-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LF1paZDzct9RrcfwdFrw5GQ3CsCv2zdadfS3sl7o626ZBTJLT0eAR83CBnakZaWO OiSUzwGcJe3AWArRr4JcGg== 0000950116-97-000650.txt : 19970401 0000950116-97-000650.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950116-97-000650 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUDSON TECHNOLOGIES INC /NY CENTRAL INDEX KEY: 0000925528 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 133641530 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: 1934 Act SEC FILE NUMBER: 033-80270-NY FILM NUMBER: 97571073 BUSINESS ADDRESS: STREET 1: 25 TORNE VALLEY RD CITY: HILLBURN STATE: NY ZIP: 10931 BUSINESS PHONE: 9143684990 MAIL ADDRESS: STREET 1: 25 THORNE VALLEY RD CITY: HILLBURN STATE: NY ZIP: 10931 FORMER COMPANY: FORMER CONFORMED NAME: REFRIGERANT RECLAMATION INDUSTRIES INC DATE OF NAME CHANGE: 19940617 10KSB40 1 =============================================================================== Securities and Exchange Commission Washington, D.C. 20549 Form 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 1-13412 --------- Hudson Technologies, Inc. --------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) New York 13-3641539 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification number) 25 Torne Valley Road Hillburn, New York 10931 (address of principal executive offices) (ZIP Code) Small Business Issuer's telephone number, including area code: (914) 368-4990 Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value ----------------------------- Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the last 90 days. Yes X No . ---- ---- Indicate by check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of Small Business Issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. X ----- The Small Business Issuer's revenues for the fiscal year ended December 31, 1996 were $19,571,000. ------------- The aggregate market value of the Small Business Issuer's Common Stock held by non-affiliates as of March 3, 1997 was approximately $ . As of March 3, 1997, there were 4,982,580 shares of the Small Business Issuer's Stock Outstanding. Documents incorporated by reference: None =============================================================================== Hudson Technologies, Inc. Index
Part Item Page ---- ---- ---- Part I. Item 1 - Business 2 Item 2 - Properties 7 Item 3 - Legal Proceedings 7 Item 4 - Submission of Matters to a Vote of Security Holders 8 Part II. Item 5 - Market for the Registrant's Common Equity and Related Stockholder Matters 9 Item 6 - Management's Discussion and Analysis of Financial Condition 10 and Results of Operations Item 7 - Financial Statements 13 Item 8 - Changes in and Disagreements with Accountants on Accounting 13 and Financial Disclosure Part III. Item 9 - Directors and Executive Officers of the Registrant 14 Item 10 - Executive Compensation 16 Item 11 - Security Ownership of Certain Beneficial Owners and Management 19 Item 12 - Certain Relationships and related parties 20 Part IV. Item 13 - Exhibits and Reports on Form 8-K 21 Signatures 22 Financial Statements 23
Part I Item 1. Business - ---------------- Overview Hudson Technologies, Inc., incorporated under the laws of New York on January 11, 1991, together with its subsidiaries (collectively, "Hudson" or the "Company"), provides refrigerant management services, consisting primarily of the recovery and reclamation of refrigerants used in commercial air conditioning and refrigeration systems. The Company operates through its wholly-owned subsidiaries Hudson Technologies Company (formerly named Refrigerant Reclamation Corporation of America, Inc.) ("RRCA") and Environmental Support Solutions, Inc. ("ESS"); together with other controlled affiliates. Refrigerants are liquid compounds characterized by their ability to absorb heat and vaporize at extremely low temperatures. Refrigerants serve as coolants in air conditioning and refrigeration systems through the principle of heat transfer by absorbing heat while in a liquid state and releasing heat while in a gaseous state. Chlorofluorocarbon substances contained in refrigerants have been linked to upper-atmospheric ozone depletion as a result of the ability of these substances to chemically combine with and separate ozone molecules. In the normal course of use, refrigerants become contaminated with oil, water, air, acid and chlorides, causing damage to air conditioning and refrigeration equipment. The Company's primary activities, namely recovery and reclamation, involve removing and restoring contaminated refrigerants to original purity standards Industry background The production and use of refrigerants containing chlorofluorocarbons ('CFCs") and hydrochlorofluorocarbons ('HCFCs') , the most commonly used refrigerants, are subject to extensive and changing regulation under the Clean Air Act ('the Act'). The Act, amended during 1990 in response to evidence linking the use of CFCs to damage to the earth's ozone layer, prohibits any person in the course of maintaining, servicing, repairing and disposing of air conditioning or refrigeration equipment, to knowingly vent or otherwise release or dispose of ozone depleting substances used as refrigerants. The Act further requires the recovery of refrigerants used in residential and commercial air conditioning and refrigeration systems. In addition, the Act prohibited production of CFC refrigerants effective January 1, 1996 and limits the production of refrigerants containing HCFCs; scheduled to be phased out by the year 2030. Due principally to regulations promulgated under the Act, demand for refrigerant management services has increased in recent years. The Company believes that the following factors will contribute favorably to the expected continued growth in demand for Company services: o The Act imposes civil and criminal penalties on owners and operators of air conditioning and refrigeration systems who fail to monitor CFC leakage or knowingly vent or otherwise dispose of ozone depleting substances; o High initial costs of replacing refrigeration equipment with equipment using alternative, non-CFC refrigerants; o Alternative refrigerants (including HCFCs) may cause equipment damage and may be less effective than CFC refrigerants when used in air conditioning and refrigeration systems which require significant capacity; o Air conditioning / refrigeration system owners require refrigerant recovery services when converting existing equipment or retrofitting with new equipment; o Capacity to manufacture commercial-size air conditioning and refrigeration equipment in the United States is currently limited. 2 Products and Services Refrigerant Management Services The Company's products include refrigerant recovery, reclamation, testing, banking, blending and packaging services tailored to individual customer requirements. Hudson also separates 'crossed' (i.e.; commingled) refrigerants for customers, and provides re-usable cylinder repair, hydrostatic testing, and tracking services. Hudson believes that its ability to perform on-site recovery and reclamation simultaneously through the use of portable, high volume reclamation equipment, including its patented Zugibeast(TM) reclamation machine, with minimal business interruption to customers, is a key competitive advantage to the Company. Environmental compliance management Hudson's compliance management products and services include software, training, consulting, and management services in the fields of refrigerant tracking and management, hazardous materials, and air quality. Nationwide network Hudson operates from a nationwide network of reclamation centers, located in: o Hillburn, New York -- Reclamation center and Corporate Offices o Congers, New York -- Aerosol packaging and reclamation center o Rantoul, Illinois -- Reclamation center and cylinder refurbishment o Charlotte, North Carolina -- Reclamation center o Ft. Lauderdale, Florida -- Reclamation center o Punta Gorda, Florida -- Reclamation and refrigerant separation center o Baton Rouge, Louisiana -- Reclamation center o Sparks, Nevada -- Reclamation center o Los Alimitos, California -- Regional sales o Mesa, Arizona -- Environmental compliance programs Recent Events During January 1997, the Company entered into an Industrial Property Management Segment Marketer Appointment and Agreement and Refrigeration Reclamation Services Agreement with E.I. DuPont de Nemours and Company ("DuPont'), pursuant to which the Company will (i) provide recovery, reclamation, separation, packaging and testing services directly to Du Pont for marketing through DuPont's Authorized Distributor Network and (ii) market DuPont's SUVA(TM) refrigerant products to selected market segments together with the Company's reclamation and refrigerant management services. In addition, the Company entered into a Stock Purchase Agreement with DuPont and DuPont Chemical and Energy Operations, Inc. ("DCEO") pursuant to which the Company issued to DCEO 500,000 shares of Common Stock in consideration of $3,500,000 in cash. Concurrently, the parties entered into a Standstill Agreement, Shareholders' Agreement and Registration Agreement which, among other things, provide that (i) subject to certain exceptions, neither DuPont nor any corporation or entity controlled by DuPont will, directly or indirectly, acquire any shares of any class of capital stock of the Company if the effect of such acquisition would be to increase DuPont's aggregate voting power to greater than 20% of the total combined voting power relating to any election of directors; (ii) at DuPont's request, the Company will cause two persons designated by DCEO and DuPont to be elected to the Company's Board of Directors; and (iii) subject to certain exceptions, DuPont will have a five-year right of first refusal to purchase shares of Common Stock sold by the Company's principal shareholders. The Company also granted to DuPont certain demand and "piggy-back" registration rights with respect to the shares. The Company believes that its strategic marketing relationship with DuPont will significantly enhance its competitive position. Reliance on Suppliers The Company's financial performance is in part dependent on its ability to obtain sufficient quantities of domestic virgin (pure) and reclaimable refrigerants from wholesalers, distributors, bulk gas brokers, and from other sources; and on corresponding demand for reclaimed refrigerants. To the extent 3 that the Company is unable to obtain sufficient quantities of refrigerants in the future, or resell reclaimed refrigerants at a profit, the Company's financial condition and results of operations would be materially adversely affected. During January 1997, the Company entered into agreements with DuPont to market DuPont's SUVA(TM) refrigerants. Under the agreement, 95% of virgin refrigerants provided to specified market segment customers must be purchased from DuPont. Customers The Company provides its services to commercial, industrial and governmental customers, as well as to refrigerant wholesalers, distributors, suppliers and to refrigeration equipment manufacturers. Agreements with larger customers generally provide for standardized pricing for specified services, including provisions requiring customer's to purchase a specified percentage of their refrigerant management services from the Company. For the year ended December 31, 1996, the Company's five largest customers accounted for approximately 20% of the Company's revenues, with no single customer accounting for more than 10% of the Company's revenues. Marketing Marketing programs are conducted through the efforts of the Company's executive officers, Company sales personnel, and third parties. Hudson employs various marketing methods, including direct mailings, telemarketing, in-person solicitation, print advertising, response to quotation requests and participation in trade shows. The Company's sales personnel are compensated on a commission basis with a guaranteed minimum net draw. The Company's executive officers devote significant time and effort to customer relationships including domestic refrigerant manufacturers. Competition The Company competes primarily on the basis of price, breadth of services offered (including on-site emergency services), and performance of its high volume, high speed equipment used in its operations. The refrigerant recovery and reclamation industry is relatively new and emerging and competition from existing competitors and new market entrants is expected to increase. The Company competes with numerous regional companies, which provide refrigerant recovery and/or reclamation services, as well as companies marketing reclaimed and new alternative refrigerants. Certain of such competitors, including National Refrigerants, Inc., Refron, Inc., and Environmental Technologies Company, Inc., possess greater financial, marketing and other resources than the Company and, in some instances, provide services over a more extensive geographic area than the Company. Demand and market acceptance for newly introduced refrigerant management products and services is subject to a high degree of uncertainty. There can be no assurance that the Company will be able to compete successfully in new geographic markets or with its expanded service products. Insurance The Company carries insurance coverage the Company considers sufficient to protect the Company's assets and operations. Hudson currently maintains general commercial liability insurance and excess liability coverage for claims up to $7,000,000 per occurrence and $7,000,000 in the aggregate. There can be no assurance that such insurance will be sufficient to cover potential claims or that an adequate level of coverage will be available in the future at a reasonable cost. The Company attempts to operate in a professional and prudent manner and to reduce its liability risks through specific risk management efforts, including employee training. Nevertheless, a partially or completely uninsured claim against the Company, if successful and of sufficient magnitude, would have a material adverse effect on the Company. The refrigerant industry involves potentially significant risks of statutory and common law liability for environmental damage and personal injury. The Company, and in certain instances, its officers, directors and employees, may be subject 4 to claims arising from the Company's on-site or off-site services, including the improper release, spillage, misuse or mishandling of refrigerants classified as hazardous or non-hazardous substances or materials. The Company may be strictly liable for damages, which could be substantial, regardless of whether it exercised due care and complied with all relevant laws and regulations. Hudson maintains environmental impairment insurance of $1,000,000 for events occurring subsequent to November 1996. There can be no assurance that the Company will not face claims resulting in substantial liability for which the Company is uninsured, that hazardous substances or materials are not or will not be present at the Company's facilities, or that the Company will not incur liability for environmental impairment or personal injury (see 'Legal Proceedings'). Government Regulation The refrigerant management business is subject to extensive, stringent and frequently changing federal, state and local laws and substantial regulation under these laws by governmental agencies, including the Environmental Protection Agency ('EPA'), the United States Occupational Safety and Health Administration and the United States Department of Transportation. Among other things, these regulatory authorities impose requirements which regulate the handling, packaging, labeling, transportation and disposal of hazardous and non-hazardous materials and the health and safety of workers, and require the Company and, in certain instances, its employees, to obtain and maintain licenses in connection with its operations. This extensive regulatory framework imposes significant compliance burdens and risks on the Company. Hudson and its customers are subject to the requirements of the Clean Air Act and the regulations promulgated thereunder by the EPA which make it unlawful for any person in the course of maintaining, servicing, repairing, and disposing of air conditioning or refrigeration equipment, to knowingly vent or otherwise release or dispose of ozone depleting substances used as refrigerants. Pursuant to the Clean Air Act, a recovered refrigerant must satisfy the same purity standards as newly manufactured refrigerants in accordance with standards established by the Air Conditioning and Refrigeration Institute ("ARI") prior to resale to a person other than the owner of the equipment from which it was recovered. The ARI and the EPA administer certification programs pursuant to which applicants are certified to reclaim refrigerants in compliance with ARI standards. Under such programs, the ARI issues a certification for each refrigerant and conducts periodic inspections and quality testing of reclaimed refrigerants. The Company has obtained ARI certification for most refrigerants and is certified by the EPA. The Company is required to submit periodic reports to the ARI and pay annual fees based on the number of pounds of reclaimed refrigerants. Certification by the ARI is not currently required to engage in the refrigerant management business. During February 1996, the EPA published proposed regulations, which, if enacted, would require participation in third-party certification programs similar to the ARI program. Such proposed regulations would also require laboratories designed to test refrigerant purity to undergo a certification process. The ARI has recently established a laboratory certification program and the Company has applied to become an ARI certified laboratory. Extensive comments to these proposed regulations were received by the EPA. The EPA is still considering these comments and no further or additional regulations have been proposed or published. In addition, the EPA has established a mandatory certification program for air conditioning and refrigeration technicians. Hudson's technicians have applied or obtained such certification. The Company is subject to regulations adopted by the Department of Transportation ("DOT") which classify most refrigerants handled by the Company as hazardous materials or substances and impose requirements for handling, packaging, labeling and transporting refrigerants. Hudson believes that it is in compliance with these regulations. The Resource Conservation and Recovery Act of 1976 ("RCRA") requires that facilities that treat, store or dispose of hazardous wastes comply with certain operating standards. Before transportation and disposal of hazardous wastes off-site, generators of such waste must package and label their shipments consistent with detailed regulations and prepare a manifest identifying the material and stating its destination. The transporter must deliver the hazardous 5 waste in accordance with the manifest to a facility with an appropriate RCRA permit. Under RCRA, impurities removed from refrigerants consisting of oils mixed with water and other contaminants are not presumed to be hazardous waste. Hudson believes that it is in compliance with these regulations. The Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), establishes liability for clean-up costs and environmental damages to current and former facility owners and operators, as well as persons who transport or arrange for transportation of hazardous substances. Almost all states, including New York, have similar statutes regulating the handling of hazardous substances, hazardous wastes and non-hazardous wastes. Many such statutes impose requirements which are more stringent that their federal counterparts. The Company could be subject to substantial liability under these statutes to private parties and government entities, in some instances without any fault, for fines, remediation costs and environmental damage, as a result of the mishandling, release, or existence of any hazardous substances at any of its facilities. The Occupational Safety and Health Act of 1970 mandates requirements for safe work places for employees and special procedures and measures for the handling of certain hazardous and toxic substances. State laws, in certain circumstances, mandate additional measures for facilities handling specified materials. There can be no assurance that Hudson will be able, for financial or other reasons, to comply with new applicable laws, regulations and licensing requirements; which could subject the Company to civil remedies, substantial fines, penalties, injunctions, or criminal sanctions. Quality assurance & environmental compliance The Company utilizes extensive in-house quality and regulatory compliance control procedures. Hudson maintains its own analytical testing laboratories to assure that reclaimed refrigerants comply with ARI purity standards and employs portable testing equipment when performing on-site services to verify quality specifications. The Company employs three persons engaged full-time in quality control and to monitor the Company's operations for regulatory compliance. Employees The Company has approximately 125 employees including air conditioning and refrigeration technicians, chemists, software programmers, and sales and administrative personnel. None of the Company's employees are represented by a union. The Company believes that its employee relations are good. Patents and Proprietary Information The Company holds a United States patent relating to various high speed equipment components and a process to recover and reclaim refrigerants which expires in January 2012. The Company believes that patent protection is important to its business and has received an allowance for an additional patent relating to a high speed refrigerant recovery process. Other recovery and reclamation equipment and processes not covered by the Company's patents or patent applications are currently in commercial use by the Company's competitors. There can be no assurance as to the breadth or degree of protection that patents may afford the Company, that any patent applications will result in issued patents or that patents will not be circumvented or invalidated. Technological development in the refrigerant industry may result in extensive patent filings and a rapid rate of issuance of new patents. Although the Company believes that its existing patents and the Company's equipment do not and will not infringe patents or violate proprietary rights of others, it is possible that its existing patent rights may not be valid or that infringement of existing or future patents or violations of proprietary rights of others may occur. In the event the Company's equipment infringe or are alleged to infringe patents or other proprietary rights of others, the Company may be required to modify the design of its equipment, obtain a license or defend a possible patent infringement action. There can be no assurance that the Company will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action or that the Company will not become liable for damages. The Company also relies on trade secrets and proprietary know-how, and employs various methods to protect its technology. However, such methods may not afford complete protection and there can be no assurance that others will not 6 independently develop such know-how or obtain access to the Company's know-how, concepts, ideas and documentation. Failure to protect its trade secrets could have a material adverse effect on the Company. Item 2. Properties. The Company's headquarters are located in approximately 21,000 square feet of leased industrial space at Hillburn, New York. The building is leased from an unaffiliated third party pursuant to a five-year agreement at an annual rental of about $74,000 through May 1999. In March 1995, the Company purchased, for $950,000, a facility in Ft. Lauderdale, Florida, consisting of a 32,000 square foot building on approximately 1.7 acres with rail and port access. The property was mortgaged during 1996 for $700,000. Annual real estate taxes are approximately $24,000. The Company has entered into a three-year agreement, pursuant to which it leases 15,000 square feet of its Florida facility to an unaffiliated third party at a monthly rental of about $6,800. The lease agreement contains a 90-day cancellation provision. The Company's Baton Rouge, Louisiana facility is located in a 20,000 square foot building leased from an unaffiliated third party at an annual rental of approximately $54,000 pursuant to an agreement expiring in April 2000. The Company's Rantoul, Illinois facility is located in a 23,000 square foot building leased from an unaffiliated third party at an annual rental of approximately $60,000 pursuant to an agreement expiring in May 1998. Hudson's Charlotte, North Carolina facility is located in 16,000 square foot building leased from an unaffiliated third party pursuant to an agreement which expires in April 1998. Annual rent is approximately $41,000. The Company's Sparks, Nevada facility is located in a 11,000 square foot building leased from an unaffiliated third party at an annual rental of approximately $49,000 pursuant to an agreement expiring in September 1998. The Company's Mesa, Arizona office facility of about 4,000 square feet is leased from an unaffiliated third party at an annual rental of approximately $41,000; pursuant to an agreement expiring in January 2000. During January 1997, the Company entered into a commitment to purchase a 29,000 square foot facility on 5.15 acres in Congers, New York for about $1.4 million; subject to approvals and ability to obtain financing. The Company is leasing the facility for approximately $9,700 per month during in the interim period. The Company's Los Alamito, California office facility of about 1,500 square feet is leased from an unaffiliated third party at an annual rental of approximately $13,000; pursuant to an agreement expiring in August 1997. The Company also utilizes bonded warehouse facilities in California and Washington State; which are rented on a month-to-month basis. Item 3. Legal Proceedings During December 1995, Earle Palmer Brown Companies, Inc. filed a compliant against the Company in the Circuit Court for Montgomery County Maryland seeking the sum of $238,761 plus interest for advertising, marketing, and public relations services provided by Kerr Kelly Thompson, a predecessor company. On July 19, 1996, the Company reached a negotiated settlement and obtained a full release from Earle Palmer Brown Companies, Inc. in consideration of a one-time payment of $180,000. During December 1995, PSJ Vans, Inc. filed a complaint against the Company in the Third District Court, State of Utah, seeking judgment for $41,570 plus attorney fees, for transportation services allegedly provided to the Company. The Company has paid previously an independent broker all such amounts related to this claim. During May 1996, this action was dismissed, on the Company's motion, for lack of jurisdiction. During June 1995, United Water of New York Inc. ("United") alleged that it discovered that two of its wells within close proximity to the Company's facility showed elevated levels of refrigerant contamination. During June 1996, United notified the Company that it was seeking indemnification by the Company 7 for costs incurred to date as well as costs expected to be incurred in connection with United taking remedial action. During July 1996, United threatened to institute legal action in the event that the Company declined to settle this matter. During August 1996, the Company received a letter from the New York State Department of Environmental Conservation ("DEC") which stated that in the opinion of DEC the Company's refrigerants were the cause of the contamination of United's wells. The DEC report states that it is not aware of the extent of the contamination or how the Company's refrigerants entered the groundwater. The Company is cooperating with the DEC to develop a proposal to quantify and remediate the contamination During December 1996, the Company and United entered into an interim settlement agreement which provided for (a) reimbursement ($84,000) of United's operating costs associated with certain wells through August 1996, (b) reimbursement, subject to a dollar cap of $12,650 per month, of United monthly operating costs for certain wells from September 1996 through April 1997, and (c ) continued monitoring of refrigerant groundwater levels. Under the agreement, United agreed not to commence legal action against the Company prior to May 1, 1997. Neither party waived their rights as a result of the interim agreement. The Company is currently conducting an investigation to determine the source of the alleged contamination in United's wells and the need, if any, for remediation. There can be no assurance that United will not commence legal action after May 1, 1997 seeking substantial damages and/or other relief; or that any legal action or settlement will be resolved in a manner favorable to the Company; or that ultimate outcome of any legal action or settlement will not have a material adverse effect on the Company's financial condition and results of operations. Hudson Technologies and its subsidiaries are subject to various claims and / or lawsuits from both private and governmental parties arising from the ordinary course of business; none of which are material. Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable. 8 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Common Stock has traded since November 1, 1994 on the NASDAQ Small-Cap Market under the symbol 'HDSN'. Since September 20, 1995, the Common Stock has traded on the NASDAQ National Market. The following table sets forth, for the periods indicated, the range of the high and low bid prices for the Common Stock as reported by NASDAQ. Such prices reflect inter-dealer quotations, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. 1994 High Low - ---- ---- --- o Fourth Quarter (commencing November 1, 1994) $ 6 1/2 $ 5 1/8 1995 - ---- o First Quarter $18 1/2 $5 11/16 o Second Quarter $27 $15 3/4 o Third Quarter $23 3/4 $15 3/4 o Fourth Quarter $20 1/2 $12 1/2 1996 - ---- o First Quarter $15 3/8 $10 1/4 o Second Quarter $13 1/2 $ 8 o Third Quarter $ 7 1/2 $ 6 3/8 o Fourth Quarter $ 8 5/8 $ 5 1/8 1997 - ---- o First Quarter (through March 3, 1997) $13 1/4 $ 5 3/8 On March 3, 1997, the last sale price for the Common Stock as reported by the NASDAQ National Market was $10 3/8 per share. The number of record holders of the Company's Common Stock was approximately 210 as of March 3, 1997. The Company believes that there are in excess of 400 beneficial owners of its Common Stock. To date, the Company has not declared or paid any cash dividends on its Common Stock. The payment of dividends, if any, in the future is within the discretion of the Board of Directors and will depend upon the Company's earnings, its capital requirements and financial condition, borrowing covenants, and other relevant factors. The Company presently intends to retain all earnings to finance the Company's continued growth and development of its business and does not expect to declare or pay any cash dividends in the foreseeable future. 9 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations. Selected Financial Data (amounts in millions, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------ Operating data (years ended December 31,) 1996 1995 1994 ---- ---- ---- Revenues: $19.6 $22.0 $1.3 Gross Profit 5.4 7.6 0.9 Operating expenses-a) 8.3 4.5 0.8 Operating income (loss)-a) (2.9) 3.1 0.1 (a- Includes restructuring charge to earnings 1.3 - - Net earnings (loss): - Reported (2.1) 1.8 0.0 - Excluding Restructuring charges (1.2) 1.8 0.0 Net earnings (loss) per primary share (in dollars): - Reported $(0.47) $0.46 $0.02 - Excluding Restructuring charges $(0.29) $0.46 $0.02 - ------------------------------------------------------------------------------------------------------------------ Balance Sheet data (at December 31): 1996 1995 1994 ---- ---- ---- Working capital $4.2 $10.7 $3.8 Total assets 28.8 24.1 6.0 Short- and long-term debt 7.2 2.2 0.1 Stockholders' equity 18.4 20.3 4.7
Results of Operations Change in Business Focus During 1995, the Company changed its business focus from purchasing CFC products from importers and reselling these products in the U.S. market, to a program focused on developing a nationwide network of refrigerant distribution and reclamation centers. As a result of this business focus change, the Company ceased sourcing and reselling imported refrigerants during May 1995 and expanded its domestic sourcing and reclamation operations through a series of 1995 and 1996 acquisitions (see note 2 to the Notes to the Consolidated Financial Statements). Fiscal year 1996 compared with fiscal year 1995 Revenues totaled $19.6 million, a decrease of $2.4 million or 11% from the $22.0 million reported during the comparable prior year period. The decrease was attributable primarily to the discontinuation of the Company's program to source and resell imported refrigerants which accounted for approximately 68% or $14.9 million of 1995 revenues; offset partly by increased ($12.5 million) domestic sourcing and reclamation revenues. Cost of sales totaled $14.2 million, a decrease of $0.2 million or 1% from the $14.4 million reported during the comparable prior year period. As a percentage of sales, cost of sales were 72% of revenues for the year ended December 31, 1996, an increase from the 65% reported for the comparable prior year. The increase percentage of revenues was attributable primarily to increased operating costs associated with the August 1995 acquisition of RRCA and to higher refrigerant product costs resulting from the growth of domestic sourcing and reclamation operation revenues; offset partly by the discontinuation of the Company's program to source and resell imported refrigerants. Operating expenses totaled $8.3 million, an increase of $3.8 million or 85% from the $4.5 million reported during the comparable prior year period. The increase was attributable mainly to a lack of 1995 counterpart to the Reserve for Restructuring totaling $1.3 million established during 1996's second quarter; for the purposes of consolidating the Company's activities, relocating the Company's headquarters and primary redemption center, and to consolidate product offerings; higher ($2.0 million) sales, marketing, and administrative costs generally related to the Company's expanded marketing programs and the inclusion of ESS operations during 10 part of the 1996 reporting period; and to higher ($0.5 million) depreciation and amortization attributable to the growth of the Company's equipment assets and amortization of goodwill and intangibles related mainly to the Company's August 1995 acquisition of RRCA. As a percentage of revenues, operating expenses totaled 43% of revenues, up 22% from the comparable 1995 period, due mainly to the 1996 Reserve for Restructuring. Interest expense totaled $0.5 million for the year ended December 31, 1996, an increase of $0.2 million from the prior year. The increase was attributable mainly to higher bank credit line and convertible note interest charges associated with expenditures for equipment, acquisitions, and inventory. Net loss totaled $2.1 million, a decrease of $3.9 million from the $1.8 million net earnings reported during the comparable prior year period. The decrease was attributable mainly to lower gross profits ($1.4 million after taxes), higher operating expenses due, in part, to acquisitions; and to lack of counterpart to the 1996 restructuring reserve ($0.8 million after taxes). Liquidity and Capital Resources Net cash used in operating activities totaled $3.2 million for the year ended December 31, 1996 compared with a net cash usage of $2.9 million for the prior year comparable period. 1996 net cash used in operating activities consisted mainly of net loss ($2.1 million) and higher ($3.7 million) inventories; offset partly by higher ($1.3 million) levels of accounts payable and accrued expenses. Increase ($0.3 million) in 1996 cash usage compared with 1995 was attributable mainly to decreased ($3.9 million) net earnings; offset partly by higher ($1.0 million) accounts payable and accrued expenses, improved ($1.6 million) receivable collections and lower ($1.0 million) prepaid expenses. Net cash used in investing activities ($3.4 million) for the year ended December 31, 1996 consisted mainly of the ESS acquisition ($2.4 million) and equipment additions ($2.0 million); offset partly by proceeds from sale of marketable securities. Cash flows from financing activities totaled $4.5 million for the year ended December 31, 1996, $3.7 million lower than the $8.2 million reported for the comparable 1995 period. Decrease was attributable mainly to 1995 proceeds from redemption of warrants ($9.2 million) offset partly by 1996 issuance of Convertible Debentures ($5.3 million, see note 10 to the Notes to the Consolidated Financial Statements). At December 31, 1996, the Company reported cash and equivalents totaling $0.4 million, a decrease of $2.0 million from the comparable prior year period. For the year ended December 31, 1996, the Company reported capital expenditures totaling $2.0 million. During 1996, the Company also obtained financing from two lending institutions which enabled it to rent an additional $1.7 million of equipment under terms of operating leases. Hudson utilized these facilities to acquire automated aerosol packaging equipment (about $1.0 million), ten refrigerant gas, bulk-tank storage units (about $0.4 million), and other industrial equipment ($0.3 million). On May 10, 1996, the Board of Directors authorized the Company to acquire, from publicly traded markets, a maximum of 25,000 issued and outstanding shares of its own Common Stock. As of December 31, 1996, the Company had repurchased 21,000 shares at a average price of $8.25 per share. On June 18, and September 30, 1996, the Company issued Convertible Debentures (See note 10 to the Notes to the Consolidated Financial Statements) with a combined face value of $5.3 million. Outstanding convertible debentures at December 31, 1996 were retired during January 1997. On July 24, 1996, the Company completed the acquisition of GRR Co., Inc. in consideration of 20,000 unregistered shares of the Company's Common stock (See note 2 to the Notes to the Consolidated Financial Statements). In connection with its bankruptcy reorganization in June 1994, prior to its acquisition by Hudson, RRCA has obligations (as modified by a settlement during April 1996) totaling $0.8 million at December 31, 1996 payable in periodic payments to bankruptcy creditors through July 2000. On November 14, 1996, certain officers and stockholders of Hudson granted unsecured loans ($678,000) to the Company; repayable upon receipt of proceeds from property mortgage (see below) or on subsequent demand. On January 29, 1997, 11 the Company retired the officer loans and accrued interest outstanding at December 31, 1996 (see Note 10 to the Notes to the Consolidated Financial Statements). During 1996, the Company mortgaged its property and building located in Ft. Lauderdale with Turnberry Savings Bank, NA. The mortgage bears a fixed annual interest rate of 9.25% and repayable over 20 years commencing February 1997. The Company has a bank line of credit ($3.0 million) with MTB Bank N.A. ('MTB'), which bears interest at a rate of prime plus 2%. Advances under the MTB line ($1.7 million at December 31, 1996) were limited to 85% of eligible trade accounts receivable and 50% of inventories not exceeding trade receivable lending limits (above) or $2 million. The Company was in compliance with all terms of the MTB Bank agreement at December 31, 1996. The agreement, which expired during August 1996, has been extended by both the Company and MTB Bank until April 1, 1997. The Company has historically used its cash flows from operations, together with its available cash resources including borrowings under the terms of its agreement with MTB Bank, to satisfy the Company's working capital requirements and to fund proposed acquisitions and capital expenditure programs. Under the MTB Bank agreement, substantially all the Company's assets are pledged as collateral for Hudson obligations to MTB Bank. During January 1997, in connection with the execution of various agreements with E.I. DuPont de Nemours ("DuPont'), the Company obtained additional equity funds ($3.5 million) from an affiliate of DuPont (see note 12 to the Notes to the Consolidated Financial Statements). Proceeds from this funding were utilized primarily to retire debt. During January 1997, the Company entered into a commitment to purchase a 29,000 square foot facility on 5.15 acres in Congers, New York for about $1.4 million; subject to approvals and ability to obtain financing. The Company is leasing the facility in the interim period. The Company is seeking to implement an expanded bank credit line; however, there is no assurance that any such financing will be available to the Company, lack of which could materially adversely affect the Company's financial condition and results of operations. Acquisitions On August 15, 1995, the Company acquired Refrigerant Reclamation Corporation of America ("RRCA"). The purchase price was approximately $6,068,000; which consisted of cash ($1,250,000), a note ($750,000) paid during December 1995, and 174,964 shares of the Company's common stock. The acquisition was accounted for as a purchase from the date of acquisition with the assets acquired and liabilities assumed recorded at fair values, resulting in an excess of cost over assets acquired of approximately $4.0 million. Results of RRCA's operations have been included in the Company's consolidated financial statements from the date of acquisition. On April 23, 1996, the Company acquired all the outstanding capital stock of Environmental Support Solutions, Inc. ("ESS"), a Mesa, Arizona developer and provider of environmental software, training, and management services. The capital stock of ESS was purchased for $2,375,000, which consisted of cash ($700,000) and notes ($1,675,000) paid during October 1995. The acquisition was accounted for as a purchase from the date of acquisition with the assets acquired and liabilities assumed recorded at fair values, resulting in an excess of cost over assets acquired of approximately $0.8 million. Results of ESS's operations have been included in the Company's consolidated financial statements from the date of acquisition. On June 14, 1996, ESS acquired all the net assets, subject to liabilities, of E-Soft, Inc. ("E-Soft"), a Georgia-based developer and marketer of software programs related to hazardous material management, in exchange for a cash payment of $50,000 and 41,560 unregistered shares of the Company's stock. E-Soft acquired assets and liabilities were recorded at fair values, resulting in an excess of cost over assets acquired of approximately $0.5 million. Subsequent to the acquisition, all E-Soft assets and activities were relocated to ESS headquarters in Arizona. The former owner of E-Soft has become an employee of ESS. On July 24, 1996, the Company acquired all the outstanding common stock of GRR Co., Inc. dba Golden Refrigerants ("Golden"); a refrigerant reclamation and recovery company located in Punta Gorda, Florida; in exchange for 20,000 unregistered shares of the Company's stock with a valuation of $0.1 million at 12 the transaction date; and resulting in an excess of cost over assets acquired of approximately $0.1 million. Concurrent with the acquisition, the Company purchased, for nominal consideration, all the net assets, subject to liabilities, of Golden, and dissolved GRR Co., Inc. Inflation Inflation has not historically had a material impact on the Company's operations. Seasonality and Fluctuations in Operating Results The Company's operating results vary from period to period as a result of weather conditions, requirements of potential customers, availability and price of refrigerant products (virgin or reclaimable), changes in reclamation technology, timing in introduction and/or retrofit of CFC-based refrigeration equipment by domestic users of refrigeration, the rate of expansion of the Company's operations, and by other factors. The Company's business has historically been seasonal in nature with peak sales of refrigerants occurring in the first half of each year. Unforeseen events, including the delays in securing adequate supplies of refrigerants at peak demand periods, lack of refrigerant demand, or declining refrigerant prices could result in significant fluctuations in Company operating results or losses which might not be easily reversed. There can be no assurance that the foregoing factors could not result in material adverse affect of the Company's financial condition and results of operations. Item 7. Financial Statements The financial statements appear in a separate section of this report following Part IV. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None 13 Part III Item 9. Directors and Executive Officers of the Registrant. The following table sets forth information with respect to the directors and officers of the Company:
Name Age Position ---- ---- -------- Kevin J. Zugibe 33 Chairman of the Board, President and Chief Executive Officer Thomas P. Zugibe 44 Executive Vice President and Director Stephen P. Mandracchia 37 Executive Vice President and Secretary Stephen J. Cole-Hatchard 39 Vice President, Treasurer, and Director William A. Barron 47 Vice President and Chief Financial Officer Walter A. Phillips 44 Vice President of Sales and Marketing Robert Johnson 40 Vice President and Director Stephen Spain 46 Vice President, Strategic Affairs Vincent Abbatecola 49 Director Otto C. Morch 63 Director Dominic J. Monetta 54 Director
Kevin T. Zugibe, P.E. is a founder of the Company and has been a director, President and Chief Executive Officer of the Company since its inception in 1991. Since May 1994, Mr. Zugibe has devoted his full business time to the Company's affairs. From May 1987 to May 1994, Mr. Zugibe was employed as a power engineer with Orange and Rockland Utilities, Inc. Mr. Zugibe is a licensed professional engineer, and from December 1990 to May 1994, he was a member of Kevin J. Zugibe & Associates, a professional engineering firm. Kevin J. Zugibe and Thomas P. Zugibe are brothers. Thomas P. Zugibe has been a Vice President of the Company since its inception in 1991 and a director since April 1995. Mr. Zugibe is responsible for assuring compliance by the Company with laws and regulations pertaining to its operations. Prior to May 1995, he devoted only a portion of his business time to the affairs of the Company. Since that date, Mr. Zugibe has been employed by the Company on a full time basis. He has been engaged in the practice of law in the State of New York since 1980 and is a member of the law firm of Ferraro and Zugibe, Garnerville, New York. Mr. Zugibe is also a Village Justice for West Haverstraw, New York. Stephen P. Mandracchia has been a Vice President of the Company since January 1993 and Secretary of the Company since April 1995. Mr. Mandracchia served as a director from June 1994 until August 1996. Mr. Mandracchia is responsible for corporate, administrative and regulatory legal affairs of the Company. Mr. Mandracchia was a member of the law firm of Martin, Vandewalle, Donohue, Mandracchia & McGahan, Great Neck, New York until December 31, 1995 (having been affiliated with such firm since August 1983), and prior to September 1995 devoted only a portion of his business time to the Company's affairs. Stephen J. Cole-Hatchard has been a director and executive officer of the Company since January 1993, and functions as the Treasurer of the Company. Mr. Cole-Hatchard is a member of the bar of the State of New York. From May 1984 to May 1995, Mr. Cole-Hatchard was employed as a detective with the Clarkstown, New York Police Department, Asset Forfeiture/Legal Division. From May 1995 to January 1996, he was on leave of absence form the Clarkstown Police Department and employed on a full time basis by the Company. In January 1996, Mr. Cole-Hatchard returned to the Clarkstown Police Department and currently devotes approximately 45 hours a week of his business time to the affairs of the Company. William A. Barron has been Vice President and Chief Financial Officer of the Company since July 1996. From March 1993 to August 1995, Mr. Barron served as President, Chief Operating Officer, and Chief Financial Officer for Diagnostek, Inc.; a company involved in the pharmacy benefit management business. From 1971 to 1993, Mr. Barron served in various financial roles at General Electric. Walter A. Phillips has been Vice President of Sales and Marketing of the Company since October 1996. Prior to joining Hudson, Mr. Phillips was employed in various sales and marketing roles with York International. 14 Robert Johnson has been a director of the Company and Vice President since April 1996. Mr. Johnson founded and has been Vice President of Environmental Support Solutions, Inc., a company which develops and provides environmental software, training and consulting services, since March 1994. From February 1979 to March 1994, Mr. Johnson was an Operations Manager for the Arizona Region of Carrier Corporation's Building Systems Services. Stephen Spain has been a Vice President of the Company since April 1996. Mr. Spain co-founded and has been Vice President of Environmental Support Solutions, Inc., a company which develops and provides environmental software, training and consulting services, since March 1994. Vincent P. Abbatecola has been a director of the Company since June 1994. Mr. Abbatecola is the owner of Abbey Ice & Spring Water Company, Spring Valley, New York, where he has been employed since May, 1971. Mr. Abbatecola serves as Chairman of the Board of Mid-Atlantic Ice Association; an industry trade association. Otto C. Morch has been a director of the Company since March 1996. For more than the past five years Mr. Morch has been Senior Vice President, Commercial Banking at Provident Savings Bank, F.A. Dominic J. Monetta has been a director of the Company since April 1996. Since August 1993, Mr. Monetta has been the President of Resource Alternatives, Inc., a corporate development firm concentrating on solving management and technological problems facing chief executive officers and their senior executives. From December 1991 to May 1993, Mr. Monetta served as the Director of Defense Research and Engineering for Research and Advanced Technology for the United States Department of Defense. From June 1989 to December 1991, Mr. Monetta served as the Director of the Office of New Production Reactors of the United States Department of Energy. The Company has established a Stock Option Committee, which administers the Company's Stock Option Plan. The members of such Committee are Messrs. Abbatecola and Morch. The Company also has an Audit Committee of the Board of Directors which supervises the audit and financial procedures of the Company. The Audit Committee is comprised of Messrs. Abbatecola, Cole-Hatchard and Morch. The By-laws of the Company provide that the Board of Directors is divided into two classes. Each class is to have a term of two years, with the term of each class expiring in successive years, and is to consist, as nearly as possible, of one-half of the number of directors constituting the entire Board. The By-laws provide for a Board of seven members (subject to increase or decrease by a resolution adopted by the shareholders). Accordingly, one class consists of three directors and the second class consists of four directors. 15 Item 10. Executive Compensation The following table discloses the compensation for the Company's Chief Executive Officer (the "Named Executive") and other officers which earned over $100,000 during such years.
Summary Compensation Table Long Term Compensation Awards Annual Compensation(1) ----------------------- ----------------------- Securities Underlying Name Position Year Salary Bonus Options ---- -------- ---- ------ ----- ------- Kevin J. Zugibe Chairman of the Board, 1996 $145,462 -- -- President & Chief Operating 1995 $113,076 -- -- Officer 1994 $43,462 -- 75,000 shares Stephen P. Mandracchia Executive Vice President and 1996 $104,885 -- -- Secretary 1995 $47,574 -- -- 1994 $3,554 -- 75,000 shares Robert Johnson Vice President 1996 $133,289 -- 60,000 shares Stephen Spain Vice President 1996 133,960 -- 60,000 shares
- -------------------------- (1) The value of personal benefits furnished to Messrs. Zugibe, Mandracchia, Johnson, and Spain during 1994, 1995, and 1996 did not exceed 10% of their respective annual compensation. Messrs. Johnson and Spain joined the Company during April 1996. The Company granted options to executive officers during the fiscal year ended December 31, 1996, as shown in the following table:
Number of % of Total Securities Options Underlying Granted to Options Employees Summary of Stock Options Granted in Fiscal year Granted to Executive Officers ---------------------------- Exercise or Expiration Name Position Shares Percent Base price ($/sh) Date ---- -------- ------ ------- ----------------- ---- William A. Barron Vice President and Chief Financial Officer 5,000 2.3% $5.63 10/2001 Walter A. Phillips Vice President of Sales and Marketing 25,000 12.0% $5.63 10/2001 Robert Johnson Vice President 60,000 28.8% $10.50 4/2001 Stephen Spain Vice President 60,000 28.8% $10.50 4/2001
The following table sets forth information concerning the value of unexercised stock options held by Messrs. Zugibe, Mandracchia, Johnson, and Spain at December 31, 1996.
Number of Securities Underlying Value of Unexercised Options In-the-money Options At December 31, 1996 At December 31, 1996 Aggregated Fiscal Year End Option Values Table -------------------- -------------------- Name Position Exercisable Unexercisable Exercisable Unexercisable ---- -------- ----------- ------------- ----------- ------------- Kevin J. Zugibe Chairman of the Board, 54,000 21,000 $6,750 $2,625 President & Chief Operating Officer Stephen P. Mandracchia Executive Vice President and 54,000 21,000 $6,750 $2,625 Secretary Robert Johnson Vice President 9,500 50,500 $0 $0 Stephen Spain Vice President 9,500 50,500 $0 $0
16 - ------------------------- Year-end values of unexercised in-the-money options represent the positive spread between the exercise price of such options and the year-end market value of the Common Stock. Compensation of Directors Non-employee directors receive an annual fee of $3,000 and are reimbursed for out-of-pocket expenses incurred in attending meetings of the Board of Directors. In addition, under the Company's Stock Option Plan non-employee directors are eligible to receive nonqualified stock options. To date, the Company granted to Dr. Frederick T. Zugibe, a former director of the Company, options to purchase 75,000 shares of Common Stock at an exercise price of $5.50 per share. Such option vests at the rate of 18,000 shares for each of four one-year terms, commencing with the year ended October 31, 1994, and 3,000 shares for the year ending October 31, 1998. The Company has also granted to Robert Johnson, in connection with his employment agreement with ESS, options to purchase 60,000 shares of the Company's Common Stock at an exercise price of $10.50 per share. Such option vests at the rate of 9,500 shares for each of four one-year terms, commencing with the year ended April 24, 1996, and 3,000 shares for the year ending April 24, 2002. Employment Agreements The Company has entered into a five-year employment agreement with Kevin J. Zugibe, which expires in May 1999 and is automatically renewable for successive terms. Pursuant to the agreement, effective January 1, 1997 Mr. Zugibe is receiving an annual base salary of $175,000 with such increases and bonuses as the Board may determine. The Company is the beneficiary of a "key-man" insurance policy on the life of Mr. Zugibe in the amount of $1,000,000. The Company has also entered into one-year employment agreements with Messrs. Thomas Zugibe, Mandracchia, and Cole-Hatchard. Pursuant to these agreements, effective January 1, 1997, these officers are receiving annual base salaries of $130,000, $130,000, and $75,000, respectively. The agreements are automatically renewable for successive one-year terms. The Company has entered into three-year employment contracts with Messrs. Johnson, Spain, Phillips, and Barron which provide for annual base salaries of $80,000, $80,000, $150,000 and $130,000, respectively, and are automatically renewable for successive one-year terms. Messrs. Phillips and Barron' s contracts also provide for annual bonuses not to exceed $50,000 and $25,000, respectively, based on achievement of pre-determined annual goals. Stock Option Plan The Company has adopted an Employee Stock Option Plan (the "Plan") effective October 31, 1994 pursuant to which 725,000 shares of Common Stock are currently reserved for issuance upon the exercise of options designated as either (i) options intended to constitute incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as amended (the "Code"), or (ii) nonqualified options. ISOs may be granted under the Plan to employees and officers of the Company. Non-qualified options may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. Stock appreciation rights may also be issued in tandem with stock options. The Plan is intended to qualify under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and is administered by a committee of the Board of Directors, which currently consists of Messrs. Abbatecola and Morch. The committee, within the limitations of the Plan, determines the persons to whom options will be granted, the number of shares to be covered by each option, whether the options granted are intended to be ISOs, the duration and rate of exercise of each option, the exercise price per share and the manner of exercise and the time, manner and form of payment upon exercise of an option. Unless sooner terminated, the Plan will expire on December 31, 2004. ISOs granted under the Plan may not be granted at a price less than the fair market value of the Common Stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). The aggregate fair market value of shares for which ISOs granted to any employee are exercisable for the first time by such employee during any 17 calendar year (under all stock option plans of the Company) may not exceed $100,000. Non-qualified options granted under the Plan may not be granted at a price less than 85% of the market value of the Common Stock on the date of grant. Options granted under the Plan will expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company). All options granted under the Plan are not transferable during an optionee's lifetime but are transferable at death by will or by the laws of descent and distribution. In general, upon termination of employment of an optionee, all options granted to such person which are not exercisable on the date of such termination immediately terminate, and any options that are exercisable terminate 90 days following termination of employment. As of December 31, 1996, the Company granted options to purchase 715,600 shares of Common Stock under the Plan. Of such options, options to purchase 75,000 shares at an exercise price of $5.50 per share were granted to each of Kevin J. Zugibe, Stephen J. Cole-Hatchard, Stephen P. Mandracchia, Thomas P. Zugibe and Frederick T. Zugibe in 1994. Such options vest at the rate of 18,000 shares for each of four one-year periods beginning with the period ending October 31, 1994 and 3,000 shares for the period ending October 31, 1998. During 1994, the Company also granted options to purchase 10,000 shares to a former officer and 103,000 shares to other employees of the Company, exercisable at prices ranging from $5.00 to $5.625 per share. During 1995, the Company granted options for 19,000 shares, exercisable at prices ranging from $6.00 and $16.00 per share. During 1996, the Company granted options to purchase 208,600 shares, exercisable at prices ranging from $5.63 to $10.50 per share (also see Note 14 to the Notes to the Consolidated Financial Statements). 18 Item 11. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth information as of March 3, 1997 based on information obtained from the persons named below, with respect to the beneficial ownership of Common Stock by (i) each person known by the Company to be the beneficial owner of more than 5% of the Company's outstanding Common Stock, (ii) the Named Executive and Mr. Mandracchia, (iii) each director of the Company, and (iv) all directors and executive officers of the Company as a group:
Amount and Nature of Percentage Beneficial of Shares Name and Address of Beneficial Owner (1) Ownership(2) Owned - ---------------------------------------- ------------ ---------- Kevin J. Zugibe 288,000(3) 5.8% Thomas P. Zugibe 288,000(3) 5.8% Stephen P. Mandracchia 276,000(3) 5.5% Stephen J. Cole-Hatchard 287,000(3) 5.8% William A. Barron 6,000(4) * Walter A. Phillips 17,700 * Robert Johnson 9,500(5) * Stephen Spain 9,500(5) * Joseph Longo 16,680(7) * Vincent Abbatecola 1,500 * Otto C. Morch 600 * Dominic J. Monetta 3,000 * Fredrick T. Zugibe 266,500(3)(4) 5.3% DuPont Chemical and Energy Operations, Inc. 500,000(6) 10.0% All directors and officers as a group (13 persons) 1,203,480 24.2%
* = Less than 1% - ---------- (1) Unless otherwise indicated, the address of each of the persons listed above is the address of the Company, 25 Torne Valley Road, Hillburn, New York 10931. (2) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date hereof. Each beneficial owner's percentage ownership is determined by assuming that options and warrants that are held by such person (but not held by any other person) and which are exercisable within 60 days from the date hereof have been exercised. Unless otherwise noted, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common stock beneficially owned by them. (3) Includes 54,000 shares which may be purchased by the named person at $5.50 per share under an immediately exercisable option expiring in October 1999. (4) Excludes shares owned by adult children of Dr. Zugibe. Excludes shares owned by the adult children and spouse of Mr. Barron. Mr. Barron's shares include 5,000 immediately exercisable shares which may be purchased by the named person at $5.625 per share under an immediately exercisable option expiring in October 2001. (5) Represents immediately exercisable options. Does not include Options to purchase 50,500 shares. (6) According to a Schedule 13D filed with the Securities and Exchange Commission, DuPont Chemical and Energy Operations, Inc. ('DCEO') and E.I. DuPont de Nemours and Company claim shared voting and dispositive power over the shares. DCEO's address is DuPont Building, Room 8045, 1007 Market Street, Wilmington, DE 19898. 19 (7) Mr. Longo is Vice President, Engineering of the Company. Includes 5,000 shares which may be purchased by the named person at $5.625 per share under an immediately exercisable option expiring in December 1999. (8) Includes 17,700 immediately exercisable shares which may be purchased by the named person at $5.625 per share under an immediately exercisable option expiring in October 2001. Kevin J. Zugibe, Thomas P. Zugibe, Frederick T. Zugibe, Stephen Mandracchia and Stephen J. Cole-Hatchard may be deemed to be "parents" of the Company as such term is used under the Securities Act of 1933. Item 12. Certain Relationships and Related parties On November 14, 1996, certain officers and stockholders of Hudson granted unsecured loans ($678,000) to the Company; repayable upon receipt of proceeds from property mortgage (see Note 10 to the Notes to the Consolidated Financial Statements) or on subsequent demand. At December 31, 1996, officer loans consisted of: (in thousands) Officer and stockholder loans Initial Outstanding Loan Balance Lender Relationship Amount at 12/31/96 - ------ ------------ ------ ----------- S Mandracchia Company Officer $100 $50 S Cole-Hatchard Company Officer 100 50 T Zugibe Company Officer 100 50 K Zugibe Company Officer 100 - W Barron Company Officer 50 50 -- -- subtotal 450 200 --- --- Deerfield Partnership (1) 128 - - D Cole-Hatchard (1) 100 - - Accrued Interest - 2 ---- ---- Total $678 $202 ==== ==== (1) Deerfield Partnership is a firm owned, in part, by S Cole-Hatchard and D Cole-Hatchard, the officer's mother. Mr. Barron's note bore interest at a annual rate of 6%. Interest on the other notes bore interest at a rate of 8.75%. On January 29, 1997, the Company retired the officer loans and accrued interest outstanding at December 31, 1996. 20 Part IV Item 13 Exhibits and Reports on Form 8-K. (a) Exhibits 3.1 Certificate of Incorporation and Amendment. (1) 3.2 Amendment to Certificate of Incorporation, dated July 20,1994. (1) 3.3 Amendment to Certificate of Incorporation, dated October 26, 1994. (1) 3.4 By-Laws. (1) 10.1 Lease Agreement between the Company and Ramapo Land Co., Inc. (1) 10.2 Consulting Agreement with J.W. Barclay & Co., Inc. (1) 10.3 Stock Option Plan of the Company. (1) 10.4 Employment Agreement with Kevin J. Zugibe. (1) 10.5 Assignment of patent rights from Kevin J. Zugibe to Registrant. (1) 10.6 Agreement dated August 12, 1994 between the Company and PAACO International, Inc. (1) 10.7 Agreement between the Company and James T. and Joan Cook for the purchase of premises 3200 S.E. 14th Avenue, Ft. Lauderdale, Florida.(1) 10.8 Agreement dated as of December 12, 1994, by and between the Company and James Spencer d/b/a CFC Reclamation. (2) 10.9 Employment Agreement, dated December 12, 1994, between the Company and James Spencer. (2) 10.10 Agreement, dated July 25, 1995, between the Company and Refrigerant Reclamation Corporation of America. (3) 10.11 Employment Agreements with Thomas P. Zugibe, Stephen P. Mandracchia and Stephen J. Cole-Hatchard. (4) 10.12 Contract of Sale with ESS, Stephen Spain, Robert Johnson and the Company dated April 23, 1996(5) 10.13 Agreement dated February 4, 1997 between Wilson Art, Inc. and the Company for the purchase of 100 Brenner Drive, Congers, New York. 10.14 Agreements dated January 29, 1997 between E.I. DuPont de Nemours, DCEO, and the Company (6) 10.15 Employment Agreement, dated October 9, 1996, with Walter A. Phillips. 27 Financial Data Schedule - --------------------------- (1) Incorporated by reference to the Company's Registration Statement on Form SB-2 (No. 33-80279-NY) (2) Incorporated by reference to Company's Report on Form 8-K dated December 12, 1994. (3) Incorporated by reference to Company's Report on Form 10-QSB for the quarter ended June 30, 1995. (4) Incorporated by reference to Company's Annual Report on Form 10-KSB for the year ended December 31, 1995. (5) Incorporated by reference to the Company's Report on Form 8-K dated April 29, 1996. (6) Incorporated by reference to the Company Report in Form 8-K dated January 29, 1997. (b) Reports on Form 8-K: During the quarter ended December 31, 1996, no report on Form 8-K was filed. 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly signed this report on its behalf by the undersigned, thereunto duly authorized on the 29 day of March, 1997. HUDSON TECHNOLOGIES, INC. By: /s/ Kevin J. Zugibe ------------------------------ Kevin J. Zugibe, President In accordance with the requirements of the Securities Exchange Act of 1934, this report was signed by the following persons in the capacities and on the dates stated.
Signature Title Date --------- ----- ---- /s/ Kevin J. Zugibe Chairman of the Board, President and Chief March 29, 1997 - ---------------------------- Executive Officer Kevin J. Zugibe /s/ Thomas P. Zugibe Executive Vice President and Director March 29, 1997 - ---------------------------- Thomas P. Zugibe /s/ Stephen P. Mandracchia Executive Vice President and Secretary March 29, 1997 - ---------------------------- Stephen P. Mandracchia /s/ Stephen J. Cole-Hatchard Vice President, Treasurer, and Director March 29, 1997 - ---------------------------- Stephen J. Cole-Hatchard /s/ William A. Barron Vice President and Chief Financial Officer March 29, 1997 - ---------------------------- William A. Barron /s/ Robert Johnson Vice President and Director March 29, 1997 - ---------------------------- Robert Johnson /s/ Vincent Abbatecola Director March 29, 1997 - ---------------------------- Vincent Abbatecola /s/ Otto C. Morch Director March 29, 1997 - ---------------------------- Otto C. Morch /s/ Dominic J. Monetta Director March 29, 1997 - ---------------------------- Dominic J. Monetta
22 Hudson Technologies, Inc. Financial Statements Contents Report of Independent Certified Accountants 24 Audited Financial Statements o Consolidated Statements of Operations 25 o Consolidated Balance Sheets 26 o Consolidated Statements of Cash Flows 27 o Consolidated Statements of Stockholders' Equity 28 o Notes to the Consolidated Financial Statements 29 23 Report of Independent Certified Accountants To Stockholders and Board of Directors Hudson Technologies, Inc. Hillburn, New York We have audited the accompanying consolidated balance sheets of Hudson Technologies, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, cash flows, and stockholders' equity for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from 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 Technologies, Inc. and subsidiaries as of December 31, 1996 and 1995 and the results of their operations and their cash flows for the years then in conformity with generally accepted accounting principles. BDO Seidman, LLP Valhalla, New York March 3, 1997 24 Hudson Technologies, Inc. and subsidiaries Consolidated Statements of Operations
(Amounts in thousands, except for share and per share amounts) For the year ended December 31, 1996 1995 - ------------------------------- ---- ---- Revenues $ 19,571 $ 21,970 Cost of Sales 14,146 14,359 ----------- ----------- Gross Profit 5,425 7,611 Operating expenses: Selling and marketing 1,448 856 General and administrative 4,480 3,104 Depreciation and amortization 1,077 555 Restructuring charge (Note 11) 1,333 -- ----------- ----------- Total operating expenses 8,338 4,515 ----------- ----------- Operating income (loss) (2,913) 3,096 Other income (expense): Interest income 43 42 Interest expense (462) (286) Other income (Note 3) 144 22 ----------- ----------- Total other income (expense) (275) (222) ----------- ----------- Earnings (loss) before income taxes (3,188) 2,874 Provision (benefit) for income taxes (Note 7) (1,135) 1,087 ----------- ----------- Net earnings (loss) $ (2,053) $ 1,787 =========== =========== Net earnings (loss) per common and common stock equivalents $ (0.47) $ 0.46 Weighted average number of shares outstanding 4,349,495 3,929,838 Net earnings (loss) per common stock assuming full dilution $ (0.47) $ 0.43 Weighted average number of shares outstanding 4,349,495 4,181,983
Certain 1995 amounts have been reclassified to conform with 1996 presentation format. See accompanying Notes to the Consolidated Financial Statements. 25 Hudson Technologies, Inc. and subsidiaries Consolidated Balance Sheets
(Amounts in thousands, except for share amounts) As of December 31, 1996 1995 - ------------------ ---- ---- Assets (Note 10) Current assets: Cash and cash equivalents $ 422 $ 2,460 Marketable securities (Note 4) -- 1,100 Trade accounts receivable - net (Note 5) 2,476 2,543 Inventories (Note 6) 9,062 5,344 Income taxes receivable (Note 7) 930 -- Prepaid expenses and other current assets 141 943 -------- -------- Total current assets 13,031 12,390 Property, plant and equipment, less accumulated depreciation (Note 8) 5,882 4,536 Goodwill and intangible assets, less accumulated amortization (Note 2, 9) 7,754 6,924 Deferred income taxes (Note 7) 1,978 -- Other assets 130 169 -------- -------- Total assets $ 28,775 $ 24,019 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $ 2,762 $ 1,391 Short term debt; including officer and stockholder loans outstanding of $202 and $0 (Note 10) 5,678 273 Reserve for restructuring (Note 11) 377 -- -------- -------- Total current liabilities 8,817 1,664 Deferred income taxes (Note 7) -- 85 Deferred income 71 -- Long-term debt, less current maturities (Note 10) 1,509 1,933 -------- -------- Total liabilities 10,397 3,682 -------- -------- Stockholders' equity (note 2, 10, 12, 14) Common stock, $0.01 par value; shares authorized 20,000,000; issued and outstanding 4,370,495 and 4,242,435 44 42 Additional paid-in capital 18,517 18,252 Retained earnings (deficit) (10) 2,043 -------- -------- 18,551 20,337 Less: Treasury stock, 21,000 shares at cost (173) -- -------- -------- Total Stockholders' equity 18,378 20,337 -------- -------- Total liabilities and Stockholders' equity $ 28,775 $ 24,019 ======== ========
- ----------------------------------------------------------------------------- Commitments and contingencies (note 13) Certain 1995 amounts have been reclassified to conform with 1996 presentation format. See accompanying Notes to the Consolidated Financial Statements. 26 Hudson Technologies, Inc. and subsidiaries Consolidated Statements of Cash Flows
(Amounts in thousands) For the year ended December 31, 1996 1995 - ------------------------------- ---- ---- Cash flows from operating activities: Net earnings (loss) $(2,053) $ 1,787 Adjustments to reconcile net earnings (loss) to cash provided (used) by operating activities: Depreciation and amortization 1,077 555 Deferred income taxes (293) 86 Decrease (increase) in trade receivables 67 (1,571) Decrease (increase) in inventories (3,718) (4,093) Decrease (increase) in income taxes receivable (930) -- Decrease (increase) in prepaid and other current assets 803 (208) Decrease (increase) in other assets 39 97 Increase (decrease) in accounts payable and accrued expenses 1,371 431 Increase (decrease) in deferred income 71 -- Increase (decrease) in reserve for restructuring 377 -- ------- ------- Cash provided (used) by operating activities (3,189) (2,916) ------- ------- Cash flows from investing activities: Purchase of marketable securities -- (1,100) Proceeds from sales of marketable securities 1,100 -- Additions to property, plant, and equipment (2,026) (2,553) Acquisitions accounted for as purchases (2,470) (1,433) ------- ------- Cash provided (used) by investing activities (3,396) (5,086) ------- ------- Cash flows from financing activities: Proceeds from issuance of warrants -- 500 Proceeds from redemption of warrants 231 9,245 Proceeds from loans from officers and stockholders (net) 202 -- Proceeds from short-term convertible debt issues 5,300 -- Proceeds from short-term bank borrowings 1,697 1,590 Proceeds from long-term debt issue 700 670 Repayment of debt (2,918) (3,759) Redemption of convertible debt (492) -- Purchase of treasury stock (173) -- ------- ------- Cash provided (used) by financing activities 4,547 8,246 ------- ------- Increase (decrease) in cash and cash equivalents (2,038) 244 Cash and equivalents at beginning of period 2,460 2,216 ------- ------- Cash and equivalents at end of period $ 422 $ 2,460 ======= ======= Supplemental disclosure of cash flow information: Cash paid during period for interest $ 313 $ 255 Cash paid during period for taxes $ -- $ 1,138 Supplemental schedule of non-cash investing and financing activities: Issuance of common stock for acquisitions $ 528 $ 4,068
Certain 1995 amounts have been reclassified to conform with 1996 presentation format. See accompanying Notes to the Consolidated Financial Statements. 27 Hudson Technologies, Inc. and subsidiaries Consolidated Statements of Stockholders' Equity (Amounts in thousands, except for share amounts)
Common Stock Additional Retained --------------------- Treasury Paid-in earnings Shares Amount Stock Capital (deficit) Total ------ ------ ----- ------- --------- ----- Balance at December 31, 1994 2,537,332 $25 $ - $4,456 $256 $4,737 - ---------------------------- --------- --- ---- ------ ---- ------ Issuance of Warrants - - - 500 - 500 Issuance of common stock in connection with warrant redemption 1,530,139 15 - 9,230 - 9,245 Issuance of common stock in connection with acquisitions 174,964 2 - 4,066 - 4,068 Net earnings - - - - 1,787 1,787 Balance at December 31, 1995 4,242,435 $42 $ - $18,252 $2,043 $20,337 - ---------------------------- --------- --- ---- ------- ------ ------- Issuance of common stock in connection with warrant redemption 66,500 1 - 230 - 231 Issuance of common stock in connection with acquisitions 61,560 1 - 527 - 528 Purchase of treasury stock - - (173) - - (173) Redemption of Convertible Notes - - - (492) - (492) Net loss - - - - (2,053) (2,053) Balance at December 31, 1996 4,370,495 $44 $ (173) $18,517 $(10) $18,378 - ---------------------------- --------- --- ------ ------- ----- -------
Certain 1995 amounts have been reclassified to conform with 1996 presentation format. See accompanying Notes to the Consolidated Financial Statements. 28 Notes to the Consolidated Financial Statements Note 1- Summary of Significant Accounting Policies Business Hudson Technologies, Inc. incorporated under the laws of New York on January 11, 1991, together with its subsidiaries (collectively, "Hudson" or the "Company"), provides refrigerant management services, consisting primarily of the recovery and reclamation of refrigerants used in Commercial air conditioning and refrigeration systems. Consolidation The consolidated financial statements represent all companies of which Hudson directly or indirectly has majority ownership or otherwise controls. Significant intercompany accounts and transactions have been eliminated. The Company's consolidated financial statements include the accounts of wholly-owned subsidiaries Hudson Technologies Company (formerly named Refrigerant Reclamation Corporation of America, Inc.) ("RRCA") and Environmental Support Solutions, Inc. ("ESS"), together with other controlled affiliates. Reclassifications Certain 1995 amounts have been reclassified to conform with 1996 presentation format. Amounts reclassified had no impact on consolidated operating income or earnings. Fair value of Financial Instruments The carrying values of financial instruments including trade accounts receivable, and accounts payable approximate fair value at December 31, 1996 and 1995, because of the relatively short maturity of these instruments. The carrying value of short- and long-term debt approximates fair value, based upon quoted market rates of similar debt issues, as of December 31, 1996 and 1995. The fair value of officer and shareholder notes cannot be determined due to the nature of the transactions. Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade accounts receivable. The Company maintains its temporary cash investments in highly-rated financial institutions. The Company's trade accounts receivable are due from companies throughout the U.S. The Company reviews each customer's credit history before extending credit. The Company establishes an allowance for doubtful accounts based on factors associated with the credit risk of specific accounts, historical trends, and other information. Revenue and cost of sales Revenues are recorded upon completion of service or product shipment or passage of title to customers in accordance with contractual terms. Cost of sales are recorded based on the cost of products shipped or services performed and related direct operating costs of the Company's reclamation sites. Cash and cash equivalents Money market accounts and temporary investments with original maturities of ninety days or less are included in cash and cash equivalents. Marketable securities All marketable securities at December 31, 1995 were deemed by management to be available for sale and therefore are reported at fair value with net unrealized gains and losses reported in stockholders' equity, when required. Inventories Inventories, consisting primarily of reclaimed refrigerant products available for sale, are stated at the lower of cost, on a first-in first-out basis, or market. Property, plant, and equipment Property, plant, and equipment are stated at cost; including internally manufactured equipment. Provision for depreciation is recorded (for financial reporting purposes) using the straight-line method over the useful lives of the respective assets. Leasehold improvements are amortized on a straight-line basis over the shorter of economic life or terms of the respective leases. Due to the specialized nature of the Company's business, it is possible that the Company's estimates of equipment useful life periods may change in the future. Goodwill and intangible assets Goodwill is amortized over 25 years using the straight-line method. Other intangible assets consisting primarily of patents or acquired contract rights are amortized on a straight-line basis over the remaining life of the patent. The Company evaluates the recoverability of goodwill based on estimated undiscounted operating income over the goodwill amortization periods, giving consideration to sales and cost benefits expected to be realized by the consolidated group from the acquisition of the acquired company. The Company also considers industry trends and the potential impact of proposed or pending regulations as well as the effect of competition in its evaluation. Income taxes Hudson utilizes the assets and liability method for recording deferred income taxes, which provides for the establishment of deferred tax asset or liability accounts based on the difference between tax and financial reporting bases of certain assets and liabilities. 29 Treasury stock Common stock, acquired by the Company under a repurchase program authorized by the Board of Directors on May 10, 1996, is carried at acquisition cost (market price at acquisition date). Earnings per common and equivalent shares Earnings per common and common equivalent shares are computed on the weighted average number of shares, less treasury stock and, if dilutive, common equivalent shares (common shares assuming exercise of options and warrants); utilizing the treasury stock method. Recent accounting pronouncements During March 1995, the Financial Accounting Standards Board ('FASB') issued Statement of Financial Accounting Standard ('SFAS') No. 121 'Accounting for Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of" which requires, among other things, that impairment losses of assets held and gains or losses of assets to be disposed of, be included as a component of income from continuing operations before taxes. The Company adopted SFAS 121 on January 1, 1996 and at December 31, 1996, no provision for the impairment of Long-lived assets was required. During October 1995, the FASB issued SFAS No. 123 'Accounting for stock-based compensation', which established a fair value method for accounting of stock-based compensation plans. As of January 1, 1996 the Company elected to implement SFAS No. 123 by disclosing the proforma net income and proforma net income per share amounts assuming the fair valuation method. This disclosure is displayed in note 14 of the Notes to the Consolidated Financial Statements. During February 1997, the FASB issued SFAS No. 128 "Earnings Per Share" which replaces the presentation of primary earnings per share ("EPS") with basic EPS. It also requires dual presentation of basic and diluted EPS. The Company will not adopt SFAS No. 128 as of January 1, 1997 and has not completed its analysis of the effect on its current EPS calculation. Estimates and Risks The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities, and the results of operations during the reporting period. Actual results could differ from these estimates. The Company participates in an industry that is substantially regulated, changes in which could affect operating results. Currently the Company purchases unprocessed refrigerants from domestic suppliers and its customers. The Company's inability to obtain refrigerants could cause delays in refrigerant processing, possible loss of revenues, and resulting possible adverse affect on operating results. Note 2 - Acquisitions On August 15, 1995, the Company acquired Refrigerant Reclamation Corporation of America ("RRCA"). The purchase price was approximately $6,068,000 which consisted of cash ($1,250,000), a note ($750,000) paid during December 1995, and 174,964 shares of the Company's common stock. The acquisition was accounted for as a purchase from the date of acquisition with the assets acquired and liabilities assumed recorded at fair values, resulting in an excess of cost over assets acquired of approximately $4.0 million. Results of RRCA's operations have been included in the Company's consolidated financial statements from the date of acquisition. The following unaudited pro forma results of operations assume that the acquisition occurred at the beginning of 1995. The unaudited pro forma calculations include adjustments for the estimated effect on the Company's historical operations for depreciation and amortization, interest and income taxes related to the acquisition. Year ended December 31 (in thousands) 1995 ---- Revenues $24,448 Net earnings $1,781 - ----------------------------------------------------------- Net earnings per common & common stock equivalents $0.43 Net earnings per common & common stock equivalents assuming full dilution $0.42 The pro forma information presented is for information purposes only and does not purport to be indicative of the results which would actually have been obtained if the combination had been in effect for the periods indicated. On April 23, 1996, the Company acquired all the outstanding capital stock of Environmental Support Solutions, Inc. ("ESS"), a Mesa, Arizona developer and provider of environmental software, training, and management services. The capital stock of ESS was purchased for $2,375,000, which consisted of cash ($700,000) and notes ($1,675,000) paid during October 1996. The acquisition was accounted for as a purchase from the date of acquisition with the assets acquired and liabilities assumed recorded at fair values, resulting in an excess of cost over assets acquired of approximately $0.8 million. Results of ESS's operations have been included in the Company's consolidated financial statements from the date of acquisition. On June 14, 1996, ESS acquired all the net assets, subject to liabilities, of E-Soft, Inc. ("E-Soft"), a Georgia-based developer and marketer of software programs related to hazardous material management, in exchange for a cash payment of $50,000 and 41,560 unregistered shares of the Company's stock. E-Soft acquired assets and liabilities were recorded at fair values, resulting in an excess of cost over assets acquired of approximately $0.5 million. Subsequent to 30 the acquisition, all E-Soft assets and activities were relocated to ESS headquarters in Arizona. The former owner of E-Soft has become an employee of ESS. On July 24, 1996, the Company acquired all the outstanding common stock of GRR Co., Inc. dba Golden Refrigerants ("Golden"), a refrigerant reclamation and recovery company located in Punta Gorda, Florida, in exchange for 20,000 unregistered shares of the Company's stock with a valuation of $0.1 million at the transaction date. Concurrent with the acquisition, the Company purchased, for nominal consideration, all the net assets, subject to liabilities, of Golden, and dissolved GRR Co., Inc. The 1996 Acquisitions were not considered material to the Company's operations and as such, no pro forma information has been presented. Note 3 - Other income Other income ($144,000 for the year ended December 31, 1996) consisted mainly of dividends received on marketable securities and sublease rental income from the Company's Ft. Lauderdale facility. Note 4 - Marketable securities Marketable securities available for sale at December 31 are summarized below: December 31 (in thousands) 1996 1995 ---- ---- Marketable securities Equity issues $ - $400 Debt issues - 700 ---- ------ Total $ - $1,100 ---- ------ Note 5- Trade receivables - net Trade accounts receivable include reserves for doubtful accounts of $546,000 and $14,000 at December 31, 1996 and 1995, respectively. Note 6 - Inventories Inventories consisted of the following: December 31 (in thousands) 1996 1995 ---- ---- Processed refrigerants and cylinders $3,563 $4,120 Packaged refrigerants 5,444 1,224 Other 55 - ------ ------ Total $9,062 $5,344 ------ ------ Note 7 - Income taxes Elements of income tax expense (benefit) for the years 1996 and 1995 are as follows: Year ended December 31 (in thousands) 1996 1995 ---- ---- Provision (benefit) for income tax Current payable: - Federal $(753) $819 - State (89) 182 ------- ------ subtotal (842) 1,001 ------- ------ Deferred: - Federal (262) 71 - State (31) 15 ------- ------ subtotal (293) 86 ------- ------ Total $(1,135) $1,087 -------- ------ Reconciliation of the Company's actual tax rate to the U.S. Federal statutory rate is as follows: Year ended December 31 (in percents) 1996 1995 ---- ---- Income tax rates - Statutory U.S. Federal rate 34% 34% - States, net U.S. benefits 4% 4% - Permanent differences (2)% --% ---- --- Total 36% 38% ---- --- RRCA, acquired during 1995 as a subsidiary of the Company, has available net operating loss carryforwards ("NOLs") expiring through 2010 of about $5 million; subject to annual limitations of about $0.4 million. During 1996, the Company recorded a deferred tax asset (about $1.8 million) and reduced goodwill an equivalent amount in recognition of the improved probability of recovering RRCA acquired net operating losses. The Company believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the NOL deferred tax asset. Elements of deferred income tax assets (liabilities) are as follows: Year ended December 31 (in thousands) 1996 1995 ---- ---- Deferred tax assets (liabilities) - Depreciation & amortization $ (143) $(85) - Reserves for doubtful accounts 208 - - NOLs 1,770 1,895 - NOL Valuation allowance - (1,895) - Restructuring reserves 143 - ------ ------ Total $1,978 $(85) ------ ------ 31 Note 8 - Property, plant, and equipment Elements of property, plant, and equipment are as follows: Year ended December 31 (in thousands) 1996 1995 ---- ---- Property, plant, & equipment - Land $335 $335 - Buildings & improvements 748 737 - Equipment 3,878 2,528 - Equipment under capital lease 1,039 955 - Furniture & fixtures 187 159 - Leasehold improvements 330 205 - Equipment under construction 1,051 451 ------ ------ subtotal 7,568 5,370 Accumulated depreciation & amortization (1,686) (834) ------ ------ Total $5,882 $4,536 ------ ------ Note 9 - Goodwill and intangible assets Elements of Goodwill and intangible assets are as follows: Year ended December 31 (in thousands) 1996 1995 ---- ---- Goodwill and intangible assets - Goodwill $5,652 $6,177 - Less: amortization (261) (114) ------ ------ subtotal 5,391 6,063 ------ ------ - Intangible assets 2,763 948 - Less: amortization (400) (87) ------ ------ subtotal 2,363 861 ------ ------ Total $7,754 $6,924 ------ ------ Intangible assets include patents and acquired trademarks and copyrights. During 1996, the Company recorded a deferred tax asset ($1.8 million) and reduced goodwill an equivalent amount in recognition of the improved probability of recovering RRCA acquired net operating losses. Note 10 - Short-term and long-term debt Elements of short-term and long-term debt are as follows: Year ended December 31 1996 1995 ---- ---- (in thousands) Short-term & long-term debt Short-term debt - Convertible note debentures $3,050 $ - - Bank credit line 1,697 - - Officer and stockholder loans 202 - - Long-term debt: current 729 273 ------ ------ Short-term debt 5,678 273 ------ ------ Long-term debt - Mortgage payable $700 $ - - Capital lease obligations 776 811 - RRCA priority claims 353 408 - Note payable 409 987 - Less: current maturities (729) (273) ------ ------ Long-term debt 1,509 1,933 ------ ------ Total $7,187 $2,206 ------ ------ Convertible note debentures On June 18, 1996, the Company issued a $3.5 million principal amount non-interest bearing convertible debenture due June 18, 1998. Under the debenture agreement (amended on August 16, 1996) the Company redeemed $1.0 million of the debenture principal for $1,150,000 on September 16, 1996, $625,000 debenture principal for $718,750 on September 30, 1996, and $625,000 debenture principal for $718,750 during November 1996. The Company issued warrants in connection with the debenture issue and amendment to purchase 16,071 shares of the Company's common stock at an exercise price of $18.00 per share. On September 30, 1996, the Company issued a $1.8 million principal amount convertible debenture due September 30, 1998 bearing interest at 7% unless retired or redeemed within the first six months of issue. No principal amount of the debenture was retired during 1996. The Company issued warrants in connection with this debenture issue to purchase 66,000 shares of the Company's common stock at an exercise price of $10.00 per share. The debentures convert at an average rate of the lesser of $14 or 85% of average common stock bid prices; as defined in the agreements. The aforementioned warrants were deemed to have minimal value. Convertible Notes issued during 1996 were recorded at the face value with interest expense calculated at an implicit interest rate of 7% applied to the outstanding balance. In 1996, to avoid significant dilution, the Company chose to redeem certain portions of the convertible notes, rather than allow the debt to convert to common stock. As a result, the excess of the redemption cost over the debt amount paid in connection with the retirement of the debt has been charged to stockholders' equity. At December 31, 1996, principal amounts of debentures outstanding are displayed in the following table: Debentures @ 12/31/96 Amount - --------------------- ------ $3.5 MM due 6/18/98 $1,250,000 $1.8MM due 9/30/98 1,800,000 ---------- Total $3,050,000 ---------- 32 On January 29, 1997, the Company retired $2,425,000 note principal balances in exchange for a Cash payment of $2,788,750. Concurrently the Company redeemed $625,000 note principal balance in exchange for 133,085 shares of common stock. The excess of the redemption costs over the debt amount repaid was charged to stockholders' equity. Bank credit line At December 31, 1996 and 1995, the Company had a bank line of credit ($3.0 million) with MTB Bank N.A. ('MTB'), which bore interest at prime plus 2% and expires on April 1, 1997. Advances under the MTB line were limited to 85% of eligible trade accounts receivable and 50% of inventories not exceeding trade receivable lending limits (above) or $2 million. Under the MTB Bank agreement, substantially all the Company's assets are pledged as collateral for Hudson obligations to MTB Bank. Stockholder loans On November 14, 1996, certain officers and stockholders of Hudson granted unsecured loans ($678,000) to the Company; repayable upon receipt of proceeds from property mortgage (see below) or on subsequent demand. Notes bore interest at annual rates ranging from 6% to 8.75%. On January 29, 1997, the Company retired the officer loans and accrued interest outstanding. Mortgage payable During 1996, the Company mortgaged its property and building located in Ft. Lauderdale with Turnberry Savings Bank, NA. The mortgage bears a fixed annual interest rate of 9.25% and is repayable over 20 years commencing February 1997. RRCA Priority Claims In connection with its bankruptcy reorganization in June 1994, prior to its acquisition by Hudson, RRCA has unsecured obligations (as modified by a settlement during April 1996) totaling $0.4 million at December 31, 1996 payable in periodic payments to bankruptcy creditors through July 2000. Note payable In connection with its bankruptcy reorganization of June 1994, prior to its acquisition by Hudson, RRCA had issued a secured promissory Note in principal amount of $1.0 million due August 15, 1997 to James J. Todack ("Todack"), a supplier to RRCA. During April 1996, RRCA and Todack rescheduled the remaining debt providing for a payment ($100,000) and the sum of $800,000 payable in sixteen equal monthly installments of principal and interest of 7% with a final payment on August 10, 1997. Scheduled maturities of the Company's debts and capital lease obligations are as follows: (in thousands) Years ended December 31, Amount - ------------------------ ------ - 1997 $5,678 - 1998 349 - 1999 352 - 2000 160 - 2001 23 - beyond 2001 625 ------ Total $7,187 ====== The Company rents certain equipment with a net book value of about $730,000 under leases which have been classified as capital leases. Scheduled future minimum lease payments under capital leases net of interest are as follows: (in thousands) Scheduled Capital lease payments Years ended December 31, Amount - ------------------------ ------ - 1997 $193 - 1998 210 - 1999 228 - 2000 139 - 2001 and beyond 6 ---- Total $776 ==== Average short-term debt for the year ended December 31, 1996 totaled $4.3 million with a weighted average interest rate of 10.8%. Note 11 - Restructuring reserves During the second quarter 1996, the Company established a Reserve for Restructuring totaling $1.3 million, for the purposes of consolidating the Company's activities, relocating the Company's headquarters and primary reclamation center, and to consolidate product offerings. Reserve provisions and unexpended balances at December 31, 1996 are as follows: Year 1996 (in millions) Provisions Balance ---------- --------- Restructuring reserves Consolidate activities $0.1 $ - Relocate headquarters 0.9 0.4 Consolidate products 0.3 - ---- ---- Total $1.3 $0.4 ---- ---- Note 12- Stockholders' equity On March 24, 1995, the Company sold 153,846 redeemable common stock warrants at $3.25 per warrant realizing proceeds of $500,000. The warrants, exercisable at $6.25 per share until October 31, 1999, are redeemable by the Company as set forth in the agreement. On August 19, 1995, the Company issued 174,964 shares of common stock in connection with the acquisition of RRCA (see Note 2). 33 On September 15, 1995, the Company called for redemption of warrants pursuant to its initial public offering and overallotment option. A total of 1,530,139 shares of common stock were issued in connection with this redemption through December 31, 1995; with the Company realizing net proceeds of about $9.2 million. An additional 66,500 shares were issued in connection with this redemption during 1996; with the Company realizing net proceeds of about $0.2 million. On June 14, 1996, the Company issued 41,560 unregistered shares in connection with ESS's acquisition of E-Soft (see Note 2). On July 24, 1996, the Company issued 20,000 unregistered shares in connection with its acquisition of GRR Co, Inc. (see Note 2). On May 10, 1996, the Board of Directors authorized the Company to acquire, from publicly traded markets, a maximum of 25,000 issued and outstanding shares of its own Common Stock. As of December 31, 1996, the Company had repurchased 21,000 shares at a average price of $8.25 per share. Subsequent event - DuPont On January 29, 1997, the Company entered into a Stock Purchase Agreement with E.I. DuPont de Nemours and Company ("DuPont") and DuPont Chemical and Energy Operations, Inc. ("DCEO") pursuant to which the Company issued to DCEO 500,000 shares of Common Stock in consideration of $3,500,000 in cash. Simultaneous with the execution of the Stock Purchase Agreement, the parties entered into a Standstill Agreement, Shareholders' Agreement and Registration Agreement. The Standstill Agreement provides, subject to certain exceptions, that neither DuPont nor any corporation or entity controlled by DuPont will, directly or indirectly, acquire any shares of any class of capital stock of the Company if the effect of such acquisition would be to increase DuPont's aggregate voting power to greater than 20% of the total combined voting power relating to any election of directors. The Standstill Agreement also provides that the Company will cause two persons designated by DCEO and DuPont to be elected to the Company's Board of Directors. The Shareholders' Agreement provides that, subject to certain exceptions, DuPont shall have a right of first refusal to purchase any shares of Common Stock intended to be sold by the Company's principal shareholders. Pursuant to the Registration Agreement, the Company granted to DuPont certain demand and "piggy-back" registration rights. Note 13 - Commitments and contingencies Rents, operating leases and contingent income Hudson utilizes leased facilities and operates equipment under non-cancelable operating leases through the year 2001. In addition, the Company subleases a portion of its owned Ft. Lauderdale facility to a third party. Properties The Company's headquarters are located in approximately 21,000 square feet of leased industrial space at Hillburn, New York. The building is leased from an unaffiliated third party pursuant to a five-year agreement at an annual rental of about $74,000 through May 1999. In March 1995, the Company purchased, for $950,000, a facility in Ft. Lauderdale, Florida, consisting of a 32,000 square foot building on approximately 1.7 acres with rail and port access. The property was mortgaged during 1996 (see note 10). Annual real estate taxes are approximately $24,000. The Company has entered into a three-year agreement, pursuant to which it leases 15,000 square feet of its Florida facility to an unaffiliated third party at a monthly rental of $6,800. The agreement contains a 90-day cancellation provision. The Company's Baton Rouge, Louisiana facility is located in a 20,000 square foot building which is leased from an unaffiliated third party at an annual rental of approximately $54,000 pursuant to an agreement expiring in April 2000. The Company's Rantoul, Illinois facility is located in a 23,000 square foot building which is leased from an unaffiliated third party at an annual rental of approximately $60,000 pursuant to an agreement expiring in May 1998. Hudson's Charlotte, North Carolina facility is located in 16,000 square foot building which is leased from an unaffiliated third party pursuant to an agreement which expires in April 1998. Annual rent is approximately $41,000. The Company's Sparks, Nevada facility is located in a 11,000 square foot building which is leased from an unaffiliated third party at an annual rental of approximately $49,000 pursuant to an agreement expiring in September 1998. 34 The Company's Mesa, Arizona office facility of about 4,000 square feet is leased from an unaffiliated third party at an annual rental of approximately $41,000; pursuant to an agreement expiring in January 2000. During January 1997, the Company entered into a commitment to purchase a 29,000 square foot facility on 5.15 acres in Congers, New York for about $1.4 million; subject to approvals and ability to obtain financing. The Company is leasing the facility for approximately $9,700 per month during the interim period. The Company's Los Alamito, California office facility of about 1,500 square feet is leased from an unaffiliated third party at an annual rental of approximately $13,000; pursuant to an agreement expiring in August 1997. The Company also utilizes bonded warehouse facilities in California and Washington State; which are rented on a month-to-month basis. Rent expense for the year ended 1996 and 1995 totaled about $320,000 and $327,000, respectively. Rent expense commitments are summarized as follows: (in thousands) Rent expense Years ended December 31, Amount - ------------------------ ------ - 1997 $429 - 1998 420 - 1999 135 - 2000 22 ------ Total $1,006 ====== Operating lease commitments are summarized as follows: (in thousands) Operating leases Years ended December 31, Amount - ------------------------ ------ - 1997 $454 - 1998 409 - 1999 398 - 2000 318 - 2001 and beyond 311 ------ Total $1,890 ====== Legal Proceedings During December 1995, Earle Palmer Brown Companies, Inc. filed a compliant against the Company in the Circuit Court for Montgomery County Maryland seeking the sum of $238,761 plus interest for advertising, marketing, and public relations services provided by Kerr Kelly Thompson, a predecessor company. On July 19, 1996, the Company reached a negotiated settlement and obtained a full release from Earle Palmer Brown Companies, Inc. in consideration of a one-time payment of $180,000. During December 1995, PSJ Vans, Inc. filed a complaint against the Company in the Third District Court, State of Utah, seeking judgment for $41,570 plus attorney fees, for transportation services allegedly provided to the Company. The Company has paid previously an independent broker all such amounts related to this claim. During May 1996, this action was dismissed, on the Company's motion, for lack of jurisdiction. During June 1995, United Water of New York Inc. ("United") alleged that it discovered that two of its wells within close proximity to the Company's facility showed elevated levels of refrigerant contamination. During June 1996, United notified the Company that it was seeking indemnification by the Company for costs incurred to date as well as costs expected to be incurred in connection with United taking remedial action. During July 1996, United threatened to institute legal action in the event that the Company declined to settle this matter. During August 1996, the Company received a letter from the New York State Department of Environmental Conservation ("DEC") which stated that in the opinion of DEC the Company's refrigerants were the cause of the contamination of United's wells. The DEC report states that it is not aware of the extent of the contamination or how the Company's refrigerants entered the groundwater. The Company is cooperating with the DEC to develop a proposal to quantify and remediate the contamination During December 1996, the Company and United entered into an interim settlement agreement which provided for (a) reimbursement ($84,000) of United's operating costs associated with certain wells through August 1996, (b) reimbursement, subject to a dollar cap of $12,650 per month, of United monthly operating costs for certain wells through April 1997, and (c ) continued monitoring of refrigerant groundwater levels. Under the agreement, United agreed not to commence legal action against the Company prior to May 1, 1997. Neither party waived their rights as a result of the interim agreement. The Company reorganized approximately xxxxxxx of expense related to this agreement during 1996. The Company is currently conducting an investigation to determine the source of the alleged 35 contamination in United's wells and the need, if any, for remediation. There can be no assurance that United will not commence legal action after May 1, 1997 seeking substantial damages and/or other relief; or that any legal action or settlement will resolved in a manner favorable to the Company; or that ultimate outcome of any legal action or settlement will not have a material adverse effect on the Company's financial condition and results of operations. Hudson Technologies and its subsidiaries are subject to various claims and / or lawsuits from both private and governmental parties arising from the ordinary course of business; none of which are material. Employment Agreements The Company has entered into five multi-year employment agreements expiring by 1999 with officers of the Company which provide for aggregate annual base salaries totalling $615,000. Note 14 - Stock Option Plan Effective October 31, 1994, the Company adopted an Employee Stock Option Plan ("Plan") pursuant to which 725,000 shares of common stock are reserved for issuance upon the exercise of options designated as either (i) options intended to constitute incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as amended, or (ii) nonqualified options. ISOs may be granted under the Plan to employees and officers of the Company. Non-qualified options may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. Stock appreciation rights may also be issued in tandem with stock options. Unless sooner terminated, the Plan will expire on December 31, 2004. ISOs granted under the Plan may not be granted at a price less than the fair market value of the Common Stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). Non-qualified options granted under the Plan may not be granted at a price less than 85% of the market value of the Common Stock on the date of grant. Options granted under the Plan expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company). All stock options have been granted to employees and non-employees at exercise prices equal to the market value on the date of the grant. The Company applies APB Opinion 25, 'Accounting for Stock Issued to Employees', and related Interpretations in accounting for its stock option plan by receeding as compensation expense the excess of the fair market value over the excerise price per share as of this date of grant. Under APB Opinion 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of the grant, no compensation cost is recognized. SFAS 123 requires the Company to provide proforma information regarding net earnings (loss) and net earnings (loss) per share as if compensation cost for the Company's stock option plan had been determined in accordance with the fair value based method prescribed in FASB 123. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1995 and 1996, respectively: Years ended December 31 Assumptions 1996 1995 - ----------- ---- ---- Dividend Yield 0 0 Risk free interest rate 6% 6% Expected volatility 79.7% 79.7% Expected lives 5 5 Under the accounting provisions of FASB Statement 123, the Company's net income and earnings per share would have been reduced to the proforma amounts indicated below: (In thousands, except per share amounts) Years ended December 31 Proforma results 1996 1995 - ---------------- ---- ---- Net earnings (loss): As reported $(2,053) $1,787 Pro forma $(2,719) $1,597 Primary earnings (loss) per share: As reported $(0.47) $0.46 Pro forma $(0.63) $0.41 Fully diluted earnings (loss) per share: As reported $(0.47) $0.43 Pro forma $(0.63) $0.38 A summary of the status of the Company's stock option plan as of December 31, 1996 and 1995 and changes for the years ending on those dates is presented below: Weighted-average Stock Option Plan Grants Shares Exercise Price - ------------------------ ------ -------------- Outstanding at December 31, 1994 488,000 $ 5.40 - -------------------------------- ------- ------ o Granted 19,000 $11.81 o Exercised - - o Forfeited - - ------- ------ Outstanding at December 31, 1995 507,000 $ 5.64 - -------------------------------- ------- ------ o Granted 208,600 $ 9.09 o Exercised - - o Forfeited - - ------- ------ Outstanding at December 31, 1996 715,600 $ 6.65 - -------------------------------- ======= ====== Data summarizing year-end options exercisable and weighted fair-value of options granted during the years ended December 31, 1995, and 1996 is shown below: 36 Options Exercisable Year ended Year,ended December December 31, 31, 1995 1996 Options exercisable at year-end 297,000 502,300 ------- ------- Weighted average exercise price $5.77 $6.13 ------- ------- Weighted average fair value of options granted during the year $5.45 $5.66 ------- ------- Options Exercisable At December 31, 1996 Weighted-average Range of Prices Number Outstanding Exercise Price - --------------- ------------------ -------------- $5 to $10 455,300 $5.57 $10 to $16 47,000 $11.49 ------ $5 to $16 502,300 $6.13 ======= The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding At December 31, 1996 ---------------------------------------- Weighted-average Weighted-average Range of Prices Number Outstanding Remaining Contractual Life Exercise Price - --------------- ------------------ -------------------------- -------------- $5 to $10 567,600 3.1 years $5.56 $10 to $16 148,000 4.3 years $10.82 ------- $5 to $16 715,600 3.3 years $6.65 =======
During the initial phase-in period of SFAS 123, the effects on the material results are not likely to be representative of the effects on proficient results in future years since options over several years and additional awards could be made each year. 37 EXHIBIT INDEX (a) Exhibits 3.1 Certificate of Incorporation and Amendment. (1) 3.2 Amendment to Certificate of Incorporation, dated July 20,1994. (1) 3.3 Amendment to Certificate of Incorporation, dated October 26, 1994. (1) 3.4 By-Laws. (1) 10.1 Lease Agreement between the Company and Ramapo Land Co., Inc. (1) 10.2 Consulting Agreement with J.W. Barclay & Co., Inc. (1) 10.3 Stock Option Plan of the Company. (1) 10.4 Employment Agreement with Kevin J. Zugibe. (1) 10.5 Assignment of patent rights from Kevin J. Zugibe to Registrant. (1) 10.6 Agreement dated August 12, 1994 between the Company and PAACO International, Inc. (1) 10.7 Agreement between the Company and James T. and Joan Cook for the purchase of premises 3200 S.E. 14th Avenue, Ft. Lauderdale, Florida.(1) 10.8 Agreement dated as of December 12, 1994, by and between the Company and James Spencer d/b/a CFC Reclamation. (2) 10.9 Employment Agreement, dated December 12, 1994, between the Company and James Spencer. (2) 10.10 Agreement, dated July 25, 1995, between the Company and Refrigerant Reclamation Corporation of America. (3) 10.11 Employment Agreements with Thomas P. Zugibe, Stephen P. Mandracchia and Stephen J. Cole-Hatchard. (4) 10.12 Contract of Sale with ESS, Stephen Spain, Robert Johnson and the Company dated April 23, 1996(5) 10.13 Agreement dated February 4, 1997 between Wilson Art, Inc. and the Company for the purchase of 100 Brenner Drive, Congers, New York. 10.14 Agreements dated January 29, 1997 between E.I. DuPont de Nemours, DCEO, and the Company (6) 10.15 Employment Agreement, dated October 9, 1996, with Walter A. Phillips. 27 Financial Data Schedule - --------------------------- (1) Incorporated by reference to the Company's Registration Statement on Form SB-2 (No. 33-80279-NY) (2) Incorporated by reference to Company's Report on Form 8-K dated December 12, 1994. (3) Incorporated by reference to Company's Report on Form 10-QSB for the quarter ended June 30, 1995. (4) Incorporated by reference to Company's Annual Report on Form 10-KSB for the year ended December 31, 1995. (5) Incorporated by reference to the Company's Report on Form 8-K dated April 29, 1996. (6) Incorporated by reference to the Company Report in Form 8-K dated January 29, 1997. (b) Reports on Form 8-K: During the quarter ended December 31, 1996, no report on Form 8-K was filed. EX-10.13 2 CONTRACT FOR SALE OF REAL ESTATE CONTRACT FOR SALE OF REAL ESTATE This Contract is made and entered into by and between WILSONART INTERNATIONAL, INC., f/k/a Ralph Wilson Plastics Company, 2400 Wilson Place, Temple, Texas 76504 ("Seller"), and HUDSON TECHNOLOGIES, 25 Torne Valley Road, Hillburn, New York 10931-9900 ("Purchaser"). WITNESSETH: It is hereby agreed as follows: 1. Seller desires to sell to Purchaser and Purchaser desires to purchase from Seller for the Purchase Price, the property being approximately 4.81 acres in Congers, New York, and described on Exhibit "A" attached hereto and made a part hereof for all purposes, together with all and singular, the rights and appurtenances pertaining to the Property, including any right, title and interest of Seller in and to adjacent streets, alleys and rights-of-way, and all improvements located thereon, which improvements are being sold "AS-IS, WHERE-IS" (the "Property"). The Property address is commonly known as One Brenner Drive, Congers, New York. 2. The purchase price for the Property shall be One Million Four Hundred Thousand Dollars ($1,400,000) which shall be paid to the Seller by the Purchaser. 3. Upon execution of this Contract, Purchaser shall deliver to Seller an earnest money deposit of Twenty-five Thousand Dollars ($25,000.00) ("Earnest Money") which funds shall be for the benefit of Seller or Purchaser. The Earnest Money, plus any accrued interest may be applied to the Purchase Price at the Closing. In the event the transaction contemplated by the parties does not close due to Purchaser's fault or default, the Earnest Money, plus any accrued interest shall be retained by Seller. In the event the transaction contemplated by the parties does not close due to the Seller's fault or default, the Earnest Money, plus any accrued interest shall be returned to Purchaser. 4. Title to the Property will be conveyed to Purchaser at the Closing free and clear of any and all liens, encumbrances (except such existing building restrictions, deed or other restrictions of record, if any. Purchaser shall take those steps necessary to receive clear indications from the Town of Clarkstown that a certificate of occupancy may be issued with respect to Purchaser's intended use of the Property. Such clear indication shall be received by February 10, 1997. If such clear indication is not received by Purchaser, Purchaser may either waive such requirement and proceed with Closing, or terminate this Contract and any rental payments, including any interest, shall be forfeited to Seller. Further, if Purchaser does not receive the clear indication, and/or does not waive such requirement, Seller may terminate this Contract. 5. The Closing shall be held at the offices of the title company, or at such other location as Purchaser and Seller may agree upon, on January 16, 1998. At the Closing, Seller shall-deliver to Purchaser the following items, which items shall be in form and substance reasonably satisfactory to Purchaser: (i) Deed, free and clear of all encumbrances except such Contract for Sale of Real Estate Page 1 restrictions or encumbrances of record, if any; (ii) Owner's Title Policy; and (iii) such other documents as are necessary and appropriate in the consummation of this transaction. At the Closing, Purchaser shall deliver to Seller the balance of funds constituting the Purchase Price, and such documents as are appropriate in the consummation of this transaction. 6. Thirty (30) days prior to the Closing, Seller shall provide Purchaser, at Purchaser's sole cost and expense, an Owner's Title Policy, which shall be a current ALTA Form B policy, in the full amount of the Purchase Price, containing no exceptions to Title other than the standard printed exceptions (provided that the exception for taxes shall be limited to the year of closing and subsequent years endorsed "Not Yet Due and Payable," if applicable). If Purchaser desires other endorsements or amendments to said Owner's Title Policy, the same shall be obtained at Purchaser's sole cost and expense. Purchaser shall pay the cost of the Owner's Title Policy provided for above and all other closing costs shall be paid by the respective parties as normal and customary in the county where the Property is located. Seller shall pay the realty transfer tax. Each party shall be responsible for its own attorneys' fees. 7. In Purchaser, at its sole expense shall obtain a survey of the Property. Such survey shall show the location on the Property of all improvements, fences, evidences of abandoned fences, easements, roads, rights-of-way, if any; shall show the location of all existing utilities which will be available to serve the property; shall show no encroachments upon the Property or the location of existing encroachments, and shall show thereon a legal description of the boundaries of the Property by metes and bounds or other appropriate legal description. The surveyor has or shall have certified to the Purchaser and to the Title Company that the survey is correct; that there are no visible discrepancies, conflicts, encroachments, overlapping of improvements, fences evidence of abandoned fences, easements, overlapping easements, or road or rights-of-way, except as shown on the survey; the total number of square feet and the net square feet of land within the exterior boundaries of the Property; whether the Property is located within an area identified pursuant to the Flood Disaster Act of 1973 as having flood hazards; and that the survey is a true, correct and accurate representation of the Property. The survey shall establish the exact acreage of the Property. 8. Purchaser shall have fifteen (15) days from delivery to Purchaser of the last of the items referred to in Paragraph 5 above (the "Review Period") to approve or disapprove such items. If Purchaser shall fail to give any notice in writing to Seller prior to the expiration of the Review Period, Purchaser shall be deemed to have approved all such items and this Contract shall continue in full force and effect and Purchaser shall be deemed to have approved such title as Seller is able to deliver. If Purchaser shall disapprove any such items, Purchaser shall notify Seller in writing of such fact on or before the expiration of the Review Period, together with the reason for such disapproval, in which event Seller may attempt to cure or remedy such disapproved items, but Seller shall have no obligation to expend any sums or incur any costs. Seller may give Purchaser written notice of such election not to cure or inability to cure within fifteen (15) days of notice of the disapproval by Purchaser, in which event Purchaser shall have fifteen (15) days, but in no event beyond the Closing Date in which to terminate this Contract, whereupon the parties hereto shall have no further obligations one to another. In the event Purchaser fails to terminate this Contract in the time and manner above provided, Purchaser Contract for Sale of Real Estate Page 2 shall be deemed to have approved the property in all respects and shall be deemed to have approved such title policy as Seller is able to deliver. 9. Purchaser shall be entitled to actual possession of the Property free of any leases, tenancies or encumbrances, except as agreed to in this Contract, at Closing. 10. Ad valorem taxes on the Property for the current year shall be prorated at the Closing, effective as of the Closing Date, based on the best estimates of such items then available. In the event current ad valorem tax assessments are not known as of the Closing, said ad valorem taxes shall be adjusted based upon the fiscal year of the authority levying the taxes, and using next preceding tax figures, with said proration to be adjusted in cash between the parties, based on actual taxes for the current year at the time such actual taxes are determined. At Closing the parties shall enter into an agreement setting forth the method of adjustment for such tax prorations for which final amounts were unknown as of the Closing. The agreements contained in this Paragraph, 10 shall survive the Closing hereunder. 11. In the event Purchaser fails to close this transaction, other than due to Seller's default or due to the termination hereof by Purchaser pursuant to the applicable provisions herein, Seller may, at its option, either terminate this Contract and retain (a) the rental monies plus accrued interest as liquidated damages and (b) the earnest money deposit plus accrued interest or seek to enforce specific performance of this Contract. 12. In the event Seller fails to close this transaction, other than due to Purchaser's default or the termination hereof pursuant to the applicable provisions hereof, Purchaser may, at its option, either terminate this Contract and receive the earnest money deposit plus accrued interest, or waive any objections and proceed to close, including requiring specific performance of this Contract. 13. As part of this Contract, the parties agree that Purchaser may lease the Property on a month-to-month basis, which lease will include among other items, the following conditions: a. A lease substantially in the form of Exhibit B attached hereto, shall be executed by the parties simultaneously with execution of this Contract; b. The month-to-month lease shall not exceed twelve (12) months from the date of this Contract; c. There shall be a triple net month-to-month lease with a rental rate of $9,720.00 per month. For a period not to exceed twelve (12) months, fifty percent (50%) of the rent shall be held by Seller to be either (i) applied toward the Purchase Price, or (ii) forfeited by Purchaser as set forth in paragraph 3, above; d. In the event the Purchaser desires that the month-to-month lease exceed twelve (12) months, the rental rate shall increase to $14,580.00 per month, triple net. 14. Purchaser shall have a sixty (60) day period ("Inspection Period") from the date of this Contract, to conduct such physical, engineering and feasibility studies which Purchaser Contract for Sale of Real Estate Page 3 deems appropriate in an effort to determine whether or not to proceed with the Closing of this transaction. During such Inspection Period and upon reasonable notice, Purchaser and/or its agents shall have the right to come upon said Property accompanied by Seller and/or its agents for the purpose of conducting the studies above envisioned. Purchaser agrees to indemnify and hold Seller harmless of and from any loss, damage, cost, claims, liens, expenses (including reasonable attorneys' fees) or liability resulting from, incurred by, or relating to Purchaser conducting the studies above described. This indemnity shall survive the termination or closing of this Contract. 15. In the event Purchaser determines that its physical, engineering, and feasibility studies make it inappropriate to close this transaction, Purchaser may a. terminate this Contract by giving written notice thereof to the Seller on or prior to the expiration of the Inspection Period, in which event this Contract shall terminate and the parties hereto shall have no further obligations one to the other, or b. notify Seller of the need for certain corrective work and request that Seller perform such corrective work, or make arrangements to perform such corrective work, within ten (10) days of receipt of the notice. Seller, at its option, may refuse to perform the corrective work, in which event Purchaser may terminate the Contract and neither party shall have any further obligations one to the other. 16. Seller represents and warrants the following matters true and correct and shall remain true and correct as of the Closing Date: a. Seller holds good and marketable title to the Property subject only to those matters specified in the Contract and any other encumbrances of record. b. Seller has not received any notice, and is not aware of any condition upon the Property which is violative of such federal, state and local laws, ordinances and regulations as are applicable to the Property. c. This Contract and all documents to be executed and delivered, will be valid and binding obligations of Seller, enforceable according to their respective terms. d. Seller is not the subject of any proceeding or law suit, at law or in equity, nor to the best of Seller's knowledge, is any proceeding or lawsuit threatened, which might affect Seller's ability to sell the Property in accordance with the terms of this Contract. 17. Purchaser represents and warrants the following matters are true and correct and shall remain true and correct as of the Closing Date: a. This Contract and all documents to be executed and delivered by Purchaser when executed and delivered, will be valid and binding obligations of Purchaser enforceable according to their respective terms. Contract for Sale of Real Estate Page 4 b. Purchaser is not the subject of any proceeding or law suit, at law or in equity, which might affect Purchaser's ability to purchase the Property in accordance with the terms of this Agreement. 18. This Contract and any exhibits attached hereto embody the entire agreement between the parties hereto and cannot be amended or varied without the express written agreement of the parties hereto. In the event that any litigation arises hereunder, it is specifically stipulated that this Contract shall be interpreted according to the substantive laws of the State of New York. 19. This Contract and the terms and provisions hereof shall inure to the benefit of and be binding upon the parties hereto and their legal representatives and successors wherever the context so requires or admits. 20. Any notice, request, demand or other communication to be given to either party hereunder, except those required to be delivered at Closing, shall be in writing and shall be deemed to be delivered when received if hand delivered, or if sent by mail, when same is deposited in a U.S. Mail receptacle, postage prepaid, as registered or certified mail, return receipt requested, to the addresses as set out in Paragraph 32 hereof. 21. If any provision hereof is for any reason unenforceable or inapplicable, the other provisions hereof will remain in full force and effect in the same manner as if such unenforceable or inapplicable provision had never been contained herein. Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as part of this Contract a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and which would be legal, valid, or enforceable. 22. Whenever herein the singular number is used, the same shall include the plural where appropriate, and words of any gender shall include each other gender where appropriate. 23. This Contract may be executed in a number of identical counterparts. If so executed, each of such counterparts is to be deemed an original for all purposes, and all such counterparts shall, collectively, constitute one agreement, but, in making proof of this Contract, it shall not be necessary to provide or account for more than one such counterpart. 24. In addition to the acts and deeds recited herein contemplated to be performed, executed and/or delivered by Seller to Purchaser, and Purchaser to Seller, Seller and Purchaser agree to perform, execute and/or deliver to cause to be performed, executed and/or delivered at the Closing or after the Closing any and all such further acts, deeds, and assurances as may be reasonably necessary to consummate the transactions contemplated hereby. The provisions of this paragraph shall survive the Closing. 25. Each person executing this Contract warrants and represents he is fully authorized to do so. 26. Any Exhibits attached hereto are by this reference incorporated herein and made a part hereof for all purposes. Contract for Sale of Real Estate Page 5 27. The term "date of this Contract" as used herein shall mean the later of the two dates on which this Contract is signed by Seller or Purchaser, as indicated by the signatures thereto, which later date shall be the date of final execution and agreement by the parties hereto. 28. Seller hereby agrees that Purchaser may assign this Contract but only after receiving the written consent of Seller. In the event this Contract is assigned, notwithstanding such assignment, Purchaser shall remain primarily and fully liable for the performance of Purchaser's covenants, representations, promises and obligations hereunder. 29. The parties represent that Binswanger and CB Commercial are the only brokers involved in this transaction. The commission shall only be due if Closing occurs and shall be six percent (6%) of the Purchase Price. Binswanger shall be responsible for any commission due CB Commercial and Binswanger shall indemnify, defend and hold Seller harmless from any such commission due CB Commercial provided Seller has paid Binswanger. Binswanger may be paid a commission of six percent (6%) of the rent received for the month, for each month Purchaser may lease the Property. Binswanger shall, at Closing, apply said lease commission to reduce any commissions due at Closing. Further, Binswanger shall pay any lease commission due CB Commercial. 30. Seller agrees to defend, indemnify and hold Purchaser, its affiliates, employees, officers, and directors, harmless from any liability, actions, proceedings, damages, costs, expenses (including reasonable attorneys' fees) arising out of Seller's ownership or use of the Property except to the extent of any acts or omissions of Purchaser. This indemnity shall survive the Closing or termination of the Contract. 31. Purchaser agrees to defend, indemnify and hold Seller, its affiliates, employees, officers, and directors, harmless from any liability, actions, proceedings, damages, costs, expenses (including reasonable attorneys' fees) arising out of Purchaser's ownership or use of the Property except to the extent of any acts or omissions of Seller. This indemnity shall survive the Closing or termination of the Contract. 32. Any notices with respect to this Contract shall be sent as follows: To Seller: Wilsonart International, Inc. 2400 Wilson Place Temple, Texas 76504 Attention: Paul Thompson To Purchaser: Hudson Technologies 25 Torne Valley Road Hillburn, New York 10931-9900 Attention: Thomas Zugibe, Vice President Contract for Sale of Real Estate Page 6 33. This Agreement supersedes any prior oral or written understandings of the parties or signatories hereto regarding the Property. In the event of a conflict between the terms of this Contract and another document, the terms of this Contract shall govern. SELLER: PURCHASER: WILSONART INTERNATIONAL, INC. HUDSON TECHNOLOGIES By: /s/ David Kehl By: /s/ Thomas P. Zugibe ---------------------------- ------------------------ Its Director of Engineering Its Executive Vice President ---------------------------- ------------------------ Date 2/4/97 Date 1/27/97 ---------------------------- ---------------------- Contract for Sale of Real Estate Page 7 RIDER TO AND FORMING PART OF CONTRACT OF SALE BETWEEN WILSONART INTERNATIONAL, INC. AND HUDSON TECHNOLOGIES, INC. NOTWITHSTANDING ANYTHING CONTAINED IN THE MAIN CONTRACT INCONSISTENT OR CONTRARY HEREWITH, THE PARTIES AGREE AS FOLLOWS: 1. ENVIRONMENTAL AUDIT: A. This Contract is subject to, and conditioned upon completion of an acceptable Phase 1 Environmental Site Assessment in accordance with the American Society for Testing Materials (ASTM) standards. Purchaser represents that it shall diligently and in good faith arrange for the performance and completion of the Phase I Assessment at its sole cost and expense. This assessment shall include the following: o Investigation of potential contamination sources, migration pathways and receptors. o Management/staff facility interviews. o Review of local, state and federal regulatory records for past and current site practices. o Check adjacent land use and hazardous waste activities in proximity to the property. o Investigation of past land use via abstract of titles, local records and/or aerial photographs. B. In the event the Phase I Environmental Site Assessment reveals the existence of conditions requiring any ancillary Phase II assessments, this Contract shall be subject to and conditioned upon the completion of an acceptable Phase II Environmental Assessment. C. In the event the Environmental Assessments reveal the existence of any toxic or hazardous material on or under the premises or the existence of any environmental conditions requiring Phase III remediation, Seller shall undertake such remediation if the cost thereof does not exceed the sum of Twenty Thousand Dollars ($20,000.00). In the event the cost of remediation exceeds the sum of $20,000.00, then by written notice given to the other party, either party may terminate this Contract and both parties shall be relieved from any obligations and/or liabilities hereunder, and any payments made hereunder by Purchaser to Seller shall be refunded to Purchaser. D. Seller represents, warrants and covenants that, to the best of its knowledge, Seller has not used Hazardous Materials at or affecting the Premises in any manner which violates Federal, State or local laws, ordinances, rules or Rider to Contract of Sale Page 1 regulations, governing the use, storage, treatment, transportation, manufacture, refinement, handling, production or disposal of Hazardous Waste, Materials or Substances. 2. MUNICIPAL APPROVALS: A. This Contract is contingent upon Purchaser obtaining at its sole cost and expense Preliminary Site Plan approval from the Town of Clarkstown Planning Board permitting the construction of a thirty thousand plus/minus (30,000+/-) square feet building addition to the existing structure and a four thousand plus/minus (4,000+/-) square foot outdoor storage area for refrigerant storage tanks. Purchaser represents that it shall diligently and in good faith apply at its sole cost and expense to the appropriate board(s) necessary to obtain such preliminary site plan approvals. In the event Purchaser fails to obtain preliminary site plan approvals within six months from the date of this Contract, then by written notice given to the other party, either party may terminate this Contract and both parties shall be relieved from any obligations and/or liabilities hereunder, and any payments made hereunder by Purchaser to Seller shall be refunded to Purchaser. B. This Contract is contingent upon Purchaser obtaining a Certificate of Occupancy from the Town of Clarkstown permitting Purchaser's intended use of the Premises as a refrigerant reclamation, storage, testing and packaging facility. In the event Purchaser fails to obtain such certificate of occupancy on or before February 10, 1997, upon prior written notice, either party may terminate this Contract and both parties shall be relieved from any obligations and/or liabilities hereunder, and any payments made hereunder by Purchaser to Seller shall be refunded to Purchaser. 3. TITLE INSURANCE: A. Seller shall give and Purchaser shall accept such title as any reputable title insurance company which is a member of the New York Board of Title Underwriters, will be willing to approve and insure in accordance with their standard form of title policy, subject only to the matters provided for in this contract. B. Purchaser agrees that on or before December 10, 1997, Purchaser shall deliver to Seller's attorney any and all title objections being raised by Purchaser's title insurance company. Title objections not delivered to Seller's attorney to be received by Seller's attorney on or before December 17, 1997, are deemed waived. If Purchaser is unable to obtain a title insurance policy from such title insurance company, Purchaser shall be entitled to return of the deposit plus the net costs, if any, of title examination and survey charges. C. In any event, if Purchaser raises title objections together and the title company refuses to insure, Seller's sole obligation shall be to return Purchaser's down Rider to Contract of Sale Page 2 payment. Seller shall make the election to cancel such Contract within fifteen (15) business days after receipt of Purchaser's title report. WILSONART INTERNATIONAL, INC. HUDSON TECHNOLOGIES By: /s/ David Kehl By: /s/ Thomas P. Zugibe ---------------------------- ------------------------------------- Title: Director of Engineering Title: Executive Vice President -------------------------- ---------------------------------- Rider to Contract of Sale Page 3 EX-10.15 3 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This agreement is made as of the 9th day of October, 1996 by. and between Hudson Technologies, Inc. (the "Company"), 25 Torn Valley Road, Hillburn, New York 10931, and Walter A. Phillips ("Employee"), 457 Hampshire Court, Grayslake, Illinois 60030. WHEREAS, the Employee acknowledges that his talents, knowledge and services to the Company are of a special, unique, and extraordinary character and are of particular and peculiar benefit and importance to the Company; and WHEREAS, the Company desires to obtain assurances that the Employee will devote his best efforts to his employment with the Company and that he will not solicit other employees of the Company to terminate their relationships with the Company; and WHEREAS, the continued availability of Employee's services is regarded by the Company as vitally important to its continued corporate growth and success, and Employee desires to formalize his employment with employer and to maximize the security of his position. NOW, THEREFORE, in consideration of the employment by the Company of the Employee and mutual covenants and conditions contained herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, it is agreed as follows: 1. EMPLOYMENT: The Company agrees to employ Employee in an executive capacity, and Employee accepts employment upon the terms and conditions set forth herein. 2. TERM: Subject to the provisions for termination as provided herein, the term of employment with the Company shall begin on November 1, 1996 and shall terminate on October 31, 1999. This agreement shall be automatically renewed for successive one (1) year terms unless either party gives notice of its intention not to renew no less than ninety (90) days prior to the expiration of the existing term. 3 COMPENSATION: As compensation for the services to be rendered by Employee, the Company agrees to provide employee with a base salary at the annual rate of One Hundred Fifty Thousand and 00/100 ($150,000.00) dollars. The Board of Directors shall meet at least annually for the purpose of determining employee's annual base salary based upon the apparent value of his services. In addition to the annual base salary, Employee shall be provided a monthly allowance in an amount up to $400.00 per month, to be applied towards the cost of a vehicle for the personal use of the Employee. The payment of the above amounts shall constitute full satisfaction and discharge of the obligations of the Company under this agreement but are without prejudice to Employee's rights under any employee benefit plan heretofore or hereafter provided by the Company. 4. DUTIES: Employee shall serve as Vice President of Sales and Marketing of the Company, and shall assume such other duties as the Board of Directors may assign. The services to be performed by the Employee may be extended or curtailed from time to time at the direction of the board of directors. Employee agrees that he will at all times faithfully, industriously and to the best of his ability, experience and talents, perform all of the duties that may be required of and from him pursuant to the express and implicit terms of this agreement, to the reasonable satisfaction of the Company. Such duties shall be rendered at the Company's headquarters currently located at Hillburn, New York and at such other place or places within or without the State of New York as the Company shall in good faith require or as the interest, needs, business, or opportunities of the Company shall require. Employee shall devote full, normal and regular business time, attention, knowledge and skill to the business and interest of the Company, and the Company shall be entitled to all of the benefits, profits or other issue arising from or incident to all work, services and advice of Employee performed for the Company. Employee shall have the right to make investments in businesses which in engage in activities other than those engaged in by the Company or its subsidiaries. 5. EXPENSES: Employee is authorized to incur reasonable expenses on behalf of the Company in performing his duties, including expenses for general administration of the Company's office, travel, transportation, entertainment, gifts and similar items, which expenses shall be paid, or reimbursed to Employee, by the Company, provided that the Employee furnishes to the Company appropriated supporting documentation of such expenses. 6. VACATIONS: Employee shall be entitled each year to a vacation of fifteen (15) weekdays, no two of which need be consecutive, during which time compensation shall be paid in full. The Company shall not be required to compensate Employee for Vacation days not taken by the Employee in any given year, and the Employee cannot accrued and accumulate unused vacation days in subsequent years. 7. SIGNING BONUS: In accordance with the provisions of Hudson's Stock Option Plan, the Employee shall receive, as a bonus for entering into this agreement, and in consideration of the Employee's continued employment thereunder, Incentive Stock Options permitting the Employee to purchase a total of Twenty Five Thousand (25,000) of the Company's common stock at a purchase price determined as the "bid" price on the close of the NASDAQ market on the October 9, 1996. 8. BONUSES: A. At the end of the Employee's first year of employment with the Company and in accordance with the provisions of Hudson's Stock Option Plan, the Employee shall receive, as a bonus for entering into this agreement, and in consideration of the Employee's continued employment thereunder, Incentive Stock Options permitting the Employee to purchase a total of Ten Thousand (10,000) shares of the Company's common stock at a purchase price determined as the "bid" price on the close of the NASDAQ market on the date of issuance of the stock options. In addition, upon completion of the Employee's second year of employment, the Employee shall receive Incentive Stock Options permitting the Employee to purchase an additional Ten Thousand (10,000) shares of the Company's common stock at a purchase price determined as the "bid" price on the close of the NASDAQ market on the date of issuance of the stock options. B. At the end of each calendar, commencing with the 1997, the Employee will receive, in addition to his base salary, an annual bonus tied to the profitability of the Company, up to a maximum of $25,000, based upon a formula to be agreed upon between the Employee and the Company during the first sixty (60) days of the Employee's employment. Such bonus shall be paid within thirty (30) days of Company's filing of its audited annual report (SEC Form l0KSB) for the applicable calendar year. 9. MOVING and RELOCATION EXPENSES: A. In consideration of this agreement, the Company agrees to pay to or for the benefit of the Employee the following moving/relocation expenses related to the relocation of the Employee and his family to the New York area: (1) Real Estate commission, Illinois revenue stamps, survey and title charges, if any, on sale of existing home; (2) Survey and inspection costs, bank charges and fees, and mortgage taxes on purchase of new home; (3) Temporary living arrangements until permanent home for you and your family is established; (4) Actual costs for transportation for wife traveling to New York for house hunting and for closing; (5) Actual moving company costs based upon three estimates; (6) Actual transportation for home visits prior to actual relocation, to be coordinated with trips to various company facilities; (7) $10,000 "curtain allowance" to be paid by the closing date for new home; (8) Additional income tax liability incurred as a result of company paid relocation expenses. B. In addition to the foregoing, to defray the increased living expenses to be incurred by the Employee in relocating to the New York area, the Company will supplement the Employee's salary for the term and in the manner set forth below: (1) For the first year after the purchase of a new home, the company will pay the amount necessary to reduce the interest rate on your mortgage by 3% per year; (2) For the second year after the purchase of a new home, the company will pay the amount necessary to reduce the interest rate on your mortgage by 2% per year; and (3) For the third year after the purchase of a new home, the company will pay the amount necessary to reduce the interest rate on your mortgage by 1% per year. 10. EMPLOYEE BENEFITS: The Employee shall be entitled to participate in any qualified Stock Option Plan, Pension Plan, 401(k), qualified Profit Sharing Plan, Group Term Life Insurance Plan, Employee Health Plan, and any other employee benefit plan currently in place or that may be established by the Company, such participation being in accordance with the terms of any such plans, and such participation shall be available only upon the Company having or establishing such plans. 11. TERMINATION: The Company may at any time terminate the employment of the Employee for cause upon five (5) days prior written notice to Employee. Cause shall exist if the act(s) or conduct of the Employee make it unreasonable to require the Company to continue to retain Employee in its employment, such as, but not limited to, improper disclosure of any information concerning any matter affecting or relating to the Company or the business of the Company, dishonesty, activities harmful to the reputation of the Company, refusal to perform or neglect of the substantive duties assigned to Employee, or breach of any of the provisions of this agreement. If Employee is terminated for cause, he shall be entitled to no severance pay and shall be entitled to no bonus payment that might otherwise be owed to him even if he worked for the entire year. In the event of termination under this section, the Company shall pay Employee all amounts which are then accrued but unpaid within thirty (30) days after the date of notice. Employer shall have no further or additional liability to Employee. 12. CHANGE IN OWNERSHIP OR CONTROL OF COMPANY: A. Upon a change in the ownership or effective control of the Company, the Employee shall be paid, as additional compensation, an amount equal to 295% of the Employee's annual base salary at the time of any such change in ownership or effective control of the Company. Such amount shall be paid within thirty (30) days of the happening of such change in ownership or effective control of the Company. B. The Employee shall have the right, at any time following a change in the ownership or effective control of the Company, to terminate his employment with the Company upon thirty (30) days written notice to the Company. C. For purposes of this paragraph. a "change in the ownership or effective control of the Company" shall mean the happening of any of the following events: (1). Any person (as that term is defined in Section 13(d) of the Securities and Exchange Act of 1934 as amended) is or becomes the beneficial owner, directly or indirectly, of securities of the Corporation representing 35% or more of the combined voting power of the Company's then outstanding voting securities, or such lesser amount as is sufficient to obtain a controlling interest in the Company; (2). In any one year period, individuals who at the beginning of such period constitute the Board cease for any reason to constitute a least a majority thereof at or prior to the conclusion of such one year period; (3). The sale, transfer and/or assignment of a substantial portion of the assets of the Company. 13. DISABILITY: If Employee is unable to perform his services by reason of illness or incapacity for a period of more than eight (8) consecutive weeks, the compensation otherwise payable during the continued period of illness or incapacity shall be reduced by twenty-five (25%) percent. Employee's full compensation shall be reinstated upon his return to employment and the discharge of his full duties. Notwithstanding the foregoing, \the Company may terminate the employment of the Employee at any time after Employee has been absent from employment, for whatever cause, for a continuous period of more than 120 calendar days and all obligations of the Company shall cease upon that termination. 14. CONFIDENTIALITY: The Employee will not at any time during or after his employment with the Company, directly or indirectly, divulge, disclose, disseminate, sell, exchange or communicate to any person, firm, or corporation in any manner whatsoever, other than in the normal course of performing his duties for the Company, any information concerning any matter affecting or relating to the Company of the business of the Company. The Employee specifically agrees and recognizes that all information, whether written or otherwise, regarding the Company's business, including but not limited to, information regarding customers, customer lists, employees, employee salaries, costs, prices, services, formulae, compositions, machines, equipment, apparatus, systems, processes, manufacturing procedures, operating procedures, operations, potential acquisitions, new location plans, prospective and executed contracts, prospective projects and other business arrangements, and sources of supply, is presumed to be important, material and confidential information of the Company for purposes of this agreement, except to the extent that such information may be otherwise lawfully and readily available to the general public. Employee agrees that all of this information is a trade secret owned exclusively by the Company which shall at all times be kept confidential. Employee will at no time, either during his employment with the Company or at any time, employ or make use of, for his own profit or the profit of any person, firm or corporation other than the Company, any of the trade secrets acquired by him during his employment with the Company. The Employee agrees that any business opportunity, any patentable device, apparatus, method, process or manner of manufacturing, and any other invention, equipment, machinery, process or device, that Employee discovers, develops, invents or becomes aware of during the period of his employment with the Company, shall be the sole and exclusive property of the Company, and shall be used solely and exclusively for the benefit of the Company. The Employee agrees to promptly turn over, or to make full and prompt disclosure of, all such information, devices, inventions, processes, and methods to the Company. The Employee will not disclose to any person or persons other than the proper officer of the Company any such information, device, process, invention or method discovered while in the employ of the Company. The above provision shall be applicable even though the discovery is made by Employee outside working hours fixed by the Company and/or outside the place of employment furnished by the Company. 15. NON-COMPETITIION/NON-SOLICITATION: For a period of two (2) years after termination of his employment with the Company, the Employee agrees that he shall not directly or indirectly, without the prior written consent of the Company, and whether as an individual, proprietor, stockholder, partner, officer, director, employee or otherwise, or in any other capacity whatsoever: A. Engage in any business which is competitive with that of the Company; B. Solicit or entice any officer, director, employee or other individual to leave his or her employment with the Company, or to compete in any way with the business of the Company, or to violate the terms of any employment, non-competition, confidentiality or similar agreement with the Company. 16. REMEDIES: Without limiting the rights of the Company to pursue any and all other legal and equitable remedies that might be available to it as a result of any violation by the Employee of the covenants in this agreement, it is agreed that: A. The services to be rendered by Employee under this agreement are of a special, unique, unusual and extraordinary character which give them a peculiar value, and the loss of those services cannot be reasonably and adequately compensated in damages in an action at law; and B. Remedies other than injunctive relief cannot fully compensate the Company for violation of paragraphs "15" and "16" of this Agreement. Accordingly, The Company shall be entitled to injunctive relief to prevent violations of such paragraphs or continuing violations of it. All of Employee's covenants in and obligations under paragraphs "15" and "16" of this agreement shall continue in effect notwithstanding any termination of Employee's employment, whether by the Company or by the Employee, upon expiration or otherwise, and whether or not pursuant to the terms of this agreement. 17. NOTICE: All notices required or permitted to be given under this agreement shall be sufficient if in writing and if sent by certified mail, return receipt requested, to the Employee at his residence, or at such other address designated by the Employee, and to the Company at its principal office currently located at 25 Torne Valley Road, Hillburn, New York 10931. 18. SUCCESSORS AND ASSIGNS: This agreement shall be binding upon and shall inure to the benefit of the parties, their successors, assigns and all other successors in interest. 19. CHOICE OF LAW: This agreement shall be governed by and construed in accordance with the laws of the State of New York. 20. ENTIRE AGREEMENT: This agreement contains the entire agreement of the parties. It may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. 21. WAIVER: The waiver of any breach of any provision of this agreement by either party shall not operate or be construed as a subsequent waiver by either party of any term or condition of this agreement. 22. HEADINGS: The headings in this agreement are inserted for convenience of reference only and shall not affect the meaning or interpretation of this agreement. 23. SEVERABILITY: The parties intend and agree that each covenant and condition contained in this agreement shall be a separate and distinct covenant. If any provision of this agreement is found to be invalid, illegal, or unenforceable, the remaining provisions shall not be affected. IN WITNESS THEREOF, the parties have executed this agreement as of the date written above Hudson Technologies, Inc. By: /s/ XXXXXXXXXXX ------------------------------------- XXXXXXXXXXX By: /s/ Walter A. Phillips ------------------------------------- Walter A. Phillips EX-27 4 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 422,000 0 3,022,000 546,000 9,062,000 13,031,000 7,568,000 1,686,000 28,775,000 8,817,000 0 0 0 44,000 18,334,000 28,775,000 19,571,000 19,571,000 14,146,000 8,338,000 275,000 546,000 462,000 (3,188,000) (1,135,000) (2,053,000) 0 0 0 (2,053,000) (.47) (.47)
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