Holdings
Limited, J.O. Hambro Nominees Limited and J.O. Hambro Investment Management
Limited have advised the Company that they presently intend to execute
written consents in favor of the proposals listed above on or about the
date of this Information Statement. However, the proposals listed above
will not be effected until at least 20 days after this Information
Statement has first been sent to stockholders. Such individuals and
entities hold in the aggregate 5,200,672 shares of Common Stock (81.3% of
the outstanding Common Stock) entitled to vote hereon. Accordingly, if
they execute such written consents in accordance with such intentions,
approval of the matters set forth herein is assured.
On behalf of the Board of Directors,
PAUL R. DUPEE, JR.
Chairman of the Board
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
________________
PLEASE DO NOT SEND IN ANY CERTIFICATES
FOR YOUR SHARES AT THIS TIME.
<PAGE>
LYNTON GROUP, INC.
9 Airport Road
Morristown Municipal Airport
Morristown, New Jersey 07960
INFORMATION STATEMENT
CONSENT OF STOCKHOLDERS IN LIEU OF SPECIAL MEETING
_____________________________
This Information Statement is being furnished to stockholders of
Lynton Group, Inc., a Delaware corporation (the "Company"), in connection
with action to be taken by written consent of stockholders (the "Written
Action") with respect to the proposals set forth below. The Board of
Directors is not soliciting proxies in connection with the Written Action
and proxies are not requested from stockholders. This Information Statement
is first being mailed to stockholders of the Company on or about
_______________, 1998.
The proposals, subject of this Information Statement, are as follows:
(1) A proposal to approve an amendment to the Company's Certificate
of Incorporation (the "Certificate of Incorporation") to increase the
number of authorized shares of Common Stock, par value $.30 per share, of
the Company (the "Common Stock") from 10,000,000 to 25,000,000 (the
"Capitalization Amendment"), the purpose and effect of which is to allow
(i) the holders of the Company's 8.0% Subordinated Convertible Debentures
due December 31, 2007 (the "8.0% Debentures") issued in December 1997 to
convert the 8.0% Debentures into shares of Common Stock, and (ii) the
holders of the Company's 8.0% Subordinated Convertible Debentures due
December 31, 2007 (the "Additional 8.0% Debentures") issued in September
1998 to convert the Additional 8.0% Debentures into shares of Common Stock;
and
(2) A proposal to be implemented after the Capitalization Amendment
to approve (i) a 1-for-2,000 reverse stock split (the "Reverse Stock
Split") of the Company's Common Stock and (ii) an amendment to the
Company's Certificate of Incorporation to recapitalize the Company's Common
Stock and Preferred Stock as a result of the Reverse Stock Split (the
"Reverse Stock Split Amendment") which will reduce the number of authorized
shares of Common Stock from 25,000,000 shares to 12,500 shares, reduce the
number of authorized shares of Preferred Stock from 3,000,000 to 2,500, and
provide a cash payment of $1.00 per share of the currently outstanding
Common Stock in lieu of the issuance of any resulting fractional shares of
the new Common Stock to any stockholders who after the Reverse Stock Split
own less than one share of the new Common Stock.
The principal executive office of the Company is located at 9 Airport
Road, Morristown Municipal Airport, Morristown, New Jersey 07960. The
telephone number of the principal executive office of the Company is (973)
292-9000.
_________________________________
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
The date of this Information Statement is ______________, 1998
<PAGE>
TABLE OF CONTENTS
Page
Summary 3
Written Action 3
Purpose of this Information Statement 3
Exchange of Certificates and Payment
for Fractional Shares of New Common Stock 3
Recommendation of the Board of Directors;
Fairness of the Reverse Stock Split 4
Opinion of Collins Stewart 4
Financing of the Reverse Stock Split 4
Conduct of the Company's Business After
the Reverse Stock Split;
Possible Change in Legal Domicile of the Company;
Possible Listing on the London Stock Exchange 4
Reasons for the Reverse Stock Split 4
Current Business of the Company 5
Federal Income Tax Consequences 5
Consents; Consents Required 5
Appraisal Rights; Escheat Laws 5
Selected Historical Financial Data of the Company 5
General Information 6
Proposed Increase in the Company's Authorized Shares
of Common Stock 6
Proposed Reverse Stock Split and Recapitalization of
the Common Stock and Preferred Stock 9
Special Factors 10
Background of the Proposed Reverse Stock Split 10
Reasons for the Reverse Stock Split 14
Recommendation of the Board of Directors;
Fairness of the Reverse Stock Split 15
Opinion of Collins Stewart 19
Interests of Certain Persons and Potential
Conflicts of Interest 24
Conduct of the Company's Business After the
Reverse Stock Split;
Possible Change in Legal Domicile of the Company;
Possible Listing on the London Stock Exchange 24
Federal Income Tax Consequences 26
Appraisal Rights; Escheat Laws 27
Exchange of Certificates and Payment
for Fractional Shares of New Common Stock 27
Financing of the Reverse Stock Split 28
Principal Stockholders and Security Ownership of Management 28
Management of the Company 29
Selected Historical Financial Data of the Company 31
Management's Discussion and Analysis of Financial
Condition and Results of Operations 33
Market for the Common Stock; Dividends 45
Stockholder Proposals 46
Expenses 46
Incorporation by Reference 46
Additional Information 47
Annex A: Financial Statements F-1
Annex B: Opinion of Collins Stewart B-1
<PAGE>
SUMMARY
The following is a summary of certain information contained in this
Information Statement. It is not intended to be a complete explanation of
all the matters which it covers, and much of the information contained in
this Information Statement is not covered by this summary. The information
contained in this summary is qualified in all respects by reference to the
detailed discussion of these matters contained elsewhere in this
Information Statement. Stockholders are urged to read this Information
Statement, including the annexes, in its entirety.
This Information Statement contains certain forward-looking statements
that are based upon the beliefs and assumptions of, and information available
to, the management of the Company at the time such statements are made. In
addition, other written or oral statements which constitute forward-looking
statements may be made by or on behalf of the Company. Words such as
"expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates", or variations of such words and similar expressions are intended
to identify such forward-looking statements. The statements are not guarantees
of future performance and involve certain risks, uncertainties and assumptions
which are difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in such forward-looking
statements. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Written Action
This Information Statement is being furnished to stockholders of
Lynton Group, Inc., a Delaware corporation (the "Company"), in connection
with action to be taken by written consent of stockholders (the "Written
Action") with respect to the matters set forth herein. The Board of
Directors is not soliciting proxies in connection with the Written Action
and proxies are not requested from stockholders.
Purpose of this Information Statement
The proposals, subject of this Information Statement, are as follows:
(1) a proposal to approve an amendment to the Company's Certificate of
Incorporation (the "Certificate of Incorporation") to increase the number
of authorized shares of Common Stock, par value $.30 per share, of the
Company (the "Common Stock") from 10,000,000 to 25,000,000 (the
"Capitalization Amendment"), the purpose and effect of which is to allow
(i) the holders of the Company's 8.0% Subordinated Convertible Debentures
due December 31, 2007 (the "8.0% Debentures") issued in December 1997 to
convert the 8.0% Debentures into shares of Common Stock, and (ii) the
holders of the Company's 8.0% Subordinated Convertible Debentures due
December 31, 2007 (the "Additional 8.0% Debentures") issued in September
1998 to convert the Additional 8.0% Debentures into shares of Common Stock;
and (2) a proposal to be implemented after the Capitalization Amendment to
approve (i) a 1-for-2,000 reverse stock split (the "Reverse Stock Split")
of the Company's Common Stock and (ii) an amendment to the Company's
Certificate of Incorporation to recapitalize the Company's Common Stock and
Preferred Stock as a result of the Reverse Stock Split (the "Reverse Stock
Split Amendment") which will reduce the number of authorized shares of
Common Stock from 25,000,000 shares to 12,500 shares, reduce the number of
authorized shares of Preferred Stock from 3,000,000 to 2,500, and provide a
cash payment of $1.00 per share of the currently outstanding Common Stock
in lieu of the issuance of any resulting fractional shares of the new
Common Stock to any stockholders who after the Reverse Stock Split own less
than one share of the new Common Stock.
Exchange of Certificates and Payment for Fractional Shares of New Common
Stock
Following the Reverse Stock Split, if approved, each two thousand
(2,000) shares of Common Stock, with a par value of $0.30 each, of the
Company issued and outstanding immediately prior to the filing of the
Reverse Stock Split Amendment shall thereby and thereupon be combined into
and shall constitute and represent one (1) validly issued, fully paid and
nonassessable share of Common Stock, with a par value of $0.30 each, of the
Company. No scrip or fractional shares will be issued by reason of the
Reverse Stock Split. To the extent that the Reverse Stock Split results in
any stockholder owning less than a single full share of the Common Stock,
the Company will pay cash for each such fractional share in an amount equal
to the appropriate fraction of $1.00 per whole share. To the extent that
the Reverse Stock Split results in fractional shares held by stockholders
who own one or more full shares of Common Stock by reason thereof, such
fractional shares will be rounded up or down to the nearest full share.
See "Special Factors - Exchange of Certificates and Payment for Fractional
Shares of New Common Stock".
Recommendation of the Board of Directors; Fairness of the Reverse Stock
Split
The Board of Directors believes that the cash payment of $1.00 per
share of currently outstanding Common Stock in lieu of the issuance of
fractional shares of New Common Stock represents a price that is fair both
to the Company and to its stockholders. See "Special Factors -
Recommendation of the Board of Directors; Fairness of the Reverse Stock
Split".
Opinion of Collins Stewart
Collins Stewart Ltd. ("Collins Stewart") was retained by the Board to
provide an opinion to the Board as to the fairness of the cash
consideration to be paid in lieu of the issuance of fractional shares of
New Common Stock as part of the Reverse Stock Split. Collins Stewart has
advised the Board that the $1.00 per share cash price to be paid in lieu of
the issuance of fractional shares of New Common Stock pursuant to the
Reverse Stock Split is fair from a financial point of view. See "Special
Factors - Opinion of Collins Stewart".
Financing of the Reverse Stock Split
The Board estimates that the total cost to be incurred by the Company
in the Reverse Stock Split for payment of fractional share interests,
including transactional expenses of approximately $125,000, will be
approximately $415,000. The Company intends to finance the transaction
from current working capital. See "Financing of the Reverse Stock Split".
Conduct of the Company's Business After the Reverse Stock Split
If the proposed Reverse Stock Split is effected, the Company intends
to terminate the registration of its Common Stock under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). Thereafter, the Company
will cease the filing of periodic reports, proxy statements and other
reports and documents otherwise required to be filed with the Securities
and Exchange Commission (the "SEC"). See "Special Factors - Reasons for
the Reverse Stock Split," and "Special Factors - Conduct of the Company's
Business After the Reverse Stock Split."
Reasons for the Reverse Stock Split
The Board of Directors determined to propose the Reverse Stock Split
because the Board believes that it was an opportune time to enable the vast
majority of stockholders to dispose of their shares at a substantial
premium over historical market prices with no transactional costs. The
Board also believes that neither the Company nor its stockholders derive
any material benefit from the continued registration of the Common Stock
under the 1934 Act and that the monetary expense and burden to management
of continued registration significantly outweighs any material benefit that
may be received by the Company or its stockholders as a result of such
registration. See "Special Factors - Reasons for the Reverse Stock Split."
Current Business of the Company
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. See "Special Factors - Background
of the Proposed Reverse Stock Split" and "Special Factors - Reasons for the
Reverse Stock Split".
Federal Income Tax Consequences
The receipt of New Common Stock in exchange for presently outstanding
Common Stock will not result in recognition of gain or loss to the
stockholder. The receipt of cash by a stockholder pursuant to the Reverse
Stock Split will be a taxable transaction for federal income tax purposes.
See "Special Factors - Federal Income Tax Consequences."
Consents; Consents Required
Approval of the matters set forth herein requires the consent of the
holders of at least a majority of the outstanding shares of Common Stock
entitled to vote thereon. Paul R. Dupee, Jr., Christopher Tennant, Richard
Hambro, James G. Niven, and representatives of Consulta Special Funds
Limited, Task Holdings Limited, J.O. Hambro Nominees Limited and J.O.
Hambro Investment Management Limited have advised the Company that they
presently intend to execute written consents in favor of the proposals
listed above on or about the date of this Information Statement. However,
the proposals listed above will not be effected until at least 20 days
after this Information Statement has first been sent to stockholders. Such
individuals and entities hold in the aggregate 5,200,672 shares of Common
Stock (81.3% of the outstanding Common Stock) entitled to vote hereon.
Accordingly, if they execute such written consents in accordance with such
intentions, approval of the matters set forth herein is assured. See
"General Information".
Appraisal Rights; Escheat Laws
Pursuant to Delaware General Corporation Law, there will be no
appraisal rights for dissenting stockholders if the Reverse Stock Split is
approved. Under state escheat laws, any cash for fractional interests not
claimed by the stockholder entitled to it may escheat to, and be claimed
by, various states. See "Special Factors - Appraisal Rights; Escheat
Laws."
Selected Historical Financial Data of the Company
See "Selected Historical Financial Data of the Company" and
"Financial Statements of the Company" attached hereto as Annex A.
GENERAL INFORMATION
Section 228 of the General Corporation Law of the State of Delaware
states that, unless otherwise provided in the certificate of incorporation,
any action that may be taken at any annual or special meeting of
stockholders, may be taken without a meeting, without prior notice and
without a vote, if consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted, and those consents are delivered to the corporation by
delivery to its registered office in Delaware, its principal place of
business or an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. The
Company's Certificate of Incorporation contains no provision or language in
any way limiting the right of stockholders of the Company to take action by
written consent.
The Board has fixed the close of business on _____________, 1998 as
the record date for the determination of stockholders entitled to receive
notice of, and consent to, the matters set forth herein (the "Record
Date"). Accordingly, only stockholders of record on the books of the
Company at the close of business on the Record Date will be entitled to
consent to the matters set forth herein. On the Record Date, the Company
had outstanding 6,394,872 shares of Common Stock, par value $.30 per share
(the "Common Stock") which are the only outstanding voting securities of
the Company. On all matters, each share of Common Stock is entitled to one
vote.
Paul R. Dupee, Jr., Christopher Tennant, Richard Hambro, James G.
Niven, and representatives of Consulta Special Funds Limited, Task Holdings
Limited, J.O. Hambro Nominees Limited and J.O. Hambro Investment
Management Limited have advised the Company that they presently intend to
execute written consents in favor of the proposals listed above on or about
the date of this Information Statement. However, the proposals listed
above will not be effected until at least 20 days after this Information
Statement has first been sent to stockholders. Such individuals and
entities hold in the aggregate 5,200,672 shares of Common Stock (81.3% of
the outstanding Common Stock) entitled to vote hereon. Accordingly, if
they execute such written consents in accordance with such intentions,
approval of the matters set forth herein is assured.
PROPOSED INCREASE IN THE COMPANY'S
AUTHORIZED SHARES OF COMMON STOCK
Proposal 1
The Board of Directors has adopted, subject to stockholder approval,
an amendment to the Certificate of Incorporation of the Company for the
purpose of increasing the number of authorized shares of Common Stock of
the Company from 10,000,000 to 25,000,000 (the "Capitalization Amendment")
in order to allow (i) the holders of the Company's 8.0% Debentures issued
in December 1997 to convert the 8.0% Debentures into shares of Common
Stock; and (iii) the holders of the Company's Additional 8.0% Debentures
issued in September 1998 to convert the Additional 8.0% Debentures into
shares of Common Stock.
The Certificate of Incorporation presently authorizes the Company to
issue 10,000,000 shares of Common Stock and 3,000,000 shares of Preferred
Stock. As of the date hereof, there are 6,394,872 shares of Common Stock
and no shares of Preferred Stock outstanding. In addition, (i) 795,000
shares of Common Stock are reserved for issuance pursuant to the conversion
rights underlying the 10% Senior Subordinated Convertible Debentures due
December 31, 1998 (the "10% Debentures") in the aggregate principal amount
of $795,000 which remain outstanding and originally issued in December
1993. Also, 125,000 shares of Common Stock are reserved for issuance
pursuant to warrants issued to the placement agent of the 10% Debentures,
1,660,668 shares of Common Stock are reserved for issuance pursuant to
options previously granted to executive officers, directors, key employees
and affiliates of the Company and 243,332 shares of Common Stock are
reserved for issuance for future grants under the 1993 Plan. Based upon
the foregoing number of outstanding and reserved shares of Common Stock,
the Company has 781,128 shares of Common Stock remaining available.
Accordingly, the Company must increase the number of its authorized
shares of Common Stock in order to allow (i) the holders of the 8.0%
Debentures to exercise their right to convert such Debentures into Common
Stock (up to an aggregate of 5,816,000 shares), and (ii) the holders of the
Additional 8.0% Debentures to exercise their right to convert such
Debentures into Common Stock (up to an aggregate of 4,623,000 shares).
Stockholders should note that the Company is not seeking stockholder
approval of the issuances of the 8.0% Debentures and the Additional 8.0%
Debentures insofar that such issuances have already been completed. In
addition, the Company must have sufficient number of shares of Common Stock
authorized and available for issuance in order to issue additional shares
which the holders of the 8.0% Debentures and the Additional 8.0% Debentures
may be entitled to receive as the result of any PIK Interest (as
hereinafter defined).
In connection therewith, stockholders should note that the 8.0%
Debentures bear interest at the rate of 8.0% per annum, payable semi-
annually in arrears on the first day of June and December of each year with
the first such payment due on June 1, 1998, provided, however, that in lieu
of paying such interest in cash, the Company may, at its option, pay
interest for any interest payment date occurring before December 23, 1999
by adding the amount of such interest to the outstanding principal amount
due thereunder (the "PIK Interest"). In such event, any such PIK Interest
when so added shall be deemed part of the principal indebtedness for
purposes of determining amounts which may be convertible into shares of
Common Stock. The Company has exercised this option with respect to the
interest payments due June 1, 1998 so such PIK Interest resulting therefrom
has been added and is now deemed part of the principal indebtedness for
purposes of determining amounts which may be convertible into shares of
Common Stock.
With regard to the Additional 8.0% Debentures issued in September
1998, stockholders should note that the Additional 8.0% Debentures bear
interest at the rate of 8.0% per annum, payable semi-annually in arrears on
the first day of June and December of each year with the first such payment
due on December 31, 1998. However, (i) in the event the Company provides
any holder of the Additional 8.0% Debentures with a notice of redemption
(which as provided in the Additional 8.0% Debentures can be no sooner than
June 1, 2000) and such redemption is rejected by the holder thereof, then
and in such event, in lieu of paying interest in cash for any interest
payment date occurring thereafter, or (ii) if at any other time, and at
least 30 days prior to any interest payment date, a holder provides the
Company with a written request that interest due to the holder for such
interest payment date be paid in the form of PIK Interest, then, the
Company may, at its sole option, with regard to the preceding clauses (i)
or (ii), whichever is applicable, pay PIK Interest for any such interest
payment date whereupon any such PIK Interest when so added shall be deemed
part of the principal indebtedness for purposes of determining amounts
which may be convertible into shares of Common Stock. No holder has as of
this date requested PIK Interest in lieu of cash interest with regard to
the Additional 8.0% Debentures.
The 8.0% Debentures are convertible into shares of the Company's
Common Stock at the option of the holder at any time following the
Capitalization Amendment and prior to maturity at a conversion ratio of
$1.00 per share. The Additional 8.0% Debentures are also convertible into
shares of the Company's Common Stock at the option of the holder at any
time following the Capitalization Amendment and prior to maturity at
conversion ratios starting at $1.35 per share until June 30, 1999; $1.25
from July 1, 1999 to July 31, 1999; and then decreasing monthly thereafter
by $.05 per month until December 1, 1999 whereupon the conversion ratio
shall thereafter be $1.00 per share. The conversion ratios provided above
shall be subject to adjustment upon the occurrence of certain events as
provided in the 8.0%Debentures and the Additional 8.0% Debentures. In
addition, the 8.0% Debentures and the Additional 8.0% Debentures are
automatically convertible into shares of the Company's Common Stock upon
the date, if any, that the Company, or any successor, completes a bona fide
public offering of its securities, and the shares of the Common Stock of
the Company, or any successor, become listed on The London Stock Exchange.
See "Special Factors - Conduct of the Company's Business After the Reverse
Stock Split; Possible Change in Legal Domicile of the Company; Possible
Listing on the London Stock Exchange".
Certain existing principal stockholders of the Company own a
significant majority of the 8.0% Debentures as follows: Paul R. Dupee, Jr.
who is Chairman of the Board and a director of the Company, owns $1,306,240
principal amount of the 8.0% Debentures; James G. Niven, a director of the
Company, owns $200,000 principal amount of the 8.0% Debentures; J.O. Hambro
Investments Ltd., which Richard Hambro, a director of the Company, may be
deemed to control, owns $299,520 principal amount of the Debentures; Task
Holdings Limited owns $798,720 principal amount of the 8.0% Debentures; and
Consulta Special Funds Limited owns $1,938,560 principal amount of the 8.0%
Debentures, which in the aggregate represents approximately 78.0% of the
outstanding 8.0% Debentures. Assuming approval of the Capitalization
Amendment, Mr. Dupee will be entitled to convert his 8.0% Debentures into
1,306,240 shares of Common Stock; Mr. Niven will be entitled to convert his
8.0% Debentures into 200,000 shares of Common Stock; J.O. Hambro
Investments Ltd. will be entitled to convert its 8.0% Debentures into
299,520 shares of Common Stock; Task Holdings Limited will be entitled to
convert its 8.0% Debentures into 798,720 shares of Common Stock; and
Consulta Special Funds Limited will be entitled to convert its 8.0%
Debentures into 1,938,560 shares of Common Stock, which in the aggregate
represents up to 4,543,040 shares of Common Stock of the Company (or up to
approximately 2,272 shares in the event the Reverse Stock Split is approved
by the stockholders which will represent approximately 27.2% of the then
outstanding shares of the Company's Common Stock assuming the conversion of
all of the 8.0% Debentures and Additional 8.0% Debentures). The foregoing
does not take into account any additional shares which may be issued upon
conversion of the Debentures as a result of any PIK Interest. The
Additional 8.0% Debentures are held by non-U.S. institutional investors,
none of whom are affiliated with any principal stockholder, officer or
director of the Company.
Due to the foregoing reasons, the Board recommends the increase in the
number of authorized shares of Common Stock to 25,000,000 shares. See
"Proposed Reverse Stock Split and Recapitalization of the Common Stock and
Preferred Stock" for information on the number of shares of Common Stock
which will be authorized and issued, and reserved for issuance, following
the Reverse Stock Split. At the present time, other than the possible
issuances described herein, the Company has no current plans or
arrangements to issue any additional shares of Common Stock. Authorization
of such additional shares would permit the issuance at various times of
shares which could be specifically adapted to a wide variety of
circumstances, such as raising capital or making acquisitions. Shares of
Common Stock would be issued only as, if, and when the Board of Directors
believed the issuance to be in the best interests of the Company and its
stockholders. No stockholder of the Company presently has, or would have,
any preemptive rights relating to the future issuance of any shares of
Common Stock. See also, however, and "Special Factors - Conduct of the
Company's Business After the Reverse Stock Split; Possible Change in Legal
Domicile of the Company; Possible Listing on the London Stock Exchange".
The proposed Capitalization Amendment to increase the authorized number of
shares of Common Stock could, under certain circumstances, have an anti-
takeover effect, although this is not the intention of this proposal. For
example, the issuance of additional shares could be used to create
impediments to or otherwise discourage persons attempting to gain control
of the Company. Shares of Common Stock could be issued to persons or
entities who would support the Board in opposing a takeover bid which the
Board determines to be not in the best interests of the Company and its
stockholders. However, the Board of Directors is not aware of any attempt
to take control of the Company and the Board of Directors has not presented
this proposal with the intent that it may be utilized as a type of anti-
takeover device.
The text of the proposed Capitalization Amendment is as follows:
That the first sentence of Article FOURTH of the Certificate of
Incorporation be and it hereby is amended to read in its entirety as
follows:
"FOURTH: The total number of shares of stock which the Corporation
shall issue is 28,000,000 of which 25,000,000 shares with a par value of
$0.30 each shall be Common Stock and of which 3,000,000 shares with a par
value of $0.01 each shall be Preferred Stock."
The Board of Directors believes that authorization of the additional
shares of Common Stock is in the best interests of the Company and its
stockholders.
PROPOSED REVERSE STOCK SPLIT AND RECAPITALIZATION
OF THE COMMON STOCK AND PREFERRED STOCK
Proposal 2
The Board of Directors has adopted a resolution, subject to
stockholder approval, that the following be implemented after the
effectiveness of the Capitalization Amendment (i) a 1-for-2,000 reverse
stock split (the "Reverse Stock Split") of the Company's Common Stock and
(ii) an amendment to the Company's Certificate of Incorporation to
recapitalize the Company's Common Stock as a result of the Reverse Stock
Split (the "Reverse Stock Split Amendment") which will reduce the number of
authorized shares of Common Stock from 25,000,000 shares to 12,500 shares,
reduce the number of authorized shares of Preferred Stock from 3,000,000
shares to 2,500 shares, and provide a cash payment of $1.00 per share of
the currently outstanding Common Stock in lieu of the issuance of any
resulting fractional shares of the new Common Stock to any stockholders who
after the Reverse Stock Split own less than one share of the new Common
Stock. Although there are no shares of Preferred Stock currently
outstanding, the Board believes the reduction in the number of authorized
shares of Preferred Stock would be consistent with the reduction in the
number of authorized shares of Common Stock.
The purpose of the Reverse Stock Split Amendment is to make changes in
the Certificate of Incorporation as a result of the Reverse Stock Split.
After the Reverse Stock Split, the number of outstanding shares of Common
Stock will be reduced from 6,394,872 shares of Common Stock, par value
$0.30 per share (the "Old Common Stock"), to approximately 3,100 shares of
Common Stock, par value $0.30 per share (the "New Common Stock") which
number of shares takes into account the elimination of approximately
280,000 shares of Old Common Stock held by approximately 490 stockholders.
Following the Reverse Stock Split, the number of shares of Common
Stock issuable upon exercise of any outstanding warrants and options issued
by the Company or upon conversion of convertible debt instruments of the
Company will be decreased to 1/2,000 of the number of shares otherwise
issuable and the exercise price or conversion price per share of Common
Stock thereof would be increased by a factor of 2,000. As a result, the
number of shares reserved for issuance upon exercise or conversion of all
outstanding convertible securities (including the 8.0% Debentures and the
Additional 8.0% Debentures) will be reduced to an aggregate of
approximately 6,511 shares of New Common Stock. See "Proposed Increase in
the Company's Authorized Shares of Common Stock". In this regard, the
conversion ratio of the 8.0% Debentures and the Additional 8.0% Debentures
will be adjusted by a factor of 2,000 in which event the 8.0% Debentures
shall be convertible into up to 2,908 shares of the New Common Stock and
the Additional 8.0% Debentures shall be convertible into up to 2,312 shares
of the New Common Stock (which shall represent approximately 23.3% and
18.5%, respectively, of the then number of authorized shares of New Common
Stock of the Company). The foregoing does not take into account any
additional shares which may be issued upon conversion of the Debentures as
a result of any PIK Interest. Upon conversion of the 8.0% Debentures and
the Additional 8.0% Debentures, no fractional shares shall be issued and in
place thereof, the Company shall pay the holder an amount in cash equal to
the fair market value of the fractional share.
The text of the Reverse Stock Split Amendment to the Certificate of
Incorporation to recapitalize the Common Stock is as follows:
That the first sentence of Article FOURTH of the Certificate of
Incorporation be and it hereby is amended to read in its entirety as
follows:
"FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 15,000 of which 12,500 shares with a par
value of $0.30 each shall be Common Stock and of which 2,500 shares with a
par value of $0.01 each shall be Preferred Stock.
Upon the filing in the Office of the Secretary of the State of
Delaware of the Certificate of Amendment of the Certificate of
Incorporation whereby this Article FOURTH is amended to read as set forth
herein, each two thousand (2,000) shares of Common Stock, with a par value
of $0.30 each, of the Corporation issued and outstanding immediately prior
to the filing of the Certificate of Amendment shall thereby and thereupon
be combined into and shall constitute and represent one (1) validly issued,
fully paid and nonassessable share of Common Stock, with a par value of
$0.30 each, of the Corporation. No scrip or fractional shares will be
issued by reason of this amendment. To the extent that this amendment
results in any stockholder owning less than a single full share of the
Common Stock, the Corporation will pay cash for each such fractional share
in an amount equal to the appropriate fraction of $1.00 per whole share.
To the extent that this amendment results in fractional shares held by
stockholders who own one or more full shares of Common Stock by reason of
this amendment, such fractional shares will be rounded up or down to the
nearest full share."
SPECIAL FACTORS
Background of the Proposed Reverse Stock Split
The Company is a Delaware corporation organized in August 1971 under
the name of Decair Corporation. Prior to May 1989, the Company's
operations consisted primarily of performing helicopter maintenance,
management and charter services entirely in the United States through two
U.S. subsidiaries.
Since 1989, the Company has changed substantially which has
necessitated a reevaluation of its long-term business strategy. Presently,
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.
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"). Subsequent thereto, and in
June 1989, the Company changed its name to Lynton Group, Inc. Limited, a
London based company formed in 1984, is currently a holding company with
four wholly-owned operating subsidiaries, Lynton Aviation Limited
("Aviation Limited"), European Helicopters Limited ("EHL"), Magec Aviation
Limited ("Magec") which company was acquired in December 1997, and Air
Hanson Limited ("Air Hanson"), which company was acquired in September
1998. Aviation Limited is primarily involved in the sale, management and
charter of corporate helicopters and fixed wing aircraft; EHL is primarily
involved in the rebuilding, sale and maintenance of corporate helicopters;
Magec provides hangarage and refueling, charter, management, and
maintenance services for corporate aircraft from its terminal at London
Luton Airport located in the London, England metropolitan area; and Air
Hanson, based at Blackbushe Airport in the United Kingdom, is primarily
engaged in providing maintenance, sale and management of corporate turbine
helicopters and fixed wing aircraft.
In the United States, the Company, in August 1990, through its wholly
owned subsidiary, Lynton Jet Centre, Inc. ("Lynton Jet Centre") formed for
the purpose of such transaction, 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 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. In February 1998, the Company, through
Lynton Jet Centre, acquired substantially all the assets of Jet Systems,
including its ground lease on a hangar facility, located at
Morristown Municipal Airport, Morristown, New Jersey. Such purchase was
intended to enable Lynton Jet Centre to provide additional fixed base
operation facilities for corporate aircraft users of the Morristown
Municipal Airport.
Due to the foregoing changes, the Company has had since 1989
significant foreign operations and revenues. In 1988, the Company had
revenues of approximately $2,900,000 with none from foreign operations. In
fiscal 1989, the Company's revenues increased to approximately $6,200,000
primarily due to the Limited Acquisition. Revenues from foreign
subsidiaries represented 47% of all revenues achieved in that year. During
fiscal 1990, revenues from foreign subsidiaries increased to 67% of all
revenues achieved by the Company. More recently, revenues from foreign
subsidiaries represented 51%, 55% and 67% of consolidated net revenues in
1997, 1996 and 1995, respectively. For example, in fiscal 1997, the
Company had total net revenues of approximately $25,600,000 with
approximately $12,600,000 from United States operations and approximately
$13,000,000 from operations in the United Kingdom and other European
countries. In fiscal 1996, the Company had total net revenues of
approximately $22,800,000 with approximately $10,200,000 from United States
operations and approximately $12,600,000 from operations in the United
Kingdom and other European countries. Moreover, as a result of the
acquisition of Magec completed in December 1997, the Company's foreign
operations have dramatically increased. Assuming the acquisition of Magec
had occurred on October 1, 1995 (the beginning of fiscal 1996), the
Company's pro forma (unaudited) net revenues are estimated to have been
approximately $47,500,000 for 1997 and $41,500,000 for fiscal 1996.
Since 1989, the Board of Directors of the Company has substantially
changed from that which existed prior to 1989. Other than Christopher
Tennant, who has been a director of the Company since 1985, none of the
other current directors served on the Board of Directors prior to 1989.
The Board of Directors currently consists of six members. Paul R. Dupee,
Jr., who is also Chairman of the Board, has been a director since April
1996; David Harland has been a director since January 1998; Richard Hambro
and James G. Niven have each been a director since May 1989; and Nigel D.
Pilkington has been a director since December 1996. Other than Mr. Niven,
all of the Company's directors primarily reside in the United Kingdom.
As a result of the foregoing, the Company has had an increased
presence overseas and less of a presence in the United States.
On October 20, 1995, the Company's Common Stock was delisted from
trading on the Nasdaq Small-Cap Market. Since then, the Company's Common
Stock has been quoted in the "pink sheets" promulgated by the National
Quotation Bureau, Inc. and is currently qualified for listing on the OTC
Bulletin Board. Trading in the Company's Common Stock has been sporadic
and relatively inactive since October 20, 1995. See "Market for the Common
Stock; Dividends".
Since being delisted from trading on the Nasdaq Small-Cap Market, the
Board of Directors of the Company has increasingly recognized that its
stockholders derive no material benefit from the continued registration of
the Common Stock under the 1934 Act. During this period of time, the Board
has noted that a vast majority of the stockholders owned fewer than 2,000
shares each and that practically no public market for the Common Stock
existed. Of approximately 525 stockholders of record, approximately 455
(approximately 86.7% of the Company's stockholders) hold 100 or fewer
shares of Common Stock, approximately 470 (approximately 89.5% of the
Company's stockholders) hold 250 or fewer shares and approximately 492
(approximately 94.3% of the Company's stockholders) hold 2,000 or fewer
shares. Thus, if for any reason a trading market developed for the
Company's Common Stock, stockholders holding less than 2,000 shares would
nonetheless have limited opportunities to realize any value for their
shares since the sales of their shares would ordinarily involve
disproportionately high brokerage commissions.
On numerous occasions during fiscal 1997 and fiscal 1998, members of
the Board of Directors held formal and informal meetings in person and via
telephone conference calls to discuss the various considerations involved
in the possibility of the Company ceasing to be a "reporting" company
including effecting a reverse stock split, with a cash payment to be made
in lieu of the issuance of fractional shares resulting from a reverse stock
split.
Initially, in the early part of fiscal 1997, there were sporadic and
informal discussions held by Mr. Dupee and Mr. Tennant in London whereby
they discussed the advisability of the Company eliminating stockholders
holding a relatively small number of shares as well as the advisability of
the Company remaining a reporting company in the United States. No
decisions were made or conclusions reached in connection with these
discussions. Each of Mr. Tennant and Mr. Dupee contacted the Company's
outside corporate counsel, Danzig Garubo & Kaye, LLP, to discuss the
various considerations involved in the possibility of the Company effecting
a transaction whereby those stockholders holding a relatively small number
of shares would be eliminated, or alternatively, effecting a transaction
whereby the Company would cease to be a reporting company. During the course
of these conversations, corporate counsel discussed the procedures to effect
a reverse stock split under Delaware law whereby cash payments could be made
in lieu of fractional shares to stockholders holding a small number of
shares thereby eliminating such stockholders holding nominal interests. In
addition, corporate counsel advised that if such transaction was intended
to have the effect of reducing the number of record holders to below 300
stockholders, then such transaction would be deemed to be a going-private
transaction and would have to be done in compliance with the requirements
of Rule 13e-3 promulgated under the 1934 Act.
Following these initial preliminary discussions, it was requested by
Mr. Dupee and Mr. Tennant that corporate counsel obtain an appropriate
stockholders list from the Company's transfer agent so that an appropriate
analysis could be made of the Company's stockholders to determine whether
any of the foregoing ideas would be feasible. Such stockholders list was
thereupon obtained and copies were analyzed by both the Company's corporate
counsel and by the Company's Chief Financial Officer, each of whom
concluded that of approximately 525 stockholders of record, over 450
stockholders held 100 or fewer shares of Common Stock, approximately 470
held 250 or fewer shares and approximately 490 stockholders held 2,000 or
fewer shares.
Further discussions continued in fiscal 1997 between Mr. Tennant and
Mr. Dupee regarding these matters and other directors, which included Mr.
Pilkington (who became a director in December 1996), Mr. Hambro and Mr.
Niven, were contacted. Formal and informal meetings in person and via
telephone conference calls to discuss the various considerations involved
in such matters were held in fiscal 1997. While no director voiced any
opposition to effecting a reverse stock split in order to eliminate certain
stockholders with nominal interests or effecting a going private
transaction whereby the Company would cease to be a "reporting" company,
it was decided that the Company not take any action at that time to effect
either such a transaction and that the Company should reconsider such a
transaction at a later date and possibly in fiscal 1998 or 1999.
Following the acquisition of Magec in December 1997 and the issuance
of the 8.0% Debentures in December 1997, the Board of Directors resumed
discussions with regard to the foregoing proposals. Such conversations
continued among the various directors, which as of January 1998 included
Mr. Harland who became a Board member during that month. All Board members
agreed that the Company's stockholders derived no material benefit from
the continued registration of the Common Stock under the 1934 Act and that
the Company achieved no material benefits in being a reporting company in
the United States. As a result, the Board concluded that if the Company
was going to effect a reverse stock split to eliminate stockholders with
small holdings it should structure such transaction so that the number of
stockholders be reduced to fewer than 300 holders to enable the Company to
cease filing reports under the 1934 Act.
During the third quarter of fiscal 1998, the Board began to consider
what would be a fair price to pay for any fractional shares which may be
created by a reverse stock split transaction. Mr. Dupee and Mr. Tennant
suggested that the price be set at $1.00 per share in view of the recent
issuance of the 8.0% Debentures which are convertible at a rate of $1.00
per share. As a result, meetings were held by the members of the Board,
and after a careful analysis in which the Board considered the factors
described below (see " - Recommendations of the Board of Directors;
Fairness of the Reverse Stock Split"), the Board of Directors determined
that a fair value would be $1.00 per share. The Board of Directors then
approved the Reverse Stock Split and the Reverse Stock Split Amendment and
a resolution to pay $1.00 per share in lieu of the issuance of fractional
shares of the New Common Stock. The ratio of 1-for-250 was chosen
initially by the Board as the Reverse Stock Split ratio. Such ratio was
later adjusted by the Board to 1-for-2,000 as an administratively
convenient ratio which should ensure that fewer than 300 stockholders would
remain after the Reverse Stock Split. Representatives of Consulta Special
Funds Limited, Task Holdings Limited, J.O. Hambro Nominees Limited and J.O.
Hambro Investment Management Limited were contacted and such
representatives voiced no opposition to such a proposal.
In connection with such analysis, the Board decided to engage the
services of an outside party to provide an opinion to the Board as to
the fairness of the cash consideration to be paid in lieu of the issuance
of fractional shares of New Common Stock as part of the Reverse Stock Split,
in order to provide a procedural safeguard to the proposed Reverse Stock
Split. The Board met with representatives of Collins Stewart Ltd., a member
of the London Stock Exchange and a firm which had previously provided and
was currently providing other services to the Company (see " -Opinion of
Collins Stewart") and agreed to retain such firm to render such an opinion.
Reasons for the Reverse Stock Split
The Board determined to propose the Reverse Stock Split because the
Board believes that it was an opportune time to enable the vast majority of
stockholders to liquidate their shares easily, at a fair price with no
brokerage costs, recognizing that no active trading market currently exists
with respect to the Common Stock. In connection therewith, the Board
determined that the Company has the available cash needed to pay for any
fractional shares which may be created by a reverse stock split
transaction. The Board also believes that the registration of the
Company's Common Stock under the 1934 Act is not advantageous to the
Company in light of the nature of the Company. As a result of the changes
which have occurred within the Company since 1989, the Company has had an
increased presence overseas and less of a presence in the United States.
In addition, the Board noted that the Company has greatly expanded in
recent years, which includes the acquisition of Magec which occurred in
December 1997. Despite the growth of the Company and the improved
financial performance in recent years, the market price of the Company's
Common Stock has not materially changed and the Board noted that the
Company has never developed and will likely not develop in the foreseeable
future any significant trading market for its shares of Common Stock in the
United States.
The Board further noted that following the Reverse Stock Split the
Company may attempt to change the Company's legal domicile to outside of
the United States. Although no assurance can be given that the Company
will attempt to effect or make this change of legal domicile, such change
may in fact be effected at some time after the Reverse Stock Split. In
addition, the Company has had discussions and has contemplated that
following the Reverse Stock Split, it may seek to raise additional capital
in foreign markets and establish a trading market for its securities in
foreign markets. In this regard, the Company has had discussions with
investment banking firms in the United Kingdom and the Company may seek in
the future, following the Reverse Stock Split, to effect a public offering
of its securities in the United Kingdom and have its securities listed for
trading on the London Stock Exchange. See " - Conduct of the Company's
Business After the Reverse Stock Split; Possible Change in Legal Domicile
of the Company; Possible Listing on the London Stock Exchange."
Notwithstanding the foregoing, there can be no assurance that such a public
offering in the United Kingdom and/or effecting a listing of the Company's
securities on the London Stock Exchange, will be attempted, or if
attempted, that such matters will be successfully completed. The Board
believes, however, that in the event the Company attempts to accomplish
the foregoing matters, it will be better positioned to successfully
accomplish the foregoing if it then has a small stockholder base and few
U.S. stockholders.
In connection therewith, the Board believes that having a large
stockholder base in the U.S. may prevent the Company from proceeding with
an offering or listing on the London Stock Exchange in the event such
actions are pursued insofar that the investment banking firms which are in
the United Kingdom and which have indicated an interst in participating
in such actions have expressed the concern that the Company may not be able
to successfully complete an offering overseas and maintain an orderly
trading market for the Company's shares in the United Kingdom if the
Company still has a large stockholder base in the U.S. As a result, a
large stockholder base which remains in the U.S. may prevent the Company
from successfully accomplishing an offering or listing on the London Stock
Exchange at all in the event such actions are pursued, in which event there
will be no trading market in any respect overseas. Accordingly, there will
be no opportunity for any stockholder to benefit from such a trading market.
Moreover, even if the Company's large U.S. stockholder base is eliminated as
a result of the Reverse Stock Split and a trading market develops overseas,
there is no guarantee that the shares will trade at a price greater than
the equivalent of $1.00 per share.
The Board also noted that significant financial and operational
constraints have prevented the Company and its stockholders from enjoying
the benefits which traditionally flow from being a public company in the
United States. The Company has significant debt obligations due to
financings of various acquisitions which financings do not permit the
Company to pay any dividends to its stockholders. Such constraints,
together with the substantial legal, accounting and other costs incurred as
a result of being a reporting company, have prevented and will continue to
prevent for the foreseeable future the payment of any dividends to its
stockholders. They will continue to prevent any meaningful appreciation in
the value of the Company's shares of Common Stock.
In addition, the Board noted that since being delisted from trading on
the Nasdaq Small-Cap Market, the Company has never developed and will
likely not develop in the foreseeable future any significant trading market
for its shares of Common Stock in the United States. Although the
Company's operations have increased substantially since 1989, the Common
Stock since being delisted on the Nasdaq Small-Cap Market has traded
infrequently and sporadically.
As a reporting company, the Company has incurred and will continue to
incur substantial costs as a result of its status as a reporting company
under the 1934 Act. It incurs direct costs including legal, accounting,
and printing fees, to prepare annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and proxy solicitation
materials and formal annual reports for distribution to stockholders prior
to an annual meeting. Such direct costs are estimated to be approximately
$100,000 to $150,000 per year. The Company incurs substantial indirect
costs insofar that the Company's management is also required to devote
substantial time and attention to the preparation and review of these
filings, the furnishing of information to stockholders and other
stockholder matters. Since the Company has relatively few executive
personnel, these indirect costs can be substantial. In light of the lack
of benefits the Company has achieved from its status as a reporting
company, the Board does not believe such costs are justified.
Recommendations of the Board of Directors; Fairness of the Reverse Stock
Split
The Board believes that the Reverse Stock Split, taken as a whole, is
fair to, and in the best interests of, the stockholders of the Company who
will receive cash in lieu of fractional shares as well as those who will
receive shares of the New Common Stock. The Board also believes that the
process by which it approved the Reverse Stock Split was fair.
In reaching its determination that the Reverse Stock Split, taken as a
whole, is fair to, and in the best interests of, the stockholders and in
reaching its recommendation that the stockholders vote for approval and
adoption of the Reverse Stock Split and Reverse Stock Split Amendment and
the payment of cash in lieu of fractional shares, the Board considered,
among other things, (i) the opinion prepared by Collins Stewart as to the
fairness from a financial point of view of the cash consideration to be
paid in lieu of the issuance of fractional shares of New Common Stock as
part of the Reverse Stock Split (see " - Opinion of Collins Stewart"), (ii)
each of the directors' knowledge of and familiarity with the Company's
business, prospects, financial condition and current business strategy,
(iii) information with respect to the financial condition, results of
operations, assets, liabilities, business and prospects of the Company, and
current industry, economic and market conditions, (iv) the opportunity
presented by the Reverse Stock Split for stockholders owning fewer than
2,000 shares to liquidate their holdings without incurring brokerage costs,
particularly given the absence of a liquid market, and (v) the future cost
savings that will inure to the benefit of the Company and its continuing
stockholders as a result of the Company deregistering its Common Stock
under the 1934 Act. The Board determined that each of the foregoing
factors generally supported the conclusion that the Reverse Stock Split
was fair to the unaffiliated stockholders.
The Board recognized that despite improvements in the Company's
business in recent years the marketability of the Company's stock in the
United States has not improved, and the Board does not expect that any
significant trading market will develop in the foreseeable future in the
United States. Since 1989, the Board noted that the Company has steadily
increased its foreign operations and has maintained less of a presence in
the United States. Moreover, the Board noted that the Company's principal
executive officers, including its Chief Executive Officer, are primarily in
the United Kingdom, and its directors, other than Mr. Niven, primarily
reside in the United Kingdom. As a result, the Board believes that the
Company's business and future prospects currently have and are expected to
continue to have a greater presence in foreign markets. In this regard,
the Board believes that neither the Company nor its stockholders derive any
material benefit from the continued registration of the Common Stock under
the 1934 Act and that the monetary expense and burden to management of
continued registration significantly outweighs any material benefit that
may be received by the Company or its stockholders as a result of such
registration.
The Board also considered the following factors as generally
supporting its determination as to the fairness:
Current and Historical Market Prices. The Board reviewed the current
and historical market prices for the Company's Common Stock since being
delisted from the Nasdaq Small-Cap Market (October 20, 1995) and noted that
since such date and through the end of fiscal 1997 the bid price has ranged
from a low of 1/8 to a high of 7/8. Since the end of fiscal 1997, the bid
price has ranged from a low of 1/2 which is the most recent available
reported bid price to a high of 1-3/4 which was the highest reported bid
price which occurred in October 1997. The date of the most recent
available price is July 17, 1998. During October 1997, the reported bid
price was higher than $1.00 between October 7th and October 13th.
Nevertheless, insofar that trading in the Company's stock has been sporadic
and relatively inactive, the Board did not believe that such higher price
during such period was indicative of the value of the Company's stock or
reflective of any trend in the trading market since the reported bid price
of the Company's stock has since January 1998 been below $1.00.
Net Book Value. The net book value of the Company as of September 30,
1997 was $4,523,860. As of June 30, 1998, the net book value of the
Company was $5,184,642. Based upon 6,394,872 outstanding shares of Common
Stock, the net book value per share as of September 30, 1997 was
approximately $.71 and the net book value per share as of June 30, 1998 was
approximately $.81.
Going Concern Value. In determining a going concern value of the
Company, the Board took into consideration the improvement in earnings of
the Company over the past few years, the future outlook of the Company,
recent acquisitions and such relationship to future earnings, the Company's
financial condition, including current and future earnings and cash flow,
and the Board's knowledge of the business, prospects and competition of the
Company. After this analysis of going concern value and taking all factors
into account, the Board determined in its judgment but without mathematical
formula that the going concern value should be higher than book value but
no greater than $1.00 per share.
Liquidation Value. Traditionally, in liquidation, a business will
receive less for its assets than as a going concern. In liquidation, it
may reasonably be assumed that the net value of the Company will be less
than its book value. In this regard, the Board noted that the Company's
assets in total would in all likelihood yield substantially less upon
liquidation than their book value. This belief is based in part on the
expenditures which would be incurred by the Company if it attempted to sell
its assets. In addition, the Board does not believe that there is a ready
market for the Company's assets in bulk and, as a result, it would be
difficult to sell those assets in bulk for their net book value.
Recent Purchases. The Board reviewed privately negotiated
transactions which occurred in fiscal 1997 in which (i) the four holders of
all of the then outstanding shares of Series C Convertible Preferred Stock
(the "Series C Preferred Stock") agreed to convert all of the Series C
Preferred Stock at a rate of $.49 per share or an aggregate of 2,053,876
shares of Common Stock, and (ii) two holders of the Company's 10% Senior
Subordinated Convertible Debentures due December 31, 1998 (the "10%
Debentures") agreed to convert the 10% Debentures held by them (in the
principal amount of $1,065,000) at a rate of $.33 per share or 3,227,273
shares of Common Stock. Two of such holders of the Series C Preferred
Stock were James G. Niven, a director of the Company, and J. O. Hambro
Nominees Limited, which may be deemed to be controlled by Richard Hambro, a
director of the Company. Such two holders of the 10% Debentures were Paul
R. Dupee, Jr., Chairman of the Board and a director of the Company, and
Consulta Special Funds Limited. The shares acquired by Consulta Special
Funds Limited may be deemed to be beneficially owned by Nigel D.
Pilkington, a director of the Company. In addition, the Board considered
another privately negotiated transaction which occurred in December 1997
whereby the Company issued and sold to certain directors and
principal stockholders of the Company, and/or their affiliates, as well
as other third parties, the 8.0% Debentures in the aggregate principal
amount of $5,816,000. The 8.0% Debentures are convertible into shares of
the Company's Common Stock at an initial conversion price of $1.00
per share once the Certificate of Incorporation is modified to increase
the number of authorized shares of Common Stock which is being proposed
in connection with this Information Statement. Although the Board believes
that a conversion price of a debt instrument which pays interest is not
necessarily indicative of the value of a company's stock, the Board believes
that any such valuation generally will be assumed to be lower than the
conversion ratio in view of the interest which the debt instrument will pay.
Accordingly, the Board assumed that the value of the Company's stock was
deemed to be less than $1.00 in connection with the sale of the 8.0%
Debentures. The Board also considered another privately negotiated
transaction which occurred in September 1998 whereby the Company issued
to certain non-affiliated institutional investors the Additional 8.0%
Debentures in the aggregate principal amount of $4,623,000. The
Additional 8.0% Debentures are convertible into shares of the Company's
Common Stock at an initial conversion ratio starting at $1.35 per share
until June 30, 1999; $1.25 from July 1, 1999 to July 31, 1999; and then
decreasing monthly thereafter by $.05 per month until December 1, 1999
whereupon the conversion ratio shall thereafter be $1.00 per share. The
Board did not consider the initial conversion ratios above $1.00 as an
indication of the value of the Company's stock but simply a method to
give preferential treatment to the holders of the Company's 8.0%
Debentures which were issued in December 1997.
Offers by Others. The Board also noted that during the preceding 18
months the Company has not received any firm offers nor is it aware of any
offers for a merger or consolidation or is it aware of any sale or other
transfer of all or any substantial part of the assets of the Company or
securities of the Company which would enable the holder thereof to exercise
control of the Company.
The Board considered alternatives to the proposed Reverse Stock Split,
including privately negotiated purchases of Common Stock as well as a
possible self-tender offer. However, such alternatives were rejected
because there was no assurance that either alternative would assure a
sufficient response in order to result in the Company having fewer than 300
stockholders. The Board did not consider a possible sale of the Company
because no firm offers had been presented to the Board and no determination
had been made that a sale would be in the best interests of the
stockholders. In addition, the Board did not view a sale as an alternative
that could achieve the objectives that the Board sought to achieve with the
Reverse Stock Split, which were providing liquidity for small stockholders
while at the same time reducing costs for the Company and its continuing
stockholders.
In view of the circumstances and the wide variety of factors
considered in connection with its evaluation of the fairness of the Reverse
Stock Split, taken as a whole, the Board did not find it practicable to
assign relative weights to the factors considered in reaching its
determination that the Reverse Stock Split, taken as a whole, is fair to,
and in the best interests of, the stockholders of the Company. If any
factor assisted the Board in its determination, the Board did not assign a
relative weight to such factor and did not make a determination as to why a
particular factor, as a result of the deliberations by the Board, should be
assigned any weight.
The Board of Directors did not structure the Reverse Stock Split to
require approval of at least a majority of the unaffiliated stockholders.
They concluded, despite not structuring the Reverse Stock Split in such
manner, that the Reverse Stock Split is fair to the Company's unaffiliated
stockholders. The Board did not retain an unaffiliated representative to
act solely on behalf of the unaffiliated stockholders for purposes of
negotiating the terms of the Reverse Stock Split or preparing a report with
respect to the fairness of the Reverse Stock Split. The Board determined
that the cost and expense to retain such representative was not warranted
in light of the engagement of Collins Stewart to render an opinion as to
the fairness from a financial point of view of the cash consideration to be
paid in lieu of the issuance of fractional shares of New Common Stock as
part of the Reverse Stock Split, and the expected cash consideration to be
paid to the fractional stockholders pursuant to the Reverse Stock Split.
The Board of Directors concluded the Reverse Stock Split is fair to
the Company's unaffiliated stockholders from a financial point of view.
The Board reiterated that in determining the amount of cash consideration
to be paid for fractional interests as a result of the Reverse Stock Split,
the Board considered various factors in reaching a fair price, including
the opinion rendered by Collins Stewart. The Board noted that the Reverse
Stock Split, given the lack of an active trading market for the Company's
stock, afforded stockholders who hold less than 2,000 shares a one time
opportunity to receive, in view of the Board of Directors, fair value for
their shares. In addition, the Reverse Stock Split constitutes the most
expeditious, efficient, and least expensive method to convert the Company
from a reporting company to a non-reporting company in comparison to other
alternatives considered by the Board.
The Board also concluded that the Reverse Stock Split is fair to the
Company's unaffiliated stockholders from a procedural point of view. In
reaching such conclusion, the Board noted that although it did not retain
an unaffiliated representative to act solely on behalf of the unaffiliated
stockholders for purposes of negotiating the terms of the Reverse Stock
Split or preparing a report with respect to the fairness of the Reverse
Stock Split, the Board did retain Collins Stewart as an outside party to
render an opinion as to the fairness of the transaction from a financial
point of view which opinion did in fact support the Board's determination.
In addition, the Board was aware that under the General Corporation Law of
Delaware, statutory appraisal rights are not available. However, the Board
concluded that stockholders objecting to the Reverse Stock Split may have
rights available to them under state law which could be raised in the context
of a suit against the Company and the Board of Directors. See " - Appraisal
Rights; Escheat Laws".
If the Reverse Stock Split is consummated, all persons holding fewer
than 2,000 shares at the effective time of the Reverse Stock Split will no
longer have any interest in, and will not be stockholders of the Company
and therefore will not participate in its future potential or earnings and
growth. Instead, each such holder of Common Stock will have the right to
receive $1.00 per share in cash without interest. Directors and executive
officers, in addition to all other stockholders who remain stockholders
after the Reverse Stock Split, will realize an increase in their equity
ownership of the Company. Certain directors of the Company who own the 8.0%
Debentures shall also have the opportunity to increase their shareholdings
by converting their 8.0% Debentures into shares of New Common Stock at a
conversion rate of $1.00 per share assuming approval of the Capitalization
Amendment and certain officers, directors and other key employees holding
options shall have an opportunity to acquire additional shares.
The Company intends, as a result of the Reverse Stock Split, to
terminate the registration of its Common Stock under the 1934 Act. The
Company will then be relieved of the obligation to comply with the proxy
rules of Regulation 14A under Section 14 of the 1934 Act, and its officers
and directors and stockholders owning more than 10% of the Common Stock
would be relieved of the reporting requirements and "short swing" trading
restrictions under Section 16 of the 1934 Act. Further, the Company will
no longer be subject to the periodic reporting requirements of the 1934 Act
and will cease filing information with the SEC. Unless the shares become
listed on The London Stock Exchange, remaining stockholders should expect a
limited or no trading market for the shares. See " - Conduct of the
Company's Business After the Reverse Stock Split; Possible Change in Legal
Domicile of the Company; Possible Listing on the London Stock Exchange".
Although stockholders may sell their shares in privately negotiated
transactions, stockholders will in all likelihood be dependent to a great
extent upon the Company's willingness to purchase shares.
The Board of Directors has reserved the right to abandon the Reverse
Stock Split prior to its consummation, if circumstances arise which in the
opinion of the Board of Directors, make such abandonment advisable such as,
but not limited to, (i) any legal action or proceeding concerning the
Reverse Stock Split or, in the opinion of the Board of Directors,
materially adversely affecting the Company, is instituted or threatened in
any court or by or before any governmental agency, or (ii) there shall have
been, in the opinion of the Board of Directors, any material change in the
business, financial condition or operations of the Company which in the
opinion of the Board of Directors make such abandonment advisable.
Opinion of Collins Stewart
The Company received a written opinion from Collins Stewart Ltd.
("Collins Stewart") with respect to the fairness from a financial point
of view of the consideration to be received by holders of the currently
outstanding shares in the Company in lieu of the issuance of any resulting
fractional shares of the New Common Stock following the Reverse Stock Split.
A copy of the Opinion provided by Collins Stewart is attached hereto as
Annex B and stockholders are urged to read it in its entirety.
Collins Stewart, a member of the London Stock Exchange, is a brokerage
firm to institutional investors and also provides corporate advisory and
broking services to currently over 60 corporate clients. Members of
Collins Stewart Corporate Finance Department are regularly involved in
providing advice which includes advise as to the valuation of securities in
connection with public offerings, private placements, acquisitions,
fairness opinions and other purposes.
Collins Stewart has previously been engaged by the Company to provide
broking services and is currently engaged to provide advisory and broking
services in respect of future equity fundraisings which the Company may
wish to pursue, including a possible fundraising on the London Stock
Exchange. In this regard, Collins Stewart was engaged by the Company to
provide the Company with corporate finance advice and services in
connection with a proposed convertible debt offering (which was completed
in September 1998 with the sale of the Additional 8.0% Debentures) and in
connection with a possible issuance of shares on the London Stock Exchange.
An affiliate company of Collins Stewart invested as principal in the
Additional 8.0% Debentures to the value of $3,000,000. Collins Stewart
itself received Additional 8.0% Debentures to the value of $123,000 in
consideration of its services as placing agent. With regard to a possible
issuance of shares on the London Stock Exchange, such engagement with
Collins Stewart does not oblige Collins Stewart to sell, acquire, place,
underwrite or subunderwrite any investments, unless and until it is
expressly agreed otherwise in writing, but to advise the Company as Collins
Stewart sees fit, in what it perceives to be the Company's best interests
in light of the circumstances prevailing at the time at which such advice
is given. In the event such an issuance is effected, however, the
engagement does provide for the payment of various fees and commissions,
and certain fees, under certain specific circumstances only, if such
issuance does not proceed at the Company's initiation.
The Company determined the consideration to be received by
stockholders, and Collins Stewart has only undertaken investigations of the
Company and performed the procedures described below in order to render its
Opinion. Collins Stewart was not asked to nor did it express an opinion on
any other restructuring aspects of the Reverse Stock Split. No limitations
were imposed upon Collins Stewart by the Company's Board of Directors with
respect to the investigations or procedures followed by Collins Stewart in
rendering the Opinion, except that Collins Stewart in connection with its
engagement, was not authorized to solicit and did not solicit any third-
party indications of interest in acquiring all or any part of the Company.
In the Opinion, Collins Stewart stated that it was relying upon the
accuracy and completeness, without independent verification, of the
publicly available information and all other information concerning the
Company furnished to, and other published information reviewed by, Collins
Stewart. Collins Stewart also assumed that financial projections of the
Company have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the Company's management as
to the future financial performance of the Company. Collins Stewart also
indicated in the Opinion that it has not made an independent appraisal or
physical inspection of the assets or liabilities of the Company. Collins
Stewart highlighted in the Opinion that the valuation derived for the
Company's equity is based on the Company's present financing arrangements.
In rendering the Opinion, Collins Stewart undertook investigations of
the Company as described in the Opinion, including, among other things,
reviewing and analyzing: (1) drafts of the Information Statement filed with
the Securities and Exchange Commission; (2) certain relevant publicly
available information regarding the Company, (3) financial and operating
information with respect to the business operations of the Company
furnished by the Company, including financial projections of the Company
prepared by the management of the Company, (4) a trading history of the
Company's common stock from January 1, 1997 to the date of the Opinion, (5)
information concerning convertible debentures and stock options recently
issued by the Company, (6) publicly available information concerning
certain other companies and transactions that Collins Stewart identified as
comparable or otherwise relevant to its review, and (7) other transactions
that Collins Stewart deemed comparable or otherwise relevant to this
transaction. In addition, Collins Stewart has had discussions with the
management of the Company concerning its business and operations, current
net asset position and future prospects, and undertook such other studies,
analyses, and investigations as deemed appropriate. The management of the
Company assured Collins Stewart during these discussions that they are
unaware of any facts that would make the information provided to Collins
Stewart incomplete or misleading.
With regard to the financial projections prepared by management of
the Company, the projections were not prepared with a view toward
compliance with published guidelines of the Securities and Exchange
Commission or the American Institute of Certified Public Accountants
regarding prospective financial information. The projections necessarily
were based upon numerous estimates and assumptions with respect to industry
performance, general business and economic conditions, taxes and other
matters, many of which are beyond the control of the Company. Although
the Company is subject to general economic conditions as well as specific
competitive uncertainties, no attempt was made in the projections to predict
when or whether cyclical changes in economic conditions would be experienced
during the period covered by the projections. Accordingly, the projections
are not necessarily indicative of current values of future performance, which
may be significantly less favorable or more favorable than as set forth therein.
Collins Stewart has advised the Company that prior to delivering the
Opinion it performed various analyses and comparisons regarding the
Company as summarized below:
1. Current and Historical Market Prices
Collins Stewart reviewed details, provided by the Company, of reported
trades in the Company's shares since January 1, 1997 to the date of the
Opinion. During this period the bid price for the Company's shares ranged
from a low of $0.125 to a high of $1.75 per share. Other than three
reported trades in the Company's shares during October 1997, there have
been no other reported trades at a price above $1.00, with the latest
reported trade in the Company's shares being in July 1998 at $0.50. The
history of only 17 reported transactions in this period indicates a lack of
liquidity in the Company's shares, which Collins Stewart believes has been
contributed to by the financial risk attached to the Company following the
level of debt taken on by the Company on the acquisition of Magec Aviation
Limited in December 1997. Collins Stewart also noted that since the date
of the last reported trade in the Company's shares stock market conditions
have deteriorated, particularly for smaller companies. Collins Stewart also
noted that as far as the Directors of the Company are aware there are no
bids for shares in the Company at a value of $1.00 or above.
Collins Stewart also considered the issue by the Company in September
1998 of the Additional 8.0% Debentures to certain non-affiliated
institutional investors. The Additional 8.0% Debentures have an initial
conversion ratio of $1.35 per share decreasing to $1.00 per share at and
after December 1, 1999. Collins Stewart noted that it is usual for
convertible loan stock to be issued with a conversion price in excess of
that which the issuer considers to be the value of the underlying shares.
This is usual where the convertible loan stock carries benefits in terms of
income and security in comparison with the underlying shares. The
Additional 8.0% Debentures yield an 8% (fixed rate) coupon semi-annually,
whereas the Company's shares currently yield no dividend and the Company
has no stated or intended dividend policy, and the Additional 8.0%
Debentures rank in front of the Company's shares in terms of security.
Collins Stewart also noted that market conditions for smaller companies and
for fund railings in particular have deteriorated significantly since the
Additional 8.0% Debentures were marketed in August 1998. Collins Stewart
also stated that it would expect non-affiliated institutional investors in
the Additional 8.0% Debentures would assign a lower value to the Company's
shares in current market conditions than they would have done in August
1998.
Collins Stewart also noted that an earlier issue of 8.0% Debentures
took place in December 1997, raising $5,816,000 from unaffiliated investors
as well as certain directors and affiliated stockholders. These 8.0%
Debentures were issued with a conversion ratio of $1.00 per share.
Additionally, it was noted that during 1997 the four holders of the then
outstanding Series C Convertible Preferred Stock agreed to convert into
shares in the Company at a rate of $0.49 per share and two holders of the
Company's 10% Subordinated Convertible Debentures due December 31, 1998
agreed to convert into shares in the Company at a rate of $0.33 per share.
Collins Stewart also noted that the Company has issued stock options
to its Directors with exercise prices of either $0.50 or $1.00 per share.
The last stock options issued by the Company were issued on January 1,
1998, with an exercise price of $1.00 per share. This exercise price
reflects the value per share that the Directors considered to be fair at
that time.
2. Net Book Value / Liquidation Value
As at June 30, 1998, the Company had a net asset value per share of
$0.81. The Company's net asset value per share is estimated by Collins
Stewart to have been increased by approximately $0.06 per share on the
acquisition of Air Hanson. Collins Stewart enquired as to whether the
Directors of the Company were aware of any other significant changes to
the net assets of the Company since June 30, 1998 or any assets or
liabilities in the Company's consolidated balance sheet at June 30, 1998
which were stated at a value which they estimated was significantly
different to their net realisable values.
Collins Stewart noted that the liquidation value of the Company would
be expected to be less than the value of the Company's net assets as
reflected in the above net asset value per share.
3. Going Concern Value
Collins Stewart reviewed the Company's going concern value principally
on the basis of analyzing the Company's trading performance relative to
publicly-traded comparable companies. Following discussions with the
Directors of the Company, Collins Stewart decided that it would not pursue
a discounted cash flow analysis of the Company, as the financial risk
attached to the Company given its current high level of debt suggested that
an extremely high discount rate should be applied which Collins Stewart
believed would produce an unreliable valuation of the Company's equity.
Collins Stewart noted that given the Company's significant level of
debt (the Company's net debt to equity ratio as at June 30, 1998 was 567%),
an analysis based on enterprise value ("EV") to earnings before interest,
tax, depreciation and amortization ("EBITDA") would provide the most
appropriate earnings-based valuation indicators for the Company. Collins
Stewart undertook a comparison of EV / historic EBITDA for the Company and
Mercury Air Group, Inc. ("Mercury"), the one company identified as listed
on a North American or European stock exchange which has an FBO or aircraft
charter and management business as a significant part of its activities.
Collins Stewart determined that the Company had an EV / historic EBITDA of
5.6 based on a value of $1.00 per share in the Company and the Company's
net debt position as at September 30, 1997, which compared to a similar
multiple for Mercury of 4.8. A value of $1.00 per share in the Company
therefore assigns an enterprise value to the Company which is 17% in excess
of that for Mercury given their respective historic EBITDA.
Other sectors which Collins Stewart determined could offer companies
with comparable activities to those of the Company were airlines, regional
airlines, airports, airport and airline services, transportation, and
business services. However, Collins Stewart stated that there are no
airline, regional airline, airport or airport and airline services
companies listed on the Nasdaq Stock Market ("Nasdaq") which are comparable
with the Company in terms of size, all such companies being substantially
larger than the Company. Of the remainder of potential comparable
companies involved in transportation or business services, Collins Stewart
believe there to be too diverse a collection of companies to allow for any
meaningful comparisons to be made.
Collins Stewart noted that limited information appeared to be
available on companies listed on Nasdaq on a sectorial basis that could be
used for the purpose of comparisons with the Company. The only indicator
identified by Collins Stewart of relevance was the price / historic
earnings multiple for those companies which constitute the Nasdaq
Transportation Index which as at October 1998 was 10.95, sourced
directly from Nasdaq. Collins Stewart noted that given an aggregate US
corporate taxation rate of 40%, this average price / earnings multiple
figure implied a price / historic pre-tax earnings multiple of 6.6 and
thus an EV/ historic EBITDA multiple of an even lower figure would be
suggested. Collins Stewart noted that this would seem to support the EV/
historic EBITDA multiple for the Company of 5.6, given a value per share of
$1.00.
Collins Stewart identified price / prospective earnings ratios for
certain sectors for companies on the London Stock Exchange as further
potentially relevant indicators for the Company, given that no similar
ratios were identified for Nasdaq listed companies. An analysis of the
Company's projected and forecast EBITDA against implied EV / prospective
EBITDA multiples for the FTSE Small Cap. Index and the FTSE Transportation
Sector Index for companies on the London Stock Exchange (source: FTSE
International Ltd) further supported a value per share in the Company of
$1.00 being a fair value.
4. Comparable transactions
Collins Stewart noted that while there have been one or two
acquisitions of FBO and related companies in recent years, such as the
acquisition of Executive Jet, Inc. in July 1998, there are no transactions
for which adequate details have been obtained to allow for an analysis of
value of the Company based on comparable transactions.
The Directors of the Company also informed Collins Stewart that no
firm offers for the Company or any of its assets have been received in the
last eighteen months.
A copy of the memorandum prepared by Collins Stewart which summarizes
its analyses has been filed as an exhibit to the Schedule 13E-3 filed by
the Company with the SEC. Copies will be made available for inspection
and copying at the principal executive offices of the Company during
regular business hours by any interested stockholder of the Company or his
representative who has been so designated in writing.
The preparation of a fairness opinion is a complex process and not
necessarily susceptible to partial analysis or summary description. Collins
Stewart believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying the Opinion. Collins
Stewart did not attribute any particular weight to any analysis or factors
considered, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. In its qualitative analysis
Collins Stewart considered current and historical market prices to be of
most significance in its determination of the Opinion. The going concern
analysis is limited by the lack of comparable listed companies and the lack
of details disclosed in relation to recent transactions involving
comparable companies. The ability to value the Company is further
complicated by its high debt levels which make comparisons with other
available indicators, such as price to sales, inappropriate. Collins
Stewart further noted that the value of the Company's equity is
significantly impacted by the Company's present financing structure and
that the marketability and liquidity of shares in the Company could be
significantly altered by changes to the Company's capital structure. In
particular, any future equity fundraising which the Company may or may not
successfully pursue, could enhance the value of each share in the Company
by reducing the Company's levels of debt as well as improving the
marketability of the Company's shares. Additionally, it should be noted
that estimates of the value of a business do not purport to be appraisals
or to necessarily reflect the price at which such business may actually
be sold.
Collins Stewart notes in its letter of engagement that the conclusions
which Collins Stewart may reach in respect of any advice it renders may
change and that its obligation in this respect is to advise the Company as
it sees fit, in what it perceives to be the Company's best interests, in
the light of circumstances prevailing at the time at which such advice is
given.
Collins Stewart was selected by the Board because of its expertise and
experience in rendering fairness opinions and its expertise in trading and
valuing securities, as well as its familiarity with the Company and its
business in which it operates.
For its services, including rendering its opinion, the Company has
contracted to pay a fee of 40,000 Pounds Sterling (equivalent to
approximately $65,000) to Collins Stewart and has agreed to pay all
reasonable costs, charges and expenses of Collins Stewart with respect
to the engagement.
Except as reflected in this Information Statement, neither Collins
Stewart nor, to the best knowledge of Collins Stewart, any of its
affiliates has had a material relationship during the past two years with
the Company or any of its affiliates, nor is any material relationship
contemplated.
Interests of Certain Persons and Potential Conflicts of Interest
In considering the recommendation of the Board of Directors with
respect to the Reverse Stock Split, stockholders should be aware that the
Company's directors and executive officers have interests which may present
them with conflicts of interest in connection with the Reverse Stock Split.
Specifically, a majority of the directors and executive officers of the
Company own Common Stock and, after the Reverse Stock Split, all will
exchange shares of Old Common Stock for shares of New Common Stock if the
Reverse Stock Split is approved by the stockholders. In addition, the
equity percentage ownership of all shareholders remaining after the Reverse
Stock Split will be increased. Thus, directors and executive officers, in
addition to all other stockholders who remain stockholders after the
Reverse Stock Split, will realize an increase in their equity ownership of
the Company. Certain directors of the Company who own the 8.0% Debentures
shall also have the opportunity to increase their shareholdings by
converting their 8.0% Debentures into shares of New Common Stock at a
conversion rate of $1.00 per share assuming approval of the Capitalization
Amendment.
Conduct of the Company's Business After the Reverse Stock Split; Possible
Change in Legal Domicile of the Company; Possible Listing on the London
Stock Exchange
If the Reverse Stock Split is consummated, all persons holding fewer
than 2,000 shares at the effective time of the Reverse Stock Split will no
longer have any interest in, and will not be stockholders of the Company
and therefore will not participate in its future potential or earnings and
growth. Instead, each such holder of Common Stock will have the right to
receive $1.00 per share in cash without interest.
The Company intends, as a result of the Reverse Stock Split, to
terminate the registration of its Common Stock under the 1934 Act. The
Company will then be relieved of the obligation to comply with the proxy
rules of Regulation 14A under Section 14 of the 1934 Act, and its officers
and directors and stockholders owning more than 10% of the Common Stock
would be relieved of the reporting requirements and "short swing" trading
restrictions under Section 16 of the 1934 Act. Further, the Company will
no longer be subject to the periodic reporting requirements of the 1934 Act
and will cease filing information with the SEC. Among other things, the
effects of this change will be a savings to the Company in not having to
comply with the requirements of the 1934 Act.
In the event the Company terminates the registration of its Common
Stock under the 1934 Act prior to the repayment in full of the 10%
Debentures which remain outstanding in the principal amount of $795,000,
such will constitute an event of default under the terms thereof. Although
no assurance can be given, the Company does not, however, expect that such
an event will occur insofar that the Company anticipates repaying the
remaining balance upon either the current maturity date (December 31, 1998)
or the date the Company terminates the registration of its Common Stock
under the 1934 Act, whichever event first occurs.
If the Reverse Stock Split is effected, the officers and directors of
the Company will hold approximately 69.6% of the outstanding Common Stock.
Such individuals now own approximately 67.1%. The foregoing does not take
into account the exercise of any stock options which the present officers
and directors currently hold. In addition, the foregoing does not take
into account any shares which may be issued upon conversion of the 8.0%
Debentures of which a significant majority are owned by officers, directors
and their affiliates. See "Proposed Increase in the Company's Authorized
Shares of Common Stock" and "Principal Stockholders and Security Ownership
of Management".
As a result of the Reverse Stock Split Amendment, the number of
authorized shares of Common Stock will be reduced to 12,500 shares of
Common Stock, $0.30 par value per share, of which approximately 3,100
shares will be outstanding. With the exception of the number of authorized
shares, the terms of the Common Stock before and after the Reverse Stock
Split will remain the same. In addition, the number of authorized shares
of Preferred Stock will be reduced to 2,500 shares, none of which are
currently outstanding.
With regard to the conduct of the Company's business after the Reverse
Stock Split, the Company has had discussions and has considered changing
its legal domicile to outside of the United States. The Company is
currently organized and existing under the laws of the State of Delaware.
Of approximately 525 stockholders of record, approximately 493 stockholders
have addresses in the United States according to the records of the
Company's transfer agent and approximately 29 stockholders have addresses
outside of the United States and primarily in the United Kingdom. In
connection with the Reverse Stock Split in which approximately 490
stockholders will be eliminated, approximately 480 are stockholders in the
United States and approximately 10 are stockholders outside of the United
States. As a result, the Reverse Stock Split will have the effect of
reducing to a substantial extent the number of remaining stockholders in
the United States as well as reducing to a substantial extent the
percentage of U.S. stockholders as compared to non-U.S. stockholders. Such
changes which will occur in the Company's stockholder base with further
reduce the Company's presence in the United States which since 1989, as a
result of the changes which have occurred since then in the Company's
business and operations, has already been reduced. See "Special Factors -
Background of the Proposed Reverse Stock Split".
Due to the foregoing changes, the Board of Directors has discussed and
considered that following the Reverse Stock Split it may be in the best
interests of the Company and its remaining stockholders to change the
Company's legal domicile to outside of the United States. Although no
assurance can be given that the Company will attempt to effect or make this
change of legal domicile, such change may in fact be effected at some time
after the Reverse Stock Split. It is contemplated that in the event the
Company attempts to change its legal domicile to outside of the United
States, such change may be effected by forming a new wholly-owned
subsidiary outside of the United States and then merging the Company
(Lynton Group, Inc., a Delaware corporation) into the newly formed entity
which will be the successor to the Company. Alternatively, a new company
may be formed outside of the United States which may effect a stock
exchange with the then stockholders of the Company in proportion to their
stockholding in the Company with the result that the new company becomes
the successor to the Company, or the Board of Directors of the Company may
authorize another method in order to accomplish a change in the legal
domicile to outside of the United States.
In addition, the Company has had discussions and has contemplated that
following the Reverse Stock Split, it may seek to raise additional capital
in foreign markets and establish a trading market for its securities in
foreign markets. In this regard, the Company has had discussions with
investment banking firms in the United Kingdom and the Company may seek in
the future, following the Reverse Stock Split, to effect a public offering
of its securities in the United Kingdom and have its securities listed for
trading on the London Stock Exchange. See "Proposed Increase in the
Company's Authorized Shares of Common Stock". Also, see " - Opinion of
Collins Stewart" for information on the engagement of Collins Stewart to
provide advisory and broking services for a possible fundraising on the
London Stock Exchange. Notwithstanding the foregoing, there can be no
assurance that such a public offering in the United Kingdom and/or
effecting a listing of the Company's securities on the London Stock
Exchange, will be attempted, or if attempted, that such matters will be
successfully completed.
Other than as described herein, the Company expects its business and
operations to continue after the Reverse Stock Split as they are currently
being conducted. In addition, other than as described herein, neither the
Company nor its Management has any current plans or proposals to effect any
extraordinary corporate transaction, such as a merger, reorganization or
liquidation; to sell or transfer any material amount of its assets; to
change its Board of Directors or management; to materially change its
dividend policy or indebtedness or capitalization; or otherwise to effect
any material change in its corporate structure or business. However, the
Board will continue to evaluate such business and operations after the
Reverse Stock Split and make such changes as are deemed appropriate.
Federal Income Tax Consequences
THE FOLLOWING DISCUSSION SUMMARIZING CERTAIN FEDERAL INCOME TAX
CONSEQUENCES IS BASED ON CURRENT LAW AND IS INCLUDED FOR GENERAL
INFORMATION ONLY. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX EFFECTS OF THE REVERSE STOCK
SPLIT IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
The receipt of New Common Stock in exchange for Old Common Stock will
not result in the recognition of gain or loss to a stockholder, and the
adjusted tax basis of a stockholder in the New Common Stock will be the
same as the stockholder's adjusted tax basis in the Old Common Stock.
The receipt of cash by a stockholder pursuant to the Reverse Stock
Split, however, will be a taxable transaction for federal income tax
purposes. A stockholder owning fewer than 2,000 shares will receive only
cash in the transaction and generally will recognize gain or loss equal to
the difference between the cash received and the stockholder's adjusted tax
basis in the surrendered Common Stock. The gain or loss recognized
generally will be capital gain or loss if the Common Stock is held as a
capital asset. Generally, unless the stockholder is in the business of
buying and selling securities, the Common Stock will be deemed to be held
as a capital asset. Any such capital gain or loss will be long-term
capital gain or loss if the Common Stock has been held for more than one
year. If held for one year or less, any such capital gain will be a short-
term capital gain which will be taxed as ordinary income which will based
upon the stockholder's ordinary income tax bracket. Under current tax
laws, the maximum tax bracket is 39.6%. If held for more than one year,
capital gains are taxed at a 10% rate for a stockholder in the 15% ordinary
income tax bracket and at a 20% rate for a stockholder in any higher
ordinary income tax bracket. In general, a stockholder who realizes a
capital loss is entitled to offset his capital gains, if any, and deduct a
portion of the loss against his ordinary income.
Special taxation and withholding rules may apply to any stockholder
that is a nonresident alien or a foreign corporation. Those rules are
beyond the scope of this discussion and should be discussed with a personal
tax advisor. Stockholders will be required to provide their social
security or other taxpayer identification numbers (or, in some instances,
certain other information) to the Company's transfer agent in connection
with the Reverse Stock Split to avoid backup withholding requirements that
might otherwise apply. See "Special Factors - Exchange of Certificates and
Payment for Fractional Shares of New Common Stock". The letter of
transmittal will require each stockholder to deliver such information when
the Common Stock certificates are surrendered following the effective date
of the Reverse Stock Split Amendment. Failure to provide such information
may result in backup withholding.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY AND DOES NOT REFER TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY
SPECIFIC STOCKHOLDER. STOCKHOLDERS, PARTICULARLY THOSE WHO HAVE ACQUIRED
SHARES OF COMMON STOCK IN COMPENSATION RELATED TRANSACTIONS, ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS FOR MORE SPECIFIC AND DEFINITIVE ADVICE AS
TO THE FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE TRANSACTION, AS WELL
AS ADVICE AS TO THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
Appraisal Rights; Escheat Laws
No appraisal rights are available under the Delaware General
Corporation Law to stockholders who dissent from a reverse stock split
proposal. There may exist other rights or actions under state law for
stockholders who are aggrieved by reverse stock splits generally. Although
the nature and extent of such rights or actions are uncertain and may vary
depending upon facts or circumstances, stockholder challenges to corporate
action in general are related to the fiduciary responsibilities of
corporate officers and directors and to the fairness of corporate
transactions. For example, stockholders could, if they deemed such to be
applicable, take appropriate legal action against the Company and its Board
of Directors, and claim that the transaction was unfair to the
unaffiliated stockholders, and/or that there was no justifiable or
reasonable business purpose for the Reverse Stock Split.
Persons whose shares are eliminated and whose addresses are unknown to
the Company, or who do not return their stock certificates and request
payment therefor, generally will have a period of years from the date of
the Reverse Stock Split in which to claim the cash payment payable to them.
For example, with respect to stockholders whose last known addresses are in
New York, as shown by the records of the Company, the period is three
years. Following the expiration of that three-year period, the Abandoned
Property Law of New York would likely cause the cash payments to escheat to
the State of New York. For stockholders who reside in other states or
whose last known addresses, as shown by the records of the Company, are in
states other than New York, such states may have abandoned property laws
which call for such state to obtain either (i) custodial possession of
property that has been unclaimed until the owner reclaims it; or (ii)
escheat of such property to the state. Under the laws of such other
jurisdictions, the "holding period" or the time period which must elapse
before the property is deemed to be abandoned may be shorter or longer than
three years.
Exchange of Certificates and Payment for Fractional Shares of New Common
Stock
If the proposed Reverse Stock Split and Reverse Stock Split Amendment
is approved by the stockholders, the transfer agent for the Company's
Common Stock will request in writing that stockholders deliver to such
transfer agent their certificate or certificates for shares of the
Company's Old Common Stock. Upon receipt of such certificates, the
transfer agent will issue and forward to each stockholder a new certificate
or certificates (in denominations requested by each stockholder)
representing the appropriate number of shares of the Company's New Common
Stock. However, to the extent that the Reverse Stock Split results in a
stockholder holding less than a single full share of the Company's Common
Stock, then as described above the transfer agent will pay and forward to
each such stockholder an amount of cash for such fractional shares in an
amount equal to the appropriate fraction of $1.00 per whole share.
No service charges will be payable by stockholders in connection with
the exchange of certificates or the payment of cash in lieu of issuing
fractional shares, all expenses of which will be borne by the Company.
FINANCING OF THE REVERSE STOCK SPLIT
The Board estimates that the total cost to the Company of the Reverse
Stock Split for the payment of the fractional share interests in the
Reverse Stock Split and the estimated transactional fees and expenses of
$125,000 will be approximately $415,000. The Company intends to finance
this transaction primarily from current working capital.
PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of the date hereof, the number of
shares of Common Stock owned of record or beneficially, or both, and the
percentage of outstanding Common Stock owned before and after the effective
date of the Reverse Stock Split by each of the following: (i) each person
who owned of record, or is known by the Company to have beneficially owned,
individually, or with his associates, more than 5% of such shares then
outstanding; (ii) each Director of the Company and each executive officer
of the Company; and (iii) all Directors and executive officers as a group.
The following information does not include any shares which may be issued
upon conversion of the 8.0% Debentures described elsewhere herein. Except
as otherwise indicated below, each of the persons listed below has sole
voting and investment power with respect to his or her shares.
Percent Percent
of Class of Class
Amount and Before After
Nature of Reverse Reverse
of Beneficial Stock Stock
Name of Beneficial Owner Ownership Split Split
Consulta Special Funds Limited 2,148,788(1) 32.3% 33.4%
Paul R. Dupee, Jr. 1,348,485(2) 21.1% 21.9%
Task Holdings Limited 1,026,936(3) 16.1% 16.6%
Brae Group, Inc. 410,776(4) 6.4% 6.7%
Christopher Tennant 1,071,132(5) 14.8% 15.2%
James G. Niven 431,610(6) 6.7% 6.9%
Richard Hambro 342,056(7) 5.3% 5.5%
Nigel D. Pilkington 2,149,288(8) 32.3% 33.4%
Ian J. Borrowdale 78,547(9) 1.2% 1.3%
Louis Marx, Jr. 410,776(10) 6.4% 6.7%
David Harland 166,666(11) 2.5% 2.7%
All Executive Officers
and Directors as a Group 5,587,784(12) 72.7% 74.9%
(1) Includes 1,898,788 shares held by Consulta Special Funds Limited
("Consulta") and 250,000 shares which Consulta has the right to
acquire within 60 days pursuant to the exercise of stock options. The
address for Consulta is St. Julian's Avenue, Guernsey, Channel
Islands.
(2) The address for Paul R. Dupee, Jr. is 10 Wilton Row, London, England.
(3) The address for Task Holdings Limited is P.O. Box 16, Castletown, Isle
of Man.
(4) The address for Brae Group, Inc. is 1101 Richmond Avenue, Houston,
Texas.
(5) Includes 220,000 shares held by Christopher Tennant, 11,132 shares
held by Lynton International Limited, a company organized under the
laws of England ("Lynton International") and 840,000 shares which Mr.
Tennant has the right to acquire within 60 days pursuant to the
exercise of stock options. Mr. Tennant is the sole shareholder of
Lynton International and, by virtue of such ownership, Mr. Tennant may
be deemed the beneficial owner of the shares held by Lynton
International.
(6) Includes 423,276 shares held by Mr. Niven, 5,000 shares owned by a
foundation for which Mr. Niven serves as a trustee and a director and
3,334 shares which Mr. Niven has the right to acquire within 60 days
pursuant to the exercise of stock options. The address for Mr. Niven
is 1334 York Avenue, New York, New York.
(7) Includes 66,667 shares held by BMB-H Investment Company Limited, a
Jersey corporation ("BMB-H") which is 25% owned and controlled by J.O.
Hambro & Company Limited, a corporation organized under the laws of
England ("J.O. Hambro"). Richard Hambro is an Executive Director of
J.O. Hambro and, by virtue of such status, may be deemed to be a
controlling person of BMB-H and beneficial owner of the shares held by
BMB-H. Mr. Hambro disclaims beneficial ownership of the shares held
by BMB-H. Also, includes 205,388 shares held by J.O. Hambro Nominees
Limited, 66,667 shares held by J.O. Hambro Investment Management Ltd.
and 3,334 shares which Mr. Hambro has the right to acquire within 60
days pursuant to the exercise of stock options.
(8) Includes 500 shares held by the wife of Mr. Pilkington and 1,898,788
shares held by Consulta and 250,000 shares which Consulta has the
right to acquire within 60 days pursuant to the exercise of stock
options. Mr. Pilkington is a director of Consulta and may be deemed
to have beneficial ownership of such shares. Mr. Pilkington disclaims
beneficial ownership of the shares held by Consulta except to the
extent of his pecuniary interest therein. The address for Mr.
Pilkington is 20 St. James's Street, London, England.
(9) Includes 46,547 shares held by Mr. Borrowdale and 32,000 shares which
Mr. Borrowdale has the right to acquire within 60 days pursuant to the
exercise of stock options.
(10) Consists of 410,776 shares held by Brae Group, Inc. ("Brae"). Louis
Marx, Jr. owns the majority of the voting securities of Brae and may
therefore be deemed to beneficially own the shares held by Brae. The
address for Mr. Marx is 667 Madison Avenue, New York, New York.
(11) Consists of 166,666 shares which Mr. Harland has the right to acquire
within 60 days pursuant to the exercise of stock options. In
addition, Mr. Harland has options to acquire an additional 333,334
shares which are not exercisable within 60 days.
(12) Includes 1,295,334 shares which present officers and directors have
the right to acquire within 60 days pursuant to the exercise of stock
options.
MANAGEMENT OF THE COMPANY
Set forth below are the present directors and executive officers of
the Company. Note that there are no other persons who have been nominated
or chosen to become directors nor are there any other persons who have been
chosen to become executive officers. Directors are elected to serve until
the next annual meeting of stockholders and until their successors have
been elected and have qualified. Officers are appointed to serve until the
meeting of the Board of Directors following the next annual meeting of
stockholders and until their successors have been elected and qualified.
Present Position Has Served as
Name Age and Offices Director Since
Christopher Tennant 47 President, Chief 1985
Executive Officer
and Director
Paul R. Dupee, Jr. 55 Chairman of the Board 1996
and Director
David Harland 47 Vice President of 1998
Business Development,
Deputy Chief Executive
Officer and Director
Richard Hambro 52 Director 1989
James G. Niven 52 Director 1989
Nigel D. Pilkington 46 Director 1996
Ian J. Borrowdale 58 Vice President of --
of International
Operations and
Chief Operating
Officer
Paul A. Boyd 35 Principal Financial --
Officer, Secretary
Treasurer
CHRISTOPHER TENNANT has been a Director of the Company since November
1985 and became President and Chief Executive Officer in May 1989 upon the
Company's acquisition of Lynton Group Limited. From 1985 to 1988, Mr.
Tennant also was the Company's Treasurer and Chief Financial Officer. For
more than the last five years, Mr. Tennant has served as Managing Director
of Lynton Group Limited, the Company's wholly-owned subsidiary.
PAUL R. DUPEE, JR. has been a Director of the Company since April 1996
and was appointed Chairman of the Board in January 1998. From September
1983 to November 1996, Mr. Dupee was Vice-Chairman of the Board of
Directors and a Director of Celtics, Inc., the corporate general partner
of Boston Celtics Limited Partnership which owns and operates the Boston
Celtics professional basketball team of the National Basketball
Association. Mr. Dupee has served as a director of Maxicare Health Plans,
Inc. since 1998. Since 1986, Mr. Dupee has been a private investor.
DAVID HARLAND has been a Director of the Company since January 1998.
In addition, he has been Vice President of Business Development and Deputy
Chief Executive Officer since January 1998. From 1991 through 1997, Mr.
Harland was with Fairway Group PLC ("Fairway Group"), initially as managing
director of its subsidiary, GLS Fairway, and then its Chairman as well as
becoming director of finance and development of Fairway Group. He also
presently serves as a director of two UK publicly quoted companies,
Mayflower Corporation PLC and Wyefield Group PLC.
RICHARD HAMBRO has been a Director of the Company since May 1989. He
was Chairman of the Board from May 1989 to February 1994 and from January
1997 to January 1998, and Co-Chairman from February 1994 to January 1997.
Since 1988, Mr. Hambro has been an Executive Director of J.O. Hambro &
Company Limited, a London based investment banking firm. From 1978 to
1986, he was a Director of Hambros Bank in London. Mr. Hambro has also
served as a Director and Chairman of Lynton Group Limited since 1982. He
also presently serves as a director of various other closely held companies
and non-U.S. public companies.
JAMES G. NIVEN has been a Director of the Company since May 1989.
From February 1994 to January 1997, he was also Co-Chairman of the Board.
Since 1982, he has been a general partner of Pioneer Associates Company, a
venture capital investment company. He is currently a Senior Vice
President of Sotheby's. Mr. Niven is a director of Lincoln Snacks
Company, Tatham Offshore, Inc. and HealthPlan Services. He is also a member
of the Board of Managers of Memorial Sloan-Kettering Cancer Center, and a
trustee of the Museum of Modern Art and the National Center for Learning
Disabilities, Inc.
NIGEL D. PILKINGTON has been a Director of the Company since December
1996. Since 1991, Mr. Pilkington has been an executive director of
Consulta Limited, an investment management organization. Prior thereto and
from 1983 to 1991, he was with CS First Boston Group ("CSFB"), initially as
a manager of the equity division in London and then as managing director of
the European equity sales and trading of CSFB in London. Mr. Pilkington is
also a non-executive director of Blakeney Management Limited, Oryx Fund
Limited and Oryx (India) Fund Limited.
IAN J. BORROWDALE has been Vice President of International Operations
of the Company since January 1991 and Chief Operating Officer since May
1995. Mr. Borrowdale is a director of European Helicopters Limited and
was, from 1987 to 1988, its technical director and, from 1988 to 1990, its
Managing Director. Prior thereto and from 1981 to 1987, Mr. Borrowdale was
employed as the technical director of McAlpines Helicopters Limited, a
United Kingdom helicopter maintenance organization.
PAUL A. BOYD has been Principal Financial Officer, Secretary and
Treasurer of the Company since January 1997 having been Financial
Controller of Lynton Group Limited, the Company's wholly-owned subsidiary,
since March 1994. Prior thereto, and from 1989 to 1994, he was employed by
Dollar Air Services Limited as Chief Accountant.
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
The following tables summarize certain historical financial data which
have been derived from the audited financial statements of the Company for
each of the five fiscal years ended September 30, 1997 and the unaudited
financial statements for the nine months ended June 30, 1998 and 1997. For
additional information, see "Financial Statements of the Company" attached
hereto as Annex A.
<PAGE>
(000'S EXCEPT EARNINGS PER SHARE DATA AND RATIO OF EARNINGS TO FIXED CHARGES)
Fiscal year ended September 30:
1997 1996 1995 1994 1993
Revenue $25,585 $22,786 $27,221 $27,361 $21,121
Net income (loss)
before extraordinary
item 1,046 119 (2,320) (1,231) 119
Extraordinary item
- gain (loss) related
to early extinguishment
of debt 47 287 - (166) -
Net income (loss) 1,092 406 (2,320) (1,397) 119
BASIS EARNINGS PER SHARE:
Net income (loss)
per common share
before extraordinary item .16 .06 (1.30) (.72) (.01)
Extraordinary item .01 .15 - (.09) -
Net income (loss)
per common share (1) .17 .21 (1.30) (.81) (.01)
DILUTED EARNINGS PER SHARE:
Net income (loss) per common .16 .06 (.72) (.01)
share before .01 .15 (1.30) (.09) -
extraordinary item .17 .21 (.81) (.01)
Extraordinary item -
Net income (loss)
per common share (1.30)
Working capital (deficit) (1,051) (2,159) (2,748) (3,790) (2,210)
Total assets 26,223 24,373 23,912 31,725 25,178
Long term debt,
net of current portion 13,529 12,873 17,411 18,332 15,378
Book value per share (1) .71 .53 .10 1.40 2.22
Ratio of earnings
to fixed charges 1.11 .20 (1.31) (.84) .11
(1) Adjusted for the one-for-six reverse stock split effected in June 1994.
Nine months ended June 30:
1998 1997
Revenue $31,961 $18,512
Net income (loss) before
extraordinary item 632 730
Extraordinary item - gain (loss)
related to early - -
extinguishment of debt
Net income (loss) 632 730
PRIMARY EARNINGS PER SHARE:
Net income (loss) per common
share before extraordinary
item .10 .11
Extraordinary item - -
Net income (loss) per common
share .10 .11
Working capital (deficit) (635) (2,518)
Total assets 54,079 25,055
Long term debt, net of current
portion 22,860 13,861
Book value per share .81 .66
Ratio of earnings to fixed
charges .41 .94
On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 - Earnings per Share. As required by
Statement No. 128, all previously reported income (loss) per share data
have been restated to conform to the provisions of Statement No. 128.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 and 1995
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, 1997 (thousands of dollars):
Year ended September 30,
1997 1996 1995
Flight operations revenues
- historical operations $9,004 $7,894 $6,619
Gross margin $1,259 $931 $927
Gross margin % 14.0% 11.8% 14.0%
Flight operations revenues
- Dollar Air (1) $0 $0 $4,875
Gross margin $0 $0 $205
Gross margin % 0.0% 0.0% 4.2%
Maintenance operations revenues $5,990 $6,238 $5,290
Gross margin $999 $924 $848
Gross margin % 16.7% 14.8% 16.0%
Aircraft sales operations revenues $984 $834 $3,288
Gross margin $655 $466 $488
Gross margin % 66.6% 55.9% 14.8%
Fixed base operations revenues $9,607 $7,820 $6,702
Gross margin $3,443 $2,836 $2,678
Gross margin % 35.8% 36.3% 40.0%
Other net revenues $0 $0 $447
Consolidated revenues $25,585 $22,786 $27,221
Consolidated direct costs 19,229 17,629 21,628
Consolidated gross margin 6,356 5,157 5,593
Selling, general
& administrative expenses 3,016 2,432 3,473
Depreciation 689 662 933
Amortization of goodwill
& intangible assets 128 127 200
Writedown of goodwill - - 1,338
Operating income (loss) 2,523 1,936 (351)
Amortization of debt
discount & issuance costs 77 139 139
Interest expense 1,162 1,336 1,772
Equity in loss of
jointly-owned company - - 58
Write-off of amount due
from affiliate - 191 -
Income (loss) before tax provision
and extraordinary item 1,284 270 (2,320)
Income tax provision 238 151 -
Income (loss) before
extraordinary item 1,046 119 (2,320)
Extraordinary item - Gain
(loss) related to early
extinguishment of debt 46 287 -
Net income (loss) $1,092 $406 $(2,320)
(1) See Note 3 to the Consolidated Financial Statements.
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 U.S. dollars at the average
rate of exchange during the respective periods. The average value of
sterling increased by approximately 6% in fiscal 1997 compared to fiscal
1996 and 2% in fiscal 1996 compared to fiscal 1995. 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 U.S. dollars
and the resulting consolidated results of operations for the Company.
1997 Compared to 1996
Revenues for fiscal 1997 increased to $25,585,000 as compared to
revenues in fiscal 1996 of $22,786,000, an increase of $2,799,000 or 12.3%.
This increase consists primarily from increased revenues from the Company's
fixed base operations of $1,787,000 and UK flight operations of $851,000
(see discussion of each operational area below).
The Company reported operating income for fiscal 1997 of $2,523,000 as
compared to $1,936,000 in fiscal 1996, an increase of $587,000. This
change resulted primarily from increased operating income from the
Company's fixed base operations and UK flight operations.
Interest expense for fiscal 1997 decreased to $1,162,000 as compared
to $1,336,000 for fiscal 1996, a decrease of $174,000 or 13.0%. This
decrease primarily represents interest paid on the reduced average level of
outstanding borrowings.
In fiscal 1997, the Company repurchased a portion of its 10% Senior
Subordinated Convertible Debentures due December 31, 1998 (the
"Debentures") in the principal amount of $100,000 for cash payments
totaling $50,000. The Company realized a gain on redemption of $47,000, net
of related debt issuance costs, on these repurchases. 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 $ 1,092,000 for fiscal 1997 as compared
to $406,000 for fiscal 1996, an increase in profit of $686,000. The
primary causes for this increase were increased operating income from the
Company's fixed base operations and UK flight operations and reduced
interest costs on the reduced average level of outstanding borrowings
offset by a reduction in gains realized by the Company on the redemption of
a portion of its Debentures, net of related debt issuance costs.
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.
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 year 1995 have been reclassified to reflect their exclusion (see
following table).
1996 1995
Revenues excluded $3,985,000 $6,417,000
Direct costs excluded 3,801,000 6,067,000
Selling, general and administrative 184,000 350,000
costs excluded
Net income effect $0 $0
Revenues from flight operations overall increased by $1,110,000 or
14.1% for fiscal 1997 as compared to fiscal 1996. 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. In fiscal 1996, the Company decided to
dispose of its interest in PDG. Accordingly, the asset was 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 was no
longer recognized under the equity method of accounting. The Company's
equity in the loss of jointly-owned company was immaterial in fiscal 1996.
In October 1997, the Company sold its 50% share of the capital stock in PDG
to the remaining 50% shareholders of PDG.
Maintenance Operations
Revenues from maintenance operations decreased by $248,000 or 4.0% in
fiscal 1997 as compared to fiscal 1996, primarily due to a decreased volume
of maintenance sales related to customer aircraft in the UK. Gross margin
percentage from these operations declined in fiscal 1997 as compared to
fiscal 1996 due to increased market competitiveness in the helicopter
maintenance area. Revenues from maintenance operations are affected by
both the number of hours flown per aircraft and changes made by either the
FAA or CAA to component parts lives and inspection intervals.
Additionally, revenues are dependent upon the levels of installation
projects completed during the year.
Aircraft Sales Operations
Revenues from aircraft sales operations increased by $150,000 in
fiscal 1997 as compared to fiscal 1996. 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.
Fixed Base Operations
Revenues from fixed base operations increased by $1,787,000 or 22.8%
in fiscal 1997 as compared to fiscal 1996. 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.
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.
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
both the number of hours flown per aircraft and changes made by either the
FAA or CAA to component parts lives and inspection intervals.
Additionally, revenues are dependent upon the levels of installation
projects completed during the year.
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.
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.
Liquidity and Capital Resources
At September 30, 1997, the Company had a working capital deficit of
$1,051,000 and stockholders' equity of $4,524,000. The Company had net
cash provided by operating activities of $969,000 in fiscal 1997 compared
to $1,761,000 in fiscal 1996. The Company had an overall decrease in cash
and cash equivalents of $542,000 in fiscal 1997 compared to an increase of
$1,131,000 in fiscal 1996. This decrease in cash flow from operating
activities is primarily due to the effect of the increase in accounts
receivable and the decrease in accounts payable and deferred revenues,
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)
canceled 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, 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
discussion below under this heading).
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. At September 30, 1997 and subsequent thereto, the Company
was in default of a covenant of the Finova Loan. On January 13, 1998,
Finova waived this default.
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 1997, the Company repurchased a portion of
its Debentures due December 31, 1998 in the principal amount of $100,000
for cash payments totaling $50,000. The Company realized a gain on
redemption of $47,000, net of related debt issuance costs, on these
repurchases. 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 were applied
against the sinking fund obligations for December 31, 1996, 1997 and 1998.
At December 31, 1997, the Company has satisfied its sinking fund
requirement (see Note 4 to the Company's consolidated financial
statements).
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. The Company was in compliance with this net worth
requirement for the second, third and fourth quarters 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.
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 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. In April 1997, the Company purchased a new helicopter
for $1,870,000, for the sole purpose of selling in a joint ownership
program the Company introduced in January 1997. Due to a longer time than
was anticipated, by the Company, to sell the helicopter under a joint
ownership program, the Company has recently decided to sell the aircraft to
a single purchaser. Although no assurances can be given, the Company
intends to dispose of this aircraft as soon as practicable, the proceeds of
which must be used to repay the debt to G.E. Capital Corporation, who
financed the purchase of the aircraft. The Company estimates that it will
not sustain a loss upon such disposition.
The Company anticipates no material capital expenditures will be
required in fiscal 1998. However, there can be no assurance that the
Company will not incur substantial costs related to the year 2000
compliance issue, as discussed below under "Other Matters".
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 ("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").
The Company has unused U.S. Federal net operating loss carryforwards
at September 30, 1997 of approximately $1,260,000, 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, to a specified
maximum percentage (approximately 5.8%) of the fair market value of the
Company at the time of the ownership change. For purposes of this
limitation, management has estimated that the value of the Company was in
excess of $3,800,000 at the time of the ownership change.
Inflation has not significantly impacted the Company's operations.
Accounting Pronouncements Not Yet Adopted
Disclosure of Information about Capital Structure
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure", which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 129 will not change the
disclosure of the capital structure of the Company.
Reporting Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which is effective for fiscal years beginning after December 15,
1997. The Statement addresses the reporting and displaying of
comprehensive income and its components. The adoption of SFAS No. 130
relates to disclosure within the financial statements and is not expected
to have a material effect on the Company's financial statements.
Disclosures about Segments of an Enterprise and Related Information
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which is effective for
fiscal years beginning after December 15, 1997. The Statement changes the
way public companies report information about segments of their business in
their annual financial statements and requires them to report selected
segment information in their quarterly reports. Adoption of SFAS No. 131
is not expected to have a material effect on the Company's financial
statements.
Other Matters
The Company is in the process of identifying operating and application
software problems related to the year 2000. While the Company expects to
resolve year 2000 compliance issues substantially through normal
replacement and upgrades of software, there can be no assurance that there
will not be interruption of operations or other limitations of system
functionality or that the Company will not incur substantial costs to avoid
such limitations. Any failure to effectively monitor, implement or improve
the Company's operational, financial, management and technical support
systems could have a material adverse effect on the Company's business and
consolidated results of operations.
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
Introduction
Pursuant to a Share Sale and Purchase Agreement dated December 5, 1997
among Lynton Group, Inc. (the "Company"), Lynton Group Limited, a company
organized under the laws of England and a wholly-owned subsidiary of the
Company ("Limited"), and The General Electric Company p.l.c., the owner of
all the shares of capital stock of Magec Aviation Limited, a company
organized under the laws of England ("Magec"), the Company through Limited
acquired on December 23, 1997 all of the issued and outstanding shares of
capital stock of Magec. The purchase price for Magec was 17,000,000 Pounds
Sterling paid in cash (see Liquidity and Capital Resources for details of
financing) and has been accounted for as a purchase. Magec operates from
hangars, workshops and office facilities of approximately 65,000 square
feet at London Luton Airport, England. Magec provides a full range of
services for users of corporate aircraft including refueling and handling,
charter, engineering, management and maintenance services for corporate
aircraft. The acquisition has more than doubled the total asset base of
the Company since September 30, 1997. The purpose of the acquisition is to
enhance the long-term earnings ability of the Company by enlarging the
asset base of the UK operations. The acquisition has resulted in the
expansion of the Company's fixed wing aviation capability as well as
providing a complimentary facility to its fixed base operation at
Morristown Municipal Airport, New Jersey.
On February 27, 1998 the Company, through Lynton Jet Centre, Inc.
("Lynton Jet"), a wholly-owned subsidiary of the Company, acquired for
$1,864,000 in cash (including acquisition costs) substantially all the
assets of Jet Systems, including its ground lease on a hangar facility,
located at Morristown Municipal Airport, Morristown, New Jersey (the "Jet
System Acquisition"), pursuant to an Asset Purchase Agreement between 41
North 73 West Inc. d/b/a Jet Systems and Lynton Jet. The purchase will
enable Lynton Jet to provide additional FBO facilities for corporate
aircraft users of Morristown Municipal Airport.
Results of Operations
Revenues and Operating Income
Revenues for the three and nine months ended June 30, 1998 increased
to $14,344,000 and $31,961,000 from revenues of $6,428,000 and $18,512,000
for the comparable fiscal 1997 periods, an increase of $7,916,000 and
$13,449,000 or 123% and 73% respectively. This increase is primarily
attributable to the inclusion from January 1, 1998 of the revenues for
Magec of $10,715,000 along with increase in fuel sales volume and tenant
occupancy at the Company's US fixed base operation, offset by reduced
revenues in the UK maintenance operations.
Operating income for the three and nine months ended June 30, 1998
increased to $1,307,000 and $2,455,000 compared to operating income of
$655,000 and $1,655,000 for the comparable fiscal 1997 periods, an increase
of $652,000 and $800,000. This increase is primarily attributable to the
inclusion from January 1, 1998 of the operating income for Magec of
$685,000 along with increased operating income from the fixed base
operation in the US and charter operations in the UK, partly offset by
reduced operating income from UK maintenance operations and the increase in
depreciation and amortization expense.
Management believes the level of activity between the date of
acquisition of Magec and December 31, 1997 is not material and therefore
has consolidated the results of operations for Magec with effect from
January 1, 1998. The annualized effect of the consolidation of Magec will
be to increase revenues by approximately $20,000,000 per annum and increase
operating income by approximately $1,300,000 compared to historical
revenues of $25,000,000 and operating income $2,500,000.
Interest
Interest expense for the three and nine months ended June 30, 1998
increased to $645,000 and $1,683,000 compared to interest expense of
$308,000 and $824,000 for the comparable fiscal 1997 periods, an increase
of $337,000 and $859,000 respectively. This increase results from higher
levels of borrowings specifically relating to the acquisitions of Magec and
Jet Systems.
As a direct result of the debt finance (see Liquidity and Capital
Resources) raised to purchase Magec, the Company's interest expense will
increase by approximately $1,500,000 per annum.
Net Income
Net income for the three months ended June 30, 1998 was $603,000
compared to a net income of $283,000 for the comparable fiscal 1997 period,
an increase of $320,000. Net income for the nine months ended June 30,
1998 was $632,000 compared to $730,000 for the comparable fiscal 1997
period, a decrease of $98,000. This net decrease is primarily the result
of the increased amortization and interest expense as discussed above.
The proforma effect on per share earnings for the nine months ended
June 30, 1998 would have been to reduce the basic net income per share from
$0.10 to a basic net income per share of $0.00 and to reduce the diluted
income per share from $0.08 to a diluted net income per share of $0.00.
Liquidity and Capital Resources
In October 1997, the Company sold its 50% share of the capital stock
in PDG to the remaining 50% shareholders of PDG for approximately
$1,307,000. Under the purchase agreement, the aggregate purchase price is
payable in two payments, the first of which was received in November 1997.
The final payment was due on July 31, 1998 and the investment held for
resale has been included in accounts receivable. Such final payment was
made in August 1998. The Company, per the terms of the purchase agreement,
charged interest at the Sterling LIBOR rate (7.50% at June 30, 1998)
plus 5.0% through the date of the final payment.
At June 30, 1998, the Company had a working capital deficit of
$634,000 as compared to a working capital deficit of $1,051,000 at
September 30, 1997, an increase in working capital of $417,000. This
increase in working capital is primarily attributable to an increase in
aircraft held for resale and other current assets, offset by an increase in
the current portion of long term debt principally relating to the
acquisition of Magec.
In connection with the acquisition of Magec, the consideration paid
was 17,000,000 Pounds Sterling (equal to $28,288,000) paid in cash. The
funds used to purchase Magec (including acquisition costs) included bank
financing in the principal amount of 12,827,000 Pounds Sterling (equal to
$21,344,000) with the balance of purchase price from debt financing as
follows: (i) promissory notes (the "December 1999 Notes") in the aggregate
principal amount of $1,664,000 due on December 23, 1999, with interest at
12.0% per annum, issued and sold to entities which may be deemed affiliates
of Paul R. Dupee Jr., Chairman of the Board and a director of the Company;
(ii) a non interest bearing loan in the principal amount of $1,353,000 due
on December 23, 1998, pursuant to an Option Agreement entered into between
Magec and an unrelated party to acquire a certain aircraft owned by Magec,
and (iii) 8.0% Subordinated Convertible Debentures due December 31, 2007 in
the aggregate principal amount of $5,816,000 (the "Debentures") issued and
sold to certain directors and principal stockholders of the Company, and/or
their affiliates, as well as other third parties. The Debentures will be
convertible into shares of the Company's Common Stock at the option of the
holder at any time prior to maturity at an initial conversion price of
$1.00 per share (the "Conversion Price") once the Certificate of
Incorporation is modified to increase the number of authorized shares of
Common Stock. The Conversion Price will be subject to adjustment upon the
occurrence of certain events, which include, among other things, the
issuance of Common Stock or the issuance of securities convertible into or
exchangeable for shares of Common Stock (with certain exceptions as set
forth in the Debentures) at less than the then current market price of the
Common Stock, in which event the Conversion Price will be reduced (i)
proportionately by the difference between the then current market price and
the offering price if such offering price is greater than the then
Conversion Price or (ii) to equal the offering price if such offering price
is less than the then Conversion Price. In addition, the Company may from
time to time reduce the Conversion Price by any amount for any period of
time if the period is at least 20 days and if the reduction is irrevocable
during the period, provided that in no event may the Conversion Price be
less than the par value of a share of Common Stock. The Debentures bear
interest at the rate of 8.0% per annum, payable semi-annually in arrears on
the first day of June and December of each year with the first such payment
due on June 1, 1998, provided, however, that in lieu of paying such
interest in cash, the Company may, at its option, pay interest for any
interest payment date occurring before December 23, 1999 by adding the
amount of such interest to the outstanding principal amount due thereunder
(the "PIK Interest"). In such event, any such PIK Interest when so added
shall be deemed part of the principal indebtedness for purposes of
determining amounts which may be convertible into shares of Common Stock.
The Company has exercised this option with respect to the interest payments
due June 1, 1998 so such PIK Interest resulting therefrom has been added
and is now deemed part of the principal indebtedness for purposes of
determining amounts which may be convertible into shares of Common Stock.
During the quarter ended June 30, 1998, the December 1999 Notes (in
the principal amount of $1,664,000) were repaid in full as a result of the
sale of a certain aircraft by Magec for the purchase price of $7,250,000.
In connection therewith, certain other bank indebtedness in the amount of
$4,998,000 was repaid, and Westbury Properties Corp. (which may be deemed
an affiliate of the company's Chairman of the Board) which entity held an
option to acquire said aircraft for the price of $6,664,000 surrendered its
option over said aircraft in return for a sum equal to the difference
between the purchase price ($7,250,000) and the option price ($6,664,000).
During the quarter ended June 30, 1998 the terms of the Option
Agreement between Magec and an unrelated party were amended to allow for a
further initial advance of $1,500,000 to be followed by further advances on
certain payment dates in accordance with the payment schedule included in
the Option Agreement. The further advances will be utilized to repay
certain bank borrowings of Lynton Group limited. The first further advance
under the Option Agreement of $1,500,000 was received by Magec in
accordance with the revised terms of the Option Agreement and was
immediately utilized to repay certain bank borrowings of Lynton Group
Limited.
The Company is currently seeking certain debt financing and
anticipates seeking additional equity and/or debt financing during the next
twelve months although no assurance can be given that any such financing
will be successfully completed. In connection therewith, the Company may
effect such financing which may require an adjustment in the Conversion
Price of the Debentures described above (as well as requiring an adjustment
in other outstanding convertible debentures of the Company) or the Company
may voluntarily decide to reduce the Conversion Price of any such
instruments in order to encourage their conversion.
The Finova loans require compliance with certain covenants, financial
and otherwise, as defined in the loan agreements, including maintaining a
minimum consolidated net worth; a minimum earnings, before interest taxes,
depreciation and amortization coverage ratio; and a total liabilities to
consolidated net worth coverage ratio, by both Lynton Jet, as borrower, and
Lynton Group, Inc. as guarantor. At March 31, 1998 Lynton Group, Inc. was
in technical default of its total liabilities to consolidated net worth
coverage ratio. This default was cured, within the period allowed to
remedy default under article 7.1.2 of the loan agreement, as two of the
aircraft held in stock at March 31, 1998 were sold by April 8, 1998 and the
outstanding associated liabilities repaid in full.
MARKET FOR THE COMMON STOCK; DIVIDENDS
The Company's Common Stock is traded in the over-the-counter market
and is quoted in the "pink sheets" promulgated by the National Quotation
Bureau, Inc. and is qualified for listing on the OTC Bulletin Board under
the symbol "LYNG". Until October 20, 1995, the Company's Common Stock was
listed on the Nasdaq Small-Cap Market. Trading in the Company's stock has
been sporadic and relatively inactive since October 20, 1995.
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.
Bid Prices
Period High Low
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
Fiscal year ended September 30, 1997:
Oct. 1, 1996 to Dec. 31, 1996 1/8 1/8
Jan. 1, 1997 to March 31, 1997 1/8 1/8
April l, 1997 to June 30, 1997 1/8 1/8
July 1, 1997 to Sept. 30, 1997 7/8 1/8
Fiscal year ending September 30, 1998:
Oct. 1, 1997 to Dec. 31, 1997 1-3/4 3/4
Jan. 1, 1998 to March 31, 1998 1/2 1/2
April l, 1998 to June 30, 1998 No prices available
July 1, 1998 to September 30, 1998 9/16 1/2
The Company has never declared any cash dividends on its Common Stock
and does not anticipate declaring cash dividends in the foreseeable future.
STOCKHOLDER PROPOSALS
A stockholder proposal which is intended to be presented at an annual
meeting of stockholders must be received by the Company at its principal
executive offices, whose mailing address is 9 Airport Road, Morristown
Municipal Airport, Morristown, New Jersey 07960, a reasonable time before a
proxy solicitation is made by the Company.
EXPENSES
The following is an estimate of the costs and expenses incurred or
expected to be incurred by the Company in connection with the Reverse Stock
Split. Amount show below exclude the cost of paying for fractional shares
after the Reverse Stock Split is effected.
Legal fees and expenses $ 35,000
Transfer and exchange agent fees 5,000
Accounting fees and expenses 10,000
Printing and mailing costs 5,000
Fee to Collins Stewart 65,000
Miscellaneous 5,000
Total $125,000
INCORPORATION BY REFERENCE
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Information Statement shall be deemed to
be modified or superseded for purposes of this Information Statement to the
extent that a statement contained in this Information Statement or in any
other subsequently filed document that also is or is deemed to be
incorporated by reference in this Information Statement modifies or
supersedes such statement. Any statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Information Statement.
This Information Statement incorporates documents by reference that
are not presented in or delivered with this Information Statement. Copies
of these documents are available without charge upon request from the
Company.
The following documents are hereby incorporated by reference into this
Information Statement:
The Company's Annual Report, pursuant to Section 13 or 15(d) of the
1934 Act, filed on Form 10-K for the fiscal year ended September 30, 1997,
as amended;
The Company's Quarterly Report, pursuant to Section 13 or 15(d) of the
1934 Act, filed on Form 10-Q for the periods ended December 31, 1997, March
31, 19998 and June 30, 1998 as amended;
The Company's Current Report on Form 8-K dated September 3, 1998;
All other reports filed pursuant to Section 13 or 15(d) since the end
of the fiscal year ended September 30, 1997.
ADDITIONAL INFORMATION
The Company is presently subject to the informational requirements of
the 1934 Act and in accordance therewith files reports and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices at 7 World Trade Center,
13{th} floor, New York, New York 10048; and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Branch of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains
a Web site that contains reports, proxy and information statements and
other information regarding the Company; the address of such site is
http://www.sec.gov.
By Order of The Board of Directors
Paul A. Boyd,
Secretary
Dated: ___________ , 1998
<PAGE>
ANNEX A
FINANCIAL STATEMENTS OF
LYNTON GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1997
CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1998
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
Lynton Group, Inc.
We have audited the accompanying consolidated balance sheets of
Lynton Group, Inc. and subsidiaries as of September 30, 1997
and 1996 and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Lynton Group, Inc. and subsidiaries at
September 30, 1997 and 1996, and the consolidated results of
their operations and their consolidated cash flows for the years then
ended, in conformity with generally accepted accounting
principles.
/s/ Grant Thornton LLP
New York, New York
January 13, 1998
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Lynton Group, Inc.
We have audited the accompanying consolidated statements of
operations, changes in stockholders' equity and cash flows of
Lynton Group, Inc. and subsidiaries for the year 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 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 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 results
of operations and cash flows of Lynton Group, Inc. and subsidiaries
for the year ended September 30, 1995, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
December 21, 1995, except for the tenth and the
twenty-second paragraphs of Note 4, as to which
the dates are January 5, 1996 and January 23,
1996, respectively
F-2
<PAGE>
Lynton Group, Inc and Subsidiaries
Consolidated Balance Sheets
September 30
1997 1996
ASSETS (NOTES 4 AND 5)
Current assets:
Cash and cash equivalents (NOTE 1) $726,645 $1,268,475
Accounts receivable (net of allowance for
doubtful accounts of $22,000 in 1997 and
$21,000 in 1996) (NOTE 1) 3,268,879 2,336,549
Investment in jointly-owned company held
for resale (NOTE 3) 1,222,620 -
Inventories (NOTE 1) 803,677 822,339
Prepaids, principally insurance, and
other current assets 214,124 396,605
Total current assets 6,235,945 4,823,968
Property, plant and equipment (NOTE 1):
Aircraft 1,414,673 1,286,139
Buildings 14,133,096 14,068,240
Furniture and equipment 1,352,370 1,205,295
Motor vehicles 379,660 344,946
Leasehold improvements 766,136 481,799
18,045,935 17,386,419
Less accumulated depreciation
and amortization 4,652,703 3,977,517
13,393,232 13,408,902
Funds held in escrow (NOTE 4) 150,000 150,000
Aircraft held for resale (NOTE 4) 1,870,233 -
Investment in jointly-owned company
held for resale (NOTE 3) - 1,182,376
Long-term ground lease, less accumulated
amortization of$416,000 in 1997 and
$357,000 in 1996 (NOTE 1) 1,933,861 1,992,606
Goodwill, less accumulated amortization of
$530,000 in 1997 and $461,000 in 1996
(NOTE 1) 2,155,007 2,213,635
Other assets and deferred charges, less
accumulated amortization of $221,000
in 1997 and $153,000 in 1996 (NOTE 1) 484,970 601,690
$26,223,248 $24,373,177
THE ACCOMPANYING NOTES ARE AN INTEGAL PART OF THESE CONSOLIDATED
FINANCIAL
STATEMENTS.
F-3
<PAGE>
Lynton Group, Inc and Subsidiaries
Consolidated Balance Sheets
September 30
1997 1996
Liabilities and stockholders' equity (NOTE 5)
Current liabilities:
Current portion of capital lease
obligations (NOTE 6) $38,480 $34,225
Current portion of long-term debt (NOTE 4) 1,285,364 986,506
Accounts payable 2,717,602 3,206,504
Accrued expenses (NOTE 11) 1,215,747 888,972
Accrued income taxes (NOTES 1, 4 AND 7) 268,159 154,000
Advances from customers 245,102 150,051
Deferred revenue (NOTES 1 AND 9) 1,516,848 1,563,166
Total current liabilities 7,287,302 6,983,424
Obligations under capital leases, less
current portion (NOTE 6) 69,071 34,580
Deferred revenue, less current portion
(NOTES 1 AND 9) 720,000 960,000
Long-term debt, less current portion
(NOTES 1 AND 4) 13,459,832 12,838,491
Deferred income taxes (NOTES 1, 4 AND 7) 163,183 157,812
Commitments and contingencies
(NOTES 1 THROUGH 9, 12, 13 AND 14)
Stockholders' equity (NOTES 2, 8 AND 9):
Common Stock, par value $.30 a share:
authorized 10,000,000 shares; issued
6,394,872 shares in 1997 and 1996 1,918,462 1,918,462
Additional paid-in capital 9,779,823 9,779,823
Accumulated deficit (7,141,115) (8,233,475)
Translation adjustment (NOTE 1) (21,962) (54,592)
4,535,208 3,410,218
Common stock held in Treasury at cost;
850,454 shares in 1997 and 1996 (11,348) (11,348)
Total stockholders' equity 4,523,860 3,398,870
$26,223,248 $24,373,177
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-4
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Operations
Year ended September 30
1997 1996 1995
Net revenue (NOTES 1 AND 5):
Flight operations $9,004,333 $7,894,484 $11,494,202
Maintenance operations 5,990,233 6,237,913 5,290,253
Aircraft sales operations 983,723 833,781 3,287,761
Fixed base operations 9,606,813 7,820,148 6,702,505
Other - - 446,751
25,585,102 22,786,326 27,221,472
Expenses:
Direct costs of operations:
Flight operations 7,745,471 6,963,692 10,361,889
Maintenance operations 4,990,984 5,313,666 4,441,887
Aircraft sales operations 329,038 367,819 2,800,526
Fixed base operations 6,163,540 4,984,026 4,023,434
19,229,033 17,629,203 21,627,736
Selling, general and
administrative 3,016,468 2,432,063 3,473,641
Depreciation 689,170 661,572 932,603
Amortization of ground lease
and goodwill 127,646 126,960 200,280
Writedown of goodwill (NOTE 1) - - 1,338,302
Operating income (loss) 2,522,785 1,936,528 (351,090)
Amortization of debt discount
and issuance costs 77,347 139,475 139,450
Interest expense 1,161,549 1,336,137 1,772,028
Write-off of amount due from
affiliate (NOTE 9) - 191,308 -
Equity in loss of jointly-owned
company (NOTE 3) - - 57,585
Income (loss) before income tax
provision and extraordinary
item (NOTE 5) 1,283,889 269,608 (2,320,153)
Income tax provision
(NOTES 1, 4 AND 7) 238,393 151,206 -
Income (loss) before
extraordinary item 1,045,496 118,402 (2,320,153)
Extraordinary item-gain related
to early extinguishment of
debt (NOTE 4) 46,864 287,408 -
Net income (loss) 1,092,360 405,810 (2,320,153)
Dividends on Preferred Stocks
(NOTE 2) - - (214,424)
Net income (loss) attributable
to Common Stock $1,092,360 $405,810 $(2,534,577)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-5
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Operations
Year ended September 30
1997 1996 1995
Average number of common shares
outstanding (NOTE 2) 6,394,872 1,961,760 1,957,177
Primary earnings per share (NOTE 1)
Income (loss) per common share
before extraordinary item $.16 $.06 $(1.30)
Extraordinary item (NOTE 4) .01 .15 -
Net income (loss) per common share $.17 $.21 $(1.30)
Fully diluted earnings per
share (NOTE 1)
Income (loss) per common share
before extraordinary item $.16 $.09 $(1.30)
Extraordinary item (NOTE 4) .01 .13 -
Net income (loss) per common share $.17 $.22 $(1.30)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-6
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Series C
Convertible Series D
Preferred Stock Preferred Stock Common Stock Treasury stock
Shares Amount Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
9/30/94 1,000 $10 2,000 $20 1,957,177 $587,153 2,000
$(10,500)
Net loss for year ended 9/30/95
Dividends on Preferred Stocks (NOTE 2)
Translation adjustment at 9/30/95
Balance at ----- --- ----- --- --------- -------- -----
- ---------
9/30/95 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 (NOTE 3) 5,000 1,500
Net income for year ended 9/30/96
Underaccrual of prior years dividends
Issuance of shares of Common Stock in exchange for Series C Preferred Stock
(NOTE 4) (1,000) (10) 2,053,876 616,163
Surrender of Series D Preferred Stock (NOTE 4)
(2,000) (20)
Issuance of shares of Common Stock related to redemption of convertible
debentures (NOTE 4) 3,227,273 968,182
Surrender of shares of Common Stock to company (NOTE 4)
(848,454) (254,536) 848,454
(848)
Discharge of debt due HM Industries, net of related taxes and costs (NOTE 4)
Translation adjustment at 9/30/96
Balance at ----- --- ----- --- --------- ---------- -------
- --------
9/30/96 0 $0 0 $0 6,394,872 $1,918,462 850,454
$(11,348)
Net income for year ended 9/30/97
Translation adjustment at 9/30/97
Balance at ----- --- ----- --- --------- ---------- -------
- ---------
9/30/97 0 $0 0 $0 6,394,872 $1,918,462 850,454
$(11,348)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-7
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity (Continued)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Additional Total
Paid-In Accumulated Translation Stockholders'
Capital Deficit Adjustment Equity
<S> <C> <C> <C> <C>
Balance at
9/30/94 $8,321,055 $(6,089,708) $(83,957) $2,724,073
Net loss for year ended 9/30/95 (2,320,153) (2,320,153)
Dividends on Preferred Stocks (NOTE 2) (214,424) (214,424)
Translation adjustment at 9/30/95 3,248 3,248
Balance at ---------- ------------ --------- --------
9/30/95 $8,321,055 $(8,624,285) $(80,709) $192,744
Issuance of shares of Common Stock related to acquisition of Dollar Air
Services
Limited (NOTE 3) 3,500 5,000
Net income for year ended 9/30/96 405,810 405,810
Underaccrual of prior years dividends (15,000) (15,000)
Issuance of shares of Common Stock in exchange for Series C Preferred Stock
(NOTE 4) (616,153) -
Surrender of Series D Preferred Stock (NOTE 4)
20 -
Issuance of shares of Common Stock related to redemption of convertible
debentures (NOTE 4) 100,045 1,068,227
Surrender of shares of Common Stock to company (NOTE 4)
255,384 -
Discharge of debt due HM Industries, net of related taxes and costs (NOTE 4)
1,715,972 1,715,972
Translation adjustment at 9/30/96 26,117 26,117
Balance at ---------- ------------ --------- ----------
9/30/96 $9,779,823 $(8,233,475) $(54,592) $3,398,870
Net income for year ended 9/30/97 1,092,360 1,092,360
Translation adjustment at 9/30/97 32,630 32,630
Balance at ---------- ------------ --------- ----------
9/30/97 $9,779,823 $(7,141,115) $(21,962) $4,523,860
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-8
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (NOTE 10)
<TABLE>
<CAPTION>
Year ended September 30
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $1,092,360 $405,810 $(2,320,153)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 894,163 928,007 1,272,333
Equity in loss of jointly-owned
company - - 57,585
Provision for deferred taxes - 151,206 -
Write-off of
amount due from affiliate - 191,308 -
Gain on early extinguishment
of debt (46,864) (287,408) -
Writedown of goodwill - - 1,338,302
Changes in certain assets
and liabilities, excluding
effect from acquisitions
and divestitures:
Accounts receivable (909,177) (405,409) 20,510
Due (to) from affiliates (23,153) 44,775 229,530
Inventories 18,622 182,479 346,418
Aircraft held for resale - - 1,605,635
Prepaids and other current assets 182,481 116,960 (33,799)
Accounts payable and accrued expenses (47,968) 114,342 (923,672)
Advances from customers and deferred
revenue (191,087) 319,084 285,793
Net cash provided by operating
activities 969,377 1,761,154 1,878,482
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (652,160) (273,263) (425,357)
Disposal of fixed assets 40,376 52,472 1,017,114
Net cash (used in) provided by
investing activities (611,784) (220,791) 591,757
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends on preferred stocks - - (214,424)
Redemption of senior convertible
debt (50,000) (162,000) -
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
Repayment of long-term debt (900,034) (610,868) (2,607,396)
Proceeds from notes payable 84,000 34,700 -
Repayment of note payable -
affiliate - - (68,081)
Reduction of capital lease
obligations (47,226) (28,592) (86,705)
Net cash used in financing
activities (913,260) (416,760) (2,476,606)
Effect of exchange rate changes
on cash flow 13,837 7,550 -
(DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS (541,830) 1,131,153 (6,367)
Cash and cash equivalents,
beginning of year 1,268,475 137,322 143,689
Cash and cash equivalents,
end of year $726,645 $1,268,475 $137,322
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-9
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
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"); 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. LynStar Aviation, Inc. ("LynStar"), wholly-owned
by LynStar Holdings, Inc., which is 20% owned by the Company, has been
consolidated as a wholly-owned subsidiary in the accompanying consolidated
financial statements. The difference in consolidating the financial statements
of LynStar, rather than accounting for the Company's investment using the
equity method of accounting, is immaterial to the accompanying consolidated
financial statements. 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 (see
Note 5). 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").
BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have been
prepared in conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern.
However, the Company sustained negative cash flow of approximately $542,000, in
the year ended September 30, 1997, and its current liabilities exceeded its
current assets by approximately $1,050,000 as of September 30, 1997.
The Company expects to continue meeting all of its obligations in the coming
year by focusing on its established operations. Further, management believes
that the cash flows from these operations will be sufficient to meet all of its
operating requirements and obligations of the Company and reduce its debt
service requirements.
In view of the matters discussed in the preceding paragraphs, recoverability of
a major portion of the recorded asset amounts in the accompanying consolidated
balance sheets is dependent upon continuing profitable operations and the
ability of the Company to generate cash flows sufficient to support its future
F-10
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
operations. The accompanying consolidated financial statements do not include
any adjustments relating to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
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.
INVENTORIES AND AIRCRAFT HELD FOR RESALE
Inventories (principally aircraft maintenance parts) and aircraft held for
resale and 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 method over the estimated useful lives indicated
below.
<TABLE>
<CAPTION>
<S> <C>
Aircraft 10-15 years
Buildings 40 years
Furniture and equipment 5 years
Motor vehicles 5 years
Leasehold improvements Term of leases
</TABLE>
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. 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 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.
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
F-11
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
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 U.S. 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 losses of
$4,000 and $26,000 and a gain of $152,000 in 1997, 1996 and 1995, respectively,
and are included in the consolidated statements of operations.
EARNINGS PER SHARE
Net 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.
Primary earnings per share amounts are computed based on the weighted average
number of shares actually outstanding, 6,394,872, 1,961,760 and 1,957,177 in
1997, 1996 and 1995, respectively.
Fully diluted earnings per share reflects the weighted-average common shares
outstanding plus the potential effect of securities or contracts which are
convertible to common shares, such asoptions, warrants, and convertible debt
and preferred stock. The number of shares used in the computations of fully
diluted earnings per share were 6,435,254 in 1997 and 2,260,427 in 1996. Fully
diluted earnings per share was not presented for 1995 because it was anti-
dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and receivables approximates fair value because of
their short-term nature. The fair value of long-term debt is based on current
rates at which the Company could borrow funds with similar remaining
maturities.
F-12
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which is effective for financial statements, for both interim and
annual periods, ending after December 15, 1997. Early adoption of the new
standard is not permitted. The new standard eliminates primary and fully
dilutive earnings per share and requires presentation of basic and diluted
earnings per share with disclosure of the methods used to compute the per share
amounts.
Basic earnings per share excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average common shares
outstanding for the period. Diluted earnings per share reflects the weighted-
average common shares outstanding plus the potential effect of securities or
contracts which are convertible to common shares, such as options, warrants,
and convertible debt and preferred stock. The adoption of this standard is not
expected to have a material impact on earnings per share of the Company.
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure", which is effective for fiscal years beginning after
December 15, 1997. SFAS No. 129 will not change the disclosure of the capital
structure of the Company.
REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which is effective for fiscal years beginning after December 15, 1997. The
Statement addresses the reporting and displaying of comprehensive income and
its components. The adoption of SFAS No. 130 relates to disclosure within the
financial statements and is not expected to have a material effect on the
Company's financial statements.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which is effective for fiscal years
beginning after December 15, 1997. The Statement changes the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information
in their quarterly reports. Adoption of SFAS No. 131 is not expected to have a
material effect on the Company's financial statements.
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
F-13
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
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, inventories and the aircraft held
for resale, the estimated fair value of the aircraft at the end of the lease-
which is guaranteed by the Company, the undiscounted expected future operating
cash flows used in the review for testing the impairment of long-lived assets,
and the adequacy of the insurance coverage. Actual results may differ
significantly from those estimates.
RECLASSIFICATIONS
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 year 1995 have been
reclassified to reflect their exclusion.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues excluded $3,985,000 $6,417,000
Direct costs excluded 3,801,000 6,067,000
Selling, general and administrative
costs excluded 184,000 350,000
Net income effect $0 $0
</TABLE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include investments in highly liquid securities
having an original maturity date of three months or less. All cash balances in
the U.S. were covered by FDIC insurance at September 30, 1997. Cash, at
September 30, 1997, includes approximately $472,000 on deposit in the United
Kingdom, which are not covered by depository insurance.
2. STOCKHOLDERS' EQUITY
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).
F-14
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
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 in fiscal 1995. No dividends were paid in
fiscal 1997 or 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, a director of the Company, and J. O.
Hambro Nominees Limited, which may be deemed to be controlled by Richard
Hambro, 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 fiscal 1995. No dividends were paid in fiscal 1997 or fiscal 1996.
F-15
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
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
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 was shown as investment in jointly-owned company in the 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.
During fiscal 1996, the asset was 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.
In October 1997, the Company sold its 50% share of the capital stock in PDG to
the remaining 50% shareholders of PDG for approximately $1,307,000. Under the
purchase agreement, the aggregate purchase price is payable in two payments.
The first payment of approximately $323,000 was made in November 1997, with the
final payment, without interest, due on July 31, 1998.
F-16
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
4. LONG TERM DEBT
Long-term debt at September 30, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Mortgage due to bank with interest at Sterling
LIBOR rate (7.19% at September 30, 1997) plus 2.0%,
due in monthly installments through April, 2001. $210,866 $340,989
Mortgage Note payable to Massachusetts Mutual Life
Insurance Company with an interest rate of 6.69% due
in monthly installments through Janaury 3, 2006. 7,485,990 8,010,980
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. 3,820,525 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. 795,000 895,000
Note payable to finance company with interest at
Sterling LIBOR rate (7.19% at September 30, 1997)
plus 3.5% payable in monthly installments through
August, 2000. 536,597 546,035
Aircraft financing note payable to G.E. Capital
Corporation with an interest rate of 10.0% with
principal due every six months and interest due
every four months through January 20, 1999, with a
final installment payment of $1,589,698 due
January 20, 1999. 1,870,233 -
Notes payable due to finance company with an
interest rate of 10.5%, due in monthly installments
through February, 2000. 25,985 31,993
$14,745,196 $13,824,997
Less:
Amount due within one year (1,285,364) (986,506)
$13,459,832 $12,838,491
</TABLE>
Maturities of long-term debt for the fiscal years ending September 30 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $1,285,364
1999 2,058,209
2000 2,789,451
2001 1,241,159
2002 1,339,916
Thereafter 6,031,097
$14,745,196
</TABLE>
Note payable due to financing company of $537,000 is collateralized by aircraft
with an aggregate book value of approximately $788,000. The mortgage of
$211,000 is collateralized by buildings with a net book value of approximately
$664,000. The UK debt is further collaterized by a floating charge over its
assets as part of its UK banking arrangements. The aircraft financing note is
F-17
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
collateralized by an aircraft with a book value of $1,870,000, the proceeds,
from the sale of which, must be used to repay the debt to G.E. Capital
Corporation.
At September 30, 1997 and 1996, the weighted average interest rates on short-
term borrowings was 9.7% and 9.2%, 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 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, was recorded
as a credit to Additional Paid-In Capital.
F-18
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
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 to MassMutual, which were also
secured by the First Leasehold Mortgage, terminated and released its interests
in the Leasehold Mortgage. Millennium America continues to guarantee certain of
such obligations of Lynton Jet to MassMutual.
Interest expense related to the borrowings from HM Holdings was approximately
$455,000 and $607,000 for the years ended September 30, 1996 and 1995,
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.
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.
F-19
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
At September 30, 1997 and subsequent thereto, the Company was in default of a
covenant of the Finova Loan. On January 13, 1998, Finova waived this default.
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, 1997, 1996 and 1995, 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 redeemed during the periods indicated
below, the applicable redemption percentage will be:
<TABLE>
<CAPTION>
FROM THROUGH PERCENTAGE
<S> <C> <C>
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
F-20
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
BY THE COMPANY MAY BE USED, AT THE PRINCIPAL AMOUNT THEREOF, TO
REDUCE THE AMOUNT OF ANY SINKING FUND PAYMENT. AT DECEMBER 31, 1997,
THE COMPANY HAS SATISFIED ITS SINKING FUND REQUIREMENT.
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 exercisable 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). 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 was immaterial. In
fiscal 1997, the Company repurchased a portion of its Debentures in the
principal amount of $100,000 for cash payments totaling $50,000. The Company
realized a gain on redemption of $47,000, net of related debt issuance costs,
on these repurchases. The Debentures acquired in the above transactions have
been applied against the sinking fund obligations for December 31, 1996 and
1997.
5. FOREIGN OPERATIONS
Following is a summary of the consolidated financial position at September 30,
1997 and 1996 and consolidated results of operations for each of the three
years ended September 30, 1997, 1996 and 1995 of the Company's wholly-owned
foreign subsidiary, Limited, located in the United Kingdom, and its
subsidiaries.
F-21
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Summary of financial position:
Current assets $4,527,148 $2,855,814
Property, plant and equipment, net 1,870,217 1,792,667
Goodwill, investment in jointly-owned
company held for resale and other assets 250,383 1,431,855
Total assets $6,647,748 $6,080,336
Current liabilities $4,151,903 $4,115,839
Long-term liabilities 729,423 828,988
Equity 1,766,422 1,135,509
Total liabilities and equity $6,647,748 $6,080,336
</TABLE>
Revenues from foreign subsidiaries represented 51%, 55% and 67% of consolidated
net revenues in 1997, 1996 and 1995, respectively, and were derived from
geographic regions as specified below:
<TABLE>
<CAPTION>
Years ended September 30
<S> <C> <C> <C>
1997 1996 1995
Net revenues:
United States $12,568,159 $10,192,128 $8,854,266
United Kingdom and other
European countries 13,016,943 12,594,198 17,864,880
South America - - 502,326
$25,585,102 $22,786,326 $27,221,472
Income (Loss) before income
tax provision and extraordinary item:
Domestic $527,535 $(273,537) $(156,122)
Foreign 756,354 543,145 (2,164,031)
$1,283,889 $269,608 $(2,320,153)
</TABLE>
There were no dividends from foreign subsidiaries during 1997, 1996 or 1995.
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
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.
F-22
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
The Company 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, in
addition to the Company's additional FBO business.
In addition to the above facility leases, the Company leases automobiles,
various office equipment and the helicopter currently being flown for the U.S.
flight operations.
Minimum future obligations under operating leases in effect at September 30,
1997 are as follows:
<TABLE>
<CAPTION>
Year Ending September 30:
<S> <C>
1998 $ 373,331
1999 174,517
2000 167,925
2001 161,090
2002 159,865
Thereafter 1,278,920
Total minimum lease payments $2,315,648
</TABLE>
Rental expense for the years ended September 30, 1997, 1996 and 1995 was
approximately $510,000, $486,000 and $456,000, respectively.
CAPITAL LEASES
Subsidiaries of the Company in the United Kingdom lease automobiles, which have
been accounted for as capital leases. Following is a summary of property held
under capital leases:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Motor vehicles $185,489 $138,665
Less: Accumulated depreciation (25,897) (35,051)
Total assets $159,592 $105,610
</TABLE>
Aggregate future minimum lease payments under capital leases at September 30,
1997, by fiscal year, are as follows:
<TABLE>
<S> <C>
1998 $38,480
1999 40,043
2000 29,028
Total minimum lease payments 107,551
Less interest portion (19,605)
Present value of net minimum lease payments $87,946
</TABLE>
F-23
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
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 consolidated financial statements.
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.
ENVIRONMENTAL MATTERS
The Company's operations are subject to numerous laws and regulations designed
to protect the environment. The Company believes that it is in compliance, in
all material respects, with applicable environmental requirements. Although
future environmental obligations are not expected to have material impact on
the consolidated results of operations or the consolidated financial position
of the Company, there can be no assurance that future developments, including
increasingly stringent environmental laws or enforcement thereof, will not
cause the Company to incur material environmental liabilities or costs.
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 on the Company while the loss of
any of the United Kingdom authorizations could have a material effect on the
Company.
F-24
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
LITIGATION
Dollar Air is a defendant in an action pending in the United Kingdom relating
to certain actions taken by Dollar Air in connection with its acting as a
broker in the sale of a certain helicopter. In such action, the plaintiff is
seeking damages in the approximate amount of 170,000 Pounds Sterling
(approximately $250,000). Dollar Air has denied the allegations therein and
the Company has defended and intends to continue to defend this matter
vigorously. While the Company cannot predict the outcome of such litigation,
it does not expect, based upon advice of counsel, that damages will be awarded
to the full extent of plaintiff's claim.
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, 1997 and 1996 include deferred tax assets, primarily related to net
operating loss carryforwards, 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 September
30, 1997 and 1996, 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 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
1997 1996 1995
<S> <C> <C> <C>
Expected provision (benefit) at 34% $452,456 $91,667 $(788,852)
Foreign income taxes - 151,206 -
Benefit of operating losses (utilized)
or not utilized:
Domestic (102,339) (91,667) 53,082
Foreign (99,089) - 735,770
Other (12,635) - -
Total tax provision $238,393 $151,206 $0
</TABLE>
The Company has unused U.S. Federal net operating loss carryforwards at
September 30, 1997 of approximately $1,260,000 which expire through September
30, 2010. As a result of the Jet 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, to a specified maximum
percentage (approximately 5.8%) of the fair market value of the Company at the
time of the ownership change. For purposes of this limitation, management has
estimated that the value of the Company was in excess of $3,800,000 at the time
of the ownership change.
F-25
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
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, which includes rent paid to a company which is wholly-owned by the
Company's Chief Executive Officer for office space in London rented by the
Company (see Note 9). 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
(options which fail to qualify as incentive 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 and have a term of between five and ten years. The vesting periods for
the options vary under the 1993 Plan with a minimum vesting period of six
months. As of September 30, 1997, options to acquire 23,335 shares of Common
Stock have been granted under the 1993 Plan and 226,665 options were available
for future grant.
In addition to options granted under the Plan, in August 1997, the Company
granted non-statutory stock options to certain officers and key employees for a
total of 704,000 shares, all of which are immediately exercisable at a price of
$0.50 per share.
The Company's stock option plan has been accounted for under APB Opinion 25,
and related Interpretations. No compensation cost has been recognized
applicable to the plan. Had compensation cost for the plan been determined,
based on fair value of the options at the grant dates consistent with the
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net income and earnings per share would have been the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
September 30
1997 1996
<S> <C> <C> <C>
Net income As Reported $1,092,360 $405,810
Pro forma $1,092,360 $405,780
Primary earnings per share As Reported $0.17 $0.21
Pro forma $0.17 $0.21
Fully diluted earnings per share As Reported $0.17 $0.22
Pro forma $0.17 $0.22
</TABLE>
The fair value of each option is estimated on the date of grant, using the
Black-Scholes options-pricing model, with the following weighted-average
assumptions used for grants in 1997 and 1996: expected volatility of 40%; risk-
free interest rates of 6.0%; and expected lives of 2 1/2 years.
F-26
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
Information with respect to the 1993 Plan and other options granted, under
similar provisions, to certain directors, officers and key employees of the
Company is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
Outstanding at beginning
of year 63,340 $1.54 94,176 $2.34 75,842 $2.83
Granted 704,000 0.50 5,001 0.25 26,668 1.04
Cancelled (33,337) 1.78 (35,837) 3.45 (8,334) 2.74
Exercised - 0.00 - 0.00 - 0.00
Outstanding at end of year 734,003 $0.53 63,340 $1.54 94,176 $2.34
Exercisable at end of year 734,003 $0.53 43,340 $1.74 74,176 $2.66
Weighted average fair value
options granted during
the year $0.00 $0.01 N/A
</TABLE>
The following information applies to options outstanding at September 30, 1997:
<TABLE>
<S> <C> <C>
Range of exercise prices 3,334 shares $0.25
704,000 shares $0.50
3,334 shares $0.80
23,335 shares $1.50
Weighted average exercise price $0.53
Weighted average remaining contractual life 4.73 years
</TABLE>
The initial application of SFAS No. 123, for the pro forma disclosures of the
fair value based method, may not be representative of those future effects of
applying this statement.
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
F-27
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
deduction in the reimbursement amount. HM Industries' reimbursements to the
Company for the years ended September 30, 1996 and 1995 were $3,985,000 and
$6,417,000 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.
OTHER RELATED PARTY 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,
1997, 1996 and 1995, rental expense for this space was $51,000, $46,000 and
$48,000, 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.
F-28
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
The Company paid $25,000 and $27,000 in 1996 and 1995, respectively, to a
company owned by one of the Company's directors for management and advisory
services rendered. No such payments were made in fiscal 1997.
The Company has recognized an expense of $48,000, $12,000 per non-employee
director, in 1997 for the payment of directors fees. At September 30, 1997,
services provided by the Company to these directors totaling approximately
$33,000, were applied to this accrual. However, no cash payments have been
made for any of the remaining amounts due.
10. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Non-cash investing and financing activities for the years ended September 30
are as follows:
<TABLE>
<S> <C>
1997
Reclassification of investment in jointly-owned
company held for resale from long term assets to
current assets (see Note 3) $1,222,620
Purchase of helicopter, fully financed by G.E.
Capital Corporation $1,870,233
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>
Cash paid for interest and income taxes during the fiscal years were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Interest $1,085,016 $1,509,512 $1,768,959
Income taxes $23,643 - -
</TABLE>
F-29
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
11. ACCRUED EXPENSES
As of September 30, 1997 and 1996, accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accrued purchases $182,863 $120,877
Aircraft maintenance reserves 327,465 231,448
Payroll and payroll taxes 182,047 200,718
Interest 86,222 9,689
Sales, excise and V.A.T. taxes 99,714 59,110
Professional fees 116,719 92,971
Aircraft management and charter costs 45,959 38,849
Site cleanup cost 40,000 40,000
Other 134,758 95,310
$1,215,747 $888,972
</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 $44,000, $47,000, and $68,000 for
fiscal 1997, 1996 and 1995, 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.
Contributions related to this plan were approximately $51,000, $47,000, and
$68,000 for fiscal 1997, 1996, and 1995, respectively.
13. RENTAL INCOME
The Company's FBO facility, through Lynton Jet Centre and Lynton Properties, at
the Morristown Municipal Airport, Morristown, New Jersey, has 13 tenants with
non-cancelable operating leases with terms remaining ranging from one to eleven
years. 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.
F-30
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
The Company's additional FBO facility, through Ramapo, also located at the
Morristown Municipal Airport, Morristown, New Jersey, has 13 tenants of which 5
have non-cancelable operating leases with one year remaining on three-year
terms. The remaining tenants rent on a month to month basis.
The following is a schedule, by fiscal year, of minimum future rental income
under noncancellable tenant operating leases as of September 30, 1997:
<TABLE>
<S> <C>
1998 $3,191,083
1999 2,195,867
2000 1,593,237
2001 1,667,778
2002 1,385,610
Thereafter 3,117,623
Total minimum future rentals $13,151,198
</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.
14. SUBSEQUENT EVENT (UNAUDITED)
On December 23, 1997, the Company acquired, through Limited, (the "Magec
Acquisition") all of the issued and outstanding shares of Magec Aviation
Limited, a company organized under the laws of England ("Magec") in a business
combination which will be accounted for as a purchase. The purchase price
(including transaction costs) of approximately $28,000,000 exceeded the
estimated fair value of the assets of Magec by $4,000,000, which will be
amortized over its expected useful life at a rate to be determined.
The purchase price allocation is based on preliminary estimates of the fair
value of the assets acquired and is subject to adjustment as additional
information becomes available in fiscal 1998. The results of operations of
Magec will be included with the results of the Company from January 1, 1998.
Assuming the acquisition has occurred on October 1, 1995, the Company's pro
forma (unaudited) net revenue, net income, primary and fully diluted earnings
per share for the years ended September 30, are estimated to have been as
follows:
<TABLE>
<CAPTION>
1997 1996
(Pro forma-unaudited)
<S> <C> <C>
Net revenue $47,500,000 $41,500,000
Net income $1,393,000 $386,000
Primary earnings per share $0.11 $0.05
Fully diluted earnings per share $0.11 $0.05
</TABLE>
The aforementioned pro forma (unaudited) financial information should be read
in conjunction with the related historical consolidated financial statements of
the Company and its subsidiaries, included on pages F-3 to F-31. Further, the
aforementioned pro forma (unaudited) financial information is not necessarily
indicative of the results that would have been attained had the transaction
occurred at October 1, 1995.
F-31
<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, 1997 and 1996, we have
also audited the consolidated Schedule II-Valuation and Qualifying Accounts
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
New York, New York
January 13, 1998
F-32
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Lynton Group, Inc.
In connection with our audit of the consolidated financial statements of Lynton
Group, Inc. and subsidiaries for the year 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-33
<PAGE>
Lynton Group, Inc. and Subsidiaries
Schedule II-Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Balance
at
Beginning of End of
Period Additions Deductions Period
<S> <C> <C> <C> <C>
Year ended September 30, 1997:
Allowance for doubtful accounts $21,465 $731 (1) - $22,196
Year ended September 30, 1996:
Allowance for doubtful accounts $21,808 - $(343) (1) $21,465
Year ended September 30, 1995:
Allowance for doubtful accounts $291,103 $15,916 $(285,211) (2) $21,808
</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 Chief Executive Officer of
the Company.
F-34
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current assets:
Cash $1,296,173 $726,645
Accounts receivable 5,191,863 3,268,879
Investment in jointly-owned company
held for resale - 1,222,620
Inventories 1,425,050 803,677
Aircraft held for resale 5,450,000 -
Prepaids and other current assets 589,666 214,124
Total current assets 13,952,752 6,235,945
Property, plant and equipment 33,565,230 18,045,935
Less accumulated depreciation
and amortization 5,861,294 4,652,703
27,703,936 13,393,232
Funds held in escrow 150,000 150,000
Aircraft held for resale - 1,870,233
Long-term ground lease, less
accumulated amortization 2,223,135 1,933,861
Goodwill, less accumulated amortization 9,352,887 2,155,007
Other assets and deferred charges, less
accumulated amortization 696,787 484,970
$54,079,497 $26,223,248
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued liabilities $6,012,269 $4,201,508
Advances from customers and deferred
revenue 1,363,148 1,761,950
Current portion of capital lease
obligations 53,509 38,480
Current portion of debt on aircraft
held for resale 3,328,322 -
Current portion of other long-term debt 3,830,070 1,285,364
Total current liabilities 14,587,318 7,287,302
Long term debt, less current portion 22,859,562 13,459,832
Subordinated convertible debentures 6,021,499 -
Deferred revenue 540,000 720,000
Obligations under capital leases, less
current portion 60,634 69,071
Deferred income taxes 4,825,842 163,183
Stockholders' equity:
Common stock 1,918,462 1,918,462
Additional paid-in capital 9,779,823 9,779,823
Accumulated deficit (6,508,739) (7,141,115)
Translation adjustment 6,444 (21,962)
5,195,990 4,535,208
Common stock held in treasury (11,348) (11,348)
Total stockholders' equity 5,184,642 4,523,860
$54,079,497 $26,223,248
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
------------------------ -------------------------
1998 1997 1998 1997
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $14,344,481 $6,428,379 $31,960,538 $18,511,661
Expenses:
Direct costs 10,894,680 4,735,813 24,474,616 13,997,248
Selling, general and
administrative 1,467,293 833,429 3,525,345 2,247,634
Depreciation 503,007 172,420 1,159,756 515,615
Amortization of goodwill
and ground lease 172,611 31,918 345,654 95,755
Operating income 1,306,890 654,799 2,455,167 1,655,409
Amortization of debt discount
and issuance costs 33,685 19,336 77,259 58,010
Interest 645,084 308,462 1,683,043 823,881
Income before provision
for income taxes 628,121 327,001 694,865 773,518
Income tax provision 24,889 44,000 62,489 44,000
Net income attributable
to Common Stock $603,232 $283,001 $632,376 $729,518
Net income per share of Common Stock :
Basic $0.09 $0.04 $0.10 $0.11
Diluted $0.05 $0.04 $0.07 $0.11
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $632,376 $729,518
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 1,582,669 669,380
Change in certain assets and liabilities:
Accounts receivable 1,301,364 455,536
Due from/to affiliates (net) - (30,015)
Inventories (71,002) (30,597)
Prepaids and other assets (183,189) 193,758
Accounts payable and accrued expenses (206,473) (966,450)
Advances from customers and
deferred revenues (608,568) (554,836)
Net cash provided by operating activities 2,447,177 466,294
Cash flow from investing activities:
Cash paid for Magec Aviation and related
acquisition costs (30,294,785) -
Cash paid for Jet Systems Acquisition
and related costs (1,864,076) -
Cash received for sales of aircraft
held for resale 8,564,000 -
Capital expenditures (net) (307,436) (312,193)
Net cash used by investing activities (23,902,297) (312,193)
Cash flow from financing activities:
Capital lease obligations (net) 6,592 45,898
Proceeds from financing for Magec
Aviation acquisition 30,177,451 -
Proceeds from financing for Jet Systems
acquisition 1,625,000 -
Proceeds from other debt financing 1,540,789 -
Repayment of notes payable and
long-term debt (12,048,983) (844,564)
Net cash provided (used) by financing
activities 21,300,849 (798,666)
Effect of exchange rate changes on cash 28,403 47,281
Decrease in cash (125,868) (597,284)
Cash, beginning of period 726,645 1,268,475
Cash, end of period $600,777 $671,191
Supplemental Information :
Interest Paid $1,405,523 $788,671
Taxes Paid $171,105 $110,880
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1998
Note 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the nine-month
period ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending September 30, 1998. The balances as of
September 30, 1997 in the accompanying balance sheets have been derived from
the audited financial statements as of such date. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Lynton Group, Inc. (the "Company") Annual Report on Form 10-K for the
year ended September 30, 1997.
Note 2. ACQUISITIONS
In December 1997, the Company acquired through Lynton Group Limited, a wholly-
owned subsidiary of the Company, all of the issued and outstanding shares of
capital stock (the "Magec Shares") of Magec Aviation Limited ("Magec"), a
company organized under the laws of England in a business combination which has
been accounted for as a purchase. Magec provides hangarage and refueling,
charter, management, and maintenance services for corporate aircraft from its
own exclusive terminal at London Luton Airport, England. The purchase price
(including acquisition costs) of $30,295,000 exceeded the estimated fair value
of the net assets of Magec by $7,426,000, which will be amortized using the
straight line method over twenty years. The purchase price allocation is based
on the following:
Tangible fixed assets $13,995,207
Aircraft held for resale 12,114,000
Inventories 550,371
Accounts receivable 2,001,731
Prepaids and other assets 192,351
Cash and cash equivalents 695,394
Accounts payable and accrued expenses (2,022,694)
Deferred tax provision (4,657,200)
Net assets acquired $22,869,160
Purchase price 30,294,785
Goodwill on acquisition $7,425,625
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1998
The consideration paid to Magec was 17,000,000 Pounds Sterling (equal to
$28,288,000) paid in cash at Closing. The funds used to purchase Magec
(including acquisition costs) included bank financing in the principal amount
of 12,827,000 Pounds Sterling with the balance of the purchase price from debt
financing as follows: (i) promissory notes (the "December 1999 Notes") in the
aggregate principal amount of $1,664,000 due on December 23, 1999, with
interest at 12.0% per annum, issued and sold to entities which may be deemed
affiliates of Paul R. Dupee, Jr., Chairman of the Board and a director of the
Company, and (ii) a non interest bearing loan in the principal amount of
$1,353,000 due on December 23, 1998, pursuant to an Option Agreement entered
into between Magec and an unrelated party to acquire a certain aircraft owned
by Magec, and (iii) 8.0% Subordinated Convertible Debentures due December 31,
2007 in the aggregate principal amount of $5,816,000 (the "Debentures") issued
and sold to certain directors and principal stockholders of the Company, and/or
their affiliates, as well as other third parties.
In connection with the aforesaid financing, an Option Agreement was entered
into between Magec and Westbury Properties Corporation ("Westbury"), which may
be deemed an affiliate of Paul R. Dupee, Jr., Chairman of the Board and a
director of the Company, whereby Westbury was granted an option expiring
December 23, 1999 to acquire a certain aircraft owned by Magec for the purchase
price of $6,664,000. During the quarter ended June 30, 1998 the said aircraft
was sold by Magec for the purchase price of $7,250,000. In connection
therewith, the December 1999 Notes including accrued interest thereon were paid
in full, certain other bank indebtedness in the amount of $4,998,000 was repaid
and Westbury surrendered its option over said aircraft in return for a sum
equal to the difference between the purchase price ($7,250,000) and the option
exercise price ($6,664,000).
Also, in connection with the aforesaid financing, an Option Agreement was
entered into between Magec and an unrelated party to acquire a certain aircraft
owned by Magec for the purchase price of $5,450,000. On June 19, 1998 the
terms of the Option Agreement were amended to allow for a further advance of
$1,500,000 followed by additional further advances on certain dates in
accordance with the payment schedule included in the Option Agreement. The
further advances will be utilized to repay certain bank borrowings of Lynton
Group Limited. The first further advance under the Option Agreement of
$1,500,000 was received by Magec in accordance with the revised terms of the
Option Agreement and was immediately utilized to repay certain bank borrowings
of Lynton Group Limited.
The 8% Subordinated Convertible Debentures, referred to above, are
convertible into shares of the Company's Common Stock at the option of the
holder at any time prior to maturity at an initial conversion price of $1.00
per share (subject to adjustment upon the occurrence of certain events) once
the Certificate of incorporation is modified to increase the number of
authorized shares of Common Stock. The conversion price was set at $1.00 which
management believed to be fair market price based on recent bid prices for
certain Common Stock of the Company (reference is made to information on page 9
of the Subject Form 10-K Annual Report for September 30, 1997). Conversion of
the Debentures, if still held by the original purchasers at the time of
conversion, would not lead to a significant change in ownership as the
significant majority of the Debentures were purchased by certain existing
principal stockholders of the Company in significant proportion to their
current stockholding in the Company. However if these certain stockholders
were to transfer their interests in the Debentures prior to such conversion
then this could result in a substantial change in ownership of the Company.
The Debentures bear interest at the rate of 8.0% per annum, payable semi-
annually in arrears on the first day of June and December of each year with the
first such payment due on June 1, 1998, provided, however, that in lieu of
paying such interest in cash, the Company may, at its option, pay interest for
any interest payment date occurring before December 23, 1999 by adding the
amount of such interest to the outstanding principal amount due thereunder (the
"PIK Interest"). In such event, any such PIK Interest when so added shall be
deemed part of the principal indebtedness for purposes of determining amounts
which may be convertible into shares of Common Stock. The Company has
exercised this option with respect to the interest payments due June 1, 1998 so
such PIK Interest resulting therefrom has been added and is now deemed part of
the principal indebtedness for purposes of determining amounts which may be
convertible into shares of Common Stock.
Note 2. ACQUISITIONS
Assuming the acquisition of Magec had occurred on October 1, 1996 the Company's
pro forma (unaudited) net revenue, net income, basic and diluted income per
share for the three and nine months ended June 30, 1998 and 1997 are estimated
to have been as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
$000s June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue $14,344 $11,822 $37,574 $34,550
Net income $603 $237 $398 $58
Basic income per common share $0.09 $0.03 $0.06 $0.00
Diluted income per common share $0.05 $0.03 $0.04 $0.00
</TABLE>
On February 27, 1998 the Company, through Lynton Jet Centre, Inc. ("Lynton
Jet"), a wholly-owned subsidiary of the Company, acquired for $1,864,000 in
cash (including acquisition costs) substantially all the assets of Jet Systems,
including its ground lease on a hangar facility, located at Morristown
Municipal Airport, Morristown, New Jersey (the "Jet System Acquisition"),
pursuant to an Asset Purchase Agreement between 41 North 73 West Inc. d/b/a Jet
Systems and Lynton Jet. The funds used to purchase Jet Systems included bank
financing from Finova Capital Corporation in the principal amount of
$1,625,000. The purchase price allocation is based on the following:
Tangible fixed assets $1,175,000
Covenant not to compete 50,000
Ground lease 400,000
Acquisition costs 239,000
Purchase price $1,864,000
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1998
Note 3.LONG TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited) (Audited)
<S> <C> <C>
Mortgage due to bank with interest
at Sterling LIBOR rate (7.19% at
September 30, 1997) plus 2.0%, due
in monthly installments through
April, 2001. $- $210,866
Mortgage Note payable to Massachusetts
Mutual Life Insurance Company with an
interest rate of 6.69% due in monthly
installments through January 3, 2006. 7,036,776 7,485,990
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. 3,665,022 3,820,525
Mortgage note payable to Finova Capital
Corp. with an interest rate of 10.1%
due in monthly installments through
February 1, 2003 with a final
installment payment of $568,750 due
March 1, 2003. 1,583,843 -
Senior Subordinated Convertible Debentures
with interest at 10%, payable on
December 31, 1998. 795,000 795,000
Note payable to finance company with
interest at Sterling LIBOR rate (7.19% at
September 30, 1997) plus 3.5% payable in
monthly installments through August, 2000. 400,200 536,597
Aircraft financing note payable to finance
company with an interest rate of 10.0%
with principal due every six months and
interest due every four months through
January 20, 1999, with a final installment
payment of $1,589,698 due January 20, 1999. - 1,870,233
Notes payable to Bank of Scotland with
interest at Sterling LIBOR rate plus 2.25%
payable in installments through September
2002. 13,627,298 -
Loan note payable to third party at zero
interest, pursuant to an Option Agreement
to purchase an aircraft (see Note 2.) 2,853,322 -
Notes payable due to finance company with
an interest rate of 10.5%, due in monthly
installments through February, 2000. 56,493 25,985
$30,017,954 $14,745,196
Less:
Amount due within one year (7,158,392) (1,285,364)
$22,859,562 $13,459,832
</TABLE>
The Finova loans require compliance with certain covenants, financial and
otherwise, as defined in the loan agreements, including maintaining a minimum
consolidated net worth; a minimum earnings, before interest taxes, depreciation
and amortization coverage ratio; and a total liabilities to consolidated net
worth coverage ratio, by both Lynton Jet, as borrower, and Lynton Group, Inc.
as guarantor. At March 31, 1998 Lynton Group, Inc. was in technical default of
its total liabilities to consolidated net worth coverage ratio. This default
was cured, within the period allowed to remedy default under article 7.1.2 of
the loan agreement, as two of the aircraft held in stock at March 31, 1998 were
sold by April 8, 1998 and the outstanding associated liabilities repaid in
full.
During 1998, the Company repaid the Sterling mortgage note in the amount of
$211,000, referenced above, with a portion of the proceeds received from the
Bank of Scotland for the acquisition of Magec. The Company also repaid the
aircraft financing note and its related accrued interest in the amount of
$1,840,034, from the proceeds of the sale of such aircraft for $1,900,000.
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1998
Note 4. EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Weighted average shares of
Common Stock outstanding 6,394,872 6,394,872 6,394,872 6,394,872
- - - -
Average shares outstanding
- Basic earnings per share 6,394,872 6,394,872 6,394,872 6,394,872
Weighted average shares of
Common Stock outstanding 6,394,872 6,394,872 6,394,872 6,394,872
Weighted average of Common
Stock equivalents (1) 211,154 - 211,154 -
Assumed conversion of
Convertible Debentures (2) 6,611,000 - 4,665,517 -
Average shares outstanding
- Diluted earnings
per share 13,217,026 6,394,872 11,271,543 6,394,872
BASIC EARNINGS PER SHARE :
Average shares outstanding 6,394,872 6,394,872 6,394,872 6,394,872
Net income available to
common shareholders $603,232 $283,001 $632,376 $729,518
Per share amount $0.09 $0.04 $0.10 $0.11
DILUTED EARNINGS PER SHARE :
Average shares outstanding 13,217,026 6,394,872 11,271,543 6,394,872
Net income $603,232 $283,001 $632,376 $729,518
Plus effect of dilutive
securities 89,643 - 199,097 -
Net income available to
common shareholders plus
assumed conversions $692,875 $283,001 $831,473 $729,518
Per share amount $0.05 $0.04 $0.07 $0.11
</TABLE>
(1) Certain options to purchase shares of Common Stock of the Company that have
an excercise price below the average market price of common stock for the three
and nine months ended June 30, 1998, had a dilutive effect on earnings per share
and are therefore included on a weighted average basis in the calculation of
diluted earnings per share. Average market price has been calculated using the
weighted average market price of shares traded in the three and nine months
ended June 30, 1998.
(2) Certain convertible debentures of the Company, when calculated on an
"if-converted" basis, had a dilutive effect on earnings per share for the three
and nine months ended June 30, 1998 and are therefore included in the
calculation of diluted earnings per share.
<PAGE>
ANNEX B
Attn. Christopher Tennant Esq.
The Directors
Lynton Group, Inc.
Denham Airport
Hangar Road
Uxbridge
Middlesex UB9 5DF
8 December 1998
Dear Sirs,
Lynton Group, Inc. - Fairness of the cash consideration to
be paid for fractional interests in shares of the Company as
a result of the proposed reverse stock split.
We understand that the Board of Directors of Lynton Group,
Inc. ("the Company") is to furnish shareholders of the
Company with an information statement in connection with,
amongst other proposals, a 1 for 2,000 reverse stock split
which will result in a cash payment of $1.00 per share to
holders of the currently outstanding shares in the Company
in lieu of the issuance of any resulting fractional shares
of the new common stock following of the Company the reverse
stock split (the "Proposed Transaction"). The terms and
conditions of the Proposed Transaction are set forth in more
detail in the Company's Information Statement to be submitted
to shareholders.
Collins Stewart Limited ("Collins Stewart"), a member of the
London Stock Exchange, is a brokerage firm to institutional
investors and also provides corporate advisory and broking
services to currently over 60 retained corporate clients.
Members of Collins Stewart Corporate Finance Department are
regularly involved in providing advice which includes advise
as to the valuation of securities in connection with public
offerings, private placements, acquisitions, fairness
opinions and other purposes. Collins Stewart has previously
been engaged by the Company to provide broking services and
is currently engaged to provide advisory and broking
services in respect of future equity fundraisings which the
Company may wish to pursue, including a possible fundraising
on the London Stock Exchange. In this regard, Collins
Stewart was engaged by the Company to provide the Company
with corporate finance advice and services in connection
with a proposed convertible debenture offering, which was
completed in September 1998 with the issue by the Company of
additional 8% Subordinated Convertible Debentures due 31
December 2007 (the "Additional 8% Debentures"), and in
connection with a possible issuance of shares on the London
Stock Exchange. An affiliate company of Collins Stewart
invested as principal in the Additional 8% Debentures to the
value of $3,000,000. Collins Stewart itself received
Additional 8% Debentures to the value of $123,000 in
consideration of its services as placing agent in respect of
that issue. With regard to a possible issuance of shares on
the London Stock Exchange, such engagement with Collins
Stewart does not oblige Collins Stewart to sell, acquire,
place, underwrite or subunderwrite any investments, unless
and until it is expressly agreed otherwise in writing, but
to advise the Company as Collins Stewart sees fit, in what
we perceive to be the Company's best interests, in the light
of circumstances prevailing at the time at which such advice
is given. In the event that such issuance is effected,
however, the engagement does provide for the payment to
Collins Stewart of various fees and commissions, and certain
fees, under certain specific circumstances only, if such
issuance does not proceed at the Company's initiation.
You have requested our opinion as to the fairness to the
shareholders of the Company from a financial point of view
of the cash payment to shareholders under the Proposed
Transaction. The Company determined the consideration to be
received by shareholders, and we have only undertaken
investigations of the Company and performed the procedures
described below in order to render our opinion.
In connection with rendering our opinion, we have, among
other things, reviewed and analysed: (1) drafts of the
Information Statement filed with the Securities and Exchange
Commission; (2) certain publicly available information
regarding the Company that we believe to be relevant in our
inquiry, (3) financial and operating information with
respect to the business operations of the Company furnished
to us by the Company, including financial projections of the
Company prepared by the management of the Company, (4) a
trading history of the Company's common stock from 1 January
1997 to the present, (5) information concerning convertible
debentures and stock options recently issued by the Company,
(6) publicly available information concerning certain other
companies and transactions that we believe are comparable or
otherwise relevant to our review, and (7) the prices and
premiums paid in certain other transactions that we deem
comparable or otherwise relevant to this transaction. In
addition, we have had discussions with the management of the
Company concerning its business and operations, current net
asset position and future prospects, and undertook such
other studies, analyses, and investigations as we deemed
appropriate. The management of the Company has assured us
during these discussions that they are unaware of any facts
that would make the information provided to us incomplete or
misleading.
In rendering this opinion, we have, with your consent,
relied upon the accuracy and completeness, which we have not
independently verified, of the publicly available
information and all other information concerning the Company
furnished to us, and other published information that we
have reviewed. With respect to financial projections of the
Company, we have assumed that they have been reasonably
prepared on a basis reflecting the best currently available
estimates and judgements of the Company's management as to
the future financial performance of the Company. We have
not made an independent appraisal or physical inspection of
the assets or liabilities of the Company. We have not been
asked to consider nor express an opinion on any shareholder
protection provisions contained in any legislation or
regulation which may be applicable.
In addition, it should be noted that the valuation derived
for the Company's equity is based on its present financing
arrangements. In our view, the current value of the
Company's equity is significantly impacted by its current
financing structure and the marketability and liquidity of
the Company's shares could be significantly altered by
changes to the Company's current capital structure. In
particular, any future equity fundraising which the Company
may or may not successfully pursue, could enhance the value
of each share in the Company by reducing the Company's
levels of gearing as well as improving the marketability of
the Company's shares. Further, we do not express an opinion
as to whether the Proposed Transaction is the only or best
course of action available to the Company to enable it to
proceed with any intended capital restructuring which may or
may not result in an increase in the value per share in the
Company.
Based on our analysis of the foregoing and of such other
factors as we have considered necessary for the purpose of
this opinion, and in reliance on the accuracy and
completeness of the information furnished to us by the
Company, it is our opinion, as of the date hereof, that the
cash price to be paid in the Proposed Transaction is fair to
the shareholders of the Company from a financial point of
view.
Yours faithfully,
Collins Stewart Limited
