SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-6867
LYNTON GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-2688055
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9 AIRPORT ROAD
MORRISTOWN MUNICIPAL AIRPORT 07960
MORRISTOWN, NEW JERSEY (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (973) 292-9000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK ($.30 PAR VALUE)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of December 31, 1998, the aggregate market value of the Common Stock held by
non-affiliates of the Registrant (1,075,486 shares) was approximately $268,872
(based upon the average bid and asked prices of such stock on December 15,
1998, the most recent date on which bid and ask prices were available). The
number of shares outstanding of the Common Stock ($.30 par value) of the
Registrant as of the close of business on January 12, 1999 was 6,394,872.
DOCUMENTS INCORPORATED BY REFERENCE
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Unless otherwise indicated by the context, the terms "Company" or "Registrant"
refer to Lynton Group, Inc. and its consolidated subsidiaries.
The Company, operating from its primary bases in the New York and London
metropolitan regions, performs aviation sales and services for an international
list of customers. Services provided by the Company include the management,
charter, maintenance, hangarage and refueling of corporate helicopters and
fixed wing aircraft. In addition, the Company's sales operations perform
aircraft sales and brokerage services to customers located in markets
throughout the world.
This report 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.
Lynton Group, Inc. was incorporated in the State of Delaware in August 1971
under the name of Decair Corporation. In June 1989, the Company changed its
name to Lynton Group, Inc. Prior to May 1989, the Company's operations
consisted primarily of performing helicopter maintenance, management and
charter services through its subsidiaries Ramapo Helicopters, Inc. ("Ramapo"),
now known as Lynton Aircraft Maintenance Services, Inc. (and hereinafter
referred to as "Lynton Maintenance") and Rockland Aviation, Inc. (later renamed
Lynton Aviation Charter, Inc. ("Lynton Aviation Charter") and now known as
LynStar Aviation, Inc. ("LynStar")).
In May 1989, the Company acquired (the "Limited Acquisition") all of the issued
and outstanding shares of Lynton Group Limited, a company organized under the
laws of England ("Limited"). Limited, a London based company founded in 1984,
is currently a holding company with four wholly owned operating subsidiaries.
Two of such subsidiaries are Lynton Aviation Limited ("Aviation Limited"), a
wholly-owned subsidiary at the time of the Limited Acquisition, and European
Helicopters Limited ("EHL"), a 40% owned affiliate at the time of the Limited
Acquisition, each a company organized under the laws of England. In August
1990, the Company acquired (the "EHL Acquisition") the remaining 60% of the
capital stock of EHL. Aviation Limited is primarily involved in the sale,
management and charter of corporate helicopters and fixed wing aircraft while
EHL is primarily involved in the rebuilding, sale and maintenance of corporate
helicopters. See below for information on Limited's other two wholly owned
subsidiaries, Magec Aviation Limited ("Magec") and Air Hanson Limited, acquired
in December 1997 and September 1998, respectively.
Simultaneous with the consummation of the EHL Acquisition, Lynton Jet Centre,
Inc. ("Lynton Jet"), a wholly-owned subsidiary of the Company incorporated in
April 1990 under the laws of the State of New Jersey, acquired substantially all
of the assets of the Linpro Jet Centre (the "Jet Centre"), including its ground
lease on a hangar facility located at the Morristown Municipal Airport,
Morristown, New Jersey (the "Jet Centre Acquisition"). The Jet Centre is a
fixed base operation of approximately 132,000 square feet of hangar and office
space, and provides hangarage and refueling services to corporate helicopters
and fixed wing aircraft at the Morristown Municipal Airport. Following the
acquisition, the Jet Centre was renamed the Lynton Jet Centre.
In August 1990, the Company incorporated a wholly-owned subsidiary, Lynton
Aviation, Inc., a New Jersey corporation ("Lynton Aviation"), and in April
1992, incorporated a wholly-owned subsidiary, Lynton Aviation Services, Inc., a
New Jersey corporation ("Lynton Services"), to provide aviation charter and
management services and corporate aircraft sales services through operations
based at the Lynton Jet.
In July 1992, the Company sold its interest in Lynton Aviation Charter to
LynStar Holdings, Inc., a New Jersey corporation which is 20% owned by the
Company and formed for the purpose of effecting the acquisition of all of the
shares of capital stock of Lynton Aviation Charter. Thereafter, and also in
July 1992, Lynton Aviation Charter changed its name to LynStar Aviation, Inc.
In January 1994, the Company acquired (the "Dollar Air Acquisition") all of the
issued and outstanding shares of Dollar Air Services Limited, a company
organized under the laws of England ("Dollar Air"). At the time of the Dollar
Air Acquisition, Dollar Air owned a 75% equity interest in Black Isle
Helicopters Limited, a company organized under the laws of Scotland ("Black
Isle"). In September 1994, the remaining 25% of Black Isle's capital stock was
acquired by the Company.
In March 1994, the Company incorporated Lynton Properties, Inc., a New Jersey
corporation and a special purpose wholly owned subsidiary of Lynton Jet
("Lynton Properties"), in order to effect a leasehold mortgage financing
transaction.
In August 1995, substantially all the business, assets and liabilities of
Dollar Air and Black Isle were transferred to a newly formed company, PLM
Dollar Group Limited ("PDG"), a company organized under the laws of Scotland,
in exchange for 50% of the capital stock of PDG. Simultaneously with the
consummation of the transaction, substantially all of the business, assets and
liabilities of P.L.M. Helicopters Limited ("PLM") were transferred to PDG and
the shareholders of PLM were issued the remaining 50% of the capital stock of
PDG. PDG operates a fleet of helicopters from bases primarily in Scotland and
England, and provides helicopter support services for industrial and utility
applications in the United Kingdom. In October 1997, the Company sold its 50%
share of the capital stock in PDG to the remaining 50% shareholders of PDG.
All monies due and payable as a result of the sale have been received by the
Company.
In fiscal 1997, the Company agreed to dissolve Lynton Aviation which had been
in the business of providing aviation management services to HM Industries,
Inc., an affiliate of HM Holdings, Inc. Such services terminated with the
completion of the Debt Discharge Transaction in November 1996.
In July 1997, the Company incorporated Lynton Aircraft Maintenance Services,
Inc., a New Jersey corporation ("Lynton Maintenance"), in order to
reincorporate Ramapo in the State of New Jersey (from the State of New York)
and change its name to Lynton Maintenance. Such was effected in October 1998
pursuant to a merger of Ramapo into Lynton Maintenance with Lynton Maintenance
being the surviving entity.
In December 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"). Magec
provides hangarage and refueling, charter, management, and maintenance services
for corporate aircraft from its own exclusive terminal at London Luton Airport
located in the London, England metropolitan area.
In February 1998, the Company acquired through Lynton Jet, substantially all of
the assets of Jet Systems (the "Jet Systems Acquisition") including its ground
lease on a hangar facility located at Morristown Municipal Airport, Morristown,
New Jersey in order to supplement its then existing Jet Centre facility. Jet
Systems provides hangarage and refueling services for corporate aircraft.
In September 1998, the Company acquired through Limited (the "Air Hanson
Acquisition") all of the issued and outstanding shares of Air Hanson Limited, a
company organized under the laws of England. At the time of the Air Hanson
Acquisition, Air Hanson Limited owned Air Hanson Engineering Limited ("Air
Hanson Engineering") and Air Hanson Aircraft Sales Limited ("Air Hanson Sales")
both companies organized under the laws of England. Unless otherwise indicated
by the context, the term "Air Hanson" refers to Air Hanson Limited, Air Hanson
Engineering and Air Hanson Sales. Air Hanson is based at Blackbushe Airport in
the United Kingdom where it occupies a facility of approximately 60,000 square
feet and is principally engaged in the provision of the maintenance, sale,
charter and management of corporate turbine helicopters and light fixed wing
aircraft.
(b) Financial Information About Industry Segments
The Company primarily operates in one industry segment, i.e. aviation and
aviation related services.
(c) Narrative Description of Business
FLIGHT OPERATIONS
In the United Kingdom, the Company, through Aviation Limited, Magec and Air
Hanson, performs charter and management services for corporate helicopters and
fixed wing aircraft. A typical management contract will require the Company to
staff an aircraft with a crew and arrange for maintenance of the aircraft for a
management fee. The Company in turn charters the aircraft to outside customers
and pays to the owner of the aircraft a percentage of the revenues received.
Contracts for management and general services may be canceled on a short-term
basis. Management believes that the loss of any single management contract or
charter customer in the United Kingdom would not have a material effect on the
Company.
In the United States, the Company performs aircraft management services through
its subsidiaries Lynton Jet and Lynton Services.
MAINTENANCE OPERATIONS
The Company operates 3 helicopter maintenance facilities through its
subsidiaries EHL, located in Denham, Middlesex, England; Air Hanson
Engineering, located at Blackbushe Airport England and Lynton Maintenance,
located at the Morristown Municipal Airport, Morristown, New Jersey. The
principal maintenance activities consist of routine and major helicopter
maintenance, component overhaul, and aircraft parts sales. The Company also
operates one fixed wing maintenance facility through its subsidiary Magec,
located at London Luton Airport, England.
EHL and Air Hanson Engineering are two of a limited number of facilities in the
United Kingdom licensed by the Civil Aviation Authority ("CAA") as a Repair
Station entitled to maintain, overhaul and repair helicopters. The maintenance
operations are based in part on certificates from certain helicopter
manufacturers. These certificates are of indefinite duration but are subject to
cancellation, suspension or revocation if, in the case of the manufacturer's
certificate, EHL or Air Hanson Engineering fails to provide satisfactory
maintenance facilities and levels of service or, in the case of the CAA
certificate, EHL or Air Hanson Engineering fails to meet Joint Airworthiness
Requirements as mandated by the Joint Airworthiness Authorities of the European
Community and administered by the CAA. EHL and Air Hanson Engineering
currently meet all requirements for both the CAA and the manufacturer's
certificates. Management believes that the loss of any of the foregoing
certificates or licenses could have a material effect on the Company.
Magec is one of a number of facilities in the United Kingdom licensed by the
CAA as a repair station entitled to repair fixed wing aircraft. The maintenance
operations are based in part on certificates from certain aircraft
manufacturers. These certificates are of indefinite duration but are subject to
cancellation, suspension or revocation if, in the case of the manufacturer's
certificate, Magec fails to provide satisfactory maintenance facilities and
levels of service or, in the case of the CAA certificate, Magec fails to meet
Joint Airworthiness Requirements as mandated by the Joint Airworthiness
Authorities of the European Community and administered by the CAA. Magec
currently meet all requirements for both the CAA and the manufacturer's
certificates. Management believes that the loss of any of the foregoing
certificates or licenses could have a material effect on the Company
<PAGE>
Lynton Maintenance is one of numerous facilities in the United States licensed
by the Federal Aviation Administration ("FAA") as a Repair Station entitled to
maintain, overhaul and repair all helicopter models with a gross weight under
12,500 pounds. Lynton Maintenance is also one of numerous facilities in the
United States licensed by the FAA as a Repair Station entitled to maintain and
repair all fixed wing King-Air models manufactured by Beechcraft. Lynton
Maintenance's maintenance operation is based in part on certificates from Bell
Helicopter/Textron for the 206 and 222 Series helicopters and certificates from
American Eurocopter Corporation for the AS350, AS355 and AS365 Series
helicopters. These certificates are of indefinite duration but are subject to
cancellation, suspension or revocation if, in the case of the manufacturers'
certificate, Lynton Maintenance fails to provide satisfactory maintenance
facilities and levels of service or, in the case of the FAA certificate, Lynton
Maintenance fails to meet FAA maintenance and employment requirements. Lynton
Maintenance currently meets all requirements for both the FAA and
manufacturers' certificates. Management believes that the loss of any of the
foregoing certificates, licenses or any single maintenance customer would not
have a material effect on the Company.
AIRCRAFT SALES OPERATIONS
The Company, through both its United States and United Kingdom subsidiaries,
performs sales and brokerage services related to the purchase and sale of
corporate helicopters and fixed wing aircraft between owners and buyers of such
aircraft located throughout the world. The Company will generally receive a
fixed commission or a percentage of the amount of such transactions from the
buyer and/or seller of the aircraft. The Company also purchases aircraft for
resale in instances where it believes the aircraft may be resold at a profit.
For aircraft sales transactions in which the Company acts as principal, the
Company records the full sales price of the aircraft as revenue and the cost of
the aircraft as a charge to direct costs, resulting in a relatively low gross
margin percentage. In other transactions, the Company may act strictly as a
broker and record as revenue only the commissions on these sales transactions,
generating a relatively high gross margin percentage. Consequently, the
performance of these operations can best be gauged by the gross margins
achieved for each period. Gross margins generated by aircraft sales operations
can have a material impact on the operating results of the Company and have
historically varied significantly from period to period. The level of aircraft
sales transactions is, to a significant degree, reflective of overall economic
conditions.
FIXED BASE OPERATIONS
The Company through Lynton Jet and Lynton Properties, is engaged in the
operation of aviation fixed base operation ("FBO") at the Morristown Municipal
Airport, Morristown, New Jersey. Services performed at the FBO consist of the
hangarage and refueling of aircraft operated primarily by corporate flight
departments located in the New York/New Jersey metropolitan area, as well as
refueling of transient customers stopping at the airport. The facility,
including the facility acquired in the Jet Systems Acquisition, has 40 tenants
of which 20 have non-cancelable operating leases with terms remaining ranging
from one to eleven years. The remaining tenants rent on a month to month
basis. 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.
<PAGE>
As a result of the Magec Acquisition completed in December 1997, the Company
now operates an additional FBO at London Luton Airport located in the London,
England metropolitan area. Services performed at the FBO consist of the
hangarage and refueling of aircraft operated from London Luton Airport as well
as providing handling and refueling services to transient customers passing
through the airport. The facility has tenants on terms which vary from month
to month to periods of up to one year.
COMPETITION
The Company generally experiences significant competition in all areas of its
business from a number of domestic and international competitors. The
acquisitions during fiscal 1998 have had the effect of reducing competition in
certain areas of the Company's business.
The Company competes both in the United States and United Kingdom with numerous
other organizations which perform similar services related to the management,
charter, and sales of corporate helicopters and fixed wing aircraft, some of
which are larger than the Company in terms of the number of aircraft under
management and some of which have greater financial resources than those of the
Company. The effect of this competition has been reduced to a certain degree
due to the Air Hanson Acquisition, which was a company previously in direct
competition to Aviation Limited in the United Kingdom. Competition in the
industry is principally affected by quality of service and price. The Company
has, in the opinion of management, maintained a reputation for excellent
service in the management, charter, and sales of aircraft and has remained
price competitive for the comparative level of service.
The Company's maintenance operations in the United States and United Kingdom
each compete with several other maintenance organizations within their
geographic regions, ranging from small sole proprietorships to larger
facilities, several of which are as large or larger than the Company in terms
of the number of helicopters under maintenance, several of which have greater
financial resources than those of the Company, and most of which compete with
the Company in its major services. Competition has been reduced to some degree
by the Air Hanson Acquisition which resulted in the acquisition of Air Hanson
Engineering which was previously a direct competitor for certain maintenance
services to EHL in the United Kingdom. In addition, the manufacturers
themselves and certain corporate aircraft owners operate their own maintenance
facilities. Competition in the industry is principally based upon price and
the quality of the services provided. The Company has remained price
competitive and in the opinion of management has historically maintained a
reputation for excellence in its maintenance work.
As a result of the Jet Systems Acquisition, the Company's FBO operation in the
United States is the only FBO currently at Morristown Municipal Airport,
Morristown, New Jersey, but competes with numerous other FBO's located at
several airports within the New York/New Jersey metropolitan region.
Competition consists primarily of obtaining tenants for the facility and
attracting transient customers to use the facility primarily for refueling.
Many of the Company's competitors are as large or larger than the Company and
several have financial resources as great or greater than the Company.
Competition in the industry is principally based upon price and the quality of
accommodation and service at the facility. The Company has remained price
competitive with the other FBO's in the area and has, in the opinion of
management, maintained a level of accommodation and service that is as good or
better than its competitors.
<PAGE>
BACKLOG
The Company, through Aviation Limited and EHL, have entered into contracts to
provide certain aviation support services to customers. Such contracts expire
at various dates in fiscal 1999 and have provisions which allow for early
termination on a short-term basis.
A portion of Lynton Jet's and Lynton Properties' operating revenue is obtained
from tenants through rental payments provided for under non-cancelable
operating leases. The leases typically provide for guaranteed minimum rentals
and other charges to cover certain operating costs in excess of base amounts.
The following is a schedule of minimum future rentals on non-cancelable
operating leases, including the lease agreement with Hanson North America, Inc.
and Millennium America Holdings, Inc. as of September 30, 1998 (thousands of
dollars):
<TABLE>
<S> <C>
1999 $3,028
2000 1,954
2001 1,824
2002 1,386
2003 1,386
Thereafter 1,732
Total $11,310
</TABLE>
GOVERNMENT REGULATION
The Company is subject to the jurisdiction of the FAA in the United States and
the CAA in the United Kingdom related to its authorization to operate aircraft
maintenance facilities and to operate as an air carrier. No assurance can be
given that the authorizations mentioned above will be maintained in the future.
Management believes that the loss of the above mentioned authorization in the
United States would not have a material effect on the Company while the loss of
any of the United Kingdom authorizations could have a material effect on the
Company.
HAZARDS AND INSURANCE
The operation of helicopters and fixed wing aircraft involves a substantial
level of risk. Hazards such as aircraft accidents, collisions and fire are
inherent in the providing of aviation services and may result in losses of
life, equipment and revenues.
The Company maintains insurance of types customary to the aviation services
industry and in amounts deemed adequate by the Company to protect the Company
and its property. These policies include aircraft liability, aviation
spares/equipment, all risks, hull, products liability, hangar keepers
liability, property and casualty, automobile and workers' compensation. The
Company has not experienced significant difficulty in obtaining insurance and
has not incurred any insured losses in excess of its property and liability
coverage. While the Company believes that its insurance coverage is adequate
for its operations, there can be no assurance that such insurance coverage is
now, or will be, adequate to cover any claims to which it may be subject or
that such levels of insurance may be obtained at comparable rates in the
future.
<PAGE>
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 a 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.
PERSONNEL
In addition to its principal officers, the Company, as of September 30, 1998,
has approximately 75 employees in the United States and approximately 250
employees in the United Kingdom, consisting principally of managers, pilots,
mechanics, aviation services personnel and administrative staff and which are
primarily employed on a full-time basis.
ITEM 2. PROPERTIES
The Company operates the Lynton Jet business primarily out of the Company's
hangar/office facility of approximately 132,000 square feet, owned by the
Company, located at the Morristown Municipal Airport, Morristown, New Jersey,
on a site leased pursuant to a ground lease with an initial term expiring on
December 31, 2010 and with options to extend the term of the lease for five
additional terms of five years each. The rental payments due under the lease
are generally based upon increases in the consumer price index through the year
2020 and based upon fair market value thereafter. The Company maintains its
executive offices at the Jet Centre facility. As a result of the Jet Systems
Acquisition completed in February 1998, Lynton Jet also operates out of an
additional hangar/office facility of approximately 53,000 square feet, on a
site leased pursuant to a ground lease with an initial term expiring on
December 31, 1999. Although there can be no assurance, it is anticipated that
during 1999 Lynton Jet will enter into a new ground lease for a period of 25
years on this site.
The Company leases an additional facility of approximately 36,000 square feet
at the Morristown Municipal Airport, Morristown, New Jersey, with an initial
term that expired on May 31, 1998, with an option to renew for an additional
three years. The Company exercised its option to renew for such additional
three years, expiring May 31, 2001. Lynton Maintenance conducts its
maintenance operation from this facility, in addition to providing additional
FBO facilities.
The Company operates Aviation Limited and EHL principally out of a hangar
facility of approximately 20,000 square feet located in Denham, Middlesex,
which is located outside of London. The hangar is owned by the Company and is
located on a site leased pursuant to a ground lease, which expires in 2012. In
addition, the Company leases on a month-to-month basis office space of
approximately 2,000 square feet from a company, which is wholly-owned by the
Company's Chief Executive Officer.
The Company, as a result of the Magec Acquisition completed in December 1997,
now operates an additional FBO out of hangar and office facilities of
approximately 65,000 square feet, at London Luton Airport located in the
London, England metropolitan area. Magec leases the facilities from London
Luton Airport pursuant to lease agreements which expire in 2035 and 2045. The
rental payments due under the leases are generally based upon increases in the
consumer price index, the next such reviews being December 2003 and January
2000.
The Company, as a result of the Air Hanson Acquisition completed in September
1998, now operates out of hangar and office facilities of approximately 60,000
square feet at Blackbushe Airport pursuant to a lease agreement which expires
in 2001.
Management believes that the current facilities are sufficient to operate the
Company's business at its current level.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
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 at a time when Dollar Air was owned
by the Company. 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, if any, will be awarded to the full extent of
plaintiff's claim.
Other than the foregoing, there are no material pending legal proceedings to
which the Company is a party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders. See Part II, Item 7 for information
or actions proposed to be submitted to stockholders during fiscal 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) 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, 1998:
Oct. 1, 1997 to Dec. 31, 1997 1-3/4 3/4
Jan. 1, 1998 to Mar. 31, 1998 1/2 1/2
Apr. 1, 1998 to Jun. 30, 1998 1/2 1/2
Jul. 1, 1998 to Sept. 30, 1998 9/16 1/2
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
(b) As of December 31, 1998, there were approximately 525 record holders of the
Company's Common Stock.
(c) The Company has never declared any cash dividends on its Common Stock and
does not anticipate declaring cash dividends in the foreseeable future.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data
of the Company for the periods indicated. The selected consolidated financial
data for and as of the end of the years in the five-year period ended September
30, 1998 are derived from the Consolidated Financial Statements of the Company.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes appearing
elsewhere in this report.
SELECTED FINANCIAL DATA
(000'S EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
Fiscal year ended September 30:
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Revenues $46,926 $25,585 $22,786 $27,221 $27,361
Net income (loss) before
extraordinary item 126 1,046 119 (2,320) (1,231)
Extraordinary item - gain
(loss) related to early
extinguishment of debt - 47 287 - (166)
Net income (loss) 126 1,092 406 (2,320) (1,397)
Net income (loss) per share
before extraordinary item .02 .16 .06 (1.30) (.72)
Extraordinary item - .01 .15 - (.09)
Net income (loss) per common
share (1) - Basic .02 .17 .21 (1.30) (.81)
- Diluted .02 .17 .21 (1.30) (.81)
BALANCE SHEET DATA
SEPTEMBER 30, 1998 1997 1996 1995 1994
Working capital (deficit) (1,647) (1,051) (2,159) (2,748) (3,790)
Total assets 65,083 26,223 24,373 23,912 31,725
Long term debt, net of
current portion 35,794 13,529 12,873 17,411 18,332
</TABLE>
(1) Adjusted for the one-for-six reverse stock split effected in June 1994.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Pursuant to a Share Sale and Purchase Agreement dated December 5, 1997 among
the Company, Limited, and The General Electric Company p.l.c., the owner of all
the shares of capital stock of 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 (equal to
approximately $28,288,000) 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 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 complementary
facility to the fixed base operation at Morristown Municipal Airport, New
Jersey.
On February 27, 1998 the Company, through Lynton Jet 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.
On September 3, 1998 the Company, through Limited, pursuant to two Aircraft
Sales Agreements acquired two helicopters owned by Air Hanson Limited for a
total consideration of $4,168,000. Furthermore, pursuant to a Share Sale and
Purchase Agreement dated September 3, 1998 (the "Air Hanson Share Sale and
Purchase Agreement") among Limited, Hanson Funding (G) Limited (the owner of
the shares of capital stock of Air Hanson), and Hanson Finance PLC, Limited
acquired on September 3, 1998 all of the issued and outstanding capital stock
of Air Hanson (the "Air Hanson Shares"). The purchase price for the Air Hanson
Shares will be calculated by reference to the net asset value of Air Hanson
following the issuance of audited completion accounts. The price to be paid is
subject to a maximum purchase consideration of 500,000 Pounds Sterling, and
although no assurances can be given management believes that the issue of the
audited completion accounts will result in a repayment to Limited when the net
asset values are compared to the warranted net asset value as stated in the Air
Hanson Share Sale and Purchase Agreement.
During the fourth quarter of fiscal 1997, the Company filed with the Securities
and Exchange Commission (the "Commission") a Preliminary Information Statement
in connection with action proposed to be taken by written consent of
stockholders with respect to certain matters including a reverse stock split of
the Company's Common Stock. The Company has filed amendments to such materials
as a result of comments received from the Commission. Subsequent to the filing
of this report, the Company anticipates filing an additional amendment to such
Information Statement during the second quarter of fiscal 1999 and is hopeful
that a definitive Information Statement can be mailed to stockholders during
said quarter. If the proposed reverse stock split is effected, the Company
expects to have fewer than 300 stockholders and the Company expects to
terminate the registration of its Common Stock under the Securities Exchange
Act of 1934 and cease the filing of certain reports with the Commission. There
can be no assurance, however, that the actions contemplated by said Information
Statement will be undertaken. In addition, in the event the Company completes
the proposed reverse stock split, the Company may change the Company's legal
domicile to outside the United States, attempt to effect a public offering in
the United Kingdom and have its securities listed on The London Stock Exchange.
There can be no assurance that the Company will attempt to effect any or all of
the foregoing transactions or, if attempted, that any of such transactions will
be successfully completed.
<PAGE>
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, 1998 (thousands of dollars):
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996
<S> <C> <C> <C>
Flight operations revenues $18,031 $9,004 $7,894
Gross margin $3,190 $1,259 $931
Gross margin % 17.7% 14.0% 11.8%
Maintenance operations revenues $9,234 $5,990 $6,238
Gross margin $781 $999 $924
Gross margin % 8.5% 16.7% 14.8%
Aircraft sales operations revenues $1,029 $984 $834
Gross margin $628 $655 $466
Gross margin % 61.0% 66.6% 55.9%
Fixed base operations revenues $18,632 $9,607 $7,820
Gross margin $6,200 $3,443 $2,836
Gross margin % 33.3% 35.8% 36.3%
Consolidated revenues $46,926 $25,585 $22,786
Consolidated direct costs 36,127 19,229 17,629
Consolidated gross margin 10,799 6,356 5,157
Selling, general &
administrative expenses 5,313 3,016 2,432
Depreciation 1,692 689 662
Amortization of goodwill &
intangible assets 575 128 127
Restructuring costs 416 - -
Operating income 2,803 2,523 1,936
Amortization of debt discount
& issuance costs 111 77 139
Interest expense 2,399 1,162 1,336
Write-off of amount due from
affiliate - - 191
Gain related to sale of
PDG investment (75) - -
Income before tax provision
and extraordinary item 368 1,284 270
Income tax provision 242 238 151
Income before extraordinary item 126 1,046 119
Extraordinary item - Gain related
to early extinguishment of debt - 46 287
Net income $126 $1,092 $406
</TABLE>
<PAGE>
The following discussions of results of operations for the Company include
results of operations for United Kingdom ("UK") subsidiaries translated from
pounds sterling ("sterling") to U.S. dollars at the average rate of exchange
during the respective periods. The average value of sterling increased by
approximately 2% in fiscal 1998 compared to fiscal 1997 and 6% in fiscal 1997
compared to fiscal 1996. 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.
1998 COMPARED TO 1997 ($000'S)
Revenues for fiscal 1998 increased to $46,926 as compared to revenues in fiscal
1997 of $25,585 an increase of $21,341 or 83.4%. This increase resulted
primarily from the acquisitions in fiscal 1998 (see discussion of each
operational area below).
The Company reported operating income for fiscal 1998 of $2,803 as compared to
$2,523 in fiscal 1997, an increase of $280 or 11.1%. This change resulted
primarily from increased operating income from the Company's fixed base
operations in the US and the newly acquired Magec FBO in the UK along with an
increase in UK flight operations.
Interest expense for fiscal 1998 increased to $2,399 as compared to $1,162 for
fiscal 1997, an increase of $1,237 or 106.5%. This increase is due to the
acquisitions financed during fiscal 1998.
In fiscal 1998, the Company sold, for cash, its 50% share of the capital stock
in PDG to the remaining 50% shareholders of PDG. The Company realized a gain
on the sale of $75.
The Company had a net income of $126 for fiscal 1998 as compared to net income
of $1,092 for fiscal 1997. This change was primarily caused by the increased
interest expense due to the acquisitions financed and restructuring costs of
$416 relating to the acquisitions in fiscal 1998.
The Company's ability to improve earnings is primarily dependent on the
enhancement of revenues and margins from its operations, along with a reduction
in its interest expense. The performance of each operation is affected by
different market conditions and varies as to stability and degree of
predictability. Below is a discussion of each of the Company's operating areas
and the factors which have historically, and will continue, to affect
performance.
<PAGE>
FLIGHT OPERATIONS
Revenues from flight operations overall increased by $9,027 or 100.3% for
fiscal 1998 as compared to fiscal 1997. This improvement was primarily due to
the Magec Acquisition which increased revenues by $5,604 and the Air Hanson
Acquisition which increased revenues by $838. Additionally there were
increased revenues from Aviation Limited in the UK due to an increase in the
charter of long range corporate jet aircraft and an increase in US charter
revenues due to an increase in management contract customers. 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.
MAINTENANCE OPERATIONS
Revenues from maintenance operations increased by $3,244 or 54.2% in fiscal
1998 as compared to fiscal 1997, primarily due to an increase in fixed-wing
maintenance as a consequence of the Magec Acquisition which increased revenues
by $3,457 offset by a reduction in UK helicopter maintenance revenues in fiscal
1998. Gross margin percentage from these operations declined in fiscal 1998 as
compared to fiscal 1997 due to the inclusion of the Magec Acquisition which
produced a high revenue volume but a lower gross margin percentage. Although
no assurances can be given, it is the intention of management to attempt to
improve this area of the business by focusing on more profitable installation
projects as well as improving pricing on current ad hoc work. 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, gross margins are dependent upon the
levels of installation projects completed during the year.
AIRCRAFT SALES OPERATIONS
Revenues from aircraft sales operations increased by $45 or 4.6% in fiscal 1998
as compared to fiscal 1997. 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 historically had a material impact on the operating
results of the Company and can vary 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 $9,025 or 94.0% in fiscal 1998
as compared to fiscal 1997. This change is primarily attributable to the Magec
Acquisition in the UK which has led to increased revenues of $7,388. The
remainder of the improvement is a result of the Jet Systems Acquisition along
with the Company's increased presence at Morristown Municipal Airport,
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.
<PAGE>
1997 COMPARED TO 1996 ($000'S)
Revenues for fiscal 1997 increased to $25,585 as compared to revenues in fiscal
1996 of $22,786, an increase of $2,799 or 12.3%. This increase consists
primarily from increased revenues from the Company's fixed base operations of
$1,787 and UK flight operations of $851 (see discussion of each operational
area below).
The Company reported operating income for fiscal 1997 of $2,523 as compared to
$1,936 in fiscal 1996, an increase of $587 or 30.3%. 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 as compared to $1,336 for
fiscal 1996, a decrease of $174 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 for cash payments totaling $50. The Company
realized a gain on redemption of $47 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 for cash payments totaling $162.
The Company realized a gain on redemption of $287 net of related debt issuance
costs, on these repurchases.
The Company had net income of $ 1,092 for fiscal 1997 as compared to $406 for
fiscal 1996, an increase in profit of $686 or 169.7%. 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.
<PAGE>
FLIGHT OPERATIONS
Revenues from flight operations overall increased by $1,110 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, pursuant to a Business Transfer Agreement with PLM Dollar Group
Limited ("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.
Accordingly, the Company accounts for their investment 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 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 for approximately $1,298. Under the purchase agreement, the aggregate
purchase price was payable in two payments. The first payment of approximately
$323 was received in November 1997 and the second and final payment was
received by the company in August 1998. The company recognized a gain on the
sale of $75.
MAINTENANCE OPERATIONS
Revenues from maintenance operations decreased by $248 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 or 18.0% 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 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.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had a working capital deficit of $1,647 and
stockholders' equity of $4,871. The Company had net cash provided by operating
activities of $2,357 in fiscal 1998 compared to $969 in fiscal 1997. The
Company had an overall increase in cash and cash equivalents of $2,369 in
fiscal 1998 compared to a decrease of $542 in fiscal 1997. This increase in
cash flow from operating activities is primarily due to the effect of the cash
received from the sale of aircraft held for resale.
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 and Lynton Properties.
Prior thereto, Hanson North America had succeeded to HM Holdings, Inc. ("HM
Holdings"), as lender under a 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, and in consideration thereof (plus other
consideration described below), (i) cancelled the Loans and discharged all
obligations under the Credit Agreement except for certain indemnification
obligations stated therein to survive termination of the Loans, (ii) surrendered
to the Company 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 at the Morristown Municipal Airport,
Morristown, New Jersey. In addition, Millennium America, which previously
guaranteed certain obligations of Lynton Jet which were also secured by the
First Leasehold Mortgage, terminated and released its interests in the
Leasehold Mortgage. Millennium America continues to guarantee certain
obligations of Lynton Jet to 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 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 (the "1996
Finova Loan").
The 1996 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 1996 Finova Loan plus (b) interest only, on the remaining 35% of
the principal balance of the 1996 Finova Loan calculated at 10.7% per annum.
The remaining unpaid principal balance ($1,400) of the 1996 Finova Loan shall
be payable on December 1, 2004. The 1996 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.
In December 1993, the Company completed an off-shore placement of $2,500
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. 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 for cash payments totaling
$50. The Company realized a gain on redemption of $47, 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 for cash payments totaling
$162. The Company realized a gain on redemption of $287, net of related debt
issuance costs, on these repurchases. In addition, during a limited period of
time during fiscal 1997, the remaining holders of the Debentures had 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 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) 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 5 to
the Company's consolidated financial statements), and Debentures in the
principal amount of $795 remained outstanding. In December 1998 an amount of
$795 , plus remaining accrued interest, was paid to the trustee for the
Debentures, such funds to be utilized to pay the remaining principal and
interest on the Debentures which matured on December 31, 1998.
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. Under the
purchase agreement, the aggregate purchase price was payable in two
installments, the first of which was received in November 1997, and the second
and final payment was received by the Company in August 1998.
In connection with the acquisition of Magec, the consideration paid was 17,000
Pounds Sterling (equal to approximately $28,288) paid in cash. The funds used
to purchase Magec (including acquisition costs) included bank financing in the
principal amount of 12,827 Pounds Sterling (equal to approximately $21,344)
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 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 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 (the "8.0% Debentures") 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 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 "Capitalization Amendment").
In addition, the 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 Common Stock of the Company, or any successor, becomes listed on the
London Stock Exchange. 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 8.0% 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 8.0% Debentures bear interest at the rate of 8.0% per
annum payable semi-annually 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 the 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 and December 1, 1998 so such PIK Interest resulting therefrom has
been added and is now deemed part of the principal indebtedness for the
purposes of determining amounts which may be convertible into shares of Common
Stock.
In connection with the Magec Acquisition, Limited entered into a
facilities agreement with Bank of Scotland Limited ("Bank of Scotland") which
provided bank financing in the principal amount of 12,827 Pounds Sterling
(equal to approximately $21,344). The facility consists of term debt at an
interest rate of 2.25% above the Sterling LIBOR rate repayable in installments
through to September 30, 2002 and a term overdraft facility of 2,000 Pounds
Sterling (equal to approximately $3,328) repayable in two equal installments on
September 30, 2001 and September 30, 2002. The facilities are collaterized on
certain aircraft owned by Magec and further collaterized by a floating charge
over the assets of all the UK subsidiaries. The facilities agreement requires
compliance, by Limited, with certain covenants, financial and otherwise,
including maintaining a minimum adjusted net worth, a minimum senior interest
coverage ratio, a minimum senior debt service cash cover ratio and a maximum
loan to value coverage ratio for the aircraft financing.
In April 1998, the December 1999 Notes (in the principal amount of $1,664) were
repaid in full as a result of the sale of a certain aircraft by Magec for the
purchase price of $7,250. In connection therewith, certain other bank
indebtedness in the amount of $4,998 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
surrendered its option over said aircraft in return for a sum equal to the
difference between the purchase price ($7,250) and the option price ($6,664).
In June 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
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 Limited. The first
further advance under the Option Agreement of $1,500, and subsequent advances
have been received by Magec in accordance with the revised terms of the Option
Agreement and were immediately utilized to repay certain bank borrowings of
Limited.
In connection with the Jet Systems Acquisition a loan agreement was entered
into with Finova on February 27, 1998 (the "1998 Finova Loan") in the principal
amount of $1,625. The 1998 Finova Loan which bears interest at a rate of 10.1%
per annum shall be repaid in 60 equal consecutive monthly payments consisting
of (a) principal and interest that will fully amortize 65% of the 1998 Finova
Loan plus (b) interest only, on the remaining 35% of the principal balance of
the 1998 Finova Loan calculated at 10.1% per annum. The remaining unpaid
principal balance ($569) of the 1998 Finova Loan shall be payable on March 1,
2003. The 1998 Finova Loan requires compliance with certain covenants,
financial and otherwise, as defined in the loan agreement, including
maintaining a minimum tangible net worth, a minimum earnings before interest,
taxes, depreciation and amortization, coverage ratio and a total liabilities to
consolidated net worth ratio by both Lynton Jet as borrower and Lynton Group,
Inc. as guarantor.
In connection with the acquisition of Air Hanson, consideration of $4,168 was
paid in cash. The funds used to purchase Air Hanson included bank financing in
the principal amount of $2,500 with the balance of the purchase price from debt
financing through the issue of 8.0% Subordinated Convertible Debentures (the
"Additional 8.0% Debentures") due December 31, 2007 in the aggregate principal
amount of $4,623 issued and sold to certain institutional investors. The
Additional 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 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 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. 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 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 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,
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
decided to sell the aircraft to a single purchaser. The Company sold the
aircraft in April 1998 for $1,900. Under the terms of the sales agreement the
Company is obliged to sell a certain number of charter hours on the aircraft
within the first twelve months. Although no assurances can be given, the
Company believes it will not sustain a loss on this commitment. The proceeds
of the sale were used to repay the debt to G.E. Capital Corporation, which
financed the purchase of the aircraft.
The Company has a contracted capital expenditure commitment of 165 Pounds
Sterling (equal to approximately $281) for fiscal 1999. In addition, 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 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. Massachusetts Mutual Life Insurance Company ("Mass Mutual")
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 tax net operating loss carryforwards at
September 30, 1998 of approximately $1,035, 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 at the time of the
ownership change.
Inflation has not significantly impacted the Company's operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 130, "Reporting Comprehensive Income", ("FAS 130") 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 FAS No. 130 relates to disclosure within the financial statements
and is not expected to have a material effect on the Company's financial
statements.
In June 1997, the FASB issued Statement 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 FAS 131 is not expected to have a
material effect on the Company's financial statements.
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"). The new standard
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives will be reported in the statement of
operations or as a deferred item, depending on the use of derivatives and
whether they qualify for hedge accounting. The key criterion for hedge
accounting is that the derivative must be highly effective in achieving
offsetting changes in fair value or cash flows of the hedged items during the
term of the hedge. The Company has not yet determined the impact, if any, that
the adoption of FAS 133 will have on the consolidated financial statements.
OTHER MATTERS
The Year 2000 ("Y2K") issue is the result of computer programs using a two-
digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret data beyond the year 1999, which could
cause a system failure or other computer errors, leading to disruptions in
operations. In fiscal 1998, the Company began to methodically review its
current computer systems in order to (a) identify those systems that are not
Y2K compliant; (b) identify the costs of repairs and modifications required to
existing systems in order to ensure Y2K compliance; and (c) estimate the cost
of replacement for those systems that were not capable of being modified to a
Y2K compliant state. The Company has identified that its financial and
informational systems are the most critical systems that will require Y2K
modifications. The internal review identified certain computer hardware systems
that were not Y2K compliant and a replacement and modification program
commenced in the latter half of fiscal 1998, which is scheduled to be complete
during the third quarter of fiscal 1999. Additionally certain computer software
programs were also found not to be Y2K compliant. The Company, largely due to
the acquisitions during fiscal 1998, is currently in the process of upgrading
its software programs and is ensuring that new software is Y2K compliant. As
the Company is continually upgrading and improving systems in the ordinary
course of business, the cost of ensuring the Company is Y2K compliant is
estimated to be $250 of which approximately $50 has been expensed in fiscal
1998. Although no assurances can be given that there will be no interruption of
operations in the year 2000 the Company believes that it has reasonably
assessed all of its systems in order to ensure that the Company will not suffer
any material adverse effect of not being Y2K compliant.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is included elsewhere in this
report (see Part IV, Item 14).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by Item 9 has been reported in the Company's Current
Report on Form 8-K, dated January 12, 1999.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated by reference herein information which will be contained
in the Registrant's definitive proxy statement to be filed within 120 days of
the Registrant's year end in connection with the 1999 Annual Meeting of
Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated by reference herein information which will be contained
in the Registrant's definitive proxy statement to be filed within 120 days of
the Registrant's year end in connection with the 1999 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated by reference herein information which will be contained
in the Registrant's definitive proxy statement to be filed within 120 days of
the Registrant's year end in connection with the 1999 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated by reference herein information which will be contained
in the Registrant's definitive proxy statement to be filed within 120 days of
the Registrant's year end in connection with the 1999 Annual Meeting of
Stockholders.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) (1)(2) Consolidated Financial Statements and Financial Statement Schedules.
The Consolidated Financial Statements and Schedules filed as part of this
report are listed in the Index to Consolidated Financial Statements and
Schedules annexed hereto and made a part hereof.
(a) (3) Exhibits.
3.1 Registrant's restated certificate of incorporation (7)
3.2 Registrant's by-laws (1)
4.1 Indenture dated as of December 21, 1993 between the Registrant and American
Stock Transfer & Trust Company, as Trustee, relating to Registrant's 10% Senior
Subordinated Convertible Debentures due December 31, 1998, together with form
of Debenture (6)
10.1 Ground Lease for premises at Morristown Municipal Airport, Morristown, New
Jersey (4)
10.2 Employment Agreement dated August 5, 1998 with Christopher Tennant
10.3 1993 Stock Option Plan (5)
21.0 Lynton Group, Inc., parent and subsidiaries
99.1 Stockholders' Agreement dated as of August 14, 1990 by and among the
Registrant, HM Holdings, Inc. and Christopher Tennant (3)
99.2 First Amendment to Stockholders' Agreement dated December 22, 1992 by and
among Lynton Group, Inc., HM Holdings, Inc., Brae Group, Inc., James Niven and
Task Holdings, Inc. (2)
99.3 Note Agreement dated as of June 22, 1994 between Lynton Properties, Inc.
and Connecticut Mutual Life Insurance Company relating to a $9.0 million 6.69%
mortgage note due January 3, 2006 (6)
99.4 Business Acquisition Agreement between Dollar Air Services Limited and PLM
Dollar Group Limited (7)
99.5 Debt Discharge Agreement dated as of November 8, 1996 by and among Hanson
North America, Inc., Millennium America Inc., Lynton Group, Inc., Lynton Jet,
Inc. and Lynton Properties, Inc. (8)
99.6 Loan and Security Agreement dated November 13, 1996 by and between Lynton
Jet, Inc., as Borrower, and Finova Capital Corporation, as Lender (8)
99.7 Agreement dated December 5, 1997 between The General Electric Company,
p.l.c., Lynton Group Limited and Lynton Group, Inc. (9)
99.8 Form of Share and Purchase Agreement among Lynton Group Limited, Hanson
Funding (G) Limited and Hanson Finance p.l.c. (10)
(1) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1991, and incorporated by reference herein.
(2) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
December 22, 1992, and incorporated by reference herein.
(3) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
August 14, 1990, and incorporated by reference herein.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1990, and incorporated by reference herein.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993, and incorporated by reference herein.
(6) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994, and incorporated by reference herein.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995, and incorporated by reference herein.
(8) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
November 13, 1996, and incorporated by reference herein.
(9) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
December 23, 1997, as amended, and incorporated by reference herein.
(10) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
September 3, 1998, and incorporated by reference herein.
(b) Reports on Form 8-K.
Listed below are reports on Form 8-K filed during the last quarter of the
period covered by this report:
ITEMS REPORTED FINANCIAL STATEMENTS FILED DATE OF REPORT
Acquisition of Air Hanson None September 3, 1998
(c) Exhibits.
See Item 14(a)(3) above.
(d) See Index to Consolidated Financial Statements and Schedules annexed hereto
and made a part hereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
LYNTON GROUP, INC.
(Registrant)
By: /s/ CHRISTOPHER TENNANT
Christopher Tennant,
President, Chief Executive Officer
Date: 01/13/99
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ CHRISTOPHER TENNANT President, Chief Executive 01/13/99
Christopher Tennant Officer, Director
(Principal Executive Officer)
/s/ PAUL R. DUPEE, JR. Chairman of the Board 01/13/99
Paul R. Dupee, Jr. Director
/s/ RICHARD HAMBRO Director 01/13/99
Richard Hambro
/s/ JAMES G. NIVEN Director 01/13/99
James G. Niven
/s/ NIGEL PILKINGTON Director 01/13/99
Nigel Pilkington
/s/ DAVID HARLAND Deputy Chief Executive 01/13/99
David Harland Officer, Director
/s/ PAUL A. BOYD Secretary, Treasurer and 01/13/99
Paul A. Boyd Chief Financial Officer
(Principal Financial Officer)
<PAGE>
Lynton Group, Inc. and Subsidiaries
Index to Consolidated Financial Statements and Schedule
September 30, 1998
Report of Independent Auditors F-1
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9
Schedules
Report of Independent Auditors F-29
Report of Independent Certified Public Accountants F-30
Schedule II - Valuation and Qualifying Accounts F-31
Schedules other than those listed above are omitted since they are not
required, are not applicable or the information is included in the consolidated
financial statements and notes thereto.
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Lynton Group, Inc.
We have audited the accompanying consolidated balance sheet of Lynton Group,
Inc. and subsidiaries as of September 30, 1998 and the related consolidated
statements of income, stockholders' equity and cash flows for the year ended
September 30, 1998. 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 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 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 audit provides 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 as of September 30, 1998, and the consolidated
results of their operations and their consolidated cash flows for the year
ended September 30, 1998, in conformity with generally accepted accounting
principles.
/s/ Grant Thornton
London, England
December 18, 1998
F-1
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
Lynton Group, Inc.
We have audited the accompanying consolidated balance sheet of Lynton Group,
Inc. and subsidiaries as of September 30, 1997 and the related consolidated
statements of income, stockholders' equity and cash flows for the years ended
September 30, 1997 and 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 provides 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 as of September 30, 1997, and the consolidated
results of their operations and their consolidated cash flows for the years
ended September 30, 1997 and 1996, in conformity with generally accepted
accounting principles.
/s/ Grant Thornton LLP
New York, New York
January 13, 1998
F-2
<PAGE>
Lynton Group, Inc and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $3,095,662 $ 726,645
Accounts receivable (net of allowance
for doubtful accounts of $77,000 in
1998 and $22,000 in 1997) 6,587,563 3,268,879
Investment in jointly-owned company
held for resale - 1,222,620
Inventories 6,206,249 803,677
Prepaids and other current assets 1,536,170 214,124
Total current assets 17,425,644 6,235,945
Property, plant and equipment:
Aircraft 9,840,087 1,414,673
Buildings 20,884,114 14,133,096
Furniture and equipment 2,257,339 1,352,370
Motor vehicles 766,391 379,660
Leasehold improvements 807,752 766,136
34,555,683 18,045,935
Less accumulated depreciation and
amortization 6,424,635 4,652,703
28,131,048 13,393,232
Funds held in escrow 150,000 150,000
Aircraft held for resale 5,150,000 1,870,233
Long-term ground leases, less
accumulated amortization of
$592,000 in 1998 and $416,000 in 1997 2,158,449 1,933,861
Cost in excess of assets acquired,
less accumulated amortization of
$939,000 in 1998 and $530,000 in 1997 11,404,791 2,155,007
Other assets and deferred charges, less
accumulated amortization of
$332,000 in 1998 and $221,000 in 1997 662,978 484,970
Total assets $65,082,910 $26,223,248
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
Lynton Group, Inc and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30,
<S> <C> <C>
1998 1997
Liabilities and stockholders' equity
Current liabilities:
Current portion of capital lease
obligations $ 54,119 $ 38,480
Current portion of long-term debt 6,153,354 1,285,364
Accounts payable 4,637,544 2,717,602
Accrued expenses 4,429,635 1,215,747
Accrued income taxes 1,000,438 268,159
Advances from customers 208,196 245,102
Deferred revenue 1,794,250 1,516,848
Total current liabilities 18,277,536 7,287,302
Obligations under capital leases,
less current portion 56,396 69,071
Deferred revenue, less current portion 480,000 720,000
Long-term debt, less current portion 25,149,670 12,664,832
Convertible Debentures 11,439,499 795,000
Deferred income taxes 4,809,236 163,183
Commitments and contingencies
Stockholders' equity:
Common Stock, par value $.30 a share:
authorized 10,000,000 shares; issued
6,394,872 shares in 1998 and 1997 1,918,462 1,918,462
Additional paid-in capital 9,779,823 9,779,823
Accumulated deficit (7,014,742) (7,141,115)
Cumulative foreign currency
translation adjustment 198,378 (21,962)
4,881,921 4,535,208
Common stock held in Treasury at cost;
850,454 shares in 1998 and 1997 (11,348) (11,348)
Total stockholders' equity 4,870,573 4,523,860
Total liabilities and
stockholders' equity $65,082,910 $26,223,248
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
Lynton Group, Inc and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1998 1997 1996
<S> <C> <C> <C>
Net revenue:
Flight operations $18,030,805 $9,004,333 $7,894,484
Maintenance operations 9,234,418 5,990,233 6,237,913
Aircraft sales operations 1,029,047 983,723 833,781
Fixed base operations 18,631,760 9,606,813 7,820,148
46,926,030 25,585,102 22,786,326
Direct costs of operations:
Flight operations 14,840,536 7,745,471 6,963,692
Maintenance operations 8,453,789 4,990,984 5,313,666
Aircraft sales operations 401,231 329,038 367,819
Fixed base operations 12,432,028 6,163,540 4,984,026
36,127,584 19,229,033 17,629,203
Operating expenses:
Selling, general and
administrative 5,313,009 3,016,468 2,432,063
Depreciation 1,691,810 689,170 661,572
Amortization of ground lease
and goodwill 575,214 127,646 126,960
Restructuring costs 415,750 - -
Income from operations 2,802,663 2,522,785 1,936,528
Amortization of debt discount
and issuance costs 111,068 77,347 139,475
Interest expense 2,399,293 1,161,549 1,336,137
Write-off of amount due
from affiliate - - 191,308
Gain on sale of investment (75,632) - -
Income before income tax
provision and extraordinary item 367,934 1,283,889 269,608
Income tax provision 241,561 238,393 151,206
Income before extraordinary item 126,373 1,045,496 118,402
Extraordinary item-early
extinguishment of debt, net of tax - 46,864 287,408
Net income $126,373 $1,092,360 $405,810
Net income per share before
extraordinary item 0.02 .16 .06
Extraordinary item - .01 .15
Net income per share-Basic 0.02 .17 .21
Net income per share-Diluted 0.02 .17 .21
Weighted average number of shares
outstanding-Basic 6,394,872 6,394,872 1,961,760
Weighted average number of shares
outstanding-Diluted 6,598,159 6,394,872 1,961,760
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
YEAR ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<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 ----- --- ----- --- --------- -------- ----- ---------
9/30/95 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 - - - - 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
(1,000) (10) - - 2,053,876 616,163 - -
Surrender of Series D Preferred Stock
- - (2,000) (20) - - - -
Issuance of shares of Common Stock related to redemption of convertible
debentures - - - - 3,227,273 968,182 - -
Surrender of shares of Common Stock to Company
- - - - (848,454) (254,536) 848,454 (848)
Discharge of debt due HM Industries, net of related taxes and costs
- - - - - - - -
Translation adjustment at 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)
Net income for year ended 9/30/98
- - - - - - - -
Translation adjustment at 9/30/98
- - - - - - - -
Balance at -- -- -- -- --------- ---------- ------- ---------
9/30/98 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-6
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Continued)
YEAR ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Cumulative
Additional Currency Total
Paid-In Accumulated Translation Stockholders'
Capital Deficit Adjustment Equity
<S> <C> <C> <C> <C>
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 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
(616,153) - - -
Surrender of Series D Preferred Stock
20 - - -
Issuance of shares of Common Stock related to redemption of convertible
debentures 100,045 - - 1,068,227
Surrender of shares of Common Stock to Company
255,384 - - -
Discharge of debt due HM Industries, net of related taxes and costs
1,715,972 - - 1,715,972
Translation adjustment at 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
Net income for year ended 9/30/98
- 126,373 - 126,373
Translation adjustment at 9/30/98
- - 220,340 220,340
Balance at ---------- ------------ -------- ----------
9/30/98 $9,779,823 $(7,014,742) $198,378 $4,870,573
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 126,373 $1,092,360 $405,810
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,378,092 894,163 928,007
Profit on disposal of investment (75,632) - -
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)
Changes in certain assets and liabilities,
excluding effect from acquisitions:
Accounts receivable 901,002 (909,177) (405,409)
Due (to) from affiliates - (23,153) 44,775
Investment held for resale 1,298,252 - -
Inventories (345,858) 18,622 182,479
Prepaids and other current assets (399,197) 182,481 116,960
Accounts payable and accrued expenses (1,416,138) (47,968) 114,342
Advances from customers and deferred
revenue (109,542) (191,087) 319,084
Net cash provided by operating activitie 2,357,352 969,377 1,761,154
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for Magec Aviation,
net of cash acquired (29,693,138) - -
Cash paid for Jet Systems,
net of cash acquired (1,864,076) - -
Cash paid for Air Hanson,
net of cash acquired (4,185,567) - -
Aircraft held for resale 8,564,000 - -
Capital expenditures (444,446) (652,160) (273,263)
Disposal of fixed assets - 40,376 52,472
Net cash used in investing activities (27,623,227) (611,784) (220,791)
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of senior subordinated
convertible debt - (50,000) (162,000)
Proceeds of borrowings from finance
company, net of issuance costs - - 3,850,000
Repayment to HM Holdings, Inc. - - (3,500,000)
Repayment of long-term debt (12,741,367) (900,034) (610,868)
Proceeds from notes payable 1,540,789 84,000 34,700
Proceeds from Magec Aviation
acquisition 30,177,450 - -
Proceeds from Jet Systems acquisition 1,625,000 - -
Proceeds from Air Hanson acquisition 7,123,000 - -
Reduction of capital lease obligations (1,966) (47,226) (28,592)
Net cash provided by (used in)
financing activities 27,722,906 (913,260) (416,760)
Effect of exchange rate changes on cash (88,014) 13,837 7,550
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,369,017 (541,830) 1,131,153
Cash and cash equivalents,
beginning of year 726,645 1,268,475 137,322
Cash and cash equivalents, end of year 3,095,662 $726,645 $1,268,475
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-8
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
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, Inc. ("Lynton Jet"); Lynton Aviation, Inc.; Lynton Aviation
Services, Inc.; Ramapo Helicopters, Inc. ("Ramapo") now known as Lynton
Aircraft Maintenance Services, Inc.; Lynton Properties, Inc. ("Lynton
Properties"); Lynton Group Limited ("Limited"); Lynton Aviation Limited
("Lynton Aviation"); European Helicopters Limited ("EHL"); Air Hanson Limited
("Air Hanson"); Magec Aviation Limited ("Magec"); Jet Systems; Dollar Air
Services Limited ("Dollar Air") (see Note 3); Black Isle Helicopters Limited
("Black Isle"); 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 6). Services include the, management charter 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").
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 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
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 5), are being amortized on a straight-line basis over a term
of 40 years.
The ground lease in connection with the acquisition of the assets of Jet
Systems is being amortized on a straight line basis through December 1999.
The Company operates the Lynton Jet 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. As a result of the Jet Systems acquisition
completed in February 1998, Lynton Jet also operates out of an additional
hangar/office facility of approximately 53,000 square feet, on a site pursuant
to a ground lease with an initial term expiring on December 31, 1999. Although
there can be no assurance, it is anticipated that during 1999 Lynton Jet will
enter into a new ground lease for a period of 25 years on this site.
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.
The Company leases an additional facility of approximately 36,000 square feet
at the Morristown Municipal Airport, Morristown, New Jersey, with an initial
term that expired on May 31, 1998, with an option to renew for an additional
three years. The Company exercised its option to renew for such additional
three years, expiring May 31, 2001. Lynton Maintenance conducts its
maintenance operation from this facility, in addition to the providing
additional FBO facilities.
The Company, as a result of the Magec Acquisition completed in December 1997,
now operates an additional FBO out of hangar and office facilities of
approximately 65,000 square feet, at London Luton Airport located in the
London, England metropolitan area. Magec leases the facilities from London
Luton Airport pursuant to lease agreements which expire in 2035 and 2045. The
rental payments due under the leases are generally based upon increases in the
consumer price index, the next such reviews being December 2003 and January
2000.
The Company, as a result of the Air Hanson Acquisition completed in September
1998, now operates out of hangar and office facilities of approximately 60,000
square feet at Blackbushe Airport pursuant to a lease agreement which expires
in 2001.
COST IN EXCESS OF NET ASSETS ACQUIRED AND COVENANT NOT TO COMPETE
Cost in excess of net assets acquired resulting from the excess of the purchase
price over the net assets of businesses acquired is being amortized over a
period of between twenty and forty years on the straight-line method.
The covenant not to compete is being amortized over 10 years which is the term
of the agreement.
The carrying value of the long-lived assets are reviewed if the facts and
circumstances suggest that it may be permanently impaired, in accordance with
Statement of Financial Accounting Standards No. 121, "Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of". Such review is based upon the
undiscounted expected future operating cash flows derived from such assets 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.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standard ("SFAS") No. 109 "Accounting for Income Taxes" which
requires the use of the liability method, whereby deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statements carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered and settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
FOREIGN CURRENCY TRANSLATION
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 cumulative
foreign currency translation adjustment component of stockholders' equity.
EARNINGS PER SHARE
In the first quarter of 1998, the Company adopted the provisions of SFAS No.
128, "Earnings per Share." The Company therefore changed the method used to
compute earnings per share and restated all prior periods in accordance with
SFAS No. 128. Basic earnings (loss) per share reflect the weighed-average
number of common shares outstanding during each period. Diluted earnings per
share reflect the impact of potential common shares from options and
convertible debentures, using the treasury-stock method. Stock options to
purchase common stock of the Company are antidilutive for the year ended
September 30, 1998 due to the net loss in the year and are therefore excluded
from the calculation of diluted earnings per share. For the years ended
September 30, 1998 and 1997 stock options issued carried exercise prices in
excess of the average market prices of the common stock in each of the
respective years and are therefore excluded from the calculation of diluted
earnings per share. Average market price has been computed using the weighted
average market price of shares traded for each of the respective years ended.
Convertible debentures of the Company, when calculated on an "if-converted"
basis, would be antidilutive for each of the three years in the period ended
September 30, 1998 and are therefore excluded from the calculation of diluted
earnings per share.
The incremental dilutive effect of share options was 203,287 for the year
ended September 30, 1998.
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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("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.
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.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning after
June 15, 1999. The new standard requires that all companies record derivatives
on the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. Management is currently assessing whether there will be
any impact of SFAS No. 133 on the Company's consolidated financial statements
upon adoption, which is required in October 1999.
USING ESTIMATES IN FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reporting period. Among the significant
estimates made by management included in these Consolidated Financial
Statements are the useful lives of long-lived assets, the fair value of
financial instruments, the fair value of the Company's Common Stock, the
realizable value of 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, allowance for doubtful
accounts and the adequacy of the insurance coverage. Actual results may differ
significantly from those estimates.
STOCK BASED COMPENSATION
The Company accounts for employee stock based compensation in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" (APB 25) and provides the disclosure required in SFAS No. 123
"Accounting for Stock Based Compensation".
RECLASSIFICATIONS
As a result of the increase in Convertible Debentures during the year, the
prior years' figure of $795,000 has been reclassified and is now shown
separately to long-term debt.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include investments in highly liquid securities
having an original maturity date of three months or less.
CONCENTRATION OF CREDIT RISKS
Financial instruments that potentially subject the Company to significant
levels of credit risk are accounts receivable. The Company extends credit based
on the evaluation of its clients' financial condition. The Company's historical
credit losses have not been significant.
2. STOCKHOLDERS' EQUITY
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").
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.
3. ACQUISITION AND TRANSFER
ACQUISITION OF MAGEC AVIATION LIMITED
In December 1997, the Company acquired through Limited all of the issued and
outstanding shares of Magec, a company organized under the laws of England in a
business combination which has been accounted for as a purchase and the
accounts of Magec have been included in the accompanying consolidated financial
statements for the period December 23, 1997 through September 30, 1998. 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 totaling $2,069,000)
of $29,693,000 exceeded the estimated fair value of the net assets of Magec by
$9,642,000, which is being amortized over twenty years.
The consideration paid was 17,000,000 Pounds Sterling (equal to approximately
$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. (See note 5). 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. Both the aircraft and the associated liabilities are
included on the consolidated balance sheet.
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, in addition certain other 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).
The following unaudited proforma consolidated results of operations assume that
the Magec purchase occurred on October 1, 1996:
<TABLE>
<CAPTION>
Year Ended September, 30
1998 1997
<S> <C> <C>
Revenue $52,200,000 $47,500,000
Net income $445,000 $1,393,000
Basic income per common share $0.07 $0.11
Diluted income per common share $0.07 $0.11
</TABLE>
ACQUISITION OF THE ASSETS OF JET SYSTEMS
On February 27, 1998 the Company, through Lynton Jet, acquired for $1,864,000
in cash (including acquisition costs) substantially all the assets of Jet
Systems, a company whose trading activities are consistent with Lynton Jet.
The acquisition has been accounted for as a purchase and the accounts of Jet
Systems have been included in the accompanying financial statements for the
period February 27, 1998 through September 30, 1998. The results of operations
from October 1, 1997 would not materially effect revenue or earnings.
ACQUISITION OF AIR HANSON LIMITED
Pursuant to two Aircraft Sales Agreements among Limited and Air Hanson, Limited
acquired on September 3, 1998 two helicopters owned by Air Hanson for a total
consideration of $4,168,000.
In September 1998, the Company acquired through Limited (the "Air Hanson
Acquisition") all of the issued and outstanding shares of Air Hanson Limited, a
company organized under the laws of England. At the time of the Air Hanson
Acquisition, Air Hanson Limited owned Air Hanson Engineering Limited ("Air
Hanson Engineering") and Air Hanson Aircraft Sales Limited ("Air Hanson Sales")
both companies organized under the laws of England. Unless otherwise indicated
by the context, the term "Air Hanson" refers to Air Hanson Limited, Air Hanson
Engineering and Air Hanson Sales. Air Hanson is based at Blackbushe airport in
the United Kingdom where it occupies a facility of approximately 60,000 square
feet and is principally engaged in the provision of the maintenance, sale,
charter and management of corporate turbine helicopters and light fixed wing
aircraft.
The purchase price for the Air Hanson Shares will be calculated by reference to
the net asset value of Air Hanson following the issuance of audited completion
accounts. The price to be paid is subject to a maximum purchase consideration
of 500,000 Pounds Sterling, (equal to approximately 850,000 Pounds Sterling)
and although no assurances can be given management believes that the issue of
the audited completion accounts will result in a repayment to Limited when the
net asset values are compared to the warranted net asset value as stated in the
Air Hanson Share Sale and Purchase Agreement. Included in the results of the
Company is an accrual of $416,000 for restructuring costs incurred post year
end.
TRANSFER OF DOLLAR AIR SERVICES LIMITED
In August 1995, pursuant to a Business Transfer Agreement with PLM Dollar Group
Limited ("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.
Accordingly, the Company accounts for their investment 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 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 for approximately $1,298,000. Under the
purchase agreement, the aggregate purchase price was payable in two payments.
The first payment of approximately $323,000 was received in November 1997 and
the second and final payment was received by the company in August 1998. The
company recognized a gain on the sale of $75,632.
COST IN EXCESS OF NET ASSETS ACQUIRED
Movements in the cost in excess of net assets acquired for the three years
ending September 30, 1998, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at October 1, 1995 $2,284,000
Amortization expense (70,000)
-----------
Balance at September 30, 1996 2,214,000
Amortization expense (69,000)
Foreign exchange movement 10,000
-----------
Balance at September 30, 1997 2,155,000
Additions in the year 9,642,000
Amortization expense (409,000)
Foreign exchange movement 17,000
------------
Balance at September 30, 1998 $11,405,000
</TABLE>
5. LONG TERM DEBT
Long-term debt at September 30, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Mortgage due to bank with interest at Sterling
LIBOR rate (7.19% at September 30, 1997) plus 2.0%,
paid in full during 1998. $- $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. 6,882,109 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. 3,603,802 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. 1,541,639 -
Note payable to finance company with interest at
Sterling LIBOR rate (7.5% at September 30, 1998)
plus 3.5% payable in monthly installments through
August 2000. 357,126 536,597
Aircraft financing note payable to G.E. Capital
Corp. with an interest rate of 10.0% with principal
due every six months and interest due every four
months; paid in full during 1998. - 1,870,233
Notes payable to Bank of Scotland with interest at
Sterling LIBOR rate (7.5% at September 30, 1998)
plus 2.25% payable in installments through
September 2002. 15,877,806 -
Loan note payable to third party at zero interest,
pursuant to an option agreement to purchase an
aircraft. 2,987,500 -
Notes payable due to finance company with an
interest rate of 10.5%, due in monthly installments
through February, 2000. 53,042 25,985
$31,303,024 $13,950,196
Less:
Amount due within one year (6,153,354) (1,285,364)
$25,149,670 $12,664,832
</TABLE>
Maturities of long-term debt for the fiscal years ending September 30 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $6,153,354
2000 6,662,498
2001 5,100,821
2002 6,634,853
2003 2,145,498
Thereafter 4,606,009
$31,303,024
</TABLE>
At September 30, 1998 and 1997, the weighted average interest rates on short-
term borrowings was 9.6% and 9.7%, respectively.
FINANCE COMPANY NOTE
Note payable due to finance company of $357,000 is collateralized by aircraft
with an aggregate book value of approximately $718,000.
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.
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.
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 relating to the borrowings from HM Holdings was approximately
$455,000 for the year ended September 30, 1996.
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.
1996 FINOVA LOAN
Simultaneously with the completion of a Debt Discharge Agreement on November 8,
1996 signed by and among Hanson North America, Inc, Millennium America Inc and
the Company, 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 "1996 Finova Loan").
The 1996 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 1996 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 1996 Finova Loan plus (b) interest only, on the remaining 35% of the
principal balance of the 1996 Finova Loan calculated at 10.7% per annum. The
remaining unpaid principal balance ($1,400,000) of the 1996 Finova Loan shall
be payable on December 1, 2004. The 1996 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.
1998 FINOVA LOAN
In connection with the Jet Systems Acquisition a loan agreement was entered
into with Finova on February 27, 1998 (the "1998 Finova Loan") in the principal
amount of $1,625,000. The 1998 Finova Loan which bears interest at a rate of
10.1% per annum shall be repaid in 60 equal consecutive monthly payments
consisting of (a) principal and interest that will fully amortize 65% of the
1998 Finova Loan plus (b) interest only, on the remaining 35% of the principal
balance of the 1998 Finova Loan calculated at 10.1% per annum. The remaining
unpaid principal balance ($568,750) of the 1998 Finova Loan shall be payable on
March 1, 2003. The 1998 Finova Loan requires compliance with certain covenants,
financial and otherwise, as defined in the loan agreement, including
maintaining a minimum tangible net worth, a minimum earnings before interest,
taxes, depreciation and amortization, coverage ratio and a total liabilities to
consolidated net worth ratio by both Lynton Jet as borrower and Lynton Group,
Inc. as guarantor.
THE MASSMUTUAL MORTGAGE NOTE
On June 22, 1994, Lynton Properties issued to Connecticut Mutual Life Insurance
Company ("Connecticut Mutual") a $9,000,000, 6.69% mortgage note due January 3,
2006 (the "Mortgage Note") with varying scheduled monthly payments of principal
and interest. The Mortgage Note is collateralized by a Leasehold Mortgage and
Security Agreement and an Assignment of Leases and Rents, each dated June 22,
1994, on a lease between a certain tenant and Lynton Properties relating to a
hangar and office facility located on the property at the Jet Centre.
Massachusetts Mutual Life Insurance Company ("MassMutual") is an assignee of
Connecticut Mutual under this loan.
In addition, the obligations of Lynton Properties under the Mortgage Note are
guaranteed by Lynton Jet pursuant to a Guaranty Agreement dated June 22, 1994,
between Lynton Jet and Connecticut Mutual (the "Jet Centre Guaranty").
Further, the obligations of Lynton Jet under the Jet Centre Guaranty, other
than certain environmental and related obligations, are, and continue to be,
guaranteed by Millennium America, pursuant to a Guaranty Agreement, dated June
22, 1994, between Millennium America and Connecticut Mutual (the "Millennium
America Guaranty"). Further, Millennium America received a one-time fee of
$100,000, in 1994, in connection with the issuance of the Millennium America
Guaranty. MassMutual is the assignee of Connecticut Mutual.
At September 30, 1998 and 1997, the Company had $150,000 in interest-bearing
funds, accruing to the Company, held in escrow, as additional security to the
Mortgage Note.
BANK OF SCOTLAND LOAN
In connection with the Magec Acquisition, Limited entered into a facilities
agreement with Bank of Scotland Limited ("Bank of Scotland") which provided
bank financing in the principal amount of 12,827,000 Pounds Sterling (equal to
approximately $21,344,000). The facility consists of term debt at an interest
rate of 2.25% above the Sterling LIBOR rate repayable in installments through
to September 30, 2002 and a term overdraft facility of 2,000,000 Pound Sterling
(equal to approximately $3,328,000) repayable in two equal installments on
September 30, 2001 and September 30, 2002. The mortgage of $211,000 was repaid
as part of the financing arrangement. The facilities are collaterized on
certain aircraft owned by Magec and further collaterized by a floating charge
over the assets of all the UK subsidiaries. The facilities agreement requires
compliance, by Limited, with certain covenants, financial and otherwise,
including maintaining a minimum adjusted net worth, a minimum senior interest
coverage ratio, a minimum senior debt service cash cover ratio and a maximum
loan to value coverage ratio for the aircraft financing.
CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Senior Subordinated Convertible Debentures
with interest at 10%, payable in the amount
of 1/3 of the aggregate prinicpal amount
prior to December 31 of each of the years $795,000 $795,000
from 1996 to 1998.
8% Subordinated Convertible Debentures due
December 31, 2007. 6,021,499 -
Additional 8% Subordinated Convertible
Debentures due December 31, 2007. 4,623,000 -
$11,439,499 $795,000
</TABLE>
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 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. 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, during a limited period of time during fiscal 1997, the remaining
holders of the Debentures had 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 and Debentures in the
principal amount of $795,000 remained outstanding. In December 1998 an amount
of $795,000, plus remaining accrued interest, was paid to the trustee for the
Debentures, such funds to be utilized to pay the remaining principal and
interest on the Debentures which matured on December 31, 1998.
8% SUBORDINATED CONVERTIBLE DEBENTURES
In connection with the acquisition of Magec, part of the debt finance raised
were 8.0% Subordinated Convertible Debentures due December 31, 2007 in the
aggregate principal amount of $5,816,000 (the "8.0% Debentures") 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 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
"Capitalization Amendment"). In addition, the 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 Common Stock of the Company, or
any successor, becomes listed on the London Stock Exchange. 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 8.0% 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 8.0% Debentures bear
interest at the rate of 8.0% per annum payable semi-annually 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 the 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 and December 1, 1998 so
such PIK Interest resulting therefrom has been added and is now deemed part of
the principal indebtedness for the purposes of determining amounts which may be
convertible into shares of Common Stock.
ADDITIONAL 8% SUBORDINATED CONVERTIBLE DEBENTURES
In connection with the acquisition of Air Hanson, the balance of the purchase
price was financed through the issue of 8.0% Subordinated Convertible
Debentures (the "Additional 8.0% Debentures") due December 31, 2007 in the
aggregate principal amount of $4,623,000 issued and sold to certain
institutional investors. The Additional 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 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 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. 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.
7. GEOGRAPHIC AREA AND INDUSTRY SEGMENT INFORMATION
Following is a summary of the consolidated financial position at September 30,
1998 and 1997 and consolidated results of operations for each of the three
years ended September 30, 1998, 1997 and 1996 of the Company's wholly-owned
foreign subsidiary, Limited, located in the United Kingdom, and its
subsidiaries.
The Company is principally engaged in one industry segment, the performance of
aviation sales and services. The Company markets it's services in the United
States, United Kingdom and other European countries.
Revenues from foreign subsidiaries represented 68%, 51% and 55% of consolidated
net revenues in 1998, 1997 and 1996, respectively, and were derived from
geographic regions as specified below:
<TABLE>
<CAPTION>
Years ended September 30,
1998 1997 1996
<S> <C> <C> <C>
Net revenues:
United States $14,975,869 $12,568,159 $10,192,128
United Kingdom and other
European countries 31,950,161 13,016,943 12,594,198
$46,926,030 $25,585,102 $22,786,326
Income (loss) before income
tax provision and extraordinary item:
United States $361,360 $527,535 $(273,537)
United Kingdom and other
European countries 6,574 756,354 543,145
$367,934 $1,283,889 $269,608
</TABLE>
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Total assets:
United States $22,951,400 $19,575,500
United Kingdom and other
European countries 42,131,510 6,647,748
$65,082,910 $26,223,248
</TABLE>
THERE WERE NO DIVIDENDS FROM FOREIGN SUBSIDIARIES DURING 1998, 1997 OR 1996.
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company operates the Lynton Jet 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. As a result of the Jet System acquisition
completed in February 1998, Lynton Jet also operates out of an additional hangar
/office facility of approximately 53,000 square feet, on a site persuant to a
ground lease with an initial term expiring on December 31, 1999. Although there
can be no assurance, it is anticipated that during 1999 Lynton Jet will enter
into a new ground lease for a period of 25 years on this site.
The Company leases an additional facility of approximately 36,000 square feet
at the Morristown Municipal Airport, Morristown, New Jersey, with an initial
term that expired on May 31, 1998, with an option to renew for an additional
three years. The Company exercised its option to renew for such additional
three years, expiring May 31, 2001. Lynton Maintenance conducts its
maintenance operation from this facility, in addition to the providing
additional FBO facilities.
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,
1998 are as follows:
<TABLE>
<CAPTION>
Year Ending September 30:
<S> <C>
1999 $618,772
2000 524,368
2001 407,589
2002 248,317
2003 248,317
Thereafter 1,259,104
Total minimum lease payments $3,306,467
</TABLE>
Rental expense for the years ended September 30, 1998, 1997 and 1996 was
approximately $738,000, $510,000 and $486,000, respectively.
CAPITAL LEASES
The Company leases 5 motor vehicles, which have been accounted for as capital
leases. Following is a summary of property held under capital leases:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Motor vehicles $237,255 $185,489
Less: Accumulated depreciation (79,010) (25,897)
$158,245 $159,592
</TABLE>
Aggregate future minimum lease payments under capital leases at September 30,
1998, by fiscal year, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $54,119
2000 44,962
2001 9,967
2002 1,467
Thereafter -
Total minimum lease payments 110,515
Less interest portion (16,146)
Present value of net minimum lease payments $94,369
</TABLE>
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.
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, if any, will be
awarded to the full extent of the plaintiff's claim.
9. 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, 1998 and 1997 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, 1998 and 1997, 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,
1998 1997 1996
<S> <C> <C> <C>
Expected provision at 34% $125,098 $452,456 $91,667
Non-allowable foreign amortization 123,672 - -
Foreign income taxes - - 151,206
Benefit of operating losses (utilized):
Domestic (33,412) (102,339) (91,667)
Foreign - (99,089) -
Other 26,203 (12,635) -
Total tax provision $241,561 $238,393 $151,206
</TABLE>
The Company has unused U.S. Federal net operating loss carryforwards at
September 30, 1998 of approximately $1,035,000 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 ("the Code"), 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.
10. EMPLOYMENT AGREEMENT/STOCK OPTIONS
The Company has an employment agreement with its Chief Executive Officer
extending through February, 2000 providing for a base salary of $211,000
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 10). The term of this agreement may be extended for an
additional eighteen months under certain circumstances.
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, 1998, options to acquire 6,668 shares of Common
Stock have been granted under the 1993 Plan and 226,665 options were available
for future grant. During 1998, 16,667 options expired prior to being
exercised.
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. An additional 950,000 non-statutory stock options were
granted in February 1998, 450,000 of which were immediately exercisable at a
price of $1.00 per share. The remaining 500,000 shares vest over three years
following the first year and are also exercisable at $1.00 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, the Company's net income and earnings per share
would have been the pro forma amounts indicated below.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1997 1996
<S> <C> <C> <C> <C> <C>
Net income As Reported $126,373 $1,092,360 $405,810
Pro forma $111,573 $1,092,360 $405,780
Basic earnings per share
As Reported $0.02 $0.17 $0.21
Pro forma $0.02 $0.17 $0.21
Diluted earnings per share
As Reported $0.02 $0.17 $0.21
Pro forma $0.02 $0.17 $0.21
</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 1998 and 1997: expected volatility of 40%; risk-
free interest rates of 6.0%; and expected lives of 2 1/2 years.
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>
1998 1997 1996
<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 734,003 $0.53 63,340 $1.54 94,176 $2.34
Granted 950,000 1.00 704,000 0.50 5,001 0.25
Expired/cancelled (23,555) 1.50 (33,337) 1.78 (35,837) 3.45
Exercised 0.00 - 0.00 - 0.00 -
Outstanding at end
of year 1,660,668 $0.79 734,003 $0.53 63,340 $1.54
Exercisable at end
of year 1,160,668 $0.69 734,003 $0.53 43,340 $1.74
Weighted average fair
value of options granted
during the year $0.04 $0.00 $0.01
</TABLE>
The following information applies to options outstanding at September 30, 1998:
<TABLE>
<S> <C> <C>
Range of exercise prices 3,334 shares $0.25
704,000 shares $0.50
3,334 shares $0.80
950,000 shares $1.00
Weighted average exercise price $0.69
Weighted average remaining contractual life 4.13 years
</TABLE>
11. 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,
1998, 1997 and 1996, rental expense for this space was $56,000, $51,000 and
$46,000 , respectively.
The Company paid $25,000 in 1996 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 or 1998.
12. 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
</TABLE>
Cash paid for interest and income taxes during the fiscal years were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Interest $1,672,284 $1,085,016 $1,509,512
Income taxes $337,052 $23,643 -
</TABLE>
13. PREPAYMENTS, OTHER DEBTORS AND ACCRUED EXPENSES
As of September 30, 1998 and 1997, accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Accrued purchases $591,319 $182,863
Aircraft maintenance reserves 378,698 327,465
Payroll and payroll taxes 650,569 182,047
Interest 503,364 86,222
Sales, excise and V.A.T. taxes 221,881 99,714
Professional fees 183,148 116,719
Aircraft management and charter costs 485,688 45,959
Site cleanup cost 40,000 40,000
Costs re Romanian aircraft 220,109 -
Air Hanson restructuring cost 415,750 -
Unrealized exchange gain on debentures 83,552 -
Other 655,557 134,758
$4,429,635 $1,215,747
</TABLE>
As of September 30, 1998 and 1997, prepayments and other debtors are summarized
as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Prepayments $737,497 $186,532
Other debtors 798,673 27,592
$1,536,170 $214,124
</TABLE>
14. 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 $46,000, $44,000 and $47,000 for fiscal
1998, 1997 and 1996, 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 $66,000, $51,000 and
$47,000 for fiscal 1998, 1997 and 1996, respectively.
15. RENTAL INCOME
The Company's FBO facility, through Lynton Jet 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.
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, 1998:
<TABLE>
<S> <C>
1999 $3,028,015
2000 1,954,061
2001 1,823,934
2002 1,385,610
2003 1,385,610
Thereafter 1,732,013
Total minimum future rentals $11,309,243
</TABLE>
The above schedule includes deferred annual revenues from Hanson North America
and Millennium Holdings, through 2001, pursuant to the lease agreement.
<PAGE>
Report of Independent Auditors on Schedule
Lynton Group, Inc.
In connection with our audit of the consolidated financial statements of Lynton
Group, Inc. and subsidiaries as of September 30, 1998, 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
London, England
December 18, 1998
F-28
<PAGE>
Report of Independent Certified Public Accountants
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-29
<PAGE>
Lynton Group, Inc. and Subsidiaries
Schedule II-Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Balance at
Beginning End of
of Period Additions Deductions Period
<S> <C> <C> <C> <C>
Year ended September 30, 1998:
Allowance for doubtful accounts $22,196 $57,499 (1) ($2,726) $76,969
Year ended September 30, 1997:
Allowance for doubtful accounts $21,465 $731 (2) - $22,196
Year ended September 30, 1996:
Allowance for doubtful accounts $21,80 - $(343)(1) $21,465
</TABLE>
(1) Includes $1,201 which represents effect of exchange rate differences;
and 4,321 Pounds Sterling acquired from Magec.
(2) Represents effect of exchange rate differences.
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-30
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of the 5th day of August, 1998, by and
between LYNTON GROUP, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Company"), and CHRISTOPHER TENNANT (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Executive to perform services
for the Company, any present or future parent, subsidiary, or affiliate of
the Company (collectively, with the Company, the "Lynton Companies"), upon
the terms and conditions hereinafter set forth and the Executive desires to
accept such employment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. EMPLOYMENT. The Company agrees to employ and retain the Executive, and
the Executive in turn agrees to be employed by the Company, upon the terms
and conditions of this Agreement.
2. TERM. The employment of the Executive hereunder shall commence and be
effective as of the date hereof (the "Commencement Date") and, unless
earlier terminated pursuant hereto, shall continue for a period of eighteen
(18) months thereafter (the "Term"). Notwithstanding the foregoing, if at
any time during the Term, the Company shall complete a public stock
offering in the United Kingdom, then and in such event, the Term shall be
automatically extended (unless earlier terminated pursuant hereto) for a
period of eighteen (18) months from the date thereof. In addition, if at
any time within eighteen (18) months of the Commencement Date, the Company
and the Lynton Companies, substantially as an entirety, merge, consolidate
with or are acquired by another entity, or substantially all of their
assets are sold, or at any time during the initial eighteen (18) month term
there is a change of the majority of the members of the Board of Directors
of the Company for any reason, then and in such event, the term hereof
shall be automatically extended (unless earlier terminated pursuant hereto)
for a period of eighteen (18) months beyond the initial eighteen (18) month
term.
3. NATURE OF THE EXECUTIVE'S SERVICES.
(a)The Executive shall serve as President and Chief Executive Officer of
the Company and shall serve as an executive for any of the other Lynton
Companies when and as requested by the Board of Directors of the Company.
The Executive further agrees, if requested, to continue to serve on the
Board of Directors of the Company and/or any of the other Lynton Companies.
The Executive shall perform and assist in such positions as may reasonably
be determined and as assigned to him from time to time by the Board of
Directors of the Company.
(b)The Executive agrees that he will at all times, to the best of his
ability, experience and talent, perform all of the duties that may be
required of him pursuant to the express and implicit terms hereof, and will
devote substantially all of his working time, energies and skills to the
performance of such duties.
4. COMPENSATION.
(a)As of the Commencement Date, the Company and/or any of the other Lynton
Companies shall pay the Executive, and the Executive agrees to accept, as
compensation for his services performed under this Agreement, a salary at
an aggregate annual rate of Two Hundred Eleven Thousand (U.S. $211,000)
Dollars. This amount shall include any and all amounts which may be paid
from time to time to Lynton International Limited for office space rented
to any of the Lynton Companies or for any other purposes as the parties may
agree. The Executive's salary shall be increased on each anniversary date
of the Commencement Date by any such annual cost of living increase, based
on the Consumer Price Index for the New York Metropolitan Area published
from time to time by the United States Bureau of Labor Statistics, or any
successor index, however designated, as may be determined by the
Compensation Committee or the Board of Directors of the Company. The
salary shall be payable in equal monthly installments or on such other
periodic basis as the parties may agree.
(b)In addition thereto, the Executive shall be eligible to receive bonus
compensation in such amounts and at such times as the Compensation
Committee or the Board of Directors of the Company shall, from time to
time, determine. Such determination including the amount of bonus
compensation, if any, shall be made in the sole discretion of the
Compensation Committee or the Board of Directors of the Company, as the
case may be.
5. EXPENSES AND BENEFITS. The Executive is authorized to incur reasonable
and necessary expenses in connection with the business of the Lynton
Companies. The Executive shall be reimbursed for such expenses upon
presentation by the Executive of such accounts and records as the Company,
or any of the other Lynton Companies, as the case may be, shall from time
to time require. The Executive shall also be provided with the following
benefits:
(a)Enrollment in all group insurance plans that are maintained for
executives of the Company and/or any of the other Lynton Companies;
(b)Participation in any other employee benefit plans now existing or
hereafter adopted by the Lynton Companies for its key employees;
(c)Such items and benefits as the Company shall, from time to time,
consider necessary or appropriate to assist the Executive in the
performance of his duties;
(d)The Executive shall be entitled (in addition to the usual public
holidays) to twenty-five (25) business days of paid vacation per year.
Unused vacation time shall not be carried over to subsequent years; and
(e)The Executive shall be provided with the use of an automobile for
normal and reasonable purposes, and shall be reimbursed for all normal and
reasonable expenses incurred in connection with the use of such automobile,
including, but not limited to, gasoline, parking, tolls, automobile
repairs, and insurance, upon presentation of such accounts and records as
the Company, or any of the Lynton Companies, as the case may be, shall from
time to time require. In addition thereto, the Executive shall be
reimbursed for any federal, state or, if applicable, any United Kingdom
taxes imposed upon the Executive for his use of such automobile for normal
and reasonable purposes.
6. TERMINATION.
(a)This Agreement shall be terminated in the event of the death of the
Executive, or of his disability to perform substantially those functions to
be performed by the Executive pursuant to the terms of this Agreement for a
period of ninety (90) consecutive days or an aggregate of one hundred
eighty (180) days in any twelve (12) month period, such determination to be
made in good faith by the Company's Board of Directors. In the event the
Executive disagrees with such determination, the Executive and the Company
shall each appoint its own physician who shall each promptly examine the
Executive and consult with one another. In the event the two physicians do
not agree on the status of the Executive's disability, they shall, promptly
and jointly, appoint a third physician, whose determination shall be
binding on all the parties hereto. After any termination under this
subsection, the Executive shall be entitled to no additional compensation
or other benefits of employment.
(b)This Agreement may be terminated immediately for cause by the Company
upon written notice. Cause shall include, without limitation, the
Executive's criminal activity, habitual absenteeism or willful or
habitually negligent disregard of his obligations hereunder, the
Executive's voluntary resignation as President and Chief Executive Officer
of the Company prior to the expiration of the Term, or such other conduct
as may be materially injurious to the business or affairs of the Company or
any of the other Lynton Companies. The Executive shall thereafter be
entitled to no additional compensation or other benefits of employment,
nor, respectively, shall the Company and/or any of the other Lynton
Companies be entitled to any further services.
(c)The Company may also terminate this Agreement, without cause, upon no
less than one (1) month's prior written notice to the Executive, such
notice being effective one (1) month from the date it is given. In such
event, the Executive shall continue to perform his services to the Company
and/or any of the other Lynton Companies until the effective date of such
notice only in the event that the Company, in its sole discretion, so
requests. After any termination under this subsection, the Company shall
continue to pay the Executive the compensation due under Section 4(a)
hereof, in the equal monthly installments specified in such Section, for
the balance of the Term unless the Executive violates his obligations under
Sections 7 or 8 hereof.
7. NONCOMPETITION.
(a)The Executive recognizes and understands that in performing the
responsibilities of his employment, he has and will continue to occupy a
position of fiduciary trust and confidence, pursuant to which he has and
will continue to develop and acquire experience and knowledge with respect
to the Company's business. It is the expressed intent and agreement of the
Executive and the Company that such knowledge and experience shall be used
exclusively in the furtherance of the interests of the Company and not in
any manner which would be detrimental to the Company's interests. The
Executive therefore agrees that so long as he is employed by or receiving
compensation from the Company and/or any of the other Lynton Companies, and
(i) for a period of one (1) year following the termination of this
Agreement if terminated for cause pursuant to Section 6(b) hereof, or (ii)
for a period of one (1) year following the expiration of the Term if prior
thereto the Company has made a Renewal Offer (as defined below) to the
Executive and the Executive has failed to accept the Renewal Offer within
thirty (30) days thereof, the Executive will not be employed by, work for,
advise, consult with, serve or assist in any way, directly or indirectly,
any party whose business is competitive with the activities or business of
the Company or any of the other Lynton Companies within the States of
Connecticut, New Jersey, New York or Pennsylvania, anywhere within the
United Kingdom, or any other states or jurisdictions in which the Company
or any of the other Lynton Companies may then operate or transact business.
The Executive agrees further that he will not, during the applicable
periods referred to above, purchase or otherwise acquire, directly or
indirectly, any interest of any kind in any such business which is
competitive with that of the Company or any of the other Lynton Companies.
The foregoing restrictions on competition by the Executive shall be
operative for the benefit of the Company and the other Lynton Companies and
of any business owned or controlled by the Company or the other Lynton
Companies, or any successor or assign of any of the foregoing. In the
event that the provisions of this Section 7 should ever be deemed to exceed
the time or geographic limitations permitted by applicable laws, then such
provisions shall be reformed to the maximum time or geographic limitations
permitted by applicable laws.
For purposes hereof, a "Renewal Offer" shall be deemed to have occurred if
at least sixty (60) days prior to the expiration of the Term, the Company
offers to renew this Agreement on similar terms as provided herein for a
minimum period of eighteen (18) months at compensation at least equal to
the compensation provided under Section 4(a) hereof. Notwithstanding the
foregoing, it is specifically understood that the Company has no obligation
to make a Renewal Offer to the Executive.
(b)The parties hereto, recognizing that irreparable injury will result to
the Company and the other Lynton Companies, their business and property in
the event of the Executive's breach of his covenant herein not to compete,
and that such covenant is a material part of the consideration upon which
this Agreement is founded, agree that in the event of the Executive's
breach of this covenant, the Company and the other Lynton Companies shall
be entitled, in addition to any other remedies and damages available to
them, to an injunction to restrain the violation thereof by the Executive,
his partners, agents, servants, employers, employees and all persons acting
for or with him. The Executive represents and admits that in the event of
the termination of his employment hereunder, the enforcement of a remedy
for a violation of this Section 7 by way of injunction will not prevent him
from earning a livelihood.
8. CONFIDENTIALITY. The Executive agrees that all confidential and
proprietary information relating to the business of any of the Lynton
Companies shall be kept and treated as confidential both during and after
the Term of this Agreement, except as may be permitted in writing by the
Company's Board of Directors or as such information is within the public
domain or comes within the public domain without any breach of this
Agreement.
9. NOTICES. All notices required hereby or given under this Agreement shall
be in writing and shall be served by hand-delivery, certified mail, return
receipt requested, or internationally recognized overnight courier service,
at the following addresses, or at such other address as the parties may
designate to one another in writing:
If to the Company:
Lynton Group, Inc.
9 Airport Road
Morristown Municipal Airport
Morristown, New Jersey 07960
Attn: Chairman of the Board
With a copy to:
Danzig Garubo & Kaye, LLP
30A Vreeland Road
Florham Park, New Jersey 07932-0333
Attn: David M. Kaye, Esq.
If to Executive:
Christopher Tennant
73 Elizabeth Street
London SW1W 9PJ England
Each such notice shall be deemed given at the time delivered by hand, if
personally delivered; five business days after being deposited in the mail,
postage prepaid, if mailed; and the next business day after timely delivery
to the courier, if sent by overnight courier.
10. ARBITRATION. Except as may be otherwise provided in Section 7(b)
hereof, any dispute or controversy between the parties regarding this
Agreement including, without limitation, whether the right to compel
arbitration has been waived or whether grounds exist for the
revocation of this Agreement, shall be determined by arbitration in
New Jersey pursuant to the rules of the American Arbitration
Association then in effect, and judgment upon the award rendered may
be entered in any court having jurisdiction thereof.
11. WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one time or
more times be deemed a waiver or relinquishment of such right or power
at any other time or times.
12. SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any
other provision. The parties to this Agreement agree and intend that
this Agreement shall be enforced as fully as it may be enforced
consistent with applicable statutes and rules of law.
13. BENEFIT. The Executive's rights and interest hereunder may not be
assigned, pledged or encumbered by him. This Agreement shall inure to
the benefit of and be binding upon the Company, its successors and
assigns, including, without limitation, any corporation which may
acquire all or substantially all of the Company's assets or business
or with or into which the Company may be consolidated or merged, and
to the benefit of, and be binding upon, the Executive, his heirs,
executors, administrators and legal representatives.
14. ENTIRE AGREEMENT. This Agreement which shall become effective upon
the Commencement Date sets forth the entire understanding of the
parties hereto with respect to the subject matter hereof, may be
modified only by a written instrument duly executed by each party, and
supersedes all existing agreements between them concerning such
subject matter.
15. APPLICABLE LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New Jersey,
without giving effect to principles of conflicts of law.
16. NEGOTIATED AGREEMENT. This is a negotiated agreement. This Agreement
shall not be construed against the Company by reason of this Agreement
being prepared by counsel to the Company. The Executive acknowledges
that he has been advised to consult with independent counsel of his
own choosing and the Executive has done so to the extent that
Executive deems appropriate.
17. SURVIVAL. The provisions of Sections 7 and 8 shall survive the
termination or expiration of this Agreement, irrespective of the
reason therefor, except for wrongful termination of this Agreement by
the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
LYNTON GROUP, INC.
By: /s/ Paul R. Dupee, Jr.
Name: Paul R. Dupee, Jr.
Title: Chairman of the Board
/s/ Christopher Tennant
Christopher Tennant
LYNTON GROUP, INC.
PARENT AND SUBSIDIARIES
Registrant:
Lynton Group, Inc., a Delaware corporation.
Subsidiaries, all of whose voting securities are owned directly or
indirectly by the Registrant:
Lynton Jet Centre, Inc., a New Jersey corporation.
Lynton Aviation Services, Inc., a New Jersey corporation.
Lynton Properties, Inc., a New Jersey corporation.
Ramapo Helicopters, Inc., a New York corporation.
Lynton Aircraft Maintenance Services, Inc., a New Jersey corporation.
Lynton Group Limited, organized under the laws of England.
Lynton Aviation Limited, organized under the laws of England.
European Helicopters Limited, organized under the laws of England.
Magec Aviation Limited, organized under the laws of England.
Air Hanson Limited, organized under the laws of England.
Air Hanson Engineering Limited, organized under the laws of England.
Air Hanson Aircraft Sales Limited, organized under the laws of
England.
Subsidiary, 20% of whose voting securities are owned directly or
indirectly by the Registrant:
LynStar Aviation, Inc., a New York corporation.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM LYNTON GROUP, INC.'S AUDITED ANNUAL
REPORT FOR THE FOSCAL YEAR ENDED SEPTEMBER 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-1-1997
<PERIOD-END> SEP-30-1998
<CASH> 3,095,662
<SECURITIES> 0
<RECEIVABLES> 6,664,563
<ALLOWANCES> 76,969
<INVENTORY> 6,206,249
<CURRENT-ASSETS> 17,425,644
<PP&E> 34,555,683
<DEPRECIATION> 6,424,635
<TOTAL-ASSETS> 65,082,910
<CURRENT-LIABILITIES> 18,277,536
<BONDS> 36,589,169
<COMMON> 1,918,462
0
0
<OTHER-SE> 2,952,111
<TOTAL-LIABILITY-AND-EQUITY> 65,082,910
<SALES> 46,926,030
<TOTAL-REVENUES> 46,926,030
<CGS> 36,127,584
<TOTAL-COSTS> 44,123,367
<OTHER-EXPENSES> 111,068
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,399,293
<INCOME-PRETAX> 367,934
<INCOME-TAX> 241,561
<INCOME-CONTINUING> 126,373
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126,373
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
