INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934 (Amendment No. 3)
Check the appropriate box:
[ X ] Preliminary information statement
[ ] Confidential, for use of the Commission only
(as permitted by Rule 14c-5(d)(2))
[ ] Definitive information statement
LYNTON GROUP, INC.
(Name of Registrant as Specified in Its Charter)
Payment of filing fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on the table below per Exchange Act Rules 14c-5(g)
and 0-11.
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction
applies: N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
(1) Amount previously paid: N/A
(2) Form, schedule or registration statement no.: N/A
(3) Filing party: N/A
(4) Date filed: N/A
<PAGE>
LYNTON GROUP, INC.
9 Airport Road
Morristown Municipal Airport
Morristown, New Jersey 07960
_________________, 1999
Dear Stockholder:
The enclosed Information Statement is being furnished to stockholders
of Lynton Group, Inc., a Delaware corporation (the "Company"), in connection
with action to be taken by written consent of stockholders (the "Written
Action") with respect to the proposals set forth below. The Board of Directors
is not soliciting proxies in connection with the Written Action and proxies are
not requested from stockholders.
The proposals, subject of the enclosed Information Statement, are as
follows: (1) a proposal to approve an amendment to the Company's Certificate of
Incorporation (the "Certificate of Incorporation") to increase the number of
authorized shares of Common Stock, par value $.30 per share, of the Company
(the "Common Stock") from 10,000,000 to 25,000,000 (the "Capitalization
Amendment"), the purpose and effect of which is to allow (i) the holders of the
Company's 8.0% Subordinated Convertible Debentures due December 31, 2007 (the
"8.0% Debentures") issued in December 1997 to convert the 8.0% Debentures into
shares of Common Stock, and (ii) the holders of the Company's 8.0% Subordinated
Convertible Debentures due December 31, 2007 (the "Additional 8.0% Debentures")
issued in September 1998 to convert the Additional 8.0% Debentures into shares
of Common Stock; and (2) a proposal to be implemented after the Capitalization
Amendment to approve (i) a 1-for-2,000 reverse stock split (the "Reverse Stock
Split") of the Company's Common Stock and (ii) an amendment to the Company's
Certificate of Incorporation to recapitalize the Company's Common Stock and
Preferred Stock as a result of the Reverse Stock Split (the "Reverse Stock
Split Amendment") which will reduce the number of authorized shares of Common
Stock from 25,000,000 shares to 12,500 shares, reduce the number of authorized
shares of Preferred Stock from 3,000,000 to 2,500, and provide a cash payment
of $1.00 per share of the currently outstanding Common Stock in lieu of the
issuance of any resulting fractional shares of the new Common Stock to any
stockholders who after the Reverse Stock Split own less than one share of the
new Common Stock.
If the proposed Reverse Stock Split is effected, the Company expects to
have fewer than 300 stockholders and will therefore cease the filing of certain
reports with the Securities and Exchange Commission.
THE BOARD OF DIRECTORS HAS FULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE PROPOSED REVERSE STOCK SPLIT AND UNANIMOUSLY DETERMINED THAT
THE PROPOSED REVERSE STOCK SPLIT, TAKEN AS A WHOLE, IS FAIR TO, AND IN THE BEST
INTERESTS OF, THE STOCKHOLDERS.
Paul R. Dupee, Jr, Christopher Tennant, Richard Hambro, James G. Niven,
and representatives of Consulta Smaller Companies Fund Limited, Task Holdings
Limited, J.O. Hambro Nominees Limited and J.O. Hambro Investment Management
Limited have advised the Company that they presently intend to execute written
consents in favor of the proposals listed above on or about the date of this
Information Statement. However, the proposals listed above will not be
effected until at least 20 days after this Information Statement has first been
sent to stockholders. Such individuals and entities hold in the aggregate
5,200,672 shares of Common Stock (81.3% of the outstanding Common Stock)
entitled to vote hereon. Accordingly, if they execute such written consents in
accordance with such intentions, approval of the matters set forth herein is
assured.
On behalf of the Board of Directors,
PAUL R. DUPEE, JR.
Chairman of the Board
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
________________
PLEASE DO NOT SEND IN ANY CERTIFICATES
FOR YOUR SHARES AT THIS TIME.
<PAGE>
LYNTON GROUP, INC.
9 Airport Road
Morristown Municipal Airport
Morristown, New Jersey 07960
INFORMATION STATEMENT
CONSENT OF STOCKHOLDERS IN LIEU OF SPECIAL MEETING
_____________________________
This Information Statement is being furnished to stockholders of Lynton
Group, Inc., a Delaware corporation (the "Company"), in connection with action
to be taken by written consent of stockholders (the "Written Action") with
respect to the proposals set forth below. The Board of Directors is not
soliciting proxies in connection with the Written Action and proxies are not
requested from stockholders. This Information Statement is first being mailed
to stockholders of the Company on or about _______________, 1999.
The proposals, subject of this Information Statement, are as follows:
(1) A proposal to approve an amendment to the Company's Certificate
of Incorporation (the "Certificate of Incorporation") to increase the number of
authorized shares of Common Stock, par value $.30 per share, of the Company
(the "Common Stock") from 10,000,000 to 25,000,000 (the "Capitalization
Amendment"), the purpose and effect of which is to allow (i) the holders of the
Company's 8.0% Subordinated Convertible Debentures due December 31, 2007 (the
"8.0% Debentures") issued in December 1997 to convert the 8.0% Debentures into
shares of Common Stock, and (ii) the holders of the Company's 8.0% Subordinated
Convertible Debentures due December 31, 2007 (the "Additional 8.0% Debentures")
issued in September 1998 to convert the Additional 8.0% Debentures into shares
of Common Stock; and
(2) A proposal to be implemented after the Capitalization Amendment
to approve (i) a 1-for-2,000 reverse stock split (the "Reverse Stock Split") of
the Company's Common Stock and (ii) an amendment to the Company's Certificate
of Incorporation to recapitalize the Company's Common Stock and Preferred Stock
as a result of the Reverse Stock Split (the "Reverse Stock Split Amendment")
which will reduce the number of authorized shares of Common Stock from
25,000,000 shares to 12,500 shares, reduce the number of authorized shares of
Preferred Stock from 3,000,000 to 2,500, and provide a cash payment of $1.00
per share of the currently outstanding Common Stock in lieu of the issuance of
any resulting fractional shares of the new Common Stock to any stockholders who
after the Reverse Stock Split own less than one share of the new Common Stock.
The principal executive office of the Company is located at 9 Airport
Road, Morristown Municipal Airport, Morristown, New Jersey 07960. The
telephone number of the principal executive office of the Company is (973) 292-
9000.
_________________________________
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
The date of this Information Statement is ______________, 1999
TABLE OF CONTENTS
Page
Summary 3
Written Action 3
Purpose of this Information Statement 3
Exchange of Certificates and Payment
for Fractional Shares of New Common Stock 4
Recommendation of the Board of Directors;
Fairness of the Reverse Stock Split 4
Opinion of Collins Stewart 4
Financing of the Reverse Stock Split 4
Conduct of the Company's Business After the Reverse
Stock Split; Possible Change in Legal Domicile of
the Company;
Possible Listing on the London Stock Exchange 4
Reasons for the Reverse Stock Split 4
Current Business of the Company 5
Federal Income Tax Consequences 5
Consents; Consents Required 5
Appraisal Rights; Escheat Laws 5
Selected Historical Financial Data of the Company 5
General Information 6
Proposed Increase in the Company's Authorized Shares
of Common Stock 6
Proposed Reverse Stock Split and Recapitalization of the
Common Stock and Preferred Stock 9
Special Factors 10
Background of the Proposed Reverse Stock Split 10
Reasons for the Reverse Stock Split 14
Recommendation of the Board of Directors;
Fairness of the Reverse Stock Split 15
Opinion of Collins Stewart 19
Interests of Certain Persons and Potential
Conflicts of Interest 25
Conduct of the Company's Business After the
Reverse Stock Split;
Possible Change in Legal Domicile of the Company;
Possible Listing on the London Stock Exchange 25
Federal Income Tax Consequences 27
Appraisal Rights; Escheat Laws 28
Exchange of Certificates and Payment
for Fractional Shares of New Common Stock 28
Financing of the Reverse Stock Split 29
Principal Stockholders and Security Ownership of Management 29
Management of the Company 30
Information Concerning Certain Affiliates of the Company 32
Certain Relationships and Related Transactions 33
Selected Historical Financial Data of the Company 35
Management's Discussion and Analysis of Financial Condition
and Results of Operations 36
Market for the Common Stock; Dividends 47
Stockholder Proposals 48
Expenses 48
Incorporation by Reference 49
Additional Information 49
Annex A: Financial Statements F-1
Annex B: Opinion of Collins Stewart B-1
SUMMARY
The following is a summary of certain information contained in this
Information Statement. It is not intended to be a complete explanation of all
the matters which it covers, and much of the information contained in this
Information Statement is not covered by this summary. The information
contained in this summary is qualified in all respects by reference to the
detailed discussion of these matters contained elsewhere in this Information
Statement. Stockholders are urged to read this Information Statement,
including the annexes, in its entirety.
This Information Statement contains certain forward-looking statements
that are based upon the beliefs and assumptions of, and information available
to, the management of the Company at the time such statements are made. In
addition, other written or oral statements which constitute forward-looking
statements may be made by or on behalf of the Company. Words such as "expects",
"anticipates", "intends", "plans", "believes", "seeks", "estimates", or
variations of such words and similar expressions are intended to identify such
forward-looking statements. The statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Written Action
This Information Statement is being furnished to stockholders of Lynton
Group, Inc., a Delaware corporation (the "Company"), in connection with action
to be taken by written consent of stockholders (the "Written Action") with
respect to the matters set forth herein. The Board of Directors is not
soliciting proxies in connection with the Written Action and proxies are not
requested from stockholders.
Purpose of this Information Statement
The proposals, subject of this Information Statement, are as follows:
(1) a proposal to approve an amendment to the Company's Certificate of
Incorporation (the "Certificate of Incorporation") to increase the number of
authorized shares of Common Stock, par value $.30 per share, of the Company
(the "Common Stock") from 10,000,000 to 25,000,000 (the "Capitalization
Amendment"), the purpose and effect of which is to allow (i) the holders of the
Company's 8.0% Subordinated Convertible Debentures due December 31, 2007 (the
"8.0% Debentures") issued in December 1997 to convert the 8.0% Debentures into
shares of Common Stock, and (ii) the holders of the Company's 8.0% Subordinated
Convertible Debentures due December 31, 2007 (the "Additional 8.0% Debentures")
issued in September 1998 to convert the Additional 8.0% Debentures into shares
of Common Stock; and (2) a proposal to be implemented after the Capitalization
Amendment to approve (i) a 1-for-2,000 reverse stock split (the "Reverse Stock
Split") of the Company's Common Stock and (ii) an amendment to the Company's
Certificate of Incorporation to recapitalize the Company's Common Stock and
Preferred Stock as a result of the Reverse Stock Split (the "Reverse Stock
Split Amendment") which will reduce the number of authorized shares of Common
Stock from 25,000,000 shares to 12,500 shares, reduce the number of authorized
shares of Preferred Stock from 3,000,000 to 2,500, and provide a cash payment
of $1.00 per share of the currently outstanding Common Stock in lieu of the
issuance of any resulting fractional shares of the new Common Stock to any
stockholders who after the Reverse Stock Split own less than one share of the
new Common Stock.
Exchange of Certificates and Payment for Fractional Shares of New Common Stock
Following the Reverse Stock Split, if approved, each two thousand
(2,000) shares of Common Stock, with a par value of $0.30 each, of the Company
issued and outstanding immediately prior to the filing of the Reverse Stock
Split Amendment shall thereby and thereupon be combined into and shall
constitute and represent one (1) validly issued, fully paid and nonassessable
share of Common Stock, with a par value of $0.30 each, of the Company. No
scrip or fractional shares will be issued by reason of the Reverse Stock Split.
To the extent that the Reverse Stock Split results in any stockholder owning
less than a single full share of the Common Stock, the Company will pay cash
for each such fractional share in an amount equal to the appropriate fraction
of $1.00 per whole share. To the extent that the Reverse Stock Split results
in fractional shares held by stockholders who own one or more full shares of
Common Stock by reason thereof, such fractional shares will be rounded up or
down to the nearest full share. See "Special Factors - Exchange of
Certificates and Payment for Fractional Shares of New Common Stock".
RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE REVERSE STOCK SPLIT
The Board of Directors believes that the cash payment of $1.00 per
share of currently outstanding Common Stock in lieu of the issuance of
fractional shares of New Common Stock represents a price that is fair both to
the Company and to its stockholders. See "Special Factors - Recommendation of
the Board of Directors; Fairness of the Reverse Stock Split".
OPINION OF COLLINS STEWART
Collins Stewart Ltd. ("Collins Stewart") was retained by the Board to
provide an opinion to the Board as to the fairness of the cash consideration to
be paid in lieu of the issuance of fractional shares of New Common Stock as
part of the Reverse Stock Split. Collins Stewart has advised the Board that
the $1.00 per share cash price to be paid in lieu of the issuance of fractional
shares of New Common Stock pursuant to the Reverse Stock Split is fair from a
financial point of view. See "Special Factors - Opinion of Collins Stewart".
FINANCING OF THE REVERSE STOCK SPLIT
The Board estimates that the total cost to be incurred by the Company
in the Reverse Stock Split for payment of fractional share interests, including
transactional expenses of approximately $125,000, will be approximately
$415,000. The Company intends to finance the transaction from current working
capital. See "Financing of the Reverse Stock Split".
CONDUCT OF THE COMPANY'S BUSINESS AFTER THE REVERSE STOCK SPLIT
If the proposed Reverse Stock Split is effected, the Company intends to
terminate the registration of its Common Stock under the Securities Exchange
Act of 1934, as amended (the "1934 Act"). Thereafter, the Company will cease
the filing of periodic reports, proxy statements and other reports and
documents otherwise required to be filed with the Securities and Exchange
Commission (the "SEC"). See "Special Factors - Reasons for the Reverse Stock
Split," and "Special Factors - Conduct of the Company's Business After the
Reverse Stock Split."
REASONS FOR THE REVERSE STOCK SPLIT
The Board of Directors determined to propose the Reverse Stock Split
because the Board believes that it was an opportune time to enable the vast
majority of stockholders to dispose of their shares at a substantial premium
over historical market prices with no transactional costs. The Board also
believes that neither the Company nor its stockholders derive any material
benefit from the continued registration of the Common Stock under the 1934 Act
and that the monetary expense and burden to management of continued
registration significantly outweighs any material benefit that may be received
by the Company or its stockholders as a result of such registration. See
"Special Factors - Reasons for the Reverse Stock Split."
CURRENT BUSINESS OF THE COMPANY
The Company, operating from its primary bases in the New York and
London metropolitan regions, performs aviation sales and services for an
international list of customers. Services provided by the Company include the
management, charter, maintenance, hangarage and refueling of corporate
helicopters and fixed wing aircraft. In addition, the Company's sales
operations perform aircraft sales and brokerage services to customers located
in markets throughout the world. See "Special Factors - Background of the
Proposed Reverse Stock Split" and "Special Factors - Reasons for the Reverse
Stock Split".
FEDERAL INCOME TAX CONSEQUENCES
The receipt of New Common Stock in exchange for presently outstanding
Common Stock will not result in recognition of gain or loss to the stockholder.
The receipt of cash by a stockholder pursuant to the Reverse Stock Split will
be a taxable transaction for federal income tax purposes. See "Special Factors
- - - Federal Income Tax Consequences."
CONSENTS; CONSENTS REQUIRED
Approval of the matters set forth herein requires the consent of the
holders of at least a majority of the outstanding shares of Common Stock
entitled to vote thereon. Paul R. Dupee, Jr., Christopher Tennant, Richard
Hambro, James G. Niven, and representatives of Consulta Smaller Companies Fund
Limited, Task Holdings Limited, J.O. Hambro Nominees Limited and J.O. Hambro
Investment Management Limited have advised the Company that they presently
intend to execute written consents in favor of the proposals listed above on or
about the date of this Information Statement. However, the proposals listed
above will not be effected until at least 20 days after this Information
Statement has first been sent to stockholders. Such individuals and entities
hold in the aggregate 5,200,672 shares of Common Stock (81.3% of the
outstanding Common Stock) entitled to vote hereon. Accordingly, if they
execute such written consents in accordance with such intentions, approval of
the matters set forth herein is assured. See "General Information".
APPRAISAL RIGHTS; ESCHEAT LAWS
Pursuant to Delaware General Corporation Law, there will be no
appraisal rights for dissenting stockholders if the Reverse Stock Split is
approved. Under state escheat laws, any cash for fractional interests not
claimed by the stockholder entitled to it may escheat to, and be claimed by,
various states. See "Special Factors - Appraisal Rights; Escheat Laws."
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
See "Selected Historical Financial Data of the Company" and "Financial
Statements of the Company" attached hereto as Annex A.
GENERAL INFORMATION
Section 228 of the General Corporation Law of the State of Delaware
states that, unless otherwise provided in the certificate of incorporation, any
action that may be taken at any annual or special meeting of stockholders, may
be taken without a meeting, without prior notice and without a vote, if
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted, and those consents
are delivered to the corporation by delivery to its registered office in
Delaware, its principal place of business or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. The Company's Certificate of Incorporation contains
no provision or language in any way limiting the right of stockholders of the
Company to take action by written consent.
The Board has fixed the close of business on _____________, 1999 as the
record date for the determination of stockholders entitled to receive notice
of, and consent to, the matters set forth herein (the "Record Date").
Accordingly, only stockholders of record on the books of the Company at the
close of business on the Record Date will be entitled to consent to the matters
set forth herein. On the Record Date, the Company had outstanding 6,394,872
shares of Common Stock, par value $.30 per share (the "Common Stock") which are
the only outstanding voting securities of the Company. On all matters, each
share of Common Stock is entitled to one vote.
Paul R. Dupee, Jr., Christopher Tennant, Richard Hambro, James G.
Niven, and representatives of Consulta Smaller Companies Fund Limited, Task
Holdings Limited, J.O. Hambro Nominees Limited and J.O. Hambro Investment
Management Limited have advised the Company that they presently intend to
execute written consents in favor of the proposals listed above on or about the
date of this Information Statement. However, the proposals listed above will
not be effected until at least 20 days after this Information Statement has
first been sent to stockholders. Such individuals and entities hold in the
aggregate 5,200,672 shares of Common Stock (81.3% of the outstanding Common
Stock) entitled to vote hereon. Accordingly, if they execute such written
consents in accordance with such intentions, approval of the matters set forth
herein is assured.
PROPOSED INCREASE IN THE COMPANY'S
AUTHORIZED SHARES OF COMMON STOCK
PROPOSAL 1
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Certificate of Incorporation of the Company for the purpose of
increasing the number of authorized shares of Common Stock of the Company from
10,000,000 to 25,000,000 (the "Capitalization Amendment") in order to allow (i)
the holders of the Company's 8.0% Debentures issued in December 1997 to convert
the 8.0% Debentures into shares of Common Stock; and (iii) the holders of the
Company's Additional 8.0% Debentures issued in September 1998 to convert the
Additional 8.0% Debentures into shares of Common Stock.
The Certificate of Incorporation presently authorizes the Company to
issue 10,000,000 shares of Common Stock and 3,000,000 shares of Preferred
Stock. As of the date hereof, there are 6,394,872 shares of Common Stock and
no shares of Preferred Stock outstanding. Also, 125,000 shares of Common Stock
are reserved for issuance pursuant to warrants issued to the placement agent of
the 10% Debentures, 1,660,668 shares of Common Stock are reserved for issuance
pursuant to options previously granted to executive officers, directors, key
employees and affiliates of the Company and 243,332 shares of Common Stock are
reserved for issuance for future grants under the 1993 Plan. Based upon the
foregoing number of outstanding and reserved shares of Common Stock, the
Company has 1,576,128 shares of Common Stock remaining available.
Accordingly, the Company must increase the number of its authorized
shares of Common Stock in order to allow (i) the holders of the 8.0% Debentures
to exercise their right to convert such Debentures into Common Stock (up to an
aggregate of 5,816,000 shares), and (ii) the holders of the Additional 8.0%
Debentures to exercise their right to convert such Debentures into Common Stock
(up to an aggregate of 4,623,000 shares). Stockholders should note that the
Company is not seeking stockholder approval of the issuances of the 8.0%
Debentures and the Additional 8.0% Debentures insofar that such issuances have
already been completed. In addition, the Company must have sufficient number
of shares of Common Stock authorized and available for issuance in order to
issue additional shares which the holders of the 8.0% Debentures and the
Additional 8.0% Debentures may be entitled to receive as the result of any PIK
Interest (as hereinafter defined).
In connection therewith, stockholders should note that the 8.0%
Debentures bear interest at the rate of 8.0% per annum, payable semi-annually
in arrears on the first day of June and December of each year with the first
such payment due on June 1, 1998, provided, however, that in lieu of paying
such interest in cash, the Company may, at its option, pay interest for any
interest payment date occurring before December 23, 1999 by adding the amount
of such interest to the outstanding principal amount due thereunder (the "PIK
Interest"). In such event, any such PIK Interest when so added shall be deemed
part of the principal indebtedness for purposes of determining amounts which
may be convertible into shares of Common Stock. The Company has exercised this
option with respect to the interest payments due June 1, 1998 and December 1,
1998 so such PIK Interest resulting therefrom has been added and is now deemed
part of the principal indebtedness for purposes of determining amounts which
may be convertible into shares of Common Stock.
With regard to the Additional 8.0% Debentures issued in September 1998,
stockholders should note that the Additional 8.0% Debentures bear interest at
the rate of 8.0% per annum, payable semi-annually in arrears on the first day
of June and December of each year with the first such payment due on December
31, 1998. However, (i) in the event the Company provides any holder of the
Additional 8.0% Debentures with a notice of redemption (which as provided in
the Additional 8.0% Debentures can be no sooner than June 1, 2000) and such
redemption is rejected by the holder thereof, then and in such event, in lieu
of paying interest in cash for any interest payment date occurring thereafter,
or (ii) if at any other time, and at least 30 days prior to any interest
payment date, a holder provides the Company with a written request that
interest due to the holder for such interest payment date be paid in the form
of PIK Interest, then, the Company may, at its sole option, with regard to the
preceding clauses (i) or (ii), whichever is applicable, pay PIK Interest for
any such interest payment date whereupon any such PIK Interest when so added
shall be deemed part of the principal indebtedness for purposes of determining
amounts which may be convertible into shares of Common Stock. No holder has as
of this date requested PIK Interest in lieu of cash interest with regard to the
Additional 8.0% Debentures.
The 8.0% Debentures are convertible into shares of the Company's Common
Stock at the option of the holder at any time following the Capitalization
Amendment and prior to maturity at a conversion ratio of $1.00 per share. The
Additional 8.0% Debentures are also convertible into shares of the Company's
Common Stock at the option of the holder at any time following the
Capitalization Amendment and prior to maturity at conversion ratios starting at
$1.35 per share until June 30, 1999; $1.25 from July 1, 1999 to July 31, 1999;
and then decreasing monthly thereafter by $.05 per month until December 1,
1999 whereupon the conversion ratio shall thereafter be $1.00 per share. The
conversion ratios provided above shall be subject to adjustment upon the
occurrence of certain events as provided in the 8.0%Debentures and the
Additional 8.0% Debentures. In addition, the 8.0% Debentures and the Additional
8.0% Debentures are automatically convertible into shares of the Company's
Common Stock upon the date, if any, that the Company, or any successor,
completes a bona fide public offering of its securities, and the shares of the
Common Stock of the Company, or any successor, become listed on The London
Stock Exchange. See "Special Factors - Conduct of the Company's Business After
the Reverse Stock Split; Possible Change in Legal Domicile of the Company;
Possible Listing on the London Stock Exchange".
Certain existing principal stockholders of the Company own a
significant majority of the 8.0% Debentures as follows: Paul R. Dupee, Jr. who
is Chairman of the Board and a director of the Company, owns $1,306,240
principal amount of the 8.0% Debentures; James G. Niven, a director of the
Company, owns $200,000 principal amount of the 8.0% Debentures; J.O. Hambro
Investments Ltd., which Richard Hambro, a director of the Company, may be
deemed to control, owns $299,520 principal amount of the Debentures; Task
Holdings Limited owns $798,720 principal amount of the 8.0% Debentures; and
Consulta Smaller Companies Fund Limited owns $1,938,560 principal amount of the
8.0% Debentures, which in the aggregate represents approximately 78.0% of the
outstanding 8.0% Debentures. Assuming approval of the Capitalization
Amendment, Mr. Dupee will be entitled to convert his 8.0% Debentures into
1,306,240 shares of Common Stock; Mr. Niven will be entitled to convert his
8.0% Debentures into 200,000 shares of Common Stock; J.O. Hambro Investments
Ltd. will be entitled to convert its 8.0% Debentures into 299,520 shares of
Common Stock; Task Holdings Limited will be entitled to convert its 8.0%
Debentures into 798,720 shares of Common Stock; and Consulta Smaller Companies
Fund Limited will be entitled to convert its 8.0% Debentures into 1,938,560
shares of Common Stock, which in the aggregate represents up to 4,543,040
shares of Common Stock of the Company (or up to approximately 2,272 shares in
the event the Reverse Stock Split is approved by the stockholders which will
represent approximately 27.2% of the then outstanding shares of the Company's
Common Stock assuming the conversion of all of the 8.0% Debentures and
Additional 8.0% Debentures). The foregoing does not take into account any
additional shares which may be issued upon conversion of the Debentures as a
result of any PIK Interest. The Additional 8.0% Debentures are held by non-
U.S. institutional investors, none of whom are affiliated with any principal
stockholder, officer or director of the Company.
Due to the foregoing reasons, the Board recommends the increase in the
number of authorized shares of Common Stock to 25,000,000 shares. See
"Proposed Reverse Stock Split and Recapitalization of the Common Stock and
Preferred Stock" for information on the number of shares of Common Stock which
will be authorized and issued, and reserved for issuance, following the Reverse
Stock Split. At the present time, other than the possible issuances described
herein, the Company has no current plans or arrangements to issue any
additional shares of Common Stock. Authorization of such additional shares
would permit the issuance at various times of shares which could be
specifically adapted to a wide variety of circumstances, such as raising
capital or making acquisitions. Shares of Common Stock would be issued only
as, if, and when the Board of Directors believed the issuance to be in the best
interests of the Company and its stockholders. No stockholder of the Company
presently has, or would have, any preemptive rights relating to the future
issuance of any shares of Common Stock. See also, however, and "Special
Factors - Conduct of the Company's Business After the Reverse Stock Split;
Possible Change in Legal Domicile of the Company; Possible Listing on the
London Stock Exchange". The proposed Capitalization Amendment to increase the
authorized number of shares of Common Stock could, under certain circumstances,
have an anti-takeover effect, although this is not the intention of this
proposal. For example, the issuance of additional shares could be used to
create impediments to or otherwise discourage persons attempting to gain
control of the Company. Shares of Common Stock could be issued to persons or
entities who would support the Board in opposing a takeover bid which the Board
determines to be not in the best interests of the Company and its stockholders.
However, the Board of Directors is not aware of any attempt to take control of
the Company and the Board of Directors has not presented this proposal with the
intent that it may be utilized as a type of anti-takeover device.
The text of the proposed Capitalization Amendment is as follows:
That the first sentence of Article FOURTH of the Certificate of
Incorporation be and it hereby is amended to read in its entirety as follows:
"FOURTH: The total number of shares of stock which the Corporation
shall issue is 28,000,000 of which 25,000,000 shares with a par value of $0.30
each shall be Common Stock and of which 3,000,000 shares with a par value of
$0.01 each shall be Preferred Stock."
The Board of Directors believes that authorization of the additional
shares of Common Stock is in the best interests of the Company and its
stockholders.
PROPOSED REVERSE STOCK SPLIT AND RECAPITALIZATION
OF THE COMMON STOCK AND PREFERRED STOCK
PROPOSAL 2
The Board of Directors has adopted a resolution, subject to
stockholder approval, that the following be implemented after the
effectiveness of the Capitalization Amendment (i) a 1-for-2,000 reverse stock
split (the "Reverse Stock Split") of the Company's Common Stock and (ii) an
amendment to the Company's Certificate of Incorporation to recapitalize the
Company's Common Stock as a result of the Reverse Stock Split (the "Reverse
Stock Split Amendment") which will reduce the number of authorized shares of
Common Stock from 25,000,000 shares to 12,500 shares, reduce the number of
authorized shares of Preferred Stock from 3,000,000 shares to 2,500 shares, and
provide a cash payment of $1.00 per share of the currently outstanding Common
Stock in lieu of the issuance of any resulting fractional shares of the new
Common Stock to any stockholders who after the Reverse Stock Split own less
than one share of the new Common Stock. Although there are no shares of
Preferred Stock currently outstanding, the Board believes the reduction in the
number of authorized shares of Preferred Stock would be consistent with the
reduction in the number of authorized shares of Common Stock.
The purpose of the Reverse Stock Split Amendment is to make changes in
the Certificate of Incorporation as a result of the Reverse Stock Split.
After the Reverse Stock Split, the number of outstanding shares of Common Stock
will be reduced from 6,394,872 shares of Common Stock, par value $0.30 per
share (the "Old Common Stock"), to approximately 3,100 shares of Common Stock,
par value $0.30 per share (the "New Common Stock") which number of shares takes
into account the elimination of approximately 280,000 shares of Old Common
Stock held by approximately 490 stockholders.
Following the Reverse Stock Split, the number of shares of Common Stock
issuable upon exercise of any outstanding warrants and options issued by the
Company or upon conversion of convertible debt instruments of the Company will
be decreased to 1/2,000 of the number of shares otherwise issuable and the
exercise price or conversion price per share of Common Stock thereof would be
increased by a factor of 2,000. As a result, the number of shares reserved for
issuance upon exercise or conversion of all outstanding convertible securities
(including the 8.0% Debentures and the Additional 8.0% Debentures) will be
reduced to an aggregate of approximately 6,234 shares of New Common Stock. See
"Proposed Increase in the Company's Authorized Shares of Common Stock". In
this regard, the conversion ratio of the 8.0% Debentures and the Additional
8.0% Debentures will be adjusted by a factor of 2,000 in which event the 8.0%
Debentures shall be convertible into up to 2,908 shares of the New Common Stock
and the Additional 8.0% Debentures shall be convertible into up to 2,312 shares
of the New Common Stock (which shall represent approximately 23.3% and 18.5%,
respectively, of the then number of authorized shares of New Common Stock of
the Company). The foregoing does not take into account any additional shares
which may be issued upon conversion of the Debentures as a result of any PIK
Interest. Upon conversion of the 8.0% Debentures and the Additional 8.0%
Debentures, no fractional shares shall be issued and in place thereof, the
Company shall pay the holder an amount in cash equal to the fair market value
of the fractional share.
The text of the Reverse Stock Split Amendment to the Certificate of
Incorporation to recapitalize the Common Stock is as follows:
That the first sentence of Article FOURTH of the Certificate of
Incorporation be and it hereby is amended to read in its entirety as follows:
"FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 15,000 of which 12,500 shares with a par value
of $0.30 each shall be Common Stock and of which 2,500 shares with a par value
of $0.01 each shall be Preferred Stock.
Upon the filing in the Office of the Secretary of the State of Delaware
of the Certificate of Amendment of the Certificate of Incorporation whereby
this Article FOURTH is amended to read as set forth herein, each two thousand
(2,000) shares of Common Stock, with a par value of $0.30 each, of the
Corporation issued and outstanding immediately prior to the filing of the
Certificate of Amendment shall thereby and thereupon be combined into and shall
constitute and represent one (1) validly issued, fully paid and nonassessable
share of Common Stock, with a par value of $0.30 each, of the Corporation. No
scrip or fractional shares will be issued by reason of this amendment. To the
extent that this amendment results in any stockholder owning less than a single
full share of the Common Stock, the Corporation will pay cash for each such
fractional share in an amount equal to the appropriate fraction of $1.00 per
whole share. To the extent that this amendment results in fractional shares
held by stockholders who own one or more full shares of Common Stock by reason
of this amendment, such fractional shares will be rounded up or down to the
nearest full share."
SPECIAL FACTORS
BACKGROUND OF THE PROPOSED REVERSE STOCK SPLIT
The Company is a Delaware corporation organized in August 1971 under
the name of Decair Corporation. Prior to May 1989, the Company's operations
consisted primarily of performing helicopter maintenance, management and
charter services entirely in the United States through two U.S. subsidiaries.
Since 1989, the Company has changed substantially which has
necessitated a reevaluation of its long-term business strategy. Presently, the
Company, operating from its primary bases in the New York and London
metropolitan regions, performs aviation sales and services for an international
list of customers. Services provided by the Company include the management,
charter, maintenance, hangarage and refueling of corporate helicopters and
fixed wing aircraft. In addition, the Company's sales operations perform
aircraft sales and brokerage services to customers located in markets
throughout the world.
In May 1989, the Company acquired (the "Limited Acquisition") all of
the issued and outstanding shares of Lynton Group Limited, a company organized
under the laws of England ("Limited"). Subsequent thereto, and in June 1989,
the Company changed its name to Lynton Group, Inc. Limited, a London based
company formed in 1984, is currently a holding company with four wholly-owned
operating subsidiaries, Lynton Aviation Limited ("Aviation Limited"), European
Helicopters Limited ("EHL"), Magec Aviation Limited ("Magec") which company was
acquired in December 1997, and Air Hanson Limited ("Air Hanson"), which company
was acquired in September 1998. Aviation Limited is primarily involved in the
sale, management and charter of corporate helicopters and fixed wing aircraft;
EHL is primarily involved in the rebuilding, sale and maintenance of corporate
helicopters; Magec provides hangarage and refueling, charter, management, and
maintenance services for corporate aircraft from its terminal at London Luton
Airport located in the London, England metropolitan area; and Air Hanson, based
at Blackbushe Airport in the United Kingdom, is primarily engaged in providing
maintenance, sale and management of corporate turbine helicopters and fixed
wing aircraft.
In the United States, the Company, in August 1990, through its wholly
owned subsidiary, Lynton Jet Centre, Inc. ("Lynton Jet Centre") formed for the
purpose of such transaction, acquired substantially all of the assets of the
Linpro Jet Centre (the "Jet Centre"), including its ground lease on a hangar
facility located at the Morristown Municipal Airport, Morristown, New Jersey.
The Jet Centre is a fixed base operation of approximately 132,000 square feet
of hangar and office space, and provides hangarage and fueling services to
corporate helicopters and fixed wing aircraft at the Morristown Municipal
Airport. In February 1998, the Company, through Lynton Jet Centre, acquired
substantially all the assets of Jet Systems, including its ground lease on
a hangar facility, located at Morristown Municipal Airport, Morristown,
New Jersey. Such purchase was intended to enable Lynton Jet Centre to
provide additional fixed base operation facilities for corporate aircraft
users of the Morristown Municipal Airport.
Due to the foregoing changes, the Company has had since 1989
significant foreign operations and revenues. In 1988, the Company had revenues
of approximately $2,900,000 with none from foreign operations. In fiscal 1989,
the Company's revenues increased to approximately $6,200,000 primarily due to
the Limited Acquisition. Revenues from foreign subsidiaries represented 47% of
all revenues achieved in that year. During fiscal 1990, revenues from foreign
subsidiaries increased to 67% of all revenues achieved by the Company. More
recently, revenues from foreign subsidiaries represented 68%, 51%, 55% and 67%
of consolidated net revenues in 1998, 1997, 1996 and 1995, respectively. For
example, in fiscal 1997, the Company had total net revenues of approximately
$25,600,000 with approximately $12,600,000 from United States operations and
approximately $13,000,000 from operations in the United Kingdom and other
European countries. In fiscal 1996, the Company had total net revenues of
approximately $22,800,000 with approximately $10,200,000 from United States
operations and approximately $12,600,000 from operations in the United Kingdom
and other European countries. As a result of the acquisition of Magec completed
in December 1997, the Company's foreign operations dramatically increased. As
a result, in fiscal 1998, the Company had total revenues of $46,900,000 with
approximately $15,000,000 from United States operations and approximately
$31,900,000 from operations in the United Kingdom and other European countries.
Assuming the acquisition of Magec had occurred on October 1, 1995 (the
beginning of fiscal 1996), the Company's pro forma (unaudited) net revenues are
estimated to have been approximately $47,500,000 for 1997 and $41,500,000 for
fiscal 1996.
Since 1989, the Board of Directors of the Company has substantially
changed from that which existed prior to 1989. Other than Christopher Tennant,
who has been a director of the Company since 1985, none of the other current
directors served on the Board of Directors prior to 1989. The Board of
Directors currently consists of six members. Paul R. Dupee, Jr., who is also
Chairman of the Board, has been a director since April 1996; David Harland has
been a director since January 1998; Richard Hambro and James G. Niven have each
been a director since May 1989; and Nigel D. Pilkington has been a director
since December 1996. Other than Mr. Niven, all of the Company's directors
primarily reside in the United Kingdom.
As a result of the foregoing, the Company has had an increased presence
overseas and less of a presence in the United States.
On October 20, 1995, the Company's Common Stock was delisted from
trading on the Nasdaq Small-Cap Market. Since then, the Company's Common Stock
has been quoted in the "pink sheets" promulgated by the National Quotation
Bureau, Inc. and is currently qualified for listing on the OTC Bulletin Board.
Trading in the Company's Common Stock has been sporadic and relatively inactive
since October 20, 1995. See "Market for the Common Stock; Dividends".
Since being delisted from trading on the Nasdaq Small-Cap Market, the
Board of Directors of the Company has increasingly recognized that its
stockholders derive no material benefit from the continued registration of the
Common Stock under the 1934 Act. During this period of time, the Board has
noted that a vast majority of the stockholders owned fewer than 2,000 shares
each and that practically no public market for the Common Stock existed. Of
approximately 525 stockholders of record, approximately 455 (approximately
86.7% of the Company's stockholders) hold 100 or fewer shares of Common Stock,
approximately 470 (approximately 89.5% of the Company's stockholders) hold 250
or fewer shares and approximately 492 (approximately 94.3% of the Company's
stockholders) hold 2,000 or fewer shares. Thus, if for any reason a trading
market developed for the Company's Common Stock, stockholders holding less than
2,000 shares would nonetheless have limited opportunities to realize any value
for their shares since the sales of their shares would ordinarily involve
disproportionately high brokerage commissions.
On numerous occasions during fiscal 1997 and fiscal 1998, members of
the Board of Directors held formal and informal meetings in person and via
telephone conference calls to discuss the various considerations involved in
the possibility of the Company ceasing to be a "reporting" company including
effecting a reverse stock split, with a cash payment to be made in lieu of the
issuance of fractional shares resulting from a reverse stock split.
Initially, in the early part of fiscal 1997, there were sporadic and
informal discussions held by Mr. Dupee and Mr. Tennant in London whereby they
discussed the advisability of the Company eliminating stockholders holding a
relatively small number of shares as well as the advisability of the Company
remaining a reporting company in the United States. No decisions were made or
conclusions reached in connection with these discussions. Each of Mr. Tennant
and Mr. Dupee contacted the Company's outside corporate counsel, Danzig Garubo
& Kaye, LLP, to discuss the various considerations involved in the possibility
of the Company effecting a transaction whereby those stockholders holding a
relatively small number of shares would be eliminated, or alternatively,
effecting a transaction whereby the Company would cease to be a reporting
company. During the course of these conversations, corporate counsel discussed
the procedures to effect a reverse stock split under Delaware law whereby cash
payments could be made in lieu of fractional shares to stockholders holding a
small number of shares thereby eliminating such stockholders holding nominal
interests. In addition, corporate counsel advised that if such transaction
was intended to have the effect of reducing the number of record holders to
below 300 stockholders, then such transaction would be deemed to be a going-
private transaction and would have to be done in compliance with the
requirements of Rule 13e-3 promulgated under the 1934 Act.
Following these initial preliminary discussions, it was requested by
Mr. Dupee and Mr. Tennant that corporate counsel obtain an appropriate
stockholders list from the Company's transfer agent so that an appropriate
analysis could be made of the Company's stockholders to determine whether any
of the foregoing ideas would be feasible. Such stockholders list was
thereupon obtained and copies were analyzed by both the Company's corporate
counsel and by the Company's Chief Financial Officer, each of whom concluded
that of approximately 525 stockholders of record, over 450 stockholders held
100 or fewer shares of Common Stock, approximately 470 held 250 or fewer shares
and approximately 490 stockholders held 2,000 or fewer shares.
Further discussions continued in fiscal 1997 between Mr. Tennant and
Mr. Dupee regarding these matters and other directors, which included Mr.
Pilkington (who became a director in December 1996), Mr. Hambro and Mr. Niven,
were contacted. Formal and informal meetings in person and via telephone
conference calls to discuss the various considerations involved in such matters
were held in fiscal 1997. While no director voiced any opposition to
effecting a reverse stock split in order to eliminate certain stockholders with
nominal interests or effecting a going private transaction whereby the Company
would cease to be a "reporting" company, it was decided that the Company not
take any action at that time to effect either such a transaction and that the
Company should reconsider such a transaction at a later date and possibly in
fiscal 1998 or 1999.
Following the acquisition of Magec in December 1997 and the issuance of
the 8.0% Debentures in December 1997, the Board of Directors resumed
discussions with regard to the foregoing proposals. Such conversations
continued among the various directors, which as of January 1998 included Mr.
Harland who became a Board member during that month. All Board members agreed
that the Company's stockholders derived no material benefit from the continued
registration of the Common Stock under the 1934 Act and that the Company
achieved no material benefits in being a reporting company in the United
States. As a result, the Board concluded that if the Company was going to
effect a reverse stock split to eliminate stockholders with small holdings it
should structure such transaction so that the number of stockholders be reduced
to fewer than 300 holders to enable the Company to cease filing reports under
the 1934 Act.
During the third quarter of fiscal 1998, the Board began to consider
what would be a fair price to pay for any fractional shares which may be
created by a reverse stock split transaction. Mr. Dupee and Mr. Tennant
suggested that the price be set at $1.00 per share in view of the recent
issuance of the 8.0% Debentures which are convertible at a rate of $1.00 per
share. As a result, meetings were held by the members of the Board, and after
a careful analysis in which the Board considered the factors described below
(see " - Recommendations of the Board of Directors; Fairness of the Reverse
Stock Split"), the Board of Directors determined that a fair value would be
$1.00 per share. The Board of Directors then approved the Reverse Stock Split
and the Reverse Stock Split Amendment and a resolution to pay $1.00 per share
in lieu of the issuance of fractional shares of the New Common Stock. The
ratio of 1-for-250 was chosen initially by the Board as the Reverse Stock
Split ratio. Such ratio was later adjusted by the Board to 1-for-2,000 as an
administratively convenient ratio which should ensure that fewer than 300
stockholders would remain after the Reverse Stock Split. Representatives of
Consulta Smaller Companies Fund Limited, Task Holdings Limited, J.O. Hambro
Nominees Limited and J.O. Hambro Investment Management Limited were contacted
and such representatives voiced no opposition to such a proposal.
In connection with such analysis, the Board decided to engage the
services of an outside party to provide an opinion to the Board as to the
fairness of the cash consideration to be paid in lieu of the issuance of
fractional shares of New Common Stock as part of the Reverse Stock Split, in
order to provide a procedural safeguard to the proposed Reverse Stock Split.
The Board met with representatives of Collins Stewart Ltd., a member of the
London Stock Exchange and a firm which had previously provided and was
currently providing other services to the Company (see " - Opinion of Collins
Stewart") and agreed to retain such firm to render such an opinion.
REASONS FOR THE REVERSE STOCK SPLIT
The Board determined to propose the Reverse Stock Split because the
Board believes that it was an opportune time to enable the vast majority of
stockholders to liquidate their shares easily, at a fair price with no
brokerage costs, recognizing that no active trading market currently exists
with respect to the Common Stock. In connection therewith, the Board
determined that the Company has the available cash needed to pay for any
fractional shares which may be created by a reverse stock split transaction.
The Board also believes that the registration of the Company's Common Stock
under the 1934 Act is not advantageous to the Company in light of the nature of
the Company. As a result of the changes which have occurred within the Company
since 1989, the Company has had an increased presence overseas and less of a
presence in the United States. In addition, the Board noted that the Company
has greatly expanded in recent years, which includes the acquisition of Magec
which occurred in December 1997. Despite the growth of the Company and the
improved financial performance in recent years, the market price of the
Company's Common Stock has not materially changed and the Board noted that the
Company has never developed and will likely not develop in the foreseeable
future any significant trading market for its shares of Common Stock in the
United States.
The Board further noted that following the Reverse Stock Split the
Company may attempt to change the Company's legal domicile to outside of the
United States. Although no assurance can be given that the Company will
attempt to effect or make this change of legal domicile, such change may in
fact be effected at some time after the Reverse Stock Split. In addition, the
Company has had discussions and has contemplated that following the Reverse
Stock Split, it may seek to raise additional capital in foreign markets and
establish a trading market for its securities in foreign markets. In this
regard, the Company has had discussions with investment banking firms in the
United Kingdom and the Company may seek in the future, following the Reverse
Stock Split, to effect a public offering of its securities in the United
Kingdom and have its securities listed for trading on the London Stock
Exchange. See " - Conduct of the Company's Business After the Reverse Stock
Split; Possible Change in Legal Domicile of the Company; Possible Listing on
the London Stock Exchange." Notwithstanding the foregoing, there can be no
assurance that such a public offering in the United Kingdom and/or effecting a
listing of the Company's securities on the London Stock Exchange, will be
attempted, or if attempted, that such matters will be successfully completed.
The Board believes, however, that in the event the Company attempts to
accomplish the foregoing matters, it will be better positioned to successfully
accomplish the foregoing if it then has a small stockholder base and few U.S.
stockholders.
In connection therewith, the Board believes that having a large
stockholder base in the U.S. may prevent the Company from proceeding with an
offering or listing on the London Stock Exchange in the event such actions are
pursued insofar that the investment banking firms which are in the United
Kingdom and which have indicated an interest in participating in such actions
have expressed the concern that the Company may not be able to successfully
complete an offering overseas and maintain an orderly trading market for the
Company's shares in the United Kingdom if the Company still has a large
stockholder base in the U.S. As a result, a large stockholder base which
remains in the U.S. may prevent the Company from successfully accomplishing an
offering or listing on the London Stock Exchange at all in the event such
actions are pursued, in which event there will be no trading market in any
respect overseas. Accordingly, there will be no opportunity for any
stockholder to benefit from such a trading market. Moreover, even if the
Company's large U.S. stockholder base is eliminated as a result of the Reverse
Stock Split and a trading market develops overseas, there is no guarantee that
the shares will trade at a price greater than the equivalent of $1.00 per
share.
The Board also noted that significant financial and operational
constraints have prevented the Company and its stockholders from enjoying the
benefits which traditionally flow from being a public company in the United
States. The Company has significant debt obligations due to financings of
various acquisitions which financings do not permit the Company to pay any
dividends to its stockholders. Such constraints, together with the substantial
legal, accounting and other costs incurred as a result of being a reporting
company, have prevented and will continue to prevent for the foreseeable future
the payment of any dividends to its stockholders. They will continue to
prevent any meaningful appreciation in the value of the Company's shares of
Common Stock.
In addition, the Board noted that since being delisted from trading on
the Nasdaq Small-Cap Market, the Company has never developed and will likely
not develop in the foreseeable future any significant trading market for its
shares of Common Stock in the United States. Although the Company's operations
have increased substantially since 1989, the Common Stock since being delisted
on the Nasdaq Small-Cap Market has traded infrequently and sporadically.
As a reporting company, the Company has incurred and will continue to
incur substantial costs as a result of its status as a reporting company under
the 1934 Act. It incurs direct costs including legal, accounting, and printing
fees, to prepare annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and proxy solicitation materials and formal annual
reports for distribution to stockholders prior to an annual meeting. Such
direct costs are estimated to be approximately $100,000 to $150,000 per year.
The Company incurs substantial indirect costs insofar that the Company's
management is also required to devote substantial time and attention to the
preparation and review of these filings, the furnishing of information to
stockholders and other stockholder matters. Since the Company has relatively
few executive personnel, these indirect costs can be substantial. In light of
the lack of benefits the Company has achieved from its status as a reporting
company, the Board does not believe such costs are justified.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS; FAIRNESS OF THE REVERSE STOCK SPLIT
The Board believes that the Reverse Stock Split, taken as a whole, is
fair to, and in the best interests of, the stockholders of the Company who will
receive cash in lieu of fractional shares as well as those who will receive
shares of the New Common Stock. The Board also believes that the process by
which it approved the Reverse Stock Split was fair.
In reaching its determination that the Reverse Stock Split, taken as a
whole, is fair to, and in the best interests of, the stockholders and in
reaching its recommendation that the stockholders vote for approval and
adoption of the Reverse Stock Split and Reverse Stock Split Amendment and the
payment of cash in lieu of fractional shares, the Board considered, among other
things, (i) the opinion prepared by Collins Stewart as to the fairness from a
financial point of view of the cash consideration to be paid in lieu of the
issuance of fractional shares of New Common Stock as part of the Reverse Stock
Split (see " - Opinion of Collins Stewart"), (ii) each of the directors'
knowledge of and familiarity with the Company's business, prospects, financial
condition and current business strategy, (iii) information with respect to the
financial condition, results of operations, assets, liabilities, business and
prospects of the Company, and current industry, economic and market conditions,
(iv) the opportunity presented by the Reverse Stock Split for stockholders
owning fewer than 2,000 shares to liquidate their holdings without incurring
brokerage costs, particularly given the absence of a liquid market, and (v) the
future cost savings that will inure to the benefit of the Company and its
continuing stockholders as a result of the Company deregistering its Common
Stock under the 1934 Act. The Board determined that each of the foregoing
factors generally supported the conclusion that the Reverse Stock Split was
fair to the unaffiliated stockholders.
The Board recognized that despite improvements in the Company's
business in recent years the marketability of the Company's stock in the United
States has not improved, and the Board does not expect that any significant
trading market will develop in the foreseeable future in the United States.
Since 1989, the Board noted that the Company has steadily increased its foreign
operations and has maintained less of a presence in the United States.
Moreover, the Board noted that the Company's principal executive officers,
including its Chief Executive Officer, are primarily in the United Kingdom, and
its directors, other than Mr. Niven, primarily reside in the United Kingdom.
As a result, the Board believes that the Company's business and future
prospects currently have and are expected to continue to have a greater
presence in foreign markets. In this regard, the Board believes that neither
the Company nor its stockholders derive any material benefit from the continued
registration of the Common Stock under the 1934 Act and that the monetary
expense and burden to management of continued registration significantly
outweighs any material benefit that may be received by the Company or its
stockholders as a result of such registration.
The Board also considered the following factors as generally supporting
its determination as to the fairness:
CURRENT AND HISTORICAL MARKET PRICES. The Board reviewed the current
and historical market prices for the Company's Common Stock since being
delisted from the Nasdaq Small-Cap Market (October 20, 1995) and noted that
since such date and through the end of fiscal 1997 the bid price has ranged
from a low of 1/8 to a high of 7/8. Since the end of fiscal 1997, the bid
price has ranged from a low of 1/4 which is the most recent available reported
bid price to a high of 1-3/4 which was the highest reported bid price which
occurred in October 1997. The date of the most recent available price is
December 15, 1998. During October 1997, the reported bid price was higher
than $1.00 between October 7{th} and October 13{th}. Nevertheless, insofar
that trading in the Company's stock has been sporadic and relatively inactive,
the Board did not believe that such higher price during such period was
indicative of the value of the Company's stock or reflective of any trend in
the trading market since the reported bid price of the Company's stock has
since January 1998 been below $1.00.
NET BOOK VALUE. The net book value of the Company as of September 30,
1998 was $4,870,573. Based upon 6,394,872 outstanding shares of Common Stock,
the net book value per share as of September 30, 1998 was approximately $.76.
GOING CONCERN VALUE. In determining a going concern value of the
Company, the Board took into consideration the improvement in earnings of the
Company over the past few years, the future outlook of the Company, recent
acquisitions and such relationship to future earnings, the Company's financial
condition, including current and future earnings and cash flow, and the Board's
knowledge of the business, prospects and competition of the Company. After
this analysis of going concern value and taking all factors into account, the
Board determined in its judgment but without mathematical formula that the
going concern value should be higher than book value but no greater than $1.00
per share.
LIQUIDATION VALUE. Traditionally, in liquidation, a business will
receive less for its assets than as a going concern. In liquidation, it may
reasonably be assumed that the net value of the Company will be less than its
book value. In this regard, the Board noted that the Company's assets in total
would in all likelihood yield substantially less upon liquidation than their
book value. This belief is based in part on the expenditures which would be
incurred by the Company if it attempted to sell its assets. In addition, the
Board does not believe that there is a ready market for the Company's assets in
bulk and, as a result, it would be difficult to sell those assets in bulk for
their net book value.
RECENT PURCHASES. The Board reviewed privately negotiated transactions
which occurred in fiscal 1997 in which (i) the four holders of all of the then
outstanding shares of Series C Convertible Preferred Stock (the "Series C
Preferred Stock") agreed to convert all of the Series C Preferred Stock at a
rate of $.49 per share or an aggregate of 2,053,876 shares of Common Stock, and
(ii) two holders of the Company's 10% Senior Subordinated Convertible
Debentures due December 31, 1998 (the "10% Debentures") agreed to convert the
10% Debentures held by them (in the principal amount of $1,065,000) at a rate
of $.33 per share or 3,227,273 shares of Common Stock. Two of such holders of
the Series C Preferred Stock were James G. Niven, a director of the Company,
and J. O. Hambro Nominees Limited, which may be deemed to be controlled by
Richard Hambro, a director of the Company. Such two holders of the 10%
Debentures were Paul R. Dupee, Jr., Chairman of the Board and a director of the
Company, and Consulta Smaller Companies Fund Limited. The shares acquired by
Consulta Smaller Companies Fund Limited may be deemed to be beneficially owned
by Nigel D. Pilkington, a director of the Company. In addition, the Board
considered another privately negotiated transaction which occurred in December
1997 whereby the Company issued and sold to certain directors and
principal stockholders of the Company, and/or their affiliates, as well as
other third parties, the 8.0% Debentures in the aggregate principal amount
of $5,816,000. The 8.0% Debentures are convertible into shares of the
Company's Common Stock at an initial conversion price of $1.00 per share
once the Certificate of Incorporation is modified to increase the number of
authorized shares of Common Stock which is being proposed in connection
with this Information Statement. Although the Board believes that a conversion
price of a debt instrument which pays interest is not necessarily indicative of
the value of a company's stock, the Board believes that any such valuation
generally will be assumed to be lower than the conversion ratio in view of the
interest which the debt instrument will pay. Accordingly, the Board assumed
that the value of the Company's stock was deemed to be less than $1.00 in
connection with the sale of the 8.0% Debentures. The Board also considered
another privately negotiated transaction which occurred in September 1998
whereby the Company issued to certain non-affiliated institutional investors
the Additional 8.0% Debentures in the aggregate principal amount of
$4,623,000. The Additional 8.0% Debentures are convertible into shares of the
Company's Common Stock at an initial conversion ratio starting at $1.35 per
share until June 30, 1999; $1.25 from July 1, 1999 to July 31, 1999; and then
decreasing monthly thereafter by $.05 per month until December 1, 1999
whereupon the conversion ratio shall thereafter be $1.00 per share. The Board
did not consider the initial conversion ratios above $1.00 as an indication of
the value of the Company's stock but simply a method to give preferential
treatment to the holders of the Company's 8.0% Debentures which were issued in
December 1997.
OFFERS BY OTHERS. The Board also noted that during the preceding 18
months the Company has not received any firm offers nor is it aware of any
offers for a merger or consolidation or is it aware of any sale or other
transfer of all or any substantial part of the assets of the Company or
securities of the Company which would enable the holder thereof to exercise
control of the Company.
The Board considered alternatives to the proposed Reverse Stock Split,
including privately negotiated purchases of Common Stock as well as a possible
self-tender offer. However, such alternatives were rejected because there was
no assurance that either alternative would assure a sufficient response in
order to result in the Company having fewer than 300 stockholders. The Board
did not consider a possible sale of the Company because no firm offers had been
presented to the Board and no determination had been made that a sale would be
in the best interests of the stockholders. In addition, the Board did not view
a sale as an alternative that could achieve the objectives that the Board
sought to achieve with the Reverse Stock Split, which were providing liquidity
for small stockholders while at the same time reducing costs for the Company
and its continuing stockholders.
In view of the circumstances and the wide variety of factors considered
in connection with its evaluation of the fairness of the Reverse Stock Split,
taken as a whole, the Board did not find it practicable to assign relative
weights to the factors considered in reaching its determination that the
Reverse Stock Split, taken as a whole, is fair to, and in the best interests
of, the stockholders of the Company. If any factor assisted the Board in its
determination, the Board did not assign a relative weight to such factor and
did not make a determination as to why a particular factor, as a result of the
deliberations by the Board, should be assigned any weight.
The Board of Directors did not structure the Reverse Stock Split to
require approval of at least a majority of the unaffiliated stockholders. They
concluded, despite not structuring the Reverse Stock Split in such manner, that
the Reverse Stock Split is fair to the Company's unaffiliated stockholders.
The Board did not retain an unaffiliated representative to act solely on behalf
of the unaffiliated stockholders for purposes of negotiating the terms of the
Reverse Stock Split or preparing a report with respect to the fairness of the
Reverse Stock Split. The Board determined that the cost and expense to retain
such representative was not warranted in light of the engagement of Collins
Stewart to render an opinion as to the fairness from a financial point of view
of the cash consideration to be paid in lieu of the issuance of fractional
shares of New Common Stock as part of the Reverse Stock Split, and the expected
cash consideration to be paid to the fractional stockholders pursuant to the
Reverse Stock Split.
The Board of Directors concluded the Reverse Stock Split is fair to the
Company's unaffiliated stockholders from a financial point of view. The Board
reiterated that in determining the amount of cash consideration to be paid for
fractional interests as a result of the Reverse Stock Split, the Board
considered various factors in reaching a fair price, including the opinion
rendered by Collins Stewart. The Board noted that the Reverse Stock Split,
given the lack of an active trading market for the Company's stock, afforded
stockholders who hold less than 2,000 shares a one time opportunity to receive,
in view of the Board of Directors, fair value for their shares. In addition,
the Reverse Stock Split constitutes the most expeditious, efficient, and least
expensive method to convert the Company from a reporting company to a non-
reporting company in comparison to other alternatives considered by the Board.
The Board also concluded that the Reverse Stock Split is fair to the
Company's unaffiliated stockholders from a procedural point of view. In
reaching such conclusion, the Board noted that although it did not retain an
unaffiliated representative to act solely on behalf of the unaffiliated
stockholders for purposes of negotiating the terms of the Reverse Stock Split
or preparing a report with respect to the fairness of the Reverse Stock Split,
the Board did retain Collins Stewart as an outside party to render an opinion
as to the fairness of the transaction from a financial point of view which
opinion did in fact support the Board's determination. In addition, the Board
was aware that under the General Corporation Law of Delaware, statutory
appraisal rights are not available. However, the Board concluded that
stockholders objecting to the Reverse Stock Split may have rights available to
them under state law which could be raised in the context of a suit against the
Company and the Board of Directors. See " - Appraisal Rights; Escheat Laws".
If the Reverse Stock Split is consummated, all persons holding fewer
than 2,000 shares at the effective time of the Reverse Stock Split will no
longer have any interest in, and will not be stockholders of the Company and
therefore will not participate in its future potential or earnings and growth.
Instead, each such holder of Common Stock will have the right to receive $1.00
per share in cash without interest. Directors and executive officers, in
addition to all other stockholders who remain stockholders after the Reverse
Stock Split, will realize an increase in their equity ownership of the Company.
Certain directors of the Company who own the 8.0% Debentures shall also have
the opportunity to increase their shareholdings by converting their 8.0%
Debentures into shares of New Common Stock at a conversion rate of $1.00 per
share assuming approval of the Capitalization Amendment and certain officers,
directors and other key employees holding options shall have an opportunity to
acquire additional shares.
The Company intends, as a result of the Reverse Stock Split, to
terminate the registration of its Common Stock under the 1934 Act. The Company
will then be relieved of the obligation to comply with the proxy rules of
Regulation 14A under Section 14 of the 1934 Act, and its officers and directors
and stockholders owning more than 10% of the Common Stock would be relieved of
the reporting requirements and "short swing" trading restrictions under Section
16 of the 1934 Act. Further, the Company will no longer be subject to the
periodic reporting requirements of the 1934 Act and will cease filing
information with the SEC. Unless the shares become listed on The London Stock
Exchange, remaining stockholders should expect a limited or no trading market
for the shares. See " - Conduct of the Company's Business After the Reverse
Stock Split; Possible Change in Legal Domicile of the Company; Possible Listing
on the London Stock Exchange". Although stockholders may sell their shares in
privately negotiated transactions, stockholders will in all likelihood be
dependent to a great extent upon the Company's willingness to purchase shares.
The Board of Directors has reserved the right to abandon the Reverse
Stock Split prior to its consummation, if circumstances arise which in the
opinion of the Board of Directors, make such abandonment advisable such as, but
not limited to, (i) any legal action or proceeding concerning the Reverse Stock
Split or, in the opinion of the Board of Directors, materially adversely
affecting the Company, is instituted or threatened in any court or by or before
any governmental agency, or (ii) there shall have been, in the opinion of the
Board of Directors, any material change in the business, financial condition or
operations of the Company which in the opinion of the Board of Directors make
such abandonment advisable.
OPINION OF COLLINS STEWART
The Company received a written opinion from Collins Stewart Ltd.
("Collins Stewart") with respect to the fairness from a financial point of view
of the consideration to be received by holders of the currently outstanding
shares in the Company in lieu of the issuance of any resulting fractional
shares of the New Common Stock following the Reverse Stock Split. A copy of
the Opinion provided by Collins Stewart is attached hereto as Annex B and
stockholders are urged to read it in its entirety.
Collins Stewart, a member of the London Stock Exchange, is a brokerage
firm to institutional investors and also provides corporate advisory and
broking services to currently over 60 corporate clients. Members of Collins
Stewart Corporate Finance Department are regularly involved in providing advice
which includes advise as to the valuation of securities in connection with
public offerings, private placements, acquisitions, fairness opinions and other
purposes.
Collins Stewart has previously been engaged by the Company to provide
broking services and is currently engaged to provide advisory and broking
services in respect of future equity fundraisings which the Company may wish to
pursue, including a possible fundraising on the London Stock Exchange. In this
regard, Collins Stewart was engaged by the Company to provide the Company with
corporate finance advice and services in connection with a proposed convertible
debt offering (which was completed in September 1998 with the sale of the
Additional 8.0% Debentures) and in connection with a possible issuance of
shares on the London Stock Exchange. An affiliate company of Collins Stewart
invested as principal in the Additional 8.0% Debentures to the value of
$3,000,000. Collins Stewart itself received Additional 8.0% Debentures to the
value of $123,000 in consideration of its services as placing agent. With
regard to a possible issuance of shares on the London Stock Exchange, such
engagement with Collins Stewart does not oblige Collins Stewart to sell,
acquire, place, underwrite or subunderwrite any investments, unless and until
it is expressly agreed otherwise in writing, but to advise the Company as
Collins Stewart sees fit, in what it perceives to be the Company's best
interests in light of the circumstances prevailing at the time at which such
advice is given. In the event such an issuance is effected, however, the
engagement does provide for the payment of various fees and commissions, and
certain fees, under certain specific circumstances only, if such issuance does
not proceed at the Company's initiation.
The Company determined the consideration to be received by
stockholders, and Collins Stewart has only undertaken investigations of the
Company and performed the procedures described below in order to render its
Opinion. Collins Stewart was not asked to nor did it express an opinion on any
other restructuring aspects of the Reverse Stock Split. No limitations were
imposed upon Collins Stewart by the Company's Board of Directors with respect
to the investigations or procedures followed by Collins Stewart in rendering
the Opinion, except that Collins Stewart in connection with its engagement, was
not authorized to solicit and did not solicit any third-party indications of
interest in acquiring all or any part of the Company.
In the Opinion, Collins Stewart stated that it was relying upon the
accuracy and completeness, without independent verification, of the publicly
available information and all other information concerning the Company
furnished to, and other published information reviewed by, Collins Stewart.
Collins Stewart also assumed that financial projections of the Company have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the Company's management as to the future financial
performance of the Company. Collins Stewart also indicated in the Opinion that
it has not made an independent appraisal or physical inspection of the assets
or liabilities of the Company. Collins Stewart highlighted in the Opinion that
the valuation derived for the Company's equity is based on the Company's
present financing arrangements.
In rendering the Opinion, Collins Stewart undertook investigations of
the Company as described in the Opinion, including, among other things,
reviewing and analyzing: (1) drafts of the Information Statement filed with the
Securities and Exchange Commission; (2) certain relevant publicly available
information regarding the Company, (3) financial and operating information with
respect to the business operations of the Company furnished by the Company,
including financial projections of the Company prepared by the management of
the Company, (4) a trading history of the Company's common stock from January
1, 1997 to the date of the Opinion, (5) information concerning convertible
debentures and stock options recently issued by the Company, (6) publicly
available information concerning certain other companies and transactions that
Collins Stewart identified as comparable or otherwise relevant to its review,
and (7) other transactions that Collins Stewart deemed comparable or otherwise
relevant to this transaction. In addition, Collins Stewart has had
discussions with the management of the Company concerning its business and
operations, current net asset position and future prospects, and undertook such
other studies, analyses, and investigations as deemed appropriate. The
management of the Company assured Collins Stewart during these discussions that
they are unaware of any facts that would make the information provided to
Collins Stewart incomplete or misleading.
The following is a summary of the financial projections prepared by
management of the Company and furnished to Collins Stewart:
1999
Forecast
$'000
Gross Revenues 64,118
EBITDA 7,590
Depreciation and Amortization 2,707
EBIT 4,884
Interest 2,838
EBT 2,045
With regard to the financial projections prepared by management of the
Company, the projections were not prepared with a view toward compliance with
published guidelines of the Securities and Exchange Commission or the American
Institute of Certified Public Accountants regarding prospective financial
information. The projections necessarily were based upon numerous estimates
and assumptions with respect to industry performance, general business and
economic conditions, taxes and other matters, many of which are beyond the
control of the Company. Although the Company is subject to general economic
conditions as well as specific competitive uncertainties, no attempt was made
in the projections to predict when or whether cyclical changes in economic
conditions would be experienced during the period covered by the projections.
Accordingly, the projections are not necessarily indicative of current values
of future performance, which may be significantly less favorable or more
favorable than as set forth therein.
Collins Stewart has advised the Company that prior to delivering the
Opinion it performed various analyses and comparisons regarding the Company as
summarized below:
1. Current and Historical Market Prices
Collins Stewart reviewed details, provided by the Company, of reported
trades in the Company's shares since January 1, 1997 to the date of the
Opinion. During this period the bid price for the Company's shares ranged from
a low of $0.125 to a high of $1.75 per share. Other than three reported trades
in the Company's shares during October 1997, there have been no other reported
trades at a price above $1.00, with the latest reported trades in the Company's
shares being in December 1998 at $0.25 and in January 1999 at $.0625. The
history of only 19 reported transactions in this period indicates a lack of
liquidity in the Company's shares, which Collins Stewart believes has been
contributed to by the financial risk attached to the Company following the
level of debt taken on by the Company on the acquisition of Magec Aviation
Limited in December 1997.
Collins Stewart also noted that since the first half of 1998 market conditions
have deteriorated, particularly for smaller companies. Collins Stewart also
noted that as far as the Directors of the Company are aware there are no bids
for shares in the Company at a value of $1.00 or above.
Collins Stewart also considered the issue by the Company in September
1998 of the Additional 8.0% Debentures to certain non-affiliated institutional
investors. The Additional 8.0% Debentures have an initial conversion ratio of
$1.35 per share decreasing to $1.00 per share at and after December 1, 1999.
Collins Stewart noted that it is usual for convertible loan stock to be issued
with a conversion price in excess of that which the issuer considers to be the
value of the underlying shares. This is usual where the convertible loan stock
carries benefits in terms of income and security in comparison with the
underlying shares. The Additional 8.0% Debentures yield an 8% (fixed rate)
coupon semi-annually, whereas the Company's shares currently yield no dividend
and the Company has no stated or intended dividend policy, and the Additional
8.0% Debentures rank in front of the Company's shares in terms of security.
Collins Stewart also noted that market conditions for smaller companies and for
fund railings in particular have deteriorated significantly since the
Additional 8.0% Debentures were marketed in August 1998. Collins Stewart also
stated that it would expect non-affiliated institutional investors in the
Additional 8.0% Debentures would assign a lower value to the Company's shares
in current market conditions than they would have done in August 1998.
Collins Stewart also noted that an earlier issue of 8.0% Debentures
took place in December 1997, raising $5,816,000 from unaffiliated investors as
well as certain directors and affiliated stockholders. These 8.0% Debentures
were issued with a conversion ratio of $1.00 per share. Additionally, it was
noted that during 1997 the four holders of the then outstanding Series C
Convertible Preferred Stock agreed to convert into shares in the Company at a
rate of $0.49 per share and two holders of the Company's 10% Subordinated
Convertible Debentures due December 31, 1998 agreed to convert into shares in
the Company at a rate of $0.33 per share.
Collins Stewart also noted that the Company has issued stock options to
its Directors with exercise prices of either $0.50 or $1.00 per share. The
last stock options issued by the Company were issued in February 1998, with an
exercise price of $1.00 per share. This exercise price reflects the value per
share that the Directors considered to be fair at that time.
2. NET BOOK VALUE / LIQUIDATION VALUE
As at September 30, 1998, the Company had a net asset value per share
of $0.76. Collins Stewart inquired as to whether the Directors of the Company
were aware of any other significant changes to the net assets of the Company
since September 30, 1998 or any assets or liabilities in the Company's
consolidated balance sheet at September 30, 1998 which were stated at a value
which they estimated was significantly different to their net realisable
values.
Collins Stewart noted that the liquidation value of the Company would
be expected to be less than the value of the Company's net assets as reflected
in the above net asset value per share.
3. GOING CONCERN VALUE
Collins Stewart reviewed the Company's going concern value principally
on the basis of analyzing the Company's trading performance relative to
publicly-traded comparable companies. Following discussions with the Directors
of the Company, Collins Stewart decided that it would not pursue a discounted
cash flow analysis of the Company, as the financial risk attached to the
Company given its current high level of debt suggested that an extremely high
discount rate should be applied which Collins Stewart believed would produce an
unreliable valuation of the Company's equity.
Collins Stewart noted that given the Company's significant level of
debt (the Company's net debt to equity ratio as at September 30, 1998 was
711%), an analysis based on enterprise value ("EV") to earnings before
interest, tax, depreciation and amortization ("EBITDA") would provide the most
appropriate earnings-based valuation indicator for the Company. Collins
Stewart noted that the following is a summary of the Company's historic and
forecast results (source: Company returns and management forecasts):
1997 1998 1999
Audited Audited Forecast
$'000 $'000 $'000
Net revenue 25,585 46,926 64,118
Gross profit 6,356 10,798 15,443
EBITDA 3,340 5,070 7,590
Collins Stewart undertook a comparison of EV / historic EBITDA for the
Company and Mercury Air Group, Inc. ("Mercury"), the one company identified as
listed on a North American or European stock exchange which has an FBO or
aircraft charter and management business as a significant part of its
activities. Collins Stewart determined that the Company had an EV / historic
EBITDA of 8.1 based on a value of $1.00 per share in the Company and the
Company's net debt position as at September 30, 1998, which compared to a
similar multiple for Mercury of 5.1. This analysis suggested that a value of
$1.00 per share in the Company produces a relatively high EV/historic EBITDA
multiple when compared to Mercury.
Other sectors which Collins Stewart determined could offer companies
with comparable activities to those of the Company were airlines, regional
airlines, airports, airport and airline services, transportation, and business
services. However, Collins Stewart stated that there are no airline, regional
airline, airport or airport and airline services companies listed on the Nasdaq
Stock Market ("Nasdaq") which are comparable with the Company in terms of size,
all such companies being substantially larger than the Company. Of the
remainder of potential comparable companies involved in transportation or
business services, Collins Stewart believe there to be too diverse a collection
of companies to allow for any meaningful comparisons to be made.
Collins Stewart noted that limited information appeared to be available
on companies listed on Nasdaq on a sectorial basis that could be used for the
purpose of comparisons with the Company. The only indicator identified by
Collins Stewart of relevance was the price / historic earnings multiple for
those companies which constitute the Nasdaq Transportation Index which as at
September 30, 1998 was 11.5, sourced directly from Nasdaq. Collins Stewart
noted that given an aggregate US corporate taxation rate of 40%, this average
price / earnings multiple figure implied a price / historic pre-tax earnings
multiple of 6.9 and thus an EV/ historic EBITDA multiple of an even lower
figure would be suggested. Collins Stewart noted that this would seem to
support the view that a value of $1.00 per share produces a relatively high
EV/ historic EBITDA multiple for the Company.
Collins Stewart identified price / prospective earnings ratios for
certain sectors for companies on the London Stock Exchange as further
potentially relevant indicators for the Company, given that the majority of the
Company's revenues are now generated in the UK and that no similar ratios were
identified for Nasdaq listed companies. The Company's EV / forecast EBITDA of
5.4 (based on a value per share of $1.00) is comparable to implied EV /
prospective EBITDA multiples for the FTSE Small Cap. Index and the FTSE
Transportation Sector Index for companies on the London Stock Exchange of 6.1
and 6.6, respectively (source: FTSE International Ltd). This comparison
further supported a value per share in the Company of $1.00 being a fair value,
given the specific financial risk attached to the Company.
4. COMPARABLE TRANSACTIONS
Collins Stewart noted that while there have been a number of
acquisitions of FBO and related companies in recent years, such as the
acquisition of Executive Jet, Inc. in July 1998, there are no transactions for
which adequate details have been obtained to allow for an analysis of value of
the Company based on comparable transactions.
Collins Stewart reviewed the sale of AMR Combs in December 1998, a
substantially larger FBO operator, which was not a strictly comparable
transaction because of the difference in its scale of operation compared to
that of the Company. Given the consideration for AMR Combs of $170 million,
its exit valuation / historic EBITDA multiple of 8.9 compares to the Company's
EV / historic EBITDA multiple of 8.1, given a value per share of $1.00. Given
that AMR Combs is a substantially larger operation than the Company and that
the current market conditions indicate that there is a significant valuation
premium being attributed by investors and companies on scale of operation,
these comparable multiples suggest that a value of $1.00 per share produces a
relatively high EV/ historic EBITDA for the Company.
A valuation comparison based on the Company's and AMR Combs' forecast
earnings produced a distorted result as it does not reflect the following: the
relative uncertainty of the Company's forecast earnings as opposed to AMR
Combs, given their respective earnings trends; the financial risk attached to
the Company given its current financing structure; the valuation premium
applicable to AMR Combs compared to the Company because of its significantly
larger scale of operation; and the difference in the level of margin generated
on aircraft sales between the two groups, all of which would suggest a lower
valuation multiple be attached to the Company's forecast results.
The Directors of the Company also informed Collins Stewart that no firm
offers for the Company or any of its assets have been received in the last
eighteen months.
A copy of the memorandum prepared by Collins Stewart which summarizes
its analyses has been filed as an exhibit to the Schedule 13E-3 filed by the
Company with the SEC. Copies will be made available for inspection and copying
at the principal executive offices of the Company during regular business hours
by any interested stockholder of the Company or his representative who has been
so designated in writing. The Schedule 13E-3 and the memorandum prepared by
Collins Stewart is also available at the Commission's Web site at
http://www.sec.gov.
The preparation of a fairness opinion is a complex process and not
necessarily susceptible to partial analysis or summary description. Collins
Stewart believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying the Opinion. Collins
Stewart did not attribute any particular weight to any analysis or factors
considered, but rather made qualitative judgments as to the significance and
relevance of each analysis and factor. In its qualitative analysis Collins
Stewart considered current and historical market prices to be of most
significance in its determination of the Opinion. The going concern analysis
is limited by the lack of comparable listed companies and the lack of details
disclosed in relation to recent transactions involving comparable companies.
The ability to value the Company is further complicated by its high debt levels
which make comparisons with other available indicators, such as price to sales,
inappropriate. Collins Stewart further noted that the value of the Company's
equity is significantly impacted by the Company's present financing structure
and that the marketability and liquidity of shares in the Company could be
significantly altered by changes to the Company's capital structure. In
particular, any future equity fundraising which the Company may or may not
successfully pursue, could enhance the value of each share in the Company by
reducing the Company's levels of debt as well as improving the marketability of
the Company's shares. Additionally, it should be noted that estimates of the
value of a business do not purport to be appraisals or to necessarily reflect
the price at which such business may actually be sold.
Collins Stewart notes in its letter of engagement that the conclusions
which Collins Stewart may reach in respect of any advice it renders may change
and that its obligation in this respect is to advise the Company as it sees
fit, in what it perceives to be the Company's best interests, in the light of
circumstances prevailing at the time at which such advice is given.
Collins Stewart was selected by the Board because of its expertise and
experience in rendering fairness opinions and its expertise in trading and
valuing securities, as well as its familiarity with the Company and its
business in which it operates.
For its services, including rendering its opinion, the Company has
contracted to pay a fee of 40,000 Pounds Sterling (equivalent to approximately
$65,000) to Collins Stewart and has agreed to pay all reasonable costs, charges
and expenses of Collins Stewart with respect to the engagement.
Except as reflected in this Information Statement, neither Collins
Stewart nor, to the best knowledge of Collins Stewart, any of its affiliates
has had a material relationship during the past two years with the Company or
any of its affiliates, nor is any material relationship contemplated.
INTERESTS OF CERTAIN PERSONS AND POTENTIAL CONFLICTS OF INTEREST
In considering the recommendation of the Board of Directors with
respect to the Reverse Stock Split, stockholders should be aware that the
Company's directors and executive officers have interests which may present
them with conflicts of interest in connection with the Reverse Stock Split.
Specifically, a majority of the directors and executive officers of the Company
own Common Stock and, after the Reverse Stock Split, all will exchange shares
of Old Common Stock for shares of New Common Stock if the Reverse Stock Split
is approved by the stockholders. In addition, the equity percentage ownership
of all shareholders remaining after the Reverse Stock Split will be increased.
Thus, directors and executive officers, in addition to all other stockholders
who remain stockholders after the Reverse Stock Split, will realize an increase
in their equity ownership of the Company. Certain directors of the Company who
own the 8.0% Debentures shall also have the opportunity to increase their
shareholdings by converting their 8.0% Debentures into shares of New Common
Stock at a conversion rate of $1.00 per share assuming approval of the
Capitalization Amendment.
CONDUCT OF THE COMPANY'S BUSINESS AFTER THE REVERSE STOCK SPLIT; POSSIBLE
CHANGE IN LEGAL DOMICILE OF THE COMPANY; POSSIBLE LISTING ON THE LONDON STOCK
EXCHANGE
If the Reverse Stock Split is consummated, all persons holding fewer
than 2,000 shares at the effective time of the Reverse Stock Split will no
longer have any interest in, and will not be stockholders of the Company and
therefore will not participate in its future potential or earnings and growth.
Instead, each such holder of Common Stock will have the right to receive $1.00
per share in cash without interest.
The Company intends, as a result of the Reverse Stock Split, to
terminate the registration of its Common Stock under the 1934 Act. The Company
will then be relieved of the obligation to comply with the proxy rules of
Regulation 14A under Section 14 of the 1934 Act, and its officers and directors
and stockholders owning more than 10% of the Common Stock would be relieved of
the reporting requirements and "short swing" trading restrictions under Section
16 of the 1934 Act. Further, the Company will no longer be subject to the
periodic reporting requirements of the 1934 Act and will cease filing
information with the SEC. Among other things, the effects of this change will
be a savings to the Company in not having to comply with the requirements of
the 1934 Act.
In the event the Company terminates the registration of its Common
Stock under the 1934 Act prior to the repayment in full of the 10% Debentures
which remain outstanding in the principal amount of $795,000, such will
constitute an event of default under the terms thereof. Although no assurance
can be given, the Company does not, however, expect that such an event will
occur insofar that the Company anticipates repaying the remaining balance upon
either the current maturity date (December 31, 1998) or the date the Company
terminates the registration of its Common Stock under the 1934 Act, whichever
event first occurs.
If the Reverse Stock Split is effected, the officers and directors of
the Company will hold approximately 69.6% of the outstanding Common Stock.
Such individuals now own approximately 67.1%. The foregoing does not take
into account the exercise of any stock options which the present officers and
directors currently hold. In addition, the foregoing does not take into
account any shares which may be issued upon conversion of the 8.0% Debentures
of which a significant majority are owned by officers, directors and their
affiliates. See "Proposed Increase in the Company's Authorized Shares of
Common Stock" and "Principal Stockholders and Security Ownership of
Management".
As a result of the Reverse Stock Split Amendment, the number of
authorized shares of Common Stock will be reduced to 12,500 shares of Common
Stock, $0.30 par value per share, of which approximately 3,100 shares will be
outstanding. With the exception of the number of authorized shares, the terms
of the Common Stock before and after the Reverse Stock Split will remain the
same. In addition, the number of authorized shares of Preferred Stock will be
reduced to 2,500 shares, none of which are currently outstanding.
With regard to the conduct of the Company's business after the Reverse
Stock Split, the Company has had discussions and has considered changing its
legal domicile to outside of the United States. The Company is currently
organized and existing under the laws of the State of Delaware. Of
approximately 525 stockholders of record, approximately 493 stockholders have
addresses in the United States according to the records of the Company's
transfer agent and approximately 29 stockholders have addresses outside of the
United States and primarily in the United Kingdom. In connection with the
Reverse Stock Split in which approximately 490 stockholders will be eliminated,
approximately 480 are stockholders in the United States and approximately 10
are stockholders outside of the United States. As a result, the Reverse Stock
Split will have the effect of reducing to a substantial extent the number of
remaining stockholders in the United States as well as reducing to a
substantial extent the percentage of U.S. stockholders as compared to non-U.S.
stockholders. Such changes which will occur in the Company's stockholder base
with further reduce the Company's presence in the United States which since
1989, as a result of the changes which have occurred since then in the
Company's business and operations, has already been reduced. See "Special
Factors - Background of the Proposed Reverse Stock Split".
Due to the foregoing changes, the Board of Directors has discussed and
considered that following the Reverse Stock Split it may be in the best
interests of the Company and its remaining stockholders to change the
Company's legal domicile to outside of the United States. Although no
assurance can be given that the Company will attempt to effect or make this
change of legal domicile, such change may in fact be effected at some time
after the Reverse Stock Split. It is contemplated that in the event the
Company attempts to change its legal domicile to outside of the United States,
such change may be effected by forming a new wholly-owned subsidiary outside
of the United States and then merging the Company (Lynton Group, Inc., a
Delaware corporation) into the newly formed entity which will be the successor
to the Company. Alternatively, a new company may be formed outside of the
United States which may effect a stock exchange with the then stockholders of
the Company in proportion to their stockholding in the Company with the result
that the new company becomes the successor to the Company, or the Board of
Directors of the Company may authorize another method in order to accomplish a
change in the legal domicile to outside of the United States.
In addition, the Company has had discussions and has contemplated that
following the Reverse Stock Split, it may seek to raise additional capital in
foreign markets and establish a trading market for its securities in foreign
markets. In this regard, the Company has had discussions with investment
banking firms in the United Kingdom and the Company may seek in the future,
following the Reverse Stock Split, to effect a public offering of its
securities in the United Kingdom and have its securities listed for trading on
the London Stock Exchange. See "Proposed Increase in the Company's Authorized
Shares of Common Stock". Also, see " - Opinion of Collins Stewart" for
information on the engagement of Collins Stewart to provide advisory and
broking services for a possible fundraising on the London Stock Exchange.
Notwithstanding the foregoing, there can be no assurance that such a public
offering in the United Kingdom and/or effecting a listing of the Company's
securities on the London Stock Exchange, will be attempted, or if attempted,
that such matters will be successfully completed.
Other than as described herein, the Company expects its business and
operations to continue after the Reverse Stock Split as they are currently
being conducted. In addition, other than as described herein, neither the
Company nor its Management has any current plans or proposals to effect any
extraordinary corporate transaction, such as a merger, reorganization or
liquidation; to sell or transfer any material amount of its assets; to change
its Board of Directors or management; to materially change its dividend policy
or indebtedness or capitalization; or otherwise to effect any material change
in its corporate structure or business. However, the Board will continue to
evaluate such business and operations after the Reverse Stock Split and make
such changes as are deemed appropriate.
FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING DISCUSSION SUMMARIZING CERTAIN FEDERAL INCOME TAX
CONSEQUENCES IS BASED ON CURRENT LAW AND IS INCLUDED FOR GENERAL INFORMATION
ONLY. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX EFFECTS OF THE REVERSE STOCK SPLIT IN LIGHT OF
THEIR INDIVIDUAL CIRCUMSTANCES.
The receipt of New Common Stock in exchange for Old Common Stock will
not result in the recognition of gain or loss to a stockholder, and the
adjusted tax basis of a stockholder in the New Common Stock will be the same as
the stockholder's adjusted tax basis in the Old Common Stock.
The receipt of cash by a stockholder pursuant to the Reverse Stock
Split, however, will be a taxable transaction for federal income tax purposes.
A stockholder owning fewer than 2,000 shares will receive only cash in the
transaction and generally will recognize gain or loss equal to the difference
between the cash received and the stockholder's adjusted tax basis in the
surrendered Common Stock. The gain or loss recognized generally will be
capital gain or loss if the Common Stock is held as a capital asset.
Generally, unless the stockholder is in the business of buying and selling
securities, the Common Stock will be deemed to be held as a capital asset. Any
such capital gain or loss will be long-term capital gain or loss if the Common
Stock has been held for more than one year. If held for one year or less, any
such capital gain will be a short-term capital gain which will be taxed as
ordinary income which will based upon the stockholder's ordinary income tax
bracket. Under current tax laws, the maximum tax bracket is 39.6%. If held
for more than one year, capital gains are taxed at a 10% rate for a stockholder
in the 15% ordinary income tax bracket and at a 20% rate for a stockholder in
any higher ordinary income tax bracket. In general, a stockholder who realizes
a capital loss is entitled to offset his capital gains, if any, and deduct a
portion of the loss against his ordinary income.
Special taxation and withholding rules may apply to any stockholder
that is a nonresident alien or a foreign corporation. Those rules are beyond
the scope of this discussion and should be discussed with a personal tax
advisor. Stockholders will be required to provide their social security or
other taxpayer identification numbers (or, in some instances, certain other
information) to the Company's transfer agent in connection with the Reverse
Stock Split to avoid backup withholding requirements that might otherwise
apply. See "Special Factors - Exchange of Certificates and Payment for
Fractional Shares of New Common Stock". The letter of transmittal will require
each stockholder to deliver such information when the Common Stock certificates
are surrendered following the effective date of the Reverse Stock Split
Amendment. Failure to provide such information may result in backup
withholding.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY AND DOES NOT REFER TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY
SPECIFIC STOCKHOLDER. STOCKHOLDERS, PARTICULARLY THOSE WHO HAVE ACQUIRED
SHARES OF COMMON STOCK IN COMPENSATION RELATED TRANSACTIONS, ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS FOR MORE SPECIFIC AND DEFINITIVE ADVICE AS TO
THE FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE TRANSACTION, AS WELL AS
ADVICE AS TO THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
APPRAISAL RIGHTS; ESCHEAT LAWS
No appraisal rights are available under the Delaware General
Corporation Law to stockholders who dissent from a reverse stock split
proposal. There may exist other rights or actions under state law for
stockholders who are aggrieved by reverse stock splits generally. Although the
nature and extent of such rights or actions are uncertain and may vary
depending upon facts or circumstances, stockholder challenges to corporate
action in general are related to the fiduciary responsibilities of corporate
officers and directors and to the fairness of corporate transactions. For
example, stockholders could, if they deemed such to be applicable, take
appropriate legal action against the Company and its Board of Directors, and
claim that the transaction was unfair to the unaffiliated stockholders, and/or
that there was no justifiable or reasonable business purpose for the Reverse
Stock Split.
Persons whose shares are eliminated and whose addresses are unknown to
the Company, or who do not return their stock certificates and request payment
therefor, generally will have a period of years from the date of the Reverse
Stock Split in which to claim the cash payment payable to them. For example,
with respect to stockholders whose last known addresses are in New York, as
shown by the records of the Company, the period is three years. Following the
expiration of that three-year period, the Abandoned Property Law of New York
would likely cause the cash payments to escheat to the State of New York. For
stockholders who reside in other states or whose last known addresses, as shown
by the records of the Company, are in states other than New York, such states
may have abandoned property laws which call for such state to obtain either (i)
custodial possession of property that has been unclaimed until the owner
reclaims it; or (ii) escheat of such property to the state. Under the laws of
such other jurisdictions, the "holding period" or the time period which must
elapse before the property is deemed to be abandoned may be shorter or longer
than three years.
EXCHANGE OF CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES OF NEW COMMON STOCK
If the proposed Reverse Stock Split and Reverse Stock Split Amendment
is approved by the stockholders, the transfer agent for the Company's Common
Stock will request in writing that stockholders deliver to such transfer agent
their certificate or certificates for shares of the Company's Old Common Stock.
Upon receipt of such certificates, the transfer agent will issue and forward to
each stockholder a new certificate or certificates (in denominations requested
by each stockholder) representing the appropriate number of shares of the
Company's New Common Stock. However, to the extent that the Reverse Stock
Split results in a stockholder holding less than a single full share of the
Company's Common Stock, then as described above the transfer agent will pay and
forward to each such stockholder an amount of cash for such fractional shares
in an amount equal to the appropriate fraction of $1.00 per whole share.
No service charges will be payable by stockholders in connection with
the exchange of certificates or the payment of cash in lieu of issuing
fractional shares, all expenses of which will be borne by the Company.
FINANCING OF THE REVERSE STOCK SPLIT
The Board estimates that the total cost to the Company of the Reverse
Stock Split for the payment of the fractional share interests in the Reverse
Stock Split and the estimated transactional fees and expenses of $125,000 will
be approximately $415,000. The Company intends to finance this transaction
primarily from current working capital.
PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of the date hereof, the number of
shares of Common Stock owned of record or beneficially, or both, and the
percentage of outstanding Common Stock owned before and after the effective
date of the Reverse Stock Split by each of the following: (i) each person who
owned of record, or is known by the Company to have beneficially owned,
individually, or with his associates, more than 5% of such shares then
following information does not include any shares which may be issued upon
conversion of the 8.0% Debentures described elsewhere herein. Except as
otherwise indicated below, each of the persons listed below has sole voting and
investment power with respect to his or her shares.
PERCENT OF PERCENT OF
CLASS BEFORE CLASS AFTER
AMOUNT AND NATURE REVERSE REVERSE
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP STOCK SPLIT STOCK SPLIT
Consulta Smaller Companies
Fund Limited 2,148,788(1) 32.3% 33.4%
Paul R. Dupee, Jr. 1,348,485(2) 21.1% 21.9%
Task Holdings Limited 1,026,936(3) 16.1% 16.6%
Brae Group, Inc. 410,776(4) 6.4% 6.7%
Christopher Tennant 1,071,132(5) 14.8% 15.2%
James G. Niven 431,610(6) 6.7% 6.9%
Richard Hambro 342,056(7) 5.3% 5.5%
Nigel D. Pilkington 2,149,288(8) 32.3% 33.4%
Ian J. Borrowdale 78,547(9) 1.2% 1.3%
Louis Marx, Jr. 410,776(10) 6.4% 6.7%
David Harland 166,666(11) 2.5% 2.7%
All Executive Officers
and Directors as a Group 5,587,784(12) 72.7% 74.9%
(1) Includes 1,898,788 shares held by Consulta Smaller Companies Fund
Limited (formerly, Consulta Special Funds Limited) ("Consulta") and
250,000 shares which Consulta has the right to acquire within 60 days
pursuant to the exercise of stock options. The address for Consulta is
St. Julian's Avenue, Guernsey, Channel Islands.
(2) The address for Paul R. Dupee, Jr. is 10 Wilton Row, London, England.
(3) The address for Task Holdings Limited is P.O. Box 16, Castletown, Isle
of Man.
(4) The address for Brae Group, Inc. is 1101 Richmond Avenue, Houston,
Texas.
(5) Includes 220,000 shares held by Christopher Tennant, 11,132 shares held
by Lynton International Limited, a company organized under the laws of
England ("Lynton International") and 840,000 shares which Mr. Tennant
has the right to acquire within 60 days pursuant to the exercise of
stock options. Mr. Tennant is the sole shareholder of Lynton
International and, by virtue of such ownership, Mr. Tennant may be
deemed the beneficial owner of the shares held by Lynton International.
(6) Includes 423,276 shares held by Mr. Niven, 5,000 shares owned by a
foundation for which Mr. Niven serves as a trustee and a director and
3,334 shares which Mr. Niven has the right to acquire within 60 days
pursuant to the exercise of stock options. The address for Mr. Niven is
1334 York Avenue, New York, New York.
(7) Includes 66,667 shares held by BMB-H Investment Company Limited, a
Jersey corporation ("BMB-H") which is 25% owned and controlled by J.O.
Hambro & Company Limited, a corporation organized under the laws of
England ("J.O. Hambro"). Richard Hambro is an Executive Director of
J.O. Hambro and, by virtue of such status, may be deemed to be a
controlling person of BMB-H and beneficial owner of the shares held by
BMB-H. Mr. Hambro disclaims beneficial ownership of the shares held by
BMB-H. Also, includes 205,388 shares held by J.O. Hambro Nominees
Limited, 66,667 shares held by J.O. Hambro Investment Management Ltd.
and 3,334 shares which Mr. Hambro has the right to acquire within 60
days pursuant to the exercise of stock options.
(8) Includes 500 shares held by the wife of Mr. Pilkington and 1,898,788
shares held by Consulta and 250,000 shares which Consulta has the
right to acquire within 60 days pursuant to the exercise of stock
options. Mr. Pilkington is a director of Consulta and may be deemed to
have beneficial ownership of such shares. Mr. Pilkington disclaims
beneficial ownership of the shares held by Consulta except to the
extent of his pecuniary interest therein. The address for Mr.
Pilkington is 20 St. James's Street, London, England.
(9) Includes 46,547 shares held by Mr. Borrowdale and 32,000 shares which
Mr. Borrowdale has the right to acquire within 60 days pursuant to the
exercise of stock options.
(10) Consists of 410,776 shares held by Brae Group, Inc. ("Brae"). Louis
Marx, Jr. owns the majority of the voting securities of Brae and may
therefore be deemed to beneficially own the shares held by Brae. The
address for Mr. Marx is 667 Madison Avenue, New York, New York.
(11) Consists of 166,666 shares which Mr. Harland has the right to acquire
within 60 days pursuant to the exercise of stock options. In addition,
Mr. Harland has options to acquire an additional 333,334 shares which
are not exercisable within 60 days.
(12) Includes 1,295,334 shares which present officers and directors have the
right to acquire within 60 days pursuant to the exercise of stock
options.
MANAGEMENT OF THE COMPANY
Set forth below are the present directors and executive officers of the
Company. Note that there are no other persons who have been nominated or
chosen to become directors nor are there any other persons who have been chosen
to become executive officers. Directors are elected to serve until the next
annual meeting of stockholders and until their successors have been elected and
have qualified. Officers are appointed to serve until the meeting of the Board
of Directors following the next annual meeting of stockholders and until their
successors have been elected and qualified.
PRESENT POSITION HAS SERVED AS
NAME AGE AND OFFICES DIRECTOR SINCE
Christopher Tennant 48 President, Chief 1985
Executive Officer
and Director
Paul R. Dupee, Jr. 55 Chairman of the Board 1996
and Director
David Harland 48 Vice President of 1998
Business Development,
Deputy Chief Executive
Officer and Director
Richard Hambro 53 Director 1989
James G. Niven 53 Director 1989
Nigel D. Pilkington 47 Director 1996
Ian J. Borrowdale 59 Vice President of --
International Operations
and Chief Operating
Officer
Paul A. Boyd 36 Principal Financial Officer, --
Secretary and Treasurer
CHRISTOPHER TENNANT has been a Director of the Company since November
1985 and became President and Chief Executive Officer in May 1989 upon the
Company's acquisition of Lynton Group Limited. From 1985 to 1988, Mr. Tennant
also was the Company's Treasurer and Chief Financial Officer. For more than
the last five years, Mr. Tennant has served as Managing Director of Lynton
Group Limited, the Company's wholly-owned subsidiary.
PAUL R. DUPEE, JR. has been a Director of the Company since April 1996
and was appointed Chairman of the Board in January 1998. From September 1983
to November 1996, Mr. Dupee was Vice-Chairman of the Board of Directors and a
Director of Celtics, Inc., the corporate general partner of Boston Celtics
Limited Partnership which owns and operates the Boston Celtics professional
basketball team of the National Basketball Association. Mr. Dupee has served
as a director of Maxicare Health Plans, Inc. since 1998. Since 1986, Mr. Dupee
has been a private investor.
DAVID HARLAND has been a Director of the Company since January 1998.
In addition, he has been Vice President of Business Development and Deputy
Chief Executive Officer since January 1998. From 1991 through 1997, Mr.
Harland was with Fairway Group PLC ("Fairway Group"), initially as managing
director of its subsidiary, GLS Fairway, and then its Chairman as well as
becoming director of finance and development of Fairway Group. He also
presently serves as a director of two UK publicly quoted companies, Mayflower
Corporation PLC and Wyefield Group PLC.
RICHARD HAMBRO has been a Director of the Company since May 1989. He
was Chairman of the Board from May 1989 to February 1994 and from January 1997
to January 1998, and Co-Chairman from February 1994 to January 1997. Since
1988, Mr. Hambro has been an Executive Director of J.O. Hambro & Company
Limited, a London based investment banking firm. From 1978 to 1986, he was a
Director of Hambros Bank in London. Mr. Hambro has also served as a Director
and Chairman of Lynton Group Limited since 1982. He also presently serves as a
director of various other closely held companies and non-U.S. public companies.
JAMES G. NIVEN has been a Director of the Company since May 1989. From
February 1994 to January 1997, he was also Co-Chairman of the Board. Since
1982, he has been a general partner of Pioneer Associates Company, a venture
capital investment company. He is currently a Senior Vice President of
Sotheby's. Mr. Niven is a director of Tatham Offshore, Inc. and HealthPlan
Services. He is also a member of the Board of Managers of Memorial Sloan-
Kettering Cancer Center, and a trustee of the Museum of Modern Art and the
National Center for Learning Disabilities, Inc.
NIGEL D. PILKINGTON has been a Director of the Company since December
1996. Since 1991, Mr. Pilkington has been an executive director of Consulta
Limited, an investment management organization. Prior thereto and from 1983 to
1991, he was with CS First Boston Group ("CSFB"), initially as a manager of the
equity division in London and then as managing director of the European equity
sales and trading of CSFB in London. Mr. Pilkington is also a non-executive
director of Blakeney Management Limited, Oryx Fund Limited and Oryx (India)
Fund Limited.
IAN J. BORROWDALE has been Vice President of International Operations
of the Company since January 1991 and Chief Operating Officer since May 1995.
Mr. Borrowdale is a director of European Helicopters Limited and was, from 1987
to 1988, its technical director and, from 1988 to 1990, its Managing Director.
Prior thereto and from 1981 to 1987, Mr. Borrowdale was employed as the
technical director of McAlpines Helicopters Limited, a United Kingdom
helicopter maintenance organization.
PAUL A. BOYD has been Principal Financial Officer, Secretary and
Treasurer of the Company since January 1997 having been Financial Controller of
Lynton Group Limited, the Company's wholly-owned subsidiary, since March 1994.
Prior thereto, and from 1989 to 1994, he was employed by Dollar Air Services
Limited as Chief Accountant.
INFORMATION CONCERNING CERTAIN AFFILIATES OF THE COMPANY
In connection with the transactions contemplated by this Information
Statement, the Company and certain persons deemed to be affiliates within the
scope of Rule 13e-3 that are "engaged, directly or indirectly" in this going
private transaction (namely, Christopher Tennant, Paul R. Dupee, Jr., David
Harland, Richard Hambro, James G. Niven, Nigel D. Pilkington and Consulta
Smaller Companies Fund Limited) have filed a Schedule 13e-3 with the SEC. As
reflected therein, each of the filing persons has adopted the analyses of the
Board of Directors as reflected elsewhere herein. See "Special Factors -
Reasons for the Reverse Stock Split" and "Special Factors - Recommendation of
the Board of Directors; Fairness of the Reverse Stock Split".
See "Management of the Company" for biographical information on
Christopher Tennant, Paul R. Dupee, Jr., David Harland, Richard Hambro, James
G. Niven and Nigel D. Pilkington. Consulta Smaller Companies Fund Limited,
organized in the Channel Islands ("Consulta"), is an open ended investment
company. Each of the following persons is an executive officer or director of
Consulta: (i) Gary Michael Brass - for more than the past five years, Mr. Brass
has been Managing Director of Consulta Limited, an investment management
organization. He has an address at 20 St. James's Street, London, England; (ii)
Nigel D. Pilkington - see "management of the Company" for information on Mr.
Pilkington; (iii) Rupert A.R. Evans - for more than the past five years, Mr.
Evans has been a Partner and Advocate of Ozannes, a firm providing legal
services. He has an address at 1 Le Marchant Street, St. Peter Port, Guernsey,
Channel Islands; (iv) Jeremy J.N. Caplan - for more than the past five years,
Mr. Caplan has been a Partner and Lawyer of Caplan & Lyons, a firm providing
legal services. He has an address at Caplan & Lyons, 44 Esplanade, St. Helier,
Jersey, Channel Islands; and (v) Barry Carroll - for more than the past five
years, Mr. Carroll has been Managing Director of Management International
(Guernsey) Limited, an investment management organization. He has an address
at Bermuda House, St. Julian's Avenue, St. Peter Port, Guernsey, Channel
Islands.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1997, the four holders of all of the then outstanding
shares of Series C Convertible Preferred Stock (the "Series C Preferred Stock")
agreed (effective retroactively to 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 were James G. Niven, a director of the Company, and J. O.
Hambro Nominees Limited, which may be deemed to be controlled by Richard
Hambro, a director of the Company.
In addition, in fiscal 1997, two holders (Paul R. Dupee, Jr. and
Consulta) of the Company's 10% Senior Subordinated Convertible Debentures due
December 31, 1998 (the "1998 Debentures") agreed to convert the 1998 Debentures
held by them (in the principal amount of $1,065,000) into 3,227,273 shares of
Common Stock (effective retroactively to September 30, 1996). Paul R. Dupee,
Jr. is Chairman of the Board and a director of the Company. The shares held by
Consulta may be deemed to be beneficially owned by Nigel D. Pilkington, a
director of the Company.
Christopher Tennant, President and Chief Executive Officer of the
Company, is employed pursuant to an employment agreement expiring in February
2000 at an annual base salary of $211,000 which includes rent paid to a company
which is wholly-owned by Mr. Tennant for office space rented by the Company.
The term of the agreement may be extended for an additional eighteen months
under certain circumstances. Mr. Tennant's salary shall be increased annually
based on cost-of-living adjustments. In addition, the agreement provides for
the payment of 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.
Directors of the Company, except its Chairman and other directors who
are employees of the Company, are entitled to an annual fee of $12,000 for
service on the Board. The Company's Chairman is entitled to receive an annual
fee of $100,000 for his services as such. In the past, directors have been and
will continue to be reimbursed for reasonable expenses incurred on behalf of
the Company.
Pursuant to an oral agreement, the Company rents office space in London
from Lynton International Limited, a company organized under the laws of
England which is wholly-owned by Christopher Tennant, the Company's President,
Chief Executive Officer and a Director. For the year ended September 30,
1998, rental expense for this space was $56,000.
In December 1997, the Company acquired through Lynton Group Limited, a
wholly-owned subsidiary of the Company, all of the issued and outstanding
shares of capital stock of Magec Aviation Limited ("Magec"). 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 "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. 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).
In connection with the issuance of the 8.0% Debentures, a significant
majority of the 8.0% Debentures were purchased by certain existing principal
stockholders of the Company as follows: Paul R. Dupee, Jr. who is Chairman of
the Board and a director of the Company, acquired $1,306,240 principal amount
of the 8.0% Debentures; James G. Niven, a director of the Company, acquired
$200,000 principal amount of the 8.0% Debentures; J.O. Hambro Investments Ltd.,
which Richard Hambro, a director of the Company, may be deemed to control,
acquired $299,520 principal amount of the 8.0% Debentures; Task Holdings
Limited acquired $798,720 principal amount of the 8.0% Debentures; and Consulta
acquired $1,938,560 principal amount of the 8.0% Debentures, which in the
aggregate represents approximately 78.0% of the 8.0% Debentures issued. See
"Proposed Increase in the Company's Authorized Shares of Common Stock" and
"Proposed Reverse Stock Split and Recapitalization of the Common Stock and
Preferred Stock" for additional information on the 8.0% Debentures.
There are no material proceedings to which any director, officer or
affiliate of the Company, any owner of record or beneficially of more than five
percent of any class of voting securities of the Company, or any associate of
any such director, officer, affiliate of the Company, or security holder is a
party adverse to the Company or any if its subsidiaries or has a material
interest adverse to the Company or any of its subsidiaries.
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
The following tables summarize certain historical financial data which
have been derived from the audited financial statements of the Company for each
of the five fiscal years ended September 30, 1998. For additional information,
see "Financial Statements of the Company" attached hereto as Annex A.
(000'S EXCEPT EARNINGS PER SHARE DATA AND RATIO OF EARNINGS TO FIXED CHARGES)
Fiscal year ended September 30:
1998 1997 1996 1995 1994
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)
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
Book value per share (1) .76 .71 .53 .10 1.40
Ratio of earnings to fixed
charges .15 1.11 .20 (1.31) (.84)
(1) Adjusted for the one-for-six reverse stock split effected in June 1994.
On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 - Earnings per Share. As required by Statement
No. 128, all previously reported income (loss) per share data have been
restated to conform to the provisions of Statement No. 128.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
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.
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):
Year ended September 30,
1998 1997 1996
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 - 46 287
debt
Net income $126 $1,092 $406
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.
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.
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.
<PAGE>
The Company's ability to improve earnings is primarily dependent on the
enhancement of revenues and margins from its operations. The performance of
each operation is affected by different market conditions and varies as to
stability and degree of predictability. Below is a discussion of each of the
Company's operating areas and the factors which have historically, and will
continue, to affect performance.
FLIGHT OPERATIONS
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.
MARKET FOR THE COMMON STOCK; DIVIDENDS
The Company's Common Stock is traded in the over-the-counter market and
is quoted in the "pink sheets" promulgated by the National Quotation Bureau,
Inc. and is qualified for listing on the OTC Bulletin Board under the symbol
"LYNG". Until October 20, 1995, the Company's Common Stock was listed on the
Nasdaq Small-Cap Market. Trading in the Company's stock has been sporadic and
relatively inactive since October 20, 1995.
The following chart sets forth the range of the high and low bid
quotations for the Company's Common Stock for each period indicated. The
quotations represent prices between dealers and do not include retail markups,
markdowns, commissions or other adjustments and may not represent actual
transactions.
BID PRICES
PERIOD HIGH LOW
Fiscal year ended September 30, 1995:
Oct. 1, 1994 to Dec. 31, 1994 15/16 7/8
Jan. 1, 1995 to March 31, 1995 1-7/16 15/16
April l, 1995 to June 30, 1995 1-1/8 3/4
July 1, 1995 to Sept. 30, 1995 3/4 1/8
Fiscal year ended September 30, 1996:
Oct. 1, 1995 to Oct. 20, 1995 3/16 1/8
Fiscal year ended September 30, 1997:
Oct. 1, 1996 to Dec. 31, 1996 1/8 1/8
Jan. 1, 1997 to March 31, 1997 1/8 1/8
April l, 1997 to June 30, 1997 1/8 1/8
July 1, 1997 to Sept. 30, 1997 7/8 1/8
Fiscal year ending September 30, 1998:
Oct. 1, 1997 to Dec. 31, 1997 1-3/4 3/4
Jan. 1, 1998 to March 31, 1998 1/2 1/2
April l, 1998 to June 30, 1998 No prices available
July 1, 1998 to September 30, 1998 9/16 1/2
The Company has never declared any cash dividends on its Common Stock
and does not anticipate declaring cash dividends in the foreseeable future.
STOCKHOLDER PROPOSALS
A stockholder proposal which is intended to be presented at an annual
meeting of stockholders must be received by the Company at its principal
executive offices, whose mailing address is 9 Airport Road, Morristown
Municipal Airport, Morristown, New Jersey 07960, a reasonable time before a
proxy solicitation is made by the Company.
EXPENSES
The following is an estimate of the costs and expenses incurred or
expected to be incurred by the Company in connection with the Reverse Stock
Split. Amount show below exclude the cost of paying for fractional shares
after the Reverse Stock Split is effected.
Legal fees and expenses $ 35,000
Transfer and exchange agent fees 5,000
Accounting fees and expenses 10,000
Printing and mailing costs 5,000
Fee to Collins Stewart 65,000
Miscellaneous 5,000
Total $125,000
INCORPORATION BY REFERENCE
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Information Statement shall be deemed to be
modified or superseded for purposes of this Information Statement to the extent
that a statement contained in this Information Statement or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference in this Information Statement modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Information Statement.
This Information Statement incorporates documents by reference that are
not presented in or delivered with this Information Statement. Copies of these
documents are available without charge upon request from the Company.
The following documents are hereby incorporated by reference into this
Information Statement:
The Company's Annual Report, pursuant to Section 13 or 15(d) of the
1934 Act, filed on Form 10-K for the fiscal year ended September 30, 1998, as
amended;
All other reports filed pursuant to Section 13 or 15(d) since the end
of the fiscal year ended September 30, 1998.
ADDITIONAL INFORMATION
The Company is presently subject to the informational requirements of
the 1934 Act and in accordance therewith files reports and other information
with the Commission. Such reports, proxy statements and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 7 World Trade Center, 13{th} floor, New York,
New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Public Reference
Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding the Company;
the address of such site is http://www.sec.gov.
By Order of The Board of Directors
Paul A. Boyd,
Secretary
Dated: ___________ , 1999
<PAGE>
ANNEX A
FINANCIAL STATEMENTS OF
LYNTON GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1998
<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>
ANNEX B
Attn. Christopher Tennant Esq.
The Directors
Lynton Group, Inc.
Denham Airport
Hangar Road
Uxbridge
Middlesex UB9 5DF
February , 1998
Dear Sirs,
Lynton Group, Inc. - Fairness of the cash consideration to
be paid for fractional interests in shares of the Company as
a result of the proposed reverse stock split.
We understand that the Board of Directors of Lynton Group,
Inc. ("the Company") is to furnish shareholders of the
Company with an information statement in connection with,
amongst other proposals, a 1 for 2,000 reverse stock split
which will result in a cash payment of $1.00 per share to
holders of the currently outstanding shares in the Company
in lieu of the issuance of any resulting fractional shares
of the new common stock following of the Company the reverse
stock split (the "Proposed Transaction"). The terms and
conditions of the Proposed Transaction are set forth in more
detail in the Company's Information Statement to be submitted
to shareholders.
Collins Stewart Limited ("Collins Stewart"), a member of the
London Stock Exchange, is a brokerage firm to institutional
investors and also provides corporate advisory and broking
services to currently over 60 retained corporate clients.
Members of Collins Stewart Corporate Finance Department are
regularly involved in providing advice which includes advise
as to the valuation of securities in connection with public
offerings, private placements, acquisitions, fairness
opinions and other purposes. Collins Stewart has previously
been engaged by the Company to provide broking services and
is currently engaged to provide advisory and broking
services in respect of future equity fundraisings which the
Company may wish to pursue, including a possible fundraising
on the London Stock Exchange. In this regard, Collins
Stewart was engaged by the Company to provide the Company
with corporate finance advice and services in connection
with a proposed convertible debenture offering, which was
completed in September 1998 with the issue by the Company of
additional 8% Subordinated Convertible Debentures due 31
December 2007 (the "Additional 8% Debentures"), and in
connection with a possible issuance of shares on the London
Stock Exchange. An affiliate company of Collins Stewart
invested as principal in the Additional 8% Debentures to the
value of $3,000,000. Collins Stewart itself received
Additional 8% Debentures to the value of $123,000 in
consideration of its services as placing agent in respect of
that issue. With regard to a possible issuance of shares on
the London Stock Exchange, such engagement with Collins
Stewart does not oblige Collins Stewart to sell, acquire,
place, underwrite or subunderwrite any investments, unless
and until it is expressly agreed otherwise in writing, but
to advise the Company as Collins Stewart sees fit, in what
we perceive to be the Company's best interests, in the light
of circumstances prevailing at the time at which such advice
is given. In the event that such issuance is effected,
however, the engagement does provide for the payment to
Collins Stewart of various fees and commissions, and certain
fees, under certain specific circumstances only, if such
issuance does not proceed at the Company's initiation.
You have requested our opinion as to the fairness to the
shareholders of the Company from a financial point of view
of the cash payment to shareholders under the Proposed
Transaction. The Company determined the consideration to be
received by shareholders, and we have only undertaken
investigations of the Company and performed the procedures
described below in order to render our opinion.
In connection with rendering our opinion, we have, among
other things, reviewed and analysed: (1) drafts of the
Information Statement filed with the Securities and Exchange
Commission; (2) certain publicly available information
regarding the Company that we believe to be relevant in our
inquiry, (3) financial and operating information with
respect to the business operations of the Company furnished
to us by the Company, including financial projections of the
Company prepared by the management of the Company, (4) a
trading history of the Company's common stock from 1 January
1997 to the present, (5) information concerning convertible
debentures and stock options recently issued by the Company,
(6) publicly available information concerning certain other
companies and transactions that we believe are comparable or
otherwise relevant to our review, and (7) the prices and
premiums paid in certain other transactions that we deem
comparable or otherwise relevant to this transaction. In
addition, we have had discussions with the management of the
Company concerning its business and operations, current net
asset position and future prospects, and undertook such
other studies, analyses, and investigations as we deemed
appropriate. The management of the Company has assured us
during these discussions that they are unaware of any facts
that would make the information provided to us incomplete or
misleading.
In rendering this opinion, we have, with your consent,
relied upon the accuracy and completeness, which we have not
independently verified, of the publicly available
information and all other information concerning the Company
furnished to us, and other published information that we
have reviewed. With respect to financial projections of the
Company, we have assumed that they have been reasonably
prepared on a basis reflecting the best currently available
estimates and judgements of the Company's management as to
the future financial performance of the Company. We have
not made an independent appraisal or physical inspection of
the assets or liabilities of the Company. We have not been
asked to consider nor express an opinion on any shareholder
protection provisions contained in any legislation or
regulation which may be applicable.
In addition, it should be noted that the valuation derived
for the Company's equity is based on its present financing
arrangements. In our view, the current value of the
Company's equity is significantly impacted by its current
financing structure and the marketability and liquidity of
the Company's shares could be significantly altered by
changes to the Company's current capital structure. In
particular, any future equity fundraising which the Company
may or may not successfully pursue, could enhance the value
of each share in the Company by reducing the Company's
levels of gearing as well as improving the marketability of
the Company's shares. Further, we do not express an opinion
as to whether the Proposed Transaction is the only or best
course of action available to the Company to enable it to
proceed with any intended capital restructuring which may or
may not result in an increase in the value per share in the
Company.
Based on our analysis of the foregoing and of such other
factors as we have considered necessary for the purpose of
this opinion, and in reliance on the accuracy and
completeness of the information furnished to us by the
Company, it is our opinion, as of the date hereof, that the
cash price to be paid in the Proposed Transaction is fair to
the shareholders of the Company from a financial point of
view.
Yours faithfully,
Collins Stewart Limited
