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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
HUDSON GENERAL CORPORATION
(NAME OF ISSUER)
HUDSON GENERAL CORPORATION
RIVER ACQUISITION CORP.
JAY B. LANGNER
RICHARD D. SEGAL
(NAME OF PERSONS FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS OF SECURITIES)
443784 10 3
(CUSIP NUMBERS OF CLASSES OF SECURITIES)
---------------------
NOAH E. ROCKOWITZ, ESQ.
HUDSON GENERAL CORPORATION
111 GREAT NECK ROAD
GREAT NECK, NEW YORK 11021
TELEPHONE NUMBER (516) 487-8610
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(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
---------------------
COPIES TO:
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<S> <C>
DANIEL E. STOLLER, ESQ. SIMEON GOLD, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & WEIL, GOTSHAL & MANGES LLP
FLOM LLP 767 FIFTH AVENUE
919 THIRD AVENUE NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10022 (212) 310-8000
(212) 735-3000
</TABLE>
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under
the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. [X]
CALCULATION OF FILING FEE
===============================================================================
TRANSACTION VALUATION* AMOUNT OF FILING FEE**
- -------------------------------------------------------------------------------
$81,140,932.00 $16,229.00
===============================================================================
* Determined by multiplying 1,415,679 (the number of outstanding shares of
Common Stock of Hudson General Corporation not owned by River Acquisition
Corp. or the members of the Buyout Group) by $57.25 per share and adding
the aggregate amount anticipated to be paid to certain persons holding
options to purchase shares of Common Stock in consideration of
cancellation of such options.
** Determined pursuant to Rule 0-11(b)(1) by multiplying $81,140,932.00 by
1/50 of 1%.
[ ] Check Box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
<PAGE>
INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (this "Schedule
13E-3") is being filed by Hudson General Corporation, a Delaware corporation
(the "Company"), River Acquisition Corp., a Delaware corporation ("River
Acquisition"), Jay B. Langner and Richard D. Segal pursuant to Section 13(e) of
the Securities Exchange Act of 1934, as amended, and Rule 13e-3 thereunder, in
connection with the proposed acquisition by River Acquisition of all
outstanding shares of common stock, par value $1.00 per share (the "Common
Stock"), of the Company. River Acquisition was formed in connection with the
proposed merger and will be owned by the Company's executive officers (four of
whom are also directors of the Company), certain of their family members, and
certain other officers of the Company (the "Buyout Group"). The Company and
River Acquisition have entered into an Agreement and Plan of Merger, dated as
of November 22, 1998 (the "Merger Agreement"), whereby River Acquisition would
be merged (the "Merger") with and into the Company with the Company as the
surviving corporation in the Merger (the "Surviving Corporation"). Pursuant to
the terms and conditions set forth in the Merger Agreement, if the Merger is
consummated, each outstanding share of Common Stock (other than Common Stock
held (i) in the treasury of the Company or by any of its wholly-owned
subsidiaries, (ii) by River Acquisition, or (iii) by stockholders who perfect
their rights under Delaware law to dissent from the Merger and seek an
appraisal of the fair market value of their shares) will be converted into the
right to receive $57.25 per share in cash, without interest. As a result of the
Merger, the Buyout Group will own 100% of the capital stock of the Surviving
Corporation. Concurrently with the filing of this Schedule 13E-3, the Company
is filing a preliminary proxy statement (the "Proxy Statement") pursuant to
which the stockholders of the Company will be given notice of the Merger. The
cross reference sheet below is being supplied pursuant to Instruction F to
Schedule 13E-3 and shows the location in the Proxy Statement of the information
required to be included in response to the items of this Schedule 13E-3. The
information in the Proxy Statement is hereby expressly incorporated herein by
reference, and capitalized terms used but not defined herein shall have the
meanings ascribed thereto in the Proxy Statement.
2
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<TABLE>
<CAPTION>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
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<S> <C> <C>
Item 1. ISSUER AND CLASS OF SECURITY
SUBJECT TO THE TRANSACTION.
(a) .......................... QUESTIONS AND ANSWERS ABOUT THE
MERGER; THE PARTIES--The Company
(b) .......................... SUMMARY--The Special Meeting--Voting;
INFORMATION CONCERNING THE
SPECIAL MEETING--Record Date; Voting at
the Meeting; Quorum
(c) .......................... MARKET FOR THE COMMON
STOCK--Common Stock Market Price
Information; Dividend Information
(d) .......................... MARKET FOR THE COMMON
STOCK--Common Stock Market Price
Information; Dividend Information
(e) .......................... Not Applicable
(f) .......................... MARKET FOR THE COMMON
STOCK--Common Stock Purchase Information;
Schedule I
Item 2. IDENTITY AND BACKGROUND.
(a)-(d) ...................... THE PARTIES--The Company; --River
Acquisition; THE MERGER AGREEMENT --
Directors and Executive Officers of River
Acquisition Corp.; MANAGEMENT--Directors
and Executive Officers of the Company
(e) and (f) .................. Not Applicable
(g) .......................... THE PARTIES--The Company; --River
Acquisition; THE MERGER AGREEMENT --
Directors and Executive Officers of River
Acquisition Corp.; MANAGEMENT--Directors
and Executive Officers of the Company
Item 3. PAST CONTACTS, TRANSACTIONS OR
NEGOTIATIONS.
(a)(1) ....................... Not Applicable
(a)(2) and (b) ............... SUMMARY--Special Factors; SPECIAL
FACTORS--Background of the Merger
Item 4. TERMS OF THE TRANSACTION.
(a) .......................... QUESTIONS AND ANSWERS ABOUT THE
MERGER; SUMMARY; INFORMATION
CONCERNING THE SPECIAL
MEETING--Purpose of the Special Meeting;
--Required Vote; SPECIAL FACTORS--
Background of the Merger; --Certain Effects of
the Merger; --Interests of Certain Persons in the
Merger; Certain Relationships; THE MERGER
AGREEMENT; DISSENTERS' RIGHTS OF
APPRAISAL
</TABLE>
3
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<TABLE>
<CAPTION>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------- ---------------------------
<S> <C> <C>
(b) ......................... SUMMARY--Special Factors--Interests of
Certain Persons in the Merger; --The Special
Meeting--Voting; INFORMATION CONCERNING
THE SPECIAL MEETING--Purpose of the Special
Meeting; --Required Vote; SPECIAL
FACTORS--Background of the Merger; --Certain
Effects of the Merger; --Interests of Certain
Persons in the Merger; Certain Relationships; THE
MERGER AGREEMENT--The Merger; Merger
Consideration; --Treatment of Stock Options;
DISSENTERS' RIGHTS OF APPRAISAL
Item 5. PLANS OR PROPOSALS OF THE
ISSUER OR AFFILIATE.
(a) and (b) ................. SPECIAL FACTORS--Plans for the Company
After the Merger
(c) ......................... SPECIAL FACTORS--Certain Effects of the
Merger; --Interests of Certain Persons in the
Merger; Certain Relationships; THE MERGER
AGREEMENT--Treatment of Options;
--Directors and Officers of the Company
Following the Merger; Certificate of Incorporation;
Bylaws
(d)-(g) ..................... SUMMARY--Special Factors--Purpose and
Effects of the Merger; --Financing of the Merger;
SPECIAL FACTORS--Certain Effects of the
Merger; --Plans for the Company After the
Merger; --Financing of the Merger
Item 6. SOURCE AND AMOUNT OF FUNDS OR
OTHER CONSIDERATION.
(a) and (c) ................. SUMMARY--Special Factors--Financing of the
Merger; SPECIAL FACTORS--Plans for the
Company After the Merger; --Financing of the
Merger
(b) ......................... SPECIAL FACTORS--Fees and Expenses; THE
MERGER AGREEMENT--Fees and Expense
(d) ......................... Not Applicable
Item 7. PURPOSE(S), ALTERNATIVES,
REASONS AND EFFECTS.
(a) ......................... SUMMARY--Special Factors--Purpose and
Effects of the Merger; SPECIAL
FACTORS--Background of the Merger; --The
Buyout Group's Purpose and Reason for the
Merger
</TABLE>
4
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<TABLE>
<CAPTION>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- -------------------------------------- ---------------------------
<S> <C> <C>
(b) and (c) ................ SUMMARY--Special Factors--Purpose and
Effects of the Merger; SPECIAL
FACTORS--Background of the Merger; --The
Buyout Group's Purpose and Reason for the
Merger
(d) ........................ QUESTIONS AND ANSWERS ABOUT THE
MERGER; SUMMARY--Special
Factors--Purpose and Effects of the Merger;
--Material Federal Income Tax Consequences;
--The Merger Agreement--The Merger
Consideration; INFORMATION CONCERNING
THE SPECIAL MEETING--Purpose of the
Special Meeting; SPECIAL FACTORS--Certain
Effects of the Merger; --Plans for the Company
After the Merger; --Accounting Treatment;
--Material Federal Income Tax Consequences of
the Merger; THE MERGER
AGREEMENT--The Merger; Merger
Consideration; --The Exchange Fund; Payment for
Shares of Common Stock
Item 8. FAIRNESS OF THE TRANSACTION.
(a) ........................ QUESTIONS AND ANSWERS ABOUT THE
MERGER; SUMMARY--Special
Factors--Recommendation of the Company's
Board of Directors; --Fairness Opinion of Allen &
Company; INFORMATION CONCERNING THE
SPECIAL MEETING--Purpose of the Special
Meeting; SPECIAL FACTORS--Background of
the Merger; --Recommendation of the Special
Committee and Board of Directors; Fairness of the
Merger; --The Buyout Group's Purpose and
Reason for the Merger; --Opinion of Financial
Advisor to the Special Committee
(b) ........................ SUMMARY--Special Factors--Factors
Considered by the Special Committee and Board
of Directors; --Fairness Opinion of Allen &
Company; SPECIAL FACTORS--Background of
the Merger; --Recommendation of the Special
Committee and Board of Directors; Fairness of the
Merger; --The Buyout Group's Purpose and
Reason for the Merger; --Opinion of Financial
Advisor to the Special Committee
(c) ........................ QUESTIONS AND ANSWERS ABOUT THE
MERGER; SUMMARY--The Special
Meeting--Voting; --The Merger
Agreement--Conditions to the Merger;
INFORMATION CONCERNING THE
SPECIAL MEETING--Required Vote; THE
MERGER AGREEMENT--Conditions
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- -------------------------------------- ----------------------------
<S> <C> <C>
(d) ....................... QUESTIONS AND ANSWERS ABOUT THE
MERGER; SUMMARY--Special
Factors--Recommendation of the Company's
Board of Directors; INFORMATION
CONCERNING THE SPECIAL
MEETING--Purpose of the Special Meeting;
SPECIAL FACTORS--Background of the
Merger; --Opinion of Financial Advisor to the
Special Committee
(e) ....................... SUMMARY--Recommendation of the Company's
Board of Directors; SPECIAL FACTORS--
Background of the Merger; --Recommendation of
the Special Committee and Board of Directors;
Fairness of the Merger
(f) ....................... Not Applicable
Item 9. REPORTS, OPINIONS, APPRAISALS
AND CERTAIN NEGOTIATIONS.
(a) and (b) ................ SUMMARY--Special Factors--Factors
Considered by the Special Committee and Board
of Directors; --Fairness Opinion of Allen &
Company; SPECIAL FACTORS--Background of
the Merger; --Recommendation of the Special
Committee and Board of Directors; Fairness of the
Merger; --Opinion of Financial Advisor to the
Special Committee
(c) ........................ AVAILABLE INFORMATION
Item 10. INTEREST IN SECURITIES OF THE
ISSUER.
(a) ........................ SUMMARY--Special Factors--Interests of
Certain Persons in the Merger; INFORMATION
CONCERNING THE SPECIAL
MEETING--Record Date; Voting at the Meeting;
Quorum; SPECIAL FACTORS--Interests of
Certain Persons in the Merger; Certain
Relationships; SECURITIES
OWNERSHIP--Beneficial Ownership of More
than 5% of Common Stock; --Beneficial
Ownership of Common Stock by Certain Parties
Related to the Company or the Buyout Group
(b) ........................ MARKET FOR THE COMMON STOCK--Stock
Purchase Information; Schedule I
Item 11. CONTRACTS, ARRANGEMENTS OR
UNDERSTANDINGS WITH RESPECT
TO THE ISSUER'S SECURITIES.. SUMMARY--Special Factors--Financing of the
Merger; SPECIAL FACTORS--Background of
the Merger; --Interests of Certain Persons in the
Merger; Certain Relationships; --Financing of the
Merger
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------- ---------------------------
<S> <C> <C>
Item 12. PRESENT INTENTION AND
RECOMMENDATION OF CERTAIN
PERSONS WITH REGARD TO THE
TRANSACTION.
(a) ........................ SUMMARY--The Special Meeting--Voting;
INFORMATION CONCERNING THE
SPECIAL MEETING--Required Vote
SECURITIES OWNERSHIP--Beneficial
Ownership of Common Stock by Certain Parties
Related to the Company or the Buyout Group
(b) ........................ SUMMARY--Special Factors--Recommendation
of the Company's Board of Directors; SPECIAL
FACTORS--Background of the Merger;
--Recommendation of the Special Committee and
Board of Directors; Fairness of the Merger
Item 13. OTHER PROVISIONS OF THE
TRANSACTION.
(a) ........................ QUESTIONS AND ANSWERS ABOUT THE
MERGER; SUMMARY--Dissenters' Rights of
Appraisal; DISSENTERS' RIGHTS OF
APPRAISAL
(b)-(c) .................... Not Applicable
Item 14. FINANCIAL INFORMATION.
(a) ........................ SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL DATA OF THE
COMPANY; SELECTED FINANCIAL DATA
OF HUDSON GENERAL LLC; WHERE YOU
CAN FIND MORE INFORMATION; Annex D
(b) ........................ Not Applicable
Item 15. PERSONS AND ASSETS EMPLOYED,
RETAINED OR UTILIZED.
(a) ........................ INFORMATION CONCERNING THE
SPECIAL MEETING--Proxy Solicitation;
SPECIAL FACTORS--Fees and Expenses
(b) ........................ INFORMATION CONCERNING THE
SPECIAL MEETING--Proxy Solicitation
Item 16. ADDITIONAL INFORMATION ..... Proxy Statement, together with the proxy card
Item 17. MATERIAL TO BE FILED AS
EXHIBITS.
(a)(1) ..................... Financing Commitment Letter, dated November
20, 1998 and Summary of Terms and Conditions.
(b)(1) ..................... Presentation by Allen & Company Incorporated to
the Special Committee, dated November 20, 1998
(b)(2) ..................... Opinion of Allen & Company Incorporated, dated
November 22, 1998 (set forth as Annex B the
Proxy Statement)*
</TABLE>
7
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<TABLE>
<CAPTION>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------- ---------------------------
<S> <C>
(c)(1) ........ Equity Commitment Letter, dated November 22,
1998, among Jay B. Langner, Richard D. Segal and
Hudson General Corporation
(c)(2) ........ Agreement and Plan of Merger between Hudson
General Corporation and River Acquisition Corp.,
dated as of November 22, 1998 (set forth as Annex
A to the Proxy Statement)*
(d)(1) ........ Proxy Statement, together with the proxy card
(e)(1) ........ Section 262 of the Delaware General Corporation
Law (set forth as Annex C to the Proxy
Statement)*
(g)(1) ........ Complaint filed on November 24, 1998 against
Milton H. Dresner et al. by Harbor Finance
Partners in the Delaware Chancery Court
(g)(2) ........ Complaint filed on November 24, 1998 against
Jay B. Langner et al. by Weiner in the Delaware
Chancery Court
(g)(3) ........ Complaint filed on November 30, 1998 against
Jay B. Langner et al. by Soshtain and Rand in
the Delaware Chancery Court
(g)(4) ........ Press release issued by Hudson General
Corporation (incorporated by reference to the
Current Report on Form 8-K of Hudson General
Corporation filed on November 23, 1998)
(g)(5) ........ Press release issued by Hudson General
Corporation dated December 11, 1998
</TABLE>
- ----------
* Incorporated by reference to the Proxy Statement.
8
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth in "QUESTIONS AND ANSWERS ABOUT THE MERGER"
and "THE PARTIES--The Company" of the Proxy Statement is incorporated herein
by reference.
(b) The information set forth in "SUMMARY--The Special Meeting--Voting" and
"INFORMATION CONCERNING THE SPECIAL MEETING--Record Date; Voting at the
Meeting; Quorum" of the Proxy Statement is incorporated herein by reference.
(c) The information set forth in "MARKET FOR THE COMMON STOCK--Common Stock
Market Price Information; Dividend Information" of the Proxy Statement is
incorporated by reference herein.
(d) The information set forth in "MARKET FOR THE COMMON STOCK--Common Stock
Market Price Information; Dividend Information" of the Proxy Statement is
incorporated by reference herein.
(e) Not applicable.
(f) The information set forth in "MARKET FOR THE COMMON STOCK--Common Stock
Purchase Information" and "Schedule I" of the Proxy Statement is
incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
This Statement is being filed jointly by the Company (which is the issuer
of the class of equity securities that is the subject of the Rule 13e-3
transaction), River Acquisition, Jay B. Langner and Richard D. Segal.
(a) - (d) The information set forth in "THE PARTIES--The Company," "--River
Acquisition," "THE MERGER AGREEMENT--Directors and Executive Officers of
River Acquisition Corp." and "MANAGEMENT--Directors and Executive Officers
of the Company" of the Proxy Statement is incorporated herein by reference.
(e) During the last five years, none of the Company or River Acquisition,
nor, to the best of their knowledge, any of their directors, executive
officers or controlling persons, nor Jay B. Langner or Richard D. Segal,
have been convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors).
(f) During the last five years, none of the Company or River Acquisition,
nor, to the best of their knowledge, any of their directors, executive
officers or controlling persons, nor Jay B. Langner or Richard D. Segal, was
a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject
to a judgment, decree or final order enjoining further violations of, or
prohibiting activities, subject to, federal or state securities laws or
finding any violation of such laws.
(g) The information set forth in "THE PARTIES--The Company," "--River
Acquisition," "THE MERGER AGREEMENT--Directors and Executive Officers of
River Acquisition Corp." and "MANAGEMENT--Directors and Executive Officers
of the Company" of the Proxy Statement is incorporated herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) (1) Not applicable.
(a)(2) and (b) The information set forth in "SUMMARY--Special Factors,"
"SPECIAL FACTORS--Background of the Merger" of the Proxy Statement is
incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in "QUESTIONS AND ANSWERS ABOUT THE MERGER,"
9
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"SUMMARY," "INFORMATION CONCERNING THE SPECIAL MEETING--Purpose of the
Special Meeting," "--Required Vote," "SPECIAL FACTORS--Background of the
Merger," "--Certain Effects of the Merger," "--Interests of Certain Persons
in the Merger; Certain Relationships," "THE MERGER AGREEMENT" and
"DISSENTERS' RIGHTS OF APPRAISAL" of the Proxy Statement is incorporated
herein by reference.
(b) The information set forth in "SUMMARY--Special Factors--Interests of
Certain Persons," "--The Special Meeting--Voting," "INFORMATION CONCERNING
THE SPECIAL MEETING--Purpose of the Special Meeting," "--Required Vote,"
"SPECIAL FACTORS--Background of the Merger," "--Certain Effects of the
Merger," "--Interests of Certain Persons in the Merger; Certain
Relationships," "THE MERGER AGREEMENT--The Merger, Merger Consideration,"
"--Treatment of Stock Options" and "DISSENTERS' RIGHTS OF APPRAISAL" of the
Proxy Statement is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a) and (b) The information set forth in "SPECIAL FACTORS--Plans for the
Company After the Merger" of the Proxy Statement is incorporated herein by
reference.
(c) The information set forth in "SPECIAL FACTORS--Certain Effects of the
Merger," "--Interests of Certain Persons in the Merger; Certain
Relationships," "THE MERGER AGREEMENT--Treatment of Options" and
"--Directors and Officers of the Company Following the Merger; Certificate
of Incorporation; Bylaws" of the Proxy Statement is incorporated herein by
reference.
(d) - (g) The information set forth in "SUMMARY--Special Factors--Purpose
and Effects of the Merger," "--Financing of the Merger," "SPECIAL
FACTORS--Certain Effects of the Merger," "--Plans for the Company After the
Merger," and "--Financing of the Merger" of the Proxy Statement is
incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) and (c) The information set forth in "SUMMARY--Special
Factors--Financing of the Merger," "SPECIAL FACTORS--Plans for the Company
After the Merger" and "--Financing of the Merger" of the Proxy Statement is
incorporated herein by reference.
(b) The information set forth in "SPECIAL FACTORS--Fees and Expenses" and
"THE MERGER AGREEMENT--Fees and Expenses" of the Proxy Statement is
incorporated herein by reference.
(d) Not Applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) The information set forth in "SUMMARY--Special Factors--Purpose and
Effects of the Merger," "SPECIAL FACTORS--Background of the Merger" and
"--The Buyout Group's Purpose and Reason for the Merger" of the Proxy
Statement is incorporated herein by reference.
(b) and (c) The information set forth in "SUMMARY--Special Factors--Purpose
and Effects of the Merger," "SPECIAL FACTORS--Background of the Merger" and
"--The Buyout Group's Purpose and Reason for the Merger" of the Proxy
Statement is incorporated herein by reference.
(d) The information set forth in "QUESTIONS AND ANSWERS ABOUT THE MERGER,"
"SUMMARY--Special Factors--Purpose and Effects of the Merger," "--Material
Federal Income Tax Consequences," "--The Merger Agreement--The Merger
Consideration," "INFORMATION CONCERNING THE SPECIAL MEETING--Purpose of the
Special Meeting," "SPECIAL FACTORS--Certain Effects of the Merger,"
"--Plans for the Company After the Merger," "--Accounting Treatment,"
"--Material Federal Income Tax Consequences of the Merger," "THE MERGER
AGREEMENT--The Merger; Merger Consideration" and "--The Exchange Fund;
Payment for Shares of Common Stock" of the Proxy Statement is incorporated
herein by reference.
10
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ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) The information set forth in "QUESTIONS AND ANSWERS ABOUT THE MERGER,"
"SUMMARY--Special Factors--Recommendation of the Company's Board of
Directors," "--Fairness Opinion of Allen & Company," "INFORMATION
CONCERNING THE SPECIAL MEETING--Purpose of the Special Meeting,""SPECIAL
FACTORS--Background of the Merger," "--Recommendation of the Special
Committee and Board of Directors; Fairness of the Merger," "--The Buyout
Group's Purpose and Reason for the Merger" and "--Opinion of Financial
Advisor to the Special Committee" of the Proxy Statement is incorporated
herein by reference.
(b) The information set forth in "SUMMARY--Special Factors--Factors
Considered by the Special Committee and Board of Directors," "--Fairness
Opinion of Allen & Company," "SPECIAL FACTORS--Background of the Merger,"
"--Recommendation of the Special Committee and Board of Directors; Fairness
of the Merger," "--The Buyout Group's Purpose and Reason for the Merger" and
"--Opinion of Financial Advisor to the Special Committee" of the Proxy
Statement is incorporated herein by reference.
(c) The information set forth in "QUESTIONS AND ANSWERS ABOUT THE MERGER,"
"SUMMARY--The Special Meeting--Voting," "--The Merger Agreement--Conditions
to the Merger," "INFORMATION CONCERNING THE SPECIAL MEETING--Required Vote"
and "THE MERGER AGREEMENT--Conditions" of the Proxy Statement is
incorporated herein by reference.
(d) The information set forth in "QUESTIONS AND ANSWERS ABOUT THE MERGER,"
"SUMMARY--Special Factors--Recommendation of the Company's Board of
Directors," "INFORMATION CONCERNING THE SPECIAL MEETING--Purpose of the
Special Meeting," "SPECIAL FACTORS--Background of the Merger" and
"--Opinion of Financial Advisor to the Special Committee" of the Proxy
Statement is incorporated herein by reference.
(e) The information set forth in "SUMMARY--Recommendation of the Company's
Board of Directors," "SPECIAL FACTORS--Background of the Merger" and
"--Recommendation of the Special Committee and Board of Directors; Fairness
of the Merger" of the Proxy Statement is incorporated herein by reference.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) and (b) The information set forth in "SUMMARY--Special Factors--Factors
Considered by the Special Committee and Board of Directors," "--Fairness
Opinion of Allen & Company," "SPECIAL FACTORS--Background of the Merger,"
"--Recommendation of the Special Committee and Board of Directors; Fairness
of the Merger" and "--Opinion of Financial Advisor to the Special Committee"
of the Proxy Statement is incorporated herein by reference.
(c) The information set forth in "AVAILABLE INFORMATION" of the Proxy
Statement is incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in "SUMMARY--Special Factors--Interests of
Certain Persons in the Merger," "INFORMATION CONCERNING THE SPECIAL
MEETING--Record Date; Voting at the Meeting; Quorum," "SPECIAL
FACTORS--Interests of Certain Persons in the Merger; Certain Relationships,"
"SECURITIES OWNERSHIP--Beneficial Ownership of More than 5% of Common Stock"
and "--Beneficial Ownership of Common Stock by Certain Parties Related to
the Company or the Buyout Group" of the Proxy Statement is incorporated
herein by reference.
(b) The information set forth in "MARKET FOR THE COMMON STOCK--Common Stock
Purchase Information" and "Schedule I" of the Proxy Statement is
incorporated herein by reference.
11
<PAGE>
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The information set forth in "SUMMARY--The Special Meeting--Voting,"
INFORMATION CONCERNING THE SPECIAL MEETING--Required Vote," and
"SUMMARY--Special Factors--Financing of the Merger," "SPECIAL
FACTORS--Background of the Merger," "--Interests of Certain Persons in the
Merger; Certain Relationships" and "--Financing of the Merger" of the Proxy
Statement is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a) The information set forth in "SECURITIES OWNERSHIP--Beneficial
Ownership of Common Stock by Certain Parties Related to the Company or the
Buyout Group" of the Proxy Statement is incorporated herein by reference
(b) The information set forth in "SUMMARY--Special Factors--Recommendation
of the Company's Board of Directors," "SPECIAL FACTORS--Background of the
Merger," and "--Recommendation of the Special Committee and Board of
Directors; Fairness of the Merger" of the Proxy Statement is incorporated
herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "QUESTIONS AND ANSWERS ABOUT THE MERGER,"
"SUMMARY--Dissenters' Rights of Appraisal" and "DISSENTERS' RIGHTS OF
APPRAISAL" of the Proxy Statement is incorporated herein by reference.
(b) - (c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in "SELECTED HISTORICAL AND PRO FORMA CONSOLI-
DATED FINANCIAL DATA OF THE COMPANY," "SELECTED FINANCIAL DATA OF HUDSON
GENERAL LLC," "WHERE YOU CAN FIND MORE INFORMATION" and "Annex D" of the
Proxy Statement is incorporated herein by reference.
(b) Not Applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAIN OR UTILIZED.
(a) The information set forth in "INFORMATION CONCERNING THE SPECIAL
MEETING -- Proxy Solicitation" and "SPECIAL FACTORS--Fees and Expenses" of
the Proxy Statement is incorporated herein by reference.
(b) The information set forth in "INFORMATION CONCERNING THE SPECIAL
MEETING -- Proxy Solicitation" of the Proxy Statement is incorporated herein
by reference.
ITEM 16. ADDITIONAL INFORMATION.
Proxy Statement, together with the proxy card.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) (1) Financing Commitment Letter, dated November 20, 1998 and Summary of
Terms and Conditions
(b) (1) Presentation by Allen & Company Incorporated to the Special
Committee dated November 20, 1998
(b) (2) Opinion of Allen & Company Incorporated, dated November 20, 1998
(set forth as Annex B to the Proxy Statement)*
(c) (1) Equity Commitment Letter, dated November 22, 1998, among Jay B.
Langner, Richard D. Segal and Hudson General Corporation
(c) (2) Agreement and Plan of Merger between Hudson General Corporation and
River Acquisition Corp., dated as of November 22, 1998 (set forth as
Annex A to the Proxy Statement)*
12
<PAGE>
(d) (1) Proxy Statement, together with the proxy card
(e) (1) Section 262 of the Delaware General Corporation Law (set forth as
Annex C to the Proxy Statement)*
(f) As of the date of this Statement, no written instruction, form or other
material has been furnished to any person making the actual oral
solicitation or other recommendation (including the proxy solicitor referred
to in "INFORMATION CONCERNING THE SPECIAL MEETING--Proxy Solicitation" of
the Proxy Statement) for such person's use, directly or indirectly, in
connection with the Rule 13e-3 transaction.
(g) (1) Complaint filed on November 24, 1998 against Milton H. Dresner et
al. by Harbor Finance Partners in the Delaware Chancery Court
(g) (2) Complaint filed on November 24, 1998 against Jay B. Langner et al.
by Weiner in the Delaware Chancery Court
(g) (3) Complaint filed on November 30, 1998 against Jay B. Langner et al.
by Soshtain and Rand in the Delaware Chancery Court
(g) (4) Press release issued by Hudson General Corporation (incorporated by
reference to the Current Report on Form 8-K of Hudson General Corporation
filed on November 23, 1998)
(g) (5) Press release issued by Hudson General Corporation dated December
11, 1998
- ----------
* Incorporated by reference to the Proxy Statement
13
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, the
undersigned certify that the information set forth in this statement is true,
complete and correct.
HUDSON GENERAL CORPORATION
By: /s/ Michael Rubin
------------------------------------
Name: Michael Rubin
Title: President
RIVER ACQUISITION CORP.
By: /s/ Jay B. Langner
------------------------------------
Name: Jay B. Langner
Title: Chairman
/s/ Jay B. Langner
----------------------------------------
Jay B. Langner
/s/ Richard D. Segal
----------------------------------------
Richard D. Segal
Dated: December 23, 1998
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- ------------
<S> <C>
99.17(a)(1) Financing Commitment Letter, dated November 20, 1998 and Summary of Terms and
Conditions
99.17(b)(1) Presentation by Allen & Company Incorporated to the Special Committee, dated
November 20, 1998
99.17(b)(2) Opinion of Allen & Company Incorporated, dated November 22, 1998 (set forth as
Annex B to the Proxy Statement).*
99.17(c)(1) Equity Commitment Letter, dated November 22, 1998, between Jay B. Langner,
Richard D. Segal and Hudson General Corporation.
99.17(c)(2) Agreement and Plan of Merger between Hudson General Corporation and River
Acquisition Corp., dated as of November 22, 1998 (set forth as Annex A to the Proxy
Statement)*
99.17(d)(1) Proxy Statement, together with the proxy card
99.17(e)(1) Section 262 of the Delaware General Corporation Law (set forth as Annex C to the
Proxy Statement)*
99.17(g)(1) Complaint filed on November 24, 1998 against Milton H. Dresner et al. by Harbor
Finance Partners in the Delaware Chancery Court
99.17(g)(2) Complaint filed on November 24, 1998 against Jay B. Langner et al. by Weiner in the
Delaware Chancery Court
99.17(g)(3) Complaint filed on November 30, 1998 against Jay B. Langner et al. by Soshtain and
Rand in the Delaware Chancery Court
99.17(g)(4) Press release issued by Hudson General Corporation (incorporated by reference to the
Current Report on Form 8-K of Hudson General Corporation filed on November 23, 1998)
99.17(g)(5) Press release issued by Hudson General Corporation dated December 11, 1998
</TABLE>
- ----------
* Incorporated by reference to the Proxy Statement
<PAGE>
November 20, 1998
River Acquisition Corp.
Jay B. Langner
Suite 600
111 Great Neck Road
Great Neck, New York 11021
Re: River Acquisition Corp. Commitment Letter
-----------------------------------------
Ladies and Gentlemen:
We are pleased to confirm the commitments of each of BankBoston, N.A.
("BKB"), European American Bank ("EAB") and The Chase Manhattan Bank ("Chase"
and together with BKB and EAB, the "Initial Lenders"), subject to the terms and
conditions in this letter and in the Summary Terms and Conditions (as defined
and referred to below), to provide a senior secured financing (the "Financing")
in an aggregate amount not to exceed $59,579,865 or such lesser amount as is
calculated in accordance with Annex X attached hereto depending upon the price
per share for completion of the Recapitalization (as defined below) on a
several, ratable basis according to the respective percentages set forth
opposite our names on the signature pages hereto. The Financing will finance the
payment by a newly formed special purpose acquisition vehicle (the "HGC
Borrower") to be formed by Jay B. Langner and certain other individuals
(collectively, the "Investors") of the merger consideration for the acquisition
by the HGC Borrower of 100% of the capital stock of Hudson General Corporation,
a Delaware corporation ("HGC") not otherwise contributed by the Investors to the
HGC Borrower pursuant to the terms of a proposed cash-out merger transaction
(the "Recapitalization").
The HGC Borrower will secure its obligations under the HGC Facility
with substantially all of its assets, including, upon the consummation of the
Recapitalization, the assets of HGC. All subsidiaries of the HGC Borrower and
HGC (other than Hudson General LLC ("LLC"), Hudson Kohala, Inc. and other
subsidiaries described as Excluded Subsidiaries in the Summary Terms and
Conditions (as hereinafter defined)) will, contemporaneously with the
consummation of the Recapitalization, guaranty the obligations of the HGC
Borrower under the Financing and will secure their obligations under such
guaranty with substantially all of their assets. BKB will act as agent (the
"Agent") for itself, the other Initial Lenders and any other lending
institutions which may become party to the Financing (collectively with BKB, the
"Lenders"), and BancBoston Robertson Stephens Inc. ("BRS") will act as the
exclusive arrangement agent and arranger for the Lenders (the "Arranger") with
respect to the Financing. Based on our discussions and on the financial
statements, projections and other information and documents previously furnished
to us, we are enclosing herewith an outline of terms and conditions (the
"Summary Terms and Conditions"), which set forth the principal terms on which
each of the Initial Lenders is committing to provide its portion of the proposed
Financing, and the Arranger is committing to act as the Arranger hereunder. This
letter, along with the Summary Terms and Conditions, shall together be referred
to as the "Commitment Letter".
Although the Summary Terms and Conditions sets forth the principal
terms of the Financing, you should understand that the Initial Lenders, the
Agent and the Arranger reserve the right to propose, and you hereby agree to
<PAGE>
River Acquisition Corp.
Jay B. Langner
November 20, 1998
Page 2
negotiate in good faith, terms in addition to these terms which will not
substantially change or alter the terms of this commitment and the Summary Terms
and Conditions. Moreover, the Summary Terms and Conditions does not purport to
include all of the covenant levels, customary representations, warranties,
conditions, defaults, definitions and other terms which will be contained in the
definitive documents for the transaction, all of which must be reasonably
satisfactory in form and substance to us and our counsel and to you and your
counsel prior to proceeding with the proposed Financing and which will not
substantially change or alter the terms hereof.
Our commitments to proceed with the proposed Financing are conditioned
on there being no material misstatements in or omissions from the materials
which have previously been furnished to us for our review in connection with the
transactions contemplated hereby (taking into account all such information and
materials) and on there being no material adverse change since the date of such
materials in the assets, business or condition (financial or otherwise) or
prospects of HGC, the HGC Borrower and their respective subsidiaries, that would
impact the ability of any such entity to perform its respective obligations
described in the Summary Terms and Conditions. In addition, the proposed
Financing is subject to the conditions that no changes in governmental
regulation or policy materially and adversely affecting our ability to perform
our duties as described in the Commitment Letter or otherwise provide financing
in connection with this transaction occur prior to the closing.
By your signatures below, you represent and warrant to the Initial
Lenders, the Agent and the Arranger that (a) all information that has been and
will be made available by you or the HGC Borrower or on your or its behalf to
the Initial Lenders, the Agent or the Arranger is and will be true and correct
in all material respects and that any financial information included therein
fairly presents in all material respects the financial condition (as of the
dates thereof) and the results of operations (for the periods covered thereby)
of the HGC Borrower, HGC and their respective subsidiaries, and (b) all
financial projections concerning the HGC Borrower, HGC and their respective
subsidiaries that have been or will be made available by you, the HGC Borrower,
HGC or on your or their behalf to the Initial Lenders, the Agent or the Arranger
have been and will be prepared in good faith based upon assumptions deemed
reasonable by you at the time of preparation. You agree to revise, modify and
supplement such information and projections from time to time through the
completion of the arrangement process as necessary in order that such
information continues to be true and correct in all material respects and that
such projections remain in all material respects the Investors' good faith
estimate of financial performance. You understand that the Initial Lenders, the
Agent and the Arranger and potential Lenders will be using and relying on such
information and projections without independent verification thereof and that
the Initial Lenders', the Agent's and the Arranger's willingness to proceed with
the proposed financing is conditioned upon, among other things, there being no
material misstatement in or omissions from such information and projections.
By your signatures below, you further agree to permit the Arranger, on
or after closing, to publicize information in respect of the Financing
(including the Agent's and the Arranger's role in the structuring and financing
thereof) subject to your prior reasonable approval of the form and content
thereof. You further agree that prior to or after the execution of the
definitive documentation for the Financing, each of the Initial Lenders reserves
the right to syndicate all or any portion of its commitment hereunder to one or
more financial institutions after consultation with the Agent, the Arranger and
you, and, upon the receipt of signed commitments from any Lender agreeing to
become a party to the Financing with respect to a portion of the facilities,
such Initial Lender shall be released from a portion of its commitment hereunder
in an aggregate amount equal to the commitment of such Lender.
<PAGE>
River Acquisition Corp.
Jay B. Langner
November 20, 1998
Page 3
By your signatures below, you agree that you or the HGC Borrower shall
pay all reasonable out-of-pocket costs and expenses (the "Expenses") incurred by
(1) BKB, the Agent, the Arranger and their respective agents (including, without
limitation, any consultants contemplated herein or in the Summary Terms and
Conditions and engaged by BKB, the Agent or the Arranger) in connection with (a)
the negotiation, preparation, execution and delivery of this Commitment Letter
and the definitive loan and collateral security documentation for the Financing,
and (b) the arrangement of the Financing, and (2) the fees of a single counsel
engaged by EAB and Chase together, in each case, whether or not the transactions
contemplated hereby are consummated. The Expenses shall include, without
limitation, reasonable attorneys' fees and expenses, arrangement fees, fees of
the Agent's commercial finance examiners, consultants' fees, asset appraisal
fees, and other reasonable charges and disbursements and any other reasonable
out-of-pocket costs and expenses. All such fees and expenses invoiced at or
prior to closing shall be paid on or before the Closing Date. Further, in
consideration of the commitments contained herein you agree to pay or to cause
the HGC Borrower to pay to the Initial Lenders, the Agent and the Arranger the
fees described in the separate letters enclosed herewith (one such letter issued
in favor of the Initial Lenders and the other issued in favor of the Agent and
the Arranger and together, the "River Acquisition Corp. Fee Letters") on the
Closing Date or such other date(s) (including the date of your acceptance of
this Commitment Letter) and in the amounts provided in the River Acquisition
Corp. Fee Letters.
By your signatures below, you further agree to indemnify and hold
harmless each of the Initial Lenders, the Agent and the Arranger and their
respective officers, directors, employees, affiliates, agents and controlling
persons from and against any and all losses, claims, damages and liabilities to
which any such person may become subject arising out of, or in connection with,
this Commitment Letter, the transactions contemplated hereby or any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any of such indemnified persons is a party thereto, and to
reimburse each of such indemnified persons, from time to time upon their demand,
for any reasonable legal or other expenses incurred in connection with
investigating or defending any of the foregoing, whether or not the transactions
contemplated hereby are consummated, provided that the foregoing indemnity will
not, as to any indemnified person, apply to losses, claims, damages, liabilities
or related expenses to the extent that they arise from the bad faith, willful
misconduct or gross negligence of such indemnified person. Your obligations to
indemnify and to pay or to cause the HGC Borrower to pay the Expenses as set
forth in this letter shall remain effective until the initial funding of the
Financing under the definitive loan and collateral security documents for the
Financing; thereafter, such obligations shall be superseded by the expense
reimbursement and indemnification provisions contained in such definitive
documents, and you shall have no further such obligations hereunder.
You agree that this Commitment Letter and the River Acquisition Corp.
Fee Letters are for your confidential use only and that, without the prior
written consent of the Agent, none of such agreements will be disclosed by you
to any person (including any lender bidding for the financing contemplated by
this Commitment Letter) other than (a) any of your respective employees,
partners, accountants, attorneys, affiliates and other advisors who are or are
expected to become engaged in evaluating, approving, structuring or
administering the facilities or rendering legal advice in connection therewith,
or (b) to HGC or a special committee of the Board of Directors of HGC in
connection with your negotiation of the Recapitalization, and then, in each
case, only in connection with the transactions contemplated hereby and on a
confidential basis; provided that nothing herein shall prevent you from
disclosing such information (i) upon the order of any court or administrative
agency or upon the request of any administrative agency or authority, (ii) upon
<PAGE>
River Acquisition Corp.
Jay B. Langner
November 20, 1998
Page 4
the request or demand of any regulatory agency or authority, (iii) to the extent
that such information has been generally disclosed to the public, other than as
a result of a disclosure by you, or (iv) otherwise as required by law.
Each of the Initial Lenders, the Agent and the Arranger agrees to keep
any confidential information delivered or made available by you to it regarding
the HGC Borrower confidential from anyone other than their respective employees,
officers, attorneys and other advisors who are or are expected to become engaged
in evaluating, approving, structuring or administering the facilities or
rendering legal advice in connection therewith, and then, in each case, only in
connection with the transactions contemplated hereby and on a confidential
basis; provided that nothing herein shall prevent any of the Initial Lenders,
the Agent or the Arranger from disclosing such information (a) to potential
participants in and assignees of the facilities on a confidential basis and
subject to written confidentiality agreements as provided above, (b) upon the
order of any court or administrative agency or upon the request of any
administrative agency or authority, (c) upon the request or demand of any
regulatory agency or authority, (d) to the extent that such information has been
generally disclosed to the public, other than as a result of a disclosure by
such Initial Lender, the Agent or the Arranger, or (e) otherwise as required by
law.
This Commitment Letter shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts. This Commitment Letter and
the River Acquisition Corp. Fee Letters are the only agreements between you, on
the one hand, and any or all of us, on the other hand, with respect to the
Financing. This Commitment Letter shall not be assignable by you without the
prior written consent of the Initial Lenders, the Agent and the Arranger and is
intended solely for your benefit and is not intended to confer any benefits
upon, or create any rights in favor of any person other than you. This
Commitment Letter may not be amended or waived except by an instrument in
writing signed by each party hereto. This Commitment Letter may be executed in
any number of counterparts, which shall together constitute but one and the same
agreement and which counterparts may be by facsimile (to be followed promptly by
original counterparts) or by original counterparts. This Commitment Letter shall
take effect as a sealed instrument as of the date first hereinabove written.
This Commitment Letter is issued with the understanding that, until
accepted by you and except as specifically set forth in the preceding
paragraphs, it is not intended to give rise to any legal liability on the part
of either you or any of the Initial Lenders, the Agent or the Arranger and that
the proposal set forth herein shall be considered withdrawn if for any reason
you fail to return to Michael J. Blake at BankBoston, N.A., 100 Federal Street,
Boston, Massachusetts 02110 by 5:00 p.m. (Boston time) on November 30, 1998 (the
"Expiration Date") the enclosed copy of this letter and the accompanying River
Acquisition Corp. Fee Letters, signed by you, together with the fees required by
the terms of such River Acquisition Corp. Fee Letters to be paid as of the date
hereof.
[Remainder of page intentionally left blank]
<PAGE>
River Acquisition Corp.
Jay B. Langner
November 20, 1998
Page 5
If the foregoing is in accordance with your understanding, please
accept this letter in the space indicated below and return it to us on or prior
to the Expiration Date. This letter supersedes all of our prior letters and
communications to you regarding the subject matter of this letter.
Commitment Percentages Very truly yours,
Term Loan A: 50% BANKBOSTON, N.A.
Term Loan B: 50%
Revolving Credit: 50%
By: /s/ Michael J. Blake
--------------------------------
Name: Michael J. Blake
Title: Director
EUROPEAN AMERICAN BANK
Term Loan A: 25%
Term Loan B: 25%
Revolving Credit: 25% By: /s/ Pasqualina Coppola
--------------------------------
Name: Pasqualina Coppola
Title: Assistant Vice President
THE CHASE MANHATTAN BANK
Term Loan A: 25%
Term Loan B: 25%
Revolving Credit: 25% By: /s/ William DeMilt
--------------------------------
Name: William DeMilt
Title: Assistant Vice President
BANCBOSTON ROBERTSON STEPHENS INC.
By: /s/ Christopher G. Mathon
--------------------------------
Name: Christopher G. Mathon
Title: Director
<PAGE>
River Acquisition Corp.
Jay B. Langner
November 20, 1998
Page 6
River Acquisition Corp.
Commitment Letter,
Accepted and Agreed to as of this
20th day of November, 1998
RIVER ACQUISITION CORP.
By: /s/ Jay B. Langner
---------------------------------------
Title: President
/s/ Jay B. Langner
- -------------------------------------------
Jay B. Langner
<PAGE>
Annex X
Calculation of Financed Amount
<TABLE>
<CAPTION>
@@
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Price Per Share*+ Term Loan A Term Loan B Revolver Total
----- --- ------- ---- ---- - ---- ---- - -------- -----
<S> <C> <C> <C> <C>
$57.25 $47,079,865 $7,500,000 $5,000,000 $59,579,865
$57 $46,705,560 $7,500,000 $5,000,000 $59,205,560
$56 $45,208,340 $7,500,000 $5,000,000 $57,708,340
$55 $43,711,120 $7,500,000 $5,000,000 $56,211,120
$54 $42,213,900 $7,500,000 $5,000,000 $54,713,900
$53 $40,716,680 $7,500,000 $5,000,000 $53,216,680
$52 $39,219,460 $7,500,000 $5,000,000 $51,719,460
$51 $37,722,240 $7,500,000 $5,000,000 $50,222,240
$50 $36,225,020 $7,500,000 $5,000,000 $48,725,020
$49 $34,727,800 $7,500,000 $5,000,000 $47,227,800
$48 $33,230,580 $7,500,000 $5,000,000 $45,730,580
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
@@
</TABLE>
* In the event that the price per share actually agreed upon is not a
whole dollar amount, the parties agree that the amount financed shall
be modified proportionately to reflect the difference between the
nearest whole dollar share price and the actual price agreed upon.
+ In the event that the price per share is less than $48 per share, the
parties agree that the amount financed (as reflected in the Term Loan A
and Total columns in the table above) shall be reduced by $1,497,220
for every dollar which the final price per share falls below $48 per
share.
<PAGE>
RIVER ACQUISITION CORP.
Summary of Terms and Conditions
For Up to $59,579,865 Senior Secured Credit Facilities
- --------------------------------------------------------------------------------
Borrower: River Acquisition Corp., a special purpose
acquisition vehicle formed by the Investors under
the laws of Delaware and to be merged with HGC on
the Closing Date.
Facilities: (A) Up to $47,079,865 Term Loan A
(B) Up to $7,500,000 Term Loan B
(C) $5,000,000 Revolving Credit
Calculation of the amount of Term Loan A is subject
to the terms and conditions contained in Annex X to
the Commitment Letter.
Use of Proceeds: (A) & (B) To finance the recapitalization of HGC in
connection with a privatization transaction (the
"Recapitalization") and to pay associated fees and
expenses. (C) For working capital and general
corporate purposes.
Agent: BankBoston, N. A. ("BankBoston" or the "Agent").
Arranger: BancBoston Robertson Stephens Inc. ("BRS").
Lenders: BankBoston and a group of financial institutions
reasonably acceptable to BankBoston, BRS and the
Borrower. Notwithstanding the foregoing, the
Facilities shall be arranged on a pro rata basis with
the $20,000,000 Senior Secured Credit Facilities
proposed for Hudson General LLC ("LLC") and its
subsidiaries in the Commitment Letter and Summary
Terms and Conditions dated as of the date hereof and
pertaining to LLC (the "LLC Commitment Letter").
Guarantors: All direct and indirect present and future
subsidiaries of the Borrower other than LLC, LLC's
subsidiaries, Hudson Kohala, Inc. and any subsidiary
which (i) has aggregate total assets or a net worth
less than $100,000 and (ii) does not engage in
business of any kind or nature (such subsidiaries,
collectively with LLC and Hudson Kohala, Inc., the
"Excluded Subsidiaries").
Closing Date: A mutually agreeable date to be determined, but not
later than April 30, 1999.
<PAGE>
Final Maturity Date: (A) & (C) 5 years from the Closing Date.
(B) 6 years from the Closing Date.
Availability: (A) & (B) Loans must be borrowed in a single drawing
on the Closing Date. (C) Loans may be borrowed repaid
and reborrowed from the Closing Date through the
Final Maturity Date, subject to compliance with all
covenants and terms governing the Facilities.
Amortization: (A) & (B) Subject to further due diligence, including
review of the Borrower's financial projections, the
Term Loans will amortize in quarterly payments
aggregating the following amounts annually:
Year Term Loan A Term Loan B
---- ----------- -----------
1 $1,500,000 $0
2 2,000,000 0
3 2,500,000 0
4 32,000,000 0
5 9,079,865 0
---------
6 7,500,000
---------
Total $47,079,865 $7,500,000
Mandatory
Prepayments: Mandatory prepayments from the following sources
(which prepayments shall be subject to payment of
breakage costs) will be applied initially to Term
Loan A until repaid in full and thereafter to Term
Loan B to reduce outstanding amounts under each
facility in equal installments over each of the
remaining years:
o 100% of Excess Cash Flow (definition to be
determined) in excess of $1,000,000 on an annual
basis.
o 100% of the net proceeds from asset sales (other
than in the ordinary course of business) and
equity or new debt offerings
o 100% of the net cash proceeds to the Borrower from
dividends, distributions and intercompany note
collections (in a minimum amount of $9,500,000
within 30 days following the Closing Date) from
LLC for the 1998 fiscal year. If any of such
payments occur prior to the Closing Date, the
minimum cash requirement specified in the
Conditions Precedent section of this term sheet
shall increase by the amount of such payments and
the amount of Term Loan A shall decrease by a
corresponding amount.
o 100% of the net proceeds from the redemption of
HGC's preferred interest in LLC.
Voluntary
Prepayments: Permitted, subject to payment of breakage costs, if
any, in the case of LIBOR Rate loans. Voluntary
prepayments shall be applied first to Term Loan A
until fully repaid and thereafter to Term Loan B. All
prepayments shall be applied to reduce outstanding
amounts in equal installments over each of the
remaining years.
Security: The Revolving Credit, Term Loan A, Term Loan B and
obligations to the Lenders under interest rate
protection agreements will be collateralized by (a)
<PAGE>
a perfected first priority security interest in all
tangible and intangible assets (subject to
exceptions to be determined, which exceptions shall
be reasonably acceptable to the Agent and the
Lenders) of the Borrower and its subsidiaries
(including HGC but excluding the Excluded
Subsidiaries), now owned or hereafter acquired,
including without limitation the Borrower's
interests in the common ownership units of LLC and
any preferential ownership in LLC and (b) a pledge
of 100% of the equity interests in the Borrower. A
double negative pledge will be provided on all
assets of the Borrower and its subsidiaries (with
exceptions satisfactory to the Borrower, the Agent
and the Lenders to be negotiated) not included in
the security package for the Lenders.
Interest Rates: The Alternate Base Rate ("ABR") or the LIBOR
Rate ("LIBOR") plus the Applicable Margin determined
quarterly in accordance with the terms set forth on
Annex A hereto. Alternate Base Rate shall mean the
higher of the Agent's Base Rate as announced from
time to time, or the Federal Funds rate plus 0.50%.
Interest Payments: For Alternate Base Rate loans, at the end
of each fiscal quarter. For LIBOR Rate loans, at the
end of each Interest Period, or quarterly, if
earlier. Interest will be calculated on an actual/365
day basis for Alternate Base Rate Loans and on an
actual/360 day basis for LIBOR Rate loans.
Interest Periods: For LIBOR Rate loans, 1, 2, 3 or 6 months, subject
to availability.
Fees: Per the Fee Letters.
Interest Rate
Protection: Within 90 days following the Closing Date, the
Borrower will obtain interest rate protection in an
amount and tenor satisfactory to the Borrower, the
Agent and the Lenders and at a rate level
satisfactory to the Borrower and the Agent.
Conditions
Precedent: Usual and customary in transactions of this type,
including without limitation, the following:
o Satisfactory representations and warranties and
execution and delivery of satisfactory
documentation including without limitation loan
documentation, security documentation, merger
agreements and any other agreements deemed
necessary or appropriate by the Agent or the
Lenders in connection with the proposed Facilities
and the Recapitalization.
o Satisfactory corporate and capital structure of
the Recapitalization including without limitation
(i) minimum equity capital contribution by the
Investors of at least 280,000 shares and retained
options equivalent to shares of HGC in the
Recapitalization, at least 245,000 of which shall
be shares of HGC, (ii) minimum cash of the
Borrower of not less than $35,000,000 (or such
greater amount as is necessary to complete the
Recapitalization if fees and expenses incurred in
connection therewith exceed those assumed in the
calculation of Annex X) at the time of the
Recapitalization, and (iii) satisfactory
limitations on the types of investments to be made
by HGC and all subsidiaries including LLC and its
subsidiaries.
o The Recapitalization shall be completed at a
maximum share price of $57.25 per share to public
shareholders.
<PAGE>
o The Agent's and the Lenders' satisfaction that the
Recapitalization and the Financing comply with all
applicable laws, including securities laws.
o Successful completion (but for the funding of the
Facilities) of the Recapitalization in accordance
with applicable law and documentation satisfactory
in form and substance to the Agent and the Lenders
(which documentation shall not have been amended,
waived or modified).
o Receipt and review of unaudited consolidated
financial statements of HGC and its subsidiaries
for the fiscal period ended December 31, 1998,
which financial statements shall be reasonably
satisfactory in form and substance to the Agent
and the Lenders.
o The Lenders, the Agent and the Arranger having
received all fees and expenses payable in
connection with the Facilities described herein.
o There being no material adverse change in the
final financial projections received by the Agent
and the Lenders on October 20, 1998 (other than
variations resulting from seasonal weather
conditions).
o No material misstatements in or omissions from the
materials previously furnished to the Agent and
the Lenders for their review. The Agent and the
Lenders must be satisfied that any financial
statements delivered to them fairly present the
business and financial condition of the Borrower
or, as the case may be, HGC and its subsidiaries.
o Absence of any material adverse change in the
condition (financial or otherwise), operations,
assets, and/or income of the Borrower, of HGC, of
the Borrower and its subsidiaries taken as a
whole, or of HGC and its subsidiaries taken as a
whole; and absence of any default or event of
default under any material contract or agreement.
o Satisfactory review of all material pending or
threatened litigation (with the Agent and the
Lenders agreeing that they are satisfied with the
status of the litigation disclosed in the June 30,
1998 10-K of HGC and the September 30, 1998 10-Q
of HGC); absence of any material contingent
liabilities; absence of actual or threatened
litigation or other proceedings challenging the
Recapitalization, the Financing or any
transactions contemplated herewith or therewith,
which could reasonably be expected to have a
materially adverse effect on (a) the assets,
liabilities, business, or business prospects of
the Borrower, of HGC, of the Borrower and its
subsidiaries taken as a whole, or of HGC and its
subsidiaries taken as a whole; (b) the ability of
the Borrower or its subsidiaries to perform its
obligations under the loan or collateral security
documents; or (c) the rights and remedies of the
Agent or the Lenders under the loan or collateral
security documents.
o All governmental and third-party consents and
approvals necessary or advisable in connection
with the Facilities, the Recapitalization and the
continuing operations of the Borrower and HGC
shall have been obtained and shall be in full
force and effect, and all applicable waiting
periods shall have expired without any action
being taken or threatened by any competent
authority that would restrain, prevent or
otherwise impose materially adverse conditions on
the Borrower, the Recapitalization or any of the
transactions contemplated in connection herewith
or therewith.
o The proposed financing is subject to the
conditions that none of the Lenders shall have
breached its obligations under this Commitment
Letter or under the LLC Commitment Letter (it
being understood that withdrawal of a commitment
as a result of any of the conditions set forth in
the Commitment Letter, this Summary of Terms and
<PAGE>
Conditions or any related fee letter not being
satisfied shall not constitute a breach) and that
no material changes in governmental regulations or
policies affecting the Borrower, HGC, the Agent,
Arranger or Lenders involved in this transaction
occur prior to the Closing Date.
o The contemporaneous closing of the $20,000,000
senior secured financing of LLC pursuant to the
terms and conditions set forth in the LLC
Commitment Letter, and the termination of HGC's
and LLC's existing credit facilities, together
with the release or assignment of all liens and
security interests securing the obligations
thereunder.
o Other conditions precedent specific to this
transaction and typical of facilities of this
type, including the Agent's receipt of
satisfactory applicable corporate and shareholder
approval of the Financing and the
Recapitalization, evidence of the completion of
adequate corporate formalities, together with
satisfactory legal opinions, a solvency opinion
(after giving effect to the Recapitalization), UCC
search results, and all filings, documents and
items deemed necessary or appropriate by the Agent
in order to ensure the first priority security
interest of the Agent, for the benefit of the
Lenders, in the collateral.
Reporting
Requirements: Periodic financial reporting with respect to the
Borrower and its subsidiaries, including, but not
limited to, the following: certified annual audited
financials, quarterly financials, quarterly
compliance certificates, annual budgets and other
information that may from time to time be requested
by the Agent, Arranger or any of the Lenders.
Financial
Covenants: Financial covenants, to be determined, will be
satisfactory to the Agent and the Lenders and will be
typical of those found in senior credit agreements of
this type and will include without limitation the
following:
o Maximum Funded Debt/Adjusted EBITDA
o Minimum Interest Coverage
o Minimum Debt Service Coverage
o Minimum Net Worth or equivalent
Other Terms
and Conditions: Customary for facilities of this type,
including without limitation, the following, in each
case reasonably satisfactory in form and substance to
the Agent and the Lenders:
o Customary affirmative covenants.
o Limitations on capital expenditures, dividends,
redemptions, liens, indebtedness, negative pledges,
contingent liabilities, investments, affiliate
transactions, mergers, acquisitions, asset sales, sale
leasebacks, etc.
o Customary events of default including without
limitation a cross-default to other indebtedness
(including a cross-default to indebtedness of LLC) and
a change in control default.
o Restriction on material amendment or other modification
of any of the organizational documents of the Borrower
or its subsidiaries (other than such amendments as are
completed on or prior to the Closing Date and are
necessary to the accomplishment of the Recapitalization
and are satisfactory to the Agent and the Lenders).
<PAGE>
Assignments and
Participations: Usual and customary for transactions of this type
and size. Each Lender may assign all or a portion of
its loans and commitments under the Facilities, or
sell participations therein, to another person or
persons, provided that each such assignment shall be
in a minimum amount of $2,500,000 (or if less, such
Lender's entire commitment), shall only be permitted
in connection with the acceptance by the applicable
assignee of a pro rata portion of such Lender's
interest in the facilities provided pursuant to the
LLC Commitment Letter, and shall be subject to
certain conditions, including but not limited to,
the approval of the Borrower (so long as no Event of
Default has occurred) and the Agent, such approvals
not to be unreasonably withheld. Each assignment
shall be subject to payment to the Agent by the
assigning Lender of an assignment fee of $3,500.
Arrangement: The Borrower or the Investors will provide all
information (including pro forma financial
projections), in a form reasonably acceptable to the
Agent and Arranger, necessary for the preparation of
an information memorandum describing the Borrower,
HGC, the Facilities and any related transactions.
Such package will be distributed on a confidential
basis to selected financial institutions. In
addition, the management of HGC and the Investors
will, at the request of the Agent or Arranger, hold
themselves and their advisors available at
reasonable times to meet with potential lenders and
to answer questions during the arrangement process.
Voting Rights: Waivers and amendments must be approved by the
Required Lenders provided, however, that increases
of commitments, reductions in interest rates or
fees, extensions of maturity, postponement of
required principal payments, release of any guaranty
or any substantial part of the collateral, or change
to the definition of Required Lenders will require
consent from 100% of the Lenders. Required Lenders
means any two or more Lenders holding at least
66-2/3% of the outstanding Loans and unused
Commitments.
Expenses and
Indemnification: Without limiting the Commitment Letter, Borrower will
pay all reasonable fees and expenses incurred by the
Agent and Arranger in connection with the preparation
and execution of the Facilities. These will include,
without limitation, legal, arrangement, collateral
examination, tax consultant, appraisal, environmental
survey and other direct out-of-pocket expenses.
Without limiting the Commitment Letter, the Borrower
will indemnify and hold harmless the Agent, Arranger
and the Lenders (and their respective directors,
officers, employees and agents) against any damages,
loss, liability, cost or expense incurred in respect
of the financing contemplated hereby or the use or
the proposed use of proceeds thereof (except to the
extent resulting from the gross negligence or willful
misconduct of the indemnified party).
Governing Law: Commonwealth of Massachusetts.
Agent and
Arranger's Counsel: Bingham Dana LLP
<PAGE>
Annex A
-------
<TABLE>
<CAPTION>
Revolving Credit and
Adjusted Term Loan A
Interest Rate: Level EBITDA/Interest ABR + LIBOR +
----- --------------- ----- -------
<S> <C> <C> <C> <C>
I (less than) 1.50x 1.00% 3.00%
II (greater than) = 1.50x 0.75% 2.75%
III (greater than) = 2.00x 0.50% 2.50%
IV (greater than) = 2.50x 0.25% 2.25%
</TABLE>
The Pricing Grid notwithstanding, pricing would not
be lower than Level I until delivery of the
compliance certificate for the period ending June
30, 1999. Adjusted EBITDA shall be measured on a
rolling four quarter basis (including periods prior
to the Recapitalization) and shall be adjusted to
reflect cash earnings of the Borrower.
Pricing for Term Loan B shall be LIBOR + 3.50% or
ABR + 1.50% without reference to the Pricing Grid.
Default Pricing: Upon the occurrence and continuance of an Event of
Default, the Facilities will accrue interest at the
Applicable Margin or spread over the Alternate Base
Rate plus 2%.
Commitment Fee: 0.375% per annum on the unused portion of the
Revolving Credit facility, payable quarterly in
arrears.
<PAGE>
- -------------------------------------------------------------------------------
PRESENTATION TO THE
SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
HUDSON GENERAL CORPORATION
November 20, 1998
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
Discounted Cash Flow Analysis
<PAGE>
HUDSON GENERAL CORP.
Discounted Cash Flow Analysis
Dollars in thousands
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-------------------------------------------------------------------------------------------------
HGC LLC - US Actual Projected
--------------------------- ---------------------------------------------------------------------
1998 3 mos. 9/98 9 mos. 6/99 1999 2000 2001 2002 2003
----------- ------------- ------------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $126,810 $31,873 $112,527 $144,400 $151,620 $159,201 $167,161 $175,519
Growth Rate -- -- -- 13.9% 5.0% 5.0% 5.0% 5.0%
Operating Expenses (97,639) (26,299) (86,333) (112,632) (117,960) (123,540) (129,383) (135,501)
SG&A (11,609) (3,034) (9,529) (12,563) (13,039) (13,532) (14,209) (14,919)
-------- ------- ------- -------- -------- -------- -------- --------
EBITDA 17,562 2,540 16,665 19,205 20,621 22,129 23,569 25,099
EBITDA Margin 13.8% 8.0% 14.8% 13.3% 13.6% 13.9% 14.1% 14.3%
Depreciation (6,256) (1,587) (4,946) (6,533) (6,933) (7,450) (7,967) (8,555)
-------- ------- ------- -------- -------- -------- -------- --------
EBIT 11,306 953 11,719 12,672 13,688 14,679 15,602 16,544
EBIT Margin 8.9% 3.0% 10.4% 8.8% 9.0% 9.2% 9.3% 9.4%
Interest 0 0 0 0 0 0 0 0
-------- ------- ------- -------- -------- -------- -------- --------
Pretax Income 11,306 953 11,719 12,672 13,688 14,679 15,602 16,544
Pretax Margin 8.9% 3.0% 10.4% 8.8% 9.0% 9.2% 9.3% 9.4%
Income Taxes 0 0 0 0 0 0 0 0
-------- ------- ------- -------- -------- -------- -------- --------
Net Income $11,306 $953 $11,719 $12,672 $13,688 $14,679 $15,602 $16,544
======== ======= ======= ======== ======== ======== ======== ========
Gross Distribution Amount (a) (b) 9,729 9,729 10,473 11,375 12,295 13,035
HGC Share 51.0% (b) (b) (b) 5,341 5,801 6,270 6,648
LAGS Share 49.0% (b) (b) (b) 5,132 5,574 6,025 6,387
- --------------
(a) Distributions represent prior years declaration paid in the first half of current fiscal year.
(b) See consolidated distributions.
November 20, 1998
Page 1
</TABLE>
<PAGE>
HUDSON GENERAL CORP.
Discounted Cash Flow Analysis
Dollars in thousands
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
------------------------------------------------------------------------------------------------
HGC LLC - CANADA Actual Projected
----------------------- ----------------------------------------------------------------------
1998 3 mos. 9/98 9 mos. 6/99 1999 2000 2001 2002 2003
--------- ----------- ------------- --------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $42,287 $9,268 $34,254 $43,522 $44,828 $46,172 $47,558 $48,984
Growth Rate -- -- -- 2.9% 3.0% 3.0% 3.0% 3.0%
Operating Expenses (34,340) (7,441) (28,813) (36,254) (37,297) (38,370) (39,473) (40,609)
SG&A (2,522) (896) (1,628) (2,524) (2,600) (2,678) (2,758) (2,841)
------- ------ ------- ------- ------- ------- ------- --------
EBITDA 5,425 931 3,813 4,744 4,931 5,124 5,327 5,534
EBITDA Margin 12.8% 10.0% 11.1% 10.9% 11.0% 11.1% 11.2% 11.3%
Depreciation (1,981) (463) (1,580) (2,043) (2,043) (2,043) (2,043) (2,043)
------- ------ ------- ------- ------- ------- ------- --------
EBIT 3,444 468 2,233 2,701 2,888 3,081 3,284 3,491
EBIT Margin 8.1% 5.0% 6.5% 6.2% 6.4% 6.7% 6.9% 7.1%
Interest 0 0 0 0 0 0 0 0
------- ------ ------- ------- ------- ------- ------- --------
Pretax Income $3,444 $468 $2,233 $2,701 $2,888 $3,081 $3,284 $3,491
Pretax Margin 8.1% 5.0% 6.5% 6.2% 6.4% 6.7% 6.9% 7.1%
Gross Distribution (a) (b) 2,066 2,066 1,621 1,733 1,849 1,970
Amount
HGC Share 51.0% (b) (b) (b) 827 884 943 1,005
LAGS Share 49.0% (b) (b) (b) 794 849 906 965
- ------------------
(a) Distributions represent prior years declaration paid in the first half of current fiscal year.
(b) See consolidated distributions.
November 20, 1998
Page 2
</TABLE>
<PAGE>
HUDSON GENERAL CORP.
Discounted Cash Flow Analysis
Dollars in thousands
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
------------------------------------------------------------------------------------------
HGC LLC - OVERHEAD Actual Projected
-------------------- --------------------------------------------------------------------
1998 3 mos. 9/98 9 mos. 6/99 1999 2000 2001 2002 2003
------ ----------- ------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $0 $55 $55 $55 $55 $55 $55
Growth Rate -- -- -- -- 0.0% 0.0% 0.0% 0.0%
Operating Expenses 336 - 0 0 0 0 0 0
SG&A (328) (116) (84) (200) (200) (200) (200) (200)
---- ---- ---- ----- ----- ----- ----- -----
EBITDA 8 (116) (29) (145) (145) (145) (145) (145)
EBITDA Margin -- -- -- -- -- -- -- --
Depreciation 0 0 0 0 0 0 0 0
---- ---- ---- ----- ----- ----- ----- -----
EBIT 8 (116) (29) (145) (145) (145) (145) (145)
EBIT Margin -- -- -- -- -- -- -- --
Interest Income 5.5% 0 0 0 0 0 0 0 0
Interest Expense 8.0% 0 0 0 0 0 0 0 0
---- ---- ---- ----- ----- ----- ----- -----
Pretax Income $8 ($116) ($29) ($145) ($145) ($145) ($145) ($145)
Pretax Margin -- -- -- -- -- -- -- --
November 20, 1998
Page 3
</TABLE>
<PAGE>
HUDSON GENERAL CORP.
Discounted Cash Flow Analysis
Dollars in thousands
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
------------------------------------------------------------------------------------------
HGC LLC - CONSOLIDATED Actual Projected
--------------------- -------------------------------------------------------------------
1998 3 mos. 9/98 9 mos. 6/99 1999 2000 2001 2002 2003
--------- ----------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues 168,947 $41,141 $146,836 $187,977 $196,503 $205,428 $214,774 $224,558
Growth Rate 11.3% 4.5% 4.5% 4.5% 4.6%
Operating Expenses (131,643) (33,740) (115,146) (148,886) (155,257) (161,910) (168,856)(176,110)
SG&A (14,459) (4,046) (11,241) (15,287) (15,839) (16,410) (17,167) (17,960)
-------- ------- -------- -------- -------- -------- -------- --------
EBITDA 22,845 3,355 20,449 23,804 25,407 27,108 28,751 30,488
EBITDA Margin 13.5% 8.2% 13.9% 12.7% 12.9% 13.2% 13.4% 13.6%
Depreciation (8,237) (2,050) (6,526) (8,576) (8,976) (9,493) (10,010) (10,598)
-------- ------- -------- -------- -------- -------- -------- --------
EBIT 14,608 1,305 13,923 15,228 16,431 17,615 18,741 19,890
EBIT Margin 8.6% 3.2% 9.5% 8.1% 8.4% 8.6% 8.7% 8.9%
Interest Income 411 39 0 0 0 0 0 0
Interest Expense - Sub Debt 7.0% (533) (60) (212) (272) (167) (62) (5) 0
Interest Expense - Revolver 8.0% 0 (29) (684) (713) (1,328) (1,405) (1,633) (1,764)
-------- ------- -------- -------- -------- -------- -------- --------
Pretax Income $14,486 $1,255 $13,027 $14,243 $14,936 $16,148 $17,103 $18,127
Pretax Margin 8.6% 3.1% 8.9% 7.6% 7.6% 7.9% 8.0% 8.1%
Income Taxes 44.0%(a) (1,748) (215) (1,223) (1,438) (1,521) (1,606) (1,695) (1,786)
-------- ------- -------- -------- -------- -------- -------- --------
Foreign Translation Adj. (830)
Net Income $11,908 $1,040 $11,804 $12,805 $13,415 $14,542 $15,408 $16,340
======== ======= ======== ======== ======== ======== ======== ========
Net Margin 7.0% 2.5% 8.0% 6.8% 6.8% 7.1% 7.2% 7.3%
HGC 51.0%(b) $12,041 $0 $8,042 (c) $8,042 (c) $6,168 $6,685 $7,213 $7,653
LAGS 49.0%(b) $3,076 $0 $3,712 (c) $3,712 (c) $5,926 $6,423 $6,931 $7,352
Total Distribution $15,117 $0 $11,754 $11,754 $12,094 $13,108 $14,144 $15,005
</TABLE>
- ------------------
(a) Canadian earnings are taxed at 44% plus $250,000 of US income taxes.
(b) Distributions represent prior years declaration paid in the first half of
current fiscal year.
(c) Distribution declared prior to LAGS option exercise.
November 20, 1998
Page 4
<PAGE>
HUDSON GENERAL CORP.
Discounted Cash Flow Analysis
Dollars in thousands
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-------------------------------------------------------------------------------------
HGC CORP. Actual Projected
---------------------- ------------------------------------------------------------
1998 3 mos. 9/98 9 mos. 6/99 1999 2000 2001 2002 2003
------ ----------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mineral and Rental Revenues $171 $469 $640 $535 $445 $370 $310
US LLC Fees 3.50% (a) 1,116 3,938 5,054 5,307 5,572 5,851 6,143
Canada LLC Fees 1.25% (a) 116 428 544 560 577 594 612
------ ------ ------ ------ ------ ------ ------ ------
Total Revenues $5,783 $1,403 $4,835 $6,238 $6,402 $6,594 $6,815 $7,065
Growth Rate 19.6% 2.6% 3.0% 3.4% 3.7%
Operating Expenses:
Cost Savings 0 0 0 0 0 0 0 0
SG&A (7,843) (1,738) (6,417) (8,155) (8,399) (8,651) (8,911) (9,178)
------ ------ ------ ------ ------ ------ ------ ------
EBITDA (2,060) (335) (1,582) (1,917) (1,997) (2,057) (2,096) (2,113)
Depreciation (664) (156) (364) (520) (450) (393) (343) (304)
------ ------ ------ ------ ------ ------ ------ ------
EBIT (2,724) (491) (1,946) (2,437) (2,447) (2,450) (2,439) (2,417)
</TABLE>
- -----------
(a) HGC receives overhead charges from LLC equivalent to 3.5% of US LLC
revenues plus 1.25% of Canada LLC revenues, in addition to lease income.
November 20, 1998
Page 5
<PAGE>
HUDSON GENERAL CORP.
Discounted Cash Flow Analysis
Dollars in thousands
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-----------------------------------------------------------------------------------
Actual Projected
--------------------- -----------------------------------------------------------
VALUE STAND-ALONE ENTITY 1998 3 mos. 9/98 9 mos. 6/99 1999 2000 2001 2002 2003
------ ----------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HGC Corporate Cash Flows
- ------------------------
EBIT (2,724) (491) (1,946) (2,437) (2,447) (2,450) (2,439) (2,417)
Plus: Depreciation 664 156 364 520 450 393 343 304
Less: Capital Expenditures (100) (29) (721) (750) (750) (250) (250) (250)
------ ------ ------ ------ ------ ------ ------ ------
Pre-Tax Corporate Cash Flow (2,160) (364) (2,303) (2,667) (2,747) (2,307) (2,346) (2,363)
Plus HGC Interest in LLC 51%
- ------------------------
US EBIT $5,766 $486 $5,977 $6,463 $6,981 $7,486 $7,957 $8,437
Canada EBIT 1,756 239 1,139 1,378 1,473 1,572 1,675 1,781
Corporate EBIT 4 (59) (15) (74) (74) (74) (74) (74)
Plus: Depreciation 4,201 1,046 3,328 4,374 4,578 4,841 5,105 5,405
Less: Capital Expenditures (5,100) (1,488) (3,612) (5,100) (6,120) (6,174) (6,120) (6,828)
Less: Working Capital (a) 5.0% (780) (397) (1,177) (855) (865) (238) (250)
------ ------ ------ ------ ------ ------ ------ ------
Pre-tax LLC Cash Flow $6,627 $(557) $6,420 $5,863 $5,982 $6,786 $8,305 $8,471
Taxes
- -----
US EBIT (HGC Corp.,Non-Canada LLC) 3,046 (64) 4,016 3,952 4,460 4,963 5,444 5,947
US Taxes 42.00% (1,279) 27 (1,687) (1,660) (1,873) (2,084) (2,287) (2,498)
Canada EBIT 1,756 239 1,139 1,378 1,473 1,572 1,675 1,781
Canada Taxes 44.00% (773) (105) (501) (606) (648) (691) (737) (783)
------ ------ ------ ------ ------ ------ ------ ------
(2,052) (78) (2,188) (2,266) (2,521) (2,776) (3,023) (3,281)
Unlevered Free Cash Flow $2,415 $(999) $1,929 $930 $714 $1,704 $2,935 $2,827
Terminal Value
2003 EBIT 7,728
Enterprise Value 6.0x 46,366
Total Cash Flows $1,929 $714 $1,704 $2,935 $49,193
Discount Factor 10.0% 1.037 0.943 0.857 0.779 0.709 0.644
PV Cash Flows $1,820 $613 $1,328 $2,080 $31,690
NPV @ 11/19/98 $37,530
Less: Debt @ LLC 51% (2,641)
Plus: Cash @ LLC 51% 1,457
Plus: LLC due to HGC 4,525
Less: Non-ordinary working capital recievable/(payable) (509)
-------
Equity Value $40,361
=======
</TABLE>
- ------------------
(a) Working capital (increase)/decrease equal to 5% of change in revenues, plus
$1,250 for 1999 - 2001.
November 20, 1998
Page 6
<PAGE>
HUDSON GENERAL CORP.
Discounted Cash Flow Analysis
Dollars in thousands
<TABLE>
<CAPTION>
VALUATION OF LAGS OPTION EXERCISE PROCEEDS
Pre-Tax Weighted Avg
Value % Total Return Return
------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated LLC Assets $111,746 79.0% 10.00% 7.90%
LLC Cash 29,627 21.0% 4.43%(1) 0.93%
-------- -----
$141,373 8.83%
-----
Aggressive Case - No Taxes Paid
-------------------------------
Year 1 2 3
-------- ------- -------
Face Amount $29,627
Pretax Yield on Preferred (2yr Tr less 25bps) 4.32% $1,280 $1,280 $1,280
Disount Factor (Assume mid-year payments) 8.83% 1.047 0.962 0.884 0.812
PV Dividends $1,231 $1,131 $1,039
Face Amount $29,627
Discount Factor 8.83% 1.004 0.922 0.847 0.778
PV Face Amount $23,064
PV Cash Flows $1,231 $1,131 $24,104
---------------------------------------------------------------
TOTAL PV CFS $26,466
---------------------------------------------------------------
Conservative Case Value of Preferred - Full Taxes Paid in Year 3
----------------------------------------------------------------
Year 1 2 3
-------- ------- -------
Face Amount $29,627
After-tax Yield on Preferred 2.51% $742 $742 $742
AT Disount Factor (mid-year payments) 5.12% 1.047 0.962 0.884 0.812
PV Dividends $714 $656 $603
After-tax Face Amount $17,184
After-tax Discount Factor 5.12% 1.004 0.922 0.847 0.778
PV Face Amount $13,377
PV After-tax Cash Flows $714 $656 $13,980
---------------------------------------------------------------
TOTAL PV ATCFS $15,350
---------------------------------------------------------------
</TABLE>
Notes:
(1) Based on 3 month Treasury rate as of 11/19/98.
November 20, 1998
Page 7
<PAGE>
HUDSON GENERAL CORP.
Discounted Cash Flow Analysis
Dollars in thousands
<TABLE>
<CAPTION>
VALUE STAND-ALONE ENTITY
Value Per Share
Assumptions Valuation at 11/19/98 at 11/19/98
----------------------------- ------------------------ ------------------------
Conservative Aggressive Conservative Aggressive Conservative Aggressive
------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
DCF Value of HGC Corp./51% Interest in LLC
2003 Exit EBIT Multiple 5.0x 7.0x
Discount Rate 11.0% 9.0%
Valuation $34,174 $47,039 $19.18 $26.40
LAGS Option Exercise Proceeds Fully Taxed Not Taxed $15,350 $26,466 $8.61 $14.85
In Year 3
Hawaii Sale Proceeds Zero Value $5,000 Value $1,870 $5,170 $1.05 $2.90
------- ------- ------ ------
$5,500 basis $5,500 basis
Deductible (34%tr) Deduct (34%tr)
Enterprise Value $51,394 $78,675 $28.84 $44.15
Plus: Cash on Hand $36,883 $36,883 $20.70 $20.70
Plus: Net Value from 1998 LLC Distribution Received in 10/98 2,068 2,068 1.16 1.16
Plus: Options Proceeds 592 592 0.33 0.33
Less: Canadian Tax Liability (2,000) (1,000) (1.12) (0.56)
Less: Minimum Cash Balance Required (2,500) (2,500) (1.40) (1.40)
Less: Transaction Fees (750) (750) (0.42) (0.42)
Less: Dividend Payment Due Before Closing: $0.50 per share (872) (872) (0.49) (0.49)
------- ------- ------ ------
$33,421 $34,421 18.75 19.32
Equity Value $84,815 $113,096 $47.60 $63.47
======= ======== ====== ======
Shares Outstanding 1,782 1,782
--------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE / SHARE $47.60 $63.47
--------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------
MID-POINT $55.53
-----------------------------------------------------
</TABLE>
November 20, 1998
Page 8
<PAGE>
HUDSON GENERAL CORP.
Discounted Cash Flow Analysis
Dollars in thousands
VALUATION MATRICES VALUE STAND-ALONE ENTITY
($000, except per share data)
<TABLE>
<CAPTION>
Discount Rate
9.0% 10.0% 11.0%
---------------------------------------------
<S> <C> <C> <C> <C> <C>
VALUE OF HGC CORP & 2003 EBIT 5.0 x $36,654 $35,383 $34,174
51% EQUITY INTEREST IN LLC Exit 5.5 39,250 37,872 36,561
Multiple 6.0 41,846 40,361 38,949
6.5 44,443 42,850 41,336
7.0 47,039 45,340 43,723
---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Discount Rate
9.0% 10.0% 11.0%
---------------------------------------------
<S> <C> <C> <C> <C> <C>
HGC VALUE PER SHARE: 2003 EBIT 5.0 x $48.99 $48.27 $47.60
CONSERVATIVE CASE Exit ---------
Multiple 5.5 50.44 49.67 48.94
6.0 51.90 51.07 50.27
6.5 53.36 52.46 51.61
--------
7.0 $54.81 53.86 52.95
---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Discount Rate
9.0% 10.0% 11.0%
---------------------------------------------
<S> <C> <C> <C> <C> <C>
5.0 x $57.64 $56.92 $56.25
---------
HGC VALUE PER SHARE: 2003 EBIT 5.5 59.09 58.32 57.59
AGGRESSIVE CASE Exit 6.0 60.55 59.72 58.93
Multiple 6.5 62.01 61.12 60.27
--------
7.0 $63.47 62.51 61.60
---------------------------------------------
</TABLE>
November 20, 1998
Page 9
<PAGE>
HUDSON GENERAL CORP.
Discounted Cash Flow Analysis
Dollars in thousands
VALUATION EFFECT OF REVISED PROJECTIONS
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSERVATIVE CASE
- -----------------
Change in EBIT (1,444) (1,517) (1,592) (1,671) (1,755)
After-tax Change in EBIT (838) (880) (923) (969) (1,018)
Additional CapEx (1,917) - - - -
PV of Tax Savings on Additional Depreciation 515 - - - -
------ ------ ------ ------ ------
Total Change in Cash Flows (2,239) (880) (923) (969) (1,018)
HGC Share 51% (1,142) (449) (471) (494) (519)
Change in 2003 EBIT 51% (895)
Terminal Value 5.0x (4,475)
------ ------ ------ ------ ------
Total Cash Flows (2,239) (880) (923) (969) (5,493)
Discount Factor 11.0% 1.041 0.938 0.845 0.761 0.686 0.618
PV Cash Flows (2,100) (743) (703) (665) (3,394)
Total PV (7,605)
Shares 1,782
PER SHARE @ 11/19/98 $ (4.27)
AGGRESSIVE CASE
- ---------------
Change in EBIT (1,444) (1,517) (1,592) (1,671) (1,755)
After-tax Change in EBIT (838) (880) (923) (969) (1,018)
Additional CapEx (1,917) - - - -
PV of Tax Savings on Additional Depreciation 515 - - - -
------ ------ ------ ------ ------
Total Change in Cash Flows (2,239) (880) (923) (969) (1,018)
HGC Share 51% (1,142) (449) (471) (494) (519)
Change in 2003 EBIT (895)
Terminal Value 7.0x (6,265)
------ ------ ------ ------ ------
Total Cash Flows (2,239) (880) (923) (969) (7,283)
Discount Factor 9.0% 1.034 0.948 0.870 0.798 0.732 0.672
PV Cash Flows (2,124) (766) (737) (710) (4,894)
Total PV (9,230)
Shares 1,782
PER SHARE @ 11/19/98 $ (5.18)
</TABLE>
November 20, 1998
Page 10
<PAGE>
HUDSON GENERAL CORP.
Discounted Cash Flow Analysis
Dollars in thousands
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
------------------------------------------------------------------------------
Actual Projected
----------------- ------------------------------------------------------------
VALUE CASH FLOWS TO HGC 1998 3 mos. 9/98 9 mos. 6/99 1999 2000 2001 2002 2003
------ ----------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LLC CONSOLIDATED UNLEVERED CASH FLOWS
Pre-Tax LLC Cash Flow ($1,092) $12,588 $11,496 $11,730 $13,306 $16,283 $16,610
Taxes (Canada at 44% plus $250,000 US) (215) (1,223) (1,438) (1,521) (1,606) (1,695) (1,786)
------- ------- ------- ------- ------- ------- -------
Cons. LLC Net Cash Flow (1,307) 11,365 10,058 10,210 11,700 14,589 14,824
Less: HGC Distributions (a) -- -- -- (6,168) (6,685) (7,213) (7,653)
Less: LAGS Distributions (a) -- -- -- (5,926) (6,423) (6,931) (7,352)
------- ------- ------- ------- ------- ------- -------
Net LLC Cash Flow (1,307) 11,365 (1,884) (1,408) 445 (181)
Cumulative Debt/(Cash) at LLC -- (11,365) (9,480) (8,073) (8,517) (8,336)
- ------------------------------------------------------------------------------------------------------------------------------------
HGC CASH FLOWS
HGC Corp. Pretax Cash Flow (364) (2,303) (2,667) (2,747) (2,307) (2,346) (2,363)
HGC Taxes (Corp plus LLC US) 59 (1,591) (1,532) (1,746) (1,957) (2,159) (2,370)
------- ------- ------- ------- ------- ------- -------
HGC Corp. Net Cash Flow (305) (3,894) (4,199) (4,493) (4,264) (4,505) (4,733)
Discount Factor 10.0% 1.037 0.943 0.857 0.779 0.709 0.644
PV Cash Flows (317) (3,673) (3,852) (3,323) (3,192) (3,049)
LLC Distributions to HGC -- 6,168 6,685 7,213 7,653
Discount Factor 10.0% 1.000 0.909 0.826 0.751 0.683
PV Distributions 5,607 5,525 5,420 5,227
Terminal Value
2003 EBIT (51%) 7,728
Enterprise Value 6.0 x 46,366
Less Debt 51% (4,252)
Plus Cash -
Terminal Value 50,617
Discount Factor 10.0% 1.037 0.644
PV Terminal Value $32,608
PV All Cash Flows (3,673) -- 1,755 2,201 2,227 34,785
NPV @ 11/19/98 37,297
Less: Debt @ LLC 51% (2,641)
Plus: Cash @ LLC 51% 1,457
Plus: LLC due to HGC 4,525
Less: Non-ordinary working capital recievable/(payable) (509)
-------
Equity Value $40,128
------------ =======
(a) 1999 distribution accounted for separately - to come.
November 20, 1998
Page 11
</TABLE>
<PAGE>
HUDSON GENERAL CORP.
Discounted Cash Flow Analysis
Dollars in thousands
VALUE CASH FLOWS TO HGC
<TABLE>
<CAPTION>
Value per Share
Assumptions Valuation at 11/19/98 at 11/19/98
----------------------------- ------------------------ -------------------------
Conservative Aggressive Conservative Aggressive Conservative Aggressive
------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
DCF Value of HGC Corp./51% Interest in LLC
2003 Exit EBIT Multiple 5.0x 7.0x
Discount Rate 11.0% 9.0%
Valuation $33,921 $46,826 $19.04 $26.28
LAGS Option Exercise Proceeds Fully Taxed Not Taxed $15,350 $26,466 $8.61 $14.85
In Year 3
Hawaii Sale Proceeds Zero Value $5,000 Value $1,870 $5,170 $1.05 $2.90
$5,500 basis $5,500 basis ------- ------- ------ ------
Deductible (34%) Ded (34%tr)
Enterprise Value $51,141 $78,462 $28.70 $44.03
Plus: Cash on Hand $36,883 $36,883 $20.70 $20.70
Plus: Net Value from 1998 LLC Distribution Received in 10/98 2,068 2,068 1.16 1.16
Plus: Options Proceeds 592 592 0.33 0.33
Less: Canadian Tax Liability (2,000) (1,000) (1.12) (0.56)
Less: Minimum Cash Balance Required (2,500) (2,500) (1.40) (1.40)
Less: Transaction Fees (750) (750) (0.42) (0.42)
Less: Dividend Payment Due Before Closing: $0.50 per share (872) (872) (0.49) (0.49)
------- ------- ------ ------
33,421 34,421 18.75 19.32
Equity Value $84,562 $112,882 $47.45 $63.35
======= ======== ====== ======
Shares Outstanding 1,782 1,782 1,782 1,782
-----------------------------------------------------------------------------------------------------
EQUITY VALUE / SHARE $47.45 $63.35
-----------------------------------------------------------------------------------------------------
---------------------------------------
MID-POINT $55.40
---------------------------------------
November 20, 1998
Page 12
</TABLE>
<PAGE>
HUDSON GENERAL CORP.
Discounted Cash Flow Analysis
Dollars in thousands
VALUATION MATRICES VALUE CASH FLOWS TO HGC
($000, except per share data)
<TABLE>
<CAPTION>
Discount Rate
9.0% 10.0% 11.0%
----------------------------------------------
<S> <C> <C> <C> <C> <C>
5.0 x $36,441 $35,150 $33,921
VALUE OF HGC CORP & 2003 EBIT 5.5 39,037 37,639 36,308
51% EQUITY INTEREST IN LLC Exit 6.0 41,633 40,128 38,695
Multiple 6.5 44,229 42,617 41,082
7.0 46,826 45,106 43,470
----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Discount Rate
9.0% 10.0% 11.0%
----------------------------------------------
<S> <C> <C> <C> <C> <C>
5.0x $48.87 $48.14 $47.45
---------------
HGC VALUE PER SHARE: 2003 EBIT 5.5 50.32 49.54 48.79
CONSERVATIVE CASE Exit 6.0 51.78 50.94 50.13
Multiple 6.5 53.24 52.33 51.47
----------
7.0 $54.69 53.73 52.81
----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Discount Rate
9.0% 10.0% 11.0%
----------------------------------------------
<S> <C> <C> <C> <C> <C>
5.0x $57.52 $56.79 $56.10
---------------
HGC VALUE PER SHARE: 2003 EBIT 5.5 58.98 58.19 57.44
AGGRESSIVE CASE Exit 6.0 60.43 59.59 58.78
Multiple 6.5 61.89 60.98 60.12
----------
7.0 $63.35 62.38 61.46
----------------------------------------------
</TABLE>
November 20, 1998
Page 13
<PAGE>
HUDSON GENERAL CORP.
Weighted Average Cost of Capital Analysis
($MM, except per share data)
<TABLE>
<CAPTION>
Assumptions
Tax Rate 40.00%
Risk Free Rate 5.23%(30 year treasury rate as of 11/19/98)
Mkt Risk Premium 7.00%
Hudson Operating Risk Premium 2.00%
Equity Predicted Unlevered Relevering of Median Asset Beta Based on
Company Mkt Cap Debt Beta Beta the Following Implied Capital Structures
- ------- ---------------------------------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of
AAR Corp. (AIR) $661.9 $177.7 0.808 0.696 Debt/ Relevered Debt Debt Cost of
Total Cap. Beta (Pre-tax) (After-tax) Equity WACC
--------------------------------------------------------------
AHL Services (AHLS) 426.4 143.7 0.86 0.715
30.0% 0.847 8.0% 4.8% 12.9% 10.4%
Alpha Airports Group (AAP) 55.5 77.2 1.167 0.636 40.0% 0.944 8.0% 4.8% 13.7% 10.2%
50.0% 1.079 8.0% 4.8% 14.9% 9.9%
Aviall, Inc. (AVL) 222.6 53.3 1.013 0.886 60.0% 1.281 8.0% 4.8% 16.8% 9.6%
70.0% 1.618 8.0% 4.8% 19.8% 9.3%
Butler Int'l (BUTL) 128.9 70.4 0.866 0.652
ITS, Inc. (ITSW) 31.6 12.6 1.029 0.831
Mercury Air Group (MAX) 44.0 64.6 0.493 0.262
Ogden Corp. (OG) 1,332.0 2,090.3 0.75 0.386
-----------------------------------------------------
Mean 0.633
Median 0.674
-----------------------------------------------------
</TABLE>
November 20, 1998
Page 14
<PAGE>
HUDSON GENERAL CORP.
Discounted Cash Flow Analysis
Dollars in thousands
IMPLIED PERPETUAL TERMINAL CASH FLOW GROWTH RATE
2003 EBIT 7,728 7,728
Multiple 5.0x 7.0x
Terminal Value 38,638 54,093
Discount Rate 11% 9%
2003 Cash Flow $2,827 $2,827
Implied Perpetual Terminal
----------------------
Cash Flow Growth Rate 3.43% 3.59%
----------------------
November 20, 1998
Page 15
<PAGE>
- -------------------------------------------------------------------------------
Multiple-Based Valuation
<PAGE>
HUDSON GENERAL CORP.
Multiple-Based Valuation
Dollars in thousands
MULTIPLE BASED VALUATION - ASSUMING ORIGINAL PROJECTIONS
<TABLE>
<CAPTION>
Value per Share
Assumptions Valuation at 11/19/98 at 11/19/98
-------------------------- ------------------------- -------------------------
Conservative Aggressive Conservative Aggressive Conservative Aggressive
------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Multiple Valuation of HGC Corp./51% Interest in LLC
1999 Estimated EBIT $5,329 $5,329
EBIT Multiple 5.0x 7.0x
Multiple Valuation $26,647 $37,305
Plus: Net Debt and WC Adjustment 2,831 2,831
------- -------
Adjusted Value $29,478 $40,136 $16.54 $22.52
LAGS Option Exercise Proceeds Fully Taxed Not Taxed $15,350 $26,466 $8.61 $14.85
In Year 3
Hawaii Sale Proceeds Zero Value $5,000 Value $1,870 $5,170 $1.05 $2.90
$5,500 basis $5,000 basis ------- ------- ------ ------
Deductible (34%) Ded (34%tr)
Deductible (34%) Ded (34%tr)
Enterprise Value $46,698 $71,773 $26.21 $40.28
Plus: Cash on Hand $36,883 $36,883 $20.70 $20.70
Plus: Net Value from 1998 LLC Distribution Received in 10/98 2,068 2,068 1.16 1.16
Plus: Options Proceeds 592 592 0.33 0.33
Less: Canadian Tax Liability (2,000) (1,000) (1.12) (0.56)
Less: Minimum Cash Balance Required (2,500) (2,500) (1.40) (1.40)
Less: Transaction Fees (750) (750) (0.42) (0.42)
Less: Dividend Payment Due Before Closing: $0.50 per share (872) (872) (0.49) (0.49)
------- ------- ------ ------
$33,421 $34,421 $18.75 $19.32
Equity Value $80,119 $106,193 $44.96 $59.59
======= ======== ====== ======
Shares Outstanding 1,782 1,782 1,782 1,782
------------------------------------------------------------------------------------------------------
EQUITY VALUE / SHARE $44.96 $59.59
------------------------------------------------------------------------------------------------------
---------------------------------------
MID-POINT $52.28
---------------------------------------
</TABLE>
November 20, 1998
Page 16
<PAGE>
HUDSON GENERAL CORP.
Multiple-Based Valuation
Dollars in thousands
MULTIPLE BASED VALUATION - ASSUMING REVISED PROJECTIONS
<TABLE>
<CAPTION>
Value per Share
Assumptions Valuation at 11/19/98 at 11/19/98
-------------------------- ------------------------- -------------------------
Conservative Aggressive Conservative Aggressive Conservative Aggressive
------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Multiple Valuation of HGC Corp./51% Interest in LLC
1999 Estimated EBIT $4,607 $4,607
EBIT Multiple 5.0x 7.0x
Multiple Valuation $23,037 $32,251
Plus: Net Debt and WC Adjustment 2,831 2,831
------- --------
Adjusted Value $25,868 $35,082 $14.52 $19.69
LAGS Option Exercise Proceeds Fully Taxed Not Taxed $15,350 $26,466 $8.61 $14.85
In Year 3
Hawaii Sale Proceeds Zero Value $5,000 Value $1,870 $5,170 $1.05 $2.90
$5,500 basis $5,500 basis ------- -------- ------ ------
Deductible (34%) Ded (34%tr)
Enterprise Value $43,088 $66,719 $24.18 $37.44
Plus: Cash on Hand $36,883 $36,883 $20.70 $20.70
Plus: Net Value from 1998 LLC Distribution Received in 10/98 2,068 2,068 1.16 1.16
Plus: Options Proceeds 592 592 0.33 0.33
Less: Canadian Tax Liability (2,000) (1,000) (1.12) (0.56)
Less: Minimum Cash Balance Required (2,500) (2,500) (1.40) (1.40)
Less: Transaction Fees (750) (750) (0.42) (0.42)
Less: Dividend Payment Due Before Closing: $0.50 per share (872) (872) (0.49) (0.49)
------- -------- ------- ------
$33,421 $34,421 18.75 19.32
Equity Value $76,509 $101,139 $42.93 $56.76
======= ======== ======= ======
Shares Outstanding 1,782 1,782 1,782 1,782
------------------------------------------------------------------------------------------------------
EQUITY VALUE / SHARE $42.93 $56.76
------------------------------------------------------------------------------------------------------
------------------------------------------
MID-POINT $49.85
------------------------------------------
</TABLE>
November 20, 1998
Page 17
<PAGE>
- -------------------------------------------------------------------------------
Related Company Analysis
<PAGE>
HUDSON GENERAL CORP.
Related Company Trading Analysis
($MM, except per share data)
<TABLE>
<CAPTION>
Equity Price / EPS (1)
Stock Discount to Premium to Market Enterprise -------------------------
Company Price 52W High 52W Low Cap. Value LTM 1998E 1999E
- ------------------- -------- ----------- ---------- ---------- ---------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11/19/98
Alpha Airports Group (AAP) (pound)0.325 (73.4)% 4.8% (pound)55.5 (pound)127.4 3.0x 3.5x 3.5x
ITS, Inc. (ITSW) 4.750 (80.3) 35.7 31.6 39.5 6.4 7.0 5.8
Mercury Air Group (MAX) 6.688 (25.7) 20.2 44.0 102.0 7.9 7.8 NA
- ----------------------------------------------------------------------------------------------------------------------
Mean (59.8)% 20.3% 5.8x 6.1x 4.6x
Median (73.4) 20.2 6.4 7.0 4.6
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Enterprise Value / EBIT
-----------------------------
Company LTM 1998E 1999E
- ------------------- ----- ------- -------
<S> <C> <C> <C>
Alpha Airports Group (AAP) 4.0x NA NA
ITS, Inc. (ITSW) 3.8 NA NA
Mercury Air Group (MAX) 7.0 NA NA
- -----------------------------------------------------------
Mean 4.9x NA NA
Median 4.0 NA NA
- -----------------------------------------------------------
</TABLE>
Notes:
- -------------------
(1) Based on I/B/E/S estimates as of 11/19/98.
November 20, 1998
Page 18
<PAGE>
HUDSON GENERAL CORP.
Related Company Operating Analysis
($MM, except per share data)
<TABLE>
<CAPTION>
EPS EBIT
Market Enterprise --------------------------------- --------------------------
Company Value Value LTM 1998E (1) 1999E (1) LTM 1998E 1999E
- ------------- -------- ---------- ------- ---------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11/19/98
Alpha Airports Group (AAP) (pounds)55.5 (pounds)127.4 (pounds)0.11 (pounds)0.09 (pounds)0.09 (pounds)32.0 NA NA
ITS, Inc. (ITSW) $31.6 $39.5 $0.74 $0.68 $0.82 $10.4 NA NA
Mercury Air Group (MAX) 44.0 102.0 0.84 0.86 NA 14.6 NA NA
</TABLE>
Notes:
- -------------------
(1) Based on I/B/E/S estimates as of 11/19/98.
November 20, 1998
Page 19
<PAGE>
- -------------------------------------------------------------------------------
Related Transaction Analysis
<PAGE>
HUDSON GENERAL CORP.
Related Transaction Analysis
<TABLE>
<CAPTION>
Aggregate Value/
Date Aggregate Equity ----------------------------- Equity Value/
Announced Target Acquirer Value Value Sales EBITDA EBIT Net Income
----------- -------- ---------- --------- --------- ------- -------- -------- ------------
($MM) ($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4/6/98 Aircraft Services Ranger Aerospace $ 95.0 $ 101.5 0.8x 6.9x 10.3x 16.8x
(Viad)
8/18/95 DynAir Services (1) Alpha Airports Group $ 122.0 NA 0.9x NA 11.5x NA
</TABLE>
Note:
(1) DynAir data based on news articles. Sales and EBIT estimate based on
reported estimate for DynCorp, parent of DynAir. Therefore, estimates may
include other businesses owned by DynCorp.
November 20, 1998
Page 20
<PAGE>
- -------------------------------------------------------------------------------
Public Acquisition Premium Analysis
<PAGE>
HUDSON GENERAL CORP.
Domestic Acquisitions 10/1/96 - Present
Structured as Tender Offer or Tender/Merger, Cash Consideration
Excludes Repurchases/Self-Tenders/Acquisitions of Partial Interest
Enterprise Value Between $50 and $200MM
<TABLE>
<CAPTION>
Original
Announcement Announcement Transaction Price/
Date Date Target Name Acquiror Value (3) Share
- ------------ ------------ ------------------------------ ------------------------------ ----------- ------
($mm) ($)
<S> <C> <C> <C> <C> <C>
10/10/96 10/10/96 WCI Steel Inc(Renco Group Inc) Renco Group Inc 56.5 10.00
10/30/96 10/30/96 Pacific Rehab & Sports Med Horizon/CMS Healthcare Corp 72.7 6.50
11/13/96 11/13/96 Edmark Corp IBM Corp 123.8 15.50
11/13/96 11/13/96 Medex Inc FCY Inc 150.6 23.50
11/18/96 11/18/96 Sudbury Inc Intermet Corp 155.4 12.50
11/25/96 11/25/96 American Studios Inc PCA International Inc 66.3 2.50
11/25/96 11/25/96 Opal Inc Applied Materials Inc 189.6 18.50
11/27/96 11/27/96 Milgray Electronics Inc Bell Industries Inc 100.0 14.77
11/29/96 11/29/96 ElectroStar Inc Tyco International Ltd 111.0 14.00
12/9/96 12/9/96 Square Industries Inc Central Parking Corp 69.3 31.00
12/16/96 12/16/96 Tylan General Inc Millipore Corp 147.7 16.00
2/11/97 2/11/97 Innotech Inc Johnson & Johnson 135.6 13.75
3/14/97 3/14/97 Communications Central Inc PhoneTel Technologies Inc 154.8 12.85
3/31/97 3/31/97 Peak Technologies Group Inc Moore Corp Ltd 169.8 18.00
5/6/97 5/6/97 Varsity Spirit Riddell Sports Inc 91.0 18.90
5/28/97 5/28/97 DAKA International Inc Compass Group PLC 194.0 7.50
5/30/97 5/30/97 Integrated Living Communities Whitehall Street Real Estate 79.7 11.50
5/30/97 5/30/97 National Picture and Frame Co Colonnade Capital LLC 60.3 12.00
6/2/97 6/2/97 Acordia Inc(Anthem Inc) Anthem Inc 193.2 40.00
6/5/97 6/5/97 DIGEX Inc Intermedia Communications Inc 171.6 13.00
6/17/97 6/17/97 McFarland Energy Inc Monterey Resources Inc 111.2 18.55
6/17/97 6/17/97 Seda Specialty Packaging Corp CCL Industries Inc 182.6 29.00
6/19/97 6/19/97 Advanced Logic Research Inc Gateway 2000 Inc 206.8 15.50
6/24/97 6/24/97 SMT Health Services Inc Three Rivers Holding Corp 75.6 11.75
7/9/97 7/9/97 Control Data Systems Inc CDSI Holding Corp 273.9 20.25
7/15/97 7/15/97 DH Technology Inc Axiohm SA 169.5 25.00
7/25/97 7/25/97 Imo Industries Inc Constellation Capital Partners 117.3 7.05
7/31/97 7/31/97 Delaware Otsego Corp Investor Group 53.4 22.00
8/1/97 6/13/97 Community Care of America Inc Integrated Health Services Inc 94.0 4.00
8/12/97 8/12/97 Isomedix Inc Steris Corp 139.8 20.50
8/14/97 8/14/97 Talbert Medical Management MedPartners Inc 189.0 63.00
8/14/97 8/14/97 Uniforce Services Inc Comforce Corp 140.7 32.24
8/25/97 5/27/97 BioWhittaker Inc Cambrex Corp 130.5 11.63
8/28/97 8/28/97 Versa Technologies Inc Applied Power Inc 141.9 24.63
9/2/97 9/2/97 Ground Round Restaurants GRR Holdings LLC 17.5 1.65
9/17/97 9/17/97 Tescorp Inc Supercanal Holding SA 86.4 4.50
<CAPTION>
Stock Price Premia to Prior Periods
Time Before Date of Announcement(1)
Announcement -----------------------------------
Date 1 Day 1 Week 4 Weeks
- ------------ ------ ------ -------
(%) (%) (%)
<S> <C> <C> <C>
10/10/96 17.6 29.0 77.8
10/30/96 67.7 62.5 48.6
11/13/96 35.5 63.2 31.9
11/13/96 54.1 58.0 66.7
11/18/96 19.0 25.0 9.9
11/25/96 90.5 110.5 166.7
11/25/96 52.6 64.4 105.6
11/27/96 8.4 17.0 20.6
11/29/96 7.7 27.3 16.7
12/9/96 9.7 -- 12.7
12/16/96 39.1 26.7 26.7
2/11/97 54.9 64.2 54.9
3/14/97 44.8 44.8 65.8
3/31/97 108.7 97.3 65.5
5/6/97 30.3 28.1 23.9
5/28/97 (33.3) (35.5) (7.7)
5/30/97 26.9 21.1 50.8
5/30/97 31.5 28.0 28.0
6/2/97 12.7 11.5 26.0
6/5/97 19.5 35.9 31.6
6/17/97 11.6 41.3 44.8
6/17/97 31.8 36.5 52.6
6/19/97 29.2 30.5 34.8
6/24/97 4.4 2.2 8.0
7/9/97 29.1 30.6 35.0
7/15/97 57.5 56.3 57.5
7/25/97 18.7 20.0 22.6
7/31/97 -- 15.0 17.3
8/1/97 23.1 18.5 88.2
8/12/97 5.8 15.5 13.9
8/14/97 10.5 18.9 37.0
8/14/97 37.6 37.6 52.6
8/25/97 17.8 38.9 47.7
8/28/97 36.8 33.1 31.3
9/2/97 10.0 10.0 (5.7)
9/17/97 7.5 33.3 38.5
</TABLE>
November 20, 1998
Page 21
<PAGE>
HUDSON GENERAL CORP.
Domestic Acquisitions 10/1/96 - Present
Structured as Tender Offer or Tender/Merger, Cash Consideration
Excludes Repurchases/Self-Tenders/Acquisitions of Partial Interest
Enterprise Value Between $50 and $200MM
<TABLE>
<CAPTION>
Original
Announcement Announcement Transaction Price/
Date Date Target Name Acquiror Value (3) Share
- ------------ ------------ ------------------------------ ----------------------------- ----------- -------
($mm) ($)
<S> <C> <C> <C> <C> <C>
9/18/97 9/18/97 Guaranty National Corp Orion Capital Corp 117.2 36.00
10/9/97 6/30/97 Melamine Chemicals Inc Borden Chemical Inc(Borden) 119.7 20.50
10/15/97 10/15/97 Thompson PBE Inc FinishMaster Inc(Lacey Distn) 69.3 8.00
10/17/97 10/17/97 ATC Group Services Inc Investor Group 150.0 12.00
10/17/97 10/17/97 Starrett Corp Startt Acquisition LLC 80.4 12.25
10/21/97 10/21/97 Shelter Components Corp Kevco Inc 136.6 17.50
11/21/97 8/6/97 New Jersey Steel(Von Roll) Co-Steel Inc 173.5 23.00
11/28/97 11/26/97 Deflecta-Shield Corp Lund International Holdings 89.8 16.00
12/17/97 12/17/97 Suburban Ostomy Supply Co Inc InvaCare Corporation 130.8 11.75
12/19/97 12/19/97 Software Artistry Inc Tivoli Systems Inc(IBM Corp) 201.9 24.50
12/23/97 10/14/97 Hi-Lo Automotive Inc O'Reilly Automotive Inc 42.5 4.35
12/29/97 12/29/97 Holmes Protection Group Inc Tyco International Ltd 117.1 17.00
1/14/98 1/14/98 Meridian Point Realty Trust EastGroup Properties 51.7 8.50
1/20/98 1/20/98 Buttrey Food and Drug Stores Albertson's Inc 134.0 15.50
1/28/98 1/28/98 Sun Coast Industries Inc Kerr Group Inc 45.5 10.75
2/11/98 2/11/98 Burlington Resources Coal Seam Devon Energy Corp 77.0 8.75
2/25/98 2/25/98 Environment/One Corp Precision Castparts Corp 68.8 15.25
3/2/98 3/2/98 First Alert Inc Sunbeam Corp 129.2 5.25
3/6/98 3/6/98 Proxima Corp ASK AS 82.9 11.00
3/9/98 3/9/98 3-D Geophysical Inc Western Atlas Inc 117.6 9.65
3/11/98 3/11/98 Grist Mill International Home Foods Inc 110.3 14.50
3/13/98 3/13/98 Pollo Tropical Inc Investor Group 85.8 10.00
3/23/98 3/23/98 Global Motorsport Group Inc Golden Cycle Gold Corp 89.6 18.00
3/23/98 3/23/98 Ultra Pac Inc Ivex Packaging Corp 63.9 15.50
4/3/98 4/3/98 Bertucci's Inc NE Restaurant Co Inc 96.5 10.50
4/15/98 4/15/98 Simulation Sciences Inc Siebe PLC 146.5 10.00
5/4/98 5/4/98 Farah Inc Tropical Sportswear Intl Corp 93.6 9.00
5/8/98 5/8/98 Authentic Specialty Foods Inc Agrobios(Desc SA de CV) 141.9 17.00
5/28/98 5/28/98 Donnelley Enterprise Solutions Bowne & Co Inc 105.2 21.00
6/2/98 6/2/98 Sigma Circuits Inc Tyco International Ltd 55.2 10.50
7/14/98 7/14/98 DEP Corp Henkel KGaA 89.7 5.25
7/14/98 7/14/98 New West Eyeworks Inc National Vision Associates Ltd 76.7 13.00
7/28/98 7/28/98 CyberMedia Inc Network Associates Inc 130.1 9.50
8/4/98 8/4/98 InControl Inc Guidant Corp 116.8 6.00
8/7/98 8/7/98 Magicworks Entertainment Inc SFX Entertainment 105.3 4.00
8/12/98 8/12/98 MicroProse Inc Hasbro Inc 69.6 6.00
<CAPTION>
Stock Price Premia to Prior Periods
Time Before Date of Announcement (1)
Announcement -----------------------------------------------
Date 1 Day 1 Week 4 Weeks
- ------------ ------------- ------------ -------------
(%) (%) (%)
<S> <C> <C> <C>
9/18/97 10.8 23.9 27.7
10/9/97 70.8 72.6 70.8
10/15/97 25.5 33.3 42.2
10/17/97 - (8.1) 10.3
10/17/97 11.4 12.6 24.1
10/21/97 20.7 25.6 13.8
11/21/97 162.9 170.6 166.7
11/28/97 33.3 33.3 77.8
12/17/97 8.0 13.3 13.3
12/19/97 62.0 57.4
12/23/97 (14.1) 12.3 24.3
12/29/97 (5.6) (5.6) (13.9)
1/14/98 38.8 65.9 88.9
1/20/98 44.2 44.2 47.6
1/28/98 56.4 62.3 84.9
2/11/98 8.5 10.2 29.6
2/25/98 17.3 22.0 27.1
3/2/98 68.0 90.9 110.0
3/6/98 31.3 25.7 23.9
3/9/98 8.7 16.1 24.5
3/11/98 18.4 21.5 47.8
3/13/98 26.0 25.0 14.3
3/23/98 20.5 38.5 35.8
3/23/98 131.8 129.6 123.4
4/3/98 35.5 35.5 35.5
4/15/98 24.0 16.8 11.1
5/4/98 33.3 44.0 39.8
5/8/98 6.3 13.3 37.4
5/28/98 60.8 61.5 83.6
6/2/98 13.5 24.4 20.0
7/14/98 31.3 95.3 78.7
7/14/98 23.8 33.3 30.0
7/28/98 25.6 38.2 117.1
8/4/98 21.5 50.0 118.2
8/7/98 12.3 16.4 64.1
8/12/98 31.5 79.4 26.3
</TABLE>
November 20, 1998
Page 22
<PAGE>
HUDSON GENERAL CORP.
Domestic Acquisitions 10/1/96 - Present
Structured as Tender Offer or Tender/Merger, Cash Consideration
Excludes Repurchases/Self-Tenders/Acquisitions of Partial Interest
Enterprise Value Between $50 and $200MM
<TABLE>
<CAPTION>
Original
Announcement Announcement
Date Date Target Name Acquiror
- ------------ ------------ ----------------------- ------------------------
<S> <C> <C> <C>
9/25/98 9/25/98 Galoob Toys Inc Hasbro Inc
10/9/98 10/9/98 Global Motorsport Stonington Partners Inc.
Group Inc.
Stock Price Premia to Prior Periods
Time Before Date of Announcement (1)
Transaction Price/ --------------------------------------
Value (3) Share 1 Day 1 Week 4 Weeks
--------- ----- ----- ------ -------
($mm) ($) (%) (%) (%)
187.5 12.00 60.0 73.0 51.2
109.0 19.50 13.5 33.8 31.1
- -----------------------------------------------------------------
Mean 30.4% 38.2% 46.2%
Median 24.0 31.9 35.7
- -----------------------------------------------------------------
- -----------------------------------------------------------------
HGC Stock Price
(11/19/98) $53.63 $55.00 $48.75
Calculated Premium
at $57.25 Purchase Price 6.8% 4.1% 17.4%
- -----------------------------------------------------------------
</TABLE>
Notes
- --------------
1- Premiums are calculated based on the original announcement date, which is
the first date when the target company is publicly disclosed as a
possible takeover candidate.
2- * denotes that the value is estimated
3- Transaction Value in millions (including net debt of Target)
November 20, 1998
Page 23
<PAGE>
HUDSON GENERAL CORP.
Management and Leveraged Buyouts
10/1/96 to Present
Enterprise Value Between $50 and $200MM
<TABLE>
<CAPTION>
Original
Announcement Announcement
Date Date Target Name Acquiror
- ------------ ------------ ---------------------- ------------------------
<S> <C> <C> <C>
11/12/96 11/12/96 Leslie's Poolmart Investor
7/31/97 7/31/97 Delaware Otsego Corp Investor
7/30/97 7/30/97 Plasti-Line Inc. PL Holdings Corp.
6/24/97 6/24/97 SMT Health Services Inc Three Rivers Holding
9/15/97 9/15/97 DeGeorge Financial Corp Investor
10/17/97 10/17/97 ATC Group Services Inc Investor
2/16/98 2/16/98 Bertucci's Inc Ten Idea
3/13/98 3/13/98 Pollo Tropical Inc Investor
3/16/98 3/16/98 Norwood Promotional
Products FPK LLC
5/5/98 5/5/98 Allied Digital
Technologies Co Investor
7/17/98 7/17/98 West Teleservices Corp Investor
Stock Price Premia to Prior Periods
Time Before Date of Announcement (1)
Transaction Price/ --------------------------------------
Value (3) Share 1 Day 1 Week 4 Weeks
--------- ----- ----- ------ -------
($mm) ($) (%) (%) (%)
112.8 14.50 26.1 31.8 31.8
53.4 22.00 - 15.0 17.3
30.7 14.50 36.5 36.5 30.3
75.6 11.75 4.4 2.2 8.0
18.1 1.50 77.8 50.0 77.8
150.0 12.00 - (8.1) 10.3
72.6 8.00 33.3 29.3 25.5
85.8 10.00 26.0 25.0 14.3
107.8 20.70 19.1 19.1 23.6
69.2 5.00 14.3 14.3 37.9
147.2 15.50 25.9 29.2 22.8
- ------------------------------------------------------------------
Mean 23.9% 22.2% 27.2%
Median 25.9 25.0 23.6
- ------------------------------------------------------------------
- ------------------------------------------------------------------
HGC Stock Price
(11/19/98) $53.63 $55.00 $48.75
Calculated Premium at
$57.25 Purchase Price 6.8% 4.1% 17.4%
- ------------------------------------------------------------------
</TABLE>
Notes
- --------------
1- Premiums are calculated based on the original announcement date, which is
the first date when the target company is publicly disclosed as a
possible takeover candidate.
2- * denotes that the value is estimated
3- Transaction Value in millions (including net debt of Target)
November 20, 1998
Page 24
<PAGE>
- -------------------------------------------------------------------------------
Price/Volume Analysis
<PAGE>
<TABLE>
<CAPTION>
HUDSON GENERAL CORP.
Closing Prices - Last 6 Months
Daily from May 19, 1998 - November 19, 1998
DAILY FROM MAY 19, 1998 - NOVEMBER 19, 1998
DATE HGC DATE HGC DATE HGC DATE HGC DATE HGC DATE HGC DATE HGC
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/19/98 48.13 6/1/98 48.25 7/1/98 50.50 8/3/98 51.13 9/1/98 50.38 10/1/98 49.88 11/2/98 52.25
5/20/98 48.13 6/2/98 48.25 7/2/98 50.63 8/4/98 51.50 9/2/98 50.75 10/2/98 49.63 11/3/98 52.88
5/21/98 48.13 6/3/98 48.13 7/6/98 50.88 8/5/98 51.63 9/3/98 49.88 10/5/98 49.38 11/4/98 52.75
5/22/98 48.19 6/4/98 47.63 7/7/98 51.50 8/6/98 51.38 9/4/98 49.88 10/6/98 49.00 11/5/98 53.38
5/26/98 48.13 6/5/98 47.75 7/8/98 51.38 8/7/98 51.38 9/8/98 50.25 10/7/98 49.00 11/6/98 53.44
5/27/98 48.00 6/8/98 48.25 7/9/98 51.19 8/10/98 51.50 9/9/98 50.25 10/8/98 48.50 11/9/98 53.50
5/28/98 48.13 6/9/98 49.00 7/10/98 51.13 8/11/98 50.88 9/10/98 49.63 10/9/98 49.13 11/10/98 54.13
5/29/98 48.13 6/10/98 49.50 7/13/98 50.50 8/12/98 51.25 9/11/98 49.50 10/12/98 49.13 11/11/98 54.00
6/11/98 49.50 7/14/98 51.50 8/13/98 50.88 9/14/98 49.25 10/13/98 49.00 11/12/98 55.00
6/12/98 49.50 7/15/98 51.25 8/14/98 50.88 9/15/98 49.25 10/14/98 49.00 11/13/98 55.25
6/15/98 49.50 7/16/98 51.25 8/17/98 51.38 9/16/98 49.38 10/15/98 48.75 11/16/98 55.00
6/16/98 49.75 7/17/98 51.25 8/18/98 51.75 9/17/98 49.00 10/16/98 48.75 11/17/98 54.75
6/17/98 50.00 7/20/98 51.25 8/19/98 51.75 9/18/98 50.38 10/19/98 48.75 11/18/98 53.75
6/18/98 50.00 7/21/98 51.00 8/20/98 51.75 9/21/98 50.50 10/20/98 49.63 11/19/98 53.63
6/19/98 50.13 7/22/98 51.50 8/21/98 51.38 9/22/98 51.25 10/21/98 50.38
6/22/98 49.75 7/23/98 51.25 8/24/98 50.88 9/23/98 52.63 10/22/98 49.75
6/23/98 49.75 7/24/98 51.25 8/25/98 52.00 9/24/98 52.50 10/23/98 49.63
6/24/98 49.38 7/27/98 51.44 8/26/98 51.75 9/25/98 52.13 10/26/98 50.00
6/25/98 49.50 7/28/98 51.31 8/27/98 51.38 9/28/98 51.63 10/27/98 50.00
6/26/98 49.69 7/29/98 51.50 8/28/98 51.00 9/29/98 51.63 10/28/98 51.50
6/29/98 50.50 7/30/98 51.13 8/31/98 50.63 9/30/98 50.50 10/29/98 51.50
6/30/98 50.63 7/31/98 51.31 10/30/98 52.13
Low Price on 6/04/98 - $47.63
High Price on 11/13/98 - $55.25
November 20, 1998
Page 25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HUDSON GENERAL CORP.
Closing Prices - Last 5 Years
Daily from November 19, 1993 - November 19, 1998
DAILY FROM NOVEMBER 19, 1993 - NOVEMBER 19, 1998
DATE HGC DATE HGC DATE HGC DATE HGC DATE HGC DATE HGC
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/19/93 13.13 1/3/94 13.50 1/3/95 15.81 1/2/96 33.00 1/2/97 37.00 1/2/98 47.00
11/22/93 13.19 1/4/94 13.56 1/4/95 15.81 1/3/96 33.00 1/3/97 37.50 1/5/98 45.00
11/23/93 13.38 1/5/94 13.56 1/5/95 15.81 1/4/96 33.25 1/6/97 38.00 1/6/98 45.50
11/24/93 13.13 1/6/94 13.44 1/6/95 16.00 1/5/96 33.00 1/7/97 37.38 1/7/98 45.00
11/26/93 13.00 1/7/94 13.50 1/9/95 16.00 1/8/96 33.00 1/8/97 37.50 1/8/98 45.00
11/29/93 12.75 1/10/94 13.56 1/10/95 15.94 1/9/96 33.50 1/9/97 37.50 1/9/98 43.63
11/30/93 12.75 1/11/94 13.56 1/11/95 15.94 1/10/96 33.50 1/10/97 38.38 1/12/98 43.38
12/1/93 13.00 1/12/94 13.50 1/12/95 15.94 1/11/96 34.00 1/13/97 38.50 1/13/98 43.38
12/2/93 13.00 1/13/94 13.56 1/13/95 15.94 1/12/96 34.25 1/14/97 38.25 1/14/98 43.56
12/3/93 12.75 1/14/94 13.63 1/16/95 16.00 1/15/96 34.50 1/15/97 37.38 1/15/98 43.63
12/6/93 12.63 1/17/94 13.75 1/17/95 15.94 1/16/96 34.50 1/16/97 38.38 1/16/98 43.88
12/7/93 12.63 1/18/94 13.81 1/18/95 15.94 1/17/96 34.50 1/17/97 37.88 1/20/98 42.75
12/8/93 12.69 1/19/94 13.81 1/19/95 15.94 1/18/96 34.50 1/20/97 38.38 1/21/98 44.25
12/9/93 12.50 1/20/94 13.81 1/20/95 15.94 1/19/96 34.88 1/21/97 37.88 1/22/98 44.63
12/10/93 12.38 1/21/94 13.81 1/23/95 15.75 1/22/96 35.00 1/22/97 37.13 1/23/98 44.63
12/13/93 12.63 1/24/94 13.88 1/24/95 15.69 1/23/96 35.00 1/23/97 37.25 1/26/98 44.63
12/14/93 12.88 1/25/94 13.88 1/25/95 15.88 1/24/96 35.63 1/24/97 36.88 1/27/98 44.63
12/15/93 12.94 1/26/94 13.88 1/26/95 15.75 1/25/96 36.13 1/27/97 36.00 1/28/98 44.88
12/16/93 14.00 1/27/94 14.00 1/27/95 15.81 1/26/96 36.13 1/28/97 36.25 1/29/98 44.75
12/17/93 14.25 1/28/94 14.25 1/30/95 15.69 1/29/96 39.13 1/29/97 37.00 1/30/98 44.75
12/20/93 14.00 1/31/94 15.00 1/31/95 15.75 1/30/96 38.88 1/30/97 37.00 2/2/98 44.50
12/21/93 14.00 2/1/94 15.38 2/1/95 15.81 1/31/96 39.50 1/31/97 37.38 2/3/98 45.00
12/22/93 14.00 2/2/94 15.50 2/2/95 15.69 2/1/96 40.38 2/3/97 37.00 2/4/98 44.50
12/23/93 13.50 2/3/94 15.75 2/3/95 16.00 2/2/96 40.25 2/4/97 37.00 2/5/98 43.75
12/27/93 13.13 2/4/94 15.88 2/6/95 16.00 2/5/96 40.88 2/5/97 38.00 2/6/98 44.00
12/28/93 13.13 2/7/94 15.63 2/7/95 16.75 2/6/96 39.75 2/6/97 39.00 2/9/98 46.00
12/29/93 13.50 2/8/94 15.63 2/8/95 16.75 2/7/96 39.50 2/7/97 39.13 2/10/98 47.63
12/30/93 13.38 2/9/94 16.00 2/9/95 16.50 2/8/96 39.25 2/10/97 38.88 2/11/98 47.63
12/31/93 13.38 2/10/94 15.38 2/10/95 16.44 2/9/96 39.42 2/11/97 39.63 2/12/98 47.75
2/11/94 15.38 2/13/95 16.56 2/12/96 39.00 2/12/97 39.50 2/13/98 48.88
2/14/94 15.75 2/14/95 16.44 2/13/96 38.88 2/13/97 39.25 2/17/98 48.88
2/15/94 15.88 2/15/95 16.44 2/14/96 39.00 2/14/97 39.38 2/18/98 48.75
2/16/94 16.25 2/16/95 16.44 2/15/96 41.00 2/18/97 40.00 2/19/98 48.75
2/17/94 16.63 2/17/95 16.38 2/16/96 40.00 2/19/97 40.50 2/20/98 48.13
2/18/94 16.75 2/21/95 16.31 2/20/96 40.00 2/20/97 40.50 2/23/98 47.38
2/22/94 16.88 2/22/95 16.31 2/21/96 39.63 2/21/97 40.13 2/24/98 47.25
2/23/94 16.75 2/23/95 16.25 2/22/96 39.38 2/24/97 40.00 2/25/98 48.50
2/24/94 16.75 2/24/95 16.31 2/23/96 39.00 2/25/97 39.75 2/26/98 48.88
2/25/94 16.75 2/27/95 16.31 2/26/96 39.00 2/26/97 38.75 2/27/98 48.75
2/28/94 16.50 2/28/95 16.25 2/27/96 38.88 2/27/97 38.50 3/2/98 48.75
3/1/94 16.25 3/1/95 16.25 2/28/96 39.75 2/28/97 38.25 3/3/98 48.75
3/2/94 16.25 3/2/95 16.19 2/29/96 40.38 3/3/97 38.13 3/4/98 48.94
3/3/94 15.63 3/3/95 16.00 3/1/96 40.38 3/4/97 38.75 3/5/98 48.38
3/4/94 15.50 3/6/95 15.81 3/4/96 40.25 3/5/97 38.88 3/6/98 49.00
3/7/94 15.63 3/7/95 15.81 3/5/96 40.38 3/6/97 38.63 3/9/98 48.88
3/8/94 15.63 3/8/95 15.94 3/6/96 40.13 3/7/97 39.75 3/10/98 48.50
3/9/94 15.56 3/9/95 15.94 3/7/96 40.00 3/10/97 40.25 3/11/98 48.50
3/10/94 15.88 3/10/95 15.94 3/8/96 39.13 3/11/97 41.38 3/12/98 48.25
3/11/94 15.75 3/13/95 15.88 3/11/96 38.63 3/12/97 40.63 3/13/98 48.25
3/14/94 15.88 3/14/95 15.88 3/12/96 38.25 3/13/97 40.13 3/16/98 48.00
3/15/94 15.75 3/15/95 15.81 3/13/96 38.50 3/14/97 39.63 3/17/98 48.25
3/16/94 15.81 3/16/95 15.81 3/14/96 39.63 3/17/97 39.13 3/18/98 48.13
3/17/94 15.75 3/17/95 15.81 3/15/96 39.25 3/18/97 39.63 3/19/98 48.38
3/18/94 16.00 3/20/95 15.88 3/18/96 38.63 3/19/97 39.75 3/20/98 48.25
3/21/94 16.00 3/21/95 15.81 3/19/96 38.63 3/20/97 39.25 3/23/98 48.13
3/22/94 15.88 3/22/95 15.88 3/20/96 38.38 3/21/97 39.00 3/24/98 47.88
3/23/94 15.81 3/23/95 15.88 3/21/96 38.00 3/24/97 38.38 3/25/98 47.88
3/24/94 15.94 3/24/95 15.75 3/22/96 38.25 3/25/97 38.38 3/26/98 47.63
3/25/94 16.00 3/27/95 15.75 3/25/96 39.00 3/26/97 38.13 3/27/98 47.44
3/28/94 16.38 3/28/95 15.69 3/26/96 40.25 3/27/97 38.00 3/30/98 47.25
3/29/94 16.31 3/29/95 16.00 3/27/96 42.25 3/31/97 37.25 3/31/98 47.25
3/30/94 15.88 3/30/95 15.88 3/28/96 42.75 4/1/97 37.75 4/1/98 47.25
3/31/94 15.75 3/31/95 15.88 3/29/96 43.38 4/2/97 37.75 4/2/98 47.25
4/4/94 15.50 4/3/95 15.81 4/1/96 43.13 4/3/97 37.38 4/3/98 47.00
4/5/94 15.50 4/4/95 15.81 4/2/96 43.38 4/4/97 37.00 4/6/98 47.50
4/6/94 15.50 4/5/95 16.13 4/3/96 43.38 4/7/97 36.88 4/7/98 47.25
4/7/94 15.50 4/6/95 16.13 4/4/96 43.13 4/8/97 36.63 4/8/98 47.25
4/8/94 15.50 4/7/95 16.13 4/8/96 42.63 4/9/97 37.13 4/9/98 47.25
4/11/94 15.50 4/10/95 16.13 4/9/96 42.25 4/10/97 37.00 4/13/98 47.50
4/12/94 15.50 4/11/95 16.06 4/10/96 41.63 4/11/97 36.50 4/14/98 47.38
4/13/94 15.31 4/12/95 16.13 4/11/96 41.50 4/14/97 36.50 4/15/98 47.31
4/14/94 15.38 4/13/95 16.00 4/12/96 42.13 4/15/97 36.13 4/16/98 47.13
4/15/94 15.25 4/17/95 16.25 4/15/96 42.13 4/16/97 36.13 4/17/98 46.88
4/18/94 15.13 4/18/95 16.25 4/16/96 43.13 4/17/97 36.63 4/20/98 47.00
4/19/94 15.06 4/19/95 16.13 4/17/96 42.75 4/18/97 37.00 4/21/98 46.88
4/20/94 15.13 4/20/95 16.13 4/18/96 43.38 4/21/97 36.38 4/22/98 46.50
4/21/94 15.06 4/21/95 16.25 4/19/96 43.00 4/22/97 36.13 4/23/98 46.44
4/22/94 15.06 4/24/95 16.25 4/22/96 43.00 4/23/97 36.13 4/24/98 46.50
4/25/94 15.06 4/25/95 16.50 4/23/96 42.25 4/24/97 36.13 4/27/98 46.00
4/26/94 15.13 4/26/95 16.38 4/24/96 41.75 4/25/97 36.25 4/28/98 45.88
4/28/94 15.13 4/27/95 16.50 4/25/96 41.50 4/28/97 35.63 4/29/98 46.00
4/29/94 15.13 4/28/95 16.56 4/26/96 41.13 4/29/97 37.13 4/30/98 46.00
5/2/94 15.13 5/1/95 16.56 4/29/96 39.38 4/30/97 37.38 5/1/98 46.00
5/3/94 15.13 5/2/95 16.38 4/30/96 38.75 5/1/97 38.00 5/4/98 46.50
5/4/94 15.38 5/3/95 16.63 5/1/96 38.00 5/2/97 37.88 5/5/98 48.00
5/5/94 15.44 5/4/95 16.88 5/2/96 39.00 5/5/97 38.00 5/6/98 48.00
5/6/94 15.25 5/5/95 17.25 5/3/96 39.50 5/6/97 38.13 5/7/98 48.00
5/9/94 15.50 5/8/95 17.13 5/6/96 39.88 5/7/97 38.13 5/8/98 48.00
5/10/94 15.50 5/9/95 17.50 5/7/96 40.00 5/8/97 38.50 5/11/98 48.00
5/11/94 15.50 5/10/95 17.88 5/8/96 39.25 5/9/97 38.25 5/12/98 48.00
5/12/94 15.13 5/11/95 18.88 5/9/96 38.38 5/12/97 38.38 5/13/98 48.00
5/13/94 15.13 5/12/95 18.75 5/10/96 37.88 5/13/97 37.75 5/14/98 48.13
5/16/94 16.00 5/15/95 18.75 5/13/96 38.00 5/14/97 38.25 5/15/98 48.13
5/17/94 16.00 5/16/95 18.88 5/14/96 37.75 5/15/97 38.38 5/18/98 48.06
5/18/94 15.88 5/17/95 18.75 5/15/96 38.00 5/16/97 38.25 5/19/98 48.13
5/19/94 16.00 5/18/95 18.69 5/16/96 38.25 5/19/97 37.88 5/20/98 48.13
5/20/94 15.88 5/19/95 18.81 5/17/96 38.00 5/20/97 37.63 5/21/98 48.13
5/23/94 16.00 5/22/95 18.75 5/20/96 38.00 5/21/97 37.75 5/22/98 48.19
5/24/94 16.25 5/23/95 18.88 5/21/96 37.75 5/22/97 38.00 5/26/98 48.13
5/25/94 16.50 5/24/95 18.88 5/22/96 37.75 5/23/97 38.25 5/27/98 48.00
5/26/94 16.50 5/25/95 19.00 5/23/96 37.75 5/27/97 39.00 5/28/98 48.13
5/27/94 16.50 5/26/95 19.00 5/24/96 38.88 5/28/97 38.88 5/29/98 48.13
5/31/94 16.50 5/30/95 18.88 5/28/96 39.00 5/29/97 39.13 6/1/98 48.25
6/1/94 16.25 5/31/95 19.00 5/29/96 38.75 5/30/97 40.00 6/2/98 48.25
6/2/94 16.75 6/1/95 19.13 5/30/96 38.50 6/2/97 40.13 6/3/98 48.13
6/3/94 16.75 6/2/95 19.25 5/31/96 38.50 6/3/97 39.75 6/4/98 47.63
6/6/94 16.50 6/5/95 19.88 6/3/96 38.25 6/4/97 40.00 6/5/98 47.75
6/7/94 16.56 6/6/95 19.50 6/4/96 38.63 6/5/97 39.75 6/8/98 48.25
6/8/94 16.56 6/7/95 19.50 6/5/96 38.75 6/6/97 39.75 6/9/98 49.00
6/9/94 16.50 6/8/95 19.56 6/6/96 38.50 6/9/97 39.75 6/10/98 49.50
6/10/94 16.56 6/9/95 19.88 6/7/96 38.50 6/10/97 40.13 6/11/98 49.50
6/13/94 16.50 6/12/95 20.00 6/10/96 38.13 6/11/97 40.00 6/12/98 49.50
6/14/94 16.50 6/13/95 20.13 6/11/96 37.63 6/12/97 39.50 6/15/98 49.50
6/15/94 16.63 6/14/95 20.19 6/12/96 37.38 6/13/97 40.25 6/16/98 49.75
6/16/94 16.75 6/15/95 20.25 6/13/96 37.00 6/16/97 40.38 6/17/98 50.00
6/17/94 15.63 6/16/95 20.44 6/14/96 37.13 6/17/97 39.88 6/18/98 50.00
6/20/94 15.50 6/19/95 20.50 6/17/96 37.00 6/18/97 40.00 6/19/98 50.13
6/21/94 15.56 6/20/95 20.38 6/18/96 36.63 6/19/97 40.00 6/22/98 49.75
6/22/94 15.63 6/21/95 20.50 6/19/96 35.88 6/20/97 39.38 6/23/98 49.75
6/23/94 15.63 6/22/95 20.44 6/20/96 35.63 6/23/97 39.13 6/24/98 49.38
6/24/94 15.38 6/23/95 20.44 6/21/96 34.38 6/24/97 38.88 6/25/98 49.50
6/27/94 15.13 6/26/95 20.25 6/24/96 34.88 6/25/97 38.63 6/26/98 49.69
6/28/94 15.38 6/27/95 20.13 6/25/96 34.88 6/26/97 38.25 6/29/98 50.50
6/29/94 15.44 6/28/95 20.13 6/26/96 35.00 6/27/97 38.25 6/30/98 50.63
6/30/94 15.31 6/29/95 20.38 6/27/96 35.25 6/30/97 38.00 7/1/98 50.50
7/1/94 15.38 6/30/95 20.31 6/28/96 35.38 7/1/97 38.00 7/2/98 50.63
7/5/94 15.44 7/3/95 20.31 7/1/96 35.25 7/2/97 39.63 7/6/98 50.88
7/6/94 15.31 7/5/95 20.13 7/2/96 34.88 7/3/97 40.63 7/7/98 51.50
7/7/94 15.25 7/6/95 20.00 7/3/96 34.63 7/7/97 40.63 7/8/98 51.38
7/8/94 15.31 7/7/95 20.25 7/5/96 34.56 7/8/97 41.00 7/9/98 51.19
7/11/94 15.19 7/10/95 20.19 7/8/96 34.56 7/9/97 41.00 7/10/98 51.13
7/12/94 15.31 7/11/95 20.19 7/9/96 34.38 7/10/97 40.75 7/13/98 50.50
7/13/94 15.31 7/12/95 20.13 7/10/96 33.13 7/11/97 40.50 7/14/98 51.50
7/14/94 15.31 7/13/95 20.19 7/11/96 32.75 7/14/97 41.13 7/15/98 51.25
7/15/94 15.31 7/14/95 20.19 7/12/96 32.75 7/15/97 41.06 7/16/98 51.25
7/18/94 15.13 7/17/95 20.13 7/15/96 32.75 7/16/97 42.00 7/17/98 51.25
7/19/94 15.19 7/18/95 20.19 7/16/96 33.00 7/17/97 42.50 7/20/98 51.25
7/20/94 15.19 7/19/95 20.00 7/17/96 33.25 7/18/97 42.50 7/21/98 51.00
7/21/94 16.00 7/20/95 20.06 7/18/96 33.13 7/21/97 42.00 7/22/98 51.50
7/22/94 15.94 7/21/95 20.13 7/19/96 33.13 7/22/97 42.00 7/23/98 51.25
7/25/94 15.88 7/24/95 20.25 7/22/96 33.06 7/23/97 42.63 7/24/98 51.25
7/26/94 15.94 7/25/95 20.25 7/23/96 33.25 7/24/97 42.25 7/27/98 51.44
7/27/94 15.94 7/26/95 20.31 7/24/96 33.25 7/25/97 42.00 7/28/98 51.31
7/28/94 15.94 7/27/95 20.25 7/25/96 33.50 7/28/97 41.63 7/29/98 51.50
7/29/94 15.88 7/28/95 20.31 7/26/96 33.38 7/29/97 41.50 7/30/98 51.13
8/1/94 16.00 7/31/95 20.31 7/29/96 33.38 7/30/97 40.63 7/31/98 51.31
8/2/94 15.94 8/1/95 20.38 7/30/96 33.25 7/31/97 40.56 8/3/98 51.13
8/3/94 16.13 8/2/95 20.88 7/31/96 33.13 8/1/97 40.56 8/4/98 51.50
8/4/94 16.25 8/3/95 21.63 8/1/96 33.00 8/4/97 40.38 8/5/98 51.63
8/5/94 16.25 8/4/95 21.88 8/2/96 33.00 8/5/97 40.00 8/6/98 51.38
8/8/94 16.25 8/7/95 22.00 8/5/96 33.25 8/6/97 39.88 8/7/98 51.38
8/9/94 16.25 8/8/95 22.00 8/6/96 33.88 8/7/97 41.00 8/10/98 51.50
8/10/94 16.25 8/9/95 21.94 8/7/96 34.00 8/8/97 40.50 8/11/98 50.88
8/11/94 16.25 8/10/95 22.25 8/8/96 34.50 8/11/97 40.75 8/12/98 51.25
8/12/94 16.25 8/11/95 22.13 8/9/96 34.50 8/12/97 41.00 8/13/98 50.88
8/15/94 16.25 8/14/95 22.38 8/12/96 34.25 8/13/97 40.75 8/14/98 50.88
8/16/94 17.50 8/15/95 22.50 8/13/96 33.50 8/14/97 40.88 8/17/98 51.38
8/17/94 18.50 8/16/95 22.31 8/14/96 33.63 8/15/97 40.88 8/18/98 51.75
8/18/94 18.25 8/17/95 22.13 8/15/96 33.50 8/18/97 40.50 8/19/98 51.75
8/19/94 18.13 8/18/95 22.00 8/16/96 33.75 8/19/97 40.75 8/20/98 51.75
8/22/94 18.50 8/21/95 22.25 8/19/96 34.25 8/20/97 40.50 8/21/98 51.38
8/23/94 18.38 8/22/95 22.13 8/20/96 34.75 8/21/97 40.19 8/24/98 50.88
8/24/94 18.25 8/23/95 22.31 8/21/96 34.75 8/22/97 39.75 8/25/98 52.00
8/25/94 18.25 8/24/95 22.19 8/22/96 34.50 8/25/97 39.75 8/26/98 51.75
8/26/94 18.38 8/25/95 22.19 8/23/96 34.63 8/26/97 40.00 8/27/98 51.38
8/29/94 18.13 8/28/95 22.19 8/26/96 35.25 8/27/97 40.25 8/28/98 51.00
8/30/94 18.25 8/29/95 22.25 8/27/96 35.50 8/28/97 40.00 8/31/98 50.63
8/31/94 20.00 8/30/95 22.19 8/28/96 35.88 8/29/97 39.75 9/1/98 50.38
9/1/94 19.63 8/31/95 22.13 8/29/96 36.38 9/2/97 39.88 9/2/98 50.75
9/2/94 19.63 9/1/95 22.00 8/30/96 37.50 9/3/97 40.25 9/3/98 49.88
9/6/94 19.63 9/5/95 22.06 9/3/96 38.13 9/4/97 39.75 9/4/98 49.88
9/7/94 19.56 9/6/95 21.94 9/4/96 38.13 9/5/97 40.50 9/8/98 50.25
9/8/94 19.63 9/7/95 22.50 9/5/96 39.25 9/8/97 43.50 9/9/98 50.25
9/9/94 19.38 9/8/95 22.75 9/6/96 39.13 9/9/97 44.25 9/10/98 49.63
9/12/94 19.44 9/11/95 22.69 9/9/96 39.00 9/10/97 43.25 9/11/98 49.50
9/13/94 19.38 9/12/95 22.69 9/10/96 38.25 9/11/97 43.00 9/14/98 49.25
9/14/94 19.13 9/13/95 22.75 9/11/96 37.00 9/12/97 42.50 9/15/98 49.25
9/15/94 19.13 9/14/95 23.50 9/12/96 36.88 9/15/97 41.38 9/16/98 49.38
9/16/94 19.19 9/15/95 23.44 9/13/96 37.63 9/16/97 42.38 9/17/98 49.00
9/19/94 19.25 9/18/95 23.38 9/16/96 38.00 9/17/97 43.00 9/18/98 50.38
9/20/94 19.31 9/19/95 23.31 9/17/96 37.88 9/18/97 43.00 9/21/98 50.50
9/21/94 19.00 9/20/95 23.50 9/18/96 37.00 9/19/97 42.00 9/22/98 51.25
9/22/94 18.88 9/21/95 23.50 9/19/96 36.88 9/22/97 42.75 9/23/98 52.63
9/23/94 18.88 9/22/95 23.50 9/20/96 36.88 9/23/97 42.75 9/24/98 52.50
9/26/94 18.88 9/25/95 23.50 9/23/96 36.88 9/24/97 43.25 9/25/98 52.13
9/27/94 18.81 9/26/95 23.50 9/24/96 39.50 9/25/97 43.00 9/28/98 51.63
9/28/94 18.75 9/27/95 23.13 9/25/96 39.25 9/26/97 43.13 9/29/98 51.63
9/29/94 18.81 9/28/95 23.50 9/26/96 40.00 9/29/97 43.25 9/30/98 50.50
9/30/94 18.81 9/29/95 24.00 9/27/96 39.38 9/30/97 42.75 10/1/98 49.88
10/3/94 18.50 10/2/95 23.88 9/30/96 40.00 10/1/97 42.50 10/2/98 49.63
10/4/94 18.56 10/3/95 23.88 10/1/96 39.00 10/2/97 43.00 10/5/98 49.38
10/5/94 18.38 10/4/95 23.81 10/2/96 39.00 10/3/97 43.75 10/6/98 49.00
10/6/94 18.31 10/5/95 23.81 10/3/96 39.25 10/6/97 44.00 10/7/98 49.00
10/7/94 18.38 10/6/95 23.81 10/4/96 39.50 10/7/97 45.88 10/8/98 48.50
10/10/94 18.31 10/9/95 23.63 10/7/96 38.75 10/8/97 45.50 10/9/98 49.13
10/11/94 18.38 10/10/95 23.56 10/8/96 38.25 10/9/97 45.38 10/12/98 49.13
10/12/94 18.38 10/11/95 23.88 10/9/96 37.75 10/10/97 45.50 10/13/98 49.00
10/13/94 18.50 10/12/95 25.50 10/10/96 37.00 10/13/97 46.00 10/14/98 49.00
10/14/94 18.50 10/13/95 25.75 10/11/96 37.25 10/14/97 45.88 10/15/98 48.75
10/17/94 18.44 10/16/95 25.25 10/14/96 36.75 10/15/97 46.25 10/16/98 48.75
10/18/94 18.38 10/17/95 25.63 10/15/96 36.88 10/16/97 46.25 10/19/98 48.75
10/19/94 18.38 10/18/95 26.50 10/16/96 36.63 10/17/97 45.75 10/20/98 49.63
10/20/94 18.25 10/19/95 26.25 10/17/96 36.75 10/20/97 46.50 10/21/98 50.38
10/21/94 18.25 10/20/95 26.38 10/18/96 36.75 10/21/97 46.50 10/22/98 49.75
10/24/94 18.19 10/23/95 26.25 10/21/96 36.38 10/22/97 47.50 10/23/98 49.63
10/25/94 18.31 10/24/95 26.31 10/22/96 36.38 10/23/97 47.13 10/26/98 50.00
10/26/94 18.31 10/25/95 26.75 10/23/96 36.13 10/24/97 47.50 10/27/98 50.00
10/27/94 18.38 10/26/95 26.13 10/24/96 36.25 10/27/97 46.88 10/28/98 51.50
10/28/94 18.25 10/27/95 26.13 10/25/96 35.63 10/28/97 46.00 10/29/98 51.50
10/31/94 18.38 10/30/95 26.00 10/28/96 35.25 10/29/97 46.00 10/30/98 52.13
11/1/94 18.38 10/31/95 26.25 10/29/96 34.88 10/30/97 45.63 11/2/98 52.25
11/2/94 18.31 11/1/95 26.38 10/30/96 35.25 10/31/97 46.50 11/3/98 52.88
11/3/94 18.13 11/2/95 26.50 10/31/96 35.38 11/3/97 47.00 11/4/98 52.75
11/4/94 18.06 11/3/95 26.63 11/1/96 35.63 11/4/97 47.00 11/5/98 53.38
11/7/94 18.06 11/6/95 26.50 11/4/96 35.25 11/5/97 47.38 11/6/98 53.44
11/8/94 18.06 11/7/95 26.50 11/5/96 35.25 11/6/97 48.00 11/9/98 53.50
11/9/94 18.00 11/8/95 26.75 11/6/96 35.25 11/7/97 47.88 11/10/98 54.13
11/10/94 18.25 11/9/95 27.13 11/7/96 35.63 11/10/97 47.38 11/11/98 54.00
11/11/94 17.88 11/10/95 27.50 11/8/96 35.75 11/11/97 47.00 11/12/98 55.00
11/14/94 18.00 11/13/95 28.75 11/11/96 35.63 11/12/97 46.50 11/13/98 55.25
11/15/94 18.00 11/14/95 28.88 11/12/96 35.63 11/13/97 47.38 11/16/98 55.00
11/16/94 17.88 11/15/95 28.88 11/13/96 35.50 11/14/97 47.50 11/17/98 54.75
11/17/94 17.88 11/16/95 29.25 11/14/96 35.50 11/17/97 48.38 11/18/98 53.75
11/18/94 18.06 11/17/95 29.00 11/15/96 35.25 11/18/97 48.38 11/19/98 53.63
11/21/94 17.88 11/20/95 29.00 11/18/96 34.50 11/19/97 48.38
11/22/94 17.63 11/21/95 28.94 11/19/96 34.00 11/20/97 48.50
11/23/94 17.50 11/22/95 28.88 11/20/96 35.00 11/21/97 48.38
11/25/94 17.56 11/24/95 28.94 11/21/96 36.25 11/24/97 48.38
11/28/94 17.63 11/27/95 28.75 11/22/96 36.25 11/25/97 48.00
11/29/94 17.50 11/28/95 28.50 11/25/96 35.75 11/26/97 48.00
11/30/94 17.44 11/29/95 29.75 11/26/96 35.25 11/28/97 48.50
12/1/94 17.38 11/30/95 31.63 11/27/96 36.00 12/1/97 48.38
12/2/94 17.38 12/1/95 31.56 11/29/96 36.25 12/2/97 48.38
12/5/94 17.13 12/4/95 32.25 12/2/96 36.38 12/3/97 48.06
12/6/94 16.88 12/5/95 31.75 12/3/96 36.75 12/4/97 48.00
12/7/94 16.81 12/6/95 31.63 12/4/96 36.88 12/5/97 48.13
12/8/94 16.88 12/7/95 34.25 12/5/96 37.38 12/8/97 47.63
12/9/94 16.63 12/8/95 33.50 12/6/96 37.00 12/9/97 47.19
12/12/94 16.56 12/11/95 32.38 12/9/96 38.00 12/10/97 47.06
12/13/94 16.56 12/12/95 31.88 12/10/96 38.13 12/11/97 47.06
12/14/94 16.56 12/13/95 31.81 12/11/96 37.50 12/12/97 46.63
12/15/94 16.56 12/14/95 31.25 12/12/96 37.13 12/15/97 46.88
12/16/94 16.69 12/15/95 31.50 12/13/96 37.00 12/16/97 46.75
12/19/94 16.63 12/18/95 31.38 12/16/96 38.00 12/17/97 46.75
12/20/94 16.56 12/19/95 31.63 12/17/96 37.88 12/18/97 46.69
12/21/94 16.25 12/20/95 32.50 12/18/96 37.25 12/19/97 46.88
12/22/94 16.13 12/21/95 32.38 12/19/96 37.25 12/22/97 46.50
12/23/94 16.06 12/22/95 32.38 12/20/96 37.00 12/23/97 46.25
12/27/94 16.00 12/26/95 32.63 12/23/96 37.88 12/24/97 46.88
12/28/94 15.88 12/27/95 32.69 12/24/96 38.25 12/26/97 46.75
12/29/94 15.81 12/28/95 32.88 12/26/96 37.88 12/29/97 46.63
12/30/94 15.75 12/29/95 32.50 12/27/96 38.00 12/30/97 46.63
12/30/96 38.00 12/31/97 48.00
12/31/96 37.25
Low Price on 12/10/93 - $12.38
High Price on 11/13/98 - $55.25
ALLEN COMPANY INCORPORATED PRELIMINARY DRAFT AS OF 12/1/98 Page 26
</TABLE>
<PAGE>
HUDSON GENERAL CORP.
Volume Analysis
<TABLE>
<CAPTION>
Number of Shares
Average Volume of Shares Traded at Price Ranges
Traded Over Last 5 Years Over Last 5 Years
- ------------------------------------- ---------------------------------------
Average Total Average
Average Daily Closing Price per Shares Daily
Period Price Volume Share Range Traded Volume
------ ----- ------ ----------- ------ ------
<S> <C> <C> <C> <C> <C>
Last Week $ 54.80 640 <$10.00 - -
10.00 - 12.50 2,400 1,200
Last 2 Weeks $ 54.12 510 12.50 - 15.00 25,900 809
15.00 - 17.50 241,400 2,155
Last Month $ 52.25 564 17.50 - 20.00 79,500 1,395
20.00 - 22.50 36,000 1,333
Last 3 Months $ 50.98 909 22.50 - 25.00 10,500 875
25.00 - 27.50 53,400 3,141
Last 6 Months $ 50.55 654 27.50 - 30.00 15,900 1,590
30.00 - 32.50 56,300 4,331
Last Year $ 48.80 845 32.50 - 35.00 256,900 4,144
35.00 - 37.50 466,200 4,526
Last 2 Years $ 44.03 2,175 37.50 - 40.00 852,300 4,815
40.00 - 42.50 168,000 2,471
Last 3 Years $ 41.82 2,867 42.50 - 45.00 112,400 2,342
45.00 - 47.50 119,400 1,926
Last 4 Years $ 35.82 2,376 47.50 - 50.00 79,700 1,049
50.00 - 52.50 47,300 946
Last 5 Years $ 32.17 2,081 52.50 - 55.25 6,500 605
55.25> - -
</TABLE>
November 20, 1998
Page 25
<PAGE>
Jay B. Langner Richard D. Segal
c/o Hudson General c/o Hudson General
Corporation Corporation
111 Great Neck Road 111 Great Neck Road
Great Neck, NY 11021 Great Neck, NY 11021
November 22, 1998
Hudson General Corporation
111 Great Neck Road
Great Neck, New York 11021
Gentlemen:
Reference is hereby made to the Agreement and Plan of Merger
(the "Merger Agreement"), dated as of the date hereof, between Hudson General
Corporation (the "Company") and River Acquisition Corp. (the "Merger Sub"). As
of the Effective Time, subject to the satisfaction or waiver of all of the
closing conditions contained in Article VII of the Merger Agreement, we hereby
agree, jointly and severally, to contribute 280,000 shares of Common Stock, par
value $1.00 per share ("Common Stock"), of the Company to the Merger Sub;
provided, however, that the number of shares contributed to Merger Sub shall be
reduced on a share by share basis for (i) any shares of Common Stock that are
contributed by other investors to Merger Sub and (ii) up to 35,000 options to
purchase shares of Common Stock retained by other members of the Management
Group in lieu of cancellation pursuant to the Merger. Capitalized terms used
but not otherwise defined herein shall have the respective meanings as cribed
thereto in the Merger Agreement.
If the foregoing is acceptable to you, kindly acknowledge
your agreement by countersigning this letter agreement below.
Very truly yours,
/s/ Jay B. Langner
--------------------------------
Jay B. Langner
/s/ Richard D. Segal
--------------------------------
Richard D. Segal
ACKNOWLEDGED AND AGREED:
HUDSON GENERAL CORPORATION
By: /s/ Michael Rubin
------------------------------
Name: Michael Rubin
Title: President
<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED DECEMBER 23, 1998
[Company Logo]
HUDSON GENERAL CORPORATION
111 GREAT NECK ROAD
GREAT NECK, NEW YORK 11021
(516) 487-8610
Dear Stockholder: [Month Date], 1999
You are cordially invited to attend a Special Meeting of Stockholders of
Hudson General Corporation (the "Company") to be held at [Location] on [Day],
[Date] at [Time] a.m., local time.
At the Special Meeting, you will be asked to consider and vote upon the
merger of River Acquisition Corp. ("River Acquisition") with and into the
Company, with the Company as the surviving corporation. Pursuant to the merger,
you will be entitled to receive $57.25 in cash, without interest, for each of
your shares of common stock of the Company. River Acquisition was formed in
connection with the proposed merger and will be owned by the Company's
executive officers (four of whom are also directors of the Company), certain of
their family members, and certain other officers of the Company (the "Buyout
Group"). The Buyout Group currently owns approximately 18.9% of the Company's
outstanding common stock. The Buyout Group proposed the merger in order to
acquire the entire equity interest in the Company.
In June 1998, the Company's Board of Directors formed a Special Committee
of independent directors to avoid any conflict of interest in evaluating the
fairness to the stockholders of the Company of a potential management buyout
proposal. The members of the Special Committee are Milton H. Dresner, Edward J.
Rosenthal and Hans H. Sammer, and each is a director of the Company. Messrs.
Dresner, Rosenthal and Sammer are not employees of the Company and they do not
have any commercial relationship with the Company. The Special Committee
negotiated the terms of the transaction, on behalf of the Company, with members
of the Buyout Group.
The Special Committee received a written opinion from Allen & Company
Incorporated ("Allen & Company"), its financial advisor, that as of November
22, 1998, the $57.25 per share cash merger price was fair to the Company's
stockholders (other than the stockholders of River Acquisition) from a
financial point of view. The Allen & Company fairness opinion is subject to
various considerations, assumptions and limitations described in such opinion,
a copy of which is attached as Annex B to the accompanying Proxy Statement.
The Board of Directors of the Company, acting on the unanimous
recommendation of the Special Committee, has approved the Merger Agreement
between River Acquisition and the Company. THE SPECIAL COMMITTEE AND THE FULL
BOARD OF DIRECTORS BELIEVE THAT THE TERMS AND PROVISIONS OF THE MERGER
AGREEMENT AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY
AND ITS STOCKHOLDERS (OTHER THAN RIVER ACQUISITION AND THE BUYOUT GROUP).
THEREFORE, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
The accompanying Proxy Statement explains the proposed merger and provides
specific information concerning the Special Meeting. Please read these
materials carefully. In addition, you may obtain information about the Company
from documents that the Company has filed with the Securities and Exchange
Commission.
If you do not vote in favor of the Merger Agreement, you will have the
right to dissent and to seek appraisal of the fair market value of your shares
if the merger is consummated and you comply with the Delaware law procedures
explained on pages 51 to 53 of the accompanying Proxy Statement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED OR DISAPPROVED THE MERGER DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT NOR HAVE THEY DETERMINED IF THE PROXY STATEMENT
IS ADEQUATE OR ACCURATE. FURTHERMORE, THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT DETERMINED THE FAIRNESS OR MERITS OF THE MERGER. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Whether or not you plan to attend the Special Meeting, I urge you to sign,
date and promptly return the enclosed proxy card to ensure that your shares
will be voted at the meeting. If you sign, date and return your proxy card
without indicating how you want to vote, your proxy will be counted as a vote
in favor of the Merger Agreement. Your proxy may be revoked at any time before
it is voted by submitting to the Secretary of the Company a written revocation
or a proxy bearing a later date, or by attending and voting in person at the
meeting. Even if you plan to attend the Special Meeting, please sign, date and
return your proxy card.
The merger is an important decision for the Company and its stockholders.
Among other things, the merger cannot occur unless the Merger Agreement is
approved and adopted by the affirmative vote of both the holders of a majority
of all outstanding shares of Common Stock and a majority of all outstanding
shares of Common Stock not owned by River Acquisition and the members of the
Buyout Group.
On behalf of the Board of Directors, I thank you for your support and urge
you to vote FOR adoption of the Merger Agreement and the transactions
contemplated thereby.
Sincerely,
Jay B. Langner
Chairman of the Board and
Chief Executive Officer
The Proxy Statement is first being mailed to stockholders on [Month Day], 1999.
<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED DECEMBER 23, 1998
HUDSON GENERAL CORPORATION
111 GREAT NECK ROAD
GREAT NECK, NEW YORK 11021
(516) 487-8610
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Notice is hereby given that a Special Meeting of Stockholders of Hudson
General Corporation, a Delaware corporation (the "Company"), will be held at
[Location] on [Day], [Date], 1999 at [Time] a.m., local time, for the following
purpose:
To consider and vote upon the approval and adoption of the Agreement and
Plan of Merger (the "Merger Agreement"), between the Company and River
Acquisition Corp. ("River Acquisition"), dated as of November 22, 1998, and the
transactions contemplated thereby. The Merger Agreement provides for, among
other things, the merger of River Acquisition with and into the Company, with
the Company as the surviving corporation and with stockholders of the Company
(other than River Acquisition) entitled to receive $57.25 in cash, without
interest, for each share of the Company's common stock. River Acquisition was
formed in connection with the proposed merger and will be owned by the
Company's executive officers (four of whom are also directors of the Company),
certain of their family members, and certain other officers of the Company. The
Merger Agreement is more fully described in the accompanying Proxy Statement
and is attached to the Proxy Statement as Annex A.
Stockholders of the Company who do not vote in favor of the Merger
Agreement will have the right to dissent and to seek appraisal of the fair
market value of their shares if the merger is consummated and they comply with
the Delaware law procedures explained in the accompanying Proxy Statement.
Only holders of record at the close of business on [Record Date] are
entitled to notice of and to vote at the Special Meeting or any adjournment(s)
or postponement(s) thereof. Any stockholder will be able to examine a list of
the holders of record, for any purpose related to the Special Meeting, during
ordinary business hours during the ten day period before the Special Meeting.
The list will be available at the offices of the Company.
Stockholders may vote in person or by proxy. The accompanying Proxy
Statement explains the merger in detail and is accompanied by a proxy card. In
order to assure that your vote will be counted, please sign, date and return
the enclosed proxy card promptly in the enclosed prepaid envelope, whether or
not you plan to attend the Special Meeting. Your proxy may be revoked at any
time before it is voted by submitting to the Secretary of the Company a written
revocation or a proxy card bearing a later date, or by attending and voting in
person at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY, ACTING UPON THE UNANIMOUS
RECOMMENDATION OF A SPECIAL COMMITTEE OF THE BOARD, HAS APPROVED THE MERGER
AGREEMENT AND THE MERGER AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
By Order of the Board of Directors
Noah E. Rockowitz
Senior Vice President
and Secretary
Great Neck, New York
[Month Day], 1999
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME. A
TRANSMITTAL FORM FOR THE PURPOSE OF EXCHANGING YOUR SHARES FOR THE MERGER
CONSIDERATION WILL BE SENT TO STOCKHOLDERS FOLLOWING COMPLETION OF THE MERGER.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER ......................................... 1
SUMMARY ........................................................................ 3
SPECIAL FACTORS ............................................................... 3
Purpose and Effects of the Merger ........................................... 3
Recommendation of the Company's Board of Directors .......................... 3
Factors Considered by the Special Committee and Board of Directors .......... 4
Fairness Opinion of Allen & Company ......................................... 4
Interests of Certain Persons in the Merger .................................. 4
Accounting Treatment ........................................................ 5
Financing of the Merger ..................................................... 5
Material Federal Income Tax Consequences .................................... 5
THE SPECIAL MEETING ........................................................... 6
Voting ...................................................................... 6
THE MERGER AGREEMENT .......................................................... 6
The Merger Consideration .................................................... 6
Conditions to the Merger .................................................... 7
Termination of the Merger Agreement ......................................... 7
No Solicitation ............................................................. 8
Fees and Expenses ........................................................... 8
DISSENTERS' RIGHTS OF APPRAISAL ............................................... 9
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
OF THE COMPANY .............................................................. 10
SELECTED FINANCIAL DATA OF HUDSON GENERAL LLC ................................. 12
INFORMATION CONCERNING THE SPECIAL MEETING ..................................... 13
Time, Place, Date ........................................................... 13
Purpose of the Special Meeting .............................................. 13
Record Date; Voting at the Meeting; Quorum .................................. 13
Required Vote ............................................................... 14
Action to be Taken at the Meeting ........................................... 14
Proxy Solicitation .......................................................... 15
THE PARTIES .................................................................... 15
The Company ................................................................. 15
River Acquisition ........................................................... 16
SPECIAL FACTORS ................................................................ 17
Background of the Merger .................................................... 17
Recommendation of the Special Committee and Board of Directors; Fairness
of the Merger .............................................................. 23
The Buyout Group's Purpose and Reason for the Merger ........................ 26
Opinion of Financial Advisor to the Special Committee ....................... 27
Certain Projections ......................................................... 32
Forward-Looking Information ................................................. 35
Certain Effects of the Merger ............................................... 35
Plans for the Company After the Merger ...................................... 36
Conduct of the Business of the Company if the Merger is not Consummated ..... 36
Interests of Certain Persons in the Merger; Certain Relationships ........... 36
Accounting Treatment ........................................................ 38
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Financing of the Merger ........................................................ 38
Regulatory Requirements; Third Party Consents .................................. 40
Material Federal Income Tax Consequences of the Merger ......................... 41
Fees and Expenses .............................................................. 42
THE MERGER AGREEMENT .............................................................. 43
The Merger; Merger Consideration ............................................... 43
The Exchange Fund; Payment for Shares of Common Stock .......................... 43
Transfers of Common Stock ...................................................... 44
Treatment of Options ........................................................... 44
Conditions ..................................................................... 45
Representations and Warranties ................................................. 45
Covenants ...................................................................... 45
Indemnification and Insurance .................................................. 46
No Solicitation; Fiduciary Obligations of Directors ............................ 47
Termination .................................................................... 47
Fees and Expenses .............................................................. 48
Directors and Officers of the Company Following the Merger; Certificate of
Incorporation; Bylaws ......................................................... 48
Amendment/Waiver ............................................................... 48
Directors and Executive Officers of River Acquisition Corp. .................... 49
CERTAIN LITIGATION ................................................................ 50
DISSENTERS' RIGHTS OF APPRAISAL ................................................... 51
MARKET FOR THE COMMON STOCK ....................................................... 54
Common Stock Market Price Information; Dividend Information .................... 54
Market Price of Common Stock ................................................... 54
Common Stock Purchase Information .............................................. 54
SECURITIES OWNERSHIP .............................................................. 55
Beneficial Ownership of More Than 5% of Common Stock ........................... 55
Beneficial Ownership of Common Stock by Certain Parties Related to the Company
or the Buyout Group ........................................................... 56
MANAGEMENT ........................................................................ 58
Directors and Executive Officers of the Company ................................ 58
INDEPENDENT AUDITORS .............................................................. 60
STOCKHOLDER PROPOSALS ............................................................. 60
WHERE YOU CAN FIND MORE INFORMATION ............................................... 60
OTHER BUSINESS .................................................................... 61
AVAILABLE INFORMATION ............................................................. 61
Schedule I ........................................................................ S-1
Annex A Agreement and Plan of Merger .............................................. A-1
Annex B Opinion of Allen & Company Incorporated ................................... B-1
Annex C Section 262 of the Delaware General Corporation Law ....................... C-1
Annex D Index to Consolidated Financial Statements of
Hudson General Corporation and Subsidiaries ................................ D-1
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Q: WITH WHOM IS THE COMPANY A: River Acquisition was formed in connection with the
MERGING? proposed merger by Jay B. Langner, Chairman of the
Board and Chief Executive Officer of the Company,
and Richard D. Segal, Vice Chairman of the Board.
River Acquisition, the future owners of which are
referred to as the "Buyout Group," will merge with and
into the Company, with the Company as the surviving
corporation. The Buyout Group consists of all of the
executive officers of the Company (four of whom are
also directors of the Company), certain of their family
members, and certain other officers of the Company.
Each member of the Buyout Group will have an
ownership interest in River Acquisition.
Q: WHAT WILL I RECEIVE IN THE A: Stockholders of the Company (other than River
MERGER? Acquisition) will be entitled to receive $57.25 per share
in cash, without interest, for each share of the
Company's Common Stock. A Special Committee of
the Board, consisting of three independent directors,
negotiated the terms of the Merger Agreement with the
Buyout Group.
Q: WHY IS THE BOARD OF DIRECTORS A: In the opinion of your Board, based upon the unanimous
RECOMMENDING THAT I VOTE FOR recommendation of the Special Committee, the terms
THE MERGER AGREEMENT? and provisions of the Merger Agreement and the
merger are fair to and in the best interests of the
Company and its stockholders (other than River
Acquisition and the Buyout Group). To review the
background and reasons for the merger in greater
detail, see pages 17 to 26.
Q: WHAT IS REQUIRED TO APPROVE THE A: For the merger to occur, two approvals are required at
MERGER AGREEMENT? the Special Meeting. First, the holders of a majority of
all outstanding shares of Common Stock must approve
and adopt the Merger Agreement. Second, the holders
of a majority of all outstanding shares of Common
Stock other than those shares owned by River
Acquisition and the members of the Buyout Group
must approve and adopt the Merger Agreement.
Q: WHAT DO I NEED TO DO NOW? A: Please sign, date and mail your proxy card in the
enclosed return envelope as soon as possible, so that
your shares may be represented at the Special Meeting.
Q: WHAT RIGHTS DO I HAVE IF I A: Stockholders who oppose the merger may dissent and
OPPOSE THE MERGER? seek appraisal of the fair market value of their shares,
but only if they comply with all of the Delaware law
procedures explained on pages 51 to 53.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Q: WHO CAN VOTE ON THE MERGER? A: All stockholders of record as of the close of business on
[Record Date] will be entitled to notice of and to vote
at the Special Meeting to approve and adopt the
Merger Agreement and the transactions contemplated
thereby.
Q: SHOULD I SEND IN MY STOCK A: No. After the merger is completed, we will send you a
CERTIFICATES NOW? transmittal form and written instructions for exchanging
your share certificates.
Q: IF MY SHARES ARE HELD IN "STREET A: Your broker will vote your shares only if you provide
NAME" BY MY BROKER, WILL MY instructions on how to vote. You should follow the
BROKER VOTE MY SHARES FOR ME? directions provided by your broker regarding how to
instruct your broker to vote your shares.
Q: MAY I CHANGE MY VOTE AFTER I A: Yes. Just send in a written revocation or a later dated,
HAVE MAILED MY SIGNED PROXY signed proxy card before the Special Meeting or simply
CARD? attend the Special Meeting and vote in person.
Q: WHEN DO YOU EXPECT THE MERGER A: We are working toward completing the merger as
TO BE COMPLETED? quickly as possible. If the Merger Agreement is
approved and the other conditions to the merger are
satisfied, we expect to complete the merger shortly
following the Special Meeting.
Q: WHAT ARE THE U.S. FEDERAL A: The receipt by you of cash for your shares in the merger
INCOME TAX CONSEQUENCES OF THE generally will be taxable for U.S. federal income tax
MERGER TO ME? purposes. To review the federal income tax
consequences to stockholders in greater detail, see
pages 41 to 42.
Q: WHAT OTHER MATTERS WILL BE A: We do not expect that there will be any other matters
VOTED ON AT THE SPECIAL voted upon at the Special Meeting.
MEETING?
Q: WHO CAN HELP ANSWER MY A: If you have more questions about the merger or would
QUESTIONS? like additional copies of this Proxy Statement, you
should contact Morrow & Co., Inc., a professional
soliciting organization retained by the Company, at
1-800-566-9061.
</TABLE>
2
<PAGE>
SUMMARY
This summary highlights selected information from this document. This
summary may not contain all of the information that is important to you. To
understand the merger fully and for a more complete description of the terms of
the merger, you should read this entire document carefully and the other
documents to which we have referred you. See the sections of this document
entitled "WHERE YOU CAN FIND MORE INFORMATION" and "AVAILABLE INFORMATION" on
pages 60 and 61.
Throughout this document, the term "Merger Agreement" refers to the
Agreement and Plan of Merger, dated as of November 22, 1998, between the
Company and River Acquisition Corp. (a copy of which is included at the back of
this document as Annex A), the term "Merger" refers to the merger of River
Acquisition Corp. with and into the Company, with the Company as the surviving
corporation, and the term "Merger Consideration" refers to the $57.25 per share
in cash, without interest, to be received by stockholders in the Merger. River
Acquisition Corp. will be owned by the Buyout Group. For ease of reference, we
sometimes refer in this document to River Acquisition Corp. as "River
Acquisition," to Hudson General Corporation as the "Company" (or the "Surviving
Corporation" upon consummation of the Merger), and to Jay B. Langner and
certain members of his family, Richard D. Segal and certain members of his
family, Rocco Daloia, Fernando DiBenedetto, Paul R. Pollack, Barry I.
Regenstein, Raymond J. Rieder, Noah E. Rockowitz, Michael Rubin and Henry A.
Satinskas, collectively, as the "Buyout Group." We are also using the term
"Common Stock" to mean the Company's common stock, par value $1.00 per share,
and the term "Options" to mean all outstanding options to acquire Common Stock
of the Company.
SPECIAL FACTORS
PURPOSE AND EFFECTS OF THE MERGER
The Buyout Group's purpose for the Merger is to acquire all of the shares
of Common Stock in the Company that they do not already own. The Buyout Group
sought to structure the transaction as a merger because it would enable the
Buyout Group to obtain financing on the best terms possible and possibly reduce
transaction costs. If the Merger is completed, the Company's Common Stock would
cease to be publicly traded and holders of Common Stock (other than River
Acquisition and any stockholders who validly dissent from the Merger and seek
appraisal of their shares in accordance with the Delaware law requirements
explained in this Proxy Statement) would receive $57.25 per share in cash,
without interest. Following the Merger, all of the outstanding capital stock of
the Company, as the surviving corporation in the Merger, would be owned by the
Buyout Group.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
In May 1998, certain members of the Buyout Group informed the Company's
Board of Directors (the "Board") that they had an interest in exploring the
feasibility of organizing a management buyout of the Company. Because it was
anticipated that as many as four of the eight members of the Board might
participate in such a management buyout, the Board sought to avoid the
potential conflicts of interest involved by forming a special committee of
independent directors (the "Special Committee") to receive, study, negotiate
and make recommendations to the Board in connection with any proposed
acquisition of the Company by the Buyout Group or any other prospective
acquiror. The Special Committee is comprised of Milton H. Dresner, Edward J.
Rosenthal and Hans H. Sammer. Each is a director of the Company and is not a
part of the Buyout Group.
The Board, acting on the unanimous recommendation of the Special
Committee, has approved the Merger Agreement and the Merger and recommends that
you vote to approve and adopt the Merger Agreement and the transactions
contemplated thereby. The Board believes that the Merger and the terms and
provisions of the Merger Agreement (including the $57.25 per share cash
purchase price) are fair to and in the best interests of the Company and its
stockholders (other than River Acquisition and the Buyout Group).
3
<PAGE>
FACTORS CONSIDERED BY THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS
In reaching their decision to approve and recommend adoption of the Merger
Agreement, the Special Committee and the Board considered a number of factors.
These include, among others, the following:
o the opinion of Allen & Company Incorporated ("Allen & Company")
addressed to the Special Committee that, as of November 22, 1998, the
$57.25 per share in cash to be received by the holders of the Company's
Common Stock (other than the stockholders of River Acquisition) in
connection with the Merger is fair to such stockholders from a
financial point of view;
o the Merger Agreement requirement that the Merger be approved by the
holders of a majority of the shares of Common Stock other than shares
owned by River Acquisition and the members of the Buyout Group;
o the Merger Agreement provision providing that the Special Committee or
the Company may furnish or provide access to information concerning the
Company to third parties who indicate a willingness to make an
acquisition proposal at a price in excess of $57.25 per share; and
o the Merger Agreement provision permitting the Special Committee, in
the exercise of its fiduciary duty, to terminate the Merger Agreement
in order to permit the Company to enter into a superior transaction
with a third party and the fact that in such case the Buyout Group
would be entitled to reimbursement of its out-of-pocket expenses up to
a maximum of $1,750,000, but would not be entitled to any termination
or "break up" fee.
Additional factors considered by the Special Committee and the Board are
set forth on pages 23 to 26.
FAIRNESS OPINION OF ALLEN & COMPANY
Allen & Company delivered to the Special Committee a written opinion,
dated November 22, 1998, that as of such date, based upon and subject to the
various considerations, assumptions and limitations stated therein, the $57.25
per share in cash to be received by the holders of the Company's Common Stock
is fair to such stockholders (other than the stockholders of River Acquisition)
from a financial point of view. The Allen & Company opinion is included as
Annex B at the end of this Proxy Statement. Please read this opinion carefully.
To review Allen & Company's considerations, assumptions and limitations in
greater detail, see pages 27 to 32.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The members of the Buyout Group currently contemplate that immediately
prior to the Merger each of them would contribute to River Acquisition all of
the shares of Common Stock beneficially owned by them. Assuming that such
equity contributions were made to River Acquisition, upon consummation of the
Merger, Messrs. Langner and Segal would collectively own approximately 75.1% of
the outstanding common stock of the Surviving Corporation and the other members
of the Buyout Group would own, in the aggregate, approximately 24.9% of the
outstanding common stock of the Surviving Corporation. Such ownership will
arise from the conversion, upon the consummation of the Merger, of all of the
outstanding shares of common stock of River Acquisition into all of the
outstanding shares of common stock of the Surviving Corporation. The Options to
acquire shares of Common Stock of the Company held by members of the Buyout
Group are expected to be converted into options to acquire common stock of the
Surviving Corporation on terms which have not yet been determined.
Pursuant to the Commitment Letter (as defined below), River Acquisition is
required to have a minimum capitalization of at least 245,000 shares of Common
Stock of the Company plus an additional 35,000 shares and/or retained Options
equivalent to shares of Common Stock. In the event that any shares of Common
Stock beneficially owned by members of the Buyout Group are not contributed to
River Acquisition prior to consummation of the Merger, such shares will be
cashed out in the Merger in accordance with the terms of the Merger Agreement.
4
<PAGE>
The Buyout Group has not yet formulated definitive plans regarding such
equity contributions, the treatment of Options held by members of the Buyout
Group and certain other arrangements to be made among the members of the Buyout
Group and other members of the Company's management. It is currently
contemplated that such arrangements would include an agreement among Messrs.
Langner, Segal and certain other members of the Buyout Group regarding the
management and control of the Surviving Corporation, the creation of certain
rights of first refusal concerning dispositions of the shares of common stock
of the Surviving Corporation owned by members of the Buyout Group, the creation
of certain equity or equity-based incentives for certain members of management,
and related stockholder arrangements.
The members of the Buyout Group and certain officers and directors of the
Company have relationships, or interests in the Merger, that are different from
your interests as a stockholder or that may present a conflict of interest. For
a description of these interests see pages 36 to 38. The Special Committee and
the Board were aware of these interests and considered them in recommending and
approving the Merger.
ACCOUNTING TREATMENT
The cash paid to repurchase the Company's outstanding Common Stock will be
accounted for as a treasury stock transaction, since the Merger will not
constitute a business combination. Because certain existing shareholders of the
Company prior to the Merger will continue to own more than 5% of the
outstanding voting common stock after the transaction, "push-down" accounting
by the Buyout Group is not required. Accordingly, the historical cost basis of
the Company's assets and liabilities will be carried forward to the Surviving
Corporation in the Merger, with the aggregate cash paid to repurchase the
Company's outstanding Common Stock being accounted for as a reduction of
stockholders' equity. The cash paid to repurchase and cancel outstanding
Options will be accounted for as compensation expense.
FINANCING OF THE MERGER
At the closing of the Merger, River Acquisition expects to pay an
aggregate purchase price of approximately $81.1 million to the holders of
Common Stock and the holders of Options to acquire the Company's Common Stock
(other than shares of Common Stock contributed to River Acquisition by members
of the Buyout Group and Options held by members of the Buyout Group converted
into options to acquire shares of the Surviving Corporation). In addition, the
parties anticipate that the Company and River Acquisition will require
approximately $5.6 million to pay for the Company's and River Acquisition's
expenses and costs relating to the Merger Agreement and the transactions
contemplated thereby. On November 20, 1998, River Acquisition obtained a
commitment from BankBoston, N.A., European American Bank, The Chase Manhattan
Bank and BancBoston Robertson Stephens Inc. to arrange, fund and administer,
subject to certain specified conditions, senior secured revolving credit and
term loan facilities aggregating up to approximately $50.0 million in order to
finance the Merger (the "Commitment Letter"). It is a condition to River
Acquisition's obligation to consummate the Merger that it has obtained the
financing for the Merger described in the Commitment Letter. The remaining
portion of the proceeds necessary to pay the Merger Consideration and pay for
costs and expenses of the transaction will be provided from cash on hand at the
Company. For a discussion of certain terms of the Commitment Letter and other
factors relating to the financing of the Merger, see pages 38 to 40.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
You will be taxed on your receipt of the $57.25 per share in cash. Because
determining the tax consequences of the Merger can be complicated, you should
consult your tax advisor in order to understand fully how the Merger will
affect you.
5
<PAGE>
THE SPECIAL MEETING
VOTING
A special meeting of stockholders of the Company will be held at [Time]
a.m., local time, on [Day], [Date], 1999 at [Location] (the "Special Meeting").
At the Special Meeting, the holders of the Company's outstanding Common Stock
will vote on a proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby. Each share of Common Stock is entitled to
one vote per share.
Unless contrary instructions are indicated, proxies will be voted FOR the
approval and adoption of the Merger Agreement and the transactions contemplated
thereby. As explained below in the section entitled "DISSENTERS' RIGHTS OF
APPRAISAL," a vote in favor of the Merger Agreement means that the stockholder
owning those shares will not have the right to dissent and seek appraisal of
the fair market value of the shares. The Company does not know of any matters,
other than as described in the Notice of Special Meeting of Stockholders, which
are to come before the Special Meeting. If any other matters are properly
presented at the Special Meeting for action, including, among other things,
consideration of a motion to adjourn such meeting to another time and/or place
(including, without limitation, for the purpose of soliciting additional
proxies or allowing additional time for the satisfaction of conditions to the
Merger), the persons named in the enclosed proxy card and acting thereunder
generally will have discretion to vote on such matters in accordance with their
best judgment. Notwithstanding the foregoing, the persons named in the enclosed
proxy card will not use their discretionary authority to use proxies voting
against the Merger to vote in favor of adjournment or postponement of the
Special Meeting. The Merger is also subject to a number of conditions. See "THE
MERGER AGREEMENT--Conditions." At the present time, the Company does not
anticipate waiving any of the material conditions of the Merger.
Delaware law requires that the holders of a majority of the voting power
of all outstanding shares of Common Stock vote to approve and adopt the Merger
Agreement. In addition, in order to ensure that stockholders who are not
members of the Buyout Group are in favor of the Merger, River Acquisition has
agreed to an independent approval requirement stipulating that the holders of a
majority of all outstanding shares of Common Stock other than those shares held
by River Acquisition and the members of the Buyout Group must approve and adopt
the Merger Agreement for the Merger to occur. Under the terms of the Merger
Agreement, the current officers of the Company will be the officers of the
Surviving Corporation following consummation of the Merger. The members of the
Buyout Group (which include four directors and all executive officers of the
Company) currently own 329,270 shares of Common Stock, representing
approximately 18.9% of the outstanding shares of Common Stock as of the Record
Date (as defined below). The members of the Buyout Group also hold Options to
acquire 34,700 shares of Common Stock, which Options are expected to be
converted into options to acquire shares of common stock of the Surviving
Corporation upon consummation of the Merger on terms which have not yet been
determined. To review a more detailed description of the interests of the
members of the Buyout Group and certain other persons in connection with the
Merger, see pages 36 to 38. The Company has been advised that all members of
the Buyout Group owning Common Stock intend to vote all their shares in favor
of the Merger Agreement and the transactions contemplated thereby. The members
of the Board who are not members of the Buyout Group also intend to vote all
their shares (77,200 shares or approximately 4.4% of the outstanding shares of
Common Stock as of the Record Date) in favor of the Merger Agreement and the
transactions contemplated thereby.
Acting under authority granted to it by the Board, the Special Committee
has set the close of business on [Record Date] as the record date for
determining who is entitled to vote at the Special Meeting (the "Record Date").
On the Record Date, there were 1,744,949 shares of Common Stock outstanding and
entitled to vote held by approximately 182 stockholders of record.
THE MERGER AGREEMENT
THE MERGER CONSIDERATION
If the Merger is completed, you will be entitled to receive $57.25 per
share in cash for your Common Stock, without interest.
6
<PAGE>
CONDITIONS TO THE MERGER
There are a number of conditions that must be satisfied before either the
Company or River Acquisition is obligated to complete the Merger, including,
among others, the following:
o the Merger must be approved by a majority of the voting power held by
the stockholders of the Company, as well as a majority of the voting
power held by the stockholders of the Company other than River
Acquisition and the members of the Buyout Group; and
o there can be no legal restraints or prohibitions that prevent
completion of the Merger.
There are additional conditions that must be satisfied or waived before
River Acquisition is obligated to complete the Merger, including:
o River Acquisition must obtain the financing described in the
Commitment Letter to complete the Merger;
o holders of not more than 7.5% of the outstanding shares of Common
Stock exercise dissenters' appraisal rights;
o the Company must comply with the Merger Agreement;
o following the execution of the Merger Agreement there will not have
occurred any event which has had or could be reasonably expected to
have a material adverse effect on the Company; and
o the representations and warranties made by the Company in the Merger
Agreement must be true and correct except where the failure to be true
and correct would not have a material adverse effect on the Company.
There are additional conditions that must be satisfied before the Company
is obligated to complete the Merger, including:
o River Acquisition must comply with the Merger Agreement; and
o the representations and warranties made by River Acquisition in the
Merger Agreement must be true and correct in all material respects.
TERMINATION OF THE MERGER AGREEMENT
The Company (acting through the Special Committee) and River Acquisition
may agree at any time (including any time after the Special Meeting) to
terminate the Merger Agreement. In addition, either the Company or River
Acquisition may terminate the Merger Agreement if:
o the Merger has not been completed by April 30, 1999;
o a final court order or other governmental action prohibits the Merger;
or
o the other party materially fails to comply with the Merger Agreement
and such failure cannot be remedied by April 30, 1999.
The Company (acting through the Special Committee) may terminate the Merger
Agreement if:
o the Company receives a notice from River Acquisition that the
Commitment Letter has been terminated or cancelled; or
o the Special Committee determines, under certain circumstances and
before the approval of stockholders required by the Merger Agreement,
that it is necessary to terminate the Merger Agreement in order to
comply with its fiduciary duties to the Company's stockholders.
To review the circumstances under which the Special Committee may terminate
the Merger Agreement in order to comply with its fiduciary duties to the
Company's stockholders, see page 47.
7
<PAGE>
River Acquisition may terminate the Merger Agreement if:
o the Company's Board of Directors decides to withdraw, modify or change
its recommendation in favor of the Merger;
o the Company's Board of Directors recommends or resolves to recommend
an alternative Acquisition Proposal (as defined in the Merger
Agreement) to the Company's stockholders; or
o holders of shares representing a majority of the voting power owned by
stockholders of the Company and a majority of the voting power owned by
stockholders of the Company other than River Acquisition and the Buyout
Group do not approve and adopt the Merger Agreement and the
transactions contemplated thereby by April 30, 1999.
NO SOLICITATION
The Company and its subsidiaries will not solicit or encourage any
Acquisition Proposal except in certain circumstances including:
o if the Company or the Special Committee receives an unsolicited,
written indication of a willingness to make an Acquisition Proposal at
a price the Special Committee reasonably concludes is in excess of
$57.25 and the Special Committee reasonably concludes that such person
is capable of consummating the Acquisition Proposal, then the Company
or the Special Committee may provide information to such person
pursuant to an appropriate confidentiality agreement; and
o the Company or the Special Committee may engage in discussions and
negotiations with any person concerning an Acquisition Proposal if the
Special Committee concludes that the failure to engage in discussions
or negotiations would be inconsistent with the Special Committee's
fiduciary duties.
FEES AND EXPENSES
The Buyout Group will be reimbursed up to a maximum amount of $1,750,000
for its costs and expenses incurred in connection with the transactions
contemplated by the Merger Agreement if the Merger Agreement is terminated:
o by River Acquisition because the Special Committee withdraws, modifies
or changes its recommendation that the stockholders of the Company
approve the Merger Agreement;
o by River Acquisition, after the Special Committee recommends an
alternative Acquisition Proposal to the Company's stockholders; and
o by the Company (acting through the Special Committee), in order for
the Special Committee to comply with its fiduciary duties to the
Company's stockholders in connection with an alternative Acquisition
Proposal.
The Buyout Group will be reimbursed up to a maximum amount of $875,000 for
its costs and expenses incurred in connection with the transactions
contemplated by the Merger Agreement if the Merger Agreement is terminated by
River Acquisition, following failure by the Company to receive stockholder
approval of the Merger Agreement and the transactions contemplated thereby by
April 30, 1999.
8
<PAGE>
DISSENTERS' RIGHTS OF APPRAISAL
Any stockholder who does not wish to accept $57.25 per share in cash in
the Merger has the right under Delaware law to have the "fair value" of his,
her or its shares determined by the Delaware Chancery Court. This "right of
appraisal" is subject to a number of restrictions and technical requirements.
Generally, in order to exercise appraisal rights:
o you must NOT vote in favor of the Merger; and
o you must make a written demand for appraisal in compliance with
Delaware law BEFORE the vote on the Merger.
Merely voting against the Merger will not protect your right of appraisal.
Annex C to this Proxy Statement contains the Delaware statute relating to your
right of appraisal. Failure to follow all of the steps required by this statute
will result in the loss of your right of appraisal. The Delaware law
requirements for exercising appraisal rights are explained on pages 51 to 53.
9
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following table sets forth selected consolidated financial data for
the Company and its subsidiaries (i) as of and for the three months ended
September 30, 1998 and 1997 and (ii) as of and for each of the five fiscal
years in the period ended June 30, 1998. No separate financial information is
provided for River Acquisition since River Acquisition is a special purpose
entity formed in connection with the Merger and has no independent operations.
No pro forma data giving effect to the Merger have been provided because the
Company does not believe such information is material to stockholders in
evaluating the proposed Merger and Merger Agreement since (i) the proposed
Merger Consideration is all cash and (ii) if the Merger is completed, the
Company's Common Stock would cease to be publicly traded.
The financial information for the Company as of and for each of the five
fiscal years in the period ended June 30, 1998 has been derived from audited
consolidated financial statements of the Company. The financial information as
of and for the three months ended September 30, 1998 and 1997 has been derived
from unaudited consolidated financial statements of the Company and, in the
opinion of management, includes all adjustments (consisting only of a normal
recurring nature) necessary to present fairly the information set forth
therein. Operating results for such unaudited interim periods should not be
considered indicative of results to be expected for the full fiscal year.
The unaudited pro forma information gives effect to the exercise by LAGS
(USA) Inc. (an indirect wholly-owned subsidiary of Deutsche Lufthansa AG) of
its option to increase its interest in Hudson General LLC (a 51% owned
affiliate of the Company) from 26% to 49%. Such unaudited pro forma information
and is presented for illustrative purposes only and is not necessarily
indicative of what the Company's results of operations or balance sheet
information would actually have been if the increase in LAGS (USA) Inc.'s
interest in Hudson General LLC had been concluded as of the assumed dates,
nor is such information necessarily indicative of future financial performance
or results of operations.
The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements, accompanying
notes and other financial information included in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1998 and the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September 30,
1998, which financial statements are included as Annex D hereto. See "Where You
Can Find More Information" on pages 60 to 61.
10
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL DATA OF THE COMPANY
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE AS OF AND FOR THE FISCAL YEARS ENDED JUNE
MONTHS ENDED SEPTEMBER 30, 30,
------------------------------------ -------------------------------------------
PRO PRO
FORMA ACTUAL ACTUAL FORMA
1998(A)(B) 1998(A) 1997(A) 1998(A)(B) 1998(A) 1997(A)
------------ ----------- ----------- ------------ ----------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................ $ 1,401 $ 1,401 $ 1,384 $ 5,783 $ 5,783 $ 5,064
Equity in earnings of Hudson
General LLC ........................ 530 769 1,429 6,496 9,426 11,955
Equity in loss of Kohala Joint
Venture ............................ (667) (667) (694) (2,822) (2,822) (11,292)(c)
Earnings before cumulative effect
of change in the method of
accounting for income taxes ........ 517 415 782 4,444 5,256 475 (c)
Earnings per share before
cumulative effect of change in
the method of accounting for
income taxes:
Basic ............................. .30 .24 .45 2.55 3.02 .26
Diluted ........................... .29 .24 .45 2.53 2.99 .26
Net earnings ........................ 517 415 782 4,444 5,256 475 (c)
PER SHARE DATA
Net earnings per share:
Basic ............................. $ .30 $ .24 $ .45 $ 2.55 $ 3.02 $ .26
Diluted ........................... .29 .24 .45 2.53 2.99 .26
BALANCE SHEET DATA
Total assets ........................ $96,688 $71,929 $73,466 -- $ 73,466 $ 68,188
Long-term obligations less
current maturities ................. -- -- -- -- -- --
Stockholders' equity ................ 81,028 68,458 68,441 -- 68,441 65,384
Working capital (deficit) ........... 38,531 39,281 37,851 -- 37,851 25,671
Capital expenditures ................ 29 29 12 -- 178 326
Book value per share ................ 46.44 39.23 39.22 -- 39.22 37.69
Cash dividends per common
share .............................. -- -- -- -- 1.00 .75
<CAPTION>
AS OF AND FOR THE FISCAL YEARS ENDED
JUNE 30,
-----------------------------------
1996(A) 1995 1994
----------- ----------- -----------
INCOME STATEMENT DATA
<S> <C> <C> <C>
Revenues ............................ $157,100 $134,862 $141,784
Equity in earnings of Hudson
General LLC ........................ 855 -- --
Equity in loss of Kohala Joint
Venture ............................ (3,021) (2,747) (1,801)
Earnings before cumulative effect
of change in the method of
accounting for income taxes ........ 10,466 4,593 7,310
Earnings per share before
cumulative effect of change in
the method of accounting for
income taxes:
Basic ............................. 9.09 3.72 5.87
Diluted ........................... 5.60 2.70 3.96
Net earnings ........................ 10,466 4,593 7,760
PER SHARE DATA
Net earnings per share:
Basic ............................. $ 9.09 $ 3.72 $ 6.23
Diluted ........................... 5.60 2.70 4.17
BALANCE SHEET DATA
Total assets ........................ $ 48,776 $ 87,568 $ 77,889
Long-term obligations less
current maturities ................. -- 29,000 29,000
Stockholders' equity ................ 43,895 21,616 19,223
Working capital (deficit) ........... 16,355 (1,611) (1,660)
Capital expenditures ................ 13,158 10,806 9,815
Book value per share ................ 37.74 18.68 15.37
Cash dividends per common
share .............................. .50 .50 --
</TABLE>
- ---------
(a) As a result of a transaction with Lufthansa Airport and Ground
Services GmbH, effective June 1, 1996, the Company's interest in its
aviation services business is accounted for under the equity method.
To review the terms of this transaction in greater detail, see pages
15 to 16.
(b) On October 1, 1998, LAGS (USA) Inc. (an indirect wholly-owned
subsidiary of Deutsche Lufthansa AG) gave notice to the Company of
exercise of its option to increase LAGS (USA) Inc.'s interest in
Hudson General LLC from 26% to 49%. To review the terms of this
transaction in greater detail, see pages 15 to 16. The Company is
providing unaudited pro forma condensed consolidated balance sheet
information which assumes that the transaction was completed as of
September 30, 1998; and unaudited pro forma condensed consolidated
statement of earnings information for the three months ended
September 30, 1998 and the year ended June 30, 1998 which assume
that the transaction was completed as of July 1, 1997.
(c) Includes a pre-tax charge of $8.5 million related to the Company's
investment in and advances to the Kohala Joint Venture.
11
<PAGE>
SELECTED FINANCIAL DATA OF HUDSON GENERAL LLC
The financial information for Hudson General LLC for each of the fiscal
years ended June 30, 1998 and 1997 and the one month ended June 30, 1996 has
been derived from audited consolidated financial statements of Hudson General
LLC. The financial information as of and for the three months ended September
30, 1998 and 1997 has been derived from unaudited consolidated financial
statements of Hudson General LLC and, in the opinion of management, includes
all adjustments (consisting only of a normal recurring nature) necessary to
present fairly the information set forth therein. Operating results for such
unaudited interim periods should not be considered indicative of results to be
expected for the full fiscal year.
The following financial information should be read in conjunction with the
Company's "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Hudson General LLC's consolidated financial
statements, accompanying notes and other financial information included in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998
and the Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1998, which financial statements are included as Annex D hereto.
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE AS OF AND FOR THE
MONTHS ENDED SEPTEMBER FISCAL AS OF AND
30, YEARS ENDED JUNE 30, FOR THE MONTH
----------------------- ----------------------- ENDED JUNE 30,
1998 1997 1998 1997 1996
------------ ---------- ----------- ----------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues .............................................. $ 41,124 $ 39,356 $ 168,947 $167,729 $12,096
Earnings before income taxes .......................... 1,255 2,308 14,486 18,024 896
Net earnings .......................................... 1,040 1,931 12,738 15,939 855
BALANCE SHEET DATA
Total assets .......................................... $ 73,349 $ 73,969 $ 72,952 $ 79,020 $80,724
Long-term obligations less current maturities ......... 654 3,130 3,130 4,630 28,751
Members' equity ....................................... 31,577 37,116 31,075 35,210 11,551
Working capital (deficit) ............................. (12,380) (7,346) (11,758) (7,356) (781)
Capital expenditures .................................. 2,889 2,280 10,045 15,218 1,825
</TABLE>
12
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETING
TIME, PLACE, DATE
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of the Company of proxies from the holders of shares of
the Company's Common Stock for use at the Special Meeting to be held at [Time]
a.m., local time, on [Day] [Date] 1999, at [Location], or at any adjournment(s)
or postponement(s) thereof, pursuant to the enclosed Notice of Special Meeting
of Stockholders.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the stockholders of the Company will be asked to
consider and vote upon the approval and adoption of the Merger Agreement and
the transactions contemplated thereby. A copy of the Merger Agreement is
attached to this Proxy Statement as Annex A. The Merger Agreement provides for
the merger of River Acquisition with and into the Company, with the Company as
the Surviving Corporation. Pursuant to the Merger Agreement, each outstanding
share of Common Stock (other than Common Stock held (i) in the treasury of the
Company or by any of its wholly owned subsidiaries, (ii) by River Acquisition,
or (iii) by stockholders who perfect their rights under Delaware law to dissent
from the Merger and seek an appraisal of the fair market value of their shares
(the "Dissenting Stockholders")) will be converted into the right to receive
$57.25 per share in cash, without interest.
The Special Committee consisting of Messrs. Dresner, Rosenthal and Sammer
was appointed by the Board to review and evaluate the terms of the Merger and
to report to the Board regarding the fairness of the Merger to the holders of
Common Stock. Messrs. Dresner, Rosenthal and Sammer are not employees of the
Company and will not have any continuing equity interest in the Surviving
Corporation. The Special Committee concluded that the terms and provisions of
the Merger Agreement and the Merger are fair to and in the best interests of
the Company and the holders of Common Stock (other than River Acquisition and
the Buyout Group), and unanimously recommended that the Board approve the
Merger Agreement and the transactions contemplated thereby. At a meeting held
on November 22, 1998, acting on the unanimous recommendation of the Special
Committee, the Board concluded that the terms and provisions of the Merger
Agreement and the Merger are fair to and in the best interests of the Company
and the holders of Common Stock (other than River Acquisition and the Buyout
Group), approved the Merger Agreement, and recommended that the stockholders
approve and adopt the Merger Agreement and the transactions contemplated
thereby. The Special Committee and the Board, in reaching their respective
decisions, considered a number of factors, including the opinion of Allen &
Company Incorporated ("Allen & Company"), the investment banking firm that
advised the Special Committee, that, as of the date of such opinion and based
upon and subject to various considerations, assumptions and limitations stated
therein, the Merger Consideration to be received by the stockholders of the
Company (other than the stockholders of River Acquisition) in the Merger is
fair from a financial point of view. A copy of Allen & Company's opinion is
attached as Annex B to this Proxy Statement. See "SPECIAL
FACTORS--Recommendation of the Special Committee and Board of Directors;
Fairness of the Merger" and "SPECIAL FACTORS--Opinion of Financial Advisor to
the Special Committee."
BASED ON THE UNANIMOUS RECOMMENDATION OF ITS SPECIAL COMMITTEE, THE BOARD OF
DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
RECORD DATE; VOTING AT THE MEETING; QUORUM
Acting under authority granted to it by the Board, the Special Committee
has fixed the close of business on [Record Date] as the Record Date for the
Special Meeting. Only stockholders of record as of the close of business on
[Month Day], 1999 will be entitled to notice of and to vote at the Special
Meeting.
As of the close of business on the Record Date, the Company had
outstanding 1,744,949 shares of Common Stock, held of record by approximately
182 registered holders. Holders of the Common Stock
13
<PAGE>
are entitled to one vote per share. The presence in person or by proxy of the
holders of at least a majority of the voting power of the outstanding Common
Stock entitled to vote at the Special Meeting constitutes a quorum. Broker
non-votes and shares as to which a stockholder abstains will be included in
determining whether there is a quorum at the Special Meeting.
REQUIRED VOTE
Under Delaware law, the Merger Agreement must be approved and adopted by
the affirmative vote of the holders of a majority of the voting power of the
outstanding shares of Common Stock of the Company. However, the Buyout Group
and the Company have agreed in the Merger Agreement that, in addition, it is
also a condition to the consummation of the Merger that the Merger Agreement be
approved and adopted by the affirmative vote of the holders of a majority of
all outstanding shares of Common Stock not owned by River Acquisition and the
Buyout Group. The affirmative vote of approximately 707,840 shares of Common
Stock not owned by the Buyout Group will be necessary to satisfy the
independent vote requirement. The members of the Buyout Group (which include
four directors and all executive officers of the Company) currently own 329,270
shares of Common Stock, representing approximately 18.9% of the outstanding
shares of Common Stock as of the Record Date. The members of the Buyout Group
also hold Options to acquire 34,700 shares of Common Stock, which Options are
expected to be converted into options to acquire shares of common stock of the
Surviving Corporation upon consummation of the Merger, on terms which have not
yet been determined. See "SPECIAL FACTORS--Interests of Certain Persons in the
Merger; Certain Relationships." The Company has been advised that all members
of the Buyout Group owning Common Stock intend to vote all their shares in
favor of the Merger Agreement and the transactions contemplated thereby. The
members of the Board who are not members of the Buyout Group also intend to
vote all their shares (77,200 shares or approximately 4.4% of the outstanding
shares of Common Stock as of the Record Date) in favor of the Merger Agreement
and the transactions contemplated thereby.
Failure to return an executed proxy card or to vote in person at the
Special Meeting or voting to abstain will constitute, in effect, a vote against
approval and adoption of the Merger Agreement and the transactions contemplated
thereby, for purposes of Delaware law and the independent vote requirement.
Similarly, broker non-votes will have the same effect as a vote against
approval and adoption of the Merger Agreement and the transactions contemplated
thereby.
ACTION TO BE TAKEN AT THE MEETING
The enclosed proxy card is solicited on behalf of the Company's Board. The
giving of a proxy does not preclude the right to vote in person should any
stockholder giving the proxy so desire. Stockholders have an unconditional
right to revoke their proxy at any time prior to the exercise thereof, either
by filing with the Company's Secretary at the Company's principal executive
offices a written revocation or a duly executed proxy bearing a later date or
by voting in person at the Special Meeting. Attendance at the Special Meeting
without casting a ballot will not, by itself, constitute revocation of a proxy.
Any written notice revoking a proxy should be sent to Hudson General
Corporation, 111 Great Neck Road, Great Neck, New York 11021, Attention: Noah
E. Rockowitz, Senior Vice President and Secretary.
All shares of Common Stock represented at the Special Meeting by properly
executed proxies received prior to or at the Special Meeting, unless previously
revoked, will be voted at the Special Meeting in accordance with the
instructions on the proxies. Unless contrary instructions are indicated,
proxies will be voted FOR the approval and adoption of the Merger Agreement and
the transactions contemplated thereby. As explained below in the section
entitled "DISSENTERS' RIGHTS OF APPRAISAL," a vote in favor of the Merger
Agreement means that the stockholder owning those shares will not have the
right to dissent and seek appraisal of the fair market value of the shares. The
Company does not know of any matters, other than as described in the Notice of
Special Meeting of Stockholders, which are to come before the Special Meeting.
If any other matters are properly presented at the Special Meeting for action,
including, among other things, consideration of a motion to adjourn such
meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies or allowing additional time for the
satisfaction of conditions to the Merger), the persons named in the enclosed
proxy card and
14
<PAGE>
acting thereunder generally will have discretion to vote on such matters in
accordance with their best judgment. Notwithstanding the foregoing, the persons
named in the enclosed proxy card will not use their discretionary authority to
use proxies voting against the Merger to vote in favor of adjournment or
postponement of the Special Meeting. The Merger is also subject to a number of
conditions. See "THE MERGER AGREEMENT--Conditions."
PROXY SOLICITATION
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Special Meeting of Stockholders and the enclosed proxy card will be
borne by the Company. The Company is requesting that banks, brokers and other
custodians, nominees and fiduciaries forward copies of the proxy material to
their principals and request authority for the execution of proxies. The
Company may reimburse such persons for their expenses in so doing. In addition
to the solicitation of proxies by mail, the directors, officers and employees
of the Company and its subsidiaries may, without receiving any additional
compensation, solicit proxies by telephone, telefax, telegram or in person.
The Company has retained the firm of Morrow & Co., Inc. to assist in the
solicitation of proxies at a cost of $5,000 plus reasonable out-of-pocket
expenses.
No person is authorized to give any information or make any representation
not contained in this Proxy Statement, and if given or made, such information
or representation should not be relied upon as having been authorized.
COMPANY STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING SHARES
OF COMMON STOCK WITH THEIR PROXY CARD. IF THE MERGER IS CONSUMMATED, THE
PROCEDURE FOR THE EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMMON STOCK
WILL BE AS SET FORTH IN THIS PROXY STATEMENT. SEE "THE MERGER AGREEMENT--THE
EXCHANGE FUND; PAYMENT FOR SHARES OF COMMON STOCK" AND "THE MERGER
AGREEMENT--TRANSFERS OF COMMON STOCK."
THE PARTIES
THE COMPANY
The Company was organized in Delaware in 1961. The Company, through its
51% owned affiliate, Hudson General LLC ("Hudson LLC"), is principally engaged
in providing a broad range of services to the aviation industry. Such services
include aircraft ground handling, aircraft fueling, fuel management, ground
transportation, snow removal, cargo warehousing, and sale, leasing and
maintenance of airline ground support equipment.
Effective June 1, 1996, pursuant to the terms of a Unit Purchase and
Option Agreement dated February 27, 1996 (the "Purchase Agreement") between the
Company and Lufthansa Airport and Ground Services GmbH ("LAGS"), a corporation
organized and existing under the laws of the Federal Republic of Germany and an
indirect wholly-owned subsidiary of Deutsche Lufthansa AG, the Company
transferred substantially all of the assets and liabilities of its aviation
services business to Hudson LLC. In exchange for the transfer of such assets
and liabilities and the assumption by Hudson LLC, as co-obligor with the
Company, of all of the Company's 7% convertible subordinated debentures (all of
which were subsequently redeemed or converted into Common Stock), the Company
received a 74% interest in Hudson LLC. In addition, Hudson LLC sold LAGS (USA)
Inc. ("LAGS (USA)"), an affiliate of LAGS, a 26% interest in Hudson LLC, for a
purchase price of $23,686,000 in cash (after certain adjustments), of which
$15,848,000 was paid at the closing, and deferred payments of $2,650,000 and
$5,188,000 plus interest thereon were made, respectively, in September 1996 and
December 1996. The Purchase Agreement, as amended, provided LAGS (USA) an
option (the "LAGS Option"), exercisable on October 1 of each year through 1999,
effective as of the preceding July 1, pursuant to which LAGS (USA) could
increase its equity interest in Hudson LLC to up to 49%. On October 1, 1998,
LAGS (USA) gave notice of its exercise of the LAGS Option. On November 2, 1998,
the closing of the LAGS Option
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took place, and LAGS (USA) increased from 26% to 49% its ownership interest in
Hudson LLC. The Company's ownership interest in Hudson LLC was correspondingly
decreased from 74% to 51%. The $29,627,000 exercise price of the LAGS Option
(plus $1,123,000 of interest) was paid by LAGS (USA) to Hudson LLC. Upon such
payment, LAGS (USA) acquired 230 additional Class B Units of Hudson LLC (the
"Class B Units"). Concurrently therewith, the Company converted 230 of the
Class A Units of Hudson LLC (the "Class A Units") held by it into 230 new
non-voting Preferred Units (the "Preferred Units") of Hudson LLC. After giving
effect to the LAGS Option exercise and the Company's exchange of 230 Class A
Units for 230 Preferred Units, LAGS (USA) owns 490 Class B Units and the
Company owns 510 Class A Units. The 230 Preferred Units owned by the Company
have a liquidation preference of $128,811 per unit, and are redeemable by
Hudson LLC at any time on or after August 1, 2001 for an amount equal to the
liquidation preference. From and after October 1, 2001, the Preferred Units, if
not previously called for redemption, are convertible, at the option of the
holders, into Class A Units on a one-for-one basis. The Preferred Units are
entitled to receive a fixed distribution per annum at 3.95% of the liquidation
preference, payable quarterly, commencing on December 31, 1998 until September
30, 2001, and at an Internal Revenue Service safe harbor rate, as defined,
thereafter. Such distributions are cumulative, and all such distributions must
be made in full before any distribution may be made in respect of the Class A
Units and Class B Units. As a result of the LAGS Option exercise, the Company's
investment in Hudson LLC and paid in capital were increased by $25,509,000 and
approximately $12,570,000 (net of deferred income taxes and transaction fees),
respectively. The Company is unable to determine when, or whether, such
deferred income taxes will result in a current tax liability.
In addition to its interest in Hudson LLC, the Company is a 50% partner
with Oxford First Corporation in a joint venture for the development and sale
of land on the Island of Hawaii (the "Kohala Joint Venture").
For additional information concerning the Company, see "WHERE YOU CAN FIND
MORE INFORMATION" and "AVAILABLE INFORMATION."
RIVER ACQUISITION
River Acquisition was incorporated in Delaware in November 1998 by certain
members of the Buyout Group in connection with the proposed Merger. River
Acquisition has not been engaged in any business activities other than those in
connection with the Merger. The principal office and business address of River
Acquisition is c/o Seavest Inc., 707 Westchester Avenue, White Plains, New York
10604. The telephone number of River Acquisition is (914) 681-4460.
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SPECIAL FACTORS
BACKGROUND OF THE MERGER
In July 1997, Mr. Langner informed the Board that he and Mr. Segal had an
interest in exploring the feasibility of organizing a management buyout of the
Company. Mr. Langner, on behalf of himself and Mr. Segal, requested the Board's
permission to consult with Allen & Company, the Company's financial advisor, in
connection with their analysis of the feasibility of such a transaction. The
Board granted such permission, and Messrs. Langner and Segal, together with
certain other members of the Company's management, thereafter consulted with
Allen & Company in connection with such matter.
In October 1997, Mr. Langner informed the Board that neither he nor Mr.
Segal would pursue a management buyout proposal at that time.
On May 15, 1998, Mr. Langner informed the Board that he and Mr. Segal
again had an interest in exploring the feasibility of organizing a management
buyout of the Company, and again requested that the Board permit him, together
with Mr. Segal and certain other members of management, to continue to consult
with Allen & Company concerning the feasibility of such a transaction. The
Board granted such permission, and such consultations with Allen & Company
occurred from time to time until mid-June, 1998.
On June 22, 1998, Mr. Langner advised the Board that, while he and Mr.
Segal were still in the preliminary stages of their analysis of a potential
management buyout, they had concluded that it was desirable to retain their own
legal and financial advisors. The Board, following consultation with the
Company's legal counsel, Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden
Arps"), determined that, in view of possible conflicts of interest, it was
advisable to form a Special Committee of the Board consisting of three
directors, Milton H. Dresner, Edward J. Rosenthal and Hans H. Sammer, none of
whom are employed by or affiliated with the Company (except in their capacities
as directors) and none of whom would participate as members of any management
buyout group. The Special Committee was authorized by the Board to receive,
study, negotiate and make recommendations to the Board in connection with any
proposed acquisition of the Company by the members of management or any other
prospective acquiror. The Special Committee also was authorized by the Board to
retain, at the Company's expense, legal and financial advisors of the Special
Committee's choosing.
On June 22, 1998, immediately following the meeting of the Board, the
newly-formed Special Committee held an organizational meeting. At the request
of the Special Committee, Skadden Arps was present and reviewed with the
Special Committee its duties and responsibilities and the role of the Special
Committee in negotiating with any person making an acquisition proposal for the
Company, including members of management. At the organizational meeting, the
Special Committee considered the retention of legal and financial advisors and
discussed the possibility of retaining Skadden Arps, the Company's legal
counsel, as legal advisor to the Special Committee, and the possibility of
retaining Allen & Company, the Company's financial advisor, as financial
advisor to the Special Committee. At the request of the Special Committee,
representatives of Allen & Company joined the meeting and described the nature
of the consultation services furnished by Allen & Company to Messrs. Langner
and Segal, and certain other members of management, in connection with their
evaluation of the feasibility of developing a management buyout proposal.
Stanley S. Shuman, a Managing Director of Allen & Company, also serves as a
director of the Company.
Following the meeting of the Special Committee on June 22, 1998, the
members of the Special Committee engaged in discussions among themselves
concerning the engagement of legal and financial advisors. In a telephonic
meeting of the Special Committee held on June 24, 1998, the Special Committee
determined to engage Skadden Arps as its legal advisor and Allen & Company as
its financial advisor. The Special Committee made such determination based on
Allen & Company's and Skadden Arps' respective experience, expertise and
long-standing familiarity with the Company and its businesses. Also, at the
meeting of the Special Committee on June 24, 1998, the Special Committee
determined that certain members of management should be required to enter into
Confidentiality Agreements with the Company before being permitted to furnish
confidential information concerning the Company to potential financing
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sources and other third parties. In addition, the Special Committee considered
a request from certain members of management that the Company reimburse them
for their expenses, up to a negotiated cap, incurred prior to the execution of
any merger agreement in connection with their evaluation of a possible buyout
proposal. The Special Committee deferred making any decision at that time
concerning the possible reimbursement of such expenses.
On June 26, 1998, the Special Committee's legal and financial advisors met
with Weil, Gotshal & Manges LLP ("Weil Gotshal"), counsel to certain members of
management, and Lazard Freres & Co. LLC ("Lazard Freres"), financial advisor to
such members of management, as well as with Messrs. Langner and Segal and
certain other members of management. The purpose of the meeting was to discuss,
on a preliminary basis, certain legal and financial issues relating to a
possible management buyout. There was a discussion concerning the continuing
request by certain members of management that the Company reimburse them for
expenses, up to a negotiated cap, incurred in connection with their evaluation
of a potential buyout proposal. The Special Committee's advisors informed the
members of management and their advisors that the Special Committee was not in
favor of having the Company reimburse all expenses incurred by management, and
management then modified the request and proposed that members of management
considering the feasibility of a buyout transaction would pay for the first
$250,000 of their expenses and requested reimbursement from the Company for the
next $250,000 of expenses.
On June 30, 1998, the Special Committee met telephonically with its legal
and financial advisors. The Special Committee's advisors reported on the June
26, 1998 meeting with certain members of management and their legal and
financial advisors, and discussed with the Special Committee management's
request for expense reimbursement. The Special Committee rejected such request
and, in response, authorized an expense reimbursement arrangement whereby the
potential members of a management buyout group would be responsible for the
first $250,000 of their expenses and the Company would reimburse them for fifty
percent of the next $250,000 of expenses, thereby limiting the Company's
expense reimbursement obligation to a maximum of $125,000.
Between June 30, 1998 and July 6, 1998, the Company entered into separate
Confidentiality Agreements with each of Jay B. Langner, Richard D. Segal,
Michael Rubin, Paul R. Pollack, Noah E. Rockowitz and Barry I. Regenstein, who
were the individuals the Special Committee believed would likely be in contact
with potential financing sources and other third parties regarding a potential
management buyout. Each of the Confidentiality Agreements provides that the
Company will make available to such persons and their representatives certain
non-public financial and other business information concerning the Company and
that such persons would treat such information on a confidential basis.
On July 9, 1998, the Company entered in an expense reimbursement agreement
with Messrs. Langner and Segal on the terms authorized by the Special Committee
at its meeting on June 30, 1998. No amounts have been or will be paid by the
Company to Messrs. Langner, Segal or other members of management under the
terms of the expense reimbursement agreement, and such agreement was terminated
effective upon execution of the Merger Agreement.
On July 24, 1998, the Special Committee met and received an update on
various matters from its legal and financial advisors, including the status of
the efforts by members of management to secure financing commitments for a
potential buyout proposal. The Special Committee also considered a request by
members of management that the Company reimburse them for any commitment fees
they would incur in connection with obtaining financing. The Special Committee
was opposed to having the Company fund such commitment fees.
On July 24, 1998, the Board authorized that each of the members of the
Special Committee receive $7,500 for their service on the Special Committee.
In late September 1998, Weil Gotshal informed Skadden Arps that the
members of management had made progress towards securing commitments for the
necessary financing for a buyout transaction, and that members of management
were valuing the Company's shares of Common Stock somewhere in the range of the
"low 50's" in determining the feasibility of making a buyout proposal.
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On September 28, 1998, the Special Committee met telephonically with its
legal and financial advisors, and received updates from its advisors on various
issues, including the facts that (i) the members of management had withdrawn
their prior request that the Company reimburse them for any commitment fees
which they might incur, and (ii) LAGS (USA) would be exercising its option to
increase its equity interest in Hudson LLC, the Company's aviation ground
services subsidiary, from 26% to 49% for an exercise price of approximately
$29.6 million. The Special Committee also was informed by its advisors that
members of management were considering a possible buyout proposal which would
value the Company's shares of common stock in a price range of the "low 50's."
The Special Committee requested Allen & Company to complete its preliminary
financial analysis of the Company so that the Special Committee could determine
whether it should engage in any discussions with members of management
concerning a buyout proposal in such a price range.
At its meeting on September 28, 1998, the Special Committee also
considered letters received by the Company from two other entities inquiring as
to whether the Company had an interest in entering into discussions concerning
a possible business combination. Both letters had been sent to Mr. Langner, as
Chairman of the Board and Chief Executive Officer of the Company, and Mr.
Langner had furnished such letters to the Special Committee's legal advisors.
The Special Committee, after discussing such letters with its legal and
financial advisors, determined that the Company should not initiate contact at
that time with either of the other entities. Among the factors considered by
the Special Committee in making such determination were (i) the possibility
that the members of management might decide to abandon their consideration of
an acquisition proposal; (ii) the fact that neither of the other two entities
had made any specific proposal but had merely expressed a general interest in
meeting with the Company's management; (iii) that neither of the other entities
had initiated any further contact with the Company following the Company's
receipt of their letters; (iv) that the Special Committee could determine at
any time prior to entering into an acquisition agreement with members of
management (which agreement the Special Committee recognized might preclude
such determination) to initiate contact with either or both of the other
entities; (v) that the form of transaction contemplated by members of
management was a one-step cash merger which would afford third parties,
including the two entities which had sent letters, a sufficient opportunity to
make a competing offer for the Company should they wish to do so; (vi) that any
competing offer which might be made by a third party would exceed a "floor"
price established in any transaction with members of management; and (vii) that
the Special Committee expected that any agreement the Company might enter into
with members of management would not preclude or serve as an unreasonable
impediment to any third party which might be interested in making a competing
acquisition proposal.
On October 7, 1998, the Special Committee met with its legal and financial
advisors. The Special Committee was informed that the members of management
were nearing completion of their financing arrangements, and that management's
legal advisors again had indicated that management was considering the
feasibility of a buyout proposal somewhere in the range of the "low 50's."
Allen & Company then presented a preliminary financial analysis of the Company,
and informed the Special Committee that based on such preliminary analysis, and
subject to the review and consideration of any additional information that
might be furnished by members of management or their financial advisors or
otherwise considered by Allen & Company to be relevant to its analysis, a
purchase price per share in such a range would not fairly value the Company.
The valuation methodologies reviewed by Allen & Company with the Special
Committee included a discounted cash flow analysis, a multiple-based valuation
analysis, a related company trading analysis, an analysis of selected related
merger and acquisition transactions and an acquisition premium analysis of
selected acquisitions and leveraged/management buyout transactions. The Special
Committee concluded that it would not engage in any discussions with members of
management concerning a possible acquisition of the Company at a price range in
the "low 50's." The Special Committee also requested that Allen & Company be
available to meet with the members of management and their financial advisors
to discuss issues relating to the valuation of the Company.
On October 7, 1998, following the meeting of the Special Committee,
Skadden Arps informed Weil Gotshal of the Special Committee's position that it
would not enter into discussions with members of management concerning a
possible buyout of the Company until management indicated it was willing to pay
a higher price than previously had been indicated.
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During October 1998, Allen & Company on several occasions met with and
spoke telephonically with potential members of a management buyout group and
with Lazard Freres to discuss issues relating to the valuation of the Company.
In October 1998, the Company's management, as part of Hudson LLC's normal
annual budgeting and planning process, completed the preparation of updated
projections, which they furnished to Allen & Company. The updated projections
showed, among other things, lower results for the aviation services business
than the original projections previously prepared by the Company's management
and which had previously been furnished to Allen & Company. See "--Certain
Projections" below. Allen & Company reviewed the updated projections and
discussed them with members of the Company's management.
In early November 1998, the Special Committee's legal and financial
advisors reiterated to members of management and their legal advisors that no
discussions would occur concerning a possible management buyout unless
management valued the Company at a price in excess of the range previously
indicated.
On November 9, 1998, management's legal advisors informed the Special
Committee's legal advisors that management shortly would be in a position to
present an acquisition proposal valuing the Company in excess of $56 per share.
On November 10, 1998, the Special Committee met telephonically with its
legal and financial advisors, and was informed as to the status of a possible
proposal by management. The Special Committee also was informed by its advisors
that the members of management had requested that the Board, at its regular
meeting scheduled for November 20, 1998, defer declaration of the Company's
regular semi-annual dividend of $.50 per share. The Special Committee rejected
this request.
On the evening of November 16, 1998, legal counsel to members of
management furnished a draft Merger Agreement, together with a draft of the
Commitment Letter, to the Special Committee's legal and financial advisors for
discussion purposes and in order to accelerate the process in the event that a
buyout proposal was made by members of management and accepted by the Special
Committee. The draft Merger Agreement contemplated a cash merger between River
Acquisition, a newly-formed Delaware corporation owned at that time by Messrs.
Langner and Segal, and the Company, pursuant to which River Acquisition would
merge with and into the Company with the Company as the Surviving Corporation.
The draft Merger Agreement did not identify the price that management would be
willing to offer in the Merger. Commencing on November 17, 1998, Skadden Arps
and Weil Gotshal negotiated the terms of the Merger Agreement (other than
price) and, as discussed below, continued such negotiations through November
22, 1998. Among other things, during the course of the negotiations: (i) the
conditions to River Acquisition's obligation to consummate the Merger were
narrowed; (ii) the scope of the representations and warranties made by the
Company was narrowed; (iii) at the Special Committee's request, members of
management agreed to a separate vote requiring the holders of a majority of all
outstanding shares of Common Stock not owned by River Acquisition and any
members of a buyout group to approve and adopt the Merger Agreement and the
transactions contemplated thereby; and (iv) the fiduciary duty exception to the
provision in the Merger Agreement which prohibits the Board from engaging in
negotiations or discussions with, or providing information to, any person
relating to an alternative Acquisition Proposal (as defined in the Merger
Agreement) was broadened to permit the Board or the Special Committee to
provide information to any person who expresses an unsolicited, written
indication of willingness to make an Acquisition Proposal at a price which the
Special Committee reasonably concludes is in excess of the price to be paid by
River Acquisition in the Merger and who the Special Committee reasonably
believes based on the advice of its financial advisor is capable of
consummating the Acquisition Proposal. The Special Committee's advisors
reviewed the draft Commitment Letter and requested modifications to various
terms and conditions contained therein, certain of which were subsequently
modified as a result of such discussions.
During the negotiations which took place over the period from November 17,
1998 through November 20, 1998, the Special Committee's legal and financial
advisors informed the members of management and their legal advisors that the
Special Committee would not agree to any termination or
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"break up" fees payable to management. During this period, the respective legal
advisors discussed the circumstances under which management would be entitled
to expense reimbursement upon termination of the Merger Agreement, and the
dollar limitations placed upon such expense reimbursement.
On November 20, 1998, Weil Gotshal advised Skadden Arps that the members
of management had withdrawn their request for termination or "break up" fees.
Starting in the late afternoon of November 20, 1998, the Special Committee
met, with its legal and financial advisors present. The Special Committee
reviewed with its advisors the status of the negotiations of the Merger
Agreement, and discussed the unresolved issues, which pertained primarily to
the circumstances under which management would be entitled to the reimbursement
of expenses and the maximum amount of expenses which would be reimbursed. Allen
& Company then presented a detailed financial analysis of the Company. See
"--Opinion of Financial Advisor to the Special Committee." Based upon Allen &
Company's financial presentation, the indication by management that it was
prepared to present a buyout proposal which valued the Company in excess of $56
per share, and the fact that management had withdrawn its request for
termination or "break up" fees, the Special Committee determined that it would
receive an acquisition proposal from management.
The Special Committee then telephoned Mr. Langner and invited him to make
a formal acquisition proposal on behalf of himself, Mr. Segal and the other
members of management who would become members of the buyout group (which
persons are referred to in this "Background of the Merger" section as the
"Buyout Group"). Mr. Langner informed the Special Committee that River
Acquisition was offering to purchase all outstanding shares of the Company
(other than those shares being contributed by the members of the Buyout Group
to River Acquisition) at a price of $57 per share in cash. Mr. Langner also
proposed that the Merger Agreement provide that the members of the Buyout Group
be reimbursed by the Company for their out-of-pocket expenses up to a maximum
of $1,750,000 under certain circumstances, including if the stockholders of the
Company do not vote to approve the Merger Agreement. The Special Committee
invited Messrs. Langner and Segal, and their legal and financial advisors, to
meet with members of and advisors to the Special Committee that evening to
discuss the proposed $57 per share purchase price and unresolved issues
concerning the reimbursement of expenses.
Later on the evening of November 20, 1998, members of the Special
Committee and the Special Committee's legal and financial advisors met with
Messrs. Langner and Segal and the Buyout Group's legal and financial advisors.
Messrs. Langner and Segal delivered to the Special Committee's representatives
a letter setting forth River Acquisition's $57 per share cash offer. The
Special Committee's representatives requested that the Buyout Group increase
its proposed purchase price, which request was rejected by Messrs. Langner and
Segal. The Special Committee's representatives also questioned the Buyout Group
as to the amount of its anticipated expenses and objected to a provision
requested by the Buyout Group that would require the Company to reimburse their
expenses up to $1,750,000 if the Company's stockholders do not vote in favor of
the Merger, and expressed the view that the expense reimbursement obligations
should be limited to those circumstances in which the Special Committee changes
its recommendation or approves an alternative transaction. The Special
Committee's representatives rejected a request by the members of the Buyout
Group that they be reimbursed for their out-of-pocket expenses as incurred,
subject to an undertaking to repay such amounts if the Merger Agreement was
terminated under circumstances in which the Buyout Group would not be entitled
to expense reimbursement.
On November 21, 1998, Skadden Arps and Weil Gotshal continued to negotiate
the issues of price and expense reimbursement. The Special Committee met
telephonically late in the afternoon of November 21, 1998, with its legal and
financial advisors present. Skadden Arps reported that there had been no
increase by the Buyout Group in its proposed $57 per share purchase price, and
that there had been further discussion with Weil Gotshal concerning the issue
of expense reimbursement in the event the Company's stockholders do not approve
the Merger. The Special Committee instructed its advisors to continue to seek
an increase in price and to continue to negotiate the terms of the expense
reimbursement provisions.
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On November 22, 1998, the Special Committee met with its legal and
financial advisors and discussed the unresolved issues of price and expense
reimbursement. The Special Committee's advisors continued to negotiate these
issues with the Buyout Group and its advisors, who were present at the location
of the Special Committee meeting. After further negotiations, the Buyout Group
proposed an increase in its offer to $57.25 per share if the Company would
agree to an expense reimbursement cap of $1,750,000 in the event the Board
changes its recommendation or approves an alternative transaction, and a cap of
$875,000 if stockholders do not approve the Merger Agreement. The Special
Committee, after further consideration, accepted the Buyout Group's proposal.
The Special Committee then reviewed with its advisors (i) the fiduciary duties
of members of the Special Committee, (ii) Allen & Company's financial analysis
and valuation of the Company, (iii) the terms of the proposed Merger Agreement
and (iv) the benefits of the Merger to the Company's stockholders. Allen &
Company rendered an oral opinion (which was subsequently confirmed in writing)
that, as of such date, the amount of $57.25 per share in cash to be received by
the holders of the Company's Common Stock (other than the stockholders of River
Acquisition) pursuant to the Merger Agreement is fair to such stockholders from
a financial point of view. See "--Opinion of Financial Advisor to the Special
Committee." The Special Committee then approved the Buyout Group's $57.25 per
share offer price and the terms and provisions of the proposed Merger Agreement
and found such price and the terms and provisions of the Merger Agreement to be
fair to and in the best interests of the Company and its stockholders (other
than River Acquisition and the Buyout Group) and determined to recommend that
the Board of Directors approve the proposed Merger Agreement and the
transactions contemplated thereby.
On November 22, 1998, immediately following the meeting of the Special
Committee, there was a special meeting of the full Board. All directors were
present in person at the meeting, and Skadden Arps and Allen & Company also
were present. The directors were advised by Skadden Arps as to their fiduciary
duties under Delaware law, and Allen & Company summarized its financial
analysis of the Company and advised the Board of the oral opinion it had
rendered to the Special Committee, which opinion was being confirmed in
writing. The Board reviewed the terms of the proposed Merger Agreement, and
reasons that the Special Committee was recommending to the full Board approval
of the Merger Agreement. The full Board thereupon unanimously concluded that
the terms and provisions of the Merger Agreement and the Merger are fair to and
in the best interests of the Company and its stockholders (other than River
Acquisition and the Buyout Group), approved the Merger, and recommended that
the Company's stockholders approve and adopt the Merger Agreement and the
transactions contemplated thereby. Following the Board meeting, the Merger
Agreement was executed by the Company and River Acquisition.
On November 23, 1998, the Company issued a press release announcing that
the Company had entered into a definitive Merger Agreement with River
Acquisition.
Subsequent to the Company's announcement on November 23, 1998 that it had
entered into the Merger Agreement, Allen & Company, as the Special Committee's
financial advisor, was contacted by or on behalf of several entities. Each of
such entities indicated a possible interest in making an acquisition proposal
for the Company and two of such entities also expressed an interest in
assisting the Buyout Group in connection with the pending Merger. One of the
entities expressing a possible interest in making an acquisition proposal (and
not in assisting the Buyout Group in connection with the pending Merger) was an
entity whose written inquiry was considered by the Special Committee at its
meeting on September 28, 1998 (the "Third Party Entity"). In each instance,
such entities were advised that the Merger Agreement had been filed publicly
with the Securities and Exchange Commission (the "SEC") and that the Merger
Agreement set forth the Company's rights and obligations with respect to third
party inquiries. See "THE MERGER AGREEMENT--No Solicitation; Fiduciary
Obligations of Directors."
On December 9, 1998, the Third Party Entity delivered a letter (the
"December 9 Letter") to Allen & Company. In the December 9 Letter, the Third
Party Entity stated it was submitting an "indication of willingness to acquire
all outstanding stock" of the Company at a price in excess of $57.25 per share
in cash, but did not indicate a specific price. The Third Party Entity
requested that the Company furnish it with confidential information subject to
an appropriate confidentiality agreement, and advised the Company that any
acquisition proposal would not be subject to a financing contingency.
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On December 11, 1998, the Special Committee met telephonically with its
legal and financial advisors to review the December 9 Letter. The Special
Committee, after considering the December 9 Letter with its legal and financial
advisors, determined, in accordance with applicable provisions of the Merger
Agreement, to furnish information to the Third Party Entity and engage in
discussions related thereto, pursuant to an appropriate confidentiality
agreement. On December 11, 1998, the Company issued a press release concerning
the December 9 Letter and the determination made by the Special Committee on
December 11, 1998 to furnish information to the Third Party Entity.
The Company expects to enter into a confidentiality agreement with the
Third Party Entity and thereafter the Company will provide the Third Party
Entity with certain confidential information concerning the Company.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS; FAIRNESS OF THE
MERGER
On November 22, 1998, the Special Committee determined that the Merger and
the terms and provisions of the Merger Agreement were fair to and in the best
interests of the Company and its stockholders (other than River Acquisition and
the Buyout Group), and unanimously recommended to the full Board that it
approve the Merger Agreement and the transactions contemplated thereby.
At a special meeting of the Board held immediately following the Special
Committee's determination, at which all directors of the Company were present,
the Board considered the recommendation of the Special Committee. The Board
unanimously concluded that the terms and provisions of the Merger Agreement and
the Merger are fair to and in the best interests of the Company and its
stockholders (other than River Acquisition and the Buyout Group), approved the
Merger Agreement, and recommended that the stockholders approve and adopt the
Merger Agreement and the transactions contemplated thereby.
Special Committee. In determining that the Special Committee would approve
and recommend the Buyout Group's proposal of $57.25 per share in cash to the
full Board, the Special Committee considered the following factors, each of
which, in the opinion of the Special Committee, supported such determination:
o Allen & Company Opinion. The Special Committee considered the financial
presentations of Allen & Company and Allen & Company's oral opinion
delivered at the November 22, 1998 meeting of the Special Committee
(which was subsequently confirmed in writing) to the effect that, as of
the date of its opinion and based upon and subject to the matters stated
in its opinion, the $57.25 per share Merger Consideration was fair to the
Company's stockholders (other than the stockholders of River Acquisition)
from a financial point of view. THE FULL TEXT OF ALLEN & COMPANY'S
WRITTEN OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY ALLEN & COMPANY,
IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN
BY REFERENCE. STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE OPINION OF
ALLEN & COMPANY CAREFULLY.
o Transaction Structure. The Special Committee also evaluated the
benefits of the transaction being structured as a one-step merger, and
concluded that the period of time between the public announcement of the
Merger and the Special Meeting would provide a sufficient period of time
for any interested third party to prepare and present an acquisition
proposal for the Company.
o Stockholder Vote. The Special Committee also considered the fact that
approval and adoption of the Merger Agreement would require the
affirmative votes of both (i) the holders of a majority of all
outstanding shares of Common Stock and (ii) the holders of a majority of
all outstanding shares of Common Stock not owned by River Acquisition and
the members of the Buyout Group.
o Terms of the Merger Agreement. The Special Committee also considered
the terms of the Merger Agreement, including (i) the "neutralized voting"
provision requiring that the Merger Agreement be approved by the holders
of a majority of all outstanding shares of Common Stock not owned by
River Acquisition and the members of the Buyout Group; (ii) the provision
providing that the Special Committee or the Company may furnish or
provide access to information concerning the Company to third parties who
indicate a willingness to make an
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acquisition proposal at a price in excess of the Merger Consideration;
(iii) the ability of the Special Committee, in the exercise of its
fiduciary duty, to terminate the Merger Agreement in order to permit the
Company to enter into a business combination transaction with a third
party; and (iv) the absence of any termination or "break up" fees and the
fact that the Company's only financial obligation to the Buyout Group in
the event of termination of the Merger Agreement would be the payment of
the Buyout Group's costs and expenses not to exceed $1,750,000 in the
event the Merger Agreement is terminated because of a withdrawal or
change in the Board's recommendation to stockholders favoring the Merger
or the Board's determination to enter into an agreement with respect to
an alternative transaction which provides value greater than the Merger
Consideration, or an amount not to exceed $875,000 if the Company's
stockholders do not vote to approve and adopt the Merger Agreement and
the transactions contemplated thereby by April 30, 1999.
o Special Committee Formation and Arm's-Length Negotiations. The Special
Committee considered the fact that the Merger Agreement and the
transactions contemplated thereby were the product of arm's-length
negotiations between the Buyout Group and the Special Committee, none of
whose members were employed by or affiliated with the Company (except in
their capacities as directors) or would have any equity interest in River
Acquisition.
o Market Price and Premium. The Special Committee considered the
historical market prices of the Company's Common Stock and noted that the
$57.25 per share price offered by the Buyout Group exceeded the highest
market price per share of the Common Stock in the Company's history prior
to November 22, 1998. The Special Committee also considered the fact that
the Merger Consideration represented a premium to the trading prices of
the Common Stock prior to November 22, 1998. The closing price of the
Common Stock on the American Stock Exchange on November 20, 1998, the
last full trading day before the Merger was publicly announced, was
$54.625 per share.
o Merger Consideration. The Special Committee concluded that the Merger
Consideration represented the highest price that River Acquisition would
be willing to pay in acquiring the Company's Common Stock. This
determination was the result of the Special Committee's arm's-length
negotiations with River Acquisition in an attempt to obtain the highest
possible price.
o Receipt of Commitment Letters. The Special Committee considered the
fact that the Buyout Group had received the Commitment Letter from
BankBoston, N.A., European American Bank, The Chase Manhattan Bank and
BancBoston Robertson Stephens Inc. to arrange, fund and administer the
necessary financing for the Merger, and the Special Committee had
reviewed the terms and conditions of the Commitment Letter.
o Historical and Projected Financial Performance and Related Risks and
Uncertainties. The Special Committee considered the financial projections
prepared by the Company's management, including the most recent
projections prepared by management as part of Hudson LLC's normal
annual budgeting and planning process which showed, among other things,
lower results for the aviation services business due to increased labor
costs in Hudson LLC's operations at certain locations, the recent loss of
certain contracts and increased competitive pricing pressures in Hudson
LLC's business. See "--Certain Projections."
o The Company's Recent Earnings Results. The Special Committee considered
its familiarity with the Company's business, financial condition, results
of operations, prospects and the nature of the industries in which the
Company operates, including the prospects of the Company if it were to
remain independent. The Special Committee noted that the recent results
of operations for the Company's first fiscal quarter ended September 30,
1998 reflected net earnings of $415,000 (or $.24 per share) as compared
to net earnings of $782,000 (or $.45 per share) for the comparable period
of the prior fiscal year, reflecting a decrease of approximately 47%.
o Operation of Hudson LLC. The Special Committee also considered the fact
that pursuant to a limited liability company agreement among the Company,
Hudson LLC and LAGS (USA), there
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are certain restrictions on the operation of Hudson LLC's business. The
Special Committee recognized that this arrangement could be a negative
factor in connection with the sale of the Company to a third party buyer
because any third party buyer would become a co-owner with LAGS (USA) of
Hudson LLC and become subject to the restrictions and limitations on the
operations of Hudson LLC contained in the limited liability company
agreement.
o Effects of Significant Stockholder. The Special Committee also
considered the fact that Mario J. Gabelli and certain of his affiliated
entities (the "Gabelli Group") control nearly 50% of the Company's Common
Stock. See "SECURITIES OWNERSHIP--Beneficial Ownership of More Than 5% of
Common Stock." The Special Committee had been informed by the Buyout
Group that Mr. Gabelli had in the past indicated that he would not oppose
a merger transaction at a fair price, so long as the merger agreement did
not preclude a third party from making a superior acquisition proposal
for the Company; however, there are no assurances that members of the
Gabelli Group will vote to approve and adopt the Merger Agreement at the
Special Meeting. The Special Committee also considered the risks
associated with having a large block of stock held by members of the
Gabelli Group, including the risks that members of the Gabelli Group
could effectively veto corporate transactions that the Board believed
were in the best interests of the Company and its stockholders, and could
sell their shares of Common Stock -- and effectively deliver control of
the Company -- in a transaction not approved by the Board of Directors.
o Liquidity of Common Stock. The Special Committee also considered the
thin trading market and the lack of liquidity of the Company's Common
Stock and the existence of a large percentage of Common Stock in the
hands of a few stockholders. The Special Committee believes that the
Merger will permit the stockholders of the Company to sell all of their
shares at a fair price, especially in light of the fact that there exists
little liquidity in the Company's Common Stock.
o Possible Decline in Market Price of Common Stock. The Special Committee
also considered the possibility that if a merger transaction with the
Buyout Group were not negotiated and the Company remained as a publicly
owned corporation, it is possible that because of a decline in the market
price of the shares of the Company's Common Stock or the stock market in
general, the price that might be received by the holders of the Company's
shares in the open market or in a future transaction might be less than
the $57.25 per share price to be received by stockholders in connection
with the proposed Merger.
o Regulatory Approvals. The Special Committee considered the fact that
there are relatively few regulatory approvals required to consummate the
Merger, and the favorable prospects for receiving such approvals.
o Availability of Dissenters' Rights. The Special Committee also
considered the fact that dissenters' rights of appraisal will be
available to the holders of Common Stock under Delaware law.
The Special Committee also considered the fact that if the Merger is
approved, the holders of the Common Stock will not participate in the future
growth of the Company. Because of the risks and uncertainties associated with
the Company's future prospects, the Special Committee concluded that this
detriment was not quantifiable. The Special Committee also concluded that
obtaining a cash premium for the Common Stock now was preferable to enabling
the holders of such stock to have a speculative potential future return.
Board of Directors of the Company. In reaching its determination referred
to above, the Board considered and relied upon the conclusions and
recommendations of the Special Committee, the unanimous approval of the Merger
Agreement and the Merger by the Special Committee, and the following additional
factors, each of which, in the view of the Board, supported such
determinations: (i) the considerations referred to above as having been taken
into account by the Special Committee, including the receipt by the Special
Committee of the opinion of Allen & Company addressed to the Special Committee
that, as of the date of such opinion, based upon and subject to various
considerations, assumptions and limitations stated therein, the $57.25 per
share in cash to be received by the holders of
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Common Stock (other than the stockholders of River Acquisition) in the Merger
is fair to such holders from a financial point of view, and the related
analyses presented by Allen & Company; (ii) the fact that the Buyout Group had
obtained the Commitment Letter on November 20, 1998 from BankBoston, N.A.,
European American Bank, The Chase Manhattan Bank and BancBoston Robertson
Stephens Inc., to the effect that, subject to certain qualifications and
conditions set forth in the letter, they could successfully arrange and fund
approximately $50.0 million of senior secured credit facilities and term loans
for the purpose of financing the Merger and paying all fees, expenses and costs
in connection with the Merger (see "SPECIAL FACTORS--Financing of the Merger"
for a summary of the terms and conditions of the Commitment Letter); and (iii)
the fact that the Merger Consideration to be paid in the Merger and the terms
and conditions of the Merger Agreement were the result of arm's-length
negotiations between the Special Committee and the Buyout Group and their
respective advisors.
The members of the Board, including the members of the Special Committee,
evaluated the Merger in light of their knowledge of the business, financial
condition and prospects of the Company, and based upon the advice of financial
and legal advisors. In the light of the number and variety of factors that the
Special Committee and the Board considered in connection with their evaluation
of the Merger, neither the Special Committee nor the Board found it practicable
to assign relative weights to the foregoing factors, and, accordingly, neither
the Special Committee nor the Board did so. In addition, individual members of
the Special Committee and the Board may have given different weights to
different factors.
The Board believes that the Merger is procedurally fair because, among
other things: (i) the Special Committee consisted of independent directors
appointed by the Board to represent solely the interests of the Company's
stockholders other than the Buyout Group; (ii) the Special Committee retained
and was advised by its own legal counsel who negotiated on behalf of the
Special Committee; (iii) the Special Committee retained and was advised by its
own financial advisor to assist it in evaluating the proposed transaction and
received financial advice from Allen & Company; and (iv) the fact that the
$57.25 per share cash purchase price and the other terms and conditions of the
Merger Agreement resulted from active arm's-length bargaining between the
Special Committee and the Buyout Group and their respective advisors. The Board
believes that sufficient procedural safeguards to ensure fairness of the
transaction and to permit the Special Committee to effectively represent the
interests of the holders of the Company's Common Stock (other than River
Acquisition and the Buyout Group) were present, and therefore there was no need
to retain any additional unaffiliated representative to act on behalf of the
holders of the Company's Common Stock in view of (i) the unaffiliated status of
the members of the Special Committee whose sole purpose was to represent the
interests of the holders of the Company's Common Stock (other than River
Acquisition and the Buyout Group), and retention by the Special Committee of
legal counsel and financial advisors, and (ii) the fact that the Special
Committee, even though consisting of directors of the Company and therefore not
completely unaffiliated with the Company, is a mechanism well recognized under
Delaware law to ensure fairness in transactions of this type.
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE MERGER IS FAIR TO
AND IN THE BEST INTERESTS OF THE COMPANY AND THE HOLDERS OF COMMON STOCK (OTHER
THAN RIVER ACQUISITION AND THE BUYOUT GROUP) AND, UPON THE UNANIMOUS
RECOMMENDATION OF THE SPECIAL COMMITTEE, RECOMMENDS APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT, AND THE TRANSACTIONS CONTEMPLATED THEREBY TO THE
COMPANY'S STOCKHOLDERS.
THE BUYOUT GROUP'S PURPOSE AND REASON FOR THE MERGER
The Buyout Group's purpose for engaging in the transactions contemplated
by the Merger Agreement is to acquire 100% ownership of the Company in a
transaction in which the holders of Common Stock (other than River Acquisition,
which will own shares of Common Stock contributed to it by the Buyout Group)
would be entitled to have their equity interest in the Company extinguished in
exchange for cash in the amount of $57.25 per share. Each member of the Buyout
Group believes that such an acquisition is an attractive investment opportunity
at this time based upon, among other things, the past performance of the
Company and its future business prospects. The Buyout Group also considered the
lack of liquidity of the Company's Common Stock and the control of a large
block (nearly
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50% of the outstanding shares) of Common Stock in the hands of the members of
the Gabelli Group, and believes that this transaction provides liquidity to the
Company's stockholders. The determination to proceed with the acquisition at
this time would also, in the view of the Buyout Group, afford the Company's
stockholders an opportunity to dispose of their shares at a premium over market
prices prior to November 22, 1998. In addition, the Buyout Group noted that
causing the Company to be closely held, and therefore no longer required to
file periodic reports with the SEC, would enable management to focus to a
greater degree on the creation of long term value by reducing management's
commitment of resources with respect to procedural and compliance requirements
of a public company, provide the Buyout Group with flexibility in dealing with
the assets of the Company, and reduce costs associated with the Company's
obligations and reporting requirements under the securities laws (for example,
as a privately held entity, the Company would no longer be required to file
quarterly and annual reports with the SEC or publish and distribute to its
stockholders annual reports and proxy statements), which the members of the
Buyout Group anticipate could result in savings of approximately $250,000 per
year. The transactions contemplated by the Merger Agreement, however, will
involve a substantial risk to the Buyout Group because of the large amount of
indebtedness to be incurred in connection with the consummation of the Merger.
See "SPECIAL FACTORS--Financing of the Merger."
The acquisition of the entire equity interest in the Company was
structured as a cash merger in order to accomplish the acquisition in a single
step, without the necessity of financing separate purchases of shares in a
tender offer or in open market purchases while at the same time not materially
disrupting the Company's operations.
The Buyout Group has concluded that the Merger, including the Merger
Consideration of $57.25 per share in cash and the terms and conditions of the
Merger Agreement, are fair to the Company and the holders of the Common Stock
(other than River Acquisition and the Buyout Group) based upon the following
factors: (i) the conclusions and recommendations of the Special Committee and
the Board; (ii) the fact that the Special Committee, consisting of directors
not affiliated with the members of the Buyout Group, had unanimously approved
the Merger and recommended that stockholders approve and adopt the Merger
Agreement and the transactions contemplated thereby; (iii) the fact that the
Merger Consideration and the other terms and conditions of the Merger Agreement
were the result of arm's-length, good faith negotiations between the Special
Committee and the Buyout Group and their respective advisors; (iv) the fact
that Allen & Company issued an opinion to the Special Committee to the effect
that, as of the date of such opinion, based upon and subject to various
considerations, assumptions and limitations stated therein, the $57.25 per
share in cash to be received in the Merger is fair to the holders of Common
Stock (other than the stockholders of River Acquisition) from a financial point
of view; (v) the fact that during the substantial period of time which would
elapse between the announcement of the execution of the Merger Agreement and
the consummation of the Merger following the Special Meeting to be held to vote
upon the Merger, there would be more than sufficient time and opportunity for
other persons to propose alternative transactions to the Merger, and that the
terms of the Merger Agreement authorize the Company to (x) furnish or provide
access to information concerning the Company to third parties who indicate in
writing a willingness to make an acquisition proposal at a price in excess of
the Merger Consideration and (y) terminate the Merger Agreement in order to
permit the Company to enter into a business combination transaction with a
third party; and (vi) the other factors referred to above as having been taken
into account by the Special Committee and the Board, which the members of the
Buyout Group adopt as their own (see "SPECIAL FACTORS--Recommendation of the
Special Committee and Board of Directors; Fairness of the Merger" and "SPECIAL
FACTORS--Opinion of Financial Advisor to the Special Committee"). The Buyout
Group also considered the ability of the Buyout Group to finance the Merger at
the $57.25 per share price in cash. Although Lazard Freres generally assisted
the Buyout Group in this transaction and, in particular, advised the Buyout
Group on bidding and negotiating strategies, participated in negotiations with
Allen & Company and analyzed the Company's projections and assumptions thereto,
Lazard Freres did not deliver a fairness opinion as to the Merger Consideration
and did not provide the Buyout Group with any reports, opinions or appraisals.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
The Special Committee retained Allen & Company to act as the Special
Committee's financial advisor in connection with any proposals made by members
of management to acquire shares of the
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Company's Common Stock and other matters arising in connection therewith. Allen
& Company was selected by the Special Committee based on Allen & Company's
experience, expertise and long-standing familiarity with the Company and its
businesses as the Company's financial advisor for more than the past ten years.
Allen & Company is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes.
At the meeting of the Special Committee held on November 22, 1998, Allen &
Company rendered its oral opinion to the Special Committee that, as of such
date, and based upon and subject to various considerations, assumptions and
limitations set forth therein, the consideration to be paid to stockholders of
the Company pursuant to the Merger Agreement is fair to such stockholders
(other than the stockholders of River Acquisition) from a financial point of
view. Such opinion was subsequently confirmed in writing and is dated November
22, 1998. Except as set forth below, no limitations were imposed by the Special
Committee upon Allen & Company with respect to the investigations made or
procedures followed by it in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF ALLEN & COMPANY DATED NOVEMBER 22,
1998, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON
THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS OF THE COMPANY ARE URGED TO READ
THE OPINION IN ITS ENTIRETY. ALLEN & COMPANY'S WRITTEN OPINION IS ADDRESSED TO
THE SPECIAL COMMITTEE, IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT
OF VIEW, OF THE CONSIDERATION TO BE PAID PURSUANT TO THE MERGER AGREEMENT AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF THE COMPANY AS TO
HOW SUCH STOCKHOLDER SHOULD VOTE AT THE SPECIAL MEETING. THE SUMMARY OF THE
OPINION OF ALLEN & COMPANY SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, Allen & Company considered, among other
factors, (i) the terms of the proposed Merger Agreement and related
documentation, which it noted did not include provision for a "break up" fee
payable to River Acquisition; (ii) the nature of the operations and financial
history of the Company, including discussions with the Company's senior
management of the business and prospects of the Company relating to, among
other things, the Company's operating budget and financial projections; (iii)
the Company's filings with the SEC, including audited and unaudited financial
statements for the Company; (iv) the historical price ranges and trading
volumes for the Common Stock; (v) certain financial and stock market
information for certain other companies in businesses related to those of the
Company; (vi) certain financial information relating to certain merger and
acquisition transactions involving companies in businesses related to those of
the Company; and (vii) certain publicly available information relating to
premiums paid in certain selected merger and acquisitions transactions. In
addition to Allen & Company's review and analyses of the specific information
set forth above, Allen & Company's opinion reflects and gives effect to its
assessment of general economic, monetary, industry, regulatory, market and
other conditions existing as of the date thereof as they may affect the
business and prospects of the Company.
The Allen & Company opinion reflects and gives effect to Allen & Company's
general familiarity with the Company over a period of time, as well as
information concerning the Company which Allen & Company acquired during the
course of its assignment, including information provided by senior management
in the course of a number of discussions. Allen & Company was not engaged to
and did not, however, conduct an independent appraisal of the Company's assets,
or independently verify the information concerning the Company's operations or
other data which Allen & Company considered in its review. In rendering its
opinion, Allen & Company relied upon and assumed the accuracy and completeness
of all of the financial and other information that was available from public
sources, that was provided by the Company or its representatives, or that was
otherwise reviewed by Allen & Company. With respect to the financial
projections provided by the Company's management, Allen & Company
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assumed that the financial projections had been reasonably prepared in good
faith reflecting the best currently available estimates and judgments of the
management of the Company as to the future operating and financial performance
of the Company. In connection with rendering its opinion, Allen & Company was
not authorized to solicit, and did not solicit, interest from any third party
with respect to the Company or any of its assets.
The Allen & Company opinion was necessarily based on economic, market,
financial and other conditions as they existed on, and on the information made
available to Allen & Company as of, the date of its opinion. The following is a
summary of the material analyses performed by Allen & Company in connection
with its opinion and included in the presentation made by Allen & Company to
the Special Committee:
Discounted Cash Flow Analysis (Original Hudson LLC Projections). Allen &
Company performed a discounted cash flow analysis of the Company valuing the
Company's (i) 51% interest in Hudson LLC (including capitalizing the cost of
the Company's corporate overhead), (ii) Preferred Units in Hudson LLC, (iii)
interest in the Kohala Joint Venture (the "KJV Interest") and (iv) estimated
cash in excess of working capital requirements. The discounted cash flow
analysis was based upon financial projections for Hudson LLC's aviation
services business for the nine months ending June 30, 1999 (derived from
projections for the fiscal year ending June 30, 1999) and the fiscal years
ending June 30, 2000 through June 30, 2003, prepared by the management of the
Company in June 1998 (the "Original Hudson LLC Projections"). Unlevered free
cash flow was calculated as Earnings Before Interest and Taxes ("EBIT") plus
depreciation less capital expenditures, less increases in working capital, less
taxes. Allen & Company calculated terminal values by applying a range of exit
multiples to EBIT for the fiscal year ending June 30, 2003. The cash flow
streams and terminal values were then discounted to present value using a range
of discount rates, representing an estimated range of the Company's weighted
average cost of capital. Based on this analysis, Allen & Company calculated the
value of the Common Stock of the Company as ranging between $47.60 and $63.47
per share. Within this range, Allen & Company examined two different cases, one
relatively conservative ("Case A") and one relatively aggressive ("Case B") in
connection with the value of the Preferred Units, the KJV Interest and certain
contingent liabilities. In Case A, Allen & Company calculated the value of the
Common Stock as ranging between $47.60 and $54.81 per share. In Case B, Allen &
Company calculated the value of the Common Stock as ranging between $56.25 and
$63.47 per share.
Discounted Cash Flow Analysis (Updated Hudson LLC Projections). In October
1998, the management of the Company completed, in the ordinary course of
preparing Hudson LLC's operating budget for the fiscal year ending June 30,
1999, an update of the Original Hudson LLC Projections (the "Updated Hudson LLC
Projections"). Utilizing the Updated Hudson LLC Projections and applying the
same methodology described above, in Case A Allen & Company calculated the
value of the Common Stock as ranging between $43.33 and $49.63 per share, and
in Case B, Allen & Company calculated the value of the Common Stock as ranging
between $51.98 and $58.29 per share.
Multiple-based Valuation Analysis (Original Hudson LLC Projections). Allen
& Company performed a valuation analysis of the Company by applying a range of
multiples, 5.0x to 7.0x, to the Company's projected EBIT for the aviation
services business for the fiscal year ending June 30, 1999. Based on this
analysis, Allen & Company calculated the value of the Common Stock as ranging
between $44.96 and $59.59 per share. In Case A, Allen & Company calculated the
value of the Common Stock as ranging between $44.96 and $50.94 per share. In
Case B, Allen & Company calculated the value of the Common Stock as ranging
between $53.61 and $59.59 per share.
Multiple-based Valuation Analysis (Updated Hudson LLC Projections). Allen
& Company also performed a multiple-based valuation analysis of the Company as
described above utilizing the Updated Hudson LLC Projections. Based on this
analysis, Allen & Company calculated the value of the Common Stock as ranging
between $42.93 and $56.76 per share. In Case A, Allen & Company calculated the
value of the Common Stock as ranging between $42.93 and $48.10 per share. In
Case B, Allen & Company calculated the value of the Common Stock as ranging
between $51.59 and $56.76 per share.
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Public Company Analysis. Allen & Company compared certain financial
information of the Company with that of a group of publicly traded companies
involved in the aviation services business, including Alpha Airports Group,
ITS, Inc. and Mercury Air Group, Inc. (the "Public Companies"). Allen & Company
found substantial differences between the operations of the Company on the one
hand and the operations of the Public Companies on the other hand. Allen &
Company noted that as of November 19, 1998, the Public Companies traded at a
range of 3.0x to 7.9x latest twelve months ("LTM") earnings, and had enterprise
value (equity value plus debt minus cash) multiples ranging from 3.8x to 7.0x
LTM EBIT.
Related Transaction Analysis. Allen & Company considered certain financial
information relating to two merger and acquisition transactions involving
companies in businesses related to those of the Company. Allen & Company found
substantial differences between the operations of the Company on the one hand
and the operations of such other companies on the other hand. Allen & Company
noted that the transaction values in such related transactions represented
multiples of 10.3x and 11.5x LTM EBIT, respectively.
No company utilized in the public company or related transaction analyses
is identical to the Company. Accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations and judgments concerning
differences in the financial and operating characteristics of the Company
relative to other companies to which it may be compared.
Public Acquisition Premium Analysis. Allen & Company compared the offer
price of $57.25 per share to the closing market price of the Common Stock on
(i) November 19, 1998, the day immediately preceding the date of Allen &
Company's presentation to the Special Committee (the "Allen & Company
Presentation"), (ii) November 12, 1998, the date one week preceding the day
before the Allen & Company Presentation, and (iii) October 19, 1998, the date
one month preceding the day before the Allen & Company Presentation. Allen &
Company calculated that the offer price of $57.25 per share in cash represented
premiums of 6.8%, 4.1% and 17.4%, respectively, relative to the Common Stock
price on those three dates. Allen & Company also examined (i) acquisitions
generally of public companies, and (ii) management/leveraged buyout
transactions of public companies with transaction values ranging from $50 to
$200 million from October 1, 1996 through November 19, 1998. Allen & Company
calculated that for acquisitions generally, the offer prices relative to the
stock prices of the acquired companies one day before announcement of the
transaction represented mean and median premiums of 30.4% and 24.0%,
respectively; one week before announcement, 38.2% and 31.9%, respectively; and
one month before announcement, 46.2% and 35.7%, respectively. For
management/leveraged buyouts, Allen & Company calculated the one-day mean and
median acquisition premiums as 23.9% and 25.9%, respectively; the one-week
premiums as 22.2% and 25.0%, respectively; and the one-month premiums as 27.2%
and 23.6% respectively.
Common Stock Price/Volume Analysis. Allen & Company reviewed the price of
the Common Stock over the last six months and the last five years. Allen &
Company noted that from May 19, 1998 through November 19, 1998, the Common
Stock's closing prices had been in the range of $47.63 to $55.25 per share and,
from November 19, 1993 through November 19, 1998, the Common Stock's closing
prices had been in the range of $12.38 to $55.25 per share. Allen & Company
further noted that, as of such date, the offer price of $57.25 per share
exceeded the Common Stock's six-month, five-year and all-time highs. Allen &
Company also reviewed the trading volume of the Common Stock from November 19,
1993 through November 19, 1998, calculating the average daily volume over the
last five years as 2,081 shares and the average daily volume from October 19,
1998 through November 19, 1998 as 564 shares. Allen & Company noted that the
Common Stock's trading volume historically has been low and has progressively
gotten lower as the price of the Common Stock has risen.
The summary set forth above does not purport to be a complete description
of the analyses performed by Allen & Company, but describes, in summary form,
the material elements of the analyses performed by Allen & Company in
connection with its opinion and included in the presentation made by Allen &
Company to the Special Committee. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis to be applied to
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<PAGE>
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Each of the analyses conducted by Allen &
Company was carried out in order to provide a different perspective on the
transaction and add to the total mix of information available. Allen & Company
did not conclude whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to the fairness of the Merger
Consideration from a financial point of view. Rather, in reaching its
conclusion, Allen & Company considered the results of each analysis in light of
each other and ultimately reached its opinion based on the results of its
analyses taken as a whole. Allen & Company did not place particular reliance or
weight on any individual analysis, but instead concluded that its analyses,
taken as a whole, supported its determination. Accordingly, notwithstanding the
separate factors summarized above, Allen & Company believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all analyses and factors,
could create an incomplete or misleading view of the evaluation process
underlying its opinion. The analyses performed by Allen & Company are not
necessarily indicative of actual value or future results, which may be
significantly more or less favorable than suggested by such analyses. In its
analyses, Allen & Company made numerous assumptions with respect to the
Company, industry performance, regulatory, general business, economic, tax,
market and financial conditions and other matters, many of which are beyond the
control of the Company. No company, transaction or business used in such
analyses as a comparison is identical to the Company or the proposed Merger,
nor is an evaluation of the results of such analyses entirely mathematical;
rather such analyses involve complex considerations and judgments concerning
financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies, business segments
or transactions being analyzed. The estimates contained in such analyses and
the ranges of valuations resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses.
The Company and Allen & Company are parties to a letter agreement dated
February 16, 1988, as most recently amended on July 1, 1998 (the "Engagement
Letter"). The Engagement Letter provides that the Company pay Allen & Company a
fee of two percent of the consideration (as defined below) if a sale involving
the Company occurs on or before December 31, 1999 or within six months of the
date of the expiration of the Engagement Letter if the Company is sold to
certain parties. Upon the consummation of the Merger, the Company will pay
Allen & Company a fee of approximately $721,000.
The Engagement Letter defines "consideration" as the sum of the following
received by the Company, its stockholders or holders of options and warrants to
acquire Common Stock: (i) the cash, market value of marketable securities or
interests, and fair market value of unmarketable equity securities or interests
received from an acquiring party, plus (ii) face amount of straight and
convertible debt instruments or obligations issued or issuable from an
acquiring party, less a portion of (iii) the lesser of (A) the sum of (x) the
cash ultimately received by the Company from LAGS (USA) as a result of the
transaction consummated between the Company and LAGS on June 1, 1996, and (y)
the cash and any preferred interest in Hudson LLC received by the Company as a
result of the exercise by LAGS (USA) of its option to purchase up to an
additional 23% interest in Hudson LLC, reduced by any extraordinary cash
distribution made by the Company to the Company's stockholders after the date
of the Engagement Letter to the day the sale of the Company is completed, or
(B) the sum of (x) cash and cash equivalents, (y) short term advances to Hudson
LLC and (z) any preferred interest in Hudson LLC, as such amounts in subclauses
(x), (y) and (z) of clause (B) are included in the Company's balance sheet on
the day the sale of the Company is completed.
The Engagement Letter provides that in the event the Company engages in a
transaction (such as the Merger) which results in the directors and executive
officers of the Company owning a majority of the Company's shares, then Allen &
Company will not be entitled to any fee or compensation related to the sale of
any shares of Common Stock which (i) are beneficially owned by the Buyout Group
or members of their families and (ii) are not acquired by or transferred to the
Company or another entity either (x) on the same basis and at the same time as
shares held by the Company's public stockholders or (y) within one year
following the consummation of the transaction in which shares held by the
public stockholders of the Company were acquired.
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<PAGE>
The Engagement Letter also provides that the Company will reimburse Allen
& Company for its out-of-pocket expenses and will indemnify Allen & Company and
its affiliates from and against certain liabilities.
In November 1998, in connection with the exercise by LAGS (USA) of its
option to increase its interest in Hudson LLC from 26% to 49%, Allen & Company
received a fee from the Company of $593,000.
Allen & Company has in the past rendered other financial advisory services
to the Company for which it has received customary compensation. In addition,
Stanley S. Shuman, a Managing Director of Allen & Company, also serves as a
director of the Company.
CERTAIN PROJECTIONS
In June 1998, the Company's management prepared projections relating to
the Company's future operating performance which included the Original Hudson
LLC Projections, the Company's interest in the Kohala Joint Venture and the
exercise by LAGS (USA) of its option to increase its interest in Hudson LLC
from 26% to 49% (the "Original Projections"). In October 1998, as a result of
the management of the Company completing, in the ordinary course, the
preparation of Hudson LLC's operating budget for the fiscal year ending June
30, 1999, an update of its Original Projections was made for the fiscal years
ending June 30, 1999 through June 30, 2005 (the "Updated Projections"). The
Updated Projections included the Updated Hudson LLC Projections. The Company
does not as a matter of course make public forecasts as to future operations
and the Original Projections and Updated Projections set forth below are
included in this Proxy Statement only because such information was provided to
(i) BankBoston N.A., European American Bank, The Chase Manhattan Bank and
BancBoston Robertson Stephens Inc. in connection with the issuance of the
Commitment Letter and (ii) Allen & Company in connection with its valuation
analyses.
THE PROJECTED FINANCIAL INFORMATION SET FORTH BELOW NECESSARILY REFLECTS
NUMEROUS ASSUMPTIONS WITH RESPECT TO GENERAL BUSINESS AND ECONOMIC CONDITIONS
AND OTHER MATTERS, MANY OF WHICH ARE INHERENTLY UNCERTAIN OR BEYOND THE
COMPANY'S CONTROL, AND DOES NOT TAKE INTO ACCOUNT ANY CHANGES TO THE COMPANY'S
OPERATIONS OR CAPITAL STRUCTURE WHICH MAY RESULT FROM THE MERGER. IT IS NOT
POSSIBLE TO PREDICT WHETHER THE ASSUMPTIONS MADE IN PREPARING THE PROJECTED
FINANCIAL INFORMATION WILL BE VALID, AND ACTUAL RESULTS MAY PROVE TO BE
MATERIALLY HIGHER OR LOWER THAN THOSE CONTAINED IN THE PROJECTIONS. THE
INCLUSION OF THIS INFORMATION SHOULD NOT BE REGARDED AS AN INDICATION THAT THE
COMPANY, THE BUYOUT GROUP OR ANYONE ELSE WHO RECEIVED THIS INFORMATION
CONSIDERED IT A RELIABLE PREDICTOR OF FUTURE EVENTS, AND THIS INFORMATION
SHOULD NOT BE RELIED ON AS SUCH. NONE OF THE COMPANY OR THE BUYOUT GROUP OR ANY
OF THEIR RESPECTIVE REPRESENTATIVES ASSUMES ANY RESPONSIBILITY FOR THE
VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF THE PROJECTED FINANCIAL
INFORMATION, AND THE COMPANY HAS MADE NO REPRESENTATIONS REGARDING SUCH
INFORMATION. SIGNIFICANT ASSUMPTIONS USED IN DEVELOPING THE PROJECTIONS ARE
DISCUSSED FOLLOWING THE TABLES BELOW AND SHOULD BE CAREFULLY REVIEWED.
THE PROJECTED FINANCIAL INFORMATION SET FORTH BELOW HAS NOT BEEN COMPILED
OR EXAMINED BY KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS, PURSUANT TO THE
STANDARDS ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS, AND KPMG PEAT MARWICK LLP HAS NOT EXPRESSED AN OPINION OR ANY
OTHER FORM OF ASSURANCE ON SUCH PROJECTED FINANCIAL INFORMATION.
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<PAGE>
Set forth below is a summary of the Original Projections. Except as
specifically referenced in the assumptions set forth below, neither the
Original Projections nor the Updated Projections give effect to the Merger.
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30,
---------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues ...................................... $3,797 $4,611 $ 4,806 $ 5,040 $ 5,325 $ 5,647 $ 5,995
------ ------ ------- ------- ------- ------- -------
Operating Costs:
Depreciation and Amortization ................ 520 450 393 343 304 271 173
Interest ..................................... 0 0 0 0 0 0 0
Selling, General and Administrative Costs..... 1,556 1,532 1,502 1,466 1,422 1,372 1,314
------ ------ ------- ------- ------- ------- -------
Total Costs and Expenses ................... 2,076 1,982 1,895 1,809 1,726 1,643 1,487
------ ------ ------- ------- ------- ------- -------
Company Earnings Before Income Taxes .......... 1,721 2,629 2,911 3,231 3,599 4,004 4,508
Gain on Disposal of Interest in Kohala Joint
Venture ...................................... 94 0 0 0 0 0 0
Equity in Earnings of Hudson LLC .............. 6,706 7,270 7,847 8,324 8,839 9,337 9,877
------ ------ ------- ------- ------- ------- -------
Earnings Before Income Taxes .................. 8,521 9,899 10,758 11,555 12,438 13,341 14,385
Income Taxes .................................. 3,248 3,804 4,141 4,451 4,796 5,149 5,559
------ ------ ------- ------- ------- ------- -------
Net Earnings .................................. 5,273 6,095 6,617 7,104 7,642 8,192 8,826
====== ====== ======= ======= ======= ======= =======
Earnings Per Share (Basic) .................... $ 2.96 $ 3.42 $ 3.71 $ 3.99 $ 4.29 $ 4.60 $ 4.95
====== ====== ======= ======= ======= ======= =======
</TABLE>
The following sets forth the material assumptions used in the preparation of
the Original Projections:
(1) The Original Projections do not reflect financial or accounting effects
of the Merger except for the cost savings referred to in paragraph (6)
below and except that regular dividends are not included.
(2) The Original Projections use fiscal 1999 estimated results as the base
year. Such fiscal 1999 results were based upon expected actual results
for fiscal 1998 and adjusted for known or expected variances between
fiscal 1999 and fiscal 1998. Expected actual results for fiscal 1998 were
determined based upon actual results for the eight months ended February
28, 1998 and anticipated results for the four months ending June 30,
1998.
(3) The Original Projections assume that the United States and Canadian
aviation services business of Hudson LLC will experience revenue growth
of 5% and 3% per annum, respectively, in the years subsequent to fiscal
1999. The Original Projections also assume a modest improvement in
operating margins of the aviation services business of Hudson LLC and a
normal level of capital expenditures.
(4) For purposes of the Original Projections it was assumed that the Company
would dispose of its interest in the Kohala Joint Venture in Hawaii for a
cash price of $5.0 million on July 1, 1998, and accordingly, the Original
Projections do not reflect any operating results of the Kohala Joint
Venture for fiscal 1999, but do reflect a net gain of approximately
$94,000 in fiscal 1999.
(5) The Original Projections assume that LAGS (USA) exercises its option to
acquire an additional 23% interest in Hudson LLC during fiscal 1999 for a
cash exercise price (net of taxes) of approximately $17.2 million.
(6) The Original Projections assume an increase in Selling, General and
Administrative Costs of 3% annually, which are reduced by $1.0 million
for each year of the Original Projections representing $250,000 of
savings anticipated by virtue of the Company not being publicly held and
$750,000 related to reductions in senior executive cash compensation if
the Merger is consummated. The Original Projections also assume an
investment interest return of 5.5% per annum. In addition, the overhead
fee charged by the Company to Hudson LLC is included as a reduction to
Selling, General and Administrative Costs rather than as Revenues, and
interest income is included in Revenues.
(7) The Original Projections assume that Hudson LLC will pay annual
distributions to its members equal to the sum of 90% of its domestic net
income and 60% of its Canadian pre-tax earnings.
In October 1998, the Company's management, as a result of Hudson LLC's
normal annual budgeting and planning process, completed the preparation of the
Updated Projections. The Updated Projections,
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<PAGE>
among other things, showed lower results for the aviation services business
than the Original Projections due to increased labor costs in Hudson LLC's
operations at certain locations, the loss of certain contracts and increased
competitive pricing pressures in Hudson LLC's business, which lower results are
reflected in the line item of "Equity in Earnings of Hudson LLC." Allen &
Company reviewed the Updated Projections in preparing its financial
presentation to the Special Committee. Set forth below is a summary of the
Updated Projections.
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30,
-----------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005
----------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues ...................................... $ 3,828 $4,649 $4,794 $5,193 $ 5,648 $ 5,924 $ 6,224
-------- ------ ------ ------ ------- ------- -------
Operating Costs:
Depreciation and Amortization ................ 520 450 393 343 304 271 173
Interest ..................................... 0 0 0 0 0 0 0
Selling, General and Administrative Costs..... 2,556 2,532 2,502 2,466 2,422 2,372 2,314
-------- ------ ------ ------ ------- ------- -------
Total Costs and Expenses ................... 3,076 2,982 2,895 2,809 2,726 2,643 2,487
-------- ------ ------ ------ ------- ------- -------
Company Earnings Before Income Taxes .......... 752 1,667 1,899 2,384 2,922 3,281 3,737
Loss on Disposal of Interest in Kohala Joint
Venture ...................................... (3,906) 0 0 0 0 0 0
Equity in Earnings of Hudson LLC .............. 5,967 6,471 7,006 7,444 7,910 8,353 8,833
-------- ------ ------ ------ ------- ------- -------
Earnings Before Income Taxes .................. 2,813 8,138 8,905 9,828 10,832 11,634 12,570
Income Taxes .................................. 856 3,066 3,364 3,727 4,122 4,433 4,799
-------- ------ ------ ------ ------- ------- -------
Net Earnings .................................. 1,957 5,072 5,541 6,101 6,710 7,201 7,771
======== ====== ====== ====== ======= ======= =======
Earnings Per Share (Basic) .................... $ 1.10 $ 2.85 $ 3.11 $ 3.42 $ 3.77 $ 4.04 $ 4.36
======== ====== ====== ====== ======= ======= =======
</TABLE>
The following sets forth the material assumptions used in the preparation of
the Updated Projections:
(1) The Updated Projections do not reflect financial or accounting effects of
the Merger except that regular dividends are not included.
(2) The Updated Projections use fiscal 1999 estimated results as the base
year. Such fiscal 1999 results were developed during the normal annual
budget process.
(3) The Updated Projections assume that the United States and Canadian
aviation services business of Hudson LLC will experience revenue growth
of 5% and 3% per annum, respectively, in the years subsequent to fiscal
1999. The Updated Projections also assume a modest improvement in
operating margins of the aviation services business of Hudson LLC and a
normal level of capital expenditures.
(4) For purposes of the Updated Projections it was assumed that the Company
would dispose of its interest in the Kohala Joint Venture in Hawaii for a
cash price of $1.0 million on July 1, 1998, and accordingly, the Updated
Projections do not reflect any operating results for fiscal 1999, but do
reflect a net loss of approximately $3.9 million in fiscal 1999.
(5) The Updated Projections assume that LAGS (USA) exercises its option to
acquire an additional 23% interest in Hudson LLC during fiscal 1999. The
exercise price of approximately $29.6 million is paid to Hudson LLC and
the Company receives Preferred Units in Hudson LLC with an aggregate
value of $29.6 million. The Updated Projections also assume that the
Preferred Units will be redeemed at full value during fiscal 2002. LAGS
(USA) controls the redemption of the Preferred Units and therefore such
redemption cannot be assured. Such Preferred Units are assumed to receive
a fixed distribution of 4% per annum.
(6) The Updated Projections assume an increase in Selling, General and
Administrative Costs of 3% annually and assume an investment interest
return of 5.5% per annum. In addition, the overhead fee charged by the
Company to Hudson LLC is included as a reduction to Selling, General and
Administrative Costs rather than as Revenues, and interest income is
included as Revenues. In contrast to the Original Projections, Selling,
General and Administrative Costs in the Updated Projections are not
reduced by $1.0 million for each year of the projections, representing
$250,000 of savings anticipated by virtue of the Company not being
publicly held and $750,000 related to reductions in senior executive cash
compensation if the Merger is consummated.
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<PAGE>
(7) The Updated Projections assume that Hudson LLC will pay annual
distributions to its members equal to the sum of 90% of its domestic net
income and 60% of its Canadian pre-tax earnings.
FORWARD-LOOKING INFORMATION
This Proxy Statement contains or incorporates by reference certain
forward-looking statements and information relating to the Company that are
based on the beliefs of management as well as assumptions made by and
information currently available to the Company. Forward-looking statements
include the information set forth above concerning the Original Projections and
the Updated Projections. When used in this document, the words "anticipate,"
"believe," "estimate," "expect," "plan" and "intend" and similar expressions,
as they relate to the Company or its management are intended to identify
forward-looking statements. Such statements reflect the current view of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Many factors could cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements that may be expressed or implied by
such forward-looking statements, including, among others, changes in general
economic and business conditions, changes in business strategy, loss or
non-renewal of service or other contracts, mild winter weather conditions,
competitive labor market, fluctuation in United States and Canadian currency
exchange rates, and various other factors, both referenced and not referenced
in this Proxy Statement. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated, expected, planned or intended. The Company does not intend, or
assume any obligation, to update these forward-looking statements.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, the holders of the Common Stock will no
longer have any interest in, and will not be stockholders of, the Company and,
therefore, will not benefit from any future earnings or growth of the Company
or benefit from any increases in the value of the Company and will no longer
bear the risk of any decreases in value of the Company. Instead, each
stockholder will have the right to receive upon consummation of the Merger
$57.25 in cash for each share of Common Stock held (other than Common Stock
held (i) in the treasury of the Company or by any of its wholly-owned
subsidiaries, (ii) by River Acquisition, or (iii) by Dissenting Stockholders).
The benefit to the holders of Common Stock of the transaction is the payment of
a premium, in cash, above the market value for such stock prior to the
announcement of the transaction. This cash payment assures that all
stockholders will receive the same amount for their shares, rather than taking
the risks associated with attempting to sell their shares in the open market.
The detriment to such holders is their inability to participate as continuing
stockholders in the possible future growth of the Company. If the Merger is
consummated, the Buyout Group will hold the entire equity interest in the
Company not already owned by the members of the Buyout Group and the Buyout
Group will benefit from any future earnings or growth of the Company and any
increases in value of the Company; however, the Buyout Group will also bear the
risk of any decreases in value of the Company and will bear the risks
associated with the significant amount of debt to be incurred by the Company in
connection with the Merger. In addition, because the Company will be closely
held and cease to be publicly traded, the Buyout Group believes that it may be
able to focus on the increase in the long term value of the Company to a
greater degree by reducing management's commitment of resources with respect to
procedural and compliance requirements of a public company. The Buyout Group
will bear the risks associated with the lack of liquidity in its investment in
the Company.
The Common Stock is currently registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). As a result of the Merger, the Common
Stock will be delisted from the American Stock Exchange, the registration of
the Common Stock under the Exchange Act will be terminated, the Company will be
relieved of the obligation to comply with the proxy rules of Regulation 14A
under Section 14 of the Exchange Act, and its officers, directors and
beneficial owners of more than 10% of the Common Stock will be relieved of the
reporting requirements and "short-swing" trading provisions under Section 16 of
the Exchange Act. Further, the Company will no longer be subject to periodic
reporting requirements of the Exchange Act and will cease filing information
with SEC. Accordingly, less information will be required to be made publicly
available than presently is the case.
35
<PAGE>
The directors of River Acquisition immediately prior to the Effective Time
(as defined below) of the Merger will be the directors of the Surviving
Corporation immediately after the Merger. Messrs. Langner and Segal are the
current directors of River Acquisition and no determination has been made as to
whether additional persons will be invited to join the Board of Directors of
the Surviving Corporation following the Merger. The officers of the Company
immediately prior to the Effective Time of the Merger will be the officers of
the Surviving Corporation immediately after the Merger. The certificate of
incorporation of the Company immediately prior to the Effective Time will be
the certificate of incorporation of the Surviving Corporation until thereafter
amended and the bylaws of River Acquisition immediately prior to the Effective
Time will be the bylaws of the Surviving Corporation until thereafter amended.
PLANS FOR THE COMPANY AFTER THE MERGER
The Buyout Group expects that the business and operations of the Surviving
Corporation will be continued substantially as they are currently being
conducted by the Company and its subsidiaries. The Buyout Group does not
currently intend to dispose of any assets of the Surviving Corporation, other
than in the ordinary course of business. The Buyout Group may, from time to
time, evaluate and review the Surviving Corporation's businesses, operations
and properties and make such changes as are deemed appropriate.
Except as described in this Proxy Statement, none of the Buyout Group,
River Acquisition or the Company has any present plans or proposals involving
the Company or its subsidiaries which relate to or would result in an
extraordinary corporate transaction such as a merger, reorganization, or
liquidation, or a sale or transfer of a material amount of assets, or any
material change in the present dividend policy, indebtedness or capitalization,
or any other material change in the Company's corporate structure or business
except that following the Merger the Buyout Group does not intend to continue
the Company's regular semi-annual payment of dividends. However, the Buyout
Group and River Acquisition will review proposals or may propose the
acquisition or disposition of assets or other changes in the Surviving
Corporation's business, corporate structure, capitalization, management or
dividend policy which they consider to be in the best interests of the
Surviving Corporation and its stockholders. Neither the Company nor the Buyout
Group have formulated any specific plans regarding repayment of the
indebtedness incurred in connection with the Merger; however, such persons
anticipate that such indebtedness will be repaid primarily with or by means of
cash from the operations of the business of the Company (including
distributions from Hudson LLC), or such other means as the Company and the
Buyout Group may determine in their sole discretion.
CONDUCT OF THE BUSINESS OF THE COMPANY IF THE MERGER IS NOT CONSUMMATED
If the Merger is not consummated, the Board expects that the Company's
current management will continue to operate the Company's business
substantially as presently operated.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CERTAIN RELATIONSHIPS
In considering the recommendation of the Special Committee and the Board
with respect to the Merger, stockholders should be aware that certain members
of the Board and of the Company's management have interests that may present
them with actual, potential or the appearance of potential conflicts of
interest in connection with the Merger. The Special Committee and the Board
were aware of these potential or actual conflicts of interest and considered
them along with other matters described under "SPECIAL FACTORS--Recommendation
of the Special Committee and Board of Directors; Fairness of the Merger."
The members of the Buyout Group beneficially own an aggregate of 329,270
shares of Common Stock, representing approximately 18.9% of the total
outstanding shares of Common Stock. In addition, the members of the Buyout
Group hold Options to purchase an aggregate of 34,700 shares of Common Stock at
exercise prices ranging from $14.79 to $19.88 per share.
The members of the Buyout Group currently contemplate that immediately
prior to the Merger each of them will contribute to River Acquisition all of
the shares of Common Stock beneficially owned by
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<PAGE>
them. Assuming that such equity contributions are made to River Acquisition,
upon consummation of the Merger, Messrs. Langner and Segal will collectively
own approximately 75.1% of the outstanding common stock of the Surviving
Corporation and the other members of the Buyout Group will own, in the
aggregate, approximately 24.9% of the Surviving Corporation's outstanding
common stock. Such ownership will arise from the conversion, upon the
consummation of the Merger, of all of the outstanding shares of common stock of
River Acquisition into all of the outstanding shares of common stock of the
Surviving Corporation. The Options to acquire shares of Common Stock of the
Company held by members of the Buyout Group are expected to be converted into
options to acquire common stock of the Surviving Corporation on terms which
have not yet been determined.
Pursuant to the Commitment Letter, River Acquisition is required to have a
minimum capitalization of at least 245,000 shares of Common Stock of the
Company plus an additional 35,000 shares and/or retained Options equivalent to
shares of Common Stock. In the event that any shares of Common Stock
beneficially owned by members of the Buyout Group are not contributed to River
Acquisition prior to consummation of the Merger, such shares will be subject to
cancellation in the Merger in exchange for the Merger Consideration. In the
event that Options held by members of the Buyout Group are not converted into
options to acquire common stock of the Surviving Corporation, any such option
holders will be entitled to receive an amount in cash equal to the difference
between the Merger Consideration and the applicable Option exercise price
multiplied by the number of Options being cashed out in the Merger by such
holder. See "THE MERGER AGREEMENT--Treatment of Options" and "SECURITIES
OWNERSHIP--Beneficial Ownership of Common Stock by Certain Parties Related to
the Company or the Buyout Group." Under the terms of the Merger Agreement, the
current officers of the Company will be the officers of the Surviving
Corporation following consummation of the Merger.
The Buyout Group has not yet formulated definitive plans regarding certain
arrangements to be made among the members of the Buyout Group and other members
of the Company's management. It is currently anticipated that such arrangements
would include an agreement among Messrs. Langner, Segal and certain other
members of the Buyout Group regarding the management and control of the
Surviving Corporation, the creation of certain rights of first refusal
concerning dispositions of the shares of common stock of the Surviving
Corporation owned by members of the Buyout Group, the creation of certain
equity or equity-based incentives for certain members of management, and
related stockholder arrangements.
The Merger Agreement provides that the current directors of River
Acquisition shall be the directors of the Surviving Corporation immediately
after the Merger. Messrs. Langner and Segal are the current directors of River
Acquisition and no determination has been made as to whether additional persons
will be invited to join the Board of Directors of the Surviving Corporation
following the Merger.
The Merger Agreement provides that the Surviving Corporation will, from
and after the Effective Time, indemnify, defend and hold harmless the present
and former officers and directors of the Company in connection with any claims
relating to such person serving as a director, officer, employee or agent of
the Company or at the request of the Company and any other entity to the full
extent permitted under Delaware law, the Company's certificate of
incorporation, bylaws or indemnification agreements in effect on the date of
the Merger Agreement. In addition, the Surviving Corporation will, for a period
of six years, maintain all rights to indemnification and limitations on
liability in favor of such officers and directors to the same extent and upon
the terms and conditions provided in the Company's certificate of incorporation
and bylaws as in effect on the date of the Merger Agreement, and to the extent
such rights are consistent with the Delaware General Corporation Law (the
"DGCL") against certain losses and expenses in connection with claims based on
the fact that such person was an officer or director of the Company. The Merger
Agreement also provides that the Surviving Corporation will maintain its
existing policies of officers' and directors' liability insurance for a period
of six years after the Effective Time, subject to certain limitations. See "THE
MERGER AGREEMENT--Indemnification and Insurance."
Each member of the Buyout Group who is an officer of the Company other
than Mr. Segal (each such person, an "Executive") is party to an employment
agreement (each, an "Employment Agreement") and a severance agreement (each, a
"Severance Agreement") with the Company. Upon the occurrence of a
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<PAGE>
"Change in Control" (as such term is defined in the Employment Agreement), the
Employment Agreements will terminate, and all rights and obligations with
respect to the Executives' employment will thereafter be governed by the
Severance Agreements. Pursuant to the terms of the Severance Agreements, if an
Executive's employment with the Company is terminated other than by reason of
death, retirement, disability or Cause (as defined in the Severance
Agreements), or the Executive terminates his employment for Good Reason (as
defined in the Severance Agreements), in each case within a period of 48 months
(in the case of Messrs. Langner, Rubin, Pollack and Rieder), 36 months (in the
case of Messrs. DiBenedetto, Regenstein and Rockowitz) or 24 months (in the
case of Messrs. Daloia and Satinskas) following a "change in control of the
Company" (such termination, a "Termination"), the Executive will be entitled to
receive: (i) a lump sum cash payment equal to a specified multiple (three in
the case of Messrs. Langner, Rubin, Pollack and Rieder; two in the case of
Messrs. Daloia, DiBenedetto, Regenstein, Rockowitz and Satinskas) of the
Executive's average Compensation (as defined in the Severance Agreements) for
the five years prior to Termination, (ii) life, disability, accident and health
insurance benefits for 36 months (24 months in the case of Messrs. Daloia,
DiBenedetto, Regenstein, Rockowitz and Satinskas), (iii) a lump sum cash
payment in respect of any then-outstanding Options and stock appreciation
rights held by the Executive and (iv) a lump sum cash payment equal to the
present value of the additional retirement benefit that the Executive would
have earned under the Company's pension plan if the Executive had remained
employed by the Company until the expiration date of the Executive's Employment
Agreement. Except in the case of Mr. Langner, any payment or benefit received
by an Executive in connection with a change in control of the Company or the
Executive's termination of employment will be reduced to the extent that such
payment would not be deductible by the Company pursuant to Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"). With respect to Mr.
Langner, the Company is obligated to pay him an additional amount to compensate
him for the impact of the excise tax imposed by Section 4999 of the Code (the
"Tax Payment") (including the impact of such excise tax and any federal, state
and local income taxes on the Tax Payment itself). Shareholder approval of the
Merger will constitute a "Change in Control" for purposes of the Employment
Agreements and a "change in control of the Company" for purposes of the
Severance Agreements. If the employment of Messrs. Langner, Rubin, Pollack,
Daloia, DiBenedetto, Regenstein, Rieder, Rockowitz and Satinskas terminates
following stockholder approval of the Merger under circumstances resulting in
severance payments, they would be entitled to receive approximately $2,185,000
(including the Tax Payment described above), $1,461,000, $1,453,000, $497,000,
$684,000, $524,000, $1,169,000, $624,000 and $473,000, respectively, pursuant
to the Severance Agreements (other than payments in respect of Options or cost
of health benefits). In addition to the members of the Buyout Group who have
Severance Agreements as discussed above, one employee of the Company and
certain employees of Hudson LLC also are parties to Severance Agreements. If
the employment of such employee of the Company and such employees of Hudson LLC
terminates following stockholder approval of the Merger under circumstances
resulting in severance payments, such employee of the Company would be entitled
to receive approximately $230,000 and such employees of Hudson LLC would be
entitled to receive aggregate amounts of approximately $829,000.
ACCOUNTING TREATMENT
The cash paid to repurchase the Company's outstanding Common Stock will be
accounted for as a treasury stock transaction, since the Merger will not
constitute a business combination. Because certain existing shareholders of the
Company prior to the Merger will continue to own more than 5% of the
outstanding voting common stock after the transaction, "push-down" accounting
by the Buyout Group is not required. Accordingly, the historical cost basis of
the Company's assets and liabilities will be carried forward to the Surviving
Corporation in the Merger, with the aggregate cash paid to repurchase the
Company's outstanding Common Stock being accounted for as a reduction of
stockholders' equity. The cash paid to repurchase and cancel outstanding
Options will be accounted for as compensation expense.
FINANCING OF THE MERGER
The total amount of funds required by River Acquisition to pay the
aggregate Merger Consideration due to stockholders and option holders of the
Company at the closing of the Merger, assuming the
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Options of all executive officers of the Company (other than those held by
members of the Buyout Group) are cashed out in the Merger and there are no
Dissenting Stockholders, is expected to be approximately $81.1 million. In
addition, River Acquisition will require approximately $3.2 million to pay
other expenses and costs incurred by River Acquisition relating to the
transactions and for other general corporate purposes. In addition, the Company
will require approximately $2.4 million to pay the Company's expenses and costs
relating to the transaction. The proceeds to pay the Merger Consideration and
related costs and expenses of the transaction will be obtained from new senior
secured revolving credit facilities (described below) and cash on hand at the
Company.
On November 22, 1998, River Acquisition delivered the Commitment Letter to
the Company. Pursuant to the Commitment Letter, but subject to the conditions
set forth therein, (i) BankBoston, N.A. ("BKB") has agreed to act as
administrative agent (in such capacity, the "Agent") on its own behalf and on
behalf of European American Bank ("EAB") and The Chase Manhattan Bank ("Chase"
and together with BKB and EAB, the "Initial Lenders") for the proposed senior
secured revolving credit and term loan facilities aggregating up to
approximately $50,000,000 (collectively, the "Facilities"), including two term
loan tranches of $37,500,000 and $7,500,000, respectively, and a revolving
credit facility of $5,000,000, for the purpose of providing a portion of the
financing for the Merger, (ii) each of the Initial Lenders has agreed to
participate on a several, ratable basis for 50%, 25% and 25%, respectively, of
the full amount of the Facilities and (iii) BancBoston Robertson Stephens Inc.
(the "Arranger" and together with the Initial Lenders, the "BKB Group") has
agreed to act as the exclusive arrangement agent and arranger of the
Facilities. The BKB Group may syndicate a portion of the Facilities to other
banks or financial institutions (together with the Initial Lenders, the
"Lenders"). The proceeds of the Facilities will be used (i) to pay a portion of
the Merger Consideration, (ii) to pay expenses of the Merger and (iii) for
working capital and general corporate purposes, including the repurchase of
employee-owned stock options. The BKB Group's obligations under the Commitment
Letter are subject to, among other things, (i) the negotiation and execution of
a definitive credit agreement in respect of the Facilities (the "Credit
Agreement") and related documents that are satisfactory in form and substance
to the BKB Group and River Acquisition, (ii) the absence of any material
adverse change (from that described to the BKB Group in the information
previously provided to the BKB Group) in the assets, business, condition
(financial or otherwise) or prospects of the Company, River Acquisition and
their respective subsidiaries, that would impact the ability of any such entity
to perform its respective obligations described in the Commitment Letter, (iii)
the absence of any material misstatements or omissions from the materials
provided by River Acquisition to the BKB Group for their review in connection
with the transactions contemplated by the Commitment Letter and (iv) the
absence of any changes in governmental regulation or policy materially and
adversely affecting the ability of the Initial Lenders to perform their
respective duties as described in the Commitment Letter or otherwise provide
financing in connection with the Merger.
The Commitment Letter contemplates that the definitive Credit Agreement
will contain terms and conditions which are customary in transactions of this
type, including, without limitation, the following:
Borrower. The initial borrower under the Facilities will be River
Acquisition. Upon the consummation of the Merger, the Company, as the surviving
corporation in the Merger, will become the obligor under the Credit Agreement.
The obligor under the Credit Agreement at any particular time is referred to as
the "Borrower."
Interest Rate. Amounts outstanding under the Facilities will bear
interest, at the option of the Borrower, at a rate per annum equal to either:
(i) the London interbank offered rate (adjusted for actual reserves)("LIBOR")
or (ii) the Alternate Base Rate, in each case, plus the Applicable Margin. The
"Alternate Base Rate" or "ABR" is defined as the higher of (x) the Agent's Base
Rate as publicly announced from time to time, and (y) 0.50% plus the federal
funds rate.
The Applicable Margin (ranging from 2.25% to 3.00% for LIBOR loans and
from 0.25% to 1.00% for ABR loans) with respect to ABR and LIBOR loans under
the revolving credit facility and $37,500,000 term loan tranche will be based
upon the ratio of adjusted EBITDA to Interest (each as defined). The Applicable
Margin for the $7,500,000 term loan tranche is fixed at 3.50% for LIBOR loans
and 1.50% for ABR loans.
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Term. Borrowings under the Facilities will be amortized, and commitments
with respect to drawings under the Facilities will be correspondingly reduced,
over the five and six year terms of the Facilities in accordance with an agreed
schedule.
Guarantors. All of the Borrower's obligations under the Facilities will be
fully and unconditionally guaranteed by all direct and indirect present and
future subsidiaries of the Borrower (collectively, the "Guarantors") other than
Hudson LLC, Hudson Kohala Inc. and certain other non-operating subsidiaries
(collectively, the "Excluded Subsidiaries").
Security. The Facilities will be secured by a first priority security
interest in (i) all of the stock of the Borrower and its subsidiaries
(excluding the Excluded Subsidiaries) and (ii) all tangible and intangible
assets of the Borrower and its subsidiaries (excluding the Excluded
Subsidiaries), including any common or preferential ownership units in Hudson
LLC.
Conditions. The obligations of the Lender under the Credit Agreement to
provide the initial advances pursuant to the Facilities will be subject to
usual and customary conditions for credit facilities of that size, type and
purpose, including, without limitation, the following: (i) no material adverse
change in the condition (financial or otherwise), operations, assets, and/or
income of the Borrower, of the Company, of the Borrower and its subsidiaries
taken as a whole, or of the Company and its subsidiaries taken as a whole; (ii)
delivery by the Borrower of unaudited consolidated financial statements of the
Company and its subsidiaries for the period ended December 31, 1998, which
shall be reasonably satisfactory to the Agent and the Lenders; (iii) absence of
material litigation; (iv) no material adverse change in the financial
projections previously furnished by River Acquisition to the Agent, the Lenders
and the Arranger; (v) minimum cash of the Borrower of not less than
approximately $44,600,000 (or such greater amount as is necessary to complete
the Merger if fees and expenses incurred in connection therewith exceed those
assumed in the calculation of the aggregate amount of the Facilities); (vi) the
contemporaneous closing of the $20,000,000 senior secured revolving credit
facility (the "LLC Facility") for Hudson LLC pursuant to the terms and
conditions set forth in the separate commitment letter among the BKB Group and
River Acquisition relating to the LLC Facility; (vii) consummation of the
Merger in a manner satisfactory to the Agent and its counsel, including the
minimum equity capital contribution to River Acquisition by the Buyout Group or
other members of management in connection with the Merger of at least 280,000
shares and retained Options equivalent to shares of Common Stock of the
Company; and (viii) receipt by the Lender of customary solvency and legal
opinions.
Covenants and Events of Default. The Credit Agreement will contain
affirmative and negative covenants and events of default, in each case which
are customary for credit facilities of that size, type and purpose. Such
affirmative and negative covenants will, among other matters, limit certain
activities of the Borrower and require it to satisfy certain ongoing financial
requirements. Such events of default will include, among other matters, a
cross-default to indebtedness of Hudson LLC and an event of default upon a
change in control (as defined) of the Company following the Merger.
Expiration. The obligations of the BKB Group under the Commitment Letter
will expire and terminate automatically if loan documentation satisfactory in
form and substance to the BKB Group, River Acquisition and their respective
counsel is not executed on or before April 30, 1999.
Messrs. Langner and Segal have entered into a letter agreement with the
Company, dated November 22, 1998 (the "Equity Contribution Letter"), pursuant
to which Messrs. Langner and Segal agreed to contribute an aggregate of 280,000
shares of Common Stock to River Acquisition as of the Effective Time, provided
that all of the conditions to the Merger Agreement have been satisfied or
waived. The Equity Contribution Letter also provides that the number of shares
to be contributed to River Acquisition by Messrs. Langner and Segal will be
reduced on a share for share basis for (i) any shares of Common Stock
contributed to River Acquisition by other members of the Buyout Group and (ii)
up to 35,000 Options to purchase Common Stock that are retained by other
members of the Buyout Group in lieu of cancellation of such Options pursuant to
the Merger. See "SPECIAL FACTORS--Interests of Certain Persons in the Merger;
Certain Relationships."
REGULATORY REQUIREMENTS; THIRD PARTY CONSENTS
The Company does not believe that any material federal or state regulatory
approvals, filings or notices are required by the Company in connection with
the Merger other than (i) such approvals, filings
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or notices required pursuant to federal and state securities laws and (ii) the
filing of the certificate of merger with the Secretary of State of the State of
Delaware.
The parties are not required to file a Premerger Notification under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), because River Acquisition does not satisfy the "size of person"
jurisdictional test of the HSR Act insofar as River Acquisition is its own
"ultimate parent" and does not have a regularly prepared balance sheet and does
not have assets of $10,000,000 or more, excluding the cash that will be used to
consummate the Merger and shares of Common Stock and Options to be contributed
to River Acquisition by members of the Buyout Group.
The Company does not believe any material third party consents will be
required by the Company in connection with the Merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of material United States federal income tax
considerations relevant to stockholders whose shares of Common Stock are
converted to cash in the Merger. This summary is based upon laws, regulations,
rulings and decisions currently in effect, all of which are subject to change,
possibly with retroactive effect. The summary applies only to stockholders who
hold shares of Common Stock as capital assets within the meaning of Section
1221 of the Code, and may not apply to shares of Common Stock received pursuant
to the exercise of employee stock options or otherwise as compensation, or to
certain stockholders who may be subject to special rules not discussed below
(including insurance companies, tax-exempt organizations, financial
institutions or broker dealers, or certain types of stockholders of Common
Stock where such stockholder is, for United States federal income tax purposes,
a non-resident alien individual, a foreign corporation, a foreign partnership,
or a foreign estate or trust), nor does it consider the effect of any foreign,
state or local tax laws.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF COMMON STOCK
SHOULD CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR TO DETERMINE THE
APPLICABILITY OF THE RULES DISCUSSED BELOW AND THE PARTICULAR TAX EFFECTS TO
SUCH STOCKHOLDER OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE,
LOCAL AND OTHER TAX LAWS.
The receipt of cash for shares of Common Stock pursuant to the Merger will
be a taxable transaction for U.S. federal income tax purposes. The federal
income tax consequences with respect to a particular stockholder will depend
upon, among other things, whether the conversion of Common Stock to cash
pursuant to the Merger will be characterized under Section 302 of the Code as a
sale or exchange of such Common Stock or, alternatively, as a dividend. To the
extent such conversion of Common Stock to cash is treated as a sale or exchange
of Common Stock, a stockholder will recognize capital gain or loss equal to the
difference between the amount of cash received for such stockholder's Common
Stock and the stockholder's adjusted tax basis in such Common Stock. A
stockholder's adjusted tax basis in shares of Common Stock generally will equal
the stockholder's purchase price for such shares of Common Stock. Gain or loss
must be determined separately for each block of Common Stock (i.e., shares of
Common Stock acquired at the same cost in a single transaction) converted to
cash in the Merger. To the extent a stockholder recognizes capital gain or
loss, such capital gain or loss will be long-term capital gain or loss if, at
the time of the Merger, the stockholder has held the Common Stock for more than
one year.
The conversion of Common Stock to cash pursuant to the Merger will be
treated as a sale or exchange under Section 302 of the Code if, taking into
account certain constructive ownership rules under Section 318 of the Code,
such sale (a) is "substantially disproportionate" with respect to the
stockholder, (b) results in a "complete redemption" of the stockholder's
interest in the Company or (c) is "not essentially equivalent to a dividend"
with respect to the stockholder. Stockholders should consult with their own tax
advisors as to the application of these tests to their particular
circumstances. A stockholder's failure to satisfy any of these three tests will
cause the stockholder to be treated as having received a dividend to the extent
of the Company's earnings and profits (as determined for U.S. federal income
tax
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<PAGE>
purposes). The receipt of cash for shares by a stockholder who is neither a
member of the Buyout Group nor related to a member of the Buyout Group through
the application of Section 318 of the Code should qualify as a sale or exchange
under Section 302 of the Code.
FEES AND EXPENSES
Whether or not the Merger is consummated and except as otherwise provided
herein, all fees and expenses incurred in connection with the Merger will be
paid by the party incurring such fees and expenses, except that the Company
will pay for all costs and expenses relating to the printing and mailing of
this Proxy Statement. The Company will pay River Acquisition its costs and
expenses incurred in connection with the Merger, including any fees or expenses
payable pursuant to the Commitment Letter upon the termination of the Merger
Agreement, up to a maximum of (i) $1,750,000 if the Merger Agreement is
terminated (a) by River Acquisition because the Special Committee withdraws,
modifies or changes its recommendation so that it is not in favor of the Merger
Agreement or the Merger; (b) by River Acquisition because the Special Committee
decides to recommend an alternative Acquisition Proposal to the Company's
stockholders; or (c) by the Company (acting through the Special Committee), in
order for the Special Committee to comply with its fiduciary duties in
connection with an alternative Acquisition Proposal; or (ii) $875,000 if the
stockholders of the Company do not vote to approve and adopt the Merger
Agreement and the transactions contemplated thereby by April 30, 1999.
In the event that the financing contemplated by the Commitment Letter does
not close on or prior to April 30, 1999 and River Acquisition receives the
foregoing expense and fee reimbursement from the Company, River Acquisition
will be required to pay the Initial Lenders and the Agent fees aggregating
$150,000. In addition, River Acquisition will pay Lazard Freres a fee of
$250,000 out of any reimbursement amounts received from the Company, provided
that, if such reimbursement payment is less than $1 million, the fee payable to
Lazard Freres will be reduced to $125,000.
Estimated fees and expenses (rounded to the nearest thousand) to be
incurred by the Company or River Acquisition in connection with the Merger are
as follows:
<TABLE>
<CAPTION>
<S> <C>
Financing Fees(1)(2) .................................... $1,050,000
Special Committee's Financial Advisor's Fees(3) ......... 721,000
Buyout Group's Financial Advisor's Fees ................. 1,083,000
SEC Filing Fees ......................................... 16,000
Legal Fees and Expenses ................................. 2,000,000
Accounting Fees ......................................... 100,000
Printing and Mailing Expenses ........................... 200,000
Exchange Agent Fees ..................................... 10,000
Special Committee Fees .................................. 23,000
Proxy Solicitation Fees ................................. 5,000
Miscellaneous ........................................... 392,000
----------
Total .................................................. $5,600,000
==========
</TABLE>
- ----------
(1) See "SPECIAL FACTORS--Financing of the Merger." Financing fees include
fees payable to legal counsel to the Initial Lenders.
(2) In addition to the financing fees, River Acquisition has agreed to issue
to the Initial Lenders warrants to purchase up to 3% of the capital stock
of the Surviving Corporation on a diluted basis. The Commitment Letter
provides that such warrants will contain customary anti-dilution,
tag-along, piggy-back registration, preemptive and other rights and
permit the holders thereof to require the Company to repurchase the
warrants on customary terms.
(3) Allen & Company's fee, as determined pursuant to the Engagement Letter,
is approximately $1,622,000, less approximately $901,000, representing a
portion of the sum of the aggregate amount paid by the Company to Allen &
Company in connection with the acquisition by LAGS (USA) of a 49%
interest in Hudson LLC, resulting in a net fee to Allen & Company in
connection with the Merger of approximately $721,000.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Proxy Statement. Such
summary is qualified in its entirety by reference to the full text of the
Merger Agreement.
THE MERGER; MERGER CONSIDERATION
The Merger Agreement provides that the Merger will become effective at
such time as a certificate of merger is duly filed with the Secretary of State
of the State of Delaware or at such later time as is agreed to by the parties
and as is specified in the certificate of merger (the "Effective Time"). If the
Merger is approved at the Special Meeting by the holders of a majority of all
outstanding shares of Common Stock and a majority of all outstanding shares of
Common Stock not owned by River Acquisition and the members of the Buyout
Group, and the other conditions to the Merger are satisfied, it is currently
anticipated that the Merger will become effective as soon as practicable after
the Special Meeting (subject to compliance with or waiver of the other
conditions of the Merger Agreement); however, there can be no assurance as to
the timing of the consummation of the Merger or that the Merger will be
consummated.
At the Effective Time, River Acquisition will be merged with and into the
Company, the separate corporate existence of River Acquisition will cease, and
the Company will continue as the Surviving Corporation. In the Merger, each
share of Common Stock (other than Common Stock held (i) in the treasury of the
Company or by any of its wholly-owned subsidiaries, (ii) by River Acquisition
or (iii) by Dissenting Stockholders) will, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into the right to
receive the Merger Consideration. Each certificate representing shares of
Common Stock that has been converted under the terms of the Merger Agreement
will, after the Effective Time, evidence only the right to receive, upon the
surrender of such certificate, an amount of cash per share equal to the Merger
Consideration.
Each share of Common Stock (i) held in the treasury of the Company or by
any wholly-owned subsidiary of the Company or (ii) owned by River Acquisition
or its subsidiaries will automatically be cancelled, retired and cease to exist
and no payment will be made with respect thereto.
Each share of common stock of River Acquisition issued and outstanding
immediately prior to the Effective Time will be converted into and become one
share of common stock of the Surviving Corporation and will constitute the only
outstanding shares of capital stock of the Surviving Corporation.
Dissenting Stockholders who do not vote to approve and adopt the Merger
Agreement and who otherwise strictly comply with the provisions of the DGCL
regarding statutory appraisal rights have the right to seek a determination of
the fair value of their shares of Common Stock and payment in cash therefor in
lieu of the Merger Consideration. See "DISSENTERS' RIGHTS OF APPRAISAL."
THE EXCHANGE FUND; PAYMENT FOR SHARES OF COMMON STOCK
On or before the closing date of the Merger, River Acquisition will enter
into an agreement with a bank or trust company selected by River Acquisition
and reasonably acceptable to the Company (the "Exchange Agent"). Immediately
prior to the Effective Time, River Acquisition will deposit or cause to be
deposited with or for the account of the Exchange Agent, in trust for the
benefit of the Company's holders of Common Stock (other than Common Stock held
by Dissenting Stockholders and shares to be cancelled without consideration
pursuant to the Merger Agreement) an amount in cash equal to the aggregate
Merger Consideration (such amount being hereinafter referred to as the
"Exchange Fund").
As soon as reasonably practicable after the Effective Time, the Exchange
Agent will mail to each record holder of shares of Common Stock immediately
prior to the Effective Time a letter of transmittal containing instructions for
use in surrendering certificates formerly representing shares of Common Stock
(the "Certificates") in exchange for the Merger Consideration. No stockholder
should surrender any Certificates until the stockholder receives the letter of
transmittal and other materials for such surrender. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with a letter of
transmittal, duly executed, and such other customary documents as may be
required pursuant to the
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instructions, the holder of such Certificate will be entitled to receive in
exchange therefor the Merger Consideration for each share of Common Stock
formerly represented by such Certificate, without any interest thereon, less
any required withholding of taxes, and the Certificate so surrendered will be
cancelled. The Merger Consideration will be delivered by the Exchange Agent as
promptly as practicable following surrender of a Certificate and delivery of
the Letter of Transmittal and any other related transmittal documents. Cash
payments may be made by check unless otherwise required by a depositary
institution in connection with the book-entry delivery of securities.
If payment of the Merger Consideration is to be made to a person other
than the person in whose name the Certificate surrendered is registered, it
will be a condition of payment that the Certificate so surrendered will be
properly endorsed (together with signature guarantees on such Certificate and
any related stock power) or otherwise be in proper form for transfer and that
the Exchange Agent receives evidence that any applicable transfer or other
taxes have been paid or are not applicable.
STOCKHOLDERS SHOULD NOT SEND THEIR CERTIFICATES NOW AND SHOULD SEND THEM
ONLY PURSUANT TO INSTRUCTIONS SET FORTH IN LETTERS OF TRANSMITTAL TO BE MAILED
TO STOCKHOLDERS AS SOON AS PRACTICABLE AFTER THE EFFECTIVE TIME. IN ALL CASES,
THE MERGER CONSIDERATION WILL BE PROVIDED ONLY IN ACCORDANCE WITH THE
PROCEDURES SET FORTH IN THIS PROXY STATEMENT AND SUCH LETTERS OF TRANSMITTAL.
One year following the Effective Time, the Exchange Agent will return to
the Surviving Corporation any portion of the Exchange Fund which remains
undistributed to the holders of the Common Stock (including the proceeds of any
investments thereof), and any holders of Common Stock who have not theretofore
complied with the above-described procedures to receive payment of the Merger
Consideration may look only to the Surviving Corporation for payment.
TRANSFERS OF COMMON STOCK
At the Effective Time, the stock transfer books of the Company will be
closed, and there will be no further registration of transfers of shares of
Common Stock thereafter on the records of the Company. If, after the Effective
Time, Certificates are presented to the Exchange Agent or the Surviving
Corporation, they will be cancelled and exchanged for the Merger Consideration
as provided above and pursuant to the terms of the Merger Agreement (subject to
applicable law in the case of Dissenting Stockholders).
TREATMENT OF OPTIONS
It is currently anticipated that at the Effective Time, each outstanding
Option to acquire Common Stock, other than Options held by members of the
Buyout Group, will be cancelled. In consideration of such cancellation, the
Surviving Corporation will pay to the holder of each such cancelled Option,
within five days of the Effective Time, an amount determined by multiplying (i)
the excess, if any, of the Merger Consideration over the applicable exercise
price per share of such Option by (ii) the number of shares of Common Stock
issuable upon exercise of the Option, subject to any required withholding of
taxes (the "Option Consideration"). At the Effective Time, all Options, other
than those with respect to which the holder has agreed with River Acquisition
(with the consent of the Company) as to an alternative arrangement, will be
converted into, and will thereafter only represent the right to receive, the
Option Consideration. The Options to acquire shares of Common Stock of the
Company held by members of the Buyout Group are expected to be converted into
options to acquire common stock of the Surviving Corporation on terms which
have not yet been determined.
Prior to the Effective Time, the Company will use its best efforts to (i)
obtain any consents from the holders of the Options and (ii) make any
amendments to the terms of the Company Option Plans and any options granted
thereunder that are necessary or appropriate to consummate the transactions
contemplated by the Merger Agreement.
Instead of the cancellation of such Options, River Acquisition may, with
the consent of the Company (which consent will not be unreasonably withheld),
enter into mutually acceptable arrangements with any
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<PAGE>
holder of Options providing that such holder's Options will be treated in a
different manner, provided that in no event will any such holder be paid at the
Effective Time an amount in cash in excess of the Option Consideration such
holder would have received had such Options been cancelled as described above.
See "SPECIAL FACTORS--Interests of Certain Persons in the Merger; Certain
Relationships" for a discussion of such an alternative arrangement being
contemplated by the Buyout Group.
CONDITIONS
The respective obligations of River Acquisition and the Company to
consummate the Merger are subject to the following conditions, among others:
(i) the approval and adoption of the Merger Agreement by the affirmative vote
of the holders of a majority of all outstanding shares of Common Stock and a
majority of all outstanding shares of Common Stock not owned by River
Acquisition and the members of the Buyout Group and (ii) the absence of any
governmental action or order which materially restricts, prevents or prohibits
consummation of the Merger.
The obligations of River Acquisition to effect the Merger are subject to
the following additional conditions: (i) the representations and warranties of
the Company being true and correct in all material respects, in each case as of
the Effective Time as though made on and as of the Effective Time, except where
the failure to be true and correct, individually or in the aggregate with all
such other failures, would not have a material adverse effect on the Company;
(ii) the Company having performed or complied in all material respects with
agreements and covenants required by the Merger Agreement to be performed or
complied with prior to the Effective Time; (iii) River Acquisition having
obtained the financing described in the Commitment Letter; (iv) Dissenting
Stockholders not representing more than 7.5% of the outstanding shares of
Common Stock; and (v) since November 22, 1998, the absence of any event or
events that, individually or in the aggregate, could be expected to have a
material adverse effect on the Company, excluding the effects of changes that
are applicable to (A) the United States and Canada aviation services business
generally, (B) the United States and Canadian economy generally or (C) the
United States securities markets generally.
The obligations of the Company to effect the Merger are also subject to
the additional condition that all the covenants in the Merger Agreement to be
complied with or performed by River Acquisition will have been complied with
and performed in all material respects prior to the Effective Time and the
representations and warranties of River Acquisition will, if qualified by
materiality, be true and correct and, if not so qualified, be true and correct
in all material respects, in each case as of the Effective Time as if made on
and as of the Effective Time.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains limited representations and warranties of
River Acquisition and the Company. The representations of River Acquisition
relate to, among other things, the organization and qualification to do
business of River Acquisition, authority to enter into the Merger Agreement, no
conflict, required filings and consents, financing, absence of brokers and
capitalization and ownership of River Acquisition. The representations of the
Company relate to, among other things, corporate organization and
qualification, capitalization, authority to enter into the Merger Agreement, no
conflict, required filings and consents, opinion of Allen & Company and the
absence of brokers. The Company's representations are subject to River
Acquisition and the members of the Buyout Group not having had actual knowledge
of any inaccuracies in such representations prior to the execution of the
Merger Agreement.
COVENANTS
The Company has agreed to conduct its business in the ordinary and usual
course prior to the Effective Time. In this regard, the Company has agreed that
it will not, without the prior consent of River Acquisition (which consent may
not be unreasonably withheld), engage in certain types of transactions.
Specifically, the Company has agreed that prior to the Effective Time neither
the Company nor significant subsidiaries of the Company will amend their
certificate of incorporation or bylaws; declare or pay any
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dividends or other distributions (other than the Company's regular semi-annual
dividend of $.50 per share, which dividend shall be paid, or dividends declared
and paid by wholly-owned subsidiaries or by Hudson LLC); authorize for issuance
or issue, grant or sell any of its securities other than upon exercise of
existing options; take any action with respect to accounting policies or
procedures; or take any action that would or could reasonably be expected to
result in, any of the Company's representations and warranties set forth in the
Merger Agreement being untrue or in any of the conditions to the Merger not
being satisfied. In addition, River Acquisition and the Company have made
further agreements regarding the access to the Company's records; preparation
and filing of this Proxy Statement and the Schedule 13E-3 with the SEC;
reasonable best efforts to fulfill the conditions to the other party's
obligation to consummate the Merger; public announcements; conveyance taxes;
continuation of employee benefits; notices regarding the financing pursuant to
the Commitment Letter and knowledge, prior to the execution of the Merger
Agreement, on the part of River Acquisition and the members of the Buyout Group
of any breach by the Company of its representations, warranties and other
agreements under the Merger Agreement.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that from and after the Effective Time, the
Surviving Corporation will indemnify, defend and hold harmless the present and
former officers and directors of the Company, to the full extent permitted
under the DGCL or the Company's certificate of incorporation, by-laws or
indemnification agreements in effect upon execution of the Merger Agreement
(including provisions relating to advancement of expenses incurred in defense
of any action or suit), against all losses, claims, damages, liabilities, costs
and expenses (including, attorneys' fees and expenses) and amounts paid in
settlement with the written approval of the Surviving Corporation (which
approval will not unreasonably be withheld) in connection with any action,
suit, claim, proceeding or investigation (each a "Claim") to the extent that
any such Claim is based on, or arises out of, (i) the fact that such person is
or was a director, officer, employee or agent of the Company or any of its
subsidiaries or is or was serving at the request of the Company or any of its
subsidiaries as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (ii) the Merger
Agreement, or any of the transactions contemplated thereby, in each case to the
extent that any such Claim pertains to any matter or fact arising, existing, or
occurring prior to or at the Effective Time, regardless of whether such Claim
is asserted or claimed prior to, at or after the Effective Time.
The Merger Agreement provides that the Surviving Corporation shall
maintain in effect, for not less than six years from the Effective Time, the
Company's existing directors' and officers' liability insurance policy ("D&O
Insurance"); provided, that the Surviving Corporation may substitute therefor
policies of substantially similar coverage and amounts containing terms no less
advantageous to such former directors or officers so long as such substitution
does not result in gaps or lapses in coverage; provided, further, if the
existing D&O Insurance expires or is cancelled during such period, River
Acquisition or the Surviving Corporation will use its best efforts to obtain
substantially similar D&O Insurance; provided, however, that if the aggregate
annual premiums for such D&O Insurance (or successor insurance policy) at any
time during such period exceed 200% of the per annum rate of premiums currently
paid by the Company for such insurance on the date of the Merger Agreement,
then the Surviving Corporation will be required to provide the maximum coverage
that is then available at an annual premium equal to 200% of such rate.
In addition, the Merger Agreement provides that, subject to certain
conditions, (i) all rights to indemnification and all limitations on liability
existing in favor of present or former directors or officers of the Company, as
provided in the Company's certificate of incorporation and by-laws as currently
in effect, will survive the Merger and will continue in effect for a period of
six years from the Effective Time of the Merger and (ii) successors and assigns
of the Surviving Corporation are required to assume the Surviving Corporation's
obligations under the Merger Agreement regarding such indemnification and
insurance.
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NO SOLICITATION; FIDUCIARY OBLIGATIONS OF DIRECTORS
The Merger Agreement provides that the Company shall not, and shall not
authorize or permit any of its officers, directors, employees or agents to
directly or indirectly solicit, encourage, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than River
Acquisition, any of its affiliates or representatives) (collectively, a
"Person") concerning any merger, consolidation, tender offer, exchange offer,
sale of all or substantially all of the Company's assets, sale of shares of
capital stock or similar business combination transaction involving the Company
or any principal operating or business unit of the Company or its subsidiaries
(an "Acquisition Proposal"). If, however, the Company or the Special Committee
receives an unsolicited, written indication of a willingness to make an
Acquisition Proposal at a price per share which the Special Committee
reasonably concludes is in excess of the Merger Consideration from any Person,
and if the Special Committee reasonably concludes, based upon advice of its
financial advisor, that the Person delivering such indication is capable of
consummating such an Acquisition Proposal (based upon, among other things, the
availability of financing and the capacity to obtain financing) then the
Company or the Special Committee may, directly or indirectly, provide access to
or furnish or cause to be furnished information concerning the Company's
business, properties or assets to any such Person pursuant to an appropriate
confidentiality agreement, and the Company or the Special Committee may engage
in discussions related thereto. In addition, the Company or the Special
Committee may participate in and engage in discussions and negotiations with
any Person meeting the requirements in the preceding sentence in response to a
written Acquisition Proposal, if the Special Committee concludes, upon advice
of its legal counsel, that the failure to engage in such discussions or
negotiations would be inconsistent with the Special Committee's (and the
Board's) fiduciary duties to the Company's stockholders under applicable law.
If after the Company has received a written Acquisition Proposal (without
breaching the foregoing obligations of the Company) but prior to obtaining the
required stockholder approval of the Merger, the Special Committee determines,
in good faith and upon advice of its financial advisor and legal counsel, that
it is necessary to do so in order to comply with its fiduciary duties to the
Company's stockholders under applicable law, the Special Committee may do any
or all of the following: (x) withdraw or modify the Board of Directors'
approval or recommendation of the Merger or the Merger Agreement, (y) approve
or recommend an Acquisition Proposal and (z) terminate the Merger Agreement.
Furthermore, notwithstanding the foregoing, the Company or its Board of
Directors may, upon the recommendation of the Special Committee, take and
disclose to the Company's stockholders a position with respect to a tender or
exchange offer by a third party or make such disclosure to the Company's
stockholders or otherwise which, in the judgment of the Special Committee upon
advice of legal counsel, is necessary under applicable law or rules of any
stock exchange.
Pursuant to the Merger Agreement, the Company is required to promptly (but
in any event within two days) advise River Acquisition in writing of any
Acquisition Proposal or any inquiry regarding the making of an Acquisition
Proposal including any request for information, the material terms and
conditions of such request, Acquisition Proposal or inquiry and the identity of
the Person making such request, Acquisition Proposal or inquiry. The Company is
also required, to the extent reasonably practicable, to keep River Acquisition
fully informed of the status and details (including amendments or proposed
amendments) of any such request, Acquisition Proposal or inquiry.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the adoption of the Merger Agreement by the
stockholders of the Company, by the mutual written consent of the Company
(acting through the Special Committee) and River Acquisition, or by either the
Company or River Acquisition (i) if any permanent injunction, order, decree,
ruling or other action of any governmental entity preventing the consummation
of the Merger has become final and nonappealable; or (ii) if the Merger has not
been consummated by April 30, 1999 (provided that such termination will not be
available to any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of or resulted in the failure of the closing to
occur on or before such date).
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The Company may terminate the Merger Agreement at any time prior to the
Effective Time (i) upon a material breach of any covenant by River Acquisition
which is not cured or if any representation or warranty of River Acquisition
has become untrue in any material respect, in either case such that such breach
or untruth is not capable of being cured by April 30, 1999; (ii) subject to
certain other conditions provided in the Merger Agreement, if the Special
Committee determines, in good faith and upon advice of its financial advisor
and legal counsel, that it is necessary to terminate the Merger Agreement in
order to comply with its fiduciary duties to the Company's stockholders under
applicable law, see "THE MERGER AGREEMENT-- No Solicitation; Fiduciary
Obligations of Directors"; or (iii) the Company receives a notice from River
Acquisition that the Commitment Letter has been terminated or cancelled.
River Acquisition may terminate the Merger Agreement at any time prior to
the Effective Time, either before or after its adoption by the stockholders, if
(i) the Board (acting through the Special Committee) withdraws, modifies or
changes its recommendation so that it is not in favor of the Merger Agreement
or the Merger; (ii) the Board (acting through the Special Committee) recommends
or resolves to recommend to stockholders an Acquisition Proposal; (iii) if the
required stockholder approval has not been obtained by April 30, 1999; or (iv)
upon a material breach of any covenant or agreement contained in the Merger
Agreement by the Company which is not cured, or if any representation or
warranty of the Company shall have become untrue in any material respect, in
either case that such breach or untruth is incapable of being cured by April
30, 1999.
FEES AND EXPENSES
Whether or not the Merger is consummated and except as otherwise provided
in the Merger Agreement, all fees and expenses incurred in connection with the
Merger will be paid by the party incurring such fees and expenses, except that
the Company will pay for all costs and expenses relating to the printing and
mailing of this Proxy Statement. The Company will pay River Acquisition its
costs and expenses incurred in connection with the Merger, including any fees
or expenses payable pursuant to the Commitment Letter, upon the termination of
the Merger Agreement, up to a maximum of (i) $1,750,000 if the Merger Agreement
is terminated (a) by River Acquisition because the Board (acting through the
Special Committee) withdraws, modifies or changes its recommendation so that it
is not in favor of the Merger Agreement or the Merger; (b) by River Acquisition
because the Board (acting through the Special Committee) decides to recommend
an alternative Acquisition Proposal to the Company's stockholders; or (c) by
the Company (acting through the Special Committee), in order for the Special
Committee to comply with its fiduciary duties to the Company's stockholders in
connection with an alternative acquisition proposal; or (ii) $875,000 if the
stockholders of the Company do not vote to approve and adopt the Merger
Agreement and the transactions contemplated thereby by April 30, 1999. See
"SPECIAL FACTORS--Fees and Expenses."
DIRECTORS AND OFFICERS OF THE COMPANY FOLLOWING THE MERGER; CERTIFICATE OF
INCORPORATION; BYLAWS
The Merger Agreement provides that the current directors of River
Acquisition will be the directors of the Surviving Corporation. The Merger
Agreement also provides that the officers of the Company will be the officers
of the Surviving Corporation.
The certificate of incorporation of the Company immediately prior to the
Effective Time will be the certificate of incorporation of the Surviving
Corporation, until thereafter amended, and the bylaws of River Acquisition
immediately prior to the Effective Time will be the bylaws of the Surviving
Corporation until thereafter amended.
AMENDMENT/WAIVER
Before or after adoption of the Merger Agreement by the stockholders, the
Merger Agreement may be amended by the written agreement of the parties thereto
at any time prior to the Effective Time if such amendment is approved on behalf
of the Company by the Special Committee; provided that, after any such
stockholder approval has been obtained, no amendment may be made which under
applicable law requires the approval of the stockholders of the Company if such
approval has not been obtained.
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At any time prior to the Effective Time, either the Company (acting
through the Special Committee) or River Acquisition, may extend the time for
performance of any of the obligations or other acts of the other party to the
Merger Agreement, waive any inaccuracies in the representations and warranties
of the other party contained in the Merger Agreement or in any document
delivered pursuant to the Merger Agreement, or waive compliance by the other
party with any agreements or conditions contained in the Merger Agreement. Any
extension or waiver granted by the Company will be valid only if it has been
approved by the Special Committee.
DIRECTORS AND EXECUTIVE OFFICERS OF RIVER ACQUISITION CORP.
Messrs. Langner and Segal are the initial directors and executive officers
of River Acquisition. No determination has been made by Messrs. Langner and
Segal as to whether additional persons will be invited to join the Board of
Directors of the Surviving Corporation following the Merger. Information
regarding Messrs. Langner and Segal is set forth under "MANAGEMENT--Directors
and Executive Officers of the Company."
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CERTAIN LITIGATION
On November 24, 1998, two purported class action lawsuits, each by a
stockholder of the Company against the Company and each of the Company's
directors, were filed in the Court of Chancery of the State of Delaware in and
for New Castle County, under the captions Weiner v. Langner, C.A. No. 16805 and
Harbor Finance Partners v. Dresner, C.A. No. 16804, and on November 30, 1998,
an additional purported class action lawsuit was filed by two stockholders of
the Company against the Company and each of the Company's directors, in the
Court of Chancery of the State of Delaware in and for New Castle County, under
the caption Soshtain v. Langner, C.A. No. 16414 NC (collectively, the
"Complaints"). The Complaints, which are substantially similar to each other,
allege, among other things, that: (i) the $57.25 per share price offered for
the Common Stock by the Buyout Group is inadequate and provides value
substantially below the fair value of the Company, (ii) the directors of the
Company violated their fiduciary duties to the stockholders of the Company, and
(iii) the Merger Agreement was not the result of arm's-length negotiations. The
Complaints seek, among other things, an order: (i) certifying that the lawsuits
may be maintained as class actions on behalf of all holders of the Company's
Common Stock, excluding the defendants and those affiliated with the
defendants, (ii) preliminarily and permanently enjoining the Company from
proceeding with the Merger, (iii) rescinding the Merger, in the event the
Merger is consummated, (iv) awarding compensatory damages to the members of the
purported class in an amount to be determined at trial, and (v) awarding the
named plaintiffs their costs, including counsel fees and expert fees. All of
the parties to the Complaints have agreed to consolidate the Complaints for all
purposes, under the caption In Re Hudson General Corporation Shareholders
Litigation, Consolidated C.A. 16804, and jointly submitted a proposed Order of
Consolidation to the Court of Chancery of the State of Delaware in and for New
Castle County. The Company and the defendant directors believe the Complaints
are without merit and intend to defend the lawsuits vigorously.
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DISSENTERS' RIGHTS OF APPRAISAL
Pursuant to Section 262 of the DGCL, any holder of Common Stock who does
not wish to accept the Merger Consideration may dissent from the Merger and
elect to have the fair value of such stockholder's shares of Common Stock
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) judicially determined and paid to such stockholder
in cash, together with a fair rate of interest, if any, provided that such
stockholder complies with the provisions of Section 262. The following
discussion is not a complete statement of the law pertaining to appraisal
rights under the DGCL, and is qualified in its entirety by the full text of
Section 262, which is provided in its entirety as Annex C to this Proxy
Statement. All references in Section 262 and in this summary to a "stockholder"
are to the record holder of the shares of Common Stock as to which appraisal
rights are asserted. A person having a beneficial interest in shares of Common
Stock held of record in the name of another person, such as a broker or
nominee, must act promptly to cause the record holder to follow properly the
steps summarized below and in timely manner to perfect appraisal rights.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, as in the case of the Special Meeting, the
corporation, not less than 20 days prior to the meeting, must notify each of
its stockholders entitled to appraisal rights that such appraisal rights are
available and include in such notice a copy of Section 262. This Proxy
Statement shall constitute such notice to the holders of Common Stock and the
applicable statutory provisions of the DGCL are attached to this Proxy
Statement as Annex C. Any stockholder who wishes to exercise such appraisal
rights or who wishes to preserve the right to do so should review carefully the
following discussion and Annex C to this Proxy Statement because failure to
comply with the procedures specified in Section 262 timely and properly will
result in the loss of appraisal rights. Moreover, because of the complexity of
the procedures for exercising the right to seek appraisal of the Common Stock,
the Company believes that stockholders who consider exercising such rights
should seek the advice of counsel.
Any holder of Common Stock wishing to exercise the right to dissent from
the Merger and demand appraisal under Section 262 of the DGCL must satisfy each
of the following conditions:
(A) Such stockholder must deliver to the Company a written demand for
appraisal of such stockholder's shares before the vote on the Merger
Agreement at the Special Meeting, which demand will be sufficient if
it reasonably informs the Company of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of
such holder's shares;
(B) Such stockholder must not vote its shares of Common Stock in favor of
the Merger Agreement. Because a proxy which does not contain voting
instructions will, unless revoked, be voted in favor of the Merger
Agreement, a stockholder who votes by proxy and who wishes to exercise
appraisal rights must vote against the Merger Agreement or abstain from
voting on the Merger Agreement; and
(C) Such stockholder must continuously hold such shares from the date of
making the demand through the Effective Time. Accordingly, a
stockholder who is the record holder of shares of Common Stock on the
date the written demand for appraisal is made but who thereafter
transfers such shares prior to the Effective Time will lose any right
to appraisal in respect of such shares.
Neither voting (in person or by proxy) against, abstaining from voting on
or failing to vote on the proposal to approve and adopt the Merger Agreement
will constitute a written demand for appraisal within the meaning of Section
262. The written demand for appraisal must be in addition to and separate from
any such proxy or vote.
Only a holder of record of shares of Common Stock issued and outstanding
immediately prior to the Effective Time is entitled to assert appraisal rights
for the shares of Common Stock registered in that holder's name. A demand for
appraisal should be executed by or on behalf of the stockholder of record,
fully and correctly, as such stockholder's name appears on such stock
certificates, should specify the stockholder's name and mailing address, the
number of shares of Common Stock owned and that such
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stockholder intends thereby to demand appraisal of such stockholder's Common
Stock. If the shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity, and if the shares are owned of record by more than one person as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all owners. An authorized agent, including one or more joint owners,
may execute a demand for appraisal on behalf of a stockholder; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is acting as agent for such owner or
owners. A record holder such as a broker who holds shares as nominee for
several beneficial owners may exercise appraisal rights with respect to the
shares held for one or more beneficial owners while not exercising such rights
with respect to the shares held for one or more beneficial owners; in such
case, the written demand should set forth the number of shares as to which
appraisal is sought, and where no number of shares is expressly mentioned the
demand will be presumed to cover all shares held in the name of the record
owner. Stockholders who hold their shares in brokerage accounts or other
nominee forms and who wish to exercise appraisal rights are urged to consult
with their brokers to determine and appropriate procedures for the making of a
demand for appraisal by such nominee.
A stockholder who elects to exercise appraisal rights pursuant to Section
262 should mail or deliver a written demand to: Hudson General Corporation, 111
Great Neck Road, Great Neck, New York 11021, Attention: Noah E. Rockowitz,
Senior Vice President and Secretary.
Within ten days after the Effective Time, the Surviving Corporation must
send a notice as to the effectiveness of the Merger to each former stockholder
of the Company who has made a written demand for appraisal in accordance with
Section 262 and who has not voted in favor of the Merger Agreement. Within 120
days after the Effective Time, but not thereafter, either the Surviving
Corporation or any Dissenting Stockholder who has complied with the
requirements of Section 262 may file a Petition in the Delaware Chancery Court
demanding a determination of the value of the shares of Common Stock held by
all Dissenting Stockholders. The Company is under no obligation to and has no
present intent to file a petition for appraisal, and stockholders seeking to
exercise appraisal rights should not assume that the Surviving Corporation will
file such a petition or that the Surviving Corporation will initiate any
negotiations with respect to the fair value of such shares. Accordingly,
stockholders who desire to have their shares appraised should initiate any
petitions necessary for the perfection of their appraisal rights within the
time periods and in the manner prescribed in Section 262. Inasmuch as the
Company has no obligation to file such a petition, the failure of a stockholder
to do so within the period specified could nullify such stockholder's previous
written demand for appraisal. In any event, at any time within 60 days after
the Effective Time (or at any time thereafter with the written consent of the
Company), any stockholder who has demanded appraisal has the right to withdraw
the demand and to accept payment of the Merger Consideration.
Pursuant to the Merger Agreement, the Company has agreed to give River
Acquisition prompt notice of any demands for appraisal received by it,
withdrawals of such demands, and any other instruments served pursuant to the
DGCL and received by the Company and relating thereto. River Acquisition shall
direct all negotiations and proceedings with respect to demands for appraisal
under the DGCL. The Company shall not, except with the prior written consent of
River Acquisition, make any payment with respect to any demands for appraisal,
or offer to settle, or settle, any such demands.
Within 120 days after the Effective Time, any stockholder who has complied
with the provisions of Section 262 to that point in time will be entitled to
receive from the Surviving Corporation, upon written request, a statement
setting forth the aggregate number of shares not voted in favor of the Merger
Agreement and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. The Surviving Corporation
must mail such statement to the stockholder within 10 days of receipt of such
request or within 10 days after expiration of the period for delivery of
demands for appraisals under Section 262, whichever is later.
A stockholder timely filing a petition for appraisal with the Court of
Chancery must deliver a copy to the Surviving Corporation, which will then be
obligated within 20 days to provide the Delaware Court of Chancery with a duly
verified list containing the names and addresses of all stockholders who have
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demanded appraisal of their shares. After notice to such stockholders, the
Delaware Court of Chancery is empowered to conduct a hearing on the petition to
determine which stockholders are entitled to appraisal rights. The Delaware
Court of Chancery may require stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates to the Register in Chancery for notation thereon of the pendency
of the appraisal proceedings, and if any stockholder fails to comply with the
requirement, the Delaware Court of Chancery may dismiss the proceedings as to
that stockholder.
After determining the stockholders entitled to an appraisal, the Delaware
Court of Chancery will appraise the "fair value" of their shares, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. The costs of the action may be
determined by the Delaware Chancery Court and taxed upon the parties as the
Delaware Chancery Court deems equitable. Upon application of a Dissenting
Stockholder, the Delaware Chancery Court may also order that all or a portion
of the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, be charged pro rata against the value of all of
the shares entitled to appraisal. STOCKHOLDERS CONSIDERING SEEKING APPRAISAL
SHOULD BE AWARE THAT THE FAIR VALUE OF THEIR SHARES AS DETERMINED UNDER SECTION
262 COULD BE MORE THAN, THE SAME AS OR LESS THAN THE MERGER CONSIDERATION THEY
WOULD RECEIVE PURSUANT TO THE MERGER AGREEMENT IF THEY DID NOT SEEK APPRAISAL
OF THEIR SHARES. STOCKHOLDERS SHOULD ALSO BE AWARE THAT INVESTMENT BANKING
OPINIONS ARE NOT OPINIONS AS TO FAIR VALUE UNDER SECTION 262.
In determining fair value and, if applicable, a fair rate of interest, the
Delaware Chancery Court is to take into account all relevant factors. In
Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods that are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered, and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that, in making this determination of fair value,
the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts that could be
ascertained as of the date of the merger that throw any light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
that are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262 provides that fair
value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
subject to such demand for any purpose or be entitled to the payment of
dividends or other distributions on those shares (except dividends or other
distributions payable to holders of record of shares as of a record date prior
to the Effective Time).
Any stockholder may withdraw its demand for appraisal and accept the
Merger Consideration by delivering to the Surviving Corporation a written
withdrawal of such stockholder's demands for appraisal, except that (i) any
such attempt to withdraw made more than 60 days after the Effective Time will
require written approval of the Surviving Corporation and (ii) no appraisal
proceeding in the Delaware Chancery Court shall be dismissed as to any
stockholder without the approval of the Delaware Chancery Court, and such
approval may be conditioned upon such terms as the Delaware Chancery Court
deems just. If the Surviving Corporation does not approve a stockholder's
request to withdraw a demand for appraisal when such approval is required or if
the Delaware Chancery Court does not approve the dismissal of an appraisal
proceeding, the stockholder would be entitled to receive only the appraised
value determined in any such appraisal proceeding, which value could be lower
than the value of the Merger Consideration.
FAILURE TO COMPLY STRICTLY WITH ALL OF THE PROCEDURES SET FORTH IN SECTION
262 OF THE DGCL WILL RESULT IN THE LOSS OF A STOCKHOLDER'S STATUTORY APPRAISAL
RIGHTS. CONSEQUENTLY, ANY STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS IS
URGED TO CONSULT LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS.
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MARKET FOR THE COMMON STOCK
COMMON STOCK MARKET PRICE INFORMATION; DIVIDEND INFORMATION
The Company's Common Stock is traded on the American Stock Exchange under
the symbol "HGC." The following table shows, for the quarters indicated, (i)
the per share high and low sales prices of the Common Stock on the American
Stock Exchange based on published financial sources and (ii) the dividends paid
on the Common Stock.
MARKET PRICE OF COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
--------- --------- ----------
<S> <C> <C> <C>
FISCAL YEAR 1997
First Quarter ...................................... $40 1/8 $32 1/2 $.25
Second Quarter ..................................... 39 3/4 33 3/4 --
Third Quarter ...................................... 41 3/4 35 3/4 $.50
Fourth Quarter ..................................... 40 5/8 35 5/8 --
FISCAL YEAR 1998
First Quarter ...................................... $44 3/4 $38 $.50
Second Quarter ..................................... 48 3/4 42 1/4 --
Third Quarter ...................................... 49 42 3/4 $.50
Fourth Quarter ..................................... 50 5/8 45 1/2 --
FISCAL YEAR 1999
First Quarter ...................................... $52 7/8 $48 3/4 $.50
Second Quarter (through December 22, 1998) ......... 62 7/8 48 3/8 --
</TABLE>
On November 20, 1998, the last full trading day prior to the day on which
the execution of the Merger Agreement was publicly announced, the closing price
for the Common Stock on the American Stock Exchange was $54.625.
On [Month Day], 1999, the last trading day prior to the date of this Proxy
Statement, the closing price for the Common Stock on the American Stock
Exchange was $XX.
The market price for Common Stock is subject to fluctuation and
stockholders are urged to obtain current market quotations.
COMMON STOCK PURCHASE INFORMATION
Since October 23, 1998, none of the members of the Buyout Group has
engaged in any transaction with respect to the Common Stock. During that same
time period, the Company has not engaged in any transaction with respect to the
Common Stock. Schedule I attached to this Proxy Statement details all purchases
of Common Stock made by either the Company or the members of the Buyout Group
since July 1, 1996.
54
<PAGE>
SECURITIES OWNERSHIP
BENEFICIAL OWNERSHIP OF MORE THAN 5% OF COMMON STOCK
The following table sets forth certain information as of December 23,
1998, concerning the beneficial ownership of the Company's Common Stock by each
person or group known by the Company to own more than 5% of the Common Stock.
The persons indicated below have sole voting and investment power with respect
to the shares indicated as owned by them, except as otherwise stated in the
notes to the table. Shares issuable upon exercise of Options that are
exercisable currently or within the next 60 days are deemed to be outstanding
for the purpose of computing the percentage ownership and overall voting power
of persons beneficially owning such Options, but have not been deemed to be
outstanding for the purpose of computing the percentage ownership or overall
voting power of any other person.
<TABLE>
<CAPTION>
SOLE VOTING SHARED VOTING PERCENTAGE
AND AND OF
INVESTMENT INVESTMENT OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER POWER POWER SHARES
- -------------------------------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Jay B. Langner (a) 131,254(b) -- 7.5%(b)
111 Great Neck Road
Great Neck, New York 11021
Richard D. Segal (a) ....................... -- 125,972(c) 7.2%
707 Westchester Avenue
White Plains, New York 10604
Dimensional Fund Advisers Inc. (d) ......... 101,300 -- 5.8%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
GAMCO Investors, Inc.
Gabelli Funds, Inc.
Gabelli Performance Partnership L.P.
Gabelli Foundation, Inc.
Gemini Capital Management Ltd.
Gabelli Advisers, Inc.
Marc J. Gabelli
Mario J. Gabelli (e) ...................... 864,939(f) -- 49.6%
One Corporate Center
Rye, New York 10580
</TABLE>
(a) Jay B. Langner and Richard D. Segal and the other members of the
Buyout Group (David A. Langner, Virginia E. Luppescu and Messrs.
Daloia, DiBenedetto, Pollack, Regenstein, Rieder, Rockowitz, Rubin
and Satinskas) filed an amended Schedule 13D dated December 23, 1998
reflecting the Buyout Group's aggregate ownership of 363,970 shares
of Common Stock, which includes shares issuable upon the exercise of
Options held by members of the Buyout Group, all of which are
presently exercisable, as follows: Jay B. Langner, 10,000; Paul R.
Pollack, 8,200; Michael Rubin, 8,200; Raymond J. Rieder, 2,900;
Barry I. Regenstein, 2,600; Noah E. Rockowitz, 1,800; and Fernando
DiBenedetto, 1,000. The Buyout Group beneficially owns 20.5% of the
outstanding Common Stock (including Options), which number has been
calculated as though all such Options had been exercised. By virtue
of their status as a "group" for purposes of Rule 13d-5 of the
Exchange Act, each member of the Buyout Group may be deemed to have
shared voting and dispositive power over the shares owned by each
other person. However, the filing of this Proxy Statement shall not
be construed as an admission that any member of the Buyout Group is,
for purposes of Section 13(d) or 13(g) of the Exchange Act, the
beneficial owner of any securities held by any other member of the
Buyout Group.
55
<PAGE>
(b) Includes 10,000 shares issuable upon the exercise of presently
exercisable Options. The percentage of outstanding shares has been
calculated as though such Options had been exercised.
(c) Consists of (i) 27,590 shares owned by a partnership of which Mr.
Segal is the managing partner, (ii) 37,321 shares owned by a
partnership of which Mr. Segal is a co-trustee of certain of the
partners thereof, (iii) 31,472 shares owned by Mr. Segal's wife as
to which he is attorney-in-fact, (iv) an aggregate of 22,329 shares
owned by other members of Mr. Segal's family, as to which he is
attorney-in-fact, and (v) 7,260 shares owned by a trust of which he
is a co-trustee. Mr. Segal disclaims beneficial ownership, for
purposes of Sections 13(f) and 13(g) of the Exchange Act, of all
shares referred to in clauses (ii), (iii), (iv) and (v) of this
note.
(d) The holdings listed are as of December 31, 1997 as set forth in the
Schedule 13G of Dimensional Fund Advisers Inc. ("Dimensional") dated
February 9, 1998. Dimensional has advised the Corporation that it is
a registered investment advisor and that all of such shares of the
Company's Common Stock are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or
in series of the DFA Investment Trust Company, a Delaware business
trust, or the DFA Group Trust and DFA Participation Group Trust,
investment vehicles for qualified employee benefit plans, for all of
which Dimensional serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.
(e) The holdings listed are as set forth in the amendment to the Schedule
13D filed jointly by GAMCO Investors, Inc./Gabelli Funds,
Inc./Gabelli Performance Partnership L.P./Gabelli Foundation, Inc./
Gemini Capital Management Ltd./Gabelli Advisers, Inc./Marc J.
Gabelli/Mario J. Gabelli, dated November 25, 1998.
(f) GAMCO Investors, Inc. does not have authority to vote 33,775 of the
shares held by it, and Gabelli Funds, Inc. does not have authority
to vote the 120,000 shares held by it.
BENEFICIAL OWNERSHIP OF COMMON STOCK BY CERTAIN PARTIES RELATED TO THE COMPANY
OR THE BUYOUT GROUP
This section provides certain information as of December 23, 1998 with
respect to the beneficial ownership of the Company's Common Stock by the
persons or entities identified below. See "SECURITIES OWNERSHIP--Beneficial
Ownership of More Than 5% of Common Stock" for information as to beneficial
ownership of the Company's Common Stock by the Buyout Group.
Under SEC rules generally, a person is deemed to be a "beneficial owner"
of a security if such person has or shares the power to vote or direct the
voting of such security, or the power to dispose or to direct the disposition
of such security. Thus, more than one person may be deemed a beneficial owner
of the same security. Except as otherwise indicated, each person listed below
has informed the Company that such person has (i) sole voting and investment
power with respect to such person's shares of stock, except to the extent that
authority is shared by spouses under applicable law, and (ii) record and
beneficial ownership with respect to such person's shares of stock. Shares
issuable upon exercise of Options that are exercisable currently or within the
next 60 days are deemed to be outstanding for the purpose of computing the
percentage ownership and overall voting power of persons beneficially owning
such Options, but have not been deemed to be outstanding for the purpose of
computing the percentage ownership or overall voting power of any other person.
56
<PAGE>
The Company. The following table sets forth information regarding the
shares of Common Stock owned beneficially, directly or indirectly, as of
December 23, 1998, by the directors of the Company, the Company's Chief
Executive Officer and the four other most highly compensated executive officers
of the Company, and all directors and executive officers as a group. Except as
otherwise indicated in the notes to the table, the persons listed below have
sole voting power and investment power with respect to such shares:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF OUTSTANDING
NAME OF BENEFICIAL OWNER SHARES OWNED COMMON STOCK OWNED
- --------------------------------------------------------- ---------------- --------------------------
<S> <C> <C>
Milton H. Dresner ....................................... 69,000(1) 4.0%
Jay B. Langner .......................................... 131,254(2) 7.5%
Edward J. Rosenthal ..................................... 7,200(3) .4%
Hans H. Sammer .......................................... 1,000 .1%
Richard D. Segal ........................................ 125,972(4) 7.2%
Stanley S. Shuman ....................................... -- --
Paul R. Pollack ......................................... 10,140(2) .6%
Michael Rubin ........................................... 8,430(2) .5%
Raymond J. Rieder ....................................... 2,900(2) .2%
Fernando DiBenedetto .................................... 1,010(2) .1%
Directors and executive officers as a group (12 persons) 361,310(2) 20.3%
</TABLE>
- ----------
(1) These shares are held by a revocable living trust established by Mr.
Dresner of which he is also the trustee.
(2) Includes shares issuable upon the exercise of the Options held by such
individual(s), all of which are presently exercisable, as follows: Mr.
Langner, 10,000; Mr. Pollack, 8,200; Mr. Rubin, 8,200; Mr. Rieder, 2,900;
Mr. DiBenedetto, 1,000; and all directors and executive officers as a
group, 34,700. The percentage of outstanding shares (i) for each
individual has been calculated as though only such options held by the
individual had been exercised, and (ii) for the group has been calculated
as though all such Options had been exercised.
(3) Consists of 4,200 shares owned by a partnership of which Mr. Rosenthal,
is managing general partner and 3,000 shares owned by a corporation
controlled by Mr. Rosenthal. Mr. Rosenthal has shared voting and
investment power with respect to all such shares.
(4) Mr. Segal has shared voting and investment power with respect to such
shares. Includes 98,382 shares as to which Mr. Segal disclaims beneficial
ownership.
River Acquisition. None of River Acquisition, any pension, profit-sharing
or similar plan of River Acquisition or any associate or majority-owned
subsidiary of River Acquisition currently is the beneficial owner of any shares
of Common Stock. For information concerning shares of Common Stock to be
contributed to River Acquisition by members of the Buyout Group immediately
prior to the Merger, see "SPECIAL FACTORS--Interests of Certain Persons in the
Merger; Certain Relationships."
57
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the name and business address of each director and
executive officer of the Company, the present principal occupation or
employment of each such person and the name, principal business and address of
the corporation or other organization in which such occupation or employment of
each such person is conducted. Also set forth below are the material
occupations, positions, offices and employment of each such person and the
name, principal business and address of any corporation or other organization
in which any material occupation, position, office or employment of each such
person was held during the last five years. Messrs. Dresner, Langner, Pollack,
Rosenthal, Rubin, Sammer, Segal and Shuman are directors of the Company. Each
person listed below is a citizen of the United States. Unless otherwise
indicated below, the business address of each director and executive officer is
111 Great Neck Road, Great Neck, New York 11021.
<TABLE>
<CAPTION>
YEAR FIRST
BECAME A
NAME BUSINESS ADDRESS AND PRINCIPAL OCCUPATIONS DIRECTOR
- ----------------------------- --------------------------------------------------- -----------
<S> <C> <C>
Milton H. Dresner ........... Developer, builder and private investor. Director 1989
of Avatar Holdings Inc., BioTime, Inc. and
Childtime Child Care, Inc. The business address
of Mr. Dresner is 28777 Northwestern Highway,
Suite 1000, Southfield, Michigan 48034.
Jay B. Langner .............. Chairman of the Board of Directors since 1977. 1961
Chief Executive Officer of the Company since
1989, and President from 1961 through 1979 and
1989 to September 1996.
Paul R. Pollack ............. Executive Vice President and Chief Operating 1996
Officer of the Company since 1990, and the
President of its subsidiary, Hudson General LLC,
since September 1996. Senior Vice President of
the Company from 1984 to 1990.
Edward J. Rosenthal ......... Vice Chairman of Cramer Rosenthal McGlynn, 1976
Inc., investment managers. Director of Astro
Communications Corp. The business address of
Mr. Rosenthal is 707 Westchester Avenue, White
Plains, New York 10604.
Michael Rubin ............... President of the Company since September 1996. 1996
Executive Vice President and Chief Financial
Officer of the Company from 1990 to
September 1996, Vice President-Finance of the
Company from 1985 to 1990, and Treasurer from
1983 to July 1998.
Hans H. Sammer .............. Consultant. Retired Director, Investment Banking 1978
Group of Prudential Securities Incorporated.
Richard D. Segal ............ Vice Chairman of the Board of Directors since 1981
February 1998. Chairman and Chief Executive
Officer of Seavest Inc., a private investment
company. Director of Penn Traffic Co. The
business address of Mr. Segal is Seavest Inc., 707
Westchester Avenue, White Plains, New York
10604.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
YEAR FIRST
BECAME A
NAME BUSINESS ADDRESS AND PRINCIPAL OCCUPATIONS DIRECTOR
- ------------------------------ --------------------------------------------------- -----------
<S> <C> <C>
Stanley S. Shuman ............ A Managing Director and Executive Vice 1985
President of Allen & Company, investment
bankers. Director of Bayou Steel Corporation
and The News Corporation Limited. The business
address of Mr. Shuman is Allen & Company
Incorporated, 711 Fifth Avenue, New York, New
York 10022.
Fernando DiBenedetto ......... Senior Vice President--Operations since 1994. --
Prior thereto he was Vice President--Operations
since 1984. He has been employed in various
capacities with the Company, including as a
divisional officer, since 1970.
Raymond J. Rieder ............ Senior Vice President and Chief Marketing Officer --
of the Company since 1990. Prior thereto, he was
Vice President Marketing since 1984. Mr. Rieder
has served as Executive Vice President of Hudson
LLC since September 1996. He has been employed
in various capacities with the Company, including
as a divisional officer, since 1967.
Noah E. Rockowitz ............ Senior Vice President of the Company since July --
1998 and has served as Vice President--General
Counsel since 1985 and as Secretary since 1986.
Prior to joining the Company in 1985, he had been
Corporate Secretary and Assistant General
Counsel of Belco Petroleum Corporation since
1978.
Barry I. Regenstein .......... Chief Financial Officer of the Company since July --
1997 and has served as a Vice President since 1994
and as the Company's Controller since 1987. He
has been employed in various capacities with the
Company since 1982.
</TABLE>
59
<PAGE>
INDEPENDENT AUDITORS
The firm of KPMG Peat Marwick LLP and its predecessors have served as the
Company's independent auditors since fiscal year 1982. The consolidated
financial statements of the Company and the Kohala Joint Venture as of June 30,
1998 and 1997 and for each of the years in the three year period ended June 30,
1998, and the consolidated financial statements of Hudson LLC as of June 30,
1998 and 1997 and the years ended June 30, 1998 and 1997 and the one month
period ended June 30, 1996, included as Annex D hereto, have been audited by
KPMG Peat Marwick LLP, independent auditors, as stated in their reports
appearing therein. It is expected that representatives of KPMG Peat Marwick LLP
will be present at the Special Meeting, both to respond to appropriate
questions of stockholders of the Company and to make a statement if they so
desire.
STOCKHOLDER PROPOSALS
If the Merger is consummated, there will be no public stockholders of the
Company and no public participation in any future meetings of stockholders of
the Company. However, if the Merger is not consummated, the Company's public
stockholders will continue to be entitled to attend and participate in Company
stockholders' meetings. Pursuant to Rule 14a-8 under the Exchange Act
promulgated by the SEC, any stockholder of the Company who wishes to present a
proposal at the next Annual Meeting of Stockholders of the Company (in the
event the Merger is not consummated), and who wishes to have such proposal
included in the Company's Proxy Statement for that meeting, must deliver a copy
of such proposal to the Company at 111 Great Neck Road, Great Neck, New York
11021, Attention: Corporate Secretary, so that it is received no later than
June 16, 1999. In order for proposals by stockholders not submitted in
accordance with Rule 14a-8 to be timely within the meaning of Rule 14a-4(c)
under the Exchange Act, such proposal must be submitted so that it is received
no later than August 22, 1999.
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows the Company to "incorporate by reference" information into
its Proxy Statement, which means that the Company can disclose important
information by referring you to another document filed separately with the SEC.
The following documents are incorporated by reference in this Proxy Statement
and are deemed to be a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1998;
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998;
(3) The Company's Proxy Statement dated October 14, 1998 for the Company's
1998 Annual Meeting of Stockholders; and
(4) The Company's Current Reports on Form 8-K filed on July 28, 1998,
October 16, 1998 and November 23, 1998.
Any statement contained in a document incorporated by reference shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Proxy Statement modifies or replaces such
statement.
The Company also incorporates by reference the information contained in
all other documents the Company files with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy Statement
and before the Special Meeting. The information contained in any such document
will be considered part of this Proxy Statement from the date the document is
filed and will supplement or amend the information contained in this Proxy
Statement.
The Company undertakes to provide by first class mail, without charge and
within one business day of receipt of any request, to any person to whom a copy
of this Proxy Statement has been delivered, a copy of any or all of the
documents referred to above which have been incorporated by reference in this
Proxy Statement, other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference therein). The Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1998 is accompanied by a
list briefly describing all the exhibits not contained therein. The Company
will furnish
60
<PAGE>
any exhibit upon the payment of a specified reasonable fee, which fee will be
limited to the Company's reasonable expenses in furnishing such exhibit.
Requests for such copies should be directed to Corporate Secretary, Hudson
General Corporation, 111 Great Neck Road, Great Neck, New York 11021; telephone
number (516) 487-8610.
OTHER BUSINESS
The Board of Directors does not know of any other matters to be presented
for action at the Special Meeting other than as set forth in this Proxy
Statement. If any other business should properly come before the Special
Meeting, the persons named in the enclosed proxy card intend to vote thereon in
accordance with their best judgment on the matter.
AVAILABLE INFORMATION
Because the Merger is a "going private" transaction, River Acquisition,
certain members of the Buyout Group, and the Company have filed a Rule 13e-3
Transaction Statement on Schedule 13E-3 under the Exchange Act with respect to
the Merger. The Schedule 13E-3 and the Proxy Statement contain additional
information about the Company. A copy of the written report presented by Allen
& Company to the Special Committee, including Allen & Company's opinion as to
the fairness of the consideration to be received in the Merger, was filed as an
exhibit to such Schedule 13E-3. Copies of the Schedule 13E-3 are 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 a
representative who has been so designated in writing, and may be inspected and
copied, or obtained by mail, by written request directed to Corporate
Secretary, Hudson General Corporation, 111 Great Neck Road, Great Neck, New
York 11021.
The Company is currently subject to the information requirements of the
Exchange Act and in accordance therewith files periodic reports, proxy
statements and other information with the SEC relating to its business,
financial and other matters. Copies of such reports, proxy statements and other
information, as well as the Schedule 13E-3, may be copied (at prescribed rates)
at the public reference facilities maintained by the SEC at Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the
following Regional Offices of the SEC: 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and Seven World Trade Center, Suite 1300, New York,
New York 10048. For further information concerning the SEC's public reference
rooms, you may call the SEC at 1-800-SEC-0330. Some of this information may
also be accessed on the World Wide Web through the SEC's Internet address at
"http://www.sec.gov." The Company's Common Stock is listed on the American
Stock Exchange, and materials may also be inspected at its offices, 86 Trinity
Place, New York, New York 10006.
By Order of the Board of Directors
Noah E. Rockowitz
Senior Vice President
and Secretary
Great Neck, New York
[Month Day], 1999
61
<PAGE>
SCHEDULE I
The following table sets forth information concerning purchases of Common
Stock made by the Company since July 1, 1996. All purchases involved
open-market purchases of Common Stock.
<TABLE>
<CAPTION>
NUMBER
TRANSACTION DATE OF SHARES PRICE PER SHARE
- --------------------------- ----------- ----------------
<S> <C> <C>
December 2, 1996 .......... 12,239 $36.125
December 3, 1996 .......... 15,192 36.625
December 4, 1996 .......... 18,000 36.625
December 6, 1996 .......... 45,880 37.000
January 9, 1997 ........... 800 37.750
January 20, 1997 .......... 900 38.000
January 21, 1997 .......... 26,200 38.250
January 21, 1997 .......... 16,800 37.875
January 27, 1997 .......... 6,000 35.750
February 14, 1997 ......... 20,000 39.750
May 7, 1997 ............... 43,500 38.125
May 13, 1997 .............. 37,500 38.000
------
TOTAL .................... 243,011
</TABLE>
The following table sets forth information concerning the exercise of
options to acquire shares of Common Stock by members of the Buyout Group since
July 1, 1996.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
NAME EXERCISED TRANSACTION DATE
- ------------------------------ ------------------ -------------------
<S> <C> <C>
Noah E. Rockowitz ............ 1,000 March 11, 1997
Raymond J. Rieder ............ 2,500 March 12, 1997
Fernando DiBenedetto ......... 2,000 March 13, 1997
Henry A. Satinskas ........... 5,000 September 19, 1997
Noah E. Rockowitz ............ 1,000 January 5, 1998
Raymond J. Rieder ............ 2,000 January 5, 1998
-----
TOTAL ....................... 13,500
</TABLE>
S-1
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
HUDSON GENERAL CORPORATION
AND
RIVER ACQUISITION CORP.
DATED AS OF
NOVEMBER 22, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<TABLE>
<CAPTION>
<S> <C>
SECTION 1.01. The Merger ................................................. A-1
SECTION 1.02. Effective Time ............................................. A-1
SECTION 1.03. Effects of the Merger ...................................... A-1
SECTION 1.04. Certificate of Incorporation ............................... A-1
SECTION 1.05. Bylaws ..................................................... A-1
SECTION 1.06. Directors and Officers ..................................... A-2
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities ................................... A-2
SECTION 2.02. Exchange of Certificates and Cash .......................... A-2
SECTION 2.03. Stock Transfer Books ....................................... A-3
SECTION 2.04. Stock Options; Payment Rights .............................. A-3
SECTION 2.05. Dissenting Shares .......................................... A-4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualifications; Subsidiaries .............. A-4
SECTION 3.02. Certificate of Incorporation and Bylaws .................... A-5
SECTION 3.03. Capitalization ............................................. A-5
SECTION 3.04. Authority Relative to This Agreement ....................... A-5
SECTION 3.05. No Conflict; Required Filings and Consents ................. A-5
SECTION 3.06. Opinion of Financial Advisor ............................... A-6
SECTION 3.07. Board Approval ............................................. A-6
SECTION 3.08. Brokers .................................................... A-6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
SECTION 4.01. Organization and Qualification ............................. A-6
SECTION 4.02. Authority Relative to This Agreement ....................... A-6
SECTION 4.03. No Conflict; Required Filings and Consents ................. A-7
SECTION 4.04. Brokers .................................................... A-7
SECTION 4.05. Financing .................................................. A-7
SECTION 4.06. Capitalization of Merger Sub ............................... A-7
SECTION 4.07. Investigation by Merger Sub ................................ A-8
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger ...... A-8
ARTICLE VI
ADDITIONAL COVENANTS
SECTION 6.01. Access to Information; Confidentiality ..................... A-8
SECTION 6.02. Proxy Statement; Schedule 13E-3 ............................ A-9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 6.03. Action by Stockholders ........................................... A-9
SECTION 6.04. No Solicitation .................................................. A-9
SECTION 6.05. Directors' and Officers' Insurance and Indemnification ........... A-10
SECTION 6.06. Further Action; Best Efforts ..................................... A-11
SECTION 6.07. Public Announcements ............................................. A-12
SECTION 6.08. Conveyance Taxes ................................................. A-12
SECTION 6.09. Employee Benefits ................................................ A-12
SECTION 6.10. Commitment Letter Notices ........................................ A-12
SECTION 6.11. Knowledge of Breach .............................................. A-12
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. Conditions to Obligations of Each Party to Effect the Merger ..... A-13
SECTION 7.02. Additional Conditions to Obligations of Merger Sub ............... A-13
SECTION 7.03. Additional Conditions to Obligations of the Company .............. A-14
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination ...................................................... A-14
SECTION 8.02. Effect of Termination ............................................ A-15
SECTION 8.03. Amendment ........................................................ A-15
SECTION 8.04. Waiver ........................................................... A-15
SECTION 8.05. Fees, Expenses and Other Payments ................................ A-15
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and Agreements ...... A-15
SECTION 9.02. Notices .......................................................... A-16
SECTION 9.03. Certain Definitions .............................................. A-16
SECTION 9.04. Headings ......................................................... A-17
SECTION 9.05. Severability ..................................................... A-17
SECTION 9.06. Entire Agreement ................................................. A-17
SECTION 9.07. Assignment ....................................................... A-17
SECTION 9.08. Parties in Interest .............................................. A-17
SECTION 9.09. Governing Law .................................................... A-17
SECTION 9.10. Submission to Jurisdiction; Waivers .............................. A-17
SECTION 9.11. Enforcement of this Agreement .................................... A-18
SECTION 9.12. Counterparts ..................................................... A-18
</TABLE>
ii
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 22, 1998 (the
"Agreement"), between HUDSON GENERAL CORPORATION, a Delaware corporation (the
"Company"), and RIVER ACQUISITION CORP., a Delaware corporation (the "Merger
Sub").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the General Corporation Law of the State of Delaware
(the "DGCL"), Merger Sub will merge with and into the Company (the "Merger")
pursuant to which each outstanding share of common stock, par value $1.00 per
share, of the Company (the "Common Stock" other than shares owned by Merger
Sub), shall be converted into the right to receive $57.25 in cash per share of
Common Stock, as more fully set forth herein;
WHEREAS, the Board of Directors of the Company, based on the unanimous
recommendation of the Special Committee (as defined in Section 3.07), has
determined that the Merger is fair to and in the best interests of the Company
and its stockholders (other than Merger Sub and its affiliates and members of
the Management Group (as defined in Section 9.03)) and has approved this
Agreement, the Merger and the other transactions contemplated hereby and has
recommended approval and adoption of this Agreement by the stockholders of the
Company.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL, at the Effective Time
(as defined in Section 1.02), Merger Sub shall be merged with and into the
Company. Following the Merger, the separate existence of Merger Sub shall cease
and the Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation").
SECTION 1.02. Effective Time. As soon as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VII, the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware and by making any related filings required under the
DGCL in connection with the Merger. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Secretary of State of
the State of Delaware or at such later time as is agreed to by the parties
hereto and as is specified in the Certificate of Merger (the "Effective Time"
or the "Closing").
SECTION 1.03. Effects of the Merger. From and after the Effective Time,
the Merger shall have the effects set forth in the DGCL (including, without
limitation, Sections 259, 260 and 261 thereof). Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
SECTION 1.04. Certificate of Incorporation. The certificate of
incorporation of the Company immediately prior to the Effective Time shall be
the certificate of incorporation of the Surviving Corporation (the "Surviving
Certificate") until thereafter amended in accordance with the DGCL.
SECTION 1.05. Bylaws. The bylaws of Merger Sub immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation until
thereafter amended in accordance with the Surviving Certificate and the DGCL.
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SECTION 1.06. Directors and Officers. From and after the Effective Time,
until their respective successors are duly elected or appointed and qualified
in accordance with applicable law, (a) the directors of Merger Sub at the
Effective Time shall be the directors of the Surviving Corporation and (b) the
officers of the Company at the Effective Time shall be the officers of the
Surviving Corporation.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of Merger Sub, the Company or
the holders of any of the following securities:
(a) Each share of the Common Stock issued and outstanding immediately
prior to the Effective Time (other than any shares of Common Stock to be
canceled pursuant to Section 2.01(b) and any Dissenting Shares (as defined
below)) shall be converted into the right to receive $57.25 in cash,
without interest (the "Merger Consideration"). At the Effective Time, each
share of Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
certificate previously evidencing any such share (other than shares to be
canceled pursuant to Section 2.01(b) and any Dissenting Shares) shall
thereafter represent only the right to receive, upon the surrender of such
certificate in accordance with the provisions of Section 2.02, an amount in
cash per share equal to the Merger Consideration. The holders of such
certificates previously evidencing such shares of Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such shares of Common Stock except as otherwise provided herein
or by law.
(b) Each share of capital stock of the Company (i) held in the treasury
of the Company or by any wholly owned subsidiary of the Company or (ii)
owned by Merger Sub or any of its subsidiaries shall automatically be
canceled, retired and cease to exist without any conversion thereof and no
payment shall be made with respect thereto.
(c) Each share of common stock of Merger Sub outstanding immediately
prior to the Effective Time shall be converted into and become one share of
common stock of the Surviving Corporation and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation.
SECTION 2.02. Exchange of Certificates and Cash. (a) Exchange Agent. On or
before the Closing Date, Merger Sub shall enter into an agreement providing for
the matters set forth in this Section 2.02 (the "Exchange Agent Agreement")
with a bank or trust company selected by Merger Sub and reasonably acceptable
to the Company (the "Exchange Agent"), authorizing such Exchange Agent to act
as Exchange Agent in connection with the Merger. Immediately prior to the
Effective Time, Merger Sub shall deposit or shall cause to be deposited with or
for the account of the Exchange Agent, for the benefit of the holders of shares
of Common Stock (other than Dissenting Shares and shares to be canceled
pursuant to Section 2.01(b)), an amount in cash equal to the Merger
Consideration payable pursuant to Section 2.01(a) (such cash funds are
hereafter referred to as the "Exchange Fund").
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Merger Sub will instruct the Exchange Agent to mail to each
holder of record of a certificate or certificates which immediately prior to
the Effective Time evidenced outstanding shares of Common Stock (other than
Dissenting Shares and shares to be canceled pursuant to Section 2.01(b)) (the
"Certificates"), (i) a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange Agent
and shall be in such form and have such other provisions as Merger Sub may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Merger Sub, together with a letter of
transmittal, duly executed, and such other customary documents as may be
required pursuant to such instructions (collectively, the "Transmittal
Documents"), the holder of such Certificate shall be entitled to receive in
exchange therefor the Merger Consideration for each share of Common Stock
formerly represented by such Certificate, without any
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interest thereon, less any required withholding of taxes, and the Certificate
so surrendered shall thereupon be canceled. In the event of a transfer of
ownership of shares of Common Stock which is not registered in the transfer
records of the Company, the Merger Consideration may be issued and paid in
accordance with this Article II to the transferee of such shares if the
Certificate evidencing such shares of Common Stock is presented to the Exchange
Agent and is properly endorsed or otherwise in proper form for transfer. The
signature on the Certificate or any related stock power must be properly
guaranteed and the person requesting payment of the Merger Consideration must
either pay any transfer or other taxes required by reason of the payment to a
person other than the registered holder of the Certificate so surrendered or
establish to the Surviving Corporation that such tax has been paid or is not
applicable. The Merger Consideration will be delivered by the Exchange Agent as
promptly as practicable following surrender of a Certificate and the related
Transmittal Documents. Cash payments may be made by check unless otherwise
required by a depositary institution in connection with the book-entry delivery
of securities. No interest will be payable on such Merger Consideration. Until
surrendered in accordance with this Section 2.02, each Certificate shall be
deemed at any time after the Effective Time to evidence only the right to
receive, upon such surrender, the Merger Consideration for each share of Common
Stock formerly represented by such Certificate. The Exchange Fund shall not be
used for any purpose other than as set forth in this Article II. Any interest,
dividends or other income earned on the investment of cash held in the Exchange
Fund shall be for the account of the Surviving Corporation.
(c) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof) which remains undistributed
to the holders of Common Stock for one year following the Effective Time shall
be delivered to the Surviving Corporation, upon demand. Any holders of Common
Stock who have not theretofore complied with this Article II shall thereafter
look only to the Surviving Corporation for payment of the Merger Consideration.
(d) No Liability. None of Merger Sub, the Surviving Corporation or the
Company shall be liable to any holder of shares of Common Stock for any cash
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(e) Withholding Rights. The Surviving Corporation and the Exchange Agent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Common Stock such
amounts as the Surviving Corporation or the Exchange Agent is required to
deduct and withhold with respect to the making of such payment under the United
States Internal Revenue Code of 1986, as amended, or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by the
Surviving Corporation or the Exchange Agent, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the shares of Common Stock in respect of which such deduction and withholding
was made by the Surviving Corporation or the Exchange Agent.
(f) Lost, Stolen or Destroyed Certificates. In the event any Certificates
evidencing shares of Common Stock shall have been lost, stolen or destroyed,
the holder of such lost, stolen or destroyed Certificate(s) shall execute an
affidavit of that fact upon request. The holder of any such lost, stolen or
destroyed Certificate(s) shall also deliver a reasonable indemnity against any
claim that may be made against Merger Sub or the Exchange Agent with respect to
the Certificate(s) alleged to have been lost, stolen or destroyed. The
affidavit and any indemnity which may be required hereunder shall be delivered
to the Exchange Agent, who shall be responsible for making payment for such
lost, stolen or destroyed Certificates(s) pursuant to the terms hereof.
SECTION 2.03. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of shares of Common Stock thereafter on the records
of the Company. Any Certificates presented to the Exchange Agent or the
Surviving Corporation for any reason at or after the Effective Time shall be
exchanged for the Merger Consideration pursuant to the terms hereof.
SECTION 2.04. Stock Options; Payment Rights. (a) Subject to Sections
2.04(b) and 2.04(c), each Option (as defined below) other than any Options held
by Merger Sub which is outstanding immediately prior to the Effective Time,
whether or not then exercisable, shall be canceled and the Company Option
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Plans (as defined below) shall be assumed by the Surviving Corporation, in each
case at and as of the Effective Time, and each holder of such canceled Options
shall be paid by the Surviving Corporation as soon as practicable, but in any
event within five days after the Effective Time, for each such Option, an
amount determined by multiplying (i) the excess, if any, of the Merger
Consideration over the applicable exercise price per share of such Option by
(ii) the number of shares issuable upon exercise of such Option, subject to any
required withholding of taxes.
(b) Prior to the Effective Time, the Company shall use its best efforts to
(i) obtain any consents from holders of the Options and (ii) make any
amendments to the terms of the Company Option Plans and any Options granted
thereunder that, in the case of either (i) or (ii) are necessary or appropriate
to give effect to the transactions contemplated by this Section 2.04.
(c) In lieu of the cancellation of Options referred to in Section 2.04(a)
hereof, prior to the Effective Time Merger Sub may, with the consent of the
Company (which consent will not be unreasonably withheld), enter into mutually
acceptable arrangements with any holder of Options providing that such holder's
Options will be treated in a manner other than as provided in Section 2.04(a);
provided, however, that in no event will such holder be paid at the Effective
Time an amount in cash in excess of the amount such holder would have received
had such holder's Options been cancelled in accordance with Section 2.04(a).
SECTION 2.05. Dissenting Shares. (a) Notwithstanding any other provision
of this Agreement to the contrary, shares of Common Stock that are outstanding
immediately prior to the Effective Time and which are held by stockholders (i)
who shall not have voted in favor of adoption of this Agreement and (ii) who
shall be entitled to and shall have demanded properly in writing appraisal for
such shares in accordance with Section 262 of the DGCL ("Dissenting Shares"),
shall not be converted into or represent the right to receive the Merger
Consideration unless such stockholders fail to perfect, withdraw or otherwise
lose their right to appraisal. Such stockholders shall be entitled to receive
payment of the appraised value of such Dissenting Shares in accordance with the
provisions of the DGCL. If, after the Effective Time, any such stockholder
fails to perfect, withdraws or loses its right to appraisal, such shares of
Common Stock shall be treated as if they had been converted as of the Effective
Time into a right to receive the Merger Consideration, without interest
thereon, upon surrender of the Certificate or Certificates that formerly
evidenced such shares of Common Stock in the manner set forth in Section 2.02.
(b) The Company shall give Merger Sub prompt notice of any demands for
appraisal received by it, withdrawals of such demands, and any other
instruments served pursuant to the DGCL and received by the Company and
relating thereto. Merger Sub shall direct all negotiations and proceedings with
respect to demands for appraisal under the DGCL. The Company shall not, except
with the prior written consent of Merger Sub, make any payment with respect to
any demands for appraisal, or offer to settle, or settle, any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Merger Sub that:
SECTION 3.01. Organization and Qualifications; Subsidiaries. The Company
and each significant subsidiary of the Company (a "Company Subsidiary") within
the meaning of Rule 1-02(w) of Regulation S-X under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), is a corporation, partnership or
other legal entity duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization and has the requisite power and authority and all necessary
governmental approvals, to own, lease and operate its properties and to carry
on its business as it is now being conducted, except where the failure to be so
organized, existing and in good standing would not have a Company Material
Adverse Effect (as defined below). The Company and each Company Subsidiary is
duly qualified or licensed and in good standing to do business in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, have a material
adverse
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effect on the business, assets, results of operations or financial condition of
the Company and the Company Subsidiaries, taken as a whole (a "Company Material
Adverse Effect").
SECTION 3.02. Certificate of Incorporation and Bylaws. Merger Sub has been
given access by the Company to a complete and correct copy of the certificate
of incorporation and the bylaws or equivalent organizational documents, each as
amended to the date hereof, of the Company and each Company Subsidiary. Such
certificates of incorporation, bylaws and equivalent organizational documents
are in full force and effect. Neither the Company nor any Company Subsidiary is
in violation of any provision of its certificate of incorporation, bylaws or
equivalent organizational documents.
SECTION 3.03. Capitalization. The authorized capital stock of the Company
consists of 7,000,000 shares of Common Stock and 100,000 shares of preferred
stock, par value $1.00 per share ("Preferred Stock"). As of October 31, 1998,
(a) 1,744,949 shares of Common Stock were outstanding, all of which were
validly issued, fully paid and nonassessable; (b) no shares of Preferred Stock
were issued and outstanding and no action had been taken by the Board of
Directors of the Company with respect to the designation of the rights and
preferences of any series of Preferred Stock; (c) 37,100 shares of Common Stock
were reserved for issuance upon the exercise of outstanding stock options (the
"Options") granted pursuant to the Company's 1981 Non-Qualified Stock Option
and Stock Appreciation Rights Plan and 1981 Incentive Stock Option and Stock
Appreciation Rights Plan (collectively, the "Company Option Plans"); (d)
357,311 shares of Common Stock and no shares of Preferred Stock were held in
the treasury of the Company; (e) no Company Subsidiary owns any shares of the
Company's capital stock; and (f) there are no securities of any Company
Subsidiary outstanding which are convertible into or exercisable or
exchangeable for capital stock of the Company. Except as set forth above, no
shares of capital stock or other voting securities of the Company have been
issued, are reserved for issuance or are outstanding. All shares of Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable.
SECTION 3.04. Authority Relative to This Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
and no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby
(other than, with respect to the Merger, the adoption of this Agreement by the
holders of (x) a majority of the aggregate voting power of the issued and
outstanding shares of Common Stock and (y) a majority of the aggregate voting
power of the issued and outstanding shares of Common Stock not owned by Merger
Sub or the members of the Management Group, (such votes being collectively
referred to as the "Company Stockholder Approval"), and the filing and
recordation of appropriate merger documents as required by, and in accordance
with, the DGCL). This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by Merger Sub, constitutes the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
rights of creditors generally and by general principles of equity.
SECTION 3.05. No Conflict; Required Filings and Consents. The execution
and delivery of this Agreement by the Company do not, and the performance of
this Agreement and the consummation of the transactions contemplated hereby
will not, (i) conflict with or violate the Company's Restated Certificate of
Incorporation, as amended to the date hereof (the "Company Charter"), or its
by-laws, or the certificate of incorporation, by-laws or other equivalent
organizational documents of any Company Subsidiary or (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to the
Company or any Company Subsidiary or by which any property or asset of the
Company or any Company Subsidiary is bound or affected, except, in the case of
clause (ii), for any such conflicts, violations, breaches, defaults or other
occurrences which (A) would not prevent or delay consummation of the Merger in
any material respect or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect, and (B) would not,
individually or in the aggregate, have a Company Material Adverse Effect.
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(b) The execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement and the consummation of the Merger and
the other transactions contemplated hereby by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign (each a
"Governmental Entity"), except (i) for (A) any applicable requirements of the
Exchange Act or the Securities Act of 1933, as amended (the "Securities Act"),
(B) the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
(the "HSR Act"), (C) the filing and recordation of appropriate merger and
similar documents as required by the DGCL, (D) filings under the rules and
regulations of the American Stock Exchange, Inc. and (E) filings and consents
under any applicable foreign laws, including, without limitation, the antitrust
laws or laws intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade and any filings and
consents which may be required by any foreign environmental, health or safety
laws or regulations pertaining to any notification, disclosure or required
approval triggered by the Merger or the transactions contemplated by this
Agreement, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, (x) would
not prevent or delay consummation of the Merger in any material respect or
otherwise prevent the Company from performing its obligations under this
Agreement in any material respect, and (y) would not, individually or in the
aggregate, have a Company Material Adverse Effect.
SECTION 3.06. Opinion of Financial Advisor. Allen & Company Incorporated
has delivered to the Special Committee (as defined below) its opinion
substantially to the effect that, as of the date hereof, the consideration to
be received by the stockholders of the Company (other than Merger Sub and its
affiliates and members of the Management Group) pursuant to the Merger is fair
to such stockholders from a financial point of view.
SECTION 3.07. Board Approval. The Board of Directors of the Company, based
on the unanimous recommendation of the Special Committee of the Board of
Directors of the Company (the "Special Committee"), at a meeting duly called
and held and at which a quorum was present and voting, unanimously (a)
determined that this Agreement and the Merger are fair to and in the best
interests of the Company's stockholders (other than Merger Sub and its
affiliates and members of the Management Group), (b) approved this Agreement,
the Merger and the other transactions contemplated hereby, and (c) resolved to
recommend approval and adoption of this Agreement by the Company's
stockholders.
SECTION 3.08. Brokers. No broker, finder or investment banker (other than
Allen & Company Incorporated) is entitled to any brokerage, finder's or other
fee or commission in connection with this Agreement, the Merger and the other
transactions contemplated hereby based upon arrangements made by or on behalf
of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF MERGER SUB
Merger Sub hereby makes to the Company the representations and warranties
set forth below:
SECTION 4.01. Organization and Qualification. Merger Sub is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted. Merger Sub is duly qualified or
licensed and in good standing to do business in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that would not,
individually or in the aggregate, have a material adverse effect on the
business, results of operations or financial condition of Merger Sub and its
subsidiaries, taken as a whole ("Merger Sub Material Adverse Effect").
SECTION 4.02. Authority Relative to This Agreement. Merger Sub has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by
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Merger Sub and the consummation by it of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors of Merger Sub
and no other corporate proceedings on the part of Merger Sub are necessary to
authorize this Agreement or to consummate such transactions (other than the
filing and recordation of appropriate merger documents as required by the
DGCL). This Agreement has been duly and validly executed and delivered by
Merger Sub and, assuming the due authorization, execution and delivery by the
Company, constitutes the legal, valid and binding obligation of Merger Sub,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the rights of
creditors generally and by general principles of equity.
SECTION 4.03. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Merger Sub do not, and the
consummation of the transactions contemplated hereby will not, (i) conflict
with or violate the certificate of incorporation or by-laws of Merger Sub, (ii)
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to Merger Sub or by which any of its properties or assets are bound
or affected, or (iii) result in any breach of or constitute a default (or an
event which, with notice, lapse of time or both, would become a default) under,
result in the loss of a material benefit under or give to others any right of
termination, amendment, acceleration, increased payments or cancellation of, or
result in the creation of a lien or other encumbrance on any properties or
assets of Merger Sub pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or any other instrument
or obligation to which Merger Sub is a party or by which Merger Sub or any of
its properties or assets is bound or affected, except in the case of clauses
(ii) and (iii), for any such conflicts, violations, breaches, defaults or other
occurrences which (x) would not prevent or delay consummation of the Merger in
any material respect or otherwise prevent Merger Sub from performing its
obligations under this Agreement in any material respect, or (y) would not,
individually or in the aggregate, have a Merger Sub Material Adverse Effect.
(b) The execution and delivery of this Agreement by Merger Sub do not, and
the performance of this Agreement and the consummation of the Merger and the
other transactions contemplated hereby by Merger Sub will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity, except (i) for (A) any applicable requirements, if
any, of the Exchange Act, the Securities Act and state takeover laws, (B) the
pre-merger notification requirements of the HSR Act and (C) filing and
recordation of appropriate merger and similar documents as required by the DGCL
and (ii) where the failure to obtain such consents, approvals, authorizations
or permits, or to make such filings or notifications, would not (x) prevent or
delay consummation of the Merger in any material respect or otherwise prevent
Merger Sub from performing its obligations under this Agreement in any material
respect, or (y) would not, individually or in the aggregate, have a Merger Sub
Material Adverse Effect.
SECTION 4.04. Brokers. No broker, finder or investment banker (other than
Lazard Freres & Co. LLC ("Lazard") and BancBoston Robertson Stephens Inc.) is
entitled to any brokerage, finder's or other fee or commission in connection
with this Agreement, the Merger and the other transactions contemplated hereby
based upon arrangements made by or on behalf of Merger Sub or the members of
the Management Group.
SECTION 4.05. Financing. Merger Sub has delivered to the Company a true
and complete copy of a letter (the "Commitment Letter") executed by BankBoston,
N.A., European American Bank, The Chase Manhattan Bank, and BancBoston
Robertson Stephens Inc. describing the sources of financing for the
transactions contemplated by this Agreement. The amount provided pursuant to
the Commitment Letter will be sufficient to provide the funds required by
Merger Sub to pay the Merger Consideration pursuant to this Agreement and to
pay all fees and expenses required to be paid by Merger Sub in connection with
the consummation of the transactions contemplated by this Agreement. Merger Sub
agrees to use its best efforts to obtain the financing on the terms
contemplated by the Commitment Letter.
SECTION 4.06. Capitalization of Merger Sub. The authorized capital stock
of Merger Sub consists of 1,000 shares of Common Stock, par value $.01 per
share ("Merger Sub Common Stock"). As of the date hereof, 200 shares of Merger
Sub Common Stock are outstanding, all of which were validly issued, fully paid
and nonassessable. Schedule 4.06 sets forth the ownership of the outstanding
shares of Merger Sub as of the date hereof.
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SECTION 4.07. Investigation by Merger Sub. Merger Sub:
(a) acknowledges that, except as set forth in this Agreement, none of the
Company, any Company Subsidiary or any of their respective directors,
officers, employees, affiliates, agents or representatives makes any
representation or warranty, either express or implied, as to the accuracy
or completeness of any of the information provided or made available to
Merger Sub or the members of the Management Group or their agents,
representatives or financing sources prior to the execution of this
Agreement; and
(b) agrees that, to the fullest extent permitted by law except as
provided by this Agreement, none of the Company, any Company Subsidiary or
any of their respective directors, officers, employees, stockholders,
affiliates, agents or representatives shall have any liability or
responsibility whatsoever to Merger Sub on any basis (including without
limitation in contract, tort or otherwise) based upon any information
provided or made available, or statement made to Merger Sub or the members
of the Management Group prior to the execution of this Agreement.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that, between the date of this Agreement and the
Effective Time, unless Merger Sub shall have consented (which consent shall not
be unreasonably withheld), neither the Company nor any Company Subsidiary
shall:
(a) conduct its business in any manner other than in the ordinary course
of business consistent with past practice;
(b) amend or propose to amend its certificate of incorporation or
by-laws;
(c) authorize for issuance, issue, grant, sell, pledge, redeem or acquire
for value any of its or their securities, including options, warrants,
commitments, stock appreciation rights, subscriptions, rights to purchase
or otherwise (other than the issuance of equity securities upon the
conversion of outstanding convertible securities or in connection with any
dividend reinvestment plan or any Benefit Plan with an employee stock fund
or employee stock ownership plan feature, consistent with applicable
securities laws, or the exercise of options or warrants outstanding as of
the date of this Agreement and in accordance with the terms of such options
or warrants in effect on the date of this Agreement);
(d) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property, or otherwise, with respect to any of its
capital stock or other equity interests, except for (i) the regular
semi-annual dividends of $.50 per share which shall be paid consistent with
past practice and (ii) dividends and other distributions declared and paid
by a Company Subsidiary only to the Company (and also to LAGS (USA) Inc. in
the case of Hudson General LLC), or subdivide, reclassify, recapitalize,
split, combine or exchange any of its shares of capital stock;
(e) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect
to accounting policies or procedures (including tax accounting policies and
procedures);
(f) take any action that would, or could reasonably be expected to result
in, any of its representations and warranties set forth in this Agreement
being untrue or in any of the conditions to the Merger set forth in Article
VII not being satisfied; or
(g) authorize any of, or commit or agree to take any of, the foregoing
actions.
ARTICLE VI
ADDITIONAL COVENANTS
SECTION 6.01. Access to Information; Confidentiality. From the date hereof
to the Effective Time, the Company shall (and shall cause the Company
Subsidiaries and the officers, directors, employees,
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auditors and agents of the Company and each of the Company Subsidiaries to)
afford the officers, employees and agents of Merger Sub (the "Merger Sub
Representatives") reasonable access at all reasonable times to its officers,
employees, agents, properties, offices, plants and other facilities, books and
records, and shall furnish such Merger Sub Representatives with all financial,
operating and other data and information as may from time to time be reasonably
requested. Merger Sub agrees to be bound by the terms of the Confidentiality
Agreement, dated as of June 29, 1998, between the Company and Jay B. Langner
(the "Confidentiality Agreement").
SECTION 6.02. Proxy Statement; Schedule 13E-3. (a) As soon as practicable
after the date of this Agreement, the Company shall prepare and file with the
SEC a proxy statement, in form and substance reasonably satisfactory to Merger
Sub, relating to the meeting of the Company's stockholders to be held in
connection with the Merger (together with any amendments thereof or supplements
thereto, the "Proxy Statement"). Merger Sub shall furnish to the Company such
information concerning itself as the Company may reasonably request in
connection with the preparation of the Proxy Statement. The Proxy Statement
will comply in all material respects with applicable federal securities laws,
except that no representation is made by the Company with respect to
information supplied by Merger Sub for inclusion in the Proxy Statement. As
promptly as practicable after the Proxy Statement has been cleared by the SEC,
the Company shall mail the Proxy Statement to its stockholders. The Proxy
Statement shall include the opinion of Allen & Company Incorporated referred to
in Section 3.06 hereof.
(b) The information provided by each of the Company and Merger Sub for use
in the Proxy Statement shall not, at (i) the time the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to the stockholders of
the Company or (ii) the time of the Company stockholders' meeting contemplated
by such Proxy Statement, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading. If at any time prior to
the Effective Time any event or circumstance relating to any party hereto, or
their respective officers or directors, should be discovered by such party
which should be set forth in an amendment or a supplement to the Proxy
Statement, such party shall promptly inform the Company and Merger Sub thereof
and take appropriate action in respect thereof.
(c) As soon as practicable after the date of this Agreement, Merger Sub,
members of the Management Group and the Company shall file with the SEC a Rule
13E-3 Transaction Statement on Schedule 13E-3 ("Schedule 13E-3"), with respect
to the Merger. Each of the parties hereto agrees to use its reasonable best
efforts to cooperate and to provide each other with such information as any of
such parties may reasonably request in connection with the preparation of the
Schedule 13E-3. The information provided by each of the Company and Merger Sub
for use in the Schedule 13E-3 shall not, at the time the Schedule 13E-3 is
filed with the SEC, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. Each party hereto agrees promptly
to supplement, update and correct any information provided by it for use in the
Schedule 13E-3 if and to the extent that it is or shall have become incomplete,
false or misleading.
SECTION 6.03. Action by Stockholders. Except as otherwise required by the
fiduciary duties of the Board of Directors of the Company (as determined in
good faith by the Special Committee after consulting with its outside legal
counsel): (a) the Company, acting through its Board of Directors, shall, in
accordance with applicable law, the Company Charter and the Company's bylaws,
duly call, give notice of, convene and hold a special meeting of stockholders
(the "Company Stockholders' Meeting") as soon as practicable after the date of
this Agreement for the purpose of adopting this Agreement and (b) the Company
will, through the Board of Directors based on the recommendation of the Special
Committee, (i) recommend to its stockholders the adoption of this Agreement,
and (ii) use its best efforts to obtain the Company Stockholder Approval.
Merger Sub shall vote all shares of Common Stock owned by it in favor of the
adoption of this Agreement.
SECTION 6.04. No Solicitation. The Company shall not, and shall not
authorize or permit any of its officers, directors, employees or agents to
directly or indirectly, solicit, encourage, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or
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other entity or group (other than Merger Sub, any of its affiliates or
representatives) (collectively, a "Person") concerning any merger,
consolidation, tender offer, exchange offer, sale of all or substantially all
of the Company's assets, sale of shares of capital stock or similar business
combination transaction involving the Company or any principal operating or
business unit of the Company or its Subsidiaries (an "Acquisition Proposal").
Notwithstanding the foregoing, (i) if the Company or the Special Committee
receives an unsolicited, written indication of a willingness to make an
Acquisition Proposal at a price per share which the Special Committee
reasonably concludes is in excess of the Merger Consideration from any Person
and if the Special Committee reasonably concludes, based upon advice of its
financial advisor, that the Person delivering such indication is capable of
consummating such an Acquisition Proposal (based upon, among other things, the
availability of financing and the capacity to obtain financing, the expectation
of receipt of required antitrust and other regulatory approvals and the
identity and background of such Person), then the Company or the Special
Committee may, directly or indirectly, provide access to or furnish or cause to
be furnished information concerning the Company's business, properties or
assets to any such Person pursuant to an appropriate confidentiality agreement
and the Company or the Special Committee may engage in discussions related
thereto, and (ii) the Company or the Special Committee may participate in and
engage in discussions and negotiations with any Person meeting the requirement
set forth in clause (i) above in response to a written Acquisition Proposal if
the Special Committee concludes, upon advice of its legal counsel, that the
failure to engage in such discussions or negotiations would be inconsistent
with the Special Committee's (and the Board's) fiduciary duties to the
Company's stockholders under applicable law. In the event that, after the
Company has received a written Acquisition Proposal (without breaching its
obligations under clause (i) or (ii) above) but prior to obtaining the Company
Stockholder Approval of the Merger, the Special Committee determines, in good
faith and upon advice of its financial advisor and legal counsel, that it is
necessary to do so in order to comply with its fiduciary duties to the
Company's stockholders under applicable law, the Special Committee may do any
or all of the following: (x) withdraw or modify the Board of Directors'
approval or recommendation of the Merger or this Agreement, (y) approve or
recommend an Acquisition Proposal and (z) terminate this Agreement.
Furthermore, nothing contained in this Section 6.04 shall prohibit the Company
or its Board of Directors, upon the recommendation of the Special Committee,
from taking and disclosing to the Company's stockholders a position with
respect to a tender or exchange offer by a third party pursuant to Rules 14d-9
and 14e-2(a) promulgated under the Exchange Act or from making such disclosure
to the Company's stockholders or otherwise which, in the judgment of the
Special Committee upon advice of legal counsel, is necessary under applicable
law or rules of any stock exchange. The Company shall promptly (but in any
event within two days) advise Merger Sub in writing of any Acquisition Proposal
or any inquiry regarding the making of an Acquisition Proposal including any
request for information, the material terms and conditions of such request,
Acquisition Proposal or inquiry and the identity of the Person making such
request, Acquisition Proposal or inquiry. The Company will, to the extent
reasonably practicable, keep Merger Sub fully informed of the status and
details (including amendments or proposed amendments) of any such request,
Acquisition Proposal or inquiry.
SECTION 6.05. Directors' and Officers' Insurance and Indemnification. (a)
From and after the consummation of the Merger, the parties shall, and shall
cause the Surviving Corporation to, indemnify, defend and hold harmless any
person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Effective Time, an officer or director (the "Indemnified
Party") of the Company and its subsidiaries against all losses, claims,
damages, liabilities, costs and expenses (including attorneys' fees and
expenses), judgments, fines, losses, and amounts paid in settlement, with the
written approval of the Surviving Corporation (which approval shall not be
unreasonably withheld), in connection with any actual or threatened action,
suit, claim, proceeding or investigation (each a "Claim") to the extent that
any such Claim is based on, or arises out of, (i) the fact that such person is
or was a director, officer, employee or agent of the Company or any
subsidiaries or is or was serving at the request of the Company or any of its
subsidiaries as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (ii) this Agreement,
or any of the transactions contemplated hereby, in each case to the extent that
any such Claim pertains to any matter or fact arising, existing, or occurring
prior to or at the Effective Time, regardless of whether such Claim is asserted
or claimed prior to, at or after
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the Effective Time, to the full extent permitted under Delaware law or the
Company's Certificate of Incorporation, By-laws or indemnification agreements
in effect at the date hereof, including provisions relating to advancement of
expenses incurred in the defense of any action or suit. Without limiting the
foregoing, in the event any Indemnified Party becomes involved in any capacity
in any Claim, then from and after consummation of the Merger, the parties shall
cause the Surviving Corporation to, periodically advance to such Indemnified
Party its legal and other expenses (including the cost of any investigation and
preparation incurred in connection therewith), subject to the provision by such
Indemnified Party of an undertaking to reimburse the amounts so advanced in the
event of a final non-appealable determination by a court of competent
jurisdiction that such Indemnified Party is not entitled thereto.
(b) Merger Sub and the Company agree that all rights to indemnification
and all limitations on liability existing in favor of the Indemnified Party as
provided in the Company's Certificate of Incorporation and By-laws as in effect
as of the date hereof shall survive the Merger and shall continue in full force
and effect, without any amendment thereto, for a period of six years from the
Effective Time to the extent such rights are consistent with the DGCL; provided
that in the event any claim or claims are asserted or made within such six year
period, all rights to indemnification in respect of any such claim or claims
shall continue until disposition of any and all such claims; provided further,
that any determination required to be made with respect to whether an
Indemnified Party's conduct complies with the standards set forth under
Delaware law, the Company's Certificate of Incorporation or By-laws or such
agreements, as the case may be, shall be made by independent legal counsel
selected by the Indemnified Party and reasonably acceptable to the Surviving
Corporation; and, provided further, that nothing in this Section 6.05 shall
impair any rights or obligations of any present or former directors or officers
of the Company.
(c) In the event the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any person, then, and in each such case, to the extent necessary
to effectuate the purposes of this Section 6.05, proper provision shall be made
so that the successors and assigns of the Surviving Corporation assume the
obligations set forth in this Section 6.05 and none of the actions described in
clauses (i) or (ii) shall be taken until such provision is made.
(d) The parties shall cause the Surviving Corporation to maintain the
Company's existing officers' and directors' liability insurance policy ("D&O
Insurance") for a period of not less than six years after the Effective Date;
provided, that the Surviving Corporation may substitute therefor policies of
substantially similar coverage and amounts containing terms no less
advantageous to such former directors or officers so long as such substitution
does not result in gaps or lapses in coverage; provided, further, if the
existing D&O Insurance expires or is cancelled during such period, Merger Sub
or the Surviving Corporation will use its best efforts to obtain substantially
similar D&O Insurance; provided, however, that if the aggregate annual premiums
for such D&O Insurance (or successor insurance policy) at any time during such
period exceed 200% of the per annum rate of premiums currently paid by the
Company for such insurance on the date of this Agreement, then the parties will
cause the Surviving Corporation to, and the Surviving Corporation will, provide
the maximum coverage that shall then be available at an annual premium equal to
200% of such rate.
(e) This Section 6.05 is intended to be for the benefit of, and shall be
enforceable by, the Indemnified Parties, their heirs and personal
representatives, and shall be binding on the Surviving Corporation and its
respective successors and assigns.
SECTION 6.06. Further Action; Best Efforts.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall (i) make promptly its respective filings and thereafter
make any other required submissions under the HSR Act with respect to the
Merger and the other transactions contemplated hereby, and (ii) use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations or otherwise to consummate and make effective
the Merger and the other transactions contemplated hereby, including, without
limitation, using its reasonable best efforts to obtain (x) the Financing and
(y) all licenses, permits, waivers, orders,
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consents, approvals, authorizations, qualifications and orders of Governmental
Entities and parties to contracts with the Company and the Company Subsidiaries
as are necessary for the consummation of the Merger and the other transactions
contemplated hereby.
(b) Notwithstanding the provisions of Section 6.06(a), nothing contained
in this Agreement shall obligate Merger Sub to take any action to consummate
the Merger and the other transactions contemplated hereby, the consummation of
which is dependent or conditioned on the receipt of any governmental or
regulatory approval or consent, in the event that the approval or consent so
received specifically includes conditions or restrictions in addition to those
imposed by laws and regulations of general applicability as in effect from time
to time (including conditions in addition to those imposed by existing laws and
regulations which require the prior approval of any governmental or regulatory
agency to the taking of any action or the consummation of any transaction), the
direct or indirect effect of which is or would be, to restrict, limit or
otherwise subject to penalty Merger Sub in the ownership of its assets or the
conduct of its business. For purposes of the foregoing, a condition,
restriction or limitation arising out of any such approval or consent shall be
deemed to be a restriction or limitation on Merger Sub (regardless of whether
Merger Sub is a party to or otherwise legally obligated by such consent or
approval) to the extent that the taking of an action or the consummation of a
transaction by Merger Sub would result in Merger Sub, the Company or any
Company Subsidiary being in breach or violation of such consent or approval or
otherwise causing such consent or approval to terminate or expire.
(c) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall use their
reasonable best efforts to take all such action.
SECTION 6.07. Public Announcements. Merger Sub and the Company shall
consult with each other before issuing any press release or otherwise making
any public statements with respect to this Agreement or the transactions
contemplated hereby and shall not issue any such press release or make any such
public statement without the prior consent of the other party, which consent
shall not be unreasonably withheld; provided, however, that a party may,
without the prior consent of the other party, issue such press release or make
such public statement as may be required by law, regulation or any listing
agreement or arrangement to which the Company or Merger Sub is a party with a
national securities exchange or the Nasdaq Stock Market if it has used all
reasonable efforts to consult with the other party and to obtain such party's
consent but has been unable to do so in a timely manner.
SECTION 6.08. Conveyance Taxes. Merger Sub and the Company shall cooperate
in the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any
transfer, recording, registration and other fees, and any similar taxes which
become payable in connection with the transactions contemplated by this
Agreement that are required or permitted to be filed on or before the Effective
Time.
SECTION 6.09. Employee Benefits. For the one-year period immediately
following the Effective Time, the coverage and benefits provided to those
individuals who are employees of the Company immediately prior to the Effective
Time (the "Employees") pursuant to employee benefit plans or arrangements
maintained by the Surviving Corporation shall not be, in the aggregate,
materially less favorable than the coverage benefits provided to the Employees
immediately prior to the Effective Time.
SECTION 6.10. Commitment Letter Notices. Following receipt by Merger Sub
or any of its affiliates of any written or oral communication to the effect
that the banks that are parties to the Commitment Letter are contemplating not
providing the financing for the Merger or the terminating or cancelling or
modifying in any respect of the Commitment Letter, or that the financing for
the Merger is unlikely to be obtained, Merger Sub shall immediately communicate
such event to the Company and provide the Company with a true and complete copy
of any such written communication.
SECTION 6.11. Knowledge of Breach. If prior to the Closing Merger Sub or
any member of the Management Group shall have actual knowledge of any breach of
a representation and warranty or covenant of the Company, Merger Sub shall
promptly notify the Company of such knowledge, including
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the basis of such belief set forth in reasonable detail. If an officer of
Merger Sub or any member of the Management Group had actual knowledge prior to
the execution of this Agreement of a breach by the Company of any
representation, warranty, covenant, agreement or condition of this Agreement,
such breach shall not be deemed to be a breach of this Agreement for any
purpose hereunder, and neither Merger Sub nor any member of the Management
Group shall have any claim or recourse against the Company or its directors,
officers, employees, affiliates, controlling persons, agents, advisors or
representatives with respect to such breach.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. Conditions to Obligations of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger and the
other transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Effective Time of the following conditions, any or all of which
may be waived, in whole or in part, to the extent permitted by applicable law:
(a) Stockholder Approval. The Company Stockholder Approval shall have
been obtained.
(b) No Order. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction
or other order (whether temporary, preliminary or permanent) which is in
effect and which materially restricts, prevents or prohibits consummation
of the Merger or the other transactions contemplated by this Agreement;
provided, however, that the parties shall use their reasonable best efforts
(subject to Section 6.06(b)) to cause any such decree, judgment, injunction
or other order to be vacated or lifted.
(c) HSR Act. Any waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated, and no
action shall have been instituted by the Department of Justice or the
Federal Trade Commission challenging or seeking to enjoin the consummation
of the Merger, which action shall not have been withdrawn or terminated.
SECTION 7.02. Additional Conditions to Obligations of Merger Sub. The
obligation of Merger Sub to effect the Merger is also subject to satisfaction
or waiver of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company contained in this Agreement, shall be true and
correct, in each case as of the Effective Time as though made on and as of
the Effective Time, except (i) for changes specifically permitted by this
Agreement and (ii) that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of
such date and (iii) where the failure to be true and correct would not,
individually or in the aggregate with all other such failures, have a
Company Material Adverse Effect.
(b) Agreement and Covenants. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the
Effective Time.
(c) Financing. Merger Sub shall have obtained the financing (the
"Financing") described in the Commitment Letter attached hereto as Annex A,
and the proceeds of such Financing shall have been received by or made
immediately available to Merger Sub at or immediately prior to the Closing.
(d) Dissenting Shares. On the Closing Date, Dissenting Shares shall
aggregate no more than 7.5% of the then outstanding shares of Common Stock.
(e) Material Adverse Effect. Subsequent to the date of this Agreement,
there shall not have occurred an event or events which, individually or in
the aggregate, has had or could reasonably be expected to have a Company
Material Adverse Effect, provided, however, that, for the purposes of this
Section 7.01(e), the following shall be excluded from the definition of
"Company Material Adverse Effect" and from any determination as to whether
a Company Material Adverse Effect has occurred or may occur with respect to
the Company: the effects of changes that are applicable to (A)
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the United States and Canada aviation ground services business generally,
(B) the United States and Canadian economy generally or (C) the United
States securities markets generally.
(f) Officer's Certificate. Merger Sub shall have received a certificate
of an appropriate officer of the Company to the effect that the conditions
set forth in Section 7.02(a), (b), (d) and (e) have been satisfied at the
Effective Time.
SECTION 7.03. Additional Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Merger Sub contained in this Agreement shall, if qualified by
materiality, be true and correct, and if not so qualified, be true and
correct in all material respects, in each case as of the Effective Time as
though made on and as of the Effective Time, except (i) for changes
specifically permitted by this Agreement and (ii) that those
representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date.
(b) Agreement and Covenants. Merger Sub shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the
Effective Time.
(c) Officer's Certificate. The Company shall have received a certificate
of an appropriate officer of Merger Sub to the effect that the conditions
set forth in Section 7.03(a) and (b) have been satisfied at the Effective
Time.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after adoption of this Agreement
by the stockholders of the Company:
(a) by mutual consent of the Company (acting through the Special
Committee) and Merger Sub;
(b) by Merger Sub upon a material breach of any covenant or agreement on
the part of the Company set forth in this Agreement which has not been
cured, or if any representation or warranty of the Company shall have
become untrue in any material respect, in either case such that such breach
or untruth is incapable of being cured prior to April 30, 1999;
(c) by the Company upon a material breach of any covenant or agreement on
the part of Merger Sub set forth in this Agreement which has not been
cured, or if any representation or warranty of the Company or Merger Sub
shall have become untrue in any material respect, in either case such that
such breach or untruth is incapable of being cured prior to April 30, 1999;
(d) by either Merger Sub or the Company, if any permanent injunction,
order, decree, ruling or other action by any Governmental Entity preventing
the consummation of the Merger shall have become final and nonappealable;
(e) by either Merger Sub or the Company, if the Merger shall not have
been consummated before April 30, 1999 (provided that the right to
terminate this Agreement under this Section 8.01(e) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of or resulted in the failure of the Effective Time to
occur on or before such date);
(f) by Merger Sub if: (i) the Board of Directors of the Company (acting
through the Special Committee) shall withdraw, modify or change its
recommendation so that it is not in favor of this Agreement or the Merger
or shall have resolved to do any of the foregoing; (ii) the Board of
Directors of the Company (acting through the Special Committee) shall have
recommended or resolved to recommend to its stockholders an Acquisition
Proposal; or (iii) the stockholder approval required pursuant to Section
7.01(a) shall not have been obtained by April 30, 1999;
(g) by the Company (acting through the Special Committee) as provided in
Section 6.04; and
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(h) by the Company (acting through the Special Committee) if it has
received a notice from Merger Sub that the Commitment Letter has been
terminated or cancelled.
The right of any party hereto to terminate this Agreement pursuant to this
Section 8.01 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
SECTION 8.02. Effect of Termination. Except as provided in Section 8.05 or
Section 9.01(b), in the event of the termination of this Agreement pursuant to
Section 8.01, this Agreement shall forthwith become void, there shall be no
liability on the part of any party hereto, or any of their respective officers
or directors, to the other and all rights and obligations of any party hereto
shall cease; provided, however, that nothing herein shall relieve any party
from liability for the wilful breach of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
SECTION 8.03. Amendment. Before or after adoption of this Agreement by the
stockholders of the Company, this Agreement may be amended by the parties
hereto at any time prior to the Effective Time; provided, however, that (a) any
such amendment shall, on behalf of the Company, have been approved by the
Special Committee and (b) after adoption of this Agreement by the stockholders
of the Company, no amendment which under applicable law may not be made without
the approval of the stockholders of the Company may be made without such
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, either the
Company (acting through the Special Committee), on the one hand, or Merger Sub,
on the other, may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto and (c) waive compliance by the other
party with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby and, with respect to
extensions or waivers granted by the Company, if the Special Committee shall
have approved such waiver or extension.
SECTION 8.05. Fees, Expenses and Other Payments. (a) Subject to paragraph
(b) of this Section 8.05, all costs and expenses (including any expenses
related to any claims or litigation in connection with the transactions
contemplated by this Agreement, or any settlement thereof), including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants and other out-of-pocket expenses, incurred or to be incurred by the
parties hereto in connection with the transactions contemplated hereby (with
respect to such party, its "Expenses"), shall be borne solely and entirely by
the party which has incurred such costs and expenses; provided, however, that
all costs and expenses related to printing and mailing the Proxy Statement
shall be borne by the Company.
(b) The Company agrees that it will, promptly following receipt of
reasonable supporting documentation, pay to Merger Sub the reasonable Expenses
incurred by Merger Sub in connection with the transactions contemplated by this
Agreement, including any fees or expenses payable pursuant to the Commitment
Letter upon such termination, (x) up to a maximum reimbursement amount of
$1,750,000, if this Agreement shall be terminated by Merger Sub pursuant to
clause (i) and (ii) of Section 8.01(f) hereof or if this Agreement is
terminated by the Company pursuant to Section 8.01(g) hereof and (y) up to a
maximum reimbursement amount of $875,000, if this Agreement shall be terminated
by Merger Sub pursuant to clause (iii) of Section 8.01(f) hereof.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and Agreements.
Except as set forth in Section 9.01(b), the representations, warranties and
agreements of each party hereto shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of any other party
hereto, any person controlling any such party or any of their respective
officers or directors, whether prior to or after the execution of this
Agreement.
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(b) The representations, warranties and agreements in this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Article VIII, except that the agreements set forth in Articles I,
II and IX and Section 6.05 shall survive the Effective Time and those set forth
in the last sentence of Section 6.01 and Sections 8.02 and 8.05 and Article IX
shall survive termination.
SECTION 9.02. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or transmitted, and shall be effective upon
receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:
(a) If to Merger Sub:
c/o Jay B. Langner
River Acquisition Corp.
111 Great Neck Road
P.O. Box 355
Great Neck, NY 11022
Telecopier No.: (516) 773-0343
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Simeon Gold, Esq.
Telecopier No.: (212) 310-8007
(b) If to the Company:
Hudson General Corporation
111 Great Neck Road
P.O. Box 355
Great Neck, NY 11022
Attention: Chief Executive Officer
Telecopier No.: (516) 773-0343
with separate copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Daniel E. Stoller, Esq.
Telecopier No.: (212) 735-2000
SECTION 9.03. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" means a person that, directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "business day" means any day other than a day on which (i) banks in
the State of New York are authorized or obligated to be closed or (ii) the
SEC or The American Stock Exchange, Inc. is closed;
(c) "control" (including the terms "controlled," "controlled by" and
"under common control with") means the possession, directly or indirectly
or as trustee or executor, of the power to direct or cause the direction of
the management or polices of a person or entity, whether through the
ownership of stock or as trustee or executor, by contract or credit
arrangement or otherwise; and
A-16
<PAGE>
(d) "Management Group" means those persons listed on Schedule 9.03(d).
(e) "person" means any person or any corporation, partnership, limited
liability company or other legal entity.
(f) "subsidiary" or "subsidiaries" of any person means any corporation,
partnership, joint venture or other legal entity of which such person
(either alone or through or together with any other subsidiary) owns,
directly or indirectly, at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority
of the Board of Directors or others performing similar functions with
respect to such corporation or other organization.
SECTION 9.04. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 9.06. Entire Agreement. This Agreement, together with the
Confidentiality Agreement and the other documents delivered in connection
herewith, constitutes the entire agreement of the parties and supersedes all
prior agreements and undertakings including, without limitation, the letter
agreement dated July 9, 1998 relating to reimbursement of expenses, both
written and oral, between the parties, or any of them, with respect to the
subject matter hereof.
SECTION 9.07. Assignment. This Agreement shall not be assigned by
operation of law or otherwise and any purported assignment shall be null and
void, provided that Merger Sub may assign its rights, but not its obligations,
under this Agreement to any of its subsidiaries.
SECTION 9.08. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied (other than the provisions of Section 6.05, which
provisions are intended to benefit and may be enforced by the beneficiaries
thereof), is intended to or shall confer upon any person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 9.09. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without regard
to the conflict of laws rules thereof.
SECTION 9.10. Submission to Jurisdiction; Waivers. Each party hereto
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in the Court of Chancery, or other courts, of the State of
Delaware, and each party hereto hereby irrevocably submits with regard to any
such action or proceeding for itself and in respect to its property, generally
and unconditionally, to the nonexclusive jurisdiction of the aforesaid courts.
Each party hereto hereby irrevocably waives, and agrees not to assert, by way
of motion, as a defense, counterclaim or otherwise, in any action or proceeding
with respect to this Agreement, (a) the defense of sovereign immunity, (b) any
claim that it is not personally subject to the jurisdiction of the courts for
any reason other than the failure to serve process in accordance with this
Section 9.10, (c) that it, or its property, is exempt or immune from
jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or
otherwise), and (d) to the fullest extent permitted by applicable law, that (i)
the suit, action or proceeding in any such court is brought in an inconvenient
forum, (ii) the venue of such suit, action or proceeding is improper and (iii)
this Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
A-17
<PAGE>
SECTION 9.11. Enforcement of this Agreement. (a) The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
(b) The parties hereto acknowledge and agree that no director, officer,
employee, stockholder, affiliate or representative of Merger Sub shall have any
liability whatsoever for any obligation or liability of Merger Sub.
SECTION 9.12. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
A-18
<PAGE>
IN WITNESS WHEREOF, the Company and Merger Sub have caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
COMPANY:
HUDSON GENERAL CORPORATION
By: /s/ Michael Rubin
-------------------------
Name: Michael Rubin
Title: President
MERGER SUB:
RIVER ACQUISITION CORP.
By: /s/ Jay B. Langner
-------------------------
Name: Jay B. Langner
Title: Chairman
A-19
<PAGE>
ANNEX B
[GRAPHIC OMITTED]
November 22, 1998
Special Committee of the Board of Directors
Hudson General Corporation
111 Great Neck Road
Great Neck, NY 11021
Gentlemen:
We understand that Hudson General Corporation ("Hudson") and River
Acquisition Corp. ("Acquisition Corp.") are entering into a Merger Agreement
dated November 22, 1998 (the "Agreement") proposing to effect a cash merger
transaction as described in the Agreement (the "Transaction").
As you know, Allen & Company Incorporated ("Allen") has been engaged by
Hudson to render certain financial advisory services. In this connection,
pursuant to our February, 1988 engagement letter agreement, as amended July 1,
1998 (the "Engagement Letter"), you have asked us to render our opinion as to
the fairness of the consideration to be received by the shareholders of Hudson,
other than the shareholders of Acquisition Corp., in connection with the
Transaction, from a financial point of view. Pursuant to the Engagement Letter,
Allen will receive a fee upon consummation of the Transaction.
Allen, as part of its investment banking business, is regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, private placements and related financings, bankruptcy
reorganizations and similar recapitalizations, negotiated underwritings,
secondary distributions of listed and unlisted securities, and valuations for
corporate and other purposes. As you are aware, Stanley S. Shuman, a managing
director of Allen, serves as a director of Hudson.
Our opinion as expressed herein reflects and gives effect to our general
familiarity with Hudson over a period of time, as well as information
concerning Hudson which we acquired during the course of this assignment,
including information provided by senior management in the course of a number
of discussions. We have not, however, conducted an independent appraisal of
Hudson's assets, or independently verified the information concerning Hudson's
operations or other data which we have considered in our review. In rendering
our opinion, we have relied upon and assumed the accuracy and completeness of
all of the financial and other information that was available to us from public
sources, that was provided to us by Hudson or its representatives, or that was
otherwise reviewed by us. With respect to the financial projections provided to
us, we have assumed that they have been reasonably prepared in good faith
reflecting the best currently available estimates and judgments of the
management of Hudson as to the future operating and financial performance of
Hudson. In connection with rendering our opinion, we were not authorized to
solicit, and did not solicit, interest from any third party with respect to
Hudson or any of its assets.
In arriving at our conclusion, we have considered, among other factors we
deemed relevant, (i) the terms of the draft Merger Agreement and related
documentation, which we note did not include provision for a breakup fee
payable to Acquisition Corp; (ii) the nature of the operations and financial
history of Hudson, including discussions with senior management of Hudson of
the business and prospects of Hudson relating to, among other things, Hudson's
operating budget and financial projections; (iii) Hudson's filings with the
Securities and Exchange Commission, including audited and unaudited financial
statements for Hudson; (iv) the historical price ranges and trading volumes for
the common stock of Hudson; (v) certain financial and stock market information
for certain other companies in businesses related to those of Hudson's; (vi)
certain financial information relating to certain merger and acquisition
B-1
<PAGE>
Hudson General Corporation
November 22, 1998
Page 2
transactions involving companies in businesses related to those of Hudson; and
(vii) certain publicly available information relating to premiums paid in
certain selected merger and acquisitions transactions. In addition to our
review and analyses of the specific information set forth above, our opinion
herein reflects and gives effect to our assessment of general economic,
monetary, industry, regulatory, market and other conditions existing as of the
date hereof as they may affect the business and prospects of Hudson.
It is understood that this opinion is for the information of the Special
Committee of the Board of Directors of Hudson and may not be used for any other
purpose without our prior written consent, except that this opinion may be
included in its entirety in any filing made by Hudson or Acquisition Corp. with
the Securities and Exchange Commission with respect to the Transaction.
This opinion does not constitute a recommendation as to what course of
action the Special Committee should pursue in connection with the Transaction.
The opinion rendered herein does not constitute a recommendation to
shareholders of Hudson as to whether to vote in favor of the Transaction.
Based upon and subject to the forgoing, it is our opinion as of the date
hereof that the consideration to be received by the shareholders of Hudson,
other than the shareholders of Acquisition Corp., in connection with the
Transaction, is fair from a financial point of view.
Very truly yours,
ALLEN & COMPANY INCORPORATED
By: /s/ Stanley S. Shuman
-----------------------------------------
Managing Director
[GRAPHIC OMITTED]
B-2
<PAGE>
ANNEX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to Section 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's
shares of stock under the circumstances described in subsections (b) and (c) of
this section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of a
member of a nonstock corporation; and the words "depository receipt" mean a
receipt or other instrument issued by a depository representing an interest in
one or more shares, or fractions thereof, solely of stock of a corporation,
which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257,
Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the Surviving Corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Section Section 251, 252, 254, 257, 258, 263 and 264 of this title to
accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
C-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
is fixed and the notice is given prior to the effective date, the record
date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such
C-2
<PAGE>
stockholders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
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<PAGE>
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-4
<PAGE>
ANNEX D
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF HUDSON GENERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Interim Financial Statements (unaudited)
Hudson General Corporation and Subsidiaries
Consolidated Statements of Earnings for three months ended September 30, 1998 ..... D-2
Consolidated Balance Sheets as of September 30, 1998 .............................. D-3
Consolidated Statements of Cash Flows for three months ended September 30, 1998 ... D-4
Notes to Consolidated Financial Statements for three months ended
September 30, 1998 ............................................................... D-6
Pro Forma Condensed Financial Information ......................................... D-9
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1998 ........... D-10
Pro Forma Condensed Consolidated Statement of Earnings for three months ended
September 30, 1998 ............................................................... D-11
Pro Forma Condensed Consolidated Statement of Earnings for fiscal year ended
June 30, 1998 .................................................................... D-12
Notes to Pro Forma Condensed Consolidated Financial Statements as of
September 30, 1998 ............................................................... D-13
Annual Financial Statements
Hudson General Corporation and Subsidiaries
Independent Auditors' Report ...................................................... D-14
Consolidated Statements of Earnings for years ended June 30, 1998, 1997 and 1996 .. D-16
Consolidated Balance Sheets as of June 30, 1998 and 1997 .......................... D-17
Consolidated Statements of Stockholders' Equity for years ended June 30, 1998, 1997
and 1996 ......................................................................... D-18
Consolidated Statements of Cash Flows for years ended June 30, 1998, 1997 and 1996. D-19
Notes to Consolidated Financial Statements for years ended June 30, 1998, 1997 and
1996 ............................................................................. D-20
Valuation and Qualifying Accounts
Years Ended June 30, 1998, 1997 and 1996 ......................................... D-32
Hudson General LLC and Subsidiaries
Independent Auditors' Report ...................................................... D-33
Consolidated Statements of Earnings and Comprehensive Income for years ended
June 30, 1998, 1997 and period June 1 (inception) to June 30, 1996 ............... D-34
Consolidated Balance Sheets as of June 30, 1998 ................................... D-35
Consolidated Statements of Members' Equity for years ended June 30, 1998, 1997
and period June 1 (inception) to June 30, 1996 ................................... D-36
Consolidated Statements of Cash Flows for years ended June 30, 1998, 1997 and
period June 1 (inception) to June 30, 1996 ....................................... D-37
Notes to Consolidated Financial Statements for years ended June 30, 1998, 1997 and
period June 1 (inception) to June 30, 1996 ....................................... D-38
Valuation and Qualifying Accounts
for years ended June 30, 1998, 1997 and period June 1 (inception) to June 30, 1996 D-45
Kohala Joint Venture and Subsidiary
Independent Auditors' Report ...................................................... D-46
Consolidated Balance Sheets as of June 30, 1998 and 1997 .......................... D-47
Consolidated Statements of Operations and Partners' Deficit for years ended
June 30, 1998, 1997 and 1996 ..................................................... D-48
Consolidated Statements of Cash Flows for years ended June 30, 1998, 1997 and 1996 D-49
Notes to Consolidated Financial Statements for years ended June 30, 1998, 1997
and 1996 ......................................................................... D-50
Valuation and Qualifying Accounts
for years ended June 30, 1998, 1997 and 1996 ..................................... D-56
</TABLE>
D-1
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1998 1997
------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues ........................................... $1,401 $1,384
------ ------
Costs and expenses:
Depreciation and amortization ..................... 156 176
Selling, general & administrative ................. 1,728 1,697
------ ------
Total costs and expenses ........................ 1,884 1,873
------ ------
Operating loss ..................................... (483) (489)
Equity in earnings of Hudson General LLC ........... 769 1,429
Equity in loss of Kohala Joint Venture ............. (667) (694)
Interest income .................................... 1,013 922
------ ------
Earnings before provision for income taxes ......... 632 1,168
Provision for income taxes ......................... 217 386
------ ------
Net earnings ....................................... $ 415 $ 782
====== ======
Earnings per share, basic .......................... $ .24 $ .45
====== ======
Earnings per share, diluted ........................ $ .24 $ .45
====== ======
Cash dividends per common share .................... $ -- $ --
====== ======
Weighted average common shares outstanding:
Basic ............................................. 1,745 1,738
====== ======
Diluted ........................................... 1,760 1,752
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
D-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
--------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ........................................ $ 17,030 $ 19,001
Investment securities available for sale ......................... 19,853 19,002
Receivables ...................................................... 734 563
Advances to Hudson General LLC -- net ............................ 2,895 2,057
Prepaid expenses and other assets ................................ 43 56
--------- ---------
Total current assets ........................................... 40,555 40,679
Property and equipment at cost, less accumulated depreciation and
amortization ..................................................... 2,259 2,389
Investment in Hudson General LLC .................................. 22,677 22,306
Investment in Kohala Joint Venture -- net ......................... 4,808 4,962
Note receivable from Hudson General LLC ........................... 1,630 3,130
--------- ---------
$ 71,929 $ 73,466
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................. $ 83 $ 200
Accrued expenses and other liabilities ........................... 1,191 2,628
--------- ---------
Total current liabilities ...................................... 1,274 2,828
--------- ---------
Deferred income taxes ............................................. 2,197 2,197
--------- ---------
Stockholders' Equity:
Serial preferred stock (authorized 100,000 shares of $1 par value)
-- none outstanding ............................................ -- --
Common stock (authorized 7,000,000 shares of $1 par value)
-- issued 2,102,260 ............................................ 2,102 2,102
Paid in capital .................................................. 47,868 48,266
Retained earnings ................................................ 29,650 29,235
Treasury stock, at cost, 357,311 shares .......................... (11,162) (11,162)
--------- ---------
Total stockholders' equity ..................................... 68,458 68,441
--------- ---------
$ 71,929 $ 73,466
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
D-3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1998 1997
------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings ........................................................... $ 415 $ 782
Adjustments to reconcile net earnings to net cash used by operating
activities:
Depreciation and amortization ........................................ 156 176
Equity in earnings of Hudson General LLC ............................. (769) (1,429)
Equity in loss of Kohala Joint Venture ............................... 667 694
Accrual of interest income on Kohala Joint Venture advances .......... (513) (477)
Change in other current assets and liabilities:
Receivables ......................................................... (171) (73)
Prepaid expenses and other assets ................................... 13 184
Accounts payable .................................................... (117) (95)
Accrued expenses and other liabilities .............................. (1,437) (1,326)
Other -- net ......................................................... 3 --
-------- --------
Net cash used by operating activities ............................... (1,753) (1,564)
-------- --------
Cash flows from investing activities:
Purchase of investment securities available for sale ................... (2,024) (972)
Proceeds from maturity and sale of investment securities available for
sale ................................................................. 1,173 --
Purchases of property and equipment .................................... (29) (12)
Proceeds from sale of property and equipment ........................... -- 17
(Advances to) repayments from Hudson General LLC -- net ................ (838) 5
Collections of note receivable from Hudson General LLC ................. 1,500 500
-------- --------
Net cash used by investing activities ............................... (218) (462)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock ................................. -- 93
-------- --------
Net cash provided by financing activities ........................... -- 93
-------- --------
Net decrease in cash and cash equivalents ............................... (1,971) (1,933)
Cash and cash equivalents at beginning of period ........................ 19,001 18,425
-------- --------
Cash and cash equivalents at end of period .............................. $ 17,030 $ 16,492
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
D-4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
1. The accompanying unaudited consolidated financial statements were
prepared in accordance with generally accepted accounting principles and
include all adjustments which, in the opinion of management, are necessary to
present fairly the consolidated financial position of Hudson General
Corporation and Subsidiaries (the Corporation) as of September 30, 1998 and
June 30, 1998, and the results of operations and cash flows for the three
months ended September 30, 1998 and 1997. In the opinion of management, all
necessary adjustments that were made are of a normal recurring nature. Results
of operations for the three months ended September 30, 1998 are not necessarily
indicative of the results to be expected for the full fiscal year.
The consolidated financial statements include the accounts of the
Corporation and the Subsidiaries for which it exercises effective control. All
material intercompany accounts and transactions have been eliminated in
consolidation. Hudson General LLC, the Corporation's aviation services
affiliate in which the Corporation has a 74% interest (Hudson LLC), is
accounted for under the equity method of accounting (see Note 2). Kohala Joint
Venture, a land development joint venture in Hawaii in which the Corporation
has a 50% interest (the Venture), is also accounted for under the equity method
of accounting (see Note 3).
The accounting policies followed by the Corporation are stated in Note 1
to the Corporation's consolidated financial statements in the 1998 Hudson
General Corporation Annual Report filed under Item 8 to Form 10-K for the
Corporation's fiscal year ended June 30, 1998.
2. The summary consolidated balance sheets for Hudson LLC are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
--------------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C>
Cash and cash equivalents ........................................ $ 2,856 $ 3,393
Accounts and notes receivable -- net ............................. 16,070 16,886
Other current assets ............................................. 7,863 6,391
------- -------
Total current assets ............................................. 26,789 26,670
Property, equipment and leasehold rights at cost, less accumulated
depreciation and amortization ................................... 45,944 45,639
Other assets -- net .............................................. 616 643
------- -------
$73,349 $72,952
======= =======
Accounts payable ................................................. $19,952 $17,326
Accrued expenses and other liabilities ........................... 16,322 19,045
Advances from Hudson General Corporation -- net .................. 2,895 2,057
------- -------
Total current liabilities ........................................ 39,169 38,428
Long term debt, senior ........................................... 654 --
Deferred income taxes ............................................ 319 319
Note payable to Hudson General Corporation ....................... 1,630 3,130
Members' equity .................................................. 31,577 31,075
------- -------
$73,349 $72,952
======= =======
</TABLE>
D-5
<PAGE>
Summary results of operations for Hudson LLC are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1998 1997
------------- ------------
(IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues ........................................... $41,124 $39,356
------- -------
Operating costs .................................... 33,740 31,347
Depreciation and amortization ...................... 2,050 1,968
Selling, general & administrative costs ............ 4,045 3,827
------- -------
Total costs and expenses .......................... 39,835 37,142
------- -------
Operating income ................................... 1,289 2,214
Interest income .................................... 55 178
Interest expense ................................... (89) (84)
------- -------
Earnings before provision for income taxes ......... 1,255 2,308
Provision for income taxes ......................... 215 377
------- -------
Net earnings ....................................... $ 1,040 $ 1,931
======= =======
</TABLE>
On October 1, 1998, LAGS (USA) Inc. (an indirect wholly-owned subsidiary
of Deutsche Lufthansa AG) (LAGS) gave notice to the Corporation of exercise of
its option to increase LAGS' interest in Hudson LLC from 26% to 49% (the
Option). The exercise price of the Option is $29,627,000 and was paid to Hudson
LLC by LAGS together with interest (which will be recorded by Hudson LLC during
the three months ending December 31, 1998) aggregating $1,123,000, calculated
at the rate of 11% per annum from July 1, 1998 to the date of the Option
closing on November 2, 1998. LAGS (USA) Inc. is a direct wholly-owned
subsidiary of Lufthansa Airport and Ground Services GmbH, and was granted the
Option under the terms of the Unit Purchase and Option Agreement dated February
27, 1996 pursuant to which it acquired its initial 26% interest in Hudson LLC.
After giving effect to the exercise of the Option in the second quarter of
fiscal 1999 on November 2, 1998, LAGS will have a 49% interest, and the
Corporation will have a 51% interest, effective as of July 1, 1998 in Hudson
LLC. As a result of the exercise of the Option, the Corporation's investment in
Hudson LLC and paid in capital will be increased by $25,509,000 and $12,570,000
(net of deferred income taxes and transactional fees), respectively. The
Corporation is unable to determine when, or whether, such deferred income taxes
will result in a current tax liability.
Upon paying the exercise price to Hudson LLC, LAGS acquired from Hudson
LLC 230 additional Class B Units of Hudson LLC. Concurrently therewith, the
Corporation converted 230 of the Class A Units of Hudson LLC held by it into
230 new non-voting Preferred Units (the Preferred Units) of Hudson LLC. After
giving effect to the exercise of the Option and the Corporation's exchange of
230 Class A Units for 230 Preferred Units, LAGS now owns 490 Class B Units and
the Corporation now owns 510 Class A Units (representing 49% and 51%,
respectively, of the aggregate number of outstanding Class A and Class B
Units). The Preferred Units have a liquidation preference of $128,811 per Unit,
and are redeemable by Hudson LLC at any time on or after August 1, 2001 for an
amount equal to the liquidation preference. From and after October 1, 2001, the
Preferred Units, if not previously called for redemption, are convertible, at
the option of the holders, into Class A Units on a one-for one basis. The
Preferred Units are entitled to receive a fixed distribution of 3.95% per
annum, payable quarterly, commencing on December 31, 1998 until September 30,
2001, and at an Internal Revenue Service safe harbor rate, as defined,
thereafter. Such distributions are cumulative, and all such distributions must
be made in full before any distribution may be made in respect of the Class A
and Class B Units.
As a result of the timing of the Option closing, the Corporation was
required to account for a 74% interest in Hudson LLC's results for the three
months ended September 30, 1998. The Corporation's 74% share of Hudson LLC's
results, as calculated in accordance with the Limited Liability Company
Agreement effective June 1, 1996 among the Corporation, LAGS and Hudson LLC, as
amended (the
D-6
<PAGE>
LLC Agreement), was $769,000 and $1,429,000 for the three months ended
September 30, 1998, and 1997, respectively, and are shown as "Equity in
earnings of Hudson General LLC" in the accompanying consolidated statements of
earnings. The LLC Agreement stipulates that the Corporation and LAGS will share
profits and losses in the same proportion as their respective equity interests
in Hudson LLC. The effect of the reduction in the Corporation's interest in
Hudson LLC's results from 74% to 51% for the three months ended September 30,
1998 was $239,000, and will be reflected in the second quarter of fiscal 1999
as a reduction to the Corporation's paid in capital.
The LLC Agreement also provides that distributions will be paid annually
by Hudson LLC in an amount at least equal to 50% of its domestic net income and
10% of its Canadian pre-tax earnings, as defined. On October 30, 1998, the
Member Board of Hudson LLC approved distributions in respect of fiscal 1998
equal to 90% of its domestic net income and 60% of its Canadian pre-tax
earnings, as defined, totaling approximately $11,800,000 which were paid in
November 1998.
As a result of the conversion of Debentures into shares of the
Corporation's common stock in fiscal 1996 and 1997, Hudson LLC is, on a
subordinated basis (as defined), indebted to the Corporation (the Corporate
Subordinated Debt). At September 30, 1998, the balance of the Corporate
Subordinated Debt was $3,130,000. Hudson LLC is obligated to repay $1,500,000
of such debt to the Corporation on July 15, 1999 and on each July 15th
thereafter until the entire principal balance is satisfied. The noncurrent
portion of the Corporate Subordinated Debt at September 30, 1998, in the amount
of $1,630,000, is shown as "Note receivable from Hudson General LLC" in the
accompanying consolidated balance sheets. The current portion of this debt at
September 30, 1998, in the amount of $1,500,000, is included in "Advances to
Hudson General LLC -- net" in the accompanying consolidated balance sheets.
Interest on the Corporate Subordinated Debt is payable semi-annually in January
and July at the rate of 7% per annum.
The effect of Hudson LLC's foreign currency translation adjustments for
the three months ended September 30, 1998 was a decrease of $538,000 and is
included in Members' equity in the summary consolidated balance sheets for
Hudson LLC.
3. The Corporation is a partner in the Venture which was formed to
acquire, develop and sell approximately 4,000 contiguous acres of land in
Hawaii (the Project).
The summary consolidated balance sheets for the Venture are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
--------------- ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C>
Cash and equivalents .................................. $ 112 $ 355
Land and development costs ............................ 9,268 9,210
Mortgages, accounts and notes receivable .............. 1,638 2,137
Foreclosed real estate -- net ......................... 2,671 2,186
Other assets -- net ................................... 1,521 1,549
--------- ---------
$ 15,210 $ 15,437
========= =========
Partner advances and accrued interest payable ......... $ 59,278 $ 58,178
Accounts payable and accrued expenses ................. 868 860
Partners' deficit ..................................... (44,936) (43,601)
--------- ---------
$ 15,210 $ 15,437
========= =========
</TABLE>
D-7
<PAGE>
Summary results of operations for the Venture are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1998 1997
------------- ------------
(IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales ......................................... $ 88 $ 76
-------- --------
Selling, general and administrative costs ......... 381 499
Interest -- net ................................... 1,042 965
-------- --------
Total costs .................................... 1,423 1,464
-------- --------
Net loss ....................................... $ (1,335) $ (1,388)
======== ========
</TABLE>
The Corporation's 50% share of the Venture's results were losses of
$667,000 and $694,000 for the three months ended 1998 and 1997, respectively,
and have been included in "Equity in loss of Kohala Joint Venture" in the
accompanying consolidated statements of earnings. The Corporation's partner in
the Venture is Oxford Kohala, Inc. (the Partner), a wholly owned subsidiary of
Oxford First Corporation (Oxford First). Under the Restated Joint Venture
Agreement dated April 29, 1981, as amended (the Agreement), the partners have
agreed to make equal advances to the Venture for all costs necessary for the
orderly development of the land. During the three months ended September 30,
1998, the Corporation did not make any advances to the Venture. The
Corporation's net advances (including accrued interest) at September 30, 1998
were $21,139,000.
4. Accrued expenses and other liabilities consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
--------------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C>
Salaries and wages ............ $ 109 $1,917
Retirement plan costs ......... 369 307
Income taxes payable .......... 459 192
Other ......................... 254 212
------ ------
$1,191 $2,628
====== ======
</TABLE>
5. In the second quarter of fiscal 1998 the Corporation adopted Statement
of Financial Accounting Standards No. 128, Earnings per Share, and has restated
all prior-period earnings per share (EPS) data presented.
A reconciliation of the numerators and denominators of the basic and
diluted EPS computations are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1998 1997
------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net earnings for computing earnings per share, basic and diluted ......... $ 415 $ 782
====== ======
Weighted average number of common shares outstanding ..................... 1,745 1,738
Add: Incremental shares from assumed exercise of stock options ........... 15 14
------ ------
Weighted average number of common and potential common shares
outstanding for computing earnings per share, diluted ................... 1,760 1,752
====== ======
Earnings per share, basic ................................................ $ .24 $ .45
====== ======
Earnings per share, diluted .............................................. $ .24 $ .45
====== ======
</TABLE>
6. Certain items previously reported in specific financial statement
captions have been reclassified to conform with the fiscal 1999 presentation.
D-8
<PAGE>
PRO FORMA CONDENSED FINANCIAL INFORMATION
As previously reported by the Corporation on its Form 8-K dated October
16, 1998, on October 1, 1998 LAGS (USA) Inc. (an indirect wholly-owned
subsidiary of Deutsche Lufthansa AG) (LAGS) gave notice to the Corporation of
exercise of its option to increase LAGS' interest in Hudson General LLC (Hudson
LLC) from 26% to 49% (the Option). The exercise price of the Option is
$29,627,000 and was paid to Hudson LLC by LAGS together with interest at the
rate of 11% per annum from July 1, 1998 to the date of the Option closing on
November 2, 1998. As a result of the exercise of the Option, the Corporation's
investment in Hudson LLC and paid in capital will be increased by $25,509,000
and $12,570,000 (net of deferred income taxes and transaction fees),
respectively. The Corporation is presently unable to determine when, or
whether, such deferred income taxes will result in a current tax liability.
LAGS (USA) Inc. is a direct wholly-owned subsidiary of Lufthansa Airport
and Ground Services GmbH, and was granted the Option under the terms of the
Unit Purchase and Option Agreement dated February 27, 1996 pursuant to which it
acquired its initial 26% interest in Hudson LLC. After giving effect to the
exercise of the Option in the second quarter of fiscal 1999 on November 2,
1998, LAGS will have a 49% interest, and the Corporation will have a 51%
interest, effective as of July 1, 1998 in Hudson LLC. In connection with the
Option exercise, the Corporation received new non-voting Preferred Units (the
Preferred Units) of Hudson LLC. The Preferred Units are entitled to receive a
fixed distribution of 3.95% per annum, payable quarterly, commencing on
December 31, 1998 until September 30, 2001, and at an Internal Revenue Service
safe harbor rate, as defined, thereafter.
The Corporation is providing the following pro forma financial information
relating to this transaction: (i) Pro forma condensed consolidated balance
sheet as of September 30, 1998 which assumes that the transaction was completed
as of September 30, 1998; and (ii) Pro forma condensed consolidated statements
of earnings for the three months ended September 30, 1998 and the year ended
June 30, 1998 which assume that the transaction was completed as of July 1,
1997.
The Pro Forma Statements are for illustrative purposes only and are not
necessarily indicative of what the Corporation's results of operations or
balance sheet would actually have been if the transaction had been concluded as
of the assumed dates, nor are they necessarily indicative of future financial
performance or results of operations.
D-9
<PAGE>
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------------------------------------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 17,030 $ (750) (4) $ 16,280
Investment securities available for sale ........ 19,853 19,853
Receivables ..................................... 734 734
Advances to Hudson General LLC .................. 2,895 2,895
Prepaid expenses and other assets ............... 43 43
--------- ----------------- ---------
Total current assets .......................... 40,555 (750) 39,805
Property, plant and equipment at cost -- net ..... 2,259 2,259
Investment in Hudson General LLC ................. 22,677 25,509 (1),(2),(8) 48,186
Investment in Kohala Joint Venture -- net ........ 4,808 ----------------- 4,808
Note receivable from Hudson General LLC .......... 1,630 1,630
--------- ---------
$ 71,929 $ 24,759 $ 96,688
========= ================= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................ $ 83 $ 83
Accrued expenses and other liabilities .......... 1,191 1,191
--------- ---------
Total current liabilities ..................... 1,274 1,274
--------- ---------
Deferred income taxes ............................ 2,197 $ 12,189 (3) 14,386
--------- ----------------- ---------
Stockholders' Equity:
Common stock .................................... 2,102 2,102
Paid in capital ................................. 47,868 12,570 (1),(2),(3),(4),(8) 60,438
Retained earnings ............................... 29,650 29,650
Treasury stock .................................. (11,162) (11,162)
--------- ----------------- ---------
Total stockholders' equity .................... 68,458 12,570 81,028
--------- ----------------- ---------
$ 71,929 $ 24,759 $ 96,688
========= ================= =========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
D-10
<PAGE>
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
THREE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------------ ----------
<S> <C> <C> <C>
Revenues ........................................... $1,401 $1,401
------ -------- ------
Costs and expenses:
Depreciation and amortization ..................... 156 156
Selling, general and administrative ............... 1,728 1,728
------ -------- ------
Total costs and expenses ........................ 1,884 1,884
------ -------- ------
Operating loss ..................................... (483) (483)
Equity in earnings of Hudson General LLC ........... 769 $ (239)(5) 530
Equity in loss of Kohala Joint Venture ............. (667) (667)
Interest income .................................... 1,013 394 (6) 1,407
------ -------- ------
Earnings before provision for income taxes ......... 632 155 787
Provision for income taxes ......................... 217 53 (7) 270
------ -------- ------
Net earnings ....................................... $ 415 $ 102 $ 517
====== ======== ======
Earnings per share, basic .......................... $ .24 $ .30
====== ======
Earnings per share, diluted ........................ $ .24 $ .29
====== ======
Shares outstanding, basic .......................... 1,745 1,745
Shares outstanding, diluted ........................ 1,760 1,760
====== ======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
D-11
<PAGE>
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FISCAL YEAR ENDED JUNE 30, 1998
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ -------------------- ----------
<S> <C> <C> <C>
Revenues ................................................. $ 5,783 $ 5,783
-------- ---------- --------
Costs and expenses:
Depreciation and amortization ........................... 664 664
Selling, general and administrative ..................... 7,843 7,843
-------- ---------- --------
Total costs and expenses .............................. 8,507 8,507
-------- ---------- --------
Operating loss ........................................... (2,724) (2,724)
Equity in earnings of Hudson General LLC ................. 9,426 $ (2,930)(5) 6,496
Equity in loss of Kohala Joint Venture ................... (2,822) (2,822)
Interest income .......................................... 4,156 1,689 (6) 5,845
-------- ---------- --------
Earnings before provision (benefit) for income taxes ..... 8,036 (1,241) 6,795
Provision (benefit) for income taxes ..................... 2,780 (429)(7) 2,351
-------- ---------- --------
Net earnings ............................................. $ 5,256 $ (812) $ 4,444
======== ========== ========
Earnings per share, basic ................................ $ 3.02 $ 2.55
======== ========
Earnings per share, diluted .............................. $ 2.99 $ 2.53
======== ========
Shares outstanding, basic ................................ 1,742 1,742
Shares outstanding, diluted .............................. 1,757 1,757
======== ========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
D-12
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) To record the increase in the carrying amount of the investment in Hudson
LLC in connection with the issuance of units by Hudson LLC as a result of
the exercise of the Option by LAGS for an exercise price of $29,627,000.
(2) It is the accounting policy of the Corporation to reflect increases in
the Corporation's investment in subsidiaries that result from the direct
sale of shares by the subsidiary as a capital transaction in the
Corporation's consolidated financial statements. Thus, the increase in
the Corporation's investment in Hudson LLC as a result of the exercise of
the Option by LAGS has been reflected as an increase in the Corporation's
paid in capital, net of applicable deferred federal and state income
taxes of $12,189,000 and estimated transaction fees of $750,000.
(3) To record deferred income taxes relating to the exercise of the Option.
(4) To record estimated transaction fees of $750,000 to be paid by the
Corporation.
(5) To adjust the Corporation's share of Hudson LLC's results of operations
from 74% to 51%.
(6) To reflect the fixed distribution to the Corporation from Hudson LLC
related to the Preferred Units.
(7) To record the U.S. tax effects of the pro forma statement of earnings
adjustments at an estimated combined effective federal and state tax
rate.
(8) To adjust the Corporation's share of Hudson LLC's foreign currency
translation adjustments from 74% to 51%.
D-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Hudson General Corporation:
We have audited the accompanying consolidated balance sheets of Hudson
General Corporation and subsidiaries as of June 30, 1998 and 1997 and the
related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three year period ended June 30, 1998. These
consolidated financial statements are the responsibility of the Corporation'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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hudson
General Corporation and subsidiaries at June 30, 1998 and 1997 and the results
of their operations and their cash flows for each of the years in the three
year period ended June 30, 1998, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Jericho, New York
August 14, 1998, except for note 2,
which is as of September 16, 1998
D-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Hudson General Corporation:
Under date of August 14, 1998, except for note 2, which is as of September
16, 1998, we reported on the consolidated balance sheets of Hudson General
Corporation and subsidiaries as of June 30, 1998 and 1997, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended June 30, 1998, as contained in
the fiscal 1998 annual report to stockholders. These consolidated financial
statements and our report thereon are incorporated by reference in the annual
report on Form 10-K for the year 1998. In connection with our audits of the
aforementioned consolidated financial statements, we also have audited the
related financial statement schedule listed in item 14(a)2. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Jericho, New York
September 16, 1998
D-15
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues ........................................... $ 5,783 $ 5,064 $157,100
-------- --------- --------
Costs and expenses:
Operating ......................................... -- 113,744
Depreciation and amortization ..................... 664 772 7,165
Selling, general & administrative ................. 7,843 8,047 16,755
-------- --------- --------
Total costs and expenses ........................ 8,507 8,819 137,664
-------- --------- --------
Operating income (loss) ............................ (2,724) (3,755) 19,436
Equity in earnings of Hudson General LLC ........... 9,426 11,955 855
Equity in loss of Kohala Joint Venture ............. (2,822) (11,292) (3,021)
Interest income .................................... 4,156 3,958 2,222
Interest expense ................................... -- (1,843)
-------- --------- --------
Earnings before provision for income taxes ......... 8,036 866 17,649
Provision for income taxes ......................... 2,780 391 7,183
-------- --------- --------
Net earnings ....................................... $ 5,256 $ 475 $ 10,466
======== ========= ========
Earnings per share, basic .......................... $ 3.02 $ .26 $ 9.09
======== ========= ========
Earnings per share, diluted ........................ $ 2.99 $ .26 $ 5.60
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
D-16
<PAGE>
CONSOLIDATED BALANCE SHEETS
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 19,001 $ 18,425
Investment securities available for sale .............................. 19,002 8,792
Receivables ........................................................... 563 540
Advances to Hudson General LLC net .................................... 2,057 361
Prepaid expenses and other assets ..................................... 56 250
--------- ---------
Total current assets ................................................ 40,679 28,368
Property and equipment at cost, less accumulated depreciation and
amortization .......................................................... 2,389 2,902
Investment in Hudson General LLC ....................................... 22,306 26,395
Investment in Kohala Joint Venture net ................................. 4,962 5,893
Note receivable from Hudson General LLC ................................ 3,130 4,630
--------- ---------
$ 73,466 $ 68,188
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................... $ 200 $ 161
Accrued expenses and other liabilities ................................ 2,628 2,536
--------- ---------
Total current liabilities ........................................... 2,828 2,697
--------- ---------
Deferred income taxes .................................................. 2,197 107
--------- ---------
Stockholders' Equity:
Serial preferred stock (authorized 100,000 shares of $1 par value) none
outstanding ......................................................... --
Common stock (authorized 7,000,000 shares of $1 par value) issued
2,102,260 and 2,092,160 shares ...................................... 2,102 2,092
Paid in capital ....................................................... 48,266 48,732
Retained earnings ..................................................... 29,235 25,722
Treasury stock, at cost, 357,311 shares ............................... (11,162) (11,162)
--------- ---------
Total stockholders' equity .......................................... 68,441 65,384
--------- ---------
$ 73,466 $ 68,188
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
D-17
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ISSUED OTHER
YEARS ENDED JUNE 30, --------------------- PAID IN RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS'
1998, 1997 AND 1996 SHARES AMOUNTS CAPITAL EARNINGS INCOME STOCK EQUITY
- --------------------------------- ----------- --------- ---------- ---------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 .......... 1,253,802 $1,254 $ 6,759 $ 16,707 $ (1,483) $ (1,621) $ 21,616
Common stock issued in
connection with
exercise of stock
options ....................... 16,000 16 249 265
Dividends ($.50 per
share) ........................ (578) (578)
Equity adjustment from
foreign currency
translation ................... 13 13
Effect of equity infusion
in Hudson General
LLC net ....................... 10,783 1,470 12,253
Purchase of treasury
stock ......................... (389) (389)
Conversion of
convertible
subordinated
debentures .................... 7,599 7 242 249
Net earnings ................... 10,466 10,466
--------- ------ ------- -------- -------- --------- --------
Balance, June 30, 1996 .......... 1,277,401 1,277 18,033 26,595 (2,010) 43,895
Common stock issued in
connection with
exercise of stock
options ....................... 10,500 11 154 165
Dividends ($.75 per
share) ........................ (1,348) (1,348)
Equity adjustment from
foreign currency
translation ................... (101) (101)
Effect of equity infusion
in Hudson General
LLC net ....................... 5,805 5,805
Purchase of treasury
stock ......................... (9,152) (9,152)
Conversion of
convertible
subordinated
debentures .................... 804,259 804 24,841 25,645
Net earnings ................... 475 475
--------- ------ ------- -------- -------- --------- --------
Balance, June 30, 1997 .......... 2,092,160 2,092 48,732 25,722 (11,162) 65,384
Common stock issued in
connection with
exercise of stock
options ....................... 10,100 10 148 -- -- -- 158
Dividends ($1.00 per
share) ........................ -- -- -- (1,743) -- -- (1,743)
Equity adjustment from
foreign currency
translation ................... -- -- (614) -- -- -- (614)
Net earnings ................... -- -- -- 5,256 -- -- 5,256
--------- ------ ------- -------- -------- --------- --------
Balance, June 30, 1998 ......... 2,102,260 $2,102 $48,266 $ 29,235 -- $ (11,162) $ 68,441
========= ====== ======= ======== ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
D-18
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ................................................. $ 5,256 $ 475 $ 10,466
Adjustments to reconcile net earnings to net cash provided
(used) by operating activities:
Depreciation and amortization .............................. 664 772 7,165
Provision for losses on accounts receivable net ............ -- 362
Deferred income taxes ...................................... 2,090 (655) (1,090)
Equity in earnings of Hudson General LLC ................... (9,426) (11,955) (855)
Equity in loss of Kohala Joint Venture ..................... 2,822 11,292 3,021
Accrual of interest income on Kohala Joint Venture
advances .................................................. (1,891) (1,765) (1,604)
Gain on sale of equipment .................................. -- (139)
Change in other current assets and liabilities:
Accounts and notes receivables ............................ (23) (302) 2,845
Prepaid expenses and other assets ......................... 194 52 (504)
Deferred income taxes ..................................... -- 2,342
Accounts payable .......................................... 39 (310) 892
Income taxes payable ...................................... -- 165
Accrued expenses and other liabilities .................... 286 (1,112) 1,785
Decrease in long-term receivables net ...................... -- 522
Other net .................................................. -- 23 91
--------- --------- ---------
Net cash provided (used) by operating activities ........ 11 (3,485) 25,464
--------- --------- ---------
Cash flows from investing activities:
Purchases of investment securities available for sale ........ (21,918) (8,792)
Proceeds from maturity and sale of investment securities
available for sale ......................................... 11,708
Purchases of property and equipment .......................... (178) (326) (13,158)
Proceeds from sale of property and equipment ................. 27 80 244
Distributions from Hudson General LLC ........................ 12,707
(Advances to) repayments from Hudson General LLC ............. (696) 7,302 (7,233)
Collections of note receivable from Hudson General LLC ....... 500 21,283
Advances to Kohala Joint Venture net ......................... -- (772)
Net cash transferred to Hudson General LLC upon formation..... -- (3,002)
Fees related to transfer of assets to Hudson General LLC ..... -- (825)
--------- --------- ---------
Net cash provided (used) by investing activities ........ 2,150 19,547 (24,746)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock ....................... 158 162 335
Cash dividends paid .......................................... (1,743) (1,348) (578)
Purchase of treasury stock ................................... -- (9,152) (389)
--------- --------- ---------
Net cash used by financing activities ................... (1,585) (10,338) (632)
--------- --------- ---------
Effect of exchange rate changes on cash ....................... -- 2
--------- ---------
Net increase in cash and cash equivalents ..................... 576 5,724 88
Cash and cash equivalents at beginning of year ................ 18,425 12,701 12,613
--------- --------- ---------
Cash and cash equivalents at end of year ...................... $ 19,001 $ 18,425 $ 12,701
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
D-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Hudson General Corporation and the subsidiaries for which it
exercises effective control (the Corporation). All material intercompany
accounts and transactions have been eliminated in consolidation. Kohala Joint
Venture, a land development venture in Hawaii in which the Corporation has a
50% interest (the Venture), is accounted for under the equity method of
accounting (see Note 3). Effective June 1, 1996, the Corporation consummated a
transaction (the Transaction) in which a third party, Lufthansa Airport and
Ground Services GmbH (LAGS), an indirect wholly-owned subsidiary of Deutsche
Lufthansa AG, acquired a 26% interest in the Corporation's aviation services
business (the Aviation Business). As part of the Transaction, the Corporation
transferred substantially all of the assets and liabilities of the Aviation
Business to Hudson General LLC (Hudson LLC), a newly-formed limited liability
company (see Note 2). LAGS received a 26% interest in Hudson LLC. At the same
time, the Corporation, Hudson LLC and LAGS USA Inc., a wholly-owned subsidiary
of LAGS (LAGS USA), entered into a Limited Liability Company Agreement
effective June 1, 1996 (the LLC Agreement). Due to the provisions in the LLC
Agreement, as amended, effective June 1, 1996, the Corporation has accounted
for its interest in Hudson LLC under the equity method of accounting. As a
result, the fiscal 1998 and 1997 consolidated statements of earnings of the
Corporation contain the operating results of the Aviation Business under the
equity method of accounting. The fiscal 1996 consolidated statement of earnings
of the Corporation contains the operating results of the Aviation Business on a
consolidated basis for eleven months and under the equity method of accounting
for one month. As a result of the Corporation's transfer of substantially all
of the Aviation Business assets and liabilities to Hudson LLC, such assets and
liabilities are not reflected in the Corporation's accompanying consolidated
balance sheets. The Corporation's stockholders equity was increased by
$5,704,000 and $12,253,000 in fiscal 1997 and the month of June 1996,
respectively, as a result of the Corporation's equity interest in Hudson LLC's
capital transactions.
DESCRIPTION OF BUSINESS: The Corporation through its 74% ownership
interest in Hudson LLC, provides a broad and diverse range of services to the
aviation industry at twenty-four (24) airports throughout the United States and
Canada. These services include aircraft ground handling; aircraft fueling; fuel
management; ground transportation; snow removal; cargo warehousing; and sale,
leasing and maintenance of airline ground support equipment. In addition to its
airport related services, Hudson LLC provides transportation management
services for various governmental agencies and authorities.
DEPRECIATION AND AMORTIZATION: Depreciation of property and equipment is
provided on the straight-line method over their estimated useful lives.
INCOME TAXES: Effective July 1, 1993, the Corporation adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109
Accounting for Income Taxes, which requires the use of the asset and liability
method of accounting for deferred income taxes.
FINANCIAL INSTRUMENTS: The Corporation believes that the book values of
its monetary assets and liabilities approximate fair values as a result of the
short-term nature of such assets and liabilities.
FOREIGN CURRENCY TRANSLATION: The financial position and results of
operations of the Corporation's Canadian operations were measured using local
currency as the functional currency. Assets and liabilities were translated
into U.S. dollars at year-end rates of exchange, and revenues and expenses were
translated at the average rates of exchange for the year. Gains or losses
resulting from translating foreign currency financial statements were
accumulated as a separate component of stockholders' equity.
STATEMENTS OF CASH FLOWS: For purposes of the consolidated statements of
cash flows, the Corporation considers all securities with an original maturity
of approximately three months or less at the date of acquisition to be cash
equivalents. The changes in specified asset and liability accounts in the
accompanying consolidated statements of cash flows for fiscal 1996 are
exclusive of the effect of the transfer of specified assets and liabilities of
the Aviation Business to Hudson LLC. In fiscal 1998, 1997 and
D-20
<PAGE>
1996 income taxes (net of refunds) of $132,000, $963,000 and $5,064,000,
respectively, were paid. During fiscal 1998 and 1997, there was no interest
paid. Interest of $2,030,000 was paid in fiscal 1996.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
EARNINGS PER SHARE: In the second quarter of fiscal 1998, the Corporation
adopted the provisions of SFAS No. 128, "Earnings Per Share," and has restated
all prior-period earnings per share (EPS) data presented. This statement
establishes standards for computing and presenting EPS, replacing the
presentation of previously required primary EPS with a presentation of Basic
EPS. For entities with complex capital structures, the statement requires the
dual presentation of both Basic EPS and Diluted EPS on the face of the
statement of earnings. The impact of the Corporation's adoption of this
statement was not material to previously reported EPS amounts.
A reconciliation of the numerators and denominators of the basic and
diluted EPS computations for the years ended June 30, 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net earnings .......................................................... $5,256 $ 475 $10,466
Add: Interest on 7% convertible subordinated debentures due 2011
less applicable income taxes ......................................... -- (a) 1,032
------ -------- -------
Net earnings for computing earnings per share, diluted ................ $5,256 $ 475 $11,498
====== ====== =======
Weighted average number of common shares outstanding .................. 1,742 1,814 1,151
Add: Incremental shares from assumed:
Exercise of stock options ............................................ 15 18 17
Conversion of 7% convertible subordinated debentures ................. -- (a) 884
------ -------- -------
Weighted average number of common and potential common
shares outstanding for computing earnings per share, diluted ......... 1,757 1,832 2,052
====== ====== =======
Earnings per common share, basic ...................................... $ 3.02 $ .26 $ 9.09
====== ====== =======
Earnings per common share, diluted .................................... $ 2.99 $ .26 $ 5.60
====== ====== =======
</TABLE>
- ----------
(a) Assumed conversion is antidilutive, and accordingly, the 7%
convertible subordinated debentures are excluded from the
computation.
LONG-LIVED ASSETS: Effective July 1, 1996 the Corporation adopted the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," which requires that long-lived
assets and certain identifiable intangibles to be held and used or disposed of
by an entity be reviewed for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of SFAS No. 121 did not have any impact on the
Corporation's consolidated financial position or results of operations.
STOCK-BASED COMPENSATION: Effective July 1, 1996 the Corporation adopted
the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation,"
which encourages, but does not require companies to record compensation cost
for stock-based employee compensation plans at fair value. The Corporation has
chosen to continue to account for stock-based compensation under the existing
accounting rules contained in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, but
will provide pro forma disclosures of any future stock-based compensation
expense determined under the fair-value provisions of SFAS No. 123, if
material. As of June 30, 1995, no further grants were available under any of
the Corporation's stock-based employee compensation plans.
D-21
<PAGE>
MARKETABLE SECURITIES: The Corporation had invested $19,002,000 and
$8,792,000 at June 30, 1998 and 1997, respectively, in commercial paper, and
government and corporate fixed income securities. The maturities of such
investments are generally less than one year. The book values of the
investments approximate their respective market values as a result of the
short-term nature of the securities and the low level of risk in these types of
investments.
COMPREHENSIVE INCOME: Effective for fiscal 1998, the Corporation has
adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income," which
requires the reporting of comprehensive income in addition to net income from
operations. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income. The
Corporation has no activities which represent items of other comprehensive
income and, accordingly, the adoption of SFAS No. 130 did not have a material
effect on the Corporation's consolidated financial statements.
RECLASSIFICATIONS: Certain items previously reported in specific financial
statement captions have been reclassified to conform with the fiscal 1998
presentation.
2. INVESTMENT IN HUDSON GENERAL LLC
Effective June 1, 1996 pursuant to the terms of the Unit Purchase and
Option Agreement dated February 27, 1996 (the Purchase Agreement) between the
Corporation and LAGS, the Corporation transferred substantially all of the
assets and liabilities of the Aviation Business to Hudson LLC. In exchange for
the transfer of such assets and liabilities and the assumption by Hudson LLC,
as co-obligor with the Corporation, of all of the Corporation's 7% convertible
subordinated debentures (see Note 7), the Corporation received a 74% interest
in Hudson LLC. In addition, Hudson LLC sold LAGS a 26% interest in Hudson LLC
for a purchase price of $23,686,000 in cash (after certain adjustments), of
which $15,848,000 was paid at the closing, and deferred payments (the Deferred
Payments) of $2,650,000 and $5,188,000 plus interest thereon were made,
respectively, in September 1996 and December 1996. The Corporation's investment
in Hudson LLC and paid in capital were increased by its 74% interest in the
Deferred Payments. The Purchase Agreement, as amended, provides LAGS an option
(the LAGS Option), exercisable on October 1 of each year through 1999,
effective as of the preceding July 1, pursuant to which LAGS may increase its
equity ownership in Hudson LLC from 26% to a maximum of 49%, for a price based
on a formula related to the average earnings of the Aviation Business over the
four fiscal years preceding the exercise of the option, subject to certain
minimum and maximum amounts. On September 16, 1998, the Corporation was advised
that the Supervisory Board of Deutsche Lufthansa AG approved the exercise by
LAGS USA of the LAGS Option to increase its equity interest in Hudson LLC from
26% to 49%. As a result, the Corporation expects LAGS to give notice of its
exercise of the LAGS Option on or about October 1, 1998. The exercise price is
approximately $29,600,000.
The LLC Agreement, as amended, stipulates that the Corporation and LAGS
USA will share profits and losses in the same proportion as their respective
equity interests in Hudson LLC, except that the Corporation was entitled to all
interest earned on the Deferred Payments. In addition, LAGS USA would not share
in any pre-tax earnings, as defined, of the Aviation Business in excess of
$14,690,000 and $15,863,000 in fiscal 1997 and 1998, respectively, unless the
aggregate of the pre-tax earnings of the Aviation Business for fiscal 1997 and
1998 exceeded $30,553,000. Such pre-tax earnings exceeded $30,553,000, and as a
result, LAGS USA is not limited by the LLC Agreement from sharing in pre-tax
earnings of the Aviation Business for those years. Hudson LLC's net earnings in
June 1996 were allocated 100% to the Corporation.
In June 1996, primarily as a result of the Corporation retaining certain
trade receivables, the Corporation made net advances of $7,233,000 on behalf of
Hudson LLC. Such balance was repaid to the Corporation by Hudson LLC (together
with accrued interest at the Corporation's incremental borrowing rate) during
fiscal 1997. The Corporation's net advances to Hudson LLC were $2,057,000 and
$361,000 at June 30, 1998 and 1997, respectively.
Pursuant to the LLC Agreement, as amended, the Corporation will continue
to manage the Aviation Business and will be entitled to charge Hudson LLC an
overhead fee equal to the sum of an agreed upon
D-22
<PAGE>
percentage of Hudson LLC's consolidated domestic revenues and an agreed upon
percentage of Hudson LLC's consolidated Canadian revenues. (The Corporation and
LAGS USA agreed to overhead fees for fiscal 1998 of 3 1/2% and 1 1/4%,
respectively, and overhead fees for fiscal 1997 of 3% and 1%, respectively).
The LLC Agreement, as amended, also provides for a Member Board on which the
Corporation has three votes and LAGS USA has two votes, and allows either
Member to veto certain major transactions and to veto any reduction in
distributions stipulated in the LLC Agreement, as amended. The LLC Agreement,
as amended, provides that distributions will be paid annually in an amount at
least equal to 50% of domestic net income and 10% of Canadian pre-tax earnings,
as defined, from the Aviation Business. Such distributions, totaling
approximately $8,300,000 for fiscal 1997 and the month of June 1996, were made
in October 1997. An additional distribution of $7,500,000 with respect to
fiscal 1997 was made in December 1997.
The summary consolidated balance sheets for Hudson LLC as of June 30, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents ........................................ $ 3,393 $12,324
Accounts and notes receivable net ................................ 16,886 15,289
Other current assets ............................................. 6,391 4,211
------- -------
Total current assets ........................................... 26,670 31,824
Property, equipment and leasehold rights at cost, less accumulated
depreciation and amortization ................................... 45,639 44,948
Other assets net ................................................. 643 2,248
------- -------
$72,952 $79,020
======= =======
Accounts payable ................................................. $17,326 $18,528
Accrued expenses and other liabilities ........................... 19,045 20,291
Advances from Hudson General Corporation net ..................... 2,057 361
------- -------
Total current liabilities ...................................... 38,428 39,180
Deferred income taxes ............................................ 319
Note payable to Hudson General Corporation ....................... 3,130 4,630
Members equity ................................................... 31,075 35,210
------- -------
$72,952 $79,020
======= =======
</TABLE>
Summary results of operations for Hudson LLC for fiscal 1998, 1997 and the
month of June 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues ........................................... $168,947 $167,729 $12,096
-------- -------- -------
Operating costs .................................... 131,643 128,749 9,259
Depreciation and amortization ...................... 8,237 7,510 673
Selling, general and administrative costs .......... 14,459 13,625 1,317
-------- -------- -------
Total costs and expenses ........................ 154,339 149,884 11,249
-------- -------- -------
Operating income ................................... 14,608 17,845 847
Interest (expense) income net ...................... (122) 179 49
-------- -------- -------
Earnings before provision for income taxes ......... 14,486 18,024 896
Provision for income taxes ......................... 1,748 2,085 41
-------- -------- -------
Net earnings .................................... $ 12,738 $ 15,939 $ 855
======== ======== =======
</TABLE>
The Corporation's share of Hudson LLC's results is shown as Equity in
earnings of Hudson General LLC in the accompanying consolidated statements of
earnings.
D-23
<PAGE>
3. INVESTMENT IN KOHALA JOINT VENTURE
The Venture was formed to acquire, develop and sell approximately 4,000
contiguous acres of land in Hawaii (the Project). The Project is being
developed in four successive phases. The first two phases, containing
approximately 2,100 acres, have been developed and substantially sold. The
third phase, containing approximately 550 acres, has also been developed and
has 84 parcels available for sale. The fourth phase has yet to be developed,
except to the extent common improvements (main road, water wells, etc.) have
been completed. During fiscal 1992, the County of Hawaii passed an ordinance
pursuant to which the Venture, after subdivision approvals are obtained, would
be able to develop Phase IV into 1,490 units. Shortly after passage of the
ordinance, a lawsuit against the County of Hawaii was filed in the Circuit
Court of Hawaii by two local residents of Hawaii (Plaintiffs) seeking to
invalidate such ordinance on various grounds including that the ordinance was
adopted without following State of Hawaii procedure relating to the preparation
of an Environmental Impact Statement. During fiscal 1993, the Judge in this
action granted Plaintiffs' motion for partial summary judgment without
indicating any effect on Phase IV zoning. The County and the Venture appealed
this ruling to the Hawaii Supreme Court, and in May 1997, the Supreme Court
vacated the summary judgment which was previously granted and remanded certain
related issues to the Circuit Court for that Court to decide. In March and
April 1998, the Circuit Court ruled in favor of the County and the Venture on
the remanded issues and certain other issues. In July 1998 the Circuit Court
granted summary judgment in favor of the County and the Venture on all
remaining claims in the suit. Although Plaintiffs have indicated they intend to
appeal any decision unfavorable to them, it is uncertain at this time whether
an appeal will be filed by Plaintiffs. Since a final judgment has not yet been
entered, the time period for filing an appeal has not yet commenced. The
Venture cannot determine the effect of this litigation on the timing of
development of Phase IV or expenditures related thereto until it is known
whether an appeal will be filed. The joint venture partners continue to
reevaluate plans for Phase IV which has to date only had limited development.
The Corporation's partner in the Venture is Oxford Kohala, Inc. (the
Partner), a wholly-owned subsidiary of Oxford First Corporation (Oxford First).
Under the Restated Joint Venture Agreement dated April 29, 1981, as amended
(the Agreement), the Partners have agreed to make equal advances to the Venture
for all costs necessary for the orderly development of the land and to share
profits equally. During fiscal 1998, the Corporation did not make any advances
to the Venture.
The Corporation accrues interest income on its advances to the Venture at
the rate agreed to by the Partners (currently 1% below prime). The Corporation
defers recognition of such interest income to the extent that such interest
rate exceeds the Corporation's weighted average cost of funds. At June 30, 1998
and 1997, the amount of deferred interest income was $2,352,000 and $2,159,000,
respectively. The Corporation will recognize deferred interest income when
additional distributions or payments related to the Venture, if any, are made
to the Corporation. Interest income accrued by the Corporation for fiscal 1998
and 1997 was $1,891,000 and $1,765,000, respectively.
The summary consolidated balance sheets for the Venture as of June 10,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Cash and equivalents ........................................ $ 355 $ 730
Land and development costs (including capitalized interest of
$6,548,000 and $6,591,000).................................. 9,210 9,264
Mortgages, accounts and notes receivable .................... 2,137 2,779
Foreclosed real estate net .................................. 2,186 2,854
Other assets net ............................................ 1,549 1,590
--------- ---------
$ 15,437 $ 17,217
========= =========
Partner advances and accrued interest payable ............... $ 58,178 $ 54,013
Accounts payable and accrued expenses ....................... 860 1,162
Partners deficit ............................................ (43,601) (37,958)
--------- ---------
$ 15,437 $ 17,217
========= =========
</TABLE>
D-24
<PAGE>
In the fourth quarter of fiscal 1997, the Venture recorded a charge of
$17,000,000 to write-down its real estate assets to their estimated fair
values. The charge is the result of the continuing periodic evaluation of the
carrying value of the Venture's real estate assets. The Partners concluded, as
a result of their most recent in-depth analysis of an updated independent
appraisal of such assets and the consideration of other factors affecting the
development of the property, that the carrying value of the real estate assets
should be reduced. Factors considered by the Partners included the Partners
plans to reevaluate the fourth phase of the Project which has to date only had
limited development, the current condition of the Hawaiian real estate market
and general economic conditions. In connection with the Venture's reduction of
the carrying value of its real estate assets, the Corporation reduced the
carrying value of a portion of its advances to the Venture in the amount of
$8,500,000. The Corporation's total advances (including accrued interest and
after such reduction) at June 30, 1998 and 1997 were $20,589,000 and
$18,506,000, respectively.
Summary results of operations for the Venture for the fiscal years ended
June 30, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales ......................................... $ 666 $ 1,455 $ 677
-------- --------- --------
Cost of sales ..................................... 326 1,106 365
Write-down of real estate assets .................. -- 17,000
Selling, general and administrative costs ......... 2,046 2,340 2,953
Interest, net ..................................... 3,937 3,593 3,401
-------- --------- --------
Net loss .......................................... $ (5,643) $ (22,584) $ (6,042)
======== ========= ========
</TABLE>
As a partnership, the Venture is not subject to federal or state income
taxes. The Corporation's share of the Venture's results is shown as Equity in
loss of Kohala Joint Venture in the accompanying consolidated statements of
earnings.
4. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
(a) Accrued expenses and other liabilities at June 30, 1998 and 1997
consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Salaries and wages ............ $1,917 $1,940
Retirement plan costs ......... 307 319
Other ......................... 404 277
------ ------
$2,628 $2,536
====== ======
</TABLE>
Maintenance and repair expenses were $7,536,000 for fiscal 1996. Bad debt
expenses were $362,000 for fiscal 1996.
(b) The consolidated financial statements include: revenues of $38,005,000
and earnings of $3,166,000 in fiscal 1996 related to the Corporation's Canadian
operations.
5. PROPERTY AND EQUIPMENT
The number of years over which major classes of assets are being
depreciated and amortized, and the costs and related accumulated depreciation
and amortization as of June 30, 1998 and 1997 are set forth below:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1998 1997
-------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating equipment ............................... 2--12 $ 7,416 $ 7,640
Office furnishings and equipment .................. 5--10 943 821
Leasehold improvements ............................ 6--9 246 239
-------- --------
8,605 8,700
Accumulated depreciation and amortization ......... (6,216) (5,798)
-------- --------
$ 2,389 $ 2,902
======== ========
</TABLE>
At June 30, 1998 and 1997, the Corporation leased operating equipment to
Hudson LLC with a net book value of $1,853,000 and $2,394,000, respectively.
D-25
<PAGE>
6. LONG-TERM DEBT
Pursuant to a Revolving Credit Agreement with a group of banks dated June
1, 1996 (the Credit Agreement), the Corporation may borrow funds (including
outstanding letters of credit) up to a limit of $6,000,000 until June 30, 1999
at which time the Credit Agreement terminates. There were no direct borrowings
or letters of credit outstanding under the Credit Agreement at June 30, 1998
and 1997. The Credit Agreement provides the Corporation with the option of
selecting a rate of interest at either the base rate or 1 3/8% above the LIBO
rate, as defined.
The Credit Agreement requires that the Corporation meet certain financial
covenants and allows the Corporation to pay dividends or purchase, redeem or
retire its stock so long as such financial covenants are met. Pursuant to the
Credit Agreement, the Corporation may advance up to $2,000,000 to the Venture
in any fiscal year or up to $5,000,000 during the term of the Credit Agreement,
net of any distributions received from the Venture by the Corporation during
such periods. Since the inception of the Credit Agreement the Corporation has
not increased its net advances to the Venture. The Corporation has granted the
banks a security interest in all of its membership units of Hudson LLC and
certain other assets.
In July 1986 the Corporation issued $30,000,000 of 7% convertible
subordinated debentures due 2011 (the Debentures). In connection with the
Transaction, effective June 1, 1996, Hudson LLC assumed the obligations of the
Debentures and the Corporation remained as a co-obligor. The Debentures were
convertible at any time prior to maturity into shares of the Corporation's
common stock at a conversion price of $32.75 per share.
At June 1, 1996 there was $28,821,000 principal balance of the Debentures
outstanding. During June and August 1996, the Debentures were called for
redemption and as a result, $2,408,000 principal balance of the Debentures were
redeemed during fiscal 1997. In addition, during fiscal 1997 and the month of
June 1996, $26,343,000 and $70,000, respectively, of the Debentures were
converted into shares of the Corporation's common stock and to such extent
Hudson LLC became indebted, on a subordinated basis, to the Corporation (the
Corporate Subordinated Debt). At September 5, 1996, no Debentures remained
outstanding.
During fiscal 1997, Hudson LLC utilized the proceeds from the Deferred
Payments together with a portion of the proceeds received at the closing of the
Transaction to repay $21,283,000 of the outstanding balance of the Corporate
Subordinated Debt. At June 30, 1998 and 1997, the balance of the Corporate
Subordinated Debt was $4,630,000 and $5,130,000, respectively. The noncurrent
portion of such debt at June 30, 1998 and 1997 of $3,130,000 and $4,630,000,
respectively, is shown as Note receivable from Hudson General LLC in the
accompanying consolidated balance sheets. Hudson LLC is obligated to repay the
remaining balance of $4,630,000 to the Corporation as follows: (i) $1,500,000
on July 15, 1998; and (ii) $1,500,000 on each July 15th thereafter until the
entire principal balance is satisfied. The current portion of this debt at June
30, 1998 (which was paid in July 1998) and 1997, of $1,500,000 and $500,000,
respectively, is included in Advances to Hudson General LLC net in the
accompanying consolidated balance sheets. Interest on the Corporate
Subordinated Debt is payable semi-annually in January and July at the rate of
7% per annum.
D-26
<PAGE>
7. INCOME TAXES
Provision for income taxes consisted of the following for the years ended
June 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current .......... $ 445 $ 97 $3,415
Deferred ......... 1,535 (456) 1,485
Foreign:
Current .......... -- 324
Deferred ......... -- 449
State:
Current .......... 245 687 789
Deferred ......... 555 63 721
------ ------ ------
$2,780 $ 391 $7,183
====== ====== ======
</TABLE>
A reconciliation of the provision for income taxes to the amount computed
by applying the statutory federal income tax rate to earnings before provision
for income taxes for the years ended June 30, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at federal statutory rate ................................... $2,732 $ 295 $6,001
Increase (decrease) in income taxes resulting from:
Reevaluation of valuation allowance ............................ (960)
Foreign tax differential ....................................... -- 395
Effect of foreign income, previously taxed ..................... (485) (449)
State income taxes, net of federal income tax effect ........... 528 495 997
Provision for future repatriation of Canadian earnings ......... -- 750
Other net ...................................................... 5 50
------ ------
Provision for income taxes ...................................... $2,780 $ 391 $7,183
====== ====== ======
</TABLE>
Deferred tax assets (liabilities) are comprised of the following as of
June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Reserves for doubtful accounts, claims, etc. ................... $ 149 $ 319
Retirement plans ............................................... 104 108
Alternative minimum tax ........................................ 471 285
-------- --------
Current deferred tax assets ................................... 724 712
-------- --------
State income taxes ............................................. -- 510
Difference between book and tax carrying value of Hudson LLC -- 193
Difference in the Venture's book and tax year-end .............. 449 525
-------- --------
Noncurrent deferred tax assets ................................ 449 1,228
-------- --------
Net deferred tax assets ....................................... $ 1,173 $ 1,940
-------- --------
Deferred tax liabilities:
Difference between book and tax carrying value of Hudson LLC $ (1,056) $
State income taxes ............................................. (271)
Property, equipment and leasehold rights, principally
depreciation domestic ........................................ (929) (857)
Provision for future repatriation of Canadian earnings ......... (750) (750)
Interest capitalized on financial statements ................... (364) (440)
-------- --------
Noncurrent deferred tax liabilities ........................... (3,370) (2,047)
-------- --------
Net deferred tax liabilities .................................. $ (2,197) $ (107)
======== ========
</TABLE>
D-27
<PAGE>
Under SFAS No. 109, a valuation allowance is provided when it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. At July 1, 1993, the Corporation provided a 100% valuation allowance
for the net operating loss carryforwards and depreciation differences relating
to its Canadian operations since realization of the related deferred tax assets
was uncertain at that time. The net change in the valuation allowance for
fiscal 1996 was a decrease of $960,000. The decrease reflects the recognition
of $960,000 of deferred tax assets resulting from a review of prior Canadian
operating results and anticipation of future Canadian earnings, which together
with cessation of operations of the Corporation's Canadian fixed base
operations, made the realization of additional Canadian depreciation
differences more likely than not.
As a result of the Transaction, $852,000 of deferred tax assets related to
the Corporation's Canadian subsidiary were transferred to Hudson LLC on June 1,
1996 and the Corporation will no longer be required to provide for or reflect
foreign taxes in its consolidated financial statements. In addition, beginning
June 30, 1996, the Corporation's deferred tax assets and liabilities relating
to Hudson LLC appear as a separate item within deferred taxes. Due to
anticipation by the Corporation of the future repatriation of Canadian
earnings, the Corporation provided in fiscal 1996 for U.S. income taxes of
$750,000.
In April 1997, Hudson LLC's Canadian subsidiary was notified by Canadian
taxation authorities of their intention to disallow loss and depreciation
deductions and carryforwards related to an internal recapitalization in fiscal
1990 by the Corporation of such Canadian subsidiary. If the position of the
Canadian taxation authorities (as currently proposed) is sustained, a foreign
income tax liability of approximately $3,900,000, plus interest, would result.
The Corporation has agreed to indemnify and hold harmless Hudson LLC, LAGS and
each affiliate of LAGS against any liability resulting from this matter. The
Corporation's management disagrees with the position of the Canadian taxation
authorities and intends to vigorously contest any potential assessments made by
them. Accordingly, no provision has been made in the accompanying consolidated
financial statements for foreign income taxes related to this matter.
For tax purposes, the Corporation will receive a pass-through of its share
of taxable income or loss from Husdon LLC and will provide for and pay federal
and state taxes on its share of the income or loss of Hudson LLC.
8. COMMON STOCK
(a) The Corporation's 1981 Non-Qualified Stock Option and Stock
Appreciation Rights Plan (the Plan) provided for the issuance of non-qualified
stock options (Options) to key employees. In connection with these Options, the
Board of Directors Stock Option and Appreciation Rights Committee (the
Committee) could also grant stock appreciation rights (Rights) exercisable in
lieu of the Options, and/or limited rights (Limited Rights) exercisable under
certain circumstances in lieu of the Options. No further Options or Rights may
be granted under the Plan. The exercise price of outstanding Options under the
Plan is the fair market value (as defined in the Plan) of the shares of the
Corporation's common stock on the date of grant.
Activity in Options during fiscal 1998 and 1997 was as follows:
<TABLE>
<S> <C>
Outstanding June 30, 1996 ........... 49,400
Exercised ($14.79 per share)......... (8,500)
Exercised ($19.07 per share)......... (700)
------
Outstanding June 30, 1997 ........... 40,200
Exercised ($14.79 per share)......... (8,400)
Exercised ($19.07 per share)......... (400)
------
Outstanding June 30, 1998 ........... 31,400
======
</TABLE>
Limited Rights were also granted in conjunction with Options granted in
May 1990 and June 1991 of which 28,100 ($14.79 per share) and 3,300 ($19.07 per
share) were outstanding at June 30, 1998. At June
D-28
<PAGE>
30, 1998 the aggregate Option price and quoted market value of Corporation
stock subject to outstanding Options were $479,000 and $1,590,000,
respectively. All outstanding Options and Rights were granted with a term of
ten years and are currently exercisable.
(b) The Corporation's 1981 Incentive Stock Option (ISO) and Stock
Appreciation Rights Plan (the Plan) provided for the issuance of ISO's to key
employees. The fair market value, as defined, at the date of grant, for which
an individual may have been awarded ISO's, was limited to $100,000 per calendar
year. No further ISO's may be granted under the Plan. The exercise price of all
ISO's outstanding under the Plan is one hundred percent (100%) of the fair
market value (as defined in the Plan) of the shares of the Corporation's common
stock on the date of grant.
The Committee was also authorized to grant Rights and/or Limited Rights in
conjunction with ISO's granted under the Plan. In all material respects, Rights
and Limited Rights granted under the ISO Plan operate in a manner identical to
Rights and Limited Rights granted under the 1981 Non-Qualified Stock Option and
Stock Appreciation Rights Plan.
Activity in ISO's (and Rights) during fiscal 1998 and 1997 was as follows:
<TABLE>
<S> <C>
Outstanding June 30, 1996 ........... 8,300
Exercised ($19.88 per share)......... (1,300)
------
Outstanding June 30, 1997 ........... 7,000
Exercised ($19.88 per share)......... (1,300)
------
Outstanding June 30, 1998 ........... 5,700
======
</TABLE>
Limited Rights were also granted in conjunction with ISO's granted in June
1991 of which 5,700 ($19.88 per share) were outstanding at June 30, 1998. At
June 30, 1998 the aggregate ISO price and quoted market value of Corporation
stock subject to outstanding ISO's were $113,000 and $289,000, respectively.
All outstanding ISO's were granted with a term of ten years and are currently
exercisable.
(c) Common Stock Reserved: Common shares were reserved for issuance at
June 30, 1998 as follows:
<TABLE>
<S> <C>
Exercise of incentive stock options--1981 Plan ............. 5,700
Exercise of non-qualiifed stock options--1981 Plan ......... 31,400
------
Total ..................................................... 37,100
======
</TABLE>
(d) In fiscal 1997, the Board of Directors authorized the repurchase of up
to 400,000 shares of the Corporation's common stock, which purchases could be
made from time to time in either open market or privately negotiated
transactions. Prior to the fiscal 1997 authorizations, the Corporations still
had authority to repurchase up to 35,700 shares from a previous authorization.
During fiscal 1997, the Corporation repurchased 243,000 shares in the open
market for an aggregate purchase price of $9,152,000. No shares were
repurchased during fiscal 1998.
(e) In connection with the conversion of the Debentures, during fiscal
1997, the Corporation issued 804,259 shares of its common stock. As a result,
"Stockholders' equity" as shown in the accompanying consolidated statements of
stockholders' equity increased by $25,645,000.
9. RETIREMENT PLANS
The Corporation maintains a 401(k) Profit Sharing Plan (the Plan) covering
substantially all of its domestic employees not subject to collective
bargaining agreements. Pursuant to the Plan, the Corporation makes a matching
contribution equal to 25% of the Compensation (as defined in the Plan) that
each participant elects to defer (up to 5% of the participant's Compensation)
and contribute to the Plan. In addition, the Corporation may make a
discretionary annual contribution. As of January 1, 1997, Hudson LLC
established a 401(k) Profit Sharing Plan covering substantially all of its
domestic employees not subject to collective bargaining agreements which
contains terms and conditions similar to those of the Plan. Prior to this date,
such employees were covered under the Plan. During fiscal 1998, 1997 and 1996,
the Corporation contributed $234,000, $219,000 and $798,000, respectively, to
the Plan representing employer matching and discretionary contributions.
D-29
<PAGE>
During fiscal 1995, the Corporation's Canadian subsidiary (which effective
June 1, 1996 became a direct subsidiary of Hudson LLC) established a Group
Registered Retirement Savings Plan (RRSP) covering substantially all of its
employees not subject to collective bargaining agreements. Under the RRSP such
subsidiary may make a discretionary annual contribution. During fiscal 1996,
such subsidiary contributed $79,000 to the RRSP.
Net expense related to the Corporation's retirement plans was $239,000,
$238,000 and $877,000 (including the RRSP) for fiscal 1998, 1997 and 1996,
respectively.
10. COMMITMENTS AND CONTINGENCIES
(A) LEASES
Minimum rental payments for future fiscal years under non-cancelable
operating leases are: $433,000 in 1999; $442,000 in 2000; $451,000 in 2001;
$461,000 in 2002; and $235,000 in 2003.
Total rental expense incurred amounted to $412,000, $346,000 and
$5,740,000 for fiscal 1998, 1997 and 1996 (excluding sublease income amounting
to $517,000 in fiscal 1996).
(B) LITIGATION
In 1988, Texaco Canada Inc. (Texaco) (now known as McColl-Frontenac Inc.)
instituted a lawsuit (the Texaco Lawsuit) in the Supreme Court of Ontario,
Canada against the Corporation, the Corporation's Canadian subsidiary (now
owned by Hudson LLC) and Petro-Canada Inc. (the corporation which supplied
aviation fuel for the Corporation's Canadian fixed base operations). The Texaco
Lawsuit's allegations, as amended, were that the defendants interfered with
contractual and fiduciary relations, conspired to injure, and induced the
breach of a fuel supply agreement between Texaco and Innotech Aviation Limited
(Innotech) in connection with the purchase by the Corporation from Innotech in
1984 of certain assets of Innotech's airport ground services business. The
Texaco Lawsuit sought compensatory and punitive damages totaling $110,000,000
(Canadian) (approximately $80,000,000 (U.S.)) plus all profits earned by the
defendants subsequent to the alleged breach. The trial, which began in May
1996, concluded after several adjournments May 7, 1997. On May 25, 1998, the
trial judge issued an oral decision in the Corporation's favor.
In finding that there was no liability on the part of the Corporation, its
Canadian subsidiary or Petro-Canada, the judge ruled that none of these parties
had induced any breach of the fuel supply agreement, nor had any of them
interfered with the plaintiff's contractual and fiduciary relations. The judge
also ruled that Innotech did not breach its fuel supply agreement with Texaco,
nor was there any fiduciary relationship between Innotech and Texaco.
The trial judge rendered an oral decision, and Texaco, which has served a
Notice of Appeal, cannot pursue any appeal until the decision has been issued
in written form. The decision dealt solely with the issue of liability, and a
separate hearing before another judicial officer would have to be held on the
issue of damages. It is expected that a hearing on damages would not be held
unless Texaco decides to pursue, and is successful in, its appeal of the
liability decision.
The Corporation has agreed to indemnify and hold harmless Hudson LLC, LAGS
and each affiliate of LAGS against all losses related to the Texaco Lawsuit.
11. RELATED PARTY TRANSACTIONS
Since February 1988, the Corporation has engaged an investment banking
firm of which a director of the Corporation is affiliated to render certain
investment banking services. In connection with the Transaction, such
investment banking firm was paid $517,000 for services rendered in fiscal 1996,
and if the LAGS Option is exercised, would be entitled to a fee of 2% of the
option price.
D-30
<PAGE>
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth unaudited quarterly financial information
for fiscal 1998 and 1997:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------ --------- --------- --------- -----------------
<S> <C> <C> <C> <C>
1998(a)
Revenues ................................. $1,384 $1,381 $1,570 $ 1,448
Gross profit ............................. 1,238 1,240 1,438 1,326
Net earnings ............................. 782 1,383 2,145 946
Earnings per share, basic:
Net earnings ............................ $ .45 $ .79 $ 1.23 $ .54
------ ------ ------ ---------
Earnings per share diluted:
Net earnings ............................ $ .45 $ .79 $ 1.22 $ .54
------ ------ ------ ---------
1997(a)
Revenues ................................. $1,150 $1,154 $1,426 $ 1,334
Gross profit ............................. 982 988 1,267 1,175
Net earnings (loss) ...................... 686 1,660 1,901 (3,772)(b)
Earnings (loss) per share, basic:
Net earnings (loss) ..................... $ .39 $ .86 $ 1.05 $ (2.14)
------ ------ ------ ---------
Earnings (loss) per share: diluted:
Net earnings (loss) ..................... $ .37 $ .85 $ 1.04 $ (2.12)
------ ------ ------ ---------
</TABLE>
- ----------
(a) As a result of the Transaction (see Note 2), effective June 1, 1996
the Corporation's interest in the Aviation Business is accounted for
under the equity method.
(b) Includes a pre-tax charge of $8,500 related to the Corporation's
investment in and advances to the Kohala Joint Venture (see Note 3).
D-31
<PAGE>
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------- ------------ --------------------------------------------- ------------------- -----------
ADDITIONS
---------------------------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS RESERVES OF YEAR
- -------------------------- ------------ ------------ ------------------------------ ------------------- -----------
<S> <C> <C> <C> <C> <C>
1998 and 1997 -- Allowance
for doubtful accounts
receivable .............. $ -- $ -- $ -- $ -- $ --
========== ======== =============== ========== ========
1996 -- Allowance for
doubtful accounts
receivable .............. $1,579,000 $362,000 $ (1,820,000)(B,C,D) $ 121,000 (A) $ --
========== ======== =============== ========== ========
</TABLE>
- ----------
NOTES:
(A) Write-offs.
(B) Foreign exchange.
(C) Recoveries.
(D) Includes transfer of $1,804,000 to Hudson General LLC.
D-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Member Representatives
Hudson General LLC:
We have audited the accompanying consolidated balance sheets of Hudson
General LLC and subsidiaries as of June 30, 1998 and 1997 and the related
consolidated statements of earnings and comprehensive income, members' equity
and cash flows for the years ended June 30, 1998, 1997 and the period June 1
(inception) to June 30, 1996. We have also audited financial statement schedule
II. These consolidated financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hudson
General LLC and subsidiaries at June 30, 1998 and 1997 and the results of their
operations and their cash flows for the years ended June 30, 1998, 1997 and the
period June 1 (inception) to June 30, 1996, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Jericho, New York
August 14, 1998, except for note 2,
which is as of September 16, 1998
D-33
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
HUDSON GENERAL LLC AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, PERIOD JUNE 1
------------------------- (INCEPTION) TO
1998 1997 JUNE 30, 1996
----------- ----------- ---------------
<S> <C> <C> <C>
Revenues ........................................... $168,947 $167,729 $12,096
-------- -------- -------
Costs and expenses:
Operating ......................................... 131,643 128,749 9,259
Depreciation and amortization ..................... 8,237 7,510 673
Selling, general & administrative ................. 14,459 13,625 1,317
-------- -------- -------
Total costs and expenses ........................ 154,339 149,884 11,249
-------- -------- -------
Operating income ................................... 14,608 17,845 847
Interest income .................................... 411 1,137 217
Interest expense ................................... (533) (958) (168)
-------- -------- -------
Earnings before provision for income taxes ......... 14,486 18,024 896
Provision for income taxes ......................... 1,748 2,085 41
-------- -------- -------
Net earnings ....................................... 12,738 15,939 855
-------- -------- -------
Other comprehensive income:
Foreign currency translation adjustment ........... (830) (123) 43
-------- -------- -------
Other comprehensive income ......................... (830) (123) 43
-------- -------- -------
Comprehensive income ............................... $ 11,908 $ 15,816 $ 898
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
D-34
<PAGE>
CONSOLIDATED BALANCE SHEETS
HUDSON GENERAL LLC AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1998 1997
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 3,393 $ 12,324
Accounts and notes receivable -- net ............................ 16,886 15,289
Inventory ....................................................... 1,523 1,272
Prepaid expenses and other assets ............................... 4,868 2,939
-------- --------
Total current assets .......................................... 26,670 31,824
Property, equipment and leasehold rights at cost, less accumulated
depreciation and amortization ................................... 45,639 44,948
Long-term receivables -- net ..................................... -- 1,361
Deferred income taxes ............................................ -- 174
Excess cost over fair value of net assets acquired ............... 643 713
-------- --------
$ 72,952 $ 79,020
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 17,326 $ 18,528
Income taxes payable ............................................ 590 1,280
Accrued expenses and other liabilities .......................... 18,455 19,011
Advances from Hudson General Corporation -- net ................. 2,057 361
-------- --------
Total current liabilities ..................................... 38,428 39,180
-------- --------
Deferred income taxes ............................................ 319 --
Note payable to Hudson General Corporation ....................... 3,130 4,630
-------- --------
Total noncurrent liabilities .................................. 3,449 4,630
-------- --------
Members' Equity:
Contributed capital ............................................. 19,966 19,966
Retained earnings ............................................... 13,489 16,794
Accumulated other comprehensive income .......................... (2,380) (1,550)
-------- --------
Total members' equity ......................................... 31,075 35,210
-------- --------
$ 72,952 $ 79,020
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
D-35
<PAGE>
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
HUDSON GENERAL LLC AND SUBSIDIARIES
YEARS ENDED JUNE 30, 1998, 1997 AND THE PERIOD JUNE 1 (INCEPTION)
TO JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
CONTRIBUTED RETAINED COMPREHENSIVE MEMBERS'
CAPITAL EARNINGS INCOME EQUITY
------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Balance, June 1, 1996 (Inception) ............. $ -- $ -- $ -- $ --
Equity contributions ......................... 12,123 -- (1,470) 10,653
Equity adjustment from foreign currency
translation ................................ -- -- 43 43
Net earnings ................................. -- 855 -- 855
------- --------- ------- ---------
Balance, June 30, 1996 ........................ 12,123 855 (1,427) 11,551
Equity contributions ......................... 7,843 -- -- 7,843
Equity adjustment from foreign currency
translation ................................ -- -- (123) (123)
Net earnings ................................. -- 15,939 -- 15,939
------- --------- ------- ---------
Balance, June 30, 1997 ........................ 19,966 16,794 (1,550) 35,210
Cash distributions ........................... -- (15,783) -- (15,783)
Distributions in the form of a tax credit..... -- (260) -- (260)
Equity adjustment from foreign currency
translation ................................ -- -- (830) (830)
Net earnings ................................. -- 12,738 -- 12,738
------- --------- ------- ---------
Balance, June 30, 1998 ........................ $19,966 $ 13,489 ($ 2,380) $ 31,075
======= ========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
D-36
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
HUDSON GENERAL LLC AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD JUNE 1
YEAR ENDED YEAR ENDED (INCEPTION) TO
JUNE 30, JUNE 30, JUNE 30,
1998 1997 1996
------------ ------------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ................................................. $ 12,738 $ 15,939 $ 855
Adjustments to reconcile net earnings to net cash provided
(used) by operating activities:
Depreciation and amortization ............................... 8,237 7,510 673
(Recovery of) provision for losses on accounts receivable
-- net .................................................... (113) 188 14
Loss (gain) on sale of equipment ............................ (170) (60) 67
Change in other current assets and liabilities:
Accounts and notes receivables -- net ..................... (2,015) 2,533 (7,011)
Inventory ................................................. (284) (162) (40)
Prepaid expenses and other assets ......................... (2,043) (1,742) (256)
Accounts payable .......................................... (1,148) 3,435 2,365
Income taxes payable ...................................... (640) 940 38
Accrued expenses and other liabilities .................... (271) 1,321 (1,698)
Decrease in long-term receivables -- net .................... 1,361 666 36
Decrease in deferred income taxes ........................... 494 676 --
Other -- net ................................................ 42 44 6
--------- --------- --------
Net cash provided (used) by operating activities .......... 16,188 31,288 (4,951)
--------- --------- --------
Cash flows from investing activities:
Purchases of property and equipment ......................... (10,045) (15,218) (1,825)
Proceeds from sale of property and equipment ................ 663 166 23
--------- --------- --------
Net cash used by investing activities ..................... (9,382) (15,052) (1,802)
--------- --------- --------
Cash flows from financing activities:
Capital contributions ....................................... -- 7,843 15,848
Distributions to members .................................... (15,783) -- --
Advances from (repayments to) Hudson General Corporation..... 696 (7,302) 7,233
Principal repayment of note payable to Hudson General
Corporation ............................................... (500) (21,283) --
Principal repayments on long-term debt ...................... -- (2,408) (70)
--------- --------- --------
Net cash (used) provided by financing activities .......... (15,587) (23,150) 23,011
--------- --------- --------
Effect of exchange rate changes on cash ...................... (150) (31) 9
--------- --------- --------
Net (decrease) increase in cash and cash equivalents ......... (8,931) (6,945) 16,267
Cash and cash equivalents at beginning of period ............. 12,324 19,269 3,002
--------- --------- --------
Cash and cash equivalents at end of period ................... $ 3,393 $ 12,324 $ 19,269
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
D-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HUDSON GENERAL LLC AND SUBSIDIARIES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements include the
accounts of Hudson General LLC and its subsidiaries (Hudson LLC). All material
intercompany accounts and transactions have been eliminated in consolidation.
Description of Business: Hudson LLC provides a broad and diverse range of
services to the aviation industry at twenty-four (24) airports throughout the
United States and Canada. These services include aircraft ground handling;
aircraft fueling; fuel management; ground transportation; snow removal; cargo
warehousing; and sale, leasing and maintenance of airline ground support
equipment. In addition to its airport related services, Hudson LLC provides
transportation management services for various governmental agencies and
authorities.
Inventories: Inventories are carried at the lower of average cost or
market.
Depreciation and Amortization: Depreciation of property and equipment is
provided on the straight-line method over their estimated useful lives.
Leasehold rights are amortized over the original and anticipated renewal terms
of the underlying leases.
Excess Cost over Fair Value of Net Assets Acquired: The excess cost over
fair value of net assets acquired, net of accumulated amortization of
$1,317,000 and $1,275,000 at June 30, 1998 and 1997, respectively, is amortized
on a straight-line basis over periods not to exceed forty years. When events
and circumstances so indicate, all long-term assets including the Excess Cost
over Fair Value of Net Assets Acquired, are assessed for recoverability based
upon undiscounted future operating cash flows.
Income Taxes: Hudson LLC has adopted Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes", which requires the use
of the asset and liability method of accounting for deferred income taxes.
Financial Instruments: Hudson LLC believes that the book values of its
monetary assets and liabilities approximate fair values as a result of the
short-term nature of such assets and liabilities.
Foreign Currency Translation: The financial position and results of
operations of Hudson LLC's Canadian operations are measured using local
currency as the functional currency. Assets and liabilities are translated into
U.S. dollars at year-end rates of exchange, and revenues and expenses are
translated at the average rates of exchange for the year. Gains or losses
resulting from translating foreign currency financial statements are
accumulated as a separate component of members' equity.
Statements of Cash Flows: For purposes of the consolidated statements of
cash flows, Hudson LLC considers all securities with an original maturity of
approximately three months or less at the date of acquisition to be cash
equivalents. In fiscal 1998 and 1997, income taxes (net of refunds) of
$1,839,000 and $843,000, respectively, were paid. Interest of $352,000 and
$933,000 was paid in fiscal 1998 and 1997, respectively. No income taxes or
interest was paid during the month of June 1996.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Long-Lived Assets: Effective July 1, 1996 Hudson LLC adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of", which requires that long-lived assets and certain
identifiable intangibles to be held and used or disposed of by an entity be
reviewed for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
adoption of SFAS No. 121 did not have any impact on Hudson LLC's financial
position or results of operations.
D-38
<PAGE>
Comprehensive Income: Effective for fiscal 1998, Hudson LLC adopted the
provisions of SFAS No. 130 "Reporting Comprehensive Income", which requires the
reporting of comprehensive income in addition to net income from operations.
Comprehensive income is a more inclusive financial reporting methodology that
includes disclosure of certain financial information that historically has not
been recognized in the calculation of net income. Hudson LLC's only item of
other comprehensive income is foreign currency translation adjustments and the
accumulated balance of such adjustments is shown in "Accumulated other
comprehensive income" in the accompanying consolidated balance sheets.
Reclassifications: Certain items previously reported in specific financial
statement captions have been reclassified to conform with the fiscal 1998
presentation.
2. FORMATION AND STRUCTURE OF HUDSON GENERAL LLC
Effective June 1, 1996, pursuant to the terms of the Unit Purchase and
Option Agreement dated February 27, 1996 (the Purchase Agreement) between
Hudson General Corporation (the Corporation) and Lufthansa Airport and Ground
Services GmbH (LAGS), a German corporation and an indirect wholly-owned
subsidiary of Deutsche Lufthansa AG, the Corporation transferred substantially
all of the assets and liabilities of its aviation services business (the
Aviation Business) to Hudson LLC, a newly formed limited liability company (the
Transaction). In exchange for the transfer of such assets and liabilities and
the assumption by Hudson LLC, as co-obligor with the Corporation, of all of the
Corporation's 7% convertible subordinated debentures, the Corporation received
a 74% interest in Hudson LLC. In addition, Hudson LLC sold LAGS a 26% interest
in Hudson LLC for a purchase price of $23,686,000 in cash (after certain
adjustments), of which $15,848,000 was paid at the closing, and deferred
payments (the Deferred Payments) of $2,650,000 and $5,188,000 plus interest
thereon were made, respectively, in September 1996 and December 1996. The
Purchase Agreement, as amended, provides LAGS an option (the LAGS Option),
exercisable on October 1 of each year through 1999, effective as of the
preceding July 1, pursuant to which LAGS may increase its equity ownership in
Hudson LLC from 26% to a maximum of 49%, for a price based on a formula related
to the average earnings of the Aviation Business over the four fiscal years
preceding the exercise of the option, subject to certain minimum and maximum
amounts. On September 16, 1998, Hudson LLC was advised that the Supervisory
Board of Deutsche Lufthansa AG approved the exercise by its subsidiary LAGS USA
Inc., of the LAGS Option to increase its equity interest in Hudson LLC from 26%
to 49%. As a result, Hudson LLC expects LAGS to give notice of its exercise of
the LAGS Option on or about October 1, 1998. The exercise price is
approximately $29,600,000.
Pursuant to the Purchase Agreement, Hudson LLC, the Corporation and LAGS
USA Inc., a wholly owned subsidiary of LAGS (LAGS USA), entered into a Limited
Liability Company Agreement effective June 1, 1996 (the LLC Agreement). The LLC
Agreement, as amended, stipulates that the Corporation and LAGS USA will share
profits and losses in the same proportion as their respective equity interests
in Hudson LLC, except that the Corporation was entitled to all interest earned
on the Deferred Payments. In addition, LAGS USA would not share in any pre-tax
earnings, as defined, of the Aviation Business in excess of $14,690,000 and
$15,863,000 in fiscal 1997 and 1998, respectively, unless the aggregate of the
pre-tax earnings of the Aviation Business for fiscal 1997 and 1998 exceeded
$30,553,000. Such pre-tax earnings exceeded $30,553,000, and as a result, LAGS
USA is not limited by the LLC Agreement from sharing in pre-tax earnings of the
Aviation Business for those years. Hudson LLC's net earnings in June 1996 were
allocated 100% to the Corporation.
In June 1996, primarily as a result of the Corporation retaining certain
trade receivables, the Corporation made net advances of $7,233,000 on behalf of
Hudson LLC. Such balance was repaid to the Corporation by Hudson LLC (together
with accrued interest at the Corporation's incremental borrowing rate) during
fiscal 1997. Hudson LLC's net advances from the Corporation were $2,057,000 and
$361,000 at June 30, 1998 and 1997, respectively.
Pursuant to the LLC Agreement, as amended, the Corporation will continue
to manage the Aviation Business and will be entitled to charge Hudson LLC an
overhead fee equal to the sum of an agreed upon percentage of Hudson LLC's
consolidated domestic revenues and an agreed upon percentage of Hudson LLC's
consolidated Canadian revenues. (The Corporation and LAGS USA agreed to
overhead fees for
D-39
<PAGE>
fiscal 1998 of 3 1/2% and 1 1/4%, respectively, and overhead fees for fiscal
1997 of 3% and 1%, respectively.) The LLC Agreement, as amended, also provides
for a Member Board on which the Corporation has three votes and LAGS USA has
two votes, and allows either Member to veto certain major transactions and to
veto any reduction in distributions stipulated in the LLC Agreement, as
amended. The LLC Agreement, as amended, provides that distributions will be
paid annually in an amount at least equal to 50% of domestic net income and 10%
of Canadian pre-tax earnings, as defined, from the Aviation Business. Such
distributions, totaling approximately $8,300,000 for fiscal 1997 and the month
of June 1996, were made in October 1997. An additional distribution of
$7,500,000 with respect to fiscal 1997 was made in December 1997.
3. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
Accounts, notes and long-term receivables -- net at June 30, 1998 and June
30, 1997 consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Rental and service fees receivable ........................................ $16,886 $14,762
Note receivable ........................................................... -- 1,888
------- -------
16,886 16,650
Less: current portion (net of allowance for doubtful accounts of $1,484,000
and $1,670,000)........................................................... 16,886 15,289
------- -------
Long-term portion ......................................................... $ -- $ 1,361
======= =======
</TABLE>
On January 6, 1994, the Corporation assigned its leases and ceased
operations at Long Island MacArthur Airport in Islip, New York (LIMA) where the
Corporation had provided ground handling and fueling services to commercial
airlines and related fixed base operation services to general aviation
aircraft. At the closing, the Corporation was paid $150,000 in cash and
received a promissory note from the purchaser of its leases in the amount of
$3,750,000, payable over seven years with interest at the rate of 7%. The
outstanding balance of the note receivable of $1,756,000 was prepaid in October
1997, resulting in recognition of $570,000 of deferred income during fiscal
1998.
Hudson LLC provides various services at airports throughout the United
States and Canada. Hudson LLC grants credit to customers based upon an analysis
of its customers' financial position and then-existing conditions in the
aviation industry. Four of Hudson LLC's customers had individual balances
outstanding greater than 5%, and aggregating 25%, of accounts and notes
receivable -- net at June 30, 1998. Bad debt (recovery) expenses were
($113,000), $188,000 and $14,000 for fiscal 1998, 1997 and the month of June
1996, respectively.
Accrued expenses and other liabilities at June 30, 1998 and 1997 consisted
of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Salaries and wages ................. $ 6,598 $ 6,327
Insurance .......................... 5,433 7,108
Operating expenses payable ......... 4,210 3,102
Other .............................. 2,214 2,474
------- -------
$18,455 $19,011
======= =======
</TABLE>
Maintenance and repair expenses were $9,603,000, $8,760,000 and $664,000
for fiscal 1998, 1997 and the month of June 1996, respectively.
D-40
<PAGE>
4. PROPERTY, EQUIPMENT AND LEASEHOLD RIGHTS
The number of years over which major classes of assets are being
depreciated and amortized, and the costs and related accumulated depreciation
and amortization as of June 30, 1998 and 1997 are set forth below:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1998 1997
-------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating equipment ............................... 2 -- 12 $ 89,989 $ 85,349
Leasehold rights .................................. 25 2,400 2,400
Buildings ......................................... 20 1,811 1,474
Office furnishings and equipment .................. 3 -- 10 4,246 3,868
Leasehold improvements ............................ 2 -- 28 6,967 6,464
--------- ---------
105,413 99,555
Accumulated depreciation and amortization ......... (59,774) (54,607)
--------- ---------
$ 45,639 $ 44,948
========= =========
</TABLE>
5. CANADIAN OPERATIONS
The consolidated financial statements include: assets of $19,662,000 and
$18,635,000, and net assets of $13,541,000 and $12,406,000 at June 30, 1998 and
1997, respectively; and revenues of $42,186,000, $45,987,000 and $3,197,000 and
earnings of $1,927,000, $1,784,000 and $52,000 for fiscal 1998, 1997 and the
month of June 1996, respectively, related to Hudson LLC's Canadian operations.
6. LONG-TERM DEBT
In connection with the Transaction, the revolving credit agreement that
the Corporation had with a group of banks dated November 25, 1992, as amended,
was amended and restated as of June 1, 1996, and Hudson LLC assumed and agreed
to become jointly and severally liable for any obligations thereunder (the LLC
Credit Agreement). Pursuant to the LLC Credit Agreement, Hudson LLC may borrow
funds (including outstanding letters of credit) up to a limit of $18,000,000
(the LLC Limit) until September 30, 1998. At such time, and at the end of each
subsequent quarter, the LLC Limit will be reduced by one-sixteenth of the LLC
Limit that was in effect on June 30, 1998 until June 30, 2002, at which time
the LLC Credit Agreement terminates. The limit may also be reduced by asset
sales in excess of certain amounts. There were no direct borrowings outstanding
at June 30, 1998 and 1997 and $2,425,000 and $3,020,000 of outstanding letters
of credit at June 30, 1998 and 1997, respectively. The LLC Credit Agreement
provides Hudson LLC with the option of selecting a rate of interest at either
the base rate or 1 3/8% above the LIBO rate, as defined.
The LLC Credit Agreement requires that Hudson LLC maintain certain minimum
effective net worth requirements, as defined, which are subject to incremental
annual increases and further stipulates that Hudson LLC not incur a
consolidated net loss for any fiscal year. The LLC Credit Agreement also
requires that Hudson LLC meet certain other financial covenants. Hudson LLC has
granted the banks a security interest in substantially all of its domestic
assets.
Hudson LLC also has an agreement with a group of banks to provide a credit
facility for its Canadian subsidiary (the Canadian Agreement) in the amount of
$5,000,000 (Cdn) (the Canadian Limit). The Canadian Limit will be reduced
commencing September 30, 1998 on the same basis as the LLC Limit. The Canadian
Agreement provides Hudson LLC with the option of selecting a rate of interest
at either 1/2% above the Canadian prime rate or 1 5/8% above the cost of funds
rate, as defined. In connection with the Canadian Agreement, Hudson LLC has
guaranteed the obligations of its Canadian subsidiary and granted the banks a
security interest in substantially all of its Canadian accounts receivable and
certain of its other assets.
In July 1986, the Corporation issued $30,000,000 of 7% convertible
subordinated debentures due 2011 (the Debentures). In connection with the
Transaction, effective June 1, 1996, Hudson LLC assumed the
D-41
<PAGE>
obligations of the Debentures and the Corporation remained as a co-obligor. The
Debentures were convertible at any time prior to maturity into shares of the
Corporation's common stock.
At June 1, 1996, there was $28,821,000 principal balance of the Debentures
outstanding. During June and August 1996, the Debentures were called for
redemption and as a result, $2,408,000 principal balance of the Debentures were
redeemed during fiscal 1997. In addition, during fiscal 1997 and the month of
June 1996, $26,343,000 and $70,000, respectively, of the Debentures were
converted into shares of the Corporation's common stock and to such extent
Hudson LLC became indebted, on a subordinated basis, to the Corporation (the
Corporate Subordinated Debt). At September 5, 1996, no Debentures remained
outstanding.
During fiscal 1997, Hudson LLC utilized the proceeds from the Deferred
Payments together with a portion of the proceeds received at the closing of the
Transaction to repay $21,283,000 of the outstanding balance of the Corporate
Subordinated Debt. At June 30, 1998 and 1997 the balance of the Corporate
Subordinated Debt was $4,630,000 and $5,130,000, respectively. The noncurrent
portion of such debt at June 30, 1998 and 1997 of $3,130,000 and $4,630,000,
respectively, is shown as "Note payable to Hudson General Corporation" in the
accompanying consolidated balance sheets. Hudson LLC is obligated to repay the
remaining balance of $4,630,000 to the Corporation as follows: (i) $1,500,000
on July 15, 1998; and (ii) $1,500,000 on each July 15th thereafter until the
entire principal balance is satisfied. The current portion of this debt at June
30, 1998 (which was paid in July 1998) and 1997 of $1,500,000 and $500,000,
respectively, is included in "Advances from Hudson General Corporation -- net"
in the accompanying consolidated balance sheets. Interest on the Corporate
Subordinated Debt is payable semi-annually in January and July at the rate of
7% per annum.
7. INCOME TAXES
Provision for income taxes consisted of the following for fiscal 1998,
1997 and the month of June 1996.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Foreign:
Current .......... $1,105 $1,061 $41
Deferred ......... 411 659 --
State:
Current .......... 149 344 --
Deferred ......... 83 21 --
------ ------ ---
$1,748 $2,085 $41
====== ====== ===
</TABLE>
Earnings before income taxes consisted of the following for fiscal 1998,
1997 and the month of June 1996.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic ......... $11,042 $14,520 $803
Foreign .......... 3,444 3,504 93
------- ------- ----
$14,486 $18,024 $896
======= ======= ====
</TABLE>
D-42
<PAGE>
Deferred tax assets (liabilities) are comprised of the following as of
June 30, 1998 and 1997 (Deferred tax assets were transferred to Hudson LLC from
the Corporation on June 1, 1996):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Reserves for doubtful accounts, claims -- foreign ......... $ 237 $ 277
------ ------
Total deferred tax assets ............................... 237 277
------ ------
Deferred tax liabilities:
State and local income taxes .............................. (104) (21)
Property, equipment and leasehold rights, principally
depreciation -- foreign ................................. (452) (82)
------ ------
Total deferred tax liabilities .......................... (556) (103)
------ ------
Net deferred tax (liability) asset ..................... $ (319) $ 174
====== ======
</TABLE>
Hudson LLC has adopted SFAS No. 109, "Accounting for Income Taxes". SFAS
No. 109 requires that deferred income taxes be recognized for the future tax
consequences attributable to differences between the financial statement
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 or settled. Under SFAS No. 109, the
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
In April 1997, Hudson LLC's Canadian subsidiary was notified by Canadian
taxation authorities of their intention to disallow loss and depreciation
deductions and carryforwards related to an internal recapitalization in fiscal
1990 by the Corporation of such Canadian subsidiary. If the position of the
Canadian taxation authorities (as currently proposed) is sustained, a foreign
income tax liability of approximately $3,900,000, plus interest, would result.
The Corporation has agreed to indemnify and hold harmless Hudson LLC, LAGS and
each affiliate of LAGS against any liability resulting from this matter. The
Corporation's management disagrees with the position of the Canadian taxation
authorities and intends to vigorously contest any potential assessments made by
them. Accordingly, no provision has been made in the accompanying consolidated
financial statements for foreign income taxes related to this matter.
As a limited liability company, Hudson LLC has elected to be taxed as a
partnership under the provisions of the Internal Revenue Code, and therefore,
the U.S. taxable results and available tax credits of Hudson LLC pass directly
to the Members' U.S. corporate income tax returns in the manner prescribed in
the LLC Agreement, as amended.
8. RETIREMENT PLANS
As of January 1, 1997, Hudson LLC established a 401(k) Profit Sharing Plan
covering substantially all of its domestic employees not subject to collective
bargaining agreements (the LLC Plan). Pursuant to the LLC Plan, Hudson LLC
makes a matching contribution equal to 25% of the Compensation (as defined in
the LLC Plan) that each participant elects to defer (up to 5% of the
participant's Compensation) and contribute to the LLC Plan. In addition, Hudson
LLC may make a discretionary annual contribution. Prior to January 1, 1997 such
employees were covered under the Corporation's 401(k) Profit Sharing Plan (the
Plan), which contains terms and conditions similar to those of the LLC Plan.
During fiscal 1998, 1997 and the month of June 1996, Hudson LLC contributed
$743,000, $766,000 and $11,000, respectively, to the LLC Plan and the Plan
representing employer matching and discretionary contributions for Hudson LLC's
covered employees.
Hudson LLC maintains a Group Registered Retirement Savings Plan (RRSP)
covering substantially all of its Canadian employees not subject to collective
bargaining agreements. Under the RRSP, Hudson LLC may make a discretionary
annual contribution. During fiscal 1998, 1997 and the month of June 1996,
Hudson LLC contributed $124,000, $114,000 and $44,000, respectively, to the
RRSP.
D-43
<PAGE>
Net retirement expense was $858,000, $861,000 and $91,000 for fiscal 1998,
1997 and the month of June 1996, respectively.
9. COMMITMENTS AND CONTINGENCIES
(A) LEASES
Minimum rental payments for leased premises and operating equipment for
future fiscal years under non-cancelable operating leases (including $2,753,000
to be paid subsequent to June 30, 1998 for operating equipment on lease to
Hudson LLC from the Corporation and excluding $1,221,000 to be received
subsequent to June 30, 1998 under non-cancelable subleases) are: $5,083,000 in
1999; $4,027,000 in 2000; $3,528,000 in 2001; $2,875,000 in 2002; $2,148,000 in
2003; and $7,080,000 thereafter.
Total rental expense incurred amounted to $6,874,000, $6,486,000 and
$475,000 (excluding sublease income of $632,000, $755,000 and $36,000) for
fiscal 1998, 1997 and the month of June 1996, respectively.
(B) PURCHASE COMMITMENTS
At June 30, 1998, Hudson LLC is obligated to expend funds of $5,578,000
and $1,906,000 in fiscal 1999 and 2000, respectively, for equipment to be used
in providing de-icing and snow removal services at Lester B. Pearson
International Airport in Toronto pursuant to a contract entered into in
December 1997 with the Greater Toronto Airports Authority.
(C) LITIGATION
In 1988, Texaco Canada Inc. (Texaco) (now known as McColl-Frontenac Inc.)
instituted a lawsuit (the Texaco Lawsuit) in the Supreme Court of Ontario,
Canada against the Corporation, the Corporation's Canadian subsidiary (now
owned by Hudson LLC) and Petro-Canada Inc. (the corporation which supplied
aviation fuel for the Corporation's Canadian fixed base operations). The Texaco
Lawsuit's allegations, as amended, were that the defendants interfered with
contractual and fiduciary relations, conspired to injure, and induced the
breach of a fuel supply agreement between Texaco and Innotech Aviation Limited
(Innotech) in connection with the purchase by the Corporation from Innotech in
1984 of certain assets of Innotech's airport ground services business. The
Texaco Lawsuit sought compensatory and punitive damages totaling $110,000,000
(Canadian) (approximately $80,000,000 (U.S.)) plus all profits earned by the
defendants subsequent to the alleged breach. The trial, which began in May
1996, concluded after several adjournments on May 7, 1997. On May 25, 1998, the
trial judge issued an oral decision in the Corporation's favor.
In finding that there was no liability on the part of the Corporation, its
Canadian subsidiary or Petro-Canada, the judge ruled that none of these parties
had induced any breach of the fuel supply agreement, nor had any of them
interfered with the plaintiff's contractual and fiduciary relations. The judge
also ruled that Innotech did not breach its fuel supply agreement with Texaco,
nor was there any fiduciary relationship between Innotech and Texaco.
The trial judge rendered an oral decision, and Texaco, which has served a
Notice of Appeal, cannot pursue any appeal until the decision has been issued
in written form. The decision dealt solely with the issue of liability, and a
separate hearing before another judicial officer would have to be held on the
issue of damages. It is expected that a hearing on damages would not be held
unless Texaco decides to pursue, and is successful in, its appeal of the
liability decision.
The Corporation has agreed to indemnify and hold harmless Hudson LLC, LAGS
and each affiliate of LAGS against all losses related to the Texaco Lawsuit.
D-44
<PAGE>
HUDSON GENERAL LLC AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1998, 1997 AND PERIOD JUNE 1 (INCEPTION) TO JUNE 30, 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------ ------------------- -------------------------------------- ---------------- -------------
ADDITIONS
--------------------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS RESERVES OF PERIOD
- ------------------------------ ------------------- -------------- ----------------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
1998 -- Allowance for doubtful
accounts receivable ......... $ 1,670,000 ($ 113,000) $ (40,000)(B,C) $ 33,000(A) $1,484,000
============ ========= =========== ========== ==========
1997 -- Allowance for doubtful
accounts receivable ......... $ 1,784,000 $ 188,000 $ 30,000(B,C) $ 332,000(A) $1,670,000
============ ========= =========== ========== ==========
1996 -- Allowance for doubtful
accounts receivable ......... $ 1,804,000(D) $ 14,000 $ (31,000)(B,C) $ 3,000(A) $1,784,000
============ ========= =========== ========== ==========
</TABLE>
- ----------
NOTES:
(A) Write-offs.
(B) Foreign exchange.
(C) Recoveries.
(D) Represents transfer of $1,804,000 from Hudson General Corporation.
D-45
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Hudson General Corporation
The Board of Directors
Oxford First Corporation:
We have audited the accompanying consolidated balance sheets of the Kohala
Joint Venture and subsidiary as of June 30, 1998 and 1997, and the related
consolidated statements of operations and partners' deficit, and cash flows for
each of the years in the three-year period ended June 30, 1998. We have also
audited financial statement schedule II. These consolidated financial
statements and the financial statement schedule are the responsibility of the
Venture's management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
For the years ended June 30, 1998, 1997 and 1996, the Venture incurred net
losses of $5,642,900, $22,584,200 and $6,042,200, respectively, and at June 30,
1998, the amount of the partners' deficit was $43,601,200. During fiscal 1998,
the partners did not make any advances to the Venture. Additional contributions
from the partners may be required in fiscal 1999.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Kohala
Joint Venture and subsidiary as of June 30, 1998 and 1997 and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
set forth therein.
KPMG PEAT MARWICK LLP
August 14, 1998
D-46
<PAGE>
CONSOLIDATED BALANCE SHEETS
KOHALA JOINT VENTURE AND SUBSIDIARY
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
ASSETS
Cash ................................................... $ 354,900 730,000
Accounts receivable .................................... 42,800 39,200
Accrued interest receivable ............................ 89,700 179,200
Mortgage notes receivable, net ......................... 2,004,300 2,561,000
Land and development costs ............................. 9,210,400 9,264,200
Property, plant and equipment, net ..................... 1,480,500 1,560,900
Foreclosed real estate, net ............................ 2,186,300 2,853,600
Other .................................................. 67,600 28,700
------------- ---------
$ 15,436,500 17,216,800
============= ==========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Partner advances and accrued interest payable ......... 58,178,000 54,012,600
Accounts payable and accrued expenses ................. 859,700 1,162,500
------------- ----------
Total liabilities ................................... 59,037,700 55,175,100
Contingencies
Partners' deficit ...................................... (43,601,200) (37,958,300)
------------- -----------
$ 15,436,500 17,216,800
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
D-47
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIT
KOHALA JOINT VENTURE AND SUBSIDIARY
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- ---------------
<S> <C> <C> <C>
Net sales ............................................. $ 665,600 1,455,300 676,800
Cost of sales ......................................... 325,500 1,106,400 365,400
Write-down of real estate assets ...................... -- 17,000,000 --
Selling, general and administrative expenses .......... 2,046,300 2,340,000 2,952,400
------------- ---------- ---------
Operating loss ........................................ (1,706,200) (18,991,100) (2,641,000)
Other (income) expense:
Interest expense ..................................... 4,185,900 3,858,300 3,755,400
Interest income and other ............................ (249,200) (265,200) (354,200)
------------- ----------- ----------
Net loss .............................................. (5,642,900) (22,584,200) (6,042,200)
Partners' deficit, beginning of year .................. (37,958,300) (15,374,100) (9,331,900)
------------- ----------- ----------
Partners' deficit, end of year ........................ $ (43,601,200) (37,958,300) (15,374,100)
============= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
D-48
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
KOHALA JOINT VENTURE AND SUBSIDIARY
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Proceeds from land sales .............................. $ 183,400 765,500 105,200
Interest income received .............................. 244,900 266,800 347,300
Proceeds from water company sales ..................... 316,200 294,500 341,300
Land and development cost expenditures ................ (239,000) (115,200) (159,000)
Interest paid ......................................... (18,600) (118,100) (212,000)
Selling, general and administrative expenditures
paid ................................................ (1,758,000) (1,533,700) (1,847,500)
Collections on mortgage notes ......................... 686,100 1,279,500 1,678,300
Proceeds from sale of and deposits relating to
assets held in foreclosure .......................... 218,900 209,100 57,000
------------ ---------- ----------
Net cash (used in) provided by operating
activities ......................................... (366,100) 1,048,400 310,600
------------ ---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment ............ (9,000) (12,500) (21,000)
Proceeds from sale of property, plant and
equipment ........................................... -- 500 --
------------ ---------- ----------
Net cash used in investing activities ............... (9,000) (12,000) (21,000)
Cash flows from financing activities:
Net advances received from partners ................... -- -- 2,714,400
Payments on notes payable ............................. -- (573,200) (2,826,200)
------------ ---------- ----------
Net cash used in financing activities ............... -- (573,200) (111,800)
Net (decrease) increase in cash and cash
equivalents ........................................ (375,100) 463,200 177,800
Cash and cash equivalents at beginning of year ......... 730,000 266,800 89,000
------------ ---------- ----------
Cash and cash equivalents at end of year ............... $ 354,900 730,000 266,800
============ ========== ==========
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
D-49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOHALA JOINT VENTURE AND SUBSIDIARY
JUNE 30, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF THE BUSINESS
The Kohala Joint Venture (the Venture) is a partnership which was formed
to acquire, develop and sell approximately 4,000 contiguous acres of land in
Hawaii (the Project). The Partners in the Venture are Hudson Kohala Inc.
(Hudson, a wholly-owned subsidiary of Hudson General Corporation) and Oxford
Kohala, Inc. (Oxford, a wholly-owned subsidiary of Oxford First Corporation)
(Oxford First)) (together, the Partners). The terms of the partnership are
contained in the Restated Joint Venture Agreement dated April 29, 1981, as
amended (the Agreement). The Project is being developed in four successive
phases. The first two phases, containing approximately 2,100 acres, have been
developed and substantially sold. The third phase, containing approximately 550
acres, has also been developed and has 84 parcels remaining available for sale.
The fourth phase has yet to be developed, except to the extent common
improvements (main roadway, water wells, etc.) have been completed. The
Partners plan to reevaluate the fourth phase of the Project.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Venture
and its 99% owned subsidiary, the Kohala Ranch Water Company (KRWC) (note 8).
All significant intercompany accounts and transactions have been eliminated in
consolidation.
(C) PARTNERS' DEFICIT AND ALLOCATION OF PROFITS AND LOSSES
Partners' deficit includes the Partners' capital accounts in the Venture
and the minority interest (the remaining 1%) of the Partners in KRWC.
In accordance with the Agreement, profits are shared equally by the
Partners. Losses are shared by the Partners on a pro-rata basis, based first on
their respective capital accounts and then on their respective combined
advances to the Venture including accrued interest (note 6).
(D) REVENUE RECOGNITION AND LAND SALES
All sales to date have been from the first, second and third phases of the
Project. Revenue is being recognized under the full accrual method of
accounting. The minimum down payment for sales to be recorded is 10%.
(E) INTEREST INCOME ON MORTGAGE NOTES RECEIVABLE
Interest is not accrued on mortgage notes receivable in arrears 90 days or
more.
(F) CAPITALIZATION OF COSTS
Land and development costs (including interest) are initially capitalized
and subsequently carried at the lower of average cost or fair value. These
costs are charged to cost of sales when the corresponding land sale is recorded
based upon the relative fair value of the parcel sold to the aggregate fair
value of all parcels in the phase. As indicated in note 2, the Venture recorded
a $17,000,000 write-down of its real estate assets in fiscal 1997. The Venture
capitalized interest costs, as appropriate, for each phase of the Project.
Effective July 1, 1994, as a result of the lack of further development
activity, capitalization of interest was discontinued.
D-50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOHALA JOINT VENTURE AND SUBSIDIARY
(G) ESTIMATED COSTS TO COMPLETE
At June 30, 1998 and 1997, the Venture estimated that $2,479,000 of
additional costs were necessary to complete the development of Phase III. The
portion of such amount relating to unsold parcels has been offset against land
and development costs, net in the accompanying consolidated balance sheets.
(H) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at the lower of cost or fair
value.
Depreciation is provided on the straight-line method. The number of years
over which major classes of assets are depreciated and the costs and related
accumulated depreciation as of June 30, 1998 and 1997 are set forth below:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1998 1997
-------------- ------------- ------------
<S> <C> <C> <C>
Water distribution systems ................... 20--50 years $2,782,100 2,773,700
Plant structures and equipment ............... 3--10 years 183,400 182,900
---------- ---------
2,965,500 2,956,600
Accumulated depreciation ..................... (956,500) (867,200)
Contributions in aid of construction ......... (528,500) (528,500)
---------- ---------
$1,480,500 1,560,900
========== =========
</TABLE>
Contributions in aid of construction represent contributions by customers
for plant additions made for the benefit of the customer. Accordingly, such
contributions are recorded as a reduction against property, plant and
equipment.
Depreciation expense, included in "Selling, general and administrative"
expenses in the accompanying consolidated statements of operations and
partners' deficit was $89,300, $183,400 and $173,600 for fiscal 1998, 1997 and
1996, respectively.
(I) IMPAIRMENT OF LONG-LIVED ASSETS
Effective July 1, 1996, the Venture adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long
Lived Assets and for Long Lived Assets to Be Disposed Of". SFAS No. 121
addresses accounting for the impairment of long-lived assets (including real
estate), certain identifiable intangibles and goodwill relating to those assets
to be held and used and for long lived assets and certain identifiable
intangibles to be disposed of. The adoption of SFAS No. 121 did not have an
effect on the Venture's consolidated financial position or results of
operations.
(J) INCOME TAXES
As a partnership, the Venture is not a taxable entity under the provisions
of the Internal Revenue Code. The taxable results and available tax credits of
the Venture and KRWC pass directly to the Partners' corporate income tax
returns in the manner prescribed in the Agreement.
(K) STATEMENTS OF CASH FLOWS
For the purposes of presenting the consolidated statements of cash flows,
the Venture considers all securities with an original maturity of approximately
three months or less at the date of acquisition to be cash equivalents.
D-51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOHALA JOINT VENTURE AND SUBSIDIARY
A reconciliation of net loss to net cash (used in) provided by operating
activities for fiscal 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ---------------
<S> <C> <C> <C>
Net loss ..................................................... $ (5,642,900) (22,584,200) (6,042,200)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Write-down of real estate assets ............................ -- 17,000,000 --
Depreciation and amortization ............................... 89,300 183,400 173,600
Provision for losses and discounts on mortgages
receivable ................................................ 100,000 600,000 600,000
Provision for losses on foreclosed real estate .............. 400,000 -- 356,300
Sale of assets held in foreclosure .......................... 218,900 209,100 57,000
Interest expense in excess of interest paid ................. 4,167,300 3,740,200 3,543,400
Mortgage loans originated on land sales ..................... (142,500) (339,900) (206,000)
Cash collections on mortgage loans .......................... 686,100 1,279,500 1,678,300
Excess of cost of sales over land and development
costs paid ................................................ 86,500 991,200 206,400
Accrued interest on mortgages receivable .................... 89,500 58,400 2,200
Cash for water sales in excess of accrual ................... (3,500) 9,100 (4,900)
Real estate tax accruals .................................... (382,000) (48,000) 35,700
Other ....................................................... (32,800) (50,400) (89,200)
------------ ----------- ----------
Total adjustments ............................................ 5,276,800 23,632,600 6,352,800
------------ ----------- ----------
Net cash (used in) provided by operating activities .......... $ (366,100) 1,048,400 310,600
============ =========== ==========
</TABLE>
(1) USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reported period.
Management has made significant estimates as to the amounts required for
allowance for uncollectible accounts and the allowance for losses on foreclosed
real estate, as well as the recoverability of land and development costs.
Actual results could differ from those estimates.
(2) WRITE-DOWN OF REAL ESTATE ASSETS
In the fourth quarter of fiscal 1997, the Venture recorded a charge of
$17,000,000 to write-down its real estate assets to their estimated fair
values. The charge was a result of the continuing periodic evaluation of the
carrying value of the Venture's real estate assets. The Partners concluded, as
a result of their in-depth analysis of an updated independent appraisal of such
assets and the consideration of other factors affecting the development of the
property, that the carrying value of the real estate assets should be reduced.
Factors considered by the Partners included the Partners' plans to reevaluate
the fourth phase of the Project which has to date only had limited development,
the current condition of the Hawaiian real estate market and general economic
conditions.
(3) MORTGAGE NOTES RECEIVABLE
The Venture deems certain loans impaired when, based upon current
information and events, it is probable that the Venture will be unable to
collect all amounts due, both principal and accrued interest.
D-52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOHALA JOINT VENTURE AND SUBSIDIARY
The Venture measures impairment based on a loan's observable market price or
the fair value of the collateral since the loan is collateral dependent and
foreclosure is probable. The amount of the valuation allowance is determined by
comparing principal plus accrued interest to the fair value of the underlying
collateral. The Venture recognizes an impairment by adjusting its existing
valuation allowance with a corresponding charge to bad debt expense. Subsequent
changes in fair value, if any, are treated in the same manner.
At June 30, 1998 and 1997, mortgage notes receivable from land sales
consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Mortgage notes receivable ............................... $ 4,945,100 5,796,600
Allowance for uncollectible accounts .................... (2,871,500) (3,166,300)
Reserve for cash discounts and other allowances ......... (69,300) (69,300)
------------ ----------
Mortgage notes receivable, net .......................... $ 2,004,300 2,561,000
============ ==========
</TABLE>
At June 30, 1998 and 1997, 14 and 20 mortgage notes receivable were 90
days or more in arrears, aggregating $2,525,140 and $3,705,500, respectively.
Accrued interest receivable on delinquent mortgage notes receivable was $77,819
and $171,900 as of June 30, 1998 and 1997, respectively.
Stated interest rates on mortgage notes receivable outstanding at June 30,
1998 and 1997, range from 11% to 6.5% (averaging 8.2% as of June 30, 1998 and
8.9% as of June 30, 1997).
The Venture typically provides financing in connection with the sale of
land parcels. None of the Venture's mortgage notes receivable comprised more
than 5% of the total mortgage notes receivable balance at June 30, 1998 and
1997. The Venture is the first lien holder on all outstanding mortgage notes
receivable.
Purchasers of land parcels are entitled to discounts if certain conditions
are met. Discounts are generally given if the purchase price is paid in cash at
the closing. If the cash is paid within specified periods after the closing, a
reduced sales discount is given. Reserves have been established for estimated
discounts to be taken by purchasers under the various discount programs.
Scheduled collections of principal during the next five fiscal years are
as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- --------------------------- -------------
<S> <C>
1999 .................... $3,282,700
2000 .................... 186,500
2001 .................... 146,300
2002 .................... 831,200
2003 .................... 498,400
----------
$4,945,100
==========
</TABLE>
(4) LAND AND DEVELOPMENT COSTS
Land and development costs include all costs directly associated with the
acquisition and development of the land parcels. Major components of land and
development costs are the initial costs to acquire the land, roadways, water
drainage, electrical and telephone lines, and various project management
expenditures.
D-53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOHALA JOINT VENTURE AND SUBSIDIARY
(5) FORECLOSED REAL ESTATE
Foreclosed real estate represents land parcels that were reacquired in
connection with previously financed mortgages. Such parcels are valued at the
lower of their remaining receivable balance outstanding, or their estimated
fair value (determined in the same manner as the allowance for uncollectible
accounts), as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Foreclosed real estate .............. $3,134,300 3,530,300
Allowance for losses ................ (948,000) (676,700)
---------- ---------
Foreclosed real estate, net ......... $2,186,300 2,853,600
========== =========
</TABLE>
During fiscal 1998 and 1997, four and ten mortgage notes receivable were
transferred to foreclosed real estate, respectively. Five parcels in foreclosed
real estate were sold in both fiscal 1998 and 1997. The carrying values of the
mortgage notes receivable transferred to and parcels sold from foreclosed real
estate were $515,000 and $911,000 in fiscal 1998 and $1,212,500 and $585,500 in
fiscal 1997, respectively.
(6) PARTNER ADVANCES PAYABLE
The Partners have agreed to make equal advances to the Venture for all
costs necessary for the orderly development of the Project. During fiscal 1997,
the Partners each advanced $300,000 to the Venture. Such advances were repaid
by the Venture on June 30, 1997. During fiscal 1998, the Partners did not make
any advances to the Venture. Additional contributions from the Partners may be
required in fiscal 1999. Advances earn interest from the date of the advance
compounded quarterly at the prime rate minus 1% (7.50% at June 30, 1998 and
1997).
Advances accrued an average rate of interest of 7.5% during fiscal 1998,
1997 and 1996.
(7) NOTE PAYABLE
During fiscal 1991, the Venture entered into agreements with banks
pursuant to which $8,797,000 of the Venture's mortgage receivables were sold.
An additional sale of $3,148,000 of mortgage receivables to a bank was
completed during fiscal 1992. These transactions were accounted for as
financing arrangements. On April 30, 1996, the Venture repurchased $1,373,000
of such mortgage receivables which represented the entire outstanding balance
thereof. The maximum amount of notes payable outstanding during fiscal 1996 was
$2,826,000. The average amount outstanding for fiscal 1996, based upon
month-end balances, was $1,561,000. The weighted average interest rate for
fiscal 1996 was 11.3%.
At June 30, 1996, the Company had a note payable outstanding in the amount
of $576,200 relating to certain development costs. The note was repaid in
December 1996 and bore interest at the prime rate plus 1%.
(8) KOHALA RANCH WATER COMPANY
KRWC provides water to the Project, as well as to other customers, and is
owned by the Venture (99%), Hudson (.5%), and Oxford (.5%). The assets of KRWC
are comprised principally of property, plant and equipment. KRWC recorded
revenues of $319,700, $285,400 and $336,300 and incurred net losses (including
interest expense due to the Venture) of $534,400, $566,900 and $489,700 for
fiscal 1998, 1997 and 1996, respectively.
D-54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KOHALA JOINT VENTURE AND SUBSIDIARY
(9) CONTINGENCIES
During fiscal 1992, the County of Hawaii passed an ordinance pursuant to
which the Venture, after subdivision approvals are obtained, would be able to
develop the fourth phase of the Project into 1,490 units. Shortly after passage
of the ordinance, a lawsuit against the County of Hawaii was filed in the
Circuit Court of Hawaii by two local residents of Hawaii (Plaintiffs) seeking
to invalidate such ordinance on various grounds, including that the ordinance
was adopted without following State of Hawaii procedure relating to the
preparation of an Environmental Impact Statement. During fiscal 1993, the Judge
in this action granted Plaintiffs' motion for partial summary judgment without
indicating any effect on zoning of the fourth phase. The County and the Venture
appealed this ruling to the Hawaii Supreme Court, and in May 1997, the Supreme
Court vacated the summary judgment which was previously granted and remanded
certain related issues to the Circuit Court for that Court to decide. In March
and April 1998, the Circuit Court ruled in favor of the County and the Venture
on the remanded issues and certain other issues.
In July 1998, the Circuit Court granted summary judgment in favor of the
County and the Venture on all remaining claims in the suit. Although Plaintiffs
have indicated they intend to appeal any decision unfavorable to them, it is
uncertain at this time whether an appeal will be filed by Plaintiffs. Since a
final judgment has not yet been entered, the time period for filing an appeal
has not yet commenced. The Venture cannot determine the effect of this
litigation on the timing of development of Phase IV or expenditures related
thereto until it is known whether an appeal will be filed. The joint venture
partners continue to reevaluate plans for Phase IV which has to date only had
limited development.
(10) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures About Fair Value of Financial Instruments", defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties. The
carrying values of all of the Venture's monetary assets and liabilities
approximate fair value. Carrying values for delinquent mortgage notes
receivable are based on the fair value of the underlying collateral obtained
from an independent appraisal. The carrying values of the remaining mortgage
notes receivable approximate market values, since the mortgage notes receivable
are yielding, on average, a return that is consistent with current market rates
offered for similar financing.
D-55
<PAGE>
KOHALA JOINT VENTURE AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------- ------------ --------------------------- ---------------- -----------
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS RESERVES OF YEAR
- ----------------------------------- ------------ ------------ ------------ ---------------- -----------
<S> <C> <C> <C> <C> <C>
1998 -- Allowance for uncollectible
accounts ......................... $3,166,300 100,000 -- 394,800(A) 2,871,500
========== ======= ======= ======= =========
1997 -- Allowance for uncollectible
accounts ......................... $2,949,400 600,000 -- 383,100(A) 3,166,300
========== ======= ======= ======= =========
1996 -- Allowance for uncollectible
accounts ......................... $2,464,200 600,000 -- 114,800(A) 2,949,400
========== ======= ======= ======= =========
1998 -- Allowance for loss on
foreclosed real estate ........... $ 676,700 400,000 -- 128,700(A) 948,000
========== ======= ======= ======= =========
1997 -- Allowance for loss on
foreclosed real estate ........... $ 703,100 -- -- 26,400(A) 676,700
========== ======= ======= ======= =========
1996 -- Allowance for loss on
foreclosed real estate ........... $ 486,400 356,300 -- 139,600(A) 703,100
========== ======= ======= ======= =========
</TABLE>
- ----------
(A) Write-offs.
D-56
<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED DECEMBER 23, 1998
PROXY
HUDSON GENERAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF HUDSON GENERAL CORPORATION.
The undersigned stockholder of HUDSON GENERAL CORPORATION, a Delaware
corporation (the "Company"), hereby appoints MILTON H. DRESNER, EDWARD J.
ROSENTHAL and HANS S. SAMMER, and each of them, attorneys-in-fact, agents and
proxies, with full power of substitution to each, for and in the name of the
undersigned and with all the powers the undersigned would possess if personally
present, to vote all the shares of Common Stock of the Company which the
undersigned is entitled to vote at the Special Meeting of Stockholders of the
Company, to be held at [Location], on [Month Date], 1999 at [Time] A.M. and at
all adjournments or postponements thereof, hereby revoking any proxy heretofore
given.
(CONTINUED AND TO BE DATED AND SIGNED ON REVERSE SIDE)
<PAGE>
Please mark
your votes as
indicated in
this example [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE PROPOSAL: FOR AGAINST ABSTAIN
To approve and adopt the Agreement and Plan [ ] [ ] [ ]
of Merger, dated as of November 22, 1998,
between the Company and River Acquisition
Corp., and the transactions contemplated
thereby.
The proxies are hereby authorized to vote in their discretion upon all other
business as may properly come before the Special Meeting.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED, IT WILL
BE VOTED FOR THE APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
Receipt is acknowledged of the Notice of Special Meeting of Stockholders and
accompanying Proxy Statement.
PLEASE SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED ENVELOPE
Signature: __________________________ Signature: __________________________
Date: ______________
NOTE: Please sign exactly as your name appears on this Proxy. If signing
as attorney, executor, trustee or in other representative capacity, sign name
and indicate title.
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- - - - - - - - - - - - - - - - - - - - - - - X
HARBOR FINANCE PARTNERS, a :
Colorado Partnership, Individually And C.A. No. 16804
On Behalf Of All Others Similarly Situated, :
Plaintiff, :
-against- : CLASS ACTION
COMPLAINT
MILTON H. DRESNER, JAY B. LANGNER, PAUL :
R. POLLACK, EDWARD J. ROSENTHAL, MI
CHAEL RUBIN, HANS H. SAMMER, :
RICHARD D. SEGAL, STANLEY S. SHUMAN,
and HUDSON GENERAL CORPORATION, :
Defendants. :
X
- - - - - - - - - - - - - - - - - - - - - - -
Plaintiff, by its attorneys, alleges upon personal knowledge
as to its own acts and upon information and belief as to all other matters, as
follows:
NATURE OF THE ACTION
1. Plaintiff brings this action individually and as a class
action on behalf of all persons, other than defendants and persons or entities
affiliated with defen dants, who own the common stock of Hudson General
Corporation ("Hudson General" or the "Company"), for injunctive or other
appropriate relief in connection with a proposed transaction in which members
of senior management (the "Management Group"), led by
<PAGE>
the Company's Chairman and Chief Executive Officer, Jay B. Langner ("Langner"),
and Vice Chairman Richard D. Segal ("Segal"), would acquire all of the shares
of the Company that they do not already own for a grossly inadequate price.
Alternatively, in the event that the proposed transaction is consummated,
plaintiff seeks to recover damages caused by the breach of fiduciary duties
owed by the Management Group and the other defendants to the class members.
PARTIES
2. Plaintiff is a Colorado partnership and is and, at all
relevant times, has been the owner of Hudson General common stock.
3. Hudson General is a corporation duly organized and
existing under the laws of the State of Delaware. Hudson General, through its
51% owned affiliate Hudson General LLC, provides various services at airports
throughout the United States and Canada, including aircraft ground handling,
aircraft de-icing and fueling and ground transport services.
4. Defendant Langner is Chief Executive Officer and Chairman
of the Board of Directors of Hudson General.
5. Defendant Segal is the Vice Chairman of Hudson General.
6. Defendant Paul R. Pollack ("Pollack") is Executive Vice
President, Chief Operating Officer, and a director of Hudson General. Pollack
is also President of the Company's subsidiary Hudson General LLC.
2
<PAGE>
7. Defendant Michael Rubin is President and a director of the
Company.
8. Defendants Milton H. Dresner, Edward J. Rosenthal, Hans H.
Sammer and Stanley S. Shuman are directors of the Company.
9. As officers/directors of Hudson General, the individual
defendants owe fiduciary duties of loyalty and due care to plaintiff and the
other members of the class.
CLASS ACTION ALLEGATIONS
10. Plaintiff brings this case in its own behalf and as a
class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on
behalf of all holders of the Company's securities (except defendants herein and
any person, firm, trust, corporation, or other entity related to or affiliated
with any of the defendants, or any of the Company's principal shareholders),
who are being threatened with injury arising from defendants' actions as is
described more fully below (the "Class").
11. This action is properly maintainable as a class action
because:
a. The Class is so numerous that joinder of all
members is impracticable. As of September 1998, the Company had 1,744,949
shares outstanding. There are hundreds, if not thousands, of record and
beneficial shareholders.
b. There are questions of law and fact common to the
Class including, inter alia, whether:
3
<PAGE>
(1) defendants have breached and will
continue to breach their fiduciary and other common law duties owed by them to
plaintiff and the members of the Class; and
(2) plaintiff and the other members of the
Class would be irreparably damaged by the transaction complained of herein.
c. Plaintiff is committed to prosecuting the action
and has retained competent counsel experienced in litigation of this nature.
Plaintiff's claims are typical of the claims of the other members of the Class
and plaintiff has the same interests as the other members of the Class.
Accordingly, plaintiff is an adequate representative of the Class.
d. The prosecution of separate actions by individual
members of the Class would create the risk of inconsistent or varying
adjudications with respect to individual members of the Class which would
establish incompatible standards of conduct for defendants, or adjudications
with respect to individual members of the Class which would as a practical
matter be dispositive of the interests of the other members not parties to the
adjudications or substantially impair or impede their ability to protect their
interests.
e. The defendants have acted, or refused to act, on
grounds generally applicable to, and causing injury to, the Class and,
therefore, preliminary and final injunctive relief on behalf of the Class as a
whole is appropriate.
4
<PAGE>
SUBSTANTIVE ALLEGATIONS
12. On November 23, 1998, defendants announced that the
Company had entered into a definitive agreement to be acquired by members of
its senior manage ment at a price of $57.25 per share in cash. The transaction
is valued at approximately $101 million in cash and represents only a 5%
premium to the price of Hudson General's stock on November 20, 1998 of $54.625
per share.
13. Members of the Management Group include defendants
Langner, Segal, Rubin and Pollack, all directors and officers of Hudson
General. The Management Group controls in excess of 14% of the outstanding
stock of the Company.
14. Hudson General recently announced that LAGS (USA) Inc.
("LAGS") gave notice to the Company on October 1, 1998 that it would exercise
its option to increase its interest in the Company's subsidiary Hudson General
LLC. As a result, the Company will receive a cash infusion of $29,627,000. This
infusion of cash makes the prospects for further growth very strong.
15. In light of what has been publicly disclosed about Hudson
General's present business and future prospectus, the proposed transaction is
unfair, inadequate, and provides value to Hudson General's stockholders
substantially below the fair or inherent value of the Company. The intrinsic
value of the equity of Hudson General is materially greater than the
consideration contemplated in the proposed offer, taking into account the
5
<PAGE>
Company's asset value, liquidation value, its expected growth, and its revenues
and cash flow.
16. The terms of the proposed transaction are not the result
of arm's-length negotiations but were fixed by the Management Group as part of
their plan and scheme to obtain 100% of Hudson General at the lowest possible
price. The other director defendants have been handpicked by senior management
and are beholden to senior management for the perquisites they enjoy from their
offices. As a consequence, they are unable to protect the interests of Hudson
General's public shareholders with undivided loyalty and independence.
17. Defendants have violated their fiduciary and other common
law duties owed to plaintiff and the other members of the Class in that they
have not and are not exercising independent business judgement, and have acted
and are acting to the detriment of the Class.
18. Unless enjoined by this Court, defendants will continue
to breach their fiduciary duties owed to plaintiff and the Class, and the
Management Group will succeed in their plan to exclude plaintiff and the Class
from the fair proportionate share of Hudson General's valuable assets and
businesses, to the irreparable harm of the Class.
19. Plaintiff and the Class have no adequate remedy of law.
6
<PAGE>
WHEREFORE, plaintiff prays for judgment and relief as follows:
a. declaring that this lawsuit is properly
maintainable as a class action and certifying plaintiff as representative of
the Class;
b. preliminarily and permanently enjoining
defendants and their counsel, agents, employees, and all persons acting under,
in concert with, or for them, from proceeding with or implementing the
transaction complained of herein;
c. in the event the transaction is consummated,
rescinding it and setting it aside;
d. awarding compensatory damages against defendants,
jointly and severally, in an amount to be determined at trial, together with
prejudgment interest at the maximum rate allowable by law;
e. awarding plaintiff and the Class their costs and
disburse ments and reasonable allowances for plaintiff's counsel and experts'
fees and expenses; and
7
<PAGE>
f. granting such other and further relief as may be
just and proper.
ROSENTHAL MONHAIT GROSS
& GODDESS, P.A.
By: /s/ J. Rosenthal
----------------------------------
Suite 214, Mellon Bank Center
P.O. Box 1070
Wilmington, Delaware 19899
(302) 656-4433
Of Counsel:
WECHSLER HARWOOD
HALEBIAN & FEFFER LLP
488 Madison Avenue
New York, NY 10022
(212) 935-7400
8
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- - - - - - - - - - - - - - - - - - - X
: C.A. No. 16805
ROBERT WEINER, :
Plaintiff, : CLASS ACTION
COMPLAINT
-against- :
JAY B. LANGNER, MILTON H. DRESNER,
PAUL R. POLLACK, EDWARD J. ROSENTHAL, :
MICHAEL RUBIN, HANS H. SAMMER,
RICHARD D. SEGAL, STANLEY S. SHUMAN :
and HUDSON GENERAL CORPORATION,
:
Defendants.
x
- - - - - - - - - - - - - - - - - - - -
Plaintiff, by his attorneys, alleges upon information and
belief, except as to paragraph 1 which plaintiff alleges upon knowledge, as
follows:
1. Plaintiff Robert Weiner is a stockholder of defendant
Hudson General Corporation ("Hudson" or the "Company").
2. Hudson is a corporation duly organized and existing under
the laws of the State of Delaware. Hudson provides aviation services such as
aircraft ground handling, ramp cleaning, aircraft fueling, fuel management,
snow removal and ground transportation. It also sells, leases and maintains
support equipment.
<PAGE>
3. Defendant Langner is Chief Executive Officer and Chairman
of the Board of Directors of Hudson.
4. Defendant Richard D. Segal ("Segal") is Vice Chairman of
Hudson.
5. Defendant Paul R. Pollack ("Pollack") is Executive Vice
President, Chief Operating Officer, and a director of Hudson. Pollack is also
President of the Company's subsidiary, Hudson General LLC.
6. Defendant Michael Rubin is President and a director of the
Company.
7. Defendants Milton H. Dresner, Edward J. Rosenthal, Hans H.
Sammer and Stanley S. Shuman are directors of the Company.
8. The Individual Defendants have a fiduciary relationship
and responsibility to plaintiff and the other public stockholders of Hudson and
owe to plaintiff and the other Class members the highest obligations of good
faith, loyalty, fair dealing, due care and candor.
CLASS ACTION ALLEGATIONS
9. Plaintiff brings this action on his own behalf and as a
class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on
behalf of all common stockholders of Hudson, or their successors in interest,
who are being and will be harmed by defendants' actions described below (the
"Class"). Excluded from the Class are
2
<PAGE>
defendants herein and any person, firm, trust, corporation, or other entity
related to or affiliated with any of defendants.
10. This action is properly maintainable as a class action
because:
a. The Class is so numerous that joinder of all
members is impracticable. There are hundreds of Hudson stockholders of record
who are located throughout the United States;
b. There are questions of law and fact which are
common to the Class, including: whether the management of Hudson has acted in a
manner calculated to benefit themselves at the expense of Hudson's public
stockholders; and whether plaintiff and the other members of the Class would be
irreparably damaged by the wrongs complained of herein;
c. Defendants have acted or refused to act on
grounds generally applicable to the Class, thereby making appropriate final
injunctive relief with respect to the Class as a whole; and
d. Plaintiff is committed to prosecuting this action
and has retained competent counsel experienced in litigation of this nature.
The claims of plaintiff are typical of the claims of the other members of the
Class and plaintiff has the same interests as the other members of the Class.
Accordingly, plaintiff is an adequate represen tative of the Class and will
fairly and adequately protect the interests of the Class.
3
<PAGE>
CLAIM FOR RELIEF
11. Hudson specializes in aviation services such as aircraft
ground handling, ramp cleaning, aircraft fueling, fuel management, removal and
bus ground transportation. As of July 31, 1998, there were over 1.7 million
shares of Hudson common stock outstanding.
12. On November 23, 1998, it was reported that Hudson's Board
of Directors had agreed to a management buyout whereby the Company would be
acquired by the management of Hudson (led by defendants Langner and Segal) in a
deal valued at about $100 million. Under the terms of a definitive agreement
already accepted by the Company's Board of Directors, Hudson shareholders would
receive $57.25 per share.
13. The loyalties of Hudson's board members are, at best,
divided in the instant transaction and they cannot be expected to act in the
best interests of Hudson's public stockholders.
14. The purpose of the proposed acquisition is to enable
Hudson's management to acquire the Company and its valuable assets for their
own benefit at the expense of Hudson's public stockholders.
15. The proposed acquisition comes at a time when Hudson has
performed well and management expects it will continue to perform well.
4
<PAGE>
16. Hudson's management has timed this transaction to capture
Hudson's future potential without paying an adequate or fair price for the
Company's shares.
17. Amidst this backdrop of positive and improving financial
position and increased prospects for growth, the management buyout at $57.25
cash for each share of Hudson common stock represents a woefully inadequate
premium over the current price of Hudson common stock.
18. The Individual Defendants have access to internal
financial information about Hudson, its true value, expected increase in true
value and the benefits of 100 percent ownership of Hudson to which plaintiff
and the Class members are not privy. Defendants are using their positions of
power and control to benefit themselves in this transaction, to the detriment
of the Hudson common stockholders.
19. In approving the buyout, the Individual Defendants have
committed or threatened to commit the following acts to the detriment and
disadvantage of Hudson public stockholders:
a. They have undervalued Hudson common stock by
ignoring the full value of its assets and future prospects. The proposed buyout
consideration does not reflect the value of Hudson's valuable assets; and
5
<PAGE>
b. They timed the announcement of the buyout to
place an artificial lid on the market price of Hudson's common stock in order
to justify a price which is unfair to Hudson's public stockholders.
20. The Individual Defendants have clear and material
conflicts of interest and are acting to better the interests of Hudson's
management at the expense of Hudson's public stockholders.
21. In light of the foregoing, the Individual Defendants
must, as their fiduciary obligations require, undertake an appropriate
evaluation of Hudson's worth as an acquisition candidate.
22. As a result of the defendants' unlawful actions,
plaintiffs and the other members of the Class will be irreparably harmed in
that they will not receive their fair portion of the value of Hudson's assets
and business and will be prevented from obtaining the full fair value of their
equity ownership of the Company. Unless the proposed buyout is enjoined by the
Court, defendants will continue to breach their fiduciary duties owned to
plaintiffs and the members of the Class, and may consummate the proposed
transaction, to the irreparable harm of the members of the Class.
23. Plaintiff and the other members of the Class have no
adequate remedy at law.
6
<PAGE>
WHEREFORE, plaintiff prays for judgment and relief as follows:
A. Ordering that this action may be maintained as a class
action and certifying plaintiff as the Class representative:
B. Preliminarily and permanently enjoining defendants and
their counsel, agents, employees and all persons acting under, in concert with,
or for them, from proceeding with, consummating or closing the proposed
transaction;
C. In the event the proposed buyout is consummated,
rescinding it and setting it aside;
D. Awarding compensatory damages against defendants
individually and severally in an amount to be determined at trial, together
with prejudgment interest at the maximum rate allowable by law;
E. Awarding plaintiff his costs and disbursements, including
plaintiff's counsel's fees and experts' fees; and
7
<PAGE>
F. Granting such other and further relief as to the Court may
seem just and proper.
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By: /s/ J. Rosenthal
------------------------------
919 North Market Street
Suite 1401
Mellon Bank Center
Wilmington, Delaware 19801
(302) 656-4433
OF COUNSEL:
ABBEY, GARDY & SQUITIERI, LLP
212 East 39th Street
New York, New York 10016
(212) 889-3700
8
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- - - - - - - - - - - - - - - - - - - - -X
: C.A. No. 16414NC
MIRIAM SOSHTAIN and HARRIET RAND,
:
Plaintiffs,
: CLASS ACTION
-against- COMPLAINT
:
JAY B. LANGNER, MILTON H. DRESNER,
PAUL R. POLLACK, EDWARD J. ROSEHTHAL, :
MICHAEL RUBIN, HANS H. SAMMER,
RICHARD D. SEGAL, STANLEY S. SHUMAN :
and HUDSON GENERAL CORPORATION,
:
Defendants.
X
- - - - - - - - - - - - - - - - - - - - -
Plaintiffs, by their attorneys, allege upon information and
belief, except as to paragraph 1 which plaintiffs allege upon knowledge, as
follows:
1. Plaintiffs Miriam Soshtain and Harriet Rand are
stockholders of defendant Hudson General Corporation ("Hudson" or the
"Company").
2. Hudson is a corporation duly organized and existing under
the laws of the State of Delaware. Hudson provides aviation services such as
aircraft ground handling, ramp cleaning, aircraft fueling, fuel management,
snow removal and ground transportation. It also sells, leases and maintains
support equipment.
<PAGE>
3. Defendant Jay B. Langner ("Langner") is Chief Executive
Officer and Chairman of the Board of Directors of Hudson.
4. Defendant Richard D. Segal ("Segal") is Vice Chairman of
Hudson.
5. Defendant Paul R. Pollack ("Pollack") is Executive Vice
President, Chief Operating Officer, and a director of Hudson. Pollack is also
President of the Company's subsidiary, Hudson General LLC.
6. Defendant Michael Rubin is President and a director of the
Company.
7. Defendants Milton H. Dresner, Edward J. Rosenthal, Hans H.
Sammer and Stanley S. Shuman are directors of the Company.
8. The Individual Defendants have a fiduciary relationship
and responsibility to plaintiffs and the other public stockholders of Hudson
and owe to plaintiffs and the other Class members the highest obligations of
good faith, loyalty, fair dealing, due care and candor.
CLASS ACTION ALLEGATIONS
9. Plaintiffs bring this action on their own behalf and as a
class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on
behalf of all common stockholders of Hudson, or their successors in interest,
who are being and will be harmed by defendants' actions described below (the
"Class"). Excluded from the Class are
2
<PAGE>
defendants herein and any person, firm, trust, corporation, or other entity
related to or affiliated with any of defendants.
10. This action is properly maintainable as a class action
because:
a. The Class is so numerous that joinder of all
members is impracticable. There are hundreds of Hudson stockholders of record
who are located throughout the United States;
b. There are questions of law and fact which are
common to the Class, including: whether the management of Hudson has acted in a
manner calculated to benefit themselves at the expense of Hudson's public
stockholders; and whether plaintiffs and the other members of the Class would
be irreparably damaged by the wrongs complained of herein;
c. Defendants have acted or refused to act on
grounds generally applicable to the Class, thereby making appropriate final
injunctive relief with respect to the Class as a whole; and
d. Plaintiffs are committed to prosecuting this
action and have retained competent counsel experienced in litigation of this
nature. The claims of plaintiffs are typical of the claims of the other members
of the Class and plaintiffs have the same interests as the other members of the
Class. Accordingly, plaintiffs are adequate representatives of the Class and
will fairly and adequately protect the interests of the Class.
3
<PAGE>
CLAIM OF RELIEF
11. Hudson specializes in aviation services such as aircraft
ground handling, ramp cleaning, aircraft fueling, fuel management, removal and
bus ground transportation. As of July 31, 1998, there were over 1.7 million
shares of Hudson common stock outstanding.
12. On November 23, 1998, it was reported that Hudson's Board
of Directors had agreed to a management buyout whereby the Company would be
acquired by the management of Hudson (led by defendants Langner and Segal) in a
deal valued at about $100 million. Under the terms of a definitive agreement
already accepted by the Company's Board of Directors, Hudson shareholders would
receive $57.25 per share.
13. The loyalties of Hudson's Board members are, at best,
divided in the instant transaction and they cannot be expected to act in the
best interests of Hudson's public stockholders.
14. The purpose of the proposed acquisition is to enable
Hudson's management to acquire the Company and its valuable assets for their
own benefit at the expense of Hudson's public stockholders.
15. The proposed acquisition comes at a time when Hudson has
performed well and management expects it will continue to perform well.
4
<PAGE>
16. Hudson's management has timed this transaction to capture
Hudson's future potential without paying an adequate or fair price for the
Company's shares.
17. Amidst this backdrop of positive and improving financial
position and increased prospects for growth, the management buyout at $57.25
cash for each share of Hudson common stock represents a woefully inadequate
premium over the current price of Hudson common stock.
18. The Individual Defendants have access to internal
financial information about Hudson, its true value, expected increase in true
value and the benefits of 100 percent ownership of Hudson to which plaintiffs
and the Class members are not privy. Defendants are using their positions of
power and control to benefit themselves in this transaction, to the detriment
of the Hudson common stockholders.
19. In approving the buyout, the Individual Defendants have
committed or threatened to commit the following acts to the detriment and
disadvantage of Hudson public stockholders:
a. They have undervalued Hudson common stock by
ignoring the full value of its assets and future prospects. The proposed buyout
consideration does not reflect the value of Hudson's valuable assets; and
5
<PAGE>
b. They timed the announcement of the buyout to
place an artificial lid on the market price of Hudson's common stock in order
to justify a price which is unfair to Hudson's public stockholders.
20. The Individual Defendants have clear and material
conflicts of interest and are acting to better the interests of Hudson's
management at the expense of Hudson's public stockholders.
21. In light of the foregoing, the Individual Defendants
must, as their fiduciary obligations require, undertake an appropriate
evaluation of Hudson's worth as an acquisition candidate.
22. As a result of the defendants' unlawful actions,
plaintiffs and the other members of the Class will be irreparably harmed in
that they will not receive their fair portion of the value of Hudson's assets
and business and will be prevented from obtaining the full fair value of their
equity ownership of the Company. Unless the proposed buyout is enjoined by the
Court, defendants will continue to breach their fiduciary duties owed to
plaintiffs and the members of the Class, and may consummate the proposed
transaction, to the irreparable harm of the members of the Class.
23. Plaintiffs and the other members of the Class have no
adequate remedy at law.
6
<PAGE>
WHEREFORE, plaintiffs pray for judgment and relief as follows:
A. Ordering that this action may be maintained as a class
action and certifying plaintiffs as the Class representatives;
B. Preliminarily and permanently enjoining defendants and
their counsel, agents, employees and all persons acting under, in concert with,
or for them, from proceeding with, consummating or closing the proposed
transaction;
C. In the event the proposed buyout is consummated,
rescinding it and setting it aside;
D. Awarding compensatory damages against defendants
individually and severally in an amount to be determined at trial, together
with prejudgment interest at the maximum rate allowable by law;
E. Awarding plaintiffs their costs and disbursements,
including plaintiffs' counsels' fees and experts' fees; and
7
<PAGE>
F. Granting such other and further relief as to the Court may
seem just and proper.
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By: /s/ J.Rosenthal
-------------------------------
919 North Market Street
Suite 1401, Mellon Bank Center
Wilmington, Delaware 19801
(302) 656-4433
Attorneys for Plaintiffs
OF COUNSEL:
STULL, STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230
WEISS & YOURMAN
The French Building, Suite 1600
551 Fifth Avenue
New York, NY 10176
(212) 682-3025
8
<PAGE>
[HUDSON GENERAL LOGO]
HUDSON GENERAL CORPORATION
RECEIVES THIRD PARTY INDICATION MICHAEL RUBIN
OF ACQUISITION INTEREST PRESIDENT DECEMBER 11, 1998
SUBJECT:__________________________CONACT:______________RELEASE:________________
Great Neck, New York - December 11, 1998 - Hudson General Corporation
(AMEX:HGC) stated today that it has received a letter from a third party in
which such party indicated a willingness to acquire all outstanding shares of
Hudson General. The third party stated that the price would be in excess of
$57.25 per share in cash, but did not indicate any specific price. In its
letter, such party requested that Hudson General furnish it with confidential
information subject to an appropriate confidentiality agreement, and advised
Hudson General that any acquisition proposal would not be subject to a
financing contingency.
As previously announced, on November 22, 1998, Hudson General entered into
a definitive agreement to be acquired by a group led by members of its senior
management at a price of $57.25 per share in cash. The buyout group is headed
by Jay B. Langner, Hudson General's Chairman of the Board and Chief Executive
Officer, and Richard D. Segal, Vice Chairman of the Board.
The third party's letter to Hudson General was reviewed by the Special
Committee of Hudson General's Board of Directors, which is comprised of three
independent, unaffiliated directors. In accordance with the terms of the
definitive merger agreement with the management-led buyout group, the Special
Committee has determined that Hudson General will furnish information to the
third party and engage in discussions related thereto, pursuant to an
appropriate confidentiality agreement to be negotiated between the parties.
Hudson General, through its 51%-owned affiliate, Hudson General LLC,
provides various services at airports throughout the United States and Canada.
Hudson General is also a participant in a joint venture to develop 4,000 acres
of land in Hawaii. Hudson General Corporation's shares are traded on the
American Stock Exchange under the ticker symbol HGC.
