Hudson General Corp – ‘PREM14A’ on 12/23/98

As of:  Wednesday, 12/23/98   ·   Accession #:  950136-98-2347   ·   File #:  1-05896

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

Preliminary Proxy Solicitation Material — Merger or Acquisition   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: PREM14A     Preliminary Materials                                154    865K 

Document Table of Contents

PREM14A
1st Page of 154
TOC
↑Top
Previous
Next
↓Bottom
Just 1st
 
PRELIMINARY PROXY MATERIALS 

SCHEDULE 14A INFORMATION  
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934 

Filed by the Registrant [X]                                                     

Filed by a Party other than the Registrant [ ]                                  

Check the appropriate box:                                                      

[X] Preliminary Proxy Statement                                                 

[ ] Definitive Proxy Statement                                                  

[ ] Definitive Additional Materials                                             

[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12               

[ ] Confidential, for Use of the Commission Only (as permitted by               
Rule 14a-6(e)(2))                                                       

FILING BY:
HUDSON GENERAL CORPORATION
------------------------------------------------------------------------------- 
(Name of Registrant as Specified in its Charter)  

N/A 
------------------------------------------------------------------------------- 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):                              

[ ]      No fee required.                                                       

[X]      Fee computed on table below per Exchange Act Rules                     
14a-6(i)(1) and 0-11.                                         

 (1)      Title of each class of securities to which transaction
               applies: Common Stock, par value $1.00 per share, of Hudson
General Corporation                         

       (2)      Aggregate number of securities to which transaction applies:
           1,744,949 shares of Common Stock based on the number of
shares outstanding on December 23, 1998.    

  (3)      Per unit price or other underlying value of transaction
               computed pursuant to Exchange Act Rule 0-11: The filing fee
               of $16,229.00 was calculated pursuant to Rule 0-11(c)(1) of
               the Securities Exchange Act of 1934, as amended, and is the
               product of multiplying (A) 1/50 of 1% by an amount equal to
                (B) the sum of (x) the product of 1,744,949 shares of Common
                Stock less the 329,270 shares of Common Stock contributed by
             the Buyout Group to River Acquisition Corp. by $57.25 per
                share and (y) 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.

(4)      Proposed maximum aggregate value of transaction:     
81,140,932.00                               

(5)      Total fee paid: $16,229.00                           

[ ]      Fee paid previously with preliminary materials.                        

[X]      Check box if any part of the fee is offset as provided by Exchange     
      Act Rule 0-11(a)(2) and identify the filing for which the offsetting
       fee was paid previously. Identify the previous filing by registration
       statement number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid: $16,229.00                        
            ------------------------------------------------------------------

  (2) Form, Schedule or Registration Statement No.: Schedule 13E-3
            ------------------------------------------------------------------

 (3) Filing Party: Hudson General Corporation, River Acquisition
Corp., Jay B. Langner and Richard D. Segal            
            ------------------------------------------------------------------

(4) Date Filed: December 23, 1998                             
            ------------------------------------------------------------------

As filed with the Commission on December 23, 1998 

PREM14A
2nd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 2nd
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.                                           

PREM14A
3rd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 3rd
    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. 

PREM14A
4th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 4th
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.  

PREM14A
5th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 5th
TABLE OF CONTENTS 

                                                                [Download Table]
                                                                                   
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

i 

PREM14A
6th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 6th
                                                        [Enlarge/Download Table]
                                                                                       
   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

ii

PREM14A
7th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 7th
QUESTIONS AND ANSWERS ABOUT THE MERGER  

                                                        [Enlarge/Download Table]

                                                                                                  
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.                  

1 

PREM14A
8th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 8th
                                                        [Enlarge/Download Table]

                                                                                                   
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.                                          

2 

PREM14A
9th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 9th
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 

PREM14A
10th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 10th
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 

PREM14A
11th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 11th
 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 

PREM14A
12th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 12th
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 

PREM14A
13th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 13th
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 

PREM14A
14th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 14th
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 

PREM14A
15th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 15th
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 

PREM14A
16th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 16th
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

PREM14A
17th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 17th
SELECTED HISTORICAL AND PRO FORMA 
CONSOLIDATED FINANCIAL DATA OF THE COMPANY

                                                        [Enlarge/Download Table]

                                            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                                                                                                 
                                                                                                                      
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    


                                      AS OF AND FOR THE FISCAL YEARS ENDED                                            
                                                    JUNE 30,                                                          
                                      -----------------------------------                                             
                                        1996(A)       1995        1994                                                
                                      ----------- ----------- -----------                                             
INCOME STATEMENT DATA                                                                                                 
                                                                                                                      
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          --                                               

---------                                                                       
(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

PREM14A
18th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 18th
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.  

                                                        [Enlarge/Download Table]

                                                        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)                         
                                                                                                                       
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    

12

PREM14A
19th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 19th
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

PREM14A
20th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 20th
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

PREM14A
21st Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 21st
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                                                  

15

PREM14A
22nd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 22nd
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.             

16

PREM14A
23rd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 23rd
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          

17

PREM14A
24th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 24th
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.          

18

PREM14A
25th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 25th
  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.                              

19

PREM14A
26th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 26th
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                         

20

PREM14A
27th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 27th
"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.                                                       

21

PREM14A
28th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 28th
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.           

22

PREM14A
29th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 29th
 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                                   

23

PREM14A
30th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 30th
  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                                    

24

PREM14A
31st Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 31st
   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                                  

25

PREM14A
32nd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 32nd
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                                                                   

26

PREM14A
33rd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 33rd
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                                          

27

PREM14A
34th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 34th
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               

28

PREM14A
35th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 35th
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.                                            

29

PREM14A
36th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 36th
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                                          

30

PREM14A
37th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 37th
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.                               

31

PREM14A
38th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 38th
   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.                

32

PREM14A
39th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 39th
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.     

                                                        [Enlarge/Download Table]

                                                                        YEARS ENDING JUNE 30,                        
                                                ---------------------------------------------------------------------
                                                   1999      2000      2001      2002      2003      2004      2005  
                                                --------- --------- --------- --------- --------- --------- ---------
                                                        (DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)         
                                                                                                                     
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 
                                                 ======    ======    =======   =======   =======   =======   ======= 

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,                                   

33

PREM14A
40th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 40th
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.                                                            

                                                        [Enlarge/Download Table]

                                                                         YEARS ENDING JUNE 30,                         
                                                -----------------------------------------------------------------------
                                                    1999       2000      2001      2002      2003      2004      2005  
                                                ----------- --------- --------- --------- --------- --------- ---------
                                                         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)          
                                                                                                                       
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 
                                                 ========    ======    ======    ======    =======   =======   ======= 

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.                          

34

PREM14A
41st Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 41st
(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

PREM14A
42nd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 42nd
    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                                

36

PREM14A
43rd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 43rd
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               

37

PREM14A
44th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 44th
"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                              

38

PREM14A
45th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 45th
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.                                                        

39

PREM14A
46th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 46th
  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                               

40

PREM14A
47th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 47th
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                                                                             

41

PREM14A
48th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 48th
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:                                                                     

                                                                [Download Table]

                                                                       
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
                                                             ==========

----------                                                                      
(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.               

42

PREM14A
49th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 49th
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                                                        

43

PREM14A
50th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 50th
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                            

44

PREM14A
51st Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 51st
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                      

45

PREM14A
52nd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 52nd
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.                                                                      

46

PREM14A
53rd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 53rd
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).                                                  

47

PREM14A
54th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 54th
 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.                                                 

48

PREM14A
55th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 55th
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."                                         

49

PREM14A
56th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 56th
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.                 

50

PREM14A
57th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 57th
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                            

51

PREM14A
58th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 58th
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   

52

PREM14A
59th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 59th
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.       

53

PREM14A
60th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 60th
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                                                    

                                                        [Enlarge/Download Table]

                                                         HIGH       LOW      DIVIDENDS
                                                      ---------  ---------  ----------
                                                                                      
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          --  

   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

PREM14A
61st Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 61st
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.                                               

                                                        [Enlarge/Download Table]

                                                 SOLE VOTING     SHARED VOTING     PERCENTAGE  
                                                     AND              AND              OF      
                                                 INVESTMENT        INVESTMENT      OUTSTANDING 
NAME AND ADDRESS OF BENEFICIAL OWNER                POWER            POWER           SHARES    
--------------------------------------------  ----------------  ---------------  --------------
                                                                                               
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                                                                            

(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

PREM14A
62nd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 62nd
(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

PREM14A
63rd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 63rd
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:             

                                                        [Enlarge/Download Table]

                                                              NUMBER OF     PERCENTAGE OF OUTSTANDING
NAME OF BENEFICIAL OWNER                                    SHARES OWNED       COMMON STOCK OWNED    
--------------------------------------------------------- ---------------- --------------------------
                                                                                                     
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%          

----------                                                                      
(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

PREM14A
64th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 64th
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.                                

                                                        [Enlarge/Download Table]

                                                                                     YEAR FIRST
                                                                                      BECAME A 
NAME                           BUSINESS ADDRESS AND PRINCIPAL OCCUPATIONS             DIRECTOR 
-----------------------------  ---------------------------------------------------  -----------
                                                                                               
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.                                                          

58

PREM14A
65th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 65th
                                                        [Enlarge/Download Table]

                                                                                      YEAR FIRST
                                                                                       BECAME A 
NAME                            BUSINESS ADDRESS AND PRINCIPAL OCCUPATIONS             DIRECTOR 
------------------------------  ---------------------------------------------------  -----------
                                                                                                
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.                                             

59

PREM14A
66th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 66th
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

PREM14A
67th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 67th
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

PREM14A
68th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 68th
                                                                  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.                                          

                                                                [Download Table]

                                 NUMBER                     
TRANSACTION DATE               OF SHARES     PRICE PER SHARE
---------------------------   -----------   ----------------
                                                            
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                     

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.                                                                   

                                                                [Download Table]

                                NUMBER OF OPTIONS                    
NAME                                EXERCISED       TRANSACTION DATE 
------------------------------ ------------------ -------------------
                                                                     
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                          

S-1 

PREM14A
69th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 69th
                                                                       ANNEX A

AGREEMENT AND PLAN OF MERGER
BETWEEN 
HUDSON GENERAL CORPORATION
AND 
RIVER ACQUISITION CORP. 
DATED AS OF 
NOVEMBER 22, 1998 

PREM14A
70th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 70th
TABLE OF CONTENTS 

ARTICLE I 
THE MERGER  

                                                                [Download Table]

                                                                               
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

i 

PREM14A
71st Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 71st
                                                        [Enlarge/Download Table]
                                                                                     
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

ii

PREM14A
72nd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 72nd
                                                                       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.   

A-1 

PREM14A
73rd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 73rd
  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                           

A-2 

PREM14A
74th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 74th
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       

A-3 

PREM14A
75th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 75th
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                                                                         

A-4 

PREM14A
76th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 76th
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.       

A-5 

PREM14A
77th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 77th
 (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            

A-6 

PREM14A
78th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 78th
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.                                     

A-7 

PREM14A
79th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 79th
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,                            

A-8 

PREM14A
80th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 80th
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                                             

A-9 

PREM14A
81st Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 81st
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                                                

A-10

PREM14A
82nd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 82nd
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,                                     

A-11

PREM14A
83rd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 83rd
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                        

A-12

PREM14A
84th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 84th
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)            

A-13

PREM14A
85th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 85th
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                                                         

A-14

PREM14A
86th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 86th
(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.                                                                      

A-15

PREM14A
87th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 87th
    (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

PREM14A
88th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 88th
(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

PREM14A
89th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 89th
   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

PREM14A
90th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 90th
   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

PREM14A
91st Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 91st
                                                                       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 

PREM14A
92nd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 92nd
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 

PREM14A
93rd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 93rd
                                                                       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 

PREM14A
94th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 94th
  (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 

PREM14A
95th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 95th
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.                                            

C-3 

PREM14A
96th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 96th
  (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 

PREM14A
97th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 97th
                                                                         ANNEX D

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF HUDSON GENERAL CORPORATION AND SUBSIDIARIES

                                                        [Enlarge/Download Table]

                                                                                        PAGE 
                                                                                        -----
                                                                                             
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 

D-1 

PREM14A
98th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 98th
CONSOLIDATED STATEMENTS OF EARNINGS 

HUDSON GENERAL CORPORATION AND SUBSIDIARIES 
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)  

                                                                [Download Table]

                                                          THREE MONTHS ENDED     
                                                            SEPTEMBER 30,        
                                                     ----------------------------
                                                          1998           1997    
                                                     -------------   ------------
                                                      (UNAUDITED)     (UNAUDITED)
                                                                                 
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   
                                                        ======          ======   

See accompanying notes to consolidated financial statements.  

D-2 

PREM14A
99th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 99th
CONSOLIDATED BALANCE SHEETS 

HUDSON GENERAL CORPORATION AND SUBSIDIARIES 
(IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                                      SEPTEMBER 30,     JUNE 30,  
                                                                           1998           1998    
                                                                     ---------------  ------------
                                                                       (UNAUDITED)                
                                                                                                  
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  
                                                                        =========      =========  

See accompanying notes to consolidated financial statements.  

D-3 

PREM14A
100th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 100th
CONSOLIDATED STATEMENTS OF CASH FLOWS 

HUDSON GENERAL CORPORATION AND SUBSIDIARIES 
(IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                                               THREE MONTHS ENDED     
                                                                                 SEPTEMBER 30,        
                                                                          ----------------------------
                                                                               1998           1997    
                                                                          -------------   ------------
                                                                           (UNAUDITED)     (UNAUDITED)
                                                                                                      
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  
                                                                            ========        ========  

See accompanying notes to consolidated financial statements.

D-4 

PREM14A
101st Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 101st
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:

                                                        [Enlarge/Download Table]

                                                                     SEPTEMBER 30,    JUNE 30,
                                                                          1998          1998  
                                                                    ---------------  ---------
(IN THOUSANDS)                                                        (UNAUDITED)             
                                                                                              
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 
                                                                        =======       ======= 

D-5 

PREM14A
102nd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 102nd
Summary results of operations for Hudson LLC are as follows:                    

                                                                [Download Table]

                                                          THREE MONTHS ENDED     
                                                            SEPTEMBER 30,        
                                                     ----------------------------
                                                          1998           1997    
                                                     -------------   ------------
(IN THOUSANDS)                                        (UNAUDITED)     (UNAUDITED)
                                                                                 
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   
                                                        =======        =======   

  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 

PREM14A
103rd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 103rd
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:

                                                        [Enlarge/Download Table]

                                                         SEPTEMBER 30,     JUNE 30,  
                                                              1998           1998    
                                                        ---------------  ------------
(IN THOUSANDS)                                            (UNAUDITED)                
                                                                                     
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  
                                                           =========      =========  

D-7 

PREM14A
104th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 104th
Summary results of operations for the Venture are as follows: 

                                                                [Download Table]

                                                         THREE MONTHS ENDED     
                                                           SEPTEMBER 30,        
                                                    ----------------------------
                                                         1998           1997    
                                                    -------------   ------------
(IN THOUSANDS)                                       (UNAUDITED)     (UNAUDITED)
                                                                                
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) 
                                                      ========        ========  

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: 

                                                                [Download Table]

                                   SEPTEMBER 30,     JUNE 30,
                                        1998           1998  
                                  ---------------   ---------
(IN THOUSANDS)                      (UNAUDITED)              
                                                             
Salaries and wages ............        $  109        $1,917  
Retirement plan costs .........           369           307  
Income taxes payable ..........           459           192  
Other .........................           254           212  
                                       ------        ------  
                                       $1,191        $2,628  
                                       ======        ======  

   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:                                        

                                                        [Enlarge/Download Table]

                                                                                THREE MONTHS ENDED     
                                                                                  SEPTEMBER 30,        
                                                                           ----------------------------
                                                                                1998           1997    
                                                                           -------------   ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                                    (UNAUDITED)     (UNAUDITED)
                                                                                                       
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   
                                                                               ======         ======   

6. Certain items previously reported in specific financial statement  
captions have been reclassified to conform with the fiscal 1999 presentation.   

D-8 

PREM14A
105th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 105th
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 

PREM14A
106th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 106th
HUDSON GENERAL CORPORATION AND SUBSIDIARIES 

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET  
SEPTEMBER 30, 1998
(UNAUDITED, AMOUNTS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                                                                                    PRO FORMA                                  
                                                    HISTORICAL                     ADJUSTMENTS                       PRO FORMA 
                                                   ------------ -------------------------------------------------  ------------
                                                                                                                               
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  
                                                    =========              =================                        =========  

See accompanying notes to pro forma condensed consolidated financial statements.

D-10

PREM14A
107th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 107th
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)  

                                                        [Enlarge/Download Table]

                                                                        PRO FORMA                
                                                      HISTORICAL       ADJUSTMENTS      PRO FORMA
                                                     ------------  ------------------  ----------
                                                                                                 
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  
                                                        ======                           ======  

See accompanying notes to pro forma condensed consolidated financial statements.

D-11

PREM14A
108th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 108th
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)  

                                                        [Enlarge/Download Table]

                                                                               PRO FORMA                 
                                                            HISTORICAL        ADJUSTMENTS       PRO FORMA
                                                           ------------  --------------------  ----------
                                                                                                         
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 
                                                             ========                           ======== 

See accompanying notes to pro forma condensed consolidated financial statements.

D-12

PREM14A
109th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 109th
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

PREM14A
110th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 110th
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

PREM14A
111th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 111th
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

PREM14A
112th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 112th
CONSOLIDATED STATEMENTS OF EARNINGS 

HUDSON GENERAL CORPORATION AND SUBSIDIARIES 
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)  

                                                        [Enlarge/Download Table]

                                                               YEAR ENDED JUNE 30,          
                                                     ---------------------------------------
                                                         1998          1997          1996   
                                                     -----------   -----------   -----------
                                                                                            
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  
                                                      ========      =========     ========  

See accompanying notes to consolidated financial statements.  

D-16

PREM14A
113th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 113th
CONSOLIDATED BALANCE SHEETS 

HUDSON GENERAL CORPORATION AND SUBSIDIARIES 
(IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                                                   JUNE 30,          
                                                                          ---------------------------
                                                                              1998           1997    
                                                                          ------------   ------------
                                                                                                     
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  
                                                                           =========      =========  

See accompanying notes to consolidated financial statements.  

D-17

PREM14A
114th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 114th
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 

HUDSON GENERAL CORPORATION AND SUBSIDIARIES 
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                                                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     
--------------------------------- ----------- --------- ---------- ---------- --------------- ------------ --------------
                                                                                                                         
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   
                                   =========   ======    =======    ========     ========      =========      ========   

See accompanying notes to consolidated financial statements.  

D-18

PREM14A
115th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 115th
CONSOLIDATED STATEMENTS OF CASH FLOWS 

HUDSON GENERAL CORPORATION AND SUBSIDIARIES 
(IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                                           YEAR ENDED JUNE 30,           
                                                                -----------------------------------------
                                                                    1998          1997           1996    
                                                                -----------   ------------   ------------
                                                                                                         
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  
                                                                 =========     =========      =========  

See accompanying notes to consolidated financial statements.

D-19

PREM14A
116th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 116th
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

PREM14A
117th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 117th
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:                                                                        

                                                        [Enlarge/Download Table]

                                                                           1998        1997         1996   
                                                                        --------- -------------- ----------
                                                                          (IN THOUSANDS, EXCEPT PER SHARE  
                                                                                     AMOUNTS)              
                                                                                                           
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  
                                                                         ======       ======      =======  

----------                                                                      
(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

PREM14A
118th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 118th
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

PREM14A
119th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 119th
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:                                                        

                                                        [Enlarge/Download Table]

                                                                       1998        1997   
                                                                    ---------   ----------
                                                                        (IN THOUSANDS)    
                                                                                          
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  
                                                                     =======     =======  

    Summary results of operations for Hudson LLC for fiscal 1998, 1997 and the
month of June 1996 are as follows:                                              

                                                        [Enlarge/Download Table]

                                                         1998          1997         1996   
                                                     -----------   -----------   ----------
                                                                 (IN THOUSANDS)            
                                                                                           
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  
                                                      ========      ========      =======  

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

PREM14A
120th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 120th
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:                                                   

                                                        [Enlarge/Download Table]

                                                                   1998           1997    
                                                               ------------   ------------
                                                                     (IN THOUSANDS)       
                                                                                          
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  
                                                                =========      =========  

D-24

PREM14A
121st Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 121st
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:                                    

                                                        [Enlarge/Download Table]

                                                        1998            1997          1996    
                                                    ------------   -------------  ------------
                                                                  (IN THOUSANDS)              
                                                                                              
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) 
                                                      ========       =========      ========  

 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:                                                     

                                                                [Download Table]

                                     1998        1997  
                                  ---------   ---------
                                     (IN THOUSANDS)    
                                                       
Salaries and wages ............    $1,917      $1,940  
Retirement plan costs .........       307         319  
Other .........................       404         277  
                                   ------      ------  
                                   $2,628      $2,536  
                                   ======      ======  

   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:              

                                                        [Enlarge/Download Table]

                                                       ESTIMATED                             
                                                     USEFUL LIVES       1998          1997   
                                                    --------------  -----------   -----------
                                                                         (IN THOUSANDS)      
                                                                                             
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  
                                                                     ========      ========  

  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

PREM14A
122nd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 122nd
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

PREM14A
123rd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 123rd
7. INCOME TAXES                                                                 

   Provision for income taxes consisted of the following for the years ended
June 30, 1998, 1997 and 1996:                                                   

                                                                [Download Table]

                        1998        1997        1996  
                      --------   ---------   ---------
                               (IN THOUSANDS)         
                                                      
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  
                       ======     ======      ======  

   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:      

                                                        [Enlarge/Download Table]

                                                                     1998        1997        1996  
                                                                  ---------   ---------   ---------
                                                                           (IN THOUSANDS)          
                                                                                                   
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  
                                                                   ======      ======      ======  

Deferred tax assets (liabilities) are comprised of the following as of
June 30, 1998 and 1997:                                                         

                                                        [Enlarge/Download Table]

                                                                      1998           1997   
                                                                  ------------   -----------
                                                                        (IN THOUSANDS)      
                                                                                            
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) 
                                                                    ========      ========  

D-27

PREM14A
124th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 124th
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:       

                                                                [Download Table]
                                                  
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 
                                           ====== 

 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

PREM14A
125th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 125th
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:

                                                                [Download Table]
                                                  
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 
                                           ====== 

    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:                                                       

                                                                [Download Table]
                                                                      
Exercise of incentive stock options--1981 Plan .............     5,700
Exercise of non-qualiifed stock options--1981 Plan .........    31,400
                                                                ------
 Total .....................................................    37,100
                                                                ======

    (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

PREM14A
126th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 126th
    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

PREM14A
127th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 127th
12. QUARTERLY FINANCIAL DATA (UNAUDITED)                                        

  The following table sets forth unaudited quarterly financial information
for fiscal 1998 and 1997:                                                       

                                                        [Enlarge/Download Table]

                                              FIRST      SECOND     THIRD          FOURTH     
 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)    QUARTER    QUARTER    QUARTER        QUARTER     
------------------------------------------  ---------  ---------  ---------  -----------------
                                                                                              
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)    
                                             ------     ------     ------       ---------     

----------                                                                      
(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

PREM14A
128th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 128th
HUDSON GENERAL CORPORATION AND SUBSIDIARIES 

VALUATION AND QUALIFYING ACCOUNTS 
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996  

                                                        [Enlarge/Download Table]

         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  
--------------------------  ------------  ------------   ------------------------------  -------------------  -----------
                                                                                                                         
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)    $     --  
                            ==========      ========           ===============               ==========        ========  

----------                                                                      
NOTES:                                                                          

(A)        Write-offs.                                                          

(B)        Foreign exchange.                                                    

(C)        Recoveries.                                                          

(D)        Includes transfer of $1,804,000 to Hudson General LLC.               

D-32

PREM14A
129th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 129th
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

PREM14A
130th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 130th
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME  

HUDSON GENERAL LLC AND SUBSIDIARIES 
(IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                        YEAR ENDED JUNE 30,      PERIOD JUNE 1 
                                                     -------------------------   (INCEPTION) TO
                                                         1998          1997      JUNE 30, 1996 
                                                     -----------   -----------  ---------------
                                                                                               
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    
                                                      ========      ========        =======    

See accompanying notes to consolidated financial statements.  

D-34

PREM14A
131st Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 131st
CONSOLIDATED BALANCE SHEETS 

HUDSON GENERAL LLC AND SUBSIDIARIES 
(IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                                            JUNE 30,        
                                                                    ------------------------
                                                                        1998         1997   
                                                                    -----------   ----------
                                                                                            
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 
                                                                     ========      ======== 

See accompanying notes to consolidated financial statements.  

D-35

PREM14A
132nd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 132nd
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)

                                                        [Enlarge/Download Table]

                                                                               ACCUMULATED                
                                                                                  OTHER                   
                                                 CONTRIBUTED     RETAINED     COMPREHENSIVE     MEMBERS'  
                                                   CAPITAL       EARNINGS         INCOME         EQUITY   
                                                -------------  ------------  ---------------  ------------
                                                                                                          
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  
                                                   =======      =========        =======       =========  

See accompanying notes to consolidated financial statements.  

D-36

PREM14A
133rd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 133rd
CONSOLIDATED STATEMENTS OF CASH FLOWS 

HUDSON GENERAL LLC AND SUBSIDIARIES 
(IN THOUSANDS)  

                                                        [Enlarge/Download Table]

                                                                                          PERIOD JUNE 1 
                                                                YEAR ENDED   YEAR ENDED   (INCEPTION) TO
                                                                 JUNE 30,     JUNE 30,       JUNE 30,   
                                                                   1998         1997           1996     
                                                               ------------ ------------ ---------------
                                                                                                        
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    
                                                                =========    =========      ========    

See accompanying notes to consolidated financial statements.  

D-37

PREM14A
134th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 134th
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

PREM14A
135th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 135th
 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

PREM14A
136th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 136th
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:                                            

                                                        [Enlarge/Download Table]

                                                                              JUNE 30,     JUNE 30,
                                                                                1998         1997  
                                                                             ----------   ---------
                                                                                 (IN THOUSANDS)    
                                                                                                   
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 
                                                                              =======      ======= 

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:                                                               

                                                                [Download Table]

                                          1998        1997  
                                       ---------   ---------
                                          (IN THOUSANDS)    
                                                            
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 
                                        =======     ======= 

  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

PREM14A
137th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 137th
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:              

                                                        [Enlarge/Download Table]

                                                       ESTIMATED                               
                                                     USEFUL LIVES        1998          1997    
                                                    --------------   ------------  ------------
                                                                   (IN THOUSANDS)              
                                                                                               
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  
                                                                      =========     =========  

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

PREM14A
138th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 138th
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.                                                

                                                                [Download Table]

                         1998        1997      1996
                      ---------   ---------   -----
                             (IN THOUSANDS)        
                                                   
Foreign:                                           
 Current ..........    $1,105      $1,061      $41 
 Deferred .........       411         659       -- 
State:                                             
 Current ..........       149         344       -- 
 Deferred .........        83          21       -- 
                       ------      ------      --- 
                       $1,748      $2,085      $41 
                       ======      ======      === 

  Earnings before income taxes consisted of the following for fiscal 1998,
1997 and the month of June 1996.                                                

                                                                [Download Table]

                        1998         1997        1996 
                     ----------   ----------   -------
                              (IN THOUSANDS)          
                                                      
Domestic .........    $11,042      $14,520      $803  
Foreign ..........      3,444        3,504        93  
                      -------      -------      ----  
                      $14,486      $18,024      $896  
                      =======      =======      ====  

D-42

PREM14A
139th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 139th
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):                                               

                                                                [Download Table]

                                                                1998        1997  
                                                             ---------   ---------
                                                                (IN THOUSANDS)    
                                                                                  
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  
                                                              ======      ======  

  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

PREM14A
140th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 140th
    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

PREM14A
141st Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 141st
HUDSON GENERAL LLC AND SUBSIDIARIES 

VALUATION AND QUALIFYING ACCOUNTS 
YEARS ENDED JUNE 30, 1998, 1997 AND PERIOD JUNE 1 (INCEPTION) TO JUNE 30, 1996  

                                                        [Enlarge/Download Table]

           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  
------------------------------ ------------------- -------------- ----------------------- ---------------- -------------
                                                                                                                        
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  
                                  ============        =========        ===========          ==========      ==========  

----------                                                                      
NOTES:                                                                          

(A)        Write-offs.                                                          

(B)        Foreign exchange.                                                    

(C)        Recoveries.                                                          

(D)        Represents transfer of $1,804,000 from Hudson General Corporation.   

D-45

PREM14A
142nd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 142nd
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

PREM14A
143rd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 143rd
CONSOLIDATED BALANCE SHEETS 

KOHALA JOINT VENTURE AND SUBSIDIARY 
JUNE 30, 1998 AND 1997  

                                                        [Enlarge/Download Table]

                                                               1998              1997      
                                                         ----------------  ----------------
                                                                                           
                      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  
                                                          =============       ===========  

See accompanying notes to consolidated financial statements.  

D-47

PREM14A
144th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 144th
CONSOLIDATED STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIT 

KOHALA JOINT VENTURE AND SUBSIDIARY 
YEARS ENDED JUNE 30, 1998, 1997 AND 1996  

                                                        [Enlarge/Download Table]

                                                               1998              1997              1996     
                                                        -----------------  ----------------  ---------------
                                                                                                            
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) 
                                                          =============       ===========      ===========  

See accompanying notes to consolidated financial statements.  

D-48

PREM14A
145th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 145th
CONSOLIDATED STATEMENTS OF CASH FLOWS 

KOHALA JOINT VENTURE AND SUBSIDIARY 
YEARS ENDED JUNE 30, 1998, 1997 AND 1996  

                                                        [Enlarge/Download Table]

                                                               1998             1997             1996     
                                                         ---------------  ---------------  ---------------
                                                                                                          
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  
                                                          ============       ==========       ==========  

                                                                     (Continued)

See accompanying notes to consolidated financial statements.  

D-49

PREM14A
146th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 146th
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

PREM14A
147th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 147th
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:      

                                                        [Enlarge/Download Table]

                                                  ESTIMATED                               
                                                USEFUL LIVES        1998          1997    
                                               --------------  -------------  ------------
                                                                                          
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  
                                                                ==========     =========  

   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

PREM14A
148th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 148th
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:                        

                                                        [Enlarge/Download Table]

                                                                     1998              1997              1996     
                                                               ----------------  ----------------  ---------------
                                                                                                                  
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  
                                                                 ============       ===========       ==========  

(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

PREM14A
149th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 149th
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:                                                     

                                                        [Enlarge/Download Table]

                                                                1998             1997     
                                                          ---------------  ---------------
                                                                                          
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  
                                                           ============       ==========  

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:                                                                     

                                                                [Download Table]

YEAR                              AMOUNT   
---------------------------   -------------
                                           
  1999 ....................    $3,282,700  
  2000 ....................       186,500  
  2001 ....................       146,300  
  2002 ....................       831,200  
  2003 ....................       498,400  
                               ----------  
                               $4,945,100  
                               ==========  

(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

PREM14A
150th Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 150th
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:                                                          

                                                                [Download Table]

                                             1998            1997    
                                        -------------   -------------
                                                                     
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  
                                         ==========       =========  

  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

PREM14A
151st Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 151st
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

PREM14A
152nd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 152nd
KOHALA JOINT VENTURE AND SUBSIDIARY 

VALUATION AND QUALIFYING ACCOUNTS 
YEARS ENDED JUNE 30, 1998, 1997 AND 1996  

                                                        [Enlarge/Download Table]

              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  
-----------------------------------  ------------  ------------   ------------  ----------------  -----------
                                                                                                             
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 
                                     ==========       =======       =======          =======       ========= 

----------                                                                      
(A)        Write-offs.                                                          

D-56

PREM14A
153rd Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 153rd
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)  

PREM14A
Last Page of 154
TOC
1st
Previous
Next
↓Bottom
Just 154th
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.                                                             

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘PREM14A’ Filing		Date		First		Last			Other Filings
		6/30/05		38
		6/30/03		35
		6/30/02		137
		10/1/01		22		102
		9/30/01		22		105
		8/1/01		22		102
		6/30/00		35
		12/31/99		37
		8/22/99		66
		7/15/99		103
		6/30/99		35		122
		6/16/99		66
		4/30/99		13		85
		12/31/98		22		105			10-Q
Filed on:		12/23/98		1		153			PRE13E3,  SC 13D/A
		12/22/98		60
		12/11/98		29
		12/9/98		28
		11/30/98		56
		11/25/98		62					SC 13D/A
		11/24/98		56
		11/23/98		28		66			8-K,  SC 13D
		11/22/98		2		154			8-K
		11/21/98		27
		11/20/98		11		60			DEF 14A
		11/19/98		36
		11/17/98		26
		11/16/98		26
		11/12/98		36
		11/10/98		26
		11/9/98		26
		11/2/98		21		105
		10/31/98		76
		10/30/98		103
		10/23/98		60
		10/19/98		36
		10/16/98		66		105			8-K
		10/14/98		66					DEF 14A
		10/7/98		25
		10/1/98		17		135			8-K
		9/30/98		16		137			10-Q
		9/28/98		25		28
		9/16/98		110		135
		8/14/98		110		142
		7/28/98		66					8-K
		7/24/98		24					8-K
		7/15/98		122		138
		7/9/98		24		88
		7/6/98		24
		7/1/98		37		105
		6/30/98		16		152			10-K405
		6/29/98		80
		6/26/98		24
		6/24/98		23
		6/22/98		23
		6/10/98		120
		5/25/98		126		140
		5/19/98		36
		5/15/98		23
		2/28/98		39
		2/9/98		62
		1/5/98		68
		12/31/97		62					10-Q
		9/30/97		16		103			10-Q
		9/19/97		68
		7/1/97		17		105
		6/30/97		18		152			10-K405
		6/10/97		120
		5/13/97		68
		5/7/97		68		140
		3/13/97		68
		3/12/97		68
		3/11/97		68
		2/14/97		68
		1/27/97		68
		1/21/97		68
		1/20/97		68
		1/9/97		68
		1/1/97		125		139
		12/6/96		68
		12/4/96		68
		12/3/96		68
		12/2/96		68
		10/1/96		36
		9/5/96		122		138
		7/1/96		60		147
		6/30/96		18		152			10-K405
		6/1/96		17		139
		4/30/96		150
		2/27/96		21		135			8-K
		6/30/95		114		117			10-K405
		7/1/94		146
		1/6/94		136
		11/19/93		36
		7/1/93		116		124
		11/25/92		137
									List all Filings