<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________________to__________________________
Commission file number 1-5896
HUDSON GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-1947395
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 GREAT NECK ROAD, GREAT NECK, NEW YORK 11021
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (516) 487-8610
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $1.00 per share: 1,744,949 shares outstanding at January
31, 1999.
Page 1 of 24
<PAGE> 2
PART I - FINANCIAL INFORMATION
2
<PAGE> 3
CONSOLIDATED STATEMENTS OF EARNINGS
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
------- ------- ------- -------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues .................................. $ 1,418 $ 1,381 $ 2,819 $ 2,765
------- ------- ------- -------
Costs and expenses:
Depreciation and amortization ........... 152 171 308 347
Selling, general & administrative ....... 2,275 1,891 4,003 3,588
------- ------- ------- -------
Total costs and expenses .............. 2,427 2,062 4,311 3,935
------- ------- ------- -------
Operating loss ............................ (1,009) (681) (1,492) (1,170)
Equity in earnings of Hudson General LLC .. 1,873 2,515 2,642 3,944
Equity in loss of Kohala Joint Venture .... (637) (703) (1,304) (1,397)
Interest income ........................... 1,333 1,027 2,346 1,949
------- ------- ------- -------
Earnings before provision for income taxes 1,560 2,158 2,192 3,326
Provision for income taxes ................ 731 775 948 1,161
------- ------- ------- -------
Net earnings .............................. $ 829 $ 1,383 $ 1,244 $ 2,165
======= ======= ======= =======
Earnings per share, basic ................. $ .48 $ .79 $ .71 $ 1.24
======= ======= ======= =======
Earnings per share, diluted ............... $ .47 $ .79 $ .71 $ 1.23
======= ======= ======= =======
Cash dividends per common share ........... $ .50 $ .50 $ .50 $ .50
======= ======= ======= =======
Weighted average common shares outstanding:
Basic ................................... 1,745 1,741 1,745 1,739
======= ======= ======= =======
Diluted ................................. 1,760 1,757 1,760 1,754
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
(in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
-------- --------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents .......................... $ 27,972 $ 19,001
Investment securities available for sale ........... 18,386 19,002
Receivables ........................................ 880 563
Advances to Hudson General LLC - net ............... 1,323 2,057
Prepaid expenses and other assets .................. 29 56
-------- --------
Total current assets ............................. 48,590 40,679
Property and equipment at cost,
less accumulated depreciation and amortization ..... 2,141 2,389
Investment in Hudson General LLC ..................... 41,804 22,306
Investment in Kohala Joint Venture - net ............. 4,676 4,962
Note receivable from Hudson General LLC .............. 1,630 3,130
-------- --------
$ 98,841 $ 73,466
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ................................... $ 72 $ 200
Accrued expenses and other liabilities ............. 2,446 2,436
Income taxes payable ............................... 1,048 192
-------- --------
Total current liabilities ........................ 3,566 2,828
-------- --------
Deferred income taxes ................................ 14,276 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 .................................... 60,452 48,266
Retained earnings .................................. 29,607 29,235
Treasury stock, at cost, 357,311 shares ............ (11,162) (11,162)
-------- --------
Total stockholders' equity ....................... 80,999 68,441
-------- --------
$ 98,841 $ 73,466
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
HUDSON GENERAL CORPORATION AND SUBSIDIARIES
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1998 1997
-------- --------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings ............................................. $ 1,244 $ 2,165
Adjustments to reconcile net earnings to net
cash used by operating activities:
Depreciation and amortization .......................... 308 347
Equity in earnings of Hudson General LLC ............... (2,642) (3,944)
Equity in loss of Kohala Joint Venture ................. 1,304 1,397
Accrual of interest income on Kohala Joint
Venture advances ..................................... (1,018) (954)
Change in other current assets and liabilities:
Receivables ......................................... (317) (333)
Prepaid expenses and other assets ................... 27 187
Accounts payable .................................... (128) (44)
Accrued expenses and other liabilities .............. (862) (1,113)
Income taxes payable ................................ 856 1,079
-------- --------
Net cash used by operating activities ............... (1,228) (1,213)
-------- --------
Cash flows from investing activities:
Purchase of investment securities available for sale ..... (10,574) (3,898)
Proceeds from maturity and sale of investment
securities available for sale ........................ 11,190 --
Purchases of property and equipment ...................... (78) (58)
Proceeds from sale of property and equipment ............. 17 19
Distributions from Hudson General LLC .................... 8,084 12,706
Repayment from (advances to) Hudson General LLC - net .... 734 (10,483)
Collections of note receivable from Hudson General LLC ... 1,500 500
-------- --------
Net cash provided (used) by investing activities .... 10,873 (1,214)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock ................... -- 99
Fees related to sale of 23% interest in Hudson General LLC (674) --
-------- --------
Net cash (used) provided by financing activities .... (674) 99
-------- --------
Net increase (decrease) in cash and cash equivalents ....... 8,971 (2,328)
Cash and cash equivalents at beginning of period ........... 19,001 18,425
-------- --------
Cash and cash equivalents at end of period ................. $ 27,972 $ 16,097
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
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 December 31, 1998 and June 30, 1998,
and the results of operations for the three and six months, and cash flows
for the six months ended December 31, 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 and six months ended
December 31, 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 had a 74% interest which was reduced to
51% on November 2, 1998 (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>
December 31, June 30,
1998 1998
-------- --------
(in thousands) (Unaudited)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents ....................... $ 22,325 $ 3,393
Accounts and notes receivable - net ............. 23,631 16,886
Other current assets ............................ 5,193 6,391
-------- --------
Total current assets ......................... 51,149 26,670
Property, equipment and leasehold rights at cost,
less accumulated depreciation and amortization . 54,483 45,639
Other assets - net .............................. 601 643
-------- --------
$106,233 $ 72,952
======== ========
Current portion of capital lease obligation ..... $ 391 --
Accounts payable ................................ 21,499 $ 17,326
Accrued expenses and other liabilities .......... 22,235 19,045
Advances from Hudson General Corporation - net .. 1,323 2,057
-------- --------
Total current liabilities .................... 45,448 38,428
Obligations under capital lease ................. 6,089 --
Deferred income taxes ........................... 319 319
Note payable to Hudson General Corporation ...... 1,630 3,130
Members' equity ................................. 52,747 31,075
-------- --------
$106,233 $ 72,952
======== ========
</TABLE>
6
<PAGE> 7
Summary results of operations for Hudson LLC are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
-------- -------- -------- --------
(in thousands) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 46,811 $ 42,444 $ 87,935 $ 81,800
-------- -------- -------- --------
Operating costs 37,851 32,806 71,591 64,153
Depreciation and amortization 2,153 2,074 4,203 4,042
Selling, general & administrative costs 4,011 3,794 8,056 7,621
-------- -------- -------- --------
Total costs and expenses 44,015 38,674 83,850 75,816
-------- -------- -------- --------
Operating income 2,796 3,770 4,085 5,984
Interest income 1,350 98 1,405 276
Interest expense (302) (119) (391) (203)
-------- -------- -------- --------
Earnings before provision for income taxes 3,844 3,749 5,099 6,057
Provision for income taxes 321 350 536 727
-------- -------- -------- --------
Net earnings $ 3,523 $ 3,399 $ 4,563 $ 5,330
======== ======== ======== ========
</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 closing of the exercise of the Option took place on November 2, 1998 (the
Closing Date). The exercise price of the Option of $29,627,000 was paid to
Hudson LLC by LAGS together with interest aggregating $1,123,000, calculated at
the rate of 11% per annum from July 1, 1998 to the Closing Date. 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 (the Option Agreement) dated February 27, 1996 pursuant to which it
acquired its initial 26% interest in Hudson LLC. Pursuant to the terms of the
Option Agreement, upon LAGS' exercise of the Option on the Closing Date, LAGS'
interest in Hudson LLC increased to 49%, and the Corporation's interest was
reduced to 51%, effective as of July 1, 1998. As a result of the exercise of the
Option, the Corporation's investment in Hudson LLC and paid in capital were
increased by $25,308,000 and $12,554,000 (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 is required to
account for a 74% interest in Hudson LLC's results for the period from July 1,
1998 to November 1, 1998, and a 51% interest in Hudson LLC's results for periods
thereafter. The Corporation's 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 LLC Agreement), was
$1,873,000 and $2,515,000 for the three months ended December 31, 1998 and 1997,
respectively,
7
<PAGE> 8
and $2,642,000 and $3,944,000 for the six months ended December 31, 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 period from July 1, 1998 to November 1, 1998 was $316,000, and is
reflected in the Corporation's consolidated balance sheet as a reduction to paid
in capital (net of income taxes) at December 31, 1998.
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 $11,796,000 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
December 31, 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 December 31, 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 December 31, 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 six
months ended December 31, 1998 was a decrease of $722,000 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>
December 31, June 30,
1998 1998
--------- --------
(in thousands) (Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash and equivalents ........................ $ 414 $ 355
Land and development costs .................. 9,117 9,210
Mortgages, accounts and notes receivable .... 1,233 2,137
Foreclosed real estate - net ................ 2,767 2,186
Other assets - net .......................... 1,476 1,549
-------- --------
$ 15,007 $ 15,437
======== ========
Partner advances and accrued interest payable $ 60,312 $ 58,178
Accounts payable and accrued expenses ....... 904 860
Partners' deficit ........................... (46,209) (43,601)
-------- --------
$ 15,007 $ 15,437
======== ========
</TABLE>
8
<PAGE> 9
Summary results of operations for the Venture are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
------- ------- ------- -------
(in thousands) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ...................................................... $ 292 $ 75 $ 380 $ 151
------- ------- ------- -------
Cost of sales .................................................. 184 -- 184 --
Selling, general and administrative costs ...................... 416 492 797 991
Interest - net ................................................. 965 988 2,007 1,953
------- ------- ------- -------
Total costs ................................................. 1,565 1,480 2,988 2,944
------- ------- ------- -------
Net loss..................................................... $(1,273) $(1,405) $(2,608) $(2,793)
======= ======= ======= =======
</TABLE>
The Corporation's 50% share of the Venture's results were losses of $637,000 and
$703,000 for the three months ended December 31, 1998 and 1997, respectively,
and $1,304,000 and $1,397,000 for the six months ended December 31, 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., a wholly owned
subsidiary of Oxford First Corporation. Under the Restated Joint Venture
Agreement dated April 29, 1981, as amended, 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 and six months ended December 31,
1998, the Corporation did not make any advances to the Venture. The
Corporation's net advances (including accrued interest) at December 31, 1998
were $21,656,000.
4. Accrued expenses and other liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------ ------
(in thousands) (Unaudited)
- ---------------------------------------------------------------------------
<S> <C> <C>
Salaries and wages .............................. $ 537 $1,917
Retirement plan costs ........................... 432 307
Legal and accounting fees........................ 433 24
Dividends payable ............................... 872 --
Other ........................................... 172 188
------ ------
$2,446 $2,436
====== ======
</TABLE>
9
<PAGE> 10
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 Six Months Ended
December 31, December 31,
1998 1997 1998 1997
------ ------ ------ ------
(in thousands, except per share amounts) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings for computing earnings per share,
basic and diluted ........................... $ 829 $1,383 $1,244 $2,165
====== ====== ====== ======
Weighted average number of common
shares outstanding .......................... 1,745 1,741 1,745 1,739
Add: Incremental shares from assumed exercise
of stock options ........................ 15 16 15 15
------ ------ ------ ------
Weighted average number of common and potential
common shares outstanding for computing
earnings per share, diluted ................. 1,760 1,757 1,760 1,754
====== ====== ====== ======
Earnings per share, basic ..................... $ .48 $ .79 $ .71 $ 1.24
====== ====== ====== ======
Earnings per share, diluted ................... $ .47 $ .79 $ .71 $ 1.23
====== ====== ====== ======
</TABLE>
6. On November 22, 1998, the Corporation entered into an Agreement and Plan of
Merger (the Merger Agreement) with River Acquisition Corp., a newly formed
Delaware corporation owned by certain directors and senior executive
officers of the Corporation (River Acquisition), pursuant to which, among
other things, subject to approval and adoption of the Merger Agreement at a
Special Meeting of the Corporation's stockholders, River Acquisition would
merge with and into the Corporation (the Merger), with the Corporation as
the surviving corporation.
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. In
the event of the termination of the Merger Agreement, upon the occurrence
of certain conditions as set forth in the Merger Agreement, the Corporation
would be liable to pay River Acquisition its costs and expenses incurred in
connection with the Merger up to a maximum of $1,750,000. As of December
31, 1998, no such conditions had occurred, and accordingly, no provision
has been made by the Corporation for this contingency in the accompanying
consolidated financial statements.
7. Certain items previously reported in specific financial statement captions
have been reclassified to conform with the fiscal 1999 presentation.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The Corporation's consolidated statements of earnings contain the
operating results of the Corporation's aviation services affiliate Hudson
General LLC (Hudson LLC) and of the land development joint venture in Hawaii in
which the Corporation has a 50% interest (the Venture) under the equity method
of accounting. (For an analysis of the results of Hudson LLC, see the table and
related management's discussion which appear below.)
The Corporation's revenues and depreciation and amortization expense for
the three and six months ended December 31, 1998 approximated those of the
corresponding periods of the prior year.
The Corporation's selling, general and administrative expenses for the
three and six months ended December 31, 1998 increased $ .4 million from the
corresponding periods of the previous year which reflects professional fees
incurred as a result of the Corporation entering into an Agreement and Plan of
Merger dated as of November 22, 1998 and related matters (see Part II, Item 5 -
Other Information).
The Corporation's share of earnings from Hudson LLC for the three and
six months ended December 31, 1998 decreased $.6 and $1.3 million, respectively,
as compared with the corresponding periods of the previous year. The
Corporation's equity interest in Hudson LLC was 74% for the period from July 1,
1998 to November 1, 1998 and was reduced to 51% for periods thereafter (see Note
2). The Corporation's 50% share of losses from the Venture for the three and six
months ended December 31, 1998 approximated that of the corresponding periods of
the previous year. As is usual for companies with land development operations,
the contribution to future results from such operations will fluctuate depending
upon land sales closed in each reported period.
Interest income for the three and six months ended December 31, 1998
increased $.3 and $.4 million, respectively, due primarily to distributions
receivable on the Preferred Units of Hudson LLC that were issued to the
Corporation in November 1998 (see Note 2) and higher invested cash balances
compared with those of the corresponding periods of the prior year.
The Corporation's provision for income taxes for the three and six
months ended December 31, 1998 decreased slightly from the corresponding periods
of the previous year, primarily reflecting lower pre-tax earnings
11
<PAGE> 12
due mainly to the decrease in the Corporation's share of earnings from Hudson
LLC as noted above. Partially offsetting the decrease were higher effective tax
rates due mainly to the absence of a tax benefit being recorded for the
professional fees discussed above.
The following table and related management's discussion are intended to
provide a presentation and analysis of results of Hudson LLC for the three and
six months ended December 31, 1998 compared with results for the corresponding
periods of the prior year.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Revenues ............................ $46,811 $42,444 $87,935 $81,800
------- ------- ------- -------
Costs and expenses:
Operating ......................... 37,851 32,806 71,591 64,153
Depreciation and amortization ..... 2,153 2,074 4,203 4,042
Selling, general and administrative 4,011 3,794 8,056 7,621
------- ------- ------- -------
Total costs and expenses ............ 44,015 38,674 83,850 75,816
------- ------- ------- -------
Operating income .................... $ 2,796 $ 3,770 $ 4,085 $ 5,984
======= ======= ======= =======
</TABLE>
Revenues for the three and six months ended December 31, 1998 increased
$4.4 and $6.1 million, or 10.3% and 7.5%, respectively, compared with the
corresponding periods of the prior year. The increase reflects higher ground
handling service revenues (net of the loss of certain contracts and lower sales
of de-icing fluid) of $4.0 and $6.0 million due primarily to: (i) revenues
generated from services provided at Terminal One, the new international terminal
at JFK International Airport in New York which began operation in May 1998 at
which Hudson LLC has been designated as the exclusive provider of ground
handling services; (ii) expanded services to new and existing customers at other
domestic airport locations; and (iii) revenues generated from expanded services
provided at the Central De-icing Facility at Lester B. Pearson International
Airport in Toronto. Additionally, the increase reflects higher aircraft fueling
revenues of $1.9 and $2.4 million for the respective periods resulting primarily
from: (i) revenues generated from services provided to maintain, manage and
operate the fuel storage and distribution system, and to provide intoplane
fueling services for all airlines operating, at Vancouver International Airport;
and (ii) expanded domestic intoplane fueling services. The revenue increase in
both periods was partially offset by
12
<PAGE> 13
lower revenues associated with: (i) the recognition of $.6 million of deferred
income in October 1997 related to the prepayment of a promissory note associated
with the sale (in January 1994) of leases and other assets at Long Island
MacArthur Airport; and (ii) the effect of fluctuation in the average rates of
exchange used in translating Canadian revenues to their U.S. dollar equivalent.
Operating costs for the three and six months ended December 31, 1998
increased $5.0 and $7.4 million, or 15.4% and 11.6%, respectively, compared with
the corresponding periods of the previous year. The increase in operating costs
reflects higher: (i) labor and related costs associated with the opening of
Terminal One in New York; the Central De-icing Facility in Toronto; the
commencement of the maintenance, operation and intoplane fueling service
contract in Vancouver; and expanded domestic ground handling and aircraft
fueling operations; (ii) overtime, hiring and training costs due to low
unemployment levels in the United States as discussed below; and (iii) fleet
maintenance costs related primarily to ground handling and aircraft fueling
operations. Partially offsetting the increase were lower: (i) outside contractor
costs associated with snow removal operations; (ii) cost of sales of de-icing
fluid; and (iii) costs as a result of the effect of fluctuation in the average
rates of exchange used in translating Canadian costs to their U.S. dollar
equivalent.
Depreciation and amortization expenses for the three and six months
ended December 31, 1998 increased $.1 and $.2 million, or 3.8% and 4.0%,
respectively, compared with the corresponding periods of the previous year, due
mainly to additions of ground handling equipment.
Selling, general and administrative expenses for the three and six
months ended December 31, 1998 increased $.2 and $.4 million, or 5.7% and 5.7%,
respectively, compared with the corresponding periods of the previous year, due
primarily to higher administrative and related costs.
Operating income for the three and six months ended December 31, 1998
decreased $1.0 and $1.9 million, due primarily to: (i) decreased results
associated with domestic ground handling operations related to higher labor and
fleet maintenance costs; (ii) lower sales of de-icing fluid; (iii) the impact of
the loss of certain ground handling contracts; (iv) the recognition of deferred
income in October 1997 as noted above; and (v) higher selling, general and
administrative expenses as described above. Partially offsetting the decreases
for both periods were improved results
13
<PAGE> 14
from snow removal operations and, for the six months ended December 31, 1998,
expanded aircraft fueling operations.
Results of aircraft ground handling operations fluctuate depending upon
the flight activity and schedules of customers and the ability to deploy
equipment and manpower in the most efficient manner to service such customers.
Snow removal and aircraft de-icing services are seasonal in nature. The
results of these operations are normally reflected in the second and third
quarters of the fiscal year, and fluctuate depending upon the severity of the
winter season.
The state of the North American aviation industry has resulted in
increased competitive pressures on the pricing of aviation services and in the
exploration of alliances between major commercial airline carriers. While these
factors may have an adverse effect on the Corporation, several airlines have
been outsourcing services to independent aviation service companies. This trend
has provided additional opportunities for Hudson LLC. In addition, low
unemployment levels in locations throughout the United States in which Hudson
LLC operates have adversely affected Hudson LLC's ability to hire and retain
service employees. This trend has resulted in Hudson LLC incurring higher
overtime, hiring and training costs, which has negatively impacted Hudson LLC's
operating margins. The Corporation is unable, at this time, to evaluate the
future impact of these factors.
14
<PAGE> 15
Liquidity and Capital Expenditures and Commitments
The Corporation's recurring sources of liquidity are funds provided from
Hudson LLC and bank lines of credit. Hudson LLC pays to the Corporation an
overhead fee, which for fiscal 1998 and 1999 is equal to the sum of 3-1/2% of
Hudson LLC's consolidated domestic revenues and 1-1/4% of Hudson LLC's
consolidated Canadian revenues. It is anticipated that approximately $3.0
million of the Corporation's overhead will not be allocated to Hudson LLC on an
annual basis. In addition, the Limited Liability Company Agreement between the
Corporation, Hudson LLC and LAGS (USA) Inc. (an indirect wholly-owned subsidiary
of Deutsche Lufthansa AG) (LAGS) provides that distributions from Hudson LLC
will be paid annually to the Corporation and LAGS (the Members) in amounts at
least equal to 50% of its domestic net income and 10% of its Canadian pre-tax
earnings for the fiscal year, as defined, multiplied by the Members' respective
equity interests in Hudson LLC. The Corporation's 74% share of the distribution
in respect of fiscal 1998, in the amount of $8.1 million, was received in
November 1998. Furthermore, as a result of the conversion of the Corporation's
7% convertible subordinated debentures (the Debentures) in fiscal 1996 and 1997
into shares of the Corporation's common stock, Hudson LLC is, on a subordinated
basis (as defined), indebted to the Corporation. During the six months ended
December 31, 1998, Hudson LLC repaid $1.5 million of such debt to the
Corporation. Hudson LLC is obligated to repay to the Corporation $1.5 million on
July 15, 1999 and on each July 15th thereafter until the remaining principal
balance of $3.1 million is satisfied.
On November 2, 1998 (the Closing Date), LAGS exercised its option to
increase LAGS' interest in Hudson LLC from 26% to 49% (the Option). The exercise
price of the Option of $29,627,000 was paid to Hudson LLC by LAGS together with
interest aggregating $1.1 million, calculated at the rate of 11% per annum from
July 1, 1998 to the Closing Date. As a result of the exercise of the Option, the
Corporation's investment in Hudson LLC and paid in capital increased by $25.3
and $12.6 million (net of deferred income taxes and transactional 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
15
<PAGE> 16
Unit Purchase and Option Agreement (the Option Agreement) dated February 27,
1996 pursuant to which it acquired its initial 26% interest in Hudson LLC.
Pursuant to the terms of the Option Agreement, upon LAGS' exercise of the Option
on the Closing Date, LAGS' interest in Hudson LLC increased to 49%, and the
Corporation's interest was reduced to 51%, effective as of July 1, 1998. 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.
Pursuant to a Revolving Credit Agreement (the Credit Agreement) with a
group of banks dated June 1, 1996, the Corporation may borrow funds (including
outstanding letters of credit) up to a limit of $6.0 million until June 30, 1999
at which time the Credit Agreement terminates. There were no direct borrowings
or letters of credit outstanding at December 31, 1998.
During the six months ended December 31, 1998 and 1997, net cash used by
operating activities was $1.2 million, due mainly to payments of accrued
expenses and other liabilities. Cash and cash equivalents were $28.0 and $19.0
million at December 31, 1998 and June 30, 1998, respectively.
Hudson LLC's recurring sources of liquidity are funds provided from
operations, advances from the Corporation, third party financing agreements and
bank lines of credit. Pursuant to a Revolving Credit Agreement (the LLC Credit
Agreement) with a group of banks dated June 1, 1996, Hudson LLC could borrow
funds (including outstanding letters of credit) up to a limit of $18.0 million
(the LLC Limit) until September 30, 1998. At such time, the LLC Limit was
reduced by $1.1 million and will continue to reduce by $1.1 million at the end
of each subsequent quarter until June 30, 2002, at which time the LLC Credit
Agreement terminates. There were no borrowings and $1.3 million of outstanding
letters of credit at December 31, 1998. In addition, net advances to Hudson LLC
from the Corporation were $1.3 million as of December 31, 1998. At December 31,
1998, Hudson LLC had commitments to fund $11.5 million for operating equipment,
$7.5 and $4.0 million of which are expected to be expended during fiscal 1999
and 2000, respectively. In
16
<PAGE> 17
December 1998, Hudson LLC entered into a long-term financing arrangement
accounted for as a capital lease for equipment being used to provide de-icing
and snow removal services at Lester B. Pearson International Airport in Toronto.
As of December 31, 1998, $6.5 million of equipment had been funded under this
arrangement. Included in Hudson LLC's commitments is $2.2 and $1.3 million of
equipment which is expected to be funded under this long-term financing
arrangement in fiscal 1999 and 2000, respectively. Capital expenditures are
primarily for equipment and facilities used in Hudson LLC's operations.
Hudson LLC is unable to determine the extent of additional future
capital expenditures since, as a service company, its capital expenditure
requirements fluctuate depending upon facility requirements and equipment
purchases associated with Hudson LLC's ability to successfully obtain additional
contracts.
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 of the Project into 1,490 units. Pursuant to such ordinance,
the Venture is required to expend approximately $2.3 million for public
infrastructural improvements and in lieu payments. 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 (EIS). During fiscal 1993, the Judge in this
action granted Plaintiffs' motion for partial summary judgment relating to the
EIS claim, 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 1998, the Circuit Court ruled in favor of the County and the Venture on
the remanded issues. In July and September 1998, the Circuit Court granted
summary judgment in favor of the County and the Venture on all remaining claims
in the suit. In October 1998, a Plaintiff filed a timely notice of appeal from
the judgment entered in this matter. The Venture cannot determine the effect of
this litigation on the timing of
17
<PAGE> 18
development of Phase IV or expenditures related thereto until a decision related
to Plaintiff's appeal is rendered.
The Joint Venture Agreement provides that the Corporation and its
partner in the Venture, Oxford Kohala, Inc. (the Partner) are obligated to make
equal advances of any of the Venture's required fundings. It is anticipated that
the Venture's capital commitments will be funded by cash flow from its
operations and advances from the Corporation and the Partner, and that any
advances which the Corporation may be required to make to the Venture will be
provided from the Corporation's cash flow and lines of credit. Pursuant to the
Credit Agreement the Corporation may advance up to $2.0 million to the Venture
in any fiscal year or up to $5.0 million 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. At present, it is
anticipated that the advances required to meet the obligations of the Venture
will not exceed the limits set forth in the Credit Agreement. During the six
months ended December 31, 1998, the Corporation did not make any advances to the
Venture.
At December 31, 1998, the Venture had commitments (in addition to the
commitments noted above) aggregating $2.3 million for project expenditures,
including $1.7 million for the construction of water well equipment and a
reservoir by June 30, 1999. It is currently expected that funds for most of the
Venture's other commitments will be expended subsequent to fiscal 1999.
The extent to which advances to the Venture will be required in the
future, as well as the timing of the return to the Corporation of the advances
made by it, will depend upon the amount of sales generated by the Venture, the
terms upon which parcels are sold and expenses incurred in the planning and
development of future phases of the Project.
It is expected that the sources of the Corporation's liquidity, as noted
above, will provide sufficient funding to allow the Corporation to meet its
liquidity requirements.
The "Year 2000" issue results from computer programs that do not
differentiate between years commencing in 1900 and years commencing in 2000
because they were written using two digits rather than four to define the
applicable year (i.e. ignoring the century). Accordingly, computer systems
18
<PAGE> 19
and programs that process or utilize time-sensitive calculations may not
properly recognize the Year 2000. The Corporation has begun to replace hardware
and modify customized software so that its computer systems will function
properly in the Year 2000 and thereafter.
The Corporation also has commenced testing its computer systems and
anticipates completion of its information systems Year 2000 compliance in the
first half of calendar 1999. The Corporation has also initiated discussions with
its significant suppliers, customers and financial institutions to ascertain
whether these parties have plans regarding Year 2000 compliance (and the status
of such plans) where their systems interface with the Corporation's systems or
otherwise impact its operations. The Corporation has not determined the impact,
if any, on its operations if outside third parties with which it has a business
relationship fail to comply with Year 2000 requirements.
Management currently believes that the costs related to the
Corporation's compliance with the Year 2000 issue should not have a material
adverse effect on its consolidated financial position, results of operations or
cash flows. While the Corporation believes its planning efforts are adequate to
address its Year 2000 concerns, there can be no assurance that the systems of
other parties upon which the Corporation's business also relies will be Year
2000 compliant on a timely basis.
19
<PAGE> 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On November 24, 1998, the day after the Corporation publicly announced that it
had entered into an Agreement and Plan of Merger dated as of November 22, 1998
(the Merger Agreement) with River Acquisition Corp., a newly-formed Delaware
corporation owned by certain directors and senior executive officers of the
Corporation (River Acquisition) (see Item 5 Other Information below), two
purported class action lawsuits, each by a stockholder of the Corporation
against the Corporation and each of the Corporation'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 Corporation against
the Corporation and each of the Corporation'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
of the Corporation (the Common Stock) by River Acquisition is inadequate and
provides value substantially below the fair value of the Corporation, (ii) the
directors of the Corporation violated their fiduciary duties to the stockholders
of the Corporation, 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 Corporation's Common Stock, excluding the defendants and
those affiliated with the defendants, (ii) preliminarily and permanently
enjoining the Corporation from proceeding with the Merger, (iii) rescinding the
merger contemplated by the Merger Agreement (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. On
December 28, 1998, the Complaints were consolidated for all purposes, under the
caption In Re Hudson General Corporation Shareholders Litigation, Consolidated
C.A. 16804 (the Consolidated Complaint). On January 19, 1999, the Corporation
and the Corporation's directors filed an Answer denying the claims contained in
the Consolidated Complaint. The Corporation and the Corporation's directors
believe the Consolidated Complaint is without merit and intend to defend the
lawsuit vigorously.
20
<PAGE> 21
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Corporation, held on November 20,
1998, the only matter voted upon was the election of directors. All eight
incumbent directors of the Corporation were re-elected. The voting was as
follows:
<TABLE>
<CAPTION>
Shares for which
Name of Nominee Shares Voted For Authority Withheld
--------------- ---------------- ------------------
<S> <C> <C>
Milton H. Dresner 1,634,995 7,316
Jay B. Langner 1,635,095 7,216
Paul R. Pollack 1,635,095 7,216
Edward J. Rosenthal 1,635,095 7,216
Michael Rubin 1,634,395 7,916
Hans H. Sammer 1,634,395 7,916
Richard D. Segal 1,635,095 7,216
Stanley S. Shuman 1,633,750 8,561
</TABLE>
There were no abstentions or broker nonvotes.
Item 5. Other Information
On November 22, 1998, the Corporation entered into the Merger Agreement with
River Acquisition, pursuant to which, among other things, River Acquisition
would merge with and into the Corporation, with the Corporation as the surviving
corporation. As of the effective time of the Merger, each outstanding share of
Common Stock (other than treasury shares, dissenting shares and shares to be
owned by River Acquisition) was to be converted into the right to receive $57.25
in cash. The Merger Agreement has been approved by the Board of Directors of the
Corporation based upon the unanimous recommendation of a Special Committee of
the Board of Directors (the Special Committee) consisting of three directors who
are not employed by or affiliated with the Corporation (except in their
capacities as directors) and who would not have any equity interest in River
Acquisition.
On December 11, 1998, the Corporation announced that it had received a letter
from a third party, subsequently identified as Ranger Aerospace Corporation
(Ranger Aerospace), indicating a willingness to acquire all outstanding shares
of Common Stock at a price in excess of $57.25 per share. The Special Committee
exercised its rights under the Merger Agreement to permit Ranger Aerospace to
conduct a due diligence review of the Corporation. On February 2, 1999, the
Corporation announced that it had received a written proposal from Ranger
Aerospace to acquire all outstanding shares of Common Stock at a price of $62.00
per share in cash. On February 5, 1999, the Corporation announced that the
Special Committee had authorized the Corporation to engage in discussions and
negotiations with Ranger Aerospace concerning its acquisition proposal. Ranger
Aerospace's proposal is subject to receipt of financing and satisfactory
completion of a confirmatory due diligence review.
On February 10, 1999, the Corporation announced that: (i) it had received a
written proposal from GlobeGround GmbH (formerly known as Lufthansa Airport and
Ground Services GmbH), a subsidiary of Deutsche
21
<PAGE> 22
Lufthansa AG, to acquire all of the Corporation's outstanding shares of Common
Stock at a price of $67.00 per share in cash, subject to the approval of the
Supervisory Board of Deutsche Lufthansa AG not later than March 15, 1999; (ii)
it had received a written proposal from Ogden Corporation (Ogden) to acquire
all of the Corporation's outstanding shares of Common Stock at a price of $65.00
per share to be paid in either cash or common shares of Ogden, subject to a
customary due diligence review regarding the Corporation and its business
prospects and approval of Ogden's Board of Directors; (iii) the Special
Committee had authorized the Corporation to engage in discussions and
negotiations with GlobeGround GmbH and Ogden concerning their acquisition
proposals; and (iv) the Corporation had entered into an amendment to the Merger
Agreement pursuant to which River Acquisition increased the merger price to be
paid to the Corporation's stockholders from $57.25 per share in cash to $61.00
per share in cash.
22
<PAGE> 23
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
4.4(f) First Amendment to the Amended and Restated Revolving Credit
Agreement dated as of November 25, 1992, as amended and
restated as of June 1, 1996, among Hudson General Corporation,
Hudson General LLC, the Banks named therein and BankBoston,
N.A., as agent, dated as of December 11, 1998.
27 Financial Data Schedule.
b) Reports on Form 8-K
Current Report on Form 8-K dated October 16, 1998, reporting under Item 5
Other Events (and including Item 7(c) Exhibits) that on October 1, 1998,
LAGS (USA) Inc. gave notice to the Corporation of exercise of its option
to increase LAGS (USA) Inc.'s interest in Hudson General LLC from 26% to
49%.
Current Report on Form 8-K dated November 23, 1998, reporting under Item 5
Other Events (and including Item 7(c) Exhibits) that on November 22, 1998,
the Corporation entered into an Agreement and Plan of Merger, dated as of
November 22, 1998, with River Acquisition Corp., a newly formed Delaware
corporation owned by certain directors and senior executive officers of
the Corporation, pursuant to which, among other things, River Acquisition
Corp. would merge with and into the Corporation, with the Corporation as
the surviving corporation.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUDSON GENERAL CORPORATION
(Registrant)
Date: February 11, 1999
/s/ MICHAEL RUBIN
---------------------------
Michael Rubin
President
/s/ BARRY REGENSTEIN
---------------------------
Barry Regenstein
Chief Financial Officer
24
<PAGE> 25
HUDSON GENERAL CORPORATION & SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Page No.
- --- ------- --------
<S> <C> <C>
4.4(f) First Amendment to the Amended and Restated Revolving Credit 26-31
Agreement dated as of November 25, 1992, as amended and
restated as of June 1, 1996, among Hudson General Corporation,
Hudson General LLC, the Banks named therein and BankBoston,
N.A., as agent, dated as of December 11, 1998.
27 Financial Data Schedule 32
</TABLE>
<PAGE> 1
EXHIBIT 4.4 (f)
First Amendment to the Amended and Restated Revolving
Credit Agreement dated as of November 25, 1992, as
amended and restated as of June 1, 1996, among Hudson
General Corporation, Hudson General LLC, the Banks named
therein and BankBoston, N.A., as agent, dated as of
December 11, 1998
<PAGE> 2
EXHIBIT 4.4(f)
HUDSON GENERAL CORPORATION
HUDSON GENERAL LLC
FIRST AMENDMENT
FIRST AMENDMENT ("Amendment"), dated as of December 11, 1998, among
Hudson General Corporation, a Delaware corporation, Hudson General LLC, a
Delaware limited liability company, the Banks party to the Credit Agreement
referred to below, and BankBoston, N.A. as agent for itself and the other Banks.
The parties agree as follows:
1. REFERENCE TO CREDIT AGREEMENT. Reference is made to the Revolving
Credit and Term Loan Agreement, dated as of November 25, 1992 and
amended and restated as of June 1, 1996, among Hudson General
Corporation, Hudson General LLC, the Banks named therein and
BankBoston, N.A. as agent for itself and the other Banks (such
agreement, the "Credit Agreement"). Capitalized terms which are used
herein without definition and which are defined in the Credit Agreement
shall have the same meanings herein as therein.
2. AMENDMENT TO CREDIT AGREEMENT. The Credit Agreement is hereby
amended as follows:
2.1. SECTION 5.12. LIMITATION ON BORROWING. This section is amended
to add the following clause after clause (i) thereof:
(j) CDF Indebtedness in an aggregate amount not to exceed
$15,000,000.
2.2. SECTION 5.13. RESTRICTION ON LIENS. This section is amended to
add the following at the end of clause (h) thereof:
"liens on the CDF Equipment and CDF Contract Rights in favor
of Newcourt Financial Ltd. in order to secure obligations of
Aviation in respect of the CDF Indebtedness; and liens on the
CDF Equipment in favor of Greater Toronto Airports Authority
("GTAA") to secure obligations of Aviation under the Central
De-Icing Facility Services Agreement dated as of December 29,
1997 between GTAA and Aviation, to be amended as of December
18, 1998 pursuant to an amendment in substantially the form
attached hereto (the "Services Agreement");".
2.3. SECTION 5.14. LIMITATION ON LEASE COMMITMENTS. This section is
amended in its entirety to read as follows:
The aggregate of the annual rental payments of the Company and its
Subsidiaries with respect to leases of personal property
having original terms of three years or more, other than
leases on which a Subsidiary of the Company is lessor and the
Company is lessee, shall not exceed $7,500,000 in any fiscal
year.
2.4. SECTION 5.15. INVESTMENTS AND CONTINGENT LIABILITIES. This
section is amended in its entirety to read as follows:
<PAGE> 3
Neither the Company nor any of its Subsidiaries will make or
have outstanding at any time any investments or contingent
liabilities, including, without limitation, any investments or
contingent liabilities in or with respect to Hudson Kohala
Inc., whether by way of loan, advance, guaranty, letter of
credit exposure, extension of credit, purchase of stocks,
notes, bonds or other securities or evidences of indebtedness,
or acquisition of limited or general partnership interests,
other than:
(a) those in existence on the date of this Agreement and
shown on Schedule 5.15 attached hereto, and any
renewals, extensions or refinancings thereof, provided
that the amount thereof is not increased;
(b) investments in marketable, investment grade, direct or
guaranteed obligations of (i) the United States of
America (referred to as Treasury or Agency securities)
or Repurchase Agreements collateralized by such
obligations; or (ii) any State or municipality thereof,
which mature within seven years from the date of
purchase;
(c) investments in demand deposits, certificates of
deposits, time deposits, banker's acceptances and notes
of any Bank or any domestic or foreign financial
institution having total capital and unimpaired surplus
of at least $1,000,000,000 and which, at the time of
purchase, have been rated by either of Moody's Investor
Service, Inc. ("Moody's") or Standard and Poor's Rating
Group ("S&P") and the ratings for such financial
institution are not less than P-1/A if rated by Moody's
or A-1/A if rated by S&P;
(d) securities commonly known as "commercial paper",
"master notes" or corporate bonds which mature within
seven years from the date of purchase, in each case
issued by a corporation which at the time of purchase
have been rated by either of Moody's or S&P, and the
ratings for such commercial paper are not less than
"P-1" if rated by Moody's or "A-1" if rated by S&P, and
for such bonds, are not less than "A" if rated by
either Moody's or S&P;
(e) Money market mutual funds that invest in securities
referred to in (b) through (d) above;
(f) (i) the Guaranty, (ii) each Subsidiary Guaranty, and
(iii) unsecured guaranties by the Company of
obligations of Subsidiaries (other than Aviation and
the Foreign Subsidiaries) aggregating no more than
$5,000,000 at any one time outstanding;
(g) those arising in the ordinary course of business or
consistent with the past business practices of the
Company and its Subsidiaries;
(h) investments in Subsidiaries (other than Aviation and
the Foreign Subsidiaries);
<PAGE> 4
(i) letters of credit (including Letters of Credit) of not
more than $7,000,000 in the aggregate at any one time
outstanding;
(j) the guaranty by the Company of obligations of Aviation,
specifically relating to the financing of CDF Equipment
in an amount not to exceed $10,000,000;
(k) with respect to Aviation, investments permitted under
the Aviation Revolving Credit Agreement;
(l) in addition to the foregoing, investments by the
Company and its subsidiaries not exceeding $3,000,000
in the aggregate at any one time outstanding;
(m) investments in Aviation and the Foreign Subsidiaries
and investments in Joint Ventures, provided that the
aggregate amount by which such investments increase
during the period commencing on the date hereof and
ending on any date of determination (disregarding for
purposes of this calculation an investment of one type
which is replaced by an investment of another type in
an identical amount) shall not exceed $5,000,000; and
(n) investments by the Company in a passenger handling
services entity which is an affiliate of LAGS or
Deutsche Lufthansa AG, as set forth in Paragraph 10.3
of the Purchase Agreement.
2.5. SECTION 5.18 LIMITATIONS ON CAPITAL EXPENDITURES. This section
is amended to insert the following after the second "capital
expenditures" appearing in such section:
other than expenditures in an aggregate amount not to exceed
$15,000,000 for the acquisition or lease of CDF Equipment,
2.6. EXHIBIT A - DEFINITIONS. Definitions shall be amended and
added as follows:
Definitions shall be amended as follows:
CONSOLIDATED CASH INTEREST - Insert after "indebtedness"
appearing in such definition:
other than CDF Indebtedness,
CONSOLIDATED DEBT SERVICE - Insert after "Revolving Credit
Loans" appearing in such definition:
and the CDF Indebtedness
CONSOLIDATED LIABILITIES - Delete all text from immediately
after "equal to" appearing in such definition and add the
following:
<PAGE> 5
(a) the consolidated deferred tax debits of the Company and
its Subsidiaries, and (b) CDF Indebtedness, all as determined
in accordance with generally accepted accounting principles.
Definitions shall be added in the order required by
alphabetical order as follows:
CDF CONTRACT RIGHTS - Contractual rights of Aviation under
Sections 12.2(b)(i) and 12.3(b)(i) of the Services
Agreement and the contractual right of Aviation under the
Services Agreement to require GTAA to assume or repay
Aviation's obligations in respect of the CDF Indebtedness.
CDF EQUIPMENT - Capital assets to be acquired or leased and
utilized by Aviation in providing deicing services at the
Central Deicing Facility at Lester B. Pearson International
Airport in Toronto.
CDF INDEBTEDNESS - The indebtedness of Aviation to unrelated
third party lenders incurred solely for the financing of, and
secured by, the CDF Equipment.
SERVICES AGREEMENT - See paragraph 5.13(h).
3. REPRESENTATIONS AND WARRANTIES. In order to induce the Banks to
enter into this Amendment, the Company represents and warrants to the
Banks that (i) this Amendment and the Credit Agreement, as amended
hereby (the "Amended Credit Agreement"), have been duly authorized and
are its legal, valid and binding obligations, enforceable against the
Company in accordance with their terms, (ii) this Amendment and the
Amended Credit Agreement do not conflict with any charter document,
agreement, instrument or undertaking binding upon the Company or any of
its properties, (iii) no Default, or situation which with the giving of
notice or the passage of time or both would become a Default, now
exists or will exist after giving effect to this Amendment, and (iv)
the representations and warranties contained in the Credit Agreement
and this Amendment are true and correct as of the date hereof.
4. MISCELLANEOUS. The Amended Credit Agreement and all of the Loan
Documents are each ratified and confirmed as being and continuing in
full force and effect. This Amendment, the Amended Credit Agreement and
the other Loan Documents constitute the entire understanding of the
parties with respect to the subject matter hereof and thereof and
supersede all prior understandings and agreements, whether written or
oral. This Amendment and the Credit Agreement shall be read and
construed as one agreement, and, except as expressly amended hereby,
the Credit Agreement remains unchanged. The headings in this Amendment
are for convenience of reference only and shall not alter, limit or
otherwise affect the meaning hereof. This Amendment is a Loan Document
as defined in the Amended Credit Agreement and may be executed in any
number of counterparts, which together shall constitute one instrument,
and shall bind and inure to the benefit of the parties and their
respective successors and permitted assigns. The Company shall pay all
costs and expenses, including reasonable legal fees and
<PAGE> 6
disbursements of the Agent's counsel, incurred by the Agent in
preparing this Amendment. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN THE CONFLICT OF LAWS
RULES) OF THE COMMONWEALTH OF MASSACHUSETTS.
The undersigned have executed this Amendment under seal by a duly
authorized officer as of the date first set forth above.
HUDSON GENERAL CORPORATION
By:
-----------------------
Title:
HUDSON GENERAL LLC
By:
-----------------------
Title:
BANKBOSTON, N.A.,
for itself and as Agent
By:
-----------------------
Title:
EUROPEAN AMERICAN BANK
By:
-----------------------
Title:
THE CHASE MANHATTAN BANK
By:
-----------------------
Title
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