Viewing page 58 of 116

This transcription has been completed. Contact us with corrections.

MR. HORWITZ: And the four directors who recommended the sale of assets, are the same directors who have obtained employment contracts recently? 
 
MR. HANRAHAN: I don't know of any that have.

MR. HORWITZ: I would like to ask one other question at this time. This has been presented to the stockholders as a sale of assets under Delaware law. I presume that there is some opinion of counsel which has been given to the effect that this is not a merger of the two companies.

MR. HANRAHAN: That is right.

MR. HORWITZ: Is that opinion available for examination by the stockholders?

MR. HANRAHAN: No, I think it is just an opinion given to the Corporation. If you want to see it, I have no objection.

MR. HORWITZ: I would like to examine it at the close of the meeting, if I might.

MR. HANRAHAN: You can see that in New York. We wouldn't have it here.

MR. HORWITZ: I would also like to ask this: As I read this agreement, it appears that there is an outside possibility at least that certain liabilities are not being assumed by Eastern. There is something in the resume of the agreement which indicates that.

MR. HANRAHAN: What page is that, Mr. Horwitz?

MR. HORWITZ: I am just looking for it now, Mr. Hanrahan. If you will bear with me, I will pick it out.

Let me pose a more specific question, because I don't seem to find it offhand. Is there a possibility that there would be a Federal tax due by reason of the sale of the assets and, if so, who is to pay the tax which might be due on this sale.

MR. HANRAHAN: That is a pretty general, all-inclusive question. What do you mean by a Federal tax?

MR. HORWITZ: You are having a sale of the company's assets. There is an indication that there might be a capital gains tax due on this. Just looking at the book value of Colonial, it would appear that there might be a capital gains tax due to the federal government. My question is: What provisions have been made for the payment of this tax? Is Colonial going to pay it or is Eastern going to pay it?

MR. HANRAHAN: Well, it is an exchange of stock, Mr. Horwitz. It is an exchange of stock; that is the way assets are sold. Therefore, the owners of the Corporation holding the stock would pay any possible capital gains tax.

MR. HORWITZ: Will Colonial pay any capital gains tax that might be due in this transaction?

MR. HANRAHAN: If you will look on page 15 of the proxy material I think you will get the answer to that.

MR. HORWITZ: I see that on page 15 it is believed at this time that this would not be a taxable transaction. My question is, and I presume that you agree, that there is a possible tax question, there is a possible tax liability.

MR. HANRAHAN: To the stockholders who own these pieces of paper that they exchange.

MR. HORWITZ: There is a possibility to the Corporation itself in the sale of these assets to Eastern Airlines, and my question is that if this liability actually comes to being, who is to pay it, Eastern or Colonial?

MR. HANRAHAN: So that you and I won't be working at cross purposes and we agree on language, the first sentence reads: "The Agreement is conditioned upon obtaining from the Federal Bureau of Internal Revenue a ruling to the effect the transaction will be tax-free for income and capital gains tax purposes."

The answer to your question if it becomes taxable the agreement is dead.

MR. HORWITZ: And that is so provided in the agreement?

MR. HANRAHAN: It certainly is.

MR. HORWITZ: I just have one last question, Mr. Hanrahan. On page 20, under the heading "Financial Statements," it states that "Eastern has informed Colonial that for accounting purposes a fair market value of Eastern's share will be used to determine the amount paid Colonial in exchange for Colonial's net assets. The difference between the book value of Colonial's net assets and the amount determined as being paid Colonial for these assets will be divided into two parts." And then it spells out (1) and (2).

I would like to know at this meeting whether or not the true current value of Colonial assets, which is referred to in item (1), has been determined and, if so, what the amount is.

MR. HANRAHAN: No, I don't think that has been and the place where that will come out will be at the merger hearings before the Civil Aeronautics Board.

MR. HORWITZ: And item (2) has as yet not been determined, is that 

(3)

Transcription Notes:
.