-----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, EhnZ4ZlpF4+Z33sOom/WXWytxXiC9OcVbRlgh+5wkRl/HIGmxIHPfMt77rBSZq6X 5PwN/Gal6n+hfrKyido77w== 0000950116-98-001046.txt : 19980512 0000950116-98-001046.hdr.sgml : 19980512 ACCESSION NUMBER: 0000950116-98-001046 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980511 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: 10QSB SEC ACT: SEC FILE NUMBER: 033-80270-NY FILM NUMBER: 98614784 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 10QSB 1 FORM 10-QSB ================================================================================ Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 1-13412 --------------------- 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) Issuer's telephone number, including area code: (914) 368-4990 --------------------- 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common stock, $0.01 par value 5,065,820 shares - ------------------------------ ----------------------------- Class Outstanding at March 31, 1998 ================================================================================ Hudson Technologies, Inc. Index Part I. Financial Information Page Number Item 1 Consolidated Balance Sheets 2 Consolidated Statements of Operations 3 Consolidated Statements of Cash flows 4 Notes to the Consolidated Financial statements 5 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other information Item 1.- Legal proceedings 11 Item 2.- Changes in Securities and Use of Proceeds 12 Item 6.- Exhibits and Reports on Form 8-K 12 Signatures 13 Part I - Financial Information Hudson Technologies, Inc. and subsidiaries Consolidated Balance Sheets (Amounts in thousands, except for share amounts)
March 31, 1998 December 31, 1997 -------------- ----------------- (unaudited) Assets Current assets: Cash and cash equivalents $553 $626 Trade accounts receivable; net of allowance for doubtful accounts of $309,000 and $283,000` 4,419 1,737 Inventories 1,659 3,755 Income taxes receivable 167 167 Prepaid expenses and other current assets 316 185 ------- ------- Total current assets 7,114 6,470 Property, plant and equipment, less accumulated depreciation 5,775 5,939 Other assets 92 95 ------- ------- Total assets $12,981 $12,504 ======= ======= Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $3,888 $3,429 Short term debt 1,654 1,602 ------- ------- Total current liabilities 5,542 5,031 Deferred income 50 55 Long-term debt, less current maturities 1,071 1,155 ------- ------- Total liabilities 6,663 6,241 ------- ------- Commitments and contingencies Stockholders' equity Common stock, $0.01 par value; shares authorized 20,000,000; issued 5,086,820 and outstanding 5,065,820 51 51 Additional paid-in capital 22,683 22,683 Accumulated deficit (16,243) (16,298) ------- ------- 6,491 6,436 Less: Treasury stock, 21,000 shares at cost (173) (173) ------- ------- Total Stockholders' equity 6,318 6,263 ------- ------- Total liabilities and Stockholders' equity $12,981 $12,504 ======= =======
See accompanying Notes to the Consolidated Financial Statements. 2 Hudson Technologies, Inc. and subsidiaries Consolidated Statements of Operations (Amounts in thousands, except for share and per share amounts) (unaudited) Three month period ended March 31, ------------------- 1998 1997 ---- ---- Revenues $6,705 $8,022 Cost of Sales 4,684 6,834 ------ ------ Gross Profit 2,021 1,188 Operating expenses: Selling and marketing 392 419 General and administrative 1,242 989 Depreciation and amortization 273 283 ------ ------ Total operating expenses 1,907 1,691 Operating income (loss) 114 (503) Other income (expense): Interest expense (84) (185) Other income 25 30 ------ ------ Total other income (expense) (59) (155) ------ ------ Income (loss) before income taxes 55 (658) Income taxes - - ------ ------ Net income (loss) $55 $(658) ====== ====== - -------------------------------------------- Net income (loss) per common share - basic $0.01 ($0.14) Weighted average number of shares outstanding 5,065,820 4,825,580 See accompanying Notes to the Consolidated Financial Statements. 3 Hudson Technologies, Inc. and subsidiaries Consolidated Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents (unaudited)
(Amounts in thousands) Three month period ended March 31, ------------------- 1998 1997 ---- ---- Cash flows from operating activities: Net Income (loss) $ 55 $(658) Adjustments to reconcile net income (loss) to cash provided (used) by operating activities: Depreciation and amortization 273 283 Deferred income taxes - 32 Allowance for doubtful accounts 17 - Changes in assets and liabilities: Trade receivables (2,699) (1,799) Inventories 2,096 2,926 Income taxes receivable - 8 Prepaid and other current assets (131) (67) Other assets 4 33 Accounts payable and accrued expenses 459 (1,031) Deferred income (5) (4) Reserve for restructuring - (83) ------ ------ Cash provided (used) by operating activities 69 (360) ------ ------ Cash flows from investing activities: Additions to property, plant, and equipment (109) (465) ------ ------ Cash used by investing activities (109) (465) ------ ------ Cash flows from financing activities: Proceeds from issuance of stock - 3,837 Proceeds from short-term bank borrowings 52 513 Repayment of long-term debt (85) (3,470) ------ ------ Cash provided (used) by financing activities (33) 880 ------ ------ Increase (decrease) in cash and cash equivalents (73) 55 Cash and equivalents at beginning of period 626 422 ------ ------ Cash and equivalents at end of period $553 $477 ====== ====== - --------------------- Supplemental disclosure of cash flow information: Cash paid during period for interest $ 84 $185 Supplemental schedule of non-cash investing and financing activities: Conversion of debt to common stock $ - $625
See accompanying Notes to the Consolidated Financial Statements 4 Hudson Technologies, Inc. and subsidiaries Notes to Consolidated Financial Statements General Hudson Technologies, Inc., incorporated under the laws of New York on January 11, 1991, together with its subsidiaries (collectively, "Hudson" or the "Company"), sells refrigerants and provides refrigerant management services, consisting primarily of recovery and reclamation of the refrigerants used in commercial air conditioning and refrigeration systems, as well as RefrigerantSide(TM) services, through which the Company performs decontamination to remove moisture, oils and other contaminants in such systems. The Company operates through its wholly owned subsidiaries Hudson Technologies Company and Environmental Support Solutions, Inc. ("ESS"). 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. 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 1- Summary of Significant Accounting Policies The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions of Regulation SB. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial information included in the quarterly report should be read in conjunction with the Company's audited financial statements and related notes thereto for the year ended December 31, 1997. In the opinion of management, all estimates and adjustments considered necessary for a fair presentation have been included and all such adjustments were normal and recurring. Consolidation The consolidated financial statements represent all companies of which Hudson directly or indirectly has majority ownership or otherwise controls. Significant inter-company accounts and transactions have been eliminated. The Company's consolidated financial statements include the accounts of wholly owned subsidiaries Hudson Holdings, Inc., Hudson Technologies Company, and ESS. Fair value of financial instruments The carrying values of financial instruments including trade accounts receivable, and accounts payable approximate fair value at March 31, 1998 and December 31, 1997, 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. 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 receivables 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. 5 Hudson Technologies, Inc. and subsidiaries Notes to Consolidated Financial Statements Revenues 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 is 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 Temporary investments with original maturities of ninety days or less are included in cash and cash equivalents. 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. Provisions 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. Income taxes The Company utilizes the asset 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. Treasury stock Common stock, acquired by the Company under a repurchase program authorized by the Board of Directors is carried at acquisition cost (market price at acquisition date). Income (loss) per common and equivalent shares Income (loss) per common share (Basic) is computed on the weighted average number of shares, less treasury stock. If dilutive, common equivalent shares (common shares assuming exercise of options and warrants) utilizing the treasury stock method are considered in the presentation of dilutive earnings per share. Recent accounting pronouncements Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income", established standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise", establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and 6 Hudson Technologies, Inc. and subsidiaries Notes to Consolidated Financial Statements major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by Management in deciding how to allocate resources and in assessing performance. The Company adopted both SFAS Nos. 130 and 131, as of January 1, 1998. 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 highly 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 on commercially reasonable terms or a decline in demand for refrigerant could cause delays in refrigerant processing, possible loss of revenues, and could materially adversely affect operating results. Note 2 - Bank Credit Line On April 28, 1998, the Company entered into a credit facility with CIT Group/Credit Finance Group, Inc. ("CIT") which makes available borrowings to the Company of up to $5,000,000 and increases to $6,500,000 in 1999. The facility provides for a revolving line of credit and a six year term loan and expires in April 2001. Advances under the revolving line of credit are limited to (i) 80% of eligible trade accounts receivable and (ii) 50% of eligible inventory (which inventory amount shall not exceed 200% of eligible trade accounts receivable or $3,250,000). Advances, available to the Company, under the term loan (currently approximately $1,000,000) are based on existing fixed asset valuations and future advances under the term loan up to an additional $1,000,000 are based on future capital expenditures. As of May 1, 1998 the Company had $1,250,000 outstanding under this facility. The facility bears interest at the prime rate plus 1.5% and substantially all of the Company's assets are pledged as collateral for obligations to CIT. This facility replaces the Company's previous line of credit with MTB Bank ("MTB"). All obligations with MTB have been satisfied subject to certain indemnification rights pursuant to an indemnity agreement among CIT, MTB and the Company. In connection with the loan agreements, the Company issued to CIT warrants to purchase 30,000 shares of the Company's common stock at an exercise price equal to 110% of the then fair market value of the stock which, on the date of issuance was $4.33 per share and expires April 29, 2001. In addition, among other things, the agreements restrict the Company's ability to declare or pay any dividends on its capital stock. 7 Hudson Technologies, Inc. and subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations The statements contained herein which are not historical facts are forward looking statements that involve risks and uncertainties, including but not limited to, changes in the markets for refrigerants (including unfavorable market conditions adversely affecting the demand for, and the price of refrigerants), regulatory and economic factors, increased competition, the nature of supplier or customer arrangements which become available to the Company in the future, adverse weather conditions, technological obsolescence and potential environmental liability. The Company's actual results may differ materially from the results discussed in any forward looking statement. Results of Operations Three months ended March 31, 1998 as compared to the three months ended March 31, 1997 Revenues for the three months ended March 31, 1998 were $6,705,000, a decrease of $1,317,000 or 16% from the $8,022,000 reported during the comparable 1997 period. The decrease was attributable primarily to a lower volume of refrigerant sales. Cost of sales for the three months ended March 31, 1998 were $4,684,000, a decrease of $2,150,000 or 31% from the $6,834,000 reported during the comparable 1997 period due mainly to a lower volume of refrigerant sales. As a percentage of sales, cost of sales were 70% of revenues for the three month period ended March 31, 1998, a decrease from the 85% reported for the comparable 1997 period. The decrease in cost of sales as a percentage of revenues was primarily attributable to a change in product mix with a higher volume of lower margin refrigerant sales occurring during the 1997 period. Operating expenses for the three months ended March 31, 1998 were $1,907,000, an increase of $216,000 or 13% from the $1,691,000 reported during the comparable 1997 period. The increase was primarily attributable to an increase in payroll and related expenses. Net income for the three months ended March 31, 1998 was $55,000, an increase of $713,000 from the net loss of $658,000 reported during the comparable 1997 period. The increase in net income was primarily attributable to higher gross profits on refrigerant sales offset by an increase in operating expenses. Liquidity and Capital Resources At March 31, 1998, the Company had working capital of approximately $1,572,000. A major component of current assets is inventory. The Company's ability to sell its inventory and the prices at which it can be sold is subject to current market conditions. The Company has historically financed its working capital requirements through cash flows from operations, the issuance of debt and equity securities, bank borrowings and loans from officers. Net cash provided by operating activities was $69,000 for the three months ended March 31, 1998 compared with net cash used by operating activities of $360,000 for the comparable 1997 period. Net cash provided by operating activities was primarily attributable to the net income for the period. Net cash used by investing activities was $109,000 for the three months ended March 31, 1998 compared with net cash used by investing activities of $465,000 for the comparable 1997 period. The net cash usage consisted primarily of equipment additions. Net cash used by financing activities was $33,000 for the three months ended March 31, 1998 compared with net cash provided by financing activities of $880,000 for the comparable 1997 period. The net cash used by financing activities in 1998 consisted of long-term debt repayment. Net cash provided by financial activities in 1997 consisted of proceeds from the sale of stock offset by repayment of debt. 8 Hudson Technologies, Inc. and subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) At March 31, 1998, the Company had cash and equivalents of $553,000. During 1996, the Company 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 of approximately $1,000,000, ten refrigerant gas bulk-tank storage units of approximately $400,000, and other industrial equipment of $300,000. 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 an average price of $8.25 per share. No repurchases were made subsequently. On June 18, and September 30, 1996, the Company issued convertible debentures with a combined face value of $5.3 million. These debentures were retired or converted to common stock through January 1997. In connection with its bankruptcy reorganization in June 1994, prior to its acquisition by Hudson, Refrigerant Reclamation Corporation of America ("RRCA") has obligations (as modified by a settlement during April 1996) totaling $206,000 at March 31, 1998 payable in periodic payments to bankruptcy creditors through July 2000. On November 14, 1996, certain officers and stockholders of Hudson made unsecured loans in the principal amount of $678,000 to the Company; repayable upon receipt of proceeds from property mortgage discussed below or on subsequent demand. On January 29, 1997, the Company repaid the officer loans together with accrued interest outstanding. During 1996, the Company mortgaged its property and building located in Ft. Lauderdale, Florida with Turnberry Savings Bank, NA. The mortgage of $671,000 at March 31, 1998 bears interest at a rate of 9.5% and is repayable over 20 years through January 2017. During January 1997, in connection with the execution of various agreements with E.I. DuPont de Nemours ("DuPont'), the Company obtained additional equity funds of $3,500,000 from an affiliate of DuPont. Proceeds were primarily utilized 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. During May 1997, certain officers of Hudson made unsecured loans in the aggregate principal amount of $585,000 to the Company. Such loans were due on demand and bore interest from 8% to 8.88% per annum. On August 12, 1997, the Company repaid the loans together with outstanding interest. On April 28, 1998, the Company entered into a credit facility with CIT Group/Credit Finance Group, Inc. ("CIT") which makes available borrowings to the Company of up to $5,000,000 and increases to $6,500,000 in 1999. The facility provides for a revolving line of credit and a six year term loan and expires in April 2001. Advances under the revolving line of credit are limited to (i) 80% of eligible trade accounts receivable and (ii) 50% of eligible inventory (which inventory amount shall not exceed 200% of eligible trade accounts receivable or $3,250,000). Advances, available to the Company, under the term loan (currently approximately $1,000,000) are based on existing fixed asset valuations and future advances under the term loan up to an additional $1,000,000 are based on future capital expenditures. As of May 1, 1998 the Company had $1,250,000 outstanding under this facility. The facility bears interest at the prime rate plus 1.5% and substantially all of the Company's assets are pledged as collateral for obligations to CIT. This facility replaces the Company's previous line of credit with MTB Bank ("MTB"). All obligations with MTB have 9 Hudson Technologies, Inc. and subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) been satisfied subject to certain indemnification rights pursuant to an indemnity agreement among CIT, MTB and the Company. In connection with the loan agreements, the Company issued to CIT warrants to purchase 30,000 shares of the Company's common stock at an exercise price equal to 110% of the then fair market value of the stock, which on the date of issuance was $4.33 per share, and expires April 29, 2001. In addition, among other things, the agreements restrict the Company's ability to declare or pay any dividends on its capital stock. The Company believes, based on current plans and assumptions, that its credit facility will be sufficient to support its current operating requirements for the foreseeable future. However, in the event that the Company's plans change or its assumptions prove to be inaccurate or its credit facility is insufficient to satisfy its cash requirements, the Company could be required to seek additional financing. There can be no assurance that such additional financing will be available. Reliance on Suppliers The Company's financial performance is in part dependent on its ability to obtain sufficient quantities of domestic virgin and reclaimable refrigerants from manufacturers, wholesalers, distributors, bulk gas brokers, and from other sources; and on corresponding demand for reclaimed refrigerants. To the extent 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, 100% of virgin refrigerants provided to specified market segment customers must be purchased from DuPont. 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; non-recurring refrigerant sales and service; availability and price of refrigerant products (virgin or reclaimable); changes in reclamation technology and regulations, timing in introduction and/or retrofit or replacement of CFC-based refrigeration equipment by domestic users of refrigerants, 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. However, the second quarter of 1997 was adversely impacted, in part, to the unseasonably cool weather. Delays in securing adequate supplies of refrigerants at peak demand periods, lack of refrigerant demand, increased expenses, and declining refrigerant prices have resulted in significant losses. There can be no assurance that the foregoing factors will not continue to result in a material adverse affect on the Company's financial position and significant losses. 10 PART II. OTHER INFORMATION Hudson Technologies, Inc. and subsidiaries Item 1. Legal Proceedings 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, specifically trichlorofluoromethane (R-11). 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 was the cause of the contamination of United's wells. The DEC letter states that it is not aware of the extent of the contamination or how the refrigerants entered the groundwater. 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's monthly operating costs for certain wells from September 1996 through April 1997, and (c) continued monitoring of R-11 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. During August and September 1997, various proposals for possible further remediation were discussed with the DEC and United in light of the reduction of levels of R-11 in United's Wells. Since August 1997 the levels of R-11 have remained nearly non-detectable and well under minimum contaminant levels established by the State of New York. In January 1998, the Company agreed to install a remediation system at the Company's facility to remove any remaining R-11 levels in the groundwater under and around the Company's facility. During December 1997, United Water alleged that it discovered levels of Dichlorodifluoromethane (R-12) in two of its wells within close proximity to the Company's facility, and has alleged that the Company is the source. Sampling by the Company of various monitoring wells installed around the Company's facilities have been taken on a monthly basis since August 1996 and have failed to detect any levels of R-12 in the groundwater in and around the Company's facility. There can be no assurance that United will not commence legal action 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 the 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. In June 1997, an action was commenced against the Company in the 19th Judicial District Court, Parish East Baton Rouge, State of Louisiana, by a former salesperson and her spouse, who was terminated by the Company in June 1996, alleging that the Company wrongfully terminated the employee, and is seeking unspecified damages. This action was settled in April 1998. During March and April, 1998, six (6) complaints, each alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, were filed by a total of eight shareholders, on behalf of themselves and all others similarly situated, against the Company and certain of its officers and directors in the United States District Court for the Southern District of New York. Each of the complaints alleges that the defendants, among other things, misrepresented material information about the Company's financial results and prospects, and its customer relationships. The complaints in five of these actions seek relief on behalf of 11 persons purchasing common stock between August 8, 1995 and August 15, 1997, and the complaint in the sixth action seeks relief on behalf of persons purchasing common stock between March 31, 1997 and August 15, 1997. The Company maintains that the allegations of wrongdoing alleged in the complaints are without merit. The Company intends to vigorously defend the claims brought against it and has retained the law firm of Davis, Polk and Wardwell for that defense. There can be no assurance that any of these actions, or the settlement thereof, will be resolved in a manner favorable to the Company, or that the 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 2. Changes in Securities and Use of Proceeds During the three months ended March 31, 1998, the Company granted options to purchase 4,300 shares of common stock to certain employees pursuant to its 1997 Stock Option Plan. The Company relied on Section 4(2) under the Securities Act of 1933 as transactions by an issuer not involving a public offering. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are attached to this report. Exhibit 10: Loan and Security Agreement dated April 29, 1998 between CIT Group/Credit Finance Group, Inc. and the Hudson Technologies Company. Exhibit 10.1: Loan and Security Agreement dated April 29, 1998 between CIT Group/Credit Finance Group, Inc. an Environmental Support Solutions, Inc. Exhibit 10.2: Warrant Agreement dated April 29, 1998 between CIT Group/Credit Finance Group, Inc. and the Company. Exhibit 27: Financial Data Schedule (for SEC use only) (b) No report on Form 8-K filed during the quarter ended March 31, 1998. 12 Hudson Technologies, Inc. and subsidiaries Form 10-QSB of March 31, 1998 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed in its behalf by the undersigned, thereunto duly authorized. HUDSON TECHNOLOGIES, INC. By: /s/ Kevin J. Zugibe May 11, 1998 ------------------------------------- Kevin J. Zugibe Date Chairman/CEO By: /s/ Brian F. Coleman May 11, 1998 ------------------------------------- Brian F. Coleman Date Vice President and Chief Financial Officer 13 EX-10 2 EXHIBIT 10 Exhibit 10 LOAN AND SECURITY AGREEMENT This Agreement is between the undersigned Borrower and the undersigned Lender concerning loans and other credit accommodations to be made by Lender to Borrower. SECTION 1. PARTIES 1.1 The "Affiliated Borrower" is ENVIRONMENTAL SUPPORT SOLUTIONS, INC., and its successors and assigns. 1.2 The "Borrower" is the person, firm, corporation or other entity, identified as the Borrower in Section 10.6(c) and its successors and assigns. If more than one Borrower is specified in Section 10.6(c), all references to Borrower shall mean each of them, jointly and severally, individually and collectively, and the successors and assigns of each. 1.3 The "Lender" is The CIT Group/Credit Finance, Inc. and its successors and assigns. SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS 2.1 Revolving Loans. Lender shall, subject to the terms and conditions contained herein, make revolving loans to Borrower ("Revolving Loans") in amounts requested by Borrower from time to time, but not in excess of the Net Availability existing immediately prior to the making of the requested loan and provided the requested loan would not cause the outstanding Obligations hereunder plus the then outstanding "Obligations" under and as said quoted term is defined in the Affiliate Loan Agreements (as defined in Section 10.8 below), to exceed, in the aggregate, the Maximum Credit. (a) The "Maximum Credit" is set forth in Section 10.1(a) hereof. (b) The "Gross Availability" shall be calculated at any time as (i) the product obtained by multiplying the outstanding amount of Eligible Accounts by the Eligible Accounts Percentage set forth in Section 10.1(b), ("Accounts Availability"), plus: (ii) the product(s) obtained by multiplying the applicable Eligible Inventory Percentage(s), if any, set forth in Section 10.1(b) by the values (as determined by Lender based on the lower of cost or market and, in the case of Eligible L/C Inventory (as defined below), net of all duty, freight, taxes, costs, insurance and other charges and expenses which may pertain to such Eligible L/C Inventory)) of Eligible Inventory, but the amount so added shall not exceed any sublimits set forth in Section 10.1(c) ("Inventory Availability"), minus (iii) Reserves, if any. (c) The "Net Availability" shall be calculated at any time as an amount equal to the Gross Availability minus the aggregate amount of all then-outstanding Obligations to Lender other than the then outstanding principal balance of the Term Loan and the Cap/Ex Loans, if any. 14 (d) "Eligible Accounts" are accounts created by Borrower in the ordinary course of its business which are and remain acceptable to Lender for lending purposes. General criteria for Eligible Accounts are set forth below but may be revised from time to time by Lender, in its sole judgment, on fifteen (15) days' prior written notice to Borrower. Lender shall, in general, deem accounts to be Eligible Accounts if: (1) such accounts arise from bona fide completed transactions and have not remained unpaid for more than the earlier of (A) the number of days after the invoice date set forth in Section 10.1(d)(i); and (B) the number of days after the due date of such invoice set forth in Section 10.1(d)(ii); (2) the amounts of the accounts reported to Lender are absolutely owing to Borrower and do not arise from sales on consignment, guaranteed sale or other terms under which payment by the account debtors may be conditional or contingent; (3) (A) the account debtor's chief executive office or principal place of business is located in the United States or Canada (other than the Province of Quebec) or (B) the account debtor's chief executive office or principal place of business is located in the Province of Quebec or is otherwise not located in the United States or Canada ("Foreign Accounts") and such Foreign Accounts are (x) insured by a credit insurance policy in form, substance and amount satisfactory to Lender, which policy, together with the proceeds thereof, shall be duly assigned to Lender, or (y) Borrower and/or such account debtor has delivered an irrevocable letter of credit issued or confirmed by a bank satisfactory to Lender, sufficient to cover such Account, in form and substance satisfactory to Lender, and the original of such letter of credit has been delivered to Lender or Lender's agent and the issuer thereof notified of the assignment of the proceeds of such letter of credit to Lender; (4) such accounts do not arise from progress billings retainages or bill and hold sales; (5) there are no contra relationships, setoffs, counterclaims or disputes existing with respect thereto and there are no other facts existing or threatened which would impair or delay the collectibility of all or any portion thereof; (6) the goods giving rise thereto were not at the time of the sale subject to any liens except those permitted in this Agreement; (7) such accounts are not accounts with respect to which the account debtor or any officer or employee thereof is an officer, employee or agent of or is affiliated with Borrower, directly or indirectly, whether by virtue of family membership, ownership, control, management or otherwise; (8) such accounts are not accounts with respect to which the account debtor is the United States or any State or political subdivision thereof or any department, agency or instrumentality of the United States, any State or political subdivision, unless there has been compliance with the Assignment of Claims Act or any similar State or local law, if applicable; (9) Borrower has delivered to Lender or Lender's representative such documents as Lender may have reasonably requested pursuant to Section 5.8 hereof in connection with such accounts and Lender shall have received a verification of such account, satisfactory to it, if sent to the account debtor or any other obligor or any bailee pursuant to Section 5.4 hereof; (10) there are no facts existing or threatened which might result in any adverse change in the account debtor's financial condition; (11) such accounts owed by a single account debtor or its affiliates do not represent more than twenty percent (20%) of all otherwise Eligible Accounts except that notwithstanding anything to the contrary contained herein, in the case of E.I. DuPont De Nemours and Company such accounts do not represent more than the greater of (A) the lesser of (x) sixty percent (60%) of all otherwise Eligible Accounts and (y) $1,000,000 and (B) thirty percent (30%) of all otherwise Eligible Accounts (accounts excluded from Eligible Accounts solely by reason of this subsection (11) shall nevertheless be considered Eligible Accounts to the extent of the amount of such accounts which does not exceed the applicable percentage stated above, as applicable, of all otherwise Eligible Accounts); (12) such accounts are not owed by an account debtor who is or whose affiliates are past due upon other accounts owed to Borrower comprising more than fifty percent (50%) of the accounts of such account debtor or its affiliates owed to Borrower; (13) such accounts are owed by account debtors whose total indebtedness to Borrower does not exceed the amount of any customer credit limits as may be established, and changed, from time to time by Lender on notice to Borrower (accounts excluded from Eligible Accounts solely by reason of this subsection (13) shall nevertheless be considered Eligible Accounts to the extent the amount of such accounts does not exceed such customer credit limit); and (14) such accounts are owed by account debtors deemed creditworthy at all times by Lender. 15 (e) "Eligible Inventory" is (i) inventory consisting of finished goods owned by Borrower which is and remains acceptable to Lender for lending purposes and is located at one of the addresses set forth in Section 10.6(e), or at such other addresses as Borrower may from time to time notify Lender in accordance with Section 6.4 below; and (ii) Eligible L/C Inventory (as defined below). For the purposes hereof: (1) "Eligible L/C Inventory" shall mean all finished goods inventory owned, or which are being manufactured for and will be owned, by Borrower and covered by an Accommodation (as defined below), which is in the form of a documentary letter of credit and which finished goods are in transit to one of the Borrower's addresses set forth in Section 10.6(e) and which finished goods (A) as of the date such inventory are owned by Borrower (x) are fully insured, (y) are subject to a first priority security interest in and lien upon such goods in favor of Lender (except for any possessory lien upon such goods in the possession of a freight carrier or shipping company securing only the freight charges for the transportation of such goods to Borrower) and (z) all documents, notices, instruments, statements and bills of lading relating thereto, if any, which Lender may reasonably deem necessary or desirable to evidence ownership by Borrower and/or to give effect to and protect the liens, security interests and other rights of Lender in connection therewith, are delivered to Lender; and (B) is and remains acceptable to Lender for lending purposes; and (f) (i) Lender shall have a continuing right to deduct reserves in determining the Gross Availability ("Reserves"), and to increase and decrease such Reserves from time to time, if and to the extent that, in Lender's sole judgment, such Reserves are necessary to protect Lender against any state of facts which does, or would, with notice or passage of time or both, constitute an Event of Default or have an adverse effect on any Collateral. Lender may, at its option, implement Reserves by designating as ineligible a sufficient amount of accounts or inventory which would otherwise be Eligible Accounts or Eligible Inventory so as to reduce Gross Availability by the amount of the intended Reserve. The amount of any reduction in the lending formulas by Lender shall have a reasonable relationship to the matter which is the basis for such a reduction. (ii) Without in any way limiting the foregoing, Borrower hereby acknowledges and consents to the establishment, as of the date hereof, of a reserve against Borrower's Gross Availability in the amount of $500,000 (the "Contingent Liability Reserve"). The Contingent Liability Reserve shall be released, if and only if, the Borrower's cumulative net income for 1998 (exclusive of any gains from extraordinary items, discontinued operations and changes in accounting principles) as reflected in Hudson Technologies, Inc.'s Form 10-Q Report or Form 10-K Report, as applicable, for any period indicated below exceeds the respective amount indicated below for such period: Period Required Cumulative Net Income - ------ ------------------------------ Six (6) months ending June 30, 1998 $562,000 Nine (9) months ending September 30, 1998 $864,000 Twelve (12) months ending December 31, 1998 $628,000 provided that, there are then no outstanding factored accounts receivable ("Outstanding Factored Accounts") under that certain Letter of Indemnity dated as of the date hereof by and between Lender and MTB Bank (the "MTB Indemnity Letter"). If there are then any remaining Outstanding Factored Accounts, then notwithstanding the foregoing, the Contingent Liability Reserve shall remain in an amount equal to the lesser of: (A) the amount of such remaining Outstanding Factored Accounts and (B) $500,000. The determination of any reduction in the Outstanding Factored Accounts under the MTB Indemnity Letter shall be made monthly by Lender based upon the written statements of MTB Bank delivered to Lender. 16 (g) Subject to the terms and conditions hereof, including but not limited to the existence of sufficient Gross Availability and Net Availability, Borrower and Affiliated Borrower, jointly and severally, agree to borrow sufficient amounts from time to time so that the outstanding Revolving Loans hereunder plus the outstanding "Revolving Loans" under, and as said quoted term defined in, the Affiliate Loan Agreements, shall at all times equal or exceed the principal amount set forth in Section 10.1(e) as the Minimum Borrowing; provided, that if Borrower and Affiliated Borrower fail to do so, interest shall nevertheless accrue on the Obligations as if Borrower and Affiliated Borrower had borrowed such amounts as would have been sufficient to maintain the outstanding Revolving Loans hereunder and under the Affiliate Loan Agreements at an amount equal to the Minimum Borrowing (and, on a monthly basis, Lender shall have the right to charge Borrower's loan account for such additional interest), and provided further that such accrual shall not impose upon Lender any obligation to make loans to Borrower or Affiliated Borrower to increase the outstanding Revolving Loans hereunder or the Affiliate Loan Agreements to such Minimum Borrowing in the event that sufficient Net Availability does not then exist. 2.2 Term Loan and Cap/Ex Loans. (a) Any term loan and the terms of such loan, made by Lender to Borrower are set forth in Section 10.2 ("Term Loan"). (b) (i) In addition to all other loans, advances and other financial accommodations to be made by Lender pursuant to this Agreement and subject to the terms and conditions set forth herein, Lender agrees to make additional loans to Borrower, upon Borrower's written request, for the purpose of purchasing or acquiring Eligible Equipment (as defined below) or financing capital expenditures (collectively, the "Cap/Ex Loans"). Each Cap/Ex Loan shall be in an amount not to exceed eighty (80%) percent of the Equipment Purchase Price (as defined below) in respect of the Eligible Equipment to be financed thereby, provided, however, that after giving effect to a Cap/Ex Loan requested by Borrower, the sum of (1) such requested Cap/Ex Loan and (2) the aggregate original principal amount of all prior Cap/Ex Loans is not greater than $1,000,000. Borrower shall provide Lender with not less than ten (10) days prior written notice of each requested Cap/Ex Loan. Each Cap/Ex Loan shall bear interest from the date such Cap/Ex Loan is made at the applicable rate set forth in Section 10.4(a) and such interest shall be payable in accordance with Section 3.1. (ii) The aggregate principal amount of each Cap/Ex Loan shall be repaid in seventy-two (72) consecutive monthly principal installments (or earlier as herein provided) commencing on the first day of the first calendar month next following the date of each such Cap/Ex Loan and monthly thereafter on the first day of each successive month until paid, of which the first seventy-one (71) principal installments shall each be in a minimum amount equal to the quotient of the principal amount of such Cap/Ex Loan divided by seventy-two (72); and the last and seventy-second (72nd) principal installment shall be in the amount of the entire unpaid balance of such Cap/Ex Loan. (iii) In addition to all other rights and remedies under this Agreement, the Cap/Ex Loans, together with all accrued and unpaid interest thereon and the early termination fee in respect thereof, shall, at Lender's option, be immediately due and payable if this Agreement shall be terminated or not renewed for any reason whatsoever, or upon the occurrence of any Event of Default hereunder. 17 (iv) Each Cap/Ex Loan shall be in an amount of not less than $100,000. (v) The making of any Cap/Ex Loans is further subject to the satisfaction of each of the following conditions precedent in a manner satisfactory to Lender: (1) no Event of Default shall have occurred and be continuing and no event shall have occurred or condition be existing and continuing which, with notice or passage of time, or both, would constitute an Event of Default; and (2) no notice of termination or non-renewal of this Agreement has been given or made pursuant to Section 9 hereof. (vi) As used herein, the following terms shall have the meaning ascribed to such terms below: (1) "Eligible Equipment" shall mean new Equipment that meets all of the following criteria: (A) the Equipment shall be described (by model, make, manufacturer, serial no. and/or such other identifying information as may be appropriate, as determined by Lender) in a schedule to be submitted by Borrower to Lender; (B) Lender shall have a perfected first-and-only priority lien on and security interest in such Equipment; (C) such Equipment shall be located at a premises owned or leased by Borrower and set forth in Section 10.6(e) and which is the subject of a Landlord's Waiver in favor of, and satisfactory to, CIT; (D) such Equipment is acceptable to Lender as Collateral; and (E) Borrower shall have delivered to Lender a copy of a bill of sale, invoice or other instrument evidencing that the vendor of such Equipment has transferred good and absolute title thereto to Borrower for the purchase price set forth therein, and if applicable, any deferred payment terms given to Borrower in connection with such sale. The criteria for Eligible Equipment may be revised by Lender from time to time in its sole judgment. Any Equipment that is not Eligible Equipment shall nevertheless be and remain at all times part of the Collateral. (2) "Equipment" shall mean all of Borrower's now owned and hereafter acquired equipment, machinery, computers and computer hardware and software (whether owned or licensed), vehicles, tools, furniture, fixtures, all additions, attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements (including spare parts) thereof, wherever located. (3) "Equipment Purchase Price" shall be the purchase price of any Eligible Equipment as set forth in the bill of sale, invoice or other instrument evidencing the purchase of such Equipment by Borrower, net of all taxes, transportation, installation, delivery and other soft costs of such purchase. 18 2.3 Accommodations. (a) Lender may, in its sole discretion, issue or cause to be issued, from time to time at Borrower's request and on terms and conditions and for purposes satisfactory to Lender, credit accommodations consisting of letters of credit, bankers' acceptances, merchandise purchase guaranties or other guaranties or indemnities for Borrower's account ("Accommodations"). Borrower shall execute and perform additional agreements relating to the Accommodations in form and substance acceptable to Lender and the issuer of any Accommodations, all of which shall supplement the rights and remedies granted herein. Any payments made by Lender or any affiliate of Lender in connection with the Accommodations shall constitute additional Revolving Loans to Borrower. (b) In addition to the fees and costs of any issuer in connection with issuing or administering Accommodations, Borrower shall pay monthly to Lender, on the first day of each month, a charge on open Accommodations at the rate per annum set forth in Section 10.3(a) (the "Accommodation Charges"). (c) No Accommodation will be issued unless the full amount of the Accommodation requested, plus fees and costs for issuance, is less than the Net Availability existing immediately prior to the issuance of the requested Accommodation, or if the requested Accommodation would cause the outstanding Obligations to exceed the Maximum Credit, or cause the open amount of Accommodations hereunder, together with the open amount of "Accommodations" under, and as said quoted term is defined in, the Affiliate Loan Agreements to exceed, at any time, the Accommodation sublimit set forth in Section 10.3(b). (d) All indebtedness, liabilities and obligations of any sort whatsoever, however arising, whether present or future, fixed or contingent, secured or unsecured, due or to become due, paid or incurred, arising or incurred in connection with any Accommodation shall be included in the term "Obligations", as defined herein, and shall include, without limitation, (i) all amounts due or which may become due under any Accommodation; (ii) all amounts charged or chargeable to Borrower or to Lender on account of Borrower, the Collateral, the Obligations or the Accommodations by any bank, other financial institution or correspondent bank which opens, issues or is involved with such Accommodations; (iii) Lender's Accommodation Charges and all fees, costs and other charges of any issuer of any Accommodation; and (iv) all duties, freight, taxes, costs, insurance and all such other charges and expenses which may pertain directly or indirectly to any Obligations or Accommodations or to the goods or documents relating thereto, unless and to the extent paid directly by Borrower. (e) Borrower unconditionally agrees to indemnify and hold Lender harmless from any and all loss, claim or liability (including reasonable attorneys' fees) arising from any transactions or occurrences relating to any Accommodation established or opened for Borrower's account, the Collateral relating thereto and any drafts or acceptances thereunder, including any such loss or claim due to any action taken by an issuer of any Accommodation. Borrower further agrees to indemnify and hold Lender harmless for any errors or omissions in connection with the Accommodations, whether caused by Lender, by the issuer of any Accommodation or otherwise. Borrower's unconditional obligation to indemnify and hold Lender harmless under this provision shall not be modified or diminished for any reason or in any manner whatsoever, except for Lender's willful misconduct or gross negligence. Borrower agrees that any charges made to Lender by any issuer of any Accommodation shall be conclusive on Borrower and may be charged to Borrower's account. (f) Lender shall not be responsible for: the conformity of any goods to the documents presented; the validity or genuineness of any documents; delay, default, or fraud by the Borrower or shipper and/or anyone else in connection with the Accommodations or any underlying transaction. 19 (g) Borrower agrees that any action taken by Lender, if taken in good faith, or any action taken by an issuer of any Accommodation, under or in connection with any Accommodation, shall be binding on Borrower and shall not create any resulting liability to Lender. In furtherance thereof, Lender shall have the full right and authority to clear and resolve any questions of non-compliance of documents; to give any instructions as to acceptance or rejection of any documents or goods; to execute for Borrower's account any and all applications for steamship or airway guarantees, indemnities or delivery orders; to grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents; and to agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications or Accommodations. All of the foregoing actions may be taken in Lender's sole name, and the issuer thereof shall be entitled to comply with and honor any and all such documents or instruments executed by or received solely from Lender, all without any notice to or any consent from Borrower. None of the foregoing actions described in this subsection (g) may be taken by Borrower without Lender's express written consent. SECTION 3. INTEREST AND FEES 3.1 Interest. (a) Interest on the Revolving Loans, Term Loan and Cap/Ex Loans shall be payable by Borrower on the first day of each month, calculated upon the closing daily balances in the loan account of Borrower for each day during the immediately preceding month, at the per annum rate set forth as the Interest Rate in Section 10.4(a). The Interest Rate shall increase or decrease by an amount equal to each increase or decrease, respectively, in the Prime Rate (as defined below), effective as of the date of each such change. On and after any Event of Default or termination or non-renewal hereof, interest on all unpaid Obligations shall accrue at a rate equal to two percent (2%) per annum in excess of the Interest Rate otherwise payable until such time as all Obligations are indefeasibly paid in full (notwithstanding entry of any judgment against Borrower or the exercise of any other right or remedy by Lender), and all such interest shall be payable on demand. Interest shall in no month be less than the Interest Rate multiplied by the Minimum Borrowing. In no event shall charges constituting interest exceed the rate permitted under any applicable law or regulation, and if any provision of this Agreement is in contravention of any such law or regulation, such provision shall be deemed amended to conform thereto. (b) The "Prime Rate" is the rate of interest publicly announced by The Chase Manhattan Bank in New York, New York, or its successors and assigns from time to time as its prime rate (the Prime Rate is not intended to be the lowest rate of interest charged by The Chase Manhattan Bank to its borrowers). 3.2 Closing Fee. Borrower, jointly and severally with Affiliated Borrower, shall pay Lender at closing a Closing Fee in the amount set forth in Section 10.4 (c). 3.3 Facility Fee. Borrower, jointly and severally with Affiliated Borrower, shall pay Lender a Facility Fee for the initial Term in the amount set forth in Section 10.4(d)(i) and for each renewal Term hereof in the amount set forth in Section 10.4(d)(ii), which Facility Fee for the initial Term of this Agreement shall be fully earned at closing and payable in the amounts and on the dates indicated in Section 10.4(d)(i)(1) and (2), respectively, and which Facility Fee for each renewal Term of this Agreement shall be fully earned on the first day of each such renewal Term and payable as set forth in Section 10.4(d)(ii)(1) and (2), respectively. 3.4 Account Servicing Fee. Borrower, jointly and severally with Affiliated Borrower, shall pay Lender monthly, on the first day of each month during the initial and each renewal Term an Account Servicing Fee for the immediately preceding month (or part thereof) in the amount set forth in Section 10.4(e). 20 3.5 Unused Line Fee. Borrower, jointly and severally with Affiliated Borrower, shall pay Lender monthly, on the first day of each month, in arrears, an Unused Line Fee for each month during the initial and each renewal Term at the rate per annum set forth in Section 10.4(f), calculated upon the amount, if any, by which the Maximum Credit exceeds the average aggregate outstanding daily principal balance during the preceding month of all Revolving Loans, Accommodations, Cap/Ex Loans and any Term Loan hereunder and all Revolving Loans under the Affiliate Loan Agreements. 3.6 Charges to Loan Account. At Lender's option, all payments of principal, interest, fees, costs, expenses and other charges provided for in this Agreement, or in any other agreement now or hereafter existing between Lender and Borrower, may be charged on the date when due, as principal to any loan account of Borrower maintained by Lender. Interest, fees for Accommodations, the Unused Line Fee and any other amounts payable by Borrower to Lender based on a per annum rate shall be calculated on the basis of actual days elapsed over a 360-day year. SECTION 4. GRANT OF SECURITY INTEREST 4.1 Grant of Security Interest. To secure the payment and performance in full of all Obligations, Borrower hereby grants to Lender a continuing security interest in and lien upon, and a right of setoff against, and Borrower hereby assigns and pledges to Lender, all of the Collateral, including any Collateral not deemed eligible for lending purposes. 4.2 "Obligations" shall mean any and all Revolving Loans, Term Loans, Accommodations, Cap/Ex Loans and all other indebtedness, liabilities and obligations of every kind, nature and description owing by Borrower to Lender and/or its affiliates, including principal, interest, charges, fees and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under this Agreement or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal Term or after the commencement of any case with respect to Borrower under the United States Bankruptcy Code or any similar statute, whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, original, renewed or extended and whether arising directly or howsoever acquired by Lender including from any other entity outright, conditionally or as collateral security, by assignment, merger with any other entity, participations or interests of Lender in the obligations of Borrower to others, assumption, operation of law, subrogation or otherwise and shall also include all amounts chargeable to Borrower under this Agreement or in connection with any of the foregoing. 4.3 "Collateral" shall mean all of the following property of Borrower: (a) All now owned and hereafter acquired right, title and interest of Borrower in, to and in respect of all: accounts, interests in goods represented by accounts, returned, reclaimed or repossessed goods with respect thereto and rights as an unpaid vendor; contract rights; chattel paper; investment property; general intangibles (including, but not limited to, tax and duty refunds, registered and unregistered patents, trademarks, service marks, copyrights, trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims, and existing and future leasehold interests in equipment and fixtures); documents; instruments; letters of credit, bankers' acceptances or guaranties; cash monies, deposits, securities, bank accounts, deposit accounts, credits and other property now or hereafter held in any capacity by Lender, its affiliates or any entity which, at any time, participates in Lender's financing of Borrower or at any other depository or other institution; agreements or property securing or relating to any of the items referred to above; 21 (b) All now owned and hereafter acquired right, title and interest of Borrower in, to and in respect of goods, including, but not limited to: (i) All inventory, wherever located, whether now owned or hereafter acquired, of whatever kind, nature or description, including all raw materials, work-in-process, finished goods, and materials to be used or consumed in Borrower's business; and all names or marks affixed to or to be affixed thereto for purposes of selling same by the seller, manufacturer, lessor or licensor thereof; (ii) All Equipment, wherever located, whether now owned or hereafter acquired, and any and all additions, substitutions, replacements (including spare parts), and accessions thereof and thereto; (c) All now owned and hereafter acquired right, title and interests of Borrower in, to and in respect of any real or personal property in or upon which Borrower has or may hereafter have a security interest, lien or right of setoff; (d) All present and future books and records relating to any of the above including, without limitation, all computer programs, printed output and computer readable data in the possession or control of the Borrower, any computer service bureau or other third party; and (e) All products and proceeds of the foregoing in whatever form and wherever located, including, without limitation, all insurance proceeds and all claims against third parties for loss or destruction of or damage to any of the foregoing. SECTION 5. COLLECTION AND ADMINISTRATION 5.1 Collections. Borrower shall, at Borrower's expense and in the manner requested by Lender from time to time, direct that remittances and all other proceeds of accounts and other Collateral be sent to a lock box designated by and/or maintained in the name of Lender, and deposited into a bank account now or hereafter selected by Lender and maintained in the name of Lender under arrangements with the depository bank under which all funds deposited to such bank account are required to be transferred solely to Lender. Borrower shall bear all risk of loss of any funds deposited into such account. In connection therewith, Borrower shall execute such lock box and bank account agreements as Lender shall specify. Any collections or other proceeds received by Borrower shall be held in trust for Lender and immediately remitted to Lender in kind. 5.2 Payments. All Obligations shall be payable at Lender's office set forth below or at Lender's bank designated in Section 10.6(a) or at such other bank or place as Lender may expressly designate from time to time for purposes of this Section. Lender shall apply all proceeds of accounts or other Collateral received by Lender and all other payments in respect of the Obligations to the Revolving Loans or to any other Obligations then due, in whatever order or manner Lender shall determine. For purposes of determining Gross Availability and Net Availability and for the calculation of the Minimum Borrowing, remittances and other payments with respect to the Collateral and Obligations will be treated as credited to the loan account of Borrower maintained by Lender and Collateral balances to which they relate, upon the date of Lender's receipt of advice from Lender's bank that such remittances or other payments have been credited to Lender's account or in the case of remittances or other payments received directly in kind by Lender, upon the date of Lender's deposit thereof at Lender's bank, subject to final payment and collection. In computing interest charges, the loan account of Borrower maintained by Lender will be credited with remittances and other payments the number of days set forth in Section 10.4(b) after the day Lender has received advice of receipt of remittances in Lender's account at Lender's Bank. For purposes of this Agreement, "Business Day" shall mean any day other than a Saturday, Sunday or any other day on which banks located in states where Lender has its offices, are authorized to close. 22 5.3 Loan Account Statements. Lender shall render to Borrower monthly a loan account statement. Each statement shall be considered correct and binding upon Borrower as an account stated, except to the extent that Lender receives, within sixty (60) days after the mailing of such statement, written notice from Borrower of any specific exceptions by Borrower to that statement. 5.4 Direct Collections. Lender may, at any time, whether or not an Event of Default has occurred, without notice to or assent of Borrower, (a) notify any account debtor that the accounts and other Collateral which includes a monetary obligation have been assigned to Lender by Borrower and that payment thereof is to be made to the order of and directly to Lender, (b) send, or cause to be sent by its designee, requests (which may identify the sender by a pseudonym) for verification of accounts and other Collateral directly to any account debtor or any other obligor or any bailee with respect thereto, and (c) demand, collect or enforce payment of any accounts or such other Collateral, but without any duty to do so, and Lender shall not be liable for any failure to collect or enforce payment thereof; provided that, so long as no Event of Default has occurred, Lender agrees to use its best efforts to provide Borrower with notice of any demand, collection or enforcement of payment by Lender pursuant to this Section 5.4(c). At Lender's request, all invoices and statements sent to any account debtor, other obligor or bailee, shall state that the accounts and such other Collateral have been assigned to Lender and are payable directly and only to Lender. 5.5 Attorney-in-Fact. Borrower hereby appoints Lender and any designee of Lender as Borrower's attorney-in-fact and authorizes Lender or such designee, at Borrower's sole expense, to exercise at any times in Lender's or such designee's discretion all or any of the following powers, which powers of attorney, being coupled with an interest, shall be irrevocable until all Obligations have been paid in full: (a) receive, take, endorse, assign, deliver, accept and deposit, in the name of Lender or Borrower, any and all cash, checks, commercial paper, drafts, remittances and other instruments and documents relating to the Collateral or the proceeds thereof, (b) transmit to account debtors, other obligors or any bailees notice of the interest of Lender in the Collateral or request from account debtors or such other obligors or bailees at any time, in the name of Borrower or Lender or any designee of Lender, information concerning the Collateral and any amounts owing with respect thereto, (c) notify account debtors or other obligors to make payment directly to Lender, or notify bailees as to the disposition of Collateral, (d) take or bring, in the name of Lender or Borrower, all steps, actions, suits or proceedings deemed by Lender necessary or desirable to effect collection of or other realization upon the accounts and other Collateral, (e) after an Event of Default, change the address for delivery of mail to Borrower and to receive and open mail addressed to Borrower (Lender agrees to use its best efforts to forward to Borrower any mail addressed to Borrower actually received by Lender pursuant to this Section 5.5(e) which does not relate to the Obligations, the Collateral, any transactions arising hereunder or related hereto), (f) after an Event of Default, extend the time of payment of, compromise or settle for cash, credit, return of merchandise, and upon any terms or conditions, any and all accounts or other Collateral which includes a monetary obligation and discharge or release the account debtor or other obligor, without affecting any of the Obligations, and (g) execute in the name of Borrower and file against Borrower in favor of Lender financing statements or amendments with respect to the Collateral. 5.6 Liability. Borrower hereby releases and exculpates Lender, its officers, employees and designees, from any liability arising from any acts under this Agreement or in furtherance thereof, whether as attorney-in-fact or otherwise, whether of omission or commission, and whether based upon any error of judgment or mistake of law or fact, except for willful misconduct or gross negligence. In no event will Lender have any liability to Borrower for lost profits or other special or consequential damages. 23 5.7 Administration of Accounts. After written notice by Lender to Borrower and automatically, without notice, after an Event of Default, Borrower shall not, without the prior written consent of Lender in each instance, (a) grant any extension of time of payment of any of the accounts or any other Collateral which includes a monetary obligation, (b) compromise or settle any of the accounts or any such other Collateral for less than the full amount thereof, (c) release in whole or in part any account debtor or other person liable for the payment of any of the accounts or any such other Collateral, or (d) grant any credits, discounts, allowances, deductions, return authorizations or the like with respect to any of the accounts or any such other Collateral. 5.8 Documents. At such times as Lender may request and in the manner specified by Lender, Borrower shall deliver to Lender or Lender's representative, as Lender shall designate, copies or original invoices, agreements, proofs of rendition of services and delivery of goods and other documents evidencing or relating to the transactions which gave rise to accounts or other Collateral, together with customer statements, schedules describing the accounts or other Collateral and/or statements of account and confirmatory assignments to Lender of the accounts or other Collateral, in form and substance satisfactory to Lender and duly executed by Borrower. Without limiting the provisions of Section 5.7, Borrower's granting of credits, discounts, allowances, deductions, return authorizations or the like will be promptly reported to Lender in writing. In no event shall any such schedule or confirmatory assignment (or the absence thereof or omission of any of the accounts or other Collateral therefrom) limit or in any way be construed as a waiver, limitation or modification of the security interests or rights of Lender or the warranties, representations and covenants of Borrower under this Agreement. Any documents, schedules, invoices or other paper delivered to Lender by Borrower may be destroyed or otherwise disposed of by Lender six (6) months after receipt by Lender, unless Borrower requests their return in writing in advance and makes prior arrangements for their return at Borrower's expense. 5.9 Access. From time to time as requested by Lender, at the sole expense of Borrower, Lender or its designee shall have access, prior to an Event of Default during reasonable business hours and on or after an Event of Default at any time, to all of the premises where Collateral is located for the purposes of inspecting the Collateral, and all Borrower's books and records, and Borrower shall permit Lender or its designee to make such copies of such books and records or extracts therefrom as Lender may request. Without expense to Lender, Lender may use such of Borrower's personnel, equipment, including computer equipment, programs, printed output and computer readable media, supplies and premises for the collection of accounts and realization on other Collateral as Lender, in its sole discretion, deems appropriate. Borrower hereby irrevocably authorizes all accountants and third parties to disclose and deliver to Lender at Borrower's expense all financial information, books and records, work papers, management reports and other information in their possession regarding Borrower. 5.10 Environmental Audits. From time to time, as reasonably requested by Lender, at the sole expense of Borrower, Borrower shall provide Lender, or its designee, complete access to all of Borrower's facilities for the purpose of conducting an environmental audit of such facilities as Lender or its designees may deem necessary. Borrower agrees to cooperate with Lender with respect to any environmental audit conducted by Lender or its designee pursuant to this Section 5.10. 5.11 Credit Balance. Borrower agrees that Lender shall hold as security for the Obligations the amount of not less than $495,000 delivered by MTB Bank to Lender (the "Indemnification Balance") pursuant to the MTB Indemnity Letter. The Indemnification Balance shall constitute a part of the Collateral. So long as no Event of Default then exists and is continuing, Lender shall on a monthly basis release to Borrower a portion of the beginning Indemnification Balance with such portion calculated as the beginning Indemnification Balance multiplied by a fraction with the numerator of such fraction being the dollar amount of factored accounts of Borrower which MTB Bank has reported to Lender in MTB Bank's written monthly statements delivered to Lender as collected during the immediately preceding month and the denominator being the amount of $1,726,000. 24 SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS Borrower hereby represents, warrants and covenants to Lender the following, the truth and accuracy of which, and compliance with which, shall be continuing conditions of the making of loans or other credit accommodations by Lender to Borrower: 6.1 Financial and Other Reports. Borrower shall keep and maintain its books and records in accordance with generally accepted accounting principles, consistently applied. Borrower shall, at its expense, deliver to Lender (a) on or before Wednesday of each week, weekly inventory reports; (b) on or before the fifteenth (15th) day of each month, true and complete monthly agings of its accounts receivable, accounts payable and notes payable, and (c) on or before the twenty-fifth (25th) day of each month, monthly internally prepared interim financial statements. Annually, Borrower shall deliver audited financial statements of Borrower accompanied by the report and opinion thereon of independent certified public accountants acceptable to Lender, as soon as available, but in no event later than ninety (90) days after the end of Borrower's fiscal year. All of the foregoing shall be in such form and together with such information with respect to the business of Borrower or any guarantor, as Lender may in each case request. 6.2 Trade Names. Borrower may from time to time render invoices to account debtors under its trade names set forth in Section 10.6(g) after Lender has received prior written notice from Borrower of the use of such trade names and as to which, Borrower agrees that: (a) each trade name does not refer to another corporation or other legal entity, (b) all accounts and proceeds thereof (including any returned merchandise) invoiced under any such trade names are owned exclusively by Borrower and are subject to the security interest of Lender and the other terms of this Agreement, and (c) all schedules of accounts and confirmatory assignments including any sales made or services rendered using the trade name shall show Borrower's name as assignor and Lender is authorized to receive, endorse and deposit to any loan account of Borrower maintained by Lender all checks or other remittances made payable to any trade name of Borrower representing payment with respect to such sales or services. 6.3 Losses. Borrower shall promptly notify Lender in writing of any loss, damage, investigation, action, suit, proceeding or claim relating to a material portion of the Collateral or which may result in any material adverse change in Borrower's business, assets, liabilities or condition, financial or otherwise. 6.4 Books and Records. Borrower's books and records concerning accounts and its chief executive office are and shall be maintained only at the address set forth in Section 10.6(d). Borrower's only other places of business and the only other locations of Collateral, if any, are and shall be the addresses set forth in Section 10.6(e) and Section 10.6(f) hereof, except Borrower may change such locations or open a new place of business after thirty (30) days prior written notice to Lender. Prior to any change in location or opening of any new place of business, Borrower shall execute and deliver or cause to be executed and delivered to Lender such financing statements, financing documents and security and other agreements as Lender may reasonably require, including, without limitation, those described in Section 6.14. 25 6.5 Title. Borrower has and at all times will continue to have good and marketable title to all of the Collateral, free and clear of all liens, security interests, claims or encumbrances of any kind except in favor of Lender and except, if any, those set forth on Schedule A hereto. 6.6 Disposition of Assets. Borrower shall not directly or indirectly without Lender's prior written consent: (a) sell, lease, transfer, assign, abandon or otherwise dispose of any part of the Collateral or any material portion of its other assets (other than sales of inventory to buyers in the ordinary course of business) or (b) consolidate with or merge with or into any other entity, or permit any other entity to consolidate with or merge with or into Borrower or (c) form or acquire any interest in any firm, corporation or other entity. 6.7 Insurance. Borrower shall at all times maintain, with financially sound and reputable insurers, insurance (including, without limitation, at the option of Lender, earthquake and flood insurance) with respect to the Collateral and other assets. All such insurance policies shall be in such form, substance, amounts and coverage as may be satisfactory to Lender and shall provide for thirty (30) days' prior written notice to Lender of cancellation or reduction of coverage. Borrower hereby irrevocably appoints Lender and any designee of Lender as attorney-in-fact for Borrower to obtain at Borrower's expense, any such insurance should Borrower fail to do so and, after an Event of Default, to adjust or settle any claim or other matter under or arising pursuant to such insurance or to amend or cancel such insurance. Borrower shall deliver to Lender evidence of such insurance and a lender's loss payable endorsement satisfactory to Lender as to all existing and future insurance policies with respect to the Collateral. Borrower shall deliver to Lender, in kind, all instruments representing proceeds of insurance received by Borrower. Lender may apply any insurance proceeds received at any time to the cost of repairs to or replacement of any portion of the Collateral and/or, at Lender's option, to payment of or as security for any of the Obligations in any order or manner as Lender determines. 6.8 Compliance With Laws. Borrower is and at all times will continue to be in compliance with the requirements of all material laws, rules, regulations and orders of any governmental authority relating to its business (including laws, rules, regulations and orders relating to taxes, payment and withholding of payroll taxes, employer and employee contributions and similar items, securities, employee retirement and welfare benefits, employee health and safety, or environmental matters) and all material agreements or other instruments binding on Borrower or its property. All of Borrower's inventory shall be produced in accordance with the requirements of the Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations and orders related thereto. Borrower shall pay and discharge all taxes, assessments and governmental charges against Borrower or any Collateral prior to the date on which penalties are imposed or liens attach with respect thereto, unless the same are being contested in good faith and, at Lender's option, Reserves are established for the amount contested and penalties which may accrue thereon. 6.9 Accounts. With respect to each account deemed an Eligible Account, except as reported in writing to Lender, Borrower has no knowledge that any of the criteria for eligibility are not or are no longer satisfied. As to each account, except as disclosed in writing to Lender at the time such account arises (a) each is valid and legally enforceable and represents an undisputed bona fide indebtedness incurred by the account debtor for the sum reported to Lender, (b) each arises from an absolute and unconditional sale of goods, without any right of return or consignment, or from a completed rendition of services, (c) each is not, at the time such account arises, subject to any defense, offset, dispute, contra relationship, counterclaim, or any given or claimed credit, allowance or discount, and (d) all statements made and all unpaid balances and other information appearing in the invoices, agreements, proofs of rendition of services and delivery of goods and other documentation relating to the accounts, and all confirmatory assignments, schedules, statements of account and books and records with respect thereto, are true and correct and in all respects what they purport to be. 26 6.10 Equipment. With respect to Borrower's equipment, Borrower shall keep the equipment in good order and repair, and in running and marketable condition, ordinary wear and tear excepted. 6.11 [Intentionally Omitted]. 6.12 Affiliated Transactions. Borrower will not, without Lender's prior written consent, directly or indirectly: (a) lend or advance money or property to, guarantee (other than the guarantee of the obligations of Affiliated Borrower, Hudson Holdings, Inc. or Hudson Technologies, Inc.) or assume indebtedness of, or invest (by capital contribution or otherwise) in any person, firm, corporation or other entity; or (b) declare, pay or make any dividend, redemption or other distribution on account of any shares of any class of stock of Borrower now or hereafter outstanding; or (c) make any payment of the principal amount of or interest on any indebtedness owing to any officer, director, shareholder, or affiliate of Borrower; or (d) make any loans or advances to any officer, director, employee, shareholder or affiliate of Borrower, except for loans and advances made to Affiliated Borrower in the ordinary course of Borrower's business as presently conducted; or (e) enter into any sale, lease or other transaction with any officer, director, employee, shareholder or affiliate of Borrower on terms that are less favorable to Borrower than those which might be obtained at the time from persons who are not an officer, director, employee, shareholder or affiliate of Borrower. 6.13 Fees and Expenses. Borrower shall pay, on Lender's demand, all costs, expenses, filing fees and taxes payable in connection with the preparation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Lender's rights in the Collateral, this Agreement and all other existing and future agreements or documents contemplated herein or related hereto, including any amendments, waivers, supplements or consents which may hereafter be made or entered into in respect hereof, or in any way involving claims or defense asserted by Lender or claims or defense against Lender asserted by Borrower, any guarantor or any third party directly or indirectly arising out of or related to the relationship between Borrower and Lender or any guarantor and Lender, including, but not limited to the following, whether incurred before, during or after the initial or any renewal Term or after the commencement of any case with respect to Borrower or any guarantor under the United States Bankruptcy Code or any similar statute: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all title insurance and other insurance premiums, appraisal fees, fees incurred in connection with any environmental report, audit or survey and search fees; (c) all fees as then in effect relating to the wire transfer of loan proceeds and other funds and fees then in effect for returned checks and credit reports; (d) all expenses and costs heretofore and from time to time hereafter incurred by Lender during the course of periodic field examinations of the Collateral and Borrower's operations, plus a per diem charge at the rate set forth in Section 10.4(g) for Lender's examiners in the field and office, provided, however, that notwithstanding anything to the contrary contained herein and so long as no Event of Default has occurred, Borrower and Affiliated Borrower shall not be liable for per diem charges for Lender's examiners (exclusive of out-of-pocket expenses) pursuant to this Section 6.13(d) in any contract year (as measured from the date hereof) in excess of $13,000 per annum; and (e) the costs, fees and disbursements of in-house and outside counsel to Lender, including but not limited to such fees and disbursements incurred as a result of litigation between the parties hereto, any third party and in any appeals arising therefrom. 27 6.14 Further Assurances. At the request of Lender, at any time and from time to time, at Borrower's sole expense, Borrower shall execute and deliver or cause to be executed and delivered to Lender, such agreements, documents and instruments, including waivers, consents and subordination agreements from mortgagees or other holders of security interests or liens, landlords or bailees, and do or cause to be done such further acts as Lender, in its discretion, deems necessary or desirable to create, preserve, perfect or validate any security interest of Lender or the priority thereof in the Collateral and otherwise to effectuate the provisions and purposes of this Agreement. Borrower hereby authorizes Lender to file financing statements or amendments against Borrower in favor of Lender with respect to the Collateral, without Borrower's signature and to file as financing statements any carbon, photographic or other reproductions of this Agreement or any financing statements signed by Borrower. 6.15 Revolving Loans. The Revolving Loans plus Accommodations will not at any time exceed the Gross Availability unless Lender has consented. 6.16 Environmental Condition. None of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute. No lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower. Borrower has not received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state governmental agency any action or omission by Borrower resulting in the releasing, or otherwise exposing of hazardous waste or hazardous substances into the environment. Borrower is, and at all times will be, in compliance (in all material respects) with all statutes, regulations, ordinances and other legal requirements pertaining to the production, storage, handling, treatment, release, transportation or disposal of any hazardous waste or hazardous substance. 6.17 Investment Property. Borrower will take any and all actions reasonably required or requested by Lender, from time to time, to (a) cause Lender to obtain exclusive control of any investment property in a manner acceptable to Lender and (b) obtain from any issuers of investment property and such other persons as Lender shall specify, for the benefit of Lender, written confirmation of Lender's exclusive control over such investment property and take such other actions as Lender may request to perfect Lender's security interest in such investment property. SECTION 7. EVENTS OF DEFAULT AND REMEDIES 7.1 Events of Default. All Obligations shall be immediately due and payable, without notice or demand, and any provisions of this Agreement as to future loans and credit accommodations by Lender shall terminate automatically, upon the termination or non-renewal of this Agreement or, at Lender's option, upon or at any time after the occurrence or existence of any one or more of the following "Events of Default": (a) Borrower fails to pay when due any of the Obligations or fails to perform any of the terms of this Agreement or any other existing or future financing, security or other agreement between Borrower and Lender or any affiliate of Lender; (b) Any representation, warranty or statement of fact made by Borrower to Lender in this Agreement or any other agreement, schedule, confirmatory assignment or otherwise, or to any affiliate of Lender, shall, when made or deemed made, prove inaccurate or materially misleading; (c) Any guarantor revokes, terminates or fails to perform any of the terms of any guaranty, endorsement or other agreement of such party in favor of Lender or any affiliate of Lender; 28 (d) Any judgment or judgments aggregating in excess of $75,000 or any injunction or attachment is obtained against Borrower or any guarantor which remains unstayed for a period of twenty (20) days or is enforced; (e) Borrower or any guarantor or a general partner of a guarantor or Borrower (which is a partnership), being a natural person, dies, or Borrower or any guarantor which is a partnership or corporation, is dissolved, or Borrower or any guarantor which is a corporation fails to maintain its corporate existence in good standing, or the usual business of Borrower or any guarantor ceases or is suspended; (f) Any change in the president and chief executive officer or any change in the controlling ownership of Borrower; (g) Borrower or any guarantor becomes insolvent, makes an assignment for the benefit of creditors, makes or sends notice of a bulk transfer or calls a general meeting of its creditors or principal creditors; (h) Any petition or application for any relief under the bankruptcy laws of the United States now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or in equity) is filed by Borrower or any guarantor, or is filed against Borrower or any guarantor and is not dismissed within thirty (30) days of filing; (i) The indictment of Borrower or any guarantor under any criminal statute, or commencement of criminal or civil proceedings against Borrower or any guarantor, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of any of the property of Borrower or such guarantor; (j) Any default or event of default occurs on the part of Borrower under any agreement, document or instrument to which Borrower is a party or by which Borrower or any of its property is bound, creating or relating to any indebtedness of Borrower to any person or entity other than Lender in an amount exceeding $75,000, if the effect of such default is to accelerate, or to permit the acceleration of, the maturity of all or any part of such indebtedness, or all or any part of any such indebtedness shall be declared to be due and payable or required to be prepaid or any other reason, in either event prior to the stated maturity thereof; (k) Lender in good faith believes that either (i) the prospect of payment or performance of the Obligations is impaired or (ii) the Collateral is not sufficient to secure fully the Obligations; (l) Any default or event of default under the Affiliate Loan Agreements; or (m) any material change occurs in the nature or conduct of Borrower's business and such material change remains unremedied for ten (10) days. 29 7.2 Remedies. Upon the occurrence of an Event of Default and at any time thereafter, Lender shall have all rights and remedies provided in this Agreement, any other agreements between Borrower and Lender, the Uniform Commercial Code and other applicable law, all of which rights and remedies may be exercised without notice to Borrower, all such notices being hereby waived, except such notice as is expressly provided for hereunder or is not waivable under applicable law. All rights and remedies of Lender are cumulative and not exclusive and are enforceable, in Lender's discretion, alternatively, successively, or concurrently on any one or more occasions and in any order Lender may determine. Without limiting the foregoing, Lender may (a) accelerate the payment of all Obligations and demand immediate payment thereof to Lender, (b) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (c) require Borrower, at Borrower's expense, to assemble and make available to Lender any part or all of the Collateral at any place and time designated by Lender, (d) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (e) extend the time of payment of, compromise or settle for cash, credit, return of merchandise, and upon any terms or conditions, any and all accounts or other Collateral which includes a monetary obligation and discharge or release the account debtor or other obligor, without affecting any of the Obligations, (f) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including, without limitation, entering into contracts with respect thereto, by public or private sales at any exchange, broker's board, any office of Lender or elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon credit or for future delivery, with the Lender having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of Borrower, which right or equity of redemption is hereby expressly waived and released by Borrower. If any of the Collateral is sold or leased by Lender upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Lender. If notice of disposition of Collateral is required by law, seven (7) days prior notice by Lender to Borrower designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and Borrower waives any other notice. In the event Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, Borrower waives the posting of any bond which might otherwise be required. 7.3 Application of Proceeds. Lender may apply the cash proceeds of Collateral actually received by Lender from any sale, lease, foreclosure or other disposition of the Collateral to payment of any of the Obligations, in whole or in part (including reasonable attorneys' fees and legal expenses incurred by Lender with respect thereto or otherwise chargeable to Borrower) and in such order as Lender may elect. Borrower shall remain liable to Lender for the payment of any deficiency together with interest at the highest rate provided for herein and all costs and expenses of collection or enforcement, including reasonable attorneys' fees and legal expenses. 7.4 Lender's Cure of Third Party Agreement Default. Lender may, at its option, cure any default by Borrower under any agreement with a third party or pay or bond on appeal any judgment entered against Borrower, discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and pay any amount, incur any expense or perform any act which, in Lender's sole judgment, is necessary or appropriate to preserve, protect, insure, maintain, or realize upon the Collateral. Lender may charge Borrower's loan account for any amounts so expended, such amounts to be repayable by Borrower on demand. Lender shall be under no obligation to effect such cure, payment, bonding or discharge, and shall not, by doing so, be deemed to have assumed any obligation or liability of Borrower. 30 SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS 8.1 JURY TRIAL WAIVER. BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER, OR, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES. 8.2 Counterclaims. Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of any kind, nature or description in any action or proceeding instituted by Lender with respect to this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating thereto, except compulsory counterclaims. 8.3 Jurisdiction. Borrower hereby irrevocably submits and consents to the nonexclusive jurisdiction of the State and Federal Courts located in the State in which the office of Lender designated in Section 10.6(a) is located and any other State where any Collateral is located with respect to any action or proceeding arising out of this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating thereto. In any such action or proceeding, Borrower waives personal service of the summons and complaint or other process and papers therein and agrees that the service thereof may be made by mail directed to Borrower at its chief executive office set forth herein or other address thereof of which Lender has received notice as provided herein, service to be deemed complete five (5) days after mailing, or as permitted under the rules of either of said Courts. Any such action or proceeding commenced by Borrower against Lender will be litigated only in a Federal Court located in the district, or a State Court in the State and County, in which the office of Lender designated in Section 10.6(a) is located and Borrower waives any objection based on forum non conveniens and any objection to venue in connection therewith. 8.4 No Waiver by Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights or remedies unless such waiver shall be in writing and signed by an authorized officer of Lender. A waiver by Lender of any right or remedy on any one occasion shall not be construed as a bar to or waiver of any such right or remedy which Lender would otherwise have on any future occasion, whether similar in kind or otherwise. SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS 9.1 Term. This Agreement shall only become effective upon execution and delivery by Borrower and Lender and shall continue in full force and effect for a term set forth in Section 10.7 from the date hereof and shall be deemed automatically renewed for successive terms of two (2) years thereafter unless terminated as of the end of the initial or any renewal term (each a "Term") by either party giving the other written notice at least sixty (60) days' prior to the end of the then current Term. 9.2 Early Termination. Borrower may also terminate this Agreement by giving Lender at least thirty (30) days prior written notice (the "Early Termination Notice") and payment in full of all of the Obligations as provided herein, including the Early Termination Fee (as hereinafter defined), unpaid Facility Fee and any other fees, provided that, the Affiliated Borrower simultaneously terminates the Affiliate Loan Agreements contemporaneously therewith. Borrower shall have no right to terminate this Agreement as aforesaid if the Affiliate Loan Agreements are not being simultaneously terminated by the Affiliated Borrower. Lender shall also have the right to terminate this Agreement at any time upon or after the occurrence of an Event of Default. If Lender terminates this Agreement upon or after the occurrence of an Event of Default, Borrower shall pay Lender forthwith, in full, payment of all Obligations, including Early Termination Fee, Facility Fee and any other fees. In view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Lender's lost profits, the early termination fee (the "Early Termination Fee"), which shall be the joint and several obligation of Borrower and Affiliated Borrower, shall be equal to: 31 (a) If such termination occurs on or prior to the first anniversary of this Agreement, three (3%) percent of the Maximum Credit; (b) If such termination occurs after the first anniversary of this Agreement, but on or prior to the second anniversary of this Agreement, two (2%) percent of the Maximum Credit; and (c) If such termination occurs after the second anniversary of this Agreement, one (1%) percent of the Maximum Credit. Notwithstanding anything to the contrary contained herein, Borrower acknowledges, confirms and agrees that from and after the date which is thirty (30) days after receipt by Lender of the Early Termination Notice, Lender shall have no obligation to make any loans, advances or other financial accommodations to or for the benefit of Borrower hereunder. 9.3 Termination Indemnity Deposit. Upon termination of this Agreement by Borrower, as permitted herein, in addition to payment of all Obligations which are not contingent, Borrower shall deposit such amount of cash collateral as Lender reasonably determines is necessary to secure Lender from loss, cost, damage or expense, including reasonable attorneys' fees, in connection with any open Accommodations or remittance items or other payments provisionally credited to the Obligations and/or to which Lender has not yet received final and indefeasible payment. 9.4 Notices. Except as otherwise provided, all notices, requests and demands hereunder shall be (a) made to Lender at its address set forth in Section 10.6(a) and to Borrower at its chief executive office set forth in Section 10.6(d), or to such other address as either party may designate by written notice to the other in accordance with this provision, and (b) deemed to have been given or made: if by hand, immediately upon delivery; if by telex, telegram or telecopy (fax), immediately upon receipt; if by overnight delivery service, one day after dispatch; and if by first class or certified mail, three (3) days after mailing. 9.5 Severability. If any provision of this Agreement is held to be invalid or unenforceable, such provision shall not affect this Agreement as a whole, but this Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable. 9.6 Entire Agreement; Amendments; Assignments. This Agreement contains the entire agreement of the parties as to the subject matter hereof, all prior commitments, proposals and negotiations concerning the subject matter hereof being merged herein. Neither this Agreement nor any provision hereof shall be amended, modified or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns, except that any obligation of Lender under this Agreement shall not be assignable nor inure to the successors and assigns of Borrower. 32 9.7 Discharge of Borrower. No termination of this Agreement shall relieve or discharge Borrower of its Obligations, grants of Collateral, duties and covenants hereunder or otherwise until such time as all Obligations to Lender have been indefeasibly paid and satisfied in full, including, without limitation, the continuation and survival in full force and effect of all security interests and liens of Lender in and upon all then existing and thereafter-arising or acquired Collateral and all warranties and waivers of Borrower. 9.8 Usage. All terms used herein which are defined in the Uniform Commercial Code shall have the meanings given therein unless otherwise defined in this Agreement and all references to the singular or plural herein shall also mean the plural or singular, respectively. 9.9 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State in which the office of Lender set forth in Section 10.6(a) below is located. [Remainder of Page Intentionally Left Blank] 33 SECTION 10. ADDITIONAL DEFINITIONS AND TERMS 10.1 (a) Aggregate Maximum Credit for Borrower and Affiliated Borrower: $5,000,000; except that, from and after the first (1st) anniversary of the date hereof, the Maximum Credit shall be $6,500,000. (b) Gross Availability Formulas: (i) Eligible Accounts Percentage: Subject to the succeeding terms of this Section 10.1(b)(i), 80%. If the aggregate amount of Borrower's credits, allowances, discounts, write-offs, contra-accounts, and other offsets which reduce the value of accounts, as determined by Lender, in its sole discretion, divided by gross sales ("Dilution Percentage") is equal to or greater than 5%; then the Eligible Accounts Percentage shall be reduced by the percentage point or points, or fraction thereof, by which the Dilution Percentage exceeds 5%; the Eligible Accounts Percentage will be subsequently increased by one percentage point for every percentage point that the Dilution Percentage decreases, but in no event shall the Eligible Accounts Percentage exceed 80%. The Dilution Percentage shall be calculated on a rolling 90 day average. (ii) Eligible Inventory Percentages: (A) 50% for Eligible Inventory which is finished goods inventory; and (B) 50% for Eligible L/C Inventory which is finished goods inventory; and (c) Inventory Sublimit(s): The maximum aggregate outstanding amount of Revolving Loans made by Lender to Borrower hereunder against Eligible Inventory shall not exceed at any one time outstanding the lesser of: (i) $3,250,000 less the aggregate outstanding "Revolving Loans" made against "Eligible Inventory" under, and as each quoted term is defined in, the Affiliate Loan Agreements; and (ii) 200% of the sum of (A) Borrower's Accounts Availability, as determined by Lender at any given time and from time to time, and (B) the Affiliated Borrower's "Accounts Availability" under, and as said quoted term is defined in, the Affiliate Loan Agreements, as determined by Lender at any given time and from time to time. In addition to, and not in limitation of, the foregoing, the maximum amount of Revolving Loans made against Eligible L/C Inventory hereunder shall not exceed, at any one time outstanding, $250,000 less the aggregate outstanding Revolving Loans made against "Eligible L/C Inventory" under, and as said quoted term is defined in, the Affiliate Loan Agreements. (d) (i) Maximum days after Invoice Date for Eligible Accounts: 90 (ii) Maximum days after due date for Eligible Accounts: 60 34
(e) Minimum Borrowing: $1,250,000 10.2 Term Loan: (a) Amount: $950,000.00 (b) Monthly Amortization: $ 13,194.44 (c) Maturity Date: 72 months after the date hereof, or earlier as provided in this Agreement 10.3 Accommodations: (a) Lender's Charge for Accommodations: 1.75% per annum (b) Sublimit for Accommodations: $500,000 less the aggregate outstanding "Accommodations" under, and as said quoted term is defined in, the Affiliate Loan Agreements 10.4 Interest, Fees & Charges: (a) Interest Rate: Prime Rate plus 1.5% per annum (b) Clearance: 2 Business Days (c) Closing Fee: $12,500 (d) Facility Fee: (i) Initial Term: $65,000 (1) First Anniversary: $32,500 (2) Second Anniversary: $32,500 (ii) Renewal Term: 1% of Maximum Credit (1) First day of each Renewal Term: 50% of the amount set forth in 10.4(d)(ii) above (2) First Anniversary of each Renewal Term: 50% of the amount set forth in 10.4(d)(ii) above (e) Account Servicing Fee: N/A (f) Unused Line Fee: .2% per annum (g) Field Examination-per diem charge, per examiner: $650 10.5 [Intentionally Omitted] 10.6 (a) Lender's Office: 1211 Avenue of the Americas New York, New York 10036 (b) Lender's Bank: THE CHASE MANHATTAN BANK 270 Park Avenue New York, New York 10017
35
(c) Borrower: HUDSON TECHNOLOGIES COMPANY (d) Borrower's Chief Executive Office: 25 Torne Valley Road Hillburn, New York 10931 (e) Locations of Eligible Inventory Collateral: 3200 S.E. 14th Avenue Ft. Lauderdale, Florida 33316 25 Torne Valley Road Hillburn, New York 10931 One Brenner Drive Congers, New York 10920 896 W. Champaign Street Rantoul, Illinois 61886 1197 Airline Highway Baton Rouge, Louisiana 70816 2720 Westport Road Charlotte, North Carolina 28206 5474 Williamsburg Drive Punta Gorda, Florida 33982 988 Packer Way Sparks, Nevada 89431 210 N. Center, Suite 101 Mesa, Arizona 85201 (f) Borrower's Other Offices and Locations of Collateral: N/A (g) Borrower's Trade Names for Invoicing: None
10.7 Term: 3 Years 10.8 Affiliate Loan Agreements: The term "Affiliate Loan Agreements" shall mean and include, without limitation, the Loan and Security Agreement dated of even date herewith between Affiliated Borrower and Lender, together with any other agreement, document, instrument, mortgage, note and guaranty executed and delivered in connection therewith as the same may now exist or may hereafter be amended, modified, supplemented, renewed, extended or replaced. 36 IN WITNESS WHEREOF, Borrower and Lender have duly executed this Agreement this ____ day of April, 1998. LENDER: BORROWER: THE CIT GROUP/CREDIT FINANCE, INC. HUDSON TECHNOLOGIES COMPANY By: By: ------------------------------ ---------------------------- Title: Title: ------------------------------ ---------------------------- 37 ACKNOWLEDGEMENT AND AGREEMENT The undersigned, being the "Affiliated Borrower" referred to and as defined in the within and foregoing Loan and Security Agreement ("Loan Agreement"), hereby acknowledge each of the terms and provisions of the foregoing Loan Agreement and agrees to be bound by the terms and provisions of Sections 2.1(g), 3.2, 3.3, 3,4, 3.5, 6.12 and 9.2 of the Loan Agreement. The undersigned acknowledges and agrees that although it may acknowledge this Loan Agreement, it is not a party thereto and does not and will not receive any right, benefit, priority or interest under or because of the existence of the Loan Agreement. ENVIRONMENTAL SUPPORT SOLUTIONS, INC. By: ---------------------------------------- Title: ---------------------------------------- 38 SCHEDULE A Permitted Liens None 39 EX-10 3 EXHIBIT 10.1 Exhibit 10.1 LOAN AND SECURITY AGREEMENT This Agreement is between the undersigned Borrower and the undersigned Lender concerning loans and other credit accommodations to be made by Lender to Borrower. SECTION 1. PARTIES 1.1 The "Affiliated Borrower" is HUDSON TECHNOLOGIES COMPANY, and its successors and assigns. 1.2 The "Borrower" is the person, firm, corporation or other entity, identified as the Borrower in Section 10.6(c) and its successors and assigns. If more than one Borrower is specified in Section 10.6(c), all references to Borrower shall mean each of them, jointly and severally, individually and collectively, and the successors and assigns of each. 1.3 The "Lender" is The CIT Group/Credit Finance, Inc. and its successors and assigns. SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS 2.1 Revolving Loans. Lender shall, subject to the terms and conditions contained herein, make revolving loans to Borrower ("Revolving Loans") in amounts requested by Borrower from time to time, but not in excess of the Net Availability existing immediately prior to the making of the requested loan and provided the requested loan would not cause the outstanding Obligations hereunder plus the then outstanding "Obligations" under and as said quoted term is defined in the Affiliate Loan Agreements (as defined in Section 10.8 below), to exceed, in the aggregate, the Maximum Credit. (a) The "Maximum Credit" is set forth in Section 10.1(a) hereof. (b) The "Gross Availability" shall be calculated at any time as (i) the product obtained by multiplying the outstanding amount of Eligible Accounts by the Eligible Accounts Percentage set forth in Section 10.1(b), ("Accounts Availability"), minus (ii) Reserves, if any. (c) The "Net Availability" shall be calculated at any time as an amount equal to the Gross Availability minus the aggregate amount of all then-outstanding Obligations to Lender other than the then outstanding principal balance of the Term Loan and the Cap/Ex Loans, if any. 40 (d) "Eligible Accounts" are accounts created by Borrower in the ordinary course of its business which are and remain acceptable to Lender for lending purposes. General criteria for Eligible Accounts are set forth below but may be revised from time to time by Lender, in its sole judgment, on fifteen (15) days' prior written notice to Borrower. Lender shall, in general, deem accounts to be Eligible Accounts if: (1) such accounts arise from bona fide completed transactions and have not remained unpaid for more than the earlier of (A) the number of days after the invoice date set forth in Section 10.1(d)(i); and (B) the number of days after the due date of such invoice set forth in Section 10.1(d)(ii); (2) the amounts of the accounts reported to Lender are absolutely owing to Borrower and do not arise from sales on consignment, guaranteed sale or other terms under which payment by the account debtors may be conditional or contingent; (3) (A) the account debtor's chief executive office or principal place of business is located in the United States or Canada (other than the Province of Quebec) or (B) the account debtor's chief executive office or principal place of business is located in the Province of Quebec or is otherwise not located in the United States or Canada ("Foreign Accounts") and such Foreign Accounts are (x) insured by a credit insurance policy in form, substance and amount satisfactory to Lender, which policy, together with the proceeds thereof, shall be duly assigned to Lender, or (y) Borrower and/or such account debtor has delivered an irrevocable letter of credit issued or confirmed by a bank satisfactory to Lender, sufficient to cover such Account, in form and substance satisfactory to Lender, and the original of such letter of credit has been delivered to Lender or Lender's agent and the issuer thereof notified of the assignment of the proceeds of such letter of credit to Lender; (4) such accounts do not arise from progress billings retainages or bill and hold sales; (5) there are no contra relationships, setoffs, counterclaims or disputes existing with respect thereto and there are no other facts existing or threatened which would impair or delay the collectibility of all or any portion thereof; (6) the goods giving rise thereto were not at the time of the sale subject to any liens except those permitted in this Agreement; (7) such accounts are not accounts with respect to which the account debtor or any officer or employee thereof is an officer, employee or agent of or is affiliated with Borrower, directly or indirectly, whether by virtue of family membership, ownership, control, management or otherwise; (8) such accounts are not accounts with respect to which the account debtor is the United States or any State or political subdivision thereof or any department, agency or instrumentality of the United States, any State or political subdivision, unless there has been compliance with the Assignment of Claims Act or any similar State or local law, if applicable; (9) Borrower has delivered to Lender or Lender's representative such documents as Lender may have reasonably requested pursuant to Section 5.8 hereof in connection with such accounts and Lender shall have received a verification of such account, satisfactory to it, if sent to the account debtor or any other obligor or any bailee pursuant to Section 5.4 hereof; (10) there are no facts existing or threatened which might result in any adverse change in the account debtor's financial condition; (11) such accounts owed by a single account debtor or its affiliates do not represent more than twenty percent (20%) of all otherwise Eligible Accounts (accounts excluded from Eligible Accounts solely by reason of this subsection (11) shall nevertheless be considered Eligible Accounts to the extent of the amount of such accounts which does not exceed the applicable percentage stated above, as applicable, of all otherwise Eligible Accounts); (12) such accounts are not owed by an account debtor who is or whose affiliates are past due upon other accounts owed to Borrower comprising more than fifty percent (50%) of the accounts of such account debtor or its affiliates owed to Borrower; (13) such accounts are owed by account debtors whose total indebtedness to Borrower does not exceed the amount of any customer credit limits as may be established, and changed, from time to time by Lender on notice to Borrower (accounts excluded from Eligible Accounts solely by reason of this subsection (13) shall nevertheless be considered Eligible Accounts to the extent the amount of such accounts does not exceed such customer credit limit); and (14) such accounts are owed by account debtors deemed creditworthy at all times by Lender. (e) [Intentionally Omitted] (f) Lender shall have a continuing right to deduct reserves in determining the Gross Availability ("Reserves"), and to increase and decrease such Reserves from time to time, if and to the extent that, in Lender's sole judgment, such Reserves are necessary to protect Lender against any state of facts which does, or would, with notice or passage of time or both, constitute an Event of Default or have an adverse effect on any Collateral. Lender may, at its option, implement Reserves by designating as ineligible a sufficient amount of accounts or inventory which would otherwise be Eligible Accounts or Eligible Inventory so as to reduce Gross Availability by the amount of the intended Reserve. The amount of any reduction in the lending formulas by Lender shall have a reasonable relationship to the matter which is the basis for such a reduction. 41 (g) Subject to the terms and conditions hereof, including but not limited to the existence of sufficient Gross Availability and Net Availability, Borrower and Affiliated Borrower, jointly and severally, agree to borrow sufficient amounts from time to time so that the outstanding Revolving Loans hereunder plus the outstanding "Revolving Loans" under, and as said quoted term defined in, the Affiliate Loan Agreements, shall at all times equal or exceed the principal amount set forth in Section 10.1(e) as the Minimum Borrowing; provided, that if Borrower and Affiliated Borrower fail to do so, interest shall nevertheless accrue on the Obligations as if Borrower and Affiliated Borrower had borrowed such amounts as would have been sufficient to maintain the outstanding Revolving Loans hereunder and under the Affiliate Loan Agreements at an amount equal to the Minimum Borrowing (and, on a monthly basis, Lender shall have the right to charge Borrower's loan account for such additional interest), and provided further that such accrual shall not impose upon Lender any obligation to make loans to Borrower or Affiliated Borrower to increase the outstanding Revolving Loans hereunder or the Affiliate Loan Agreements to such Minimum Borrowing in the event that sufficient Net Availability does not then exist. 2.2 Term Loan and Cap/Ex Loans. Any term loan and the terms of such loan, made by Lender to Borrower are set forth in Section 10.2 ("Term Loan"). 2.3 Accommodations. (a) Lender may, in its sole discretion, issue or cause to be issued, from time to time at Borrower's request and on terms and conditions and for purposes satisfactory to Lender, credit accommodations consisting of letters of credit, bankers' acceptances, merchandise purchase guaranties or other guaranties or indemnities for Borrower's account ("Accommodations"). Borrower shall execute and perform additional agreements relating to the Accommodations in form and substance acceptable to Lender and the issuer of any Accommodations, all of which shall supplement the rights and remedies granted herein. Any payments made by Lender or any affiliate of Lender in connection with the Accommodations shall constitute additional Revolving Loans to Borrower. (b) In addition to the fees and costs of any issuer in connection with issuing or administering Accommodations, Borrower shall pay monthly to Lender, on the first day of each month, a charge on open Accommodations at the rate per annum set forth in Section 10.3(a) (the "Accommodation Charges"). (c) No Accommodation will be issued unless the full amount of the Accommodation requested, plus fees and costs for issuance, is less than the Net Availability existing immediately prior to the issuance of the requested Accommodation, or if the requested Accommodation would cause the outstanding Obligations to exceed the Maximum Credit, or cause the open amount of Accommodations hereunder, together with the open amount of "Accommodations" under, and as said quoted term is defined in, the Affiliate Loan Agreements to exceed, at any time, the Accommodation sublimit set forth in Section 10.3(b). (d) All indebtedness, liabilities and obligations of any sort whatsoever, however arising, whether present or future, fixed or contingent, secured or unsecured, due or to become due, paid or incurred, arising or incurred in connection with any Accommodation shall be included in the term "Obligations", as defined herein, and shall include, without limitation, (i) all amounts due or which may become due under any Accommodation; (ii) all amounts charged or chargeable to Borrower or to Lender on account of Borrower, the Collateral, the Obligations or the Accommodations by any bank, other financial institution or correspondent bank which opens, issues or is involved with such Accommodations; (iii) Lender's Accommodation Charges and all fees, costs and other charges of any issuer of any Accommodation; and (iv) all duties, freight, taxes, costs, insurance and all such other charges and expenses which may pertain directly or indirectly to any Obligations or Accommodations or to the goods or documents relating thereto, unless and to the extent paid directly by Borrower. 42 (e) Borrower unconditionally agrees to indemnify and hold Lender harmless from any and all loss, claim or liability (including reasonable attorneys' fees) arising from any transactions or occurrences relating to any Accommodation established or opened for Borrower's account, the Collateral relating thereto and any drafts or acceptances thereunder, including any such loss or claim due to any action taken by an issuer of any Accommodation. Borrower further agrees to indemnify and hold Lender harmless for any errors or omissions in connection with the Accommodations, whether caused by Lender, by the issuer of any Accommodation or otherwise. Borrower's unconditional obligation to indemnify and hold Lender harmless under this provision shall not be modified or diminished for any reason or in any manner whatsoever, except for Lender's willful misconduct or gross negligence. Borrower agrees that any charges made to Lender by any issuer of any Accommodation shall be conclusive on Borrower and may be charged to Borrower's account. (f) Lender shall not be responsible for: the conformity of any goods to the documents presented; the validity or genuineness of any documents; delay, default, or fraud by the Borrower or shipper and/or anyone else in connection with the Accommodations or any underlying transaction. (g) Borrower agrees that any action taken by Lender, if taken in good faith, or any action taken by an issuer of any Accommodation, under or in connection with any Accommodation, shall be binding on Borrower and shall not create any resulting liability to Lender. In furtherance thereof, Lender shall have the full right and authority to clear and resolve any questions of non-compliance of documents; to give any instructions as to acceptance or rejection of any documents or goods; to execute for Borrower's account any and all applications for steamship or airway guarantees, indemnities or delivery orders; to grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents; and to agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications or Accommodations. All of the foregoing actions may be taken in Lender's sole name, and the issuer thereof shall be entitled to comply with and honor any and all such documents or instruments executed by or received solely from Lender, all without any notice to or any consent from Borrower. None of the foregoing actions described in this subsection (g) may be taken by Borrower without Lender's express written consent. (h) Notwithstanding anything to the contrary contained herein, Borrower shall have no right to request, and Lender shall have no obligation to issue for Borrower's account any Accommodations. SECTION 3. INTEREST AND FEES 3.1 Interest. (a) Interest on the Revolving Loans shall be payable by Borrower on the first day of each month, calculated upon the closing daily balances in the loan account of Borrower for each day during the immediately preceding month, at the per annum rate set forth as the Interest Rate in Section 10.4(a). The Interest Rate shall increase or decrease by an amount equal to each increase or decrease, respectively, in the Prime Rate (as defined below), effective as of the date of each such change. On and after any Event of Default or termination or non-renewal hereof, interest on all unpaid Obligations shall accrue at a rate equal to two percent (2%) per annum in excess of the Interest Rate otherwise payable until such time as all Obligations are indefeasibly paid in full (notwithstanding entry of any judgment against Borrower or the exercise of any other right or remedy by Lender), and all such interest shall be payable on demand. Interest shall in no month be less than the Interest Rate multiplied by the Minimum Borrowing. In no event shall charges constituting interest exceed the rate permitted under any applicable law or regulation, and if any provision of this Agreement is in contravention of any such law or regulation, such provision shall be deemed amended to conform thereto. 43 (b) The "Prime Rate" is the rate of interest publicly announced by The Chase Manhattan Bank in New York, New York, or its successors and assigns from time to time as its prime rate (the Prime Rate is not intended to be the lowest rate of interest charged by The Chase Manhattan Bank to its borrowers). 3.2 Closing Fee. Borrower, jointly and severally with Affiliated Borrower, shall pay Lender at closing a Closing Fee in the amount set forth in Section 10.4 (c). 3.3 Facility Fee. Borrower, jointly and severally with Affiliated Borrower, shall pay Lender a Facility Fee for the initial Term in the amount set forth in Section 10.4(d)(i) and for each renewal Term hereof in the amount set forth in Section 10.4(d)(ii), which Facility Fee for the initial Term of this Agreement shall be fully earned at closing and payable in the amounts and on the dates indicated in Section 10.4(d)(i)(1) and (2), respectively, and which Facility Fee for each renewal Term of this Agreement shall be fully earned on the first day of each such renewal Term and payable as set forth in Section 10.4(d)(ii)(1) and (2), respectively. 3.4 Account Servicing Fee. Borrower, jointly and severally with Affiliated Borrower, shall pay Lender monthly, on the first day of each month during the initial and each renewal Term an Account Servicing Fee for the immediately preceding month (or part thereof) in the amount set forth in Section 10.4(e). 3.5 Unused Line Fee. Borrower, jointly and severally with Affiliated Borrower, shall pay Lender monthly, on the first day of each month, in arrears, an Unused Line Fee for each month during the initial and each renewal Term at the rate per annum set forth in Section 10.4(f), calculated upon the amount, if any, by which the Maximum Credit exceeds the average aggregate outstanding daily principal balance during the preceding month of all Revolving Loans hereunder and all Revolving Loans, Accommodations, Cap/Ex Loans and any Term Loan under the Affiliate Loan Agreements. 3.6 Charges to Loan Account. At Lender's option, all payments of principal, interest, fees, costs, expenses and other charges provided for in this Agreement, or in any other agreement now or hereafter existing between Lender and Borrower, may be charged on the date when due, as principal to any loan account of Borrower maintained by Lender. Interest, fees for Accommodations, the Unused Line Fee and any other amounts payable by Borrower to Lender based on a per annum rate shall be calculated on the basis of actual days elapsed over a 360-day year. SECTION 4. GRANT OF SECURITY INTEREST 4.1 Grant of Security Interest. To secure the payment and performance in full of all Obligations, Borrower hereby grants to Lender a continuing security interest in and lien upon, and a right of setoff against, and Borrower hereby assigns and pledges to Lender, all of the Collateral, including any Collateral not deemed eligible for lending purposes. 4.2 "Obligations" shall mean any and all Revolving Loans and all other indebtedness, liabilities and obligations of every kind, nature and description owing by Borrower to Lender and/or its affiliates, including principal, interest, charges, fees and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under this Agreement or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal Term or after the commencement of any case with respect to Borrower under the United States Bankruptcy Code or any similar statute, whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, original, renewed or extended and whether arising directly or howsoever acquired by Lender including from any other entity outright, conditionally or as collateral security, by assignment, merger with any other entity, participations or interests of Lender in the obligations of Borrower to others, assumption, operation of law, subrogation or otherwise and shall also include all amounts chargeable to Borrower under this Agreement or in connection with any of the foregoing. 44 4.3 "Collateral" shall mean all of the following property of Borrower: (a) All now owned and hereafter acquired right, title and interest of Borrower in, to and in respect of all: accounts, interests in goods represented by accounts, returned, reclaimed or repossessed goods with respect thereto and rights as an unpaid vendor; contract rights; chattel paper; investment property; general intangibles (including, but not limited to, tax and duty refunds, registered and unregistered patents, trademarks, service marks, copyrights, trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims, and existing and future leasehold interests in equipment and fixtures); documents; instruments; letters of credit, bankers' acceptances or guaranties; cash monies, deposits, securities, bank accounts, deposit accounts, credits and other property now or hereafter held in any capacity by Lender, its affiliates or any entity which, at any time, participates in Lender's financing of Borrower or at any other depository or other institution; agreements or property securing or relating to any of the items referred to above; (b) All now owned and hereafter acquired right, title and interest of Borrower in, to and in respect of goods, including, but not limited to: (i) All inventory, wherever located, whether now owned or hereafter acquired, of whatever kind, nature or description, including all raw materials, work-in-process, finished goods, and materials to be used or consumed in Borrower's business; and all names or marks affixed to or to be affixed thereto for purposes of selling same by the seller, manufacturer, lessor or licensor thereof; (ii) All Equipment, wherever located, whether now owned or hereafter acquired, and any and all additions, substitutions, replacements (including spare parts), and accessions thereof and thereto; (c) All now owned and hereafter acquired right, title and interests of Borrower in, to and in respect of any real or personal property in or upon which Borrower has or may hereafter have a security interest, lien or right of setoff; (d) All present and future books and records relating to any of the above including, without limitation, all computer programs, printed output and computer readable data in the possession or control of the Borrower, any computer service bureau or other third party; and (e) All products and proceeds of the foregoing in whatever form and wherever located, including, without limitation, all insurance proceeds and all claims against third parties for loss or destruction of or damage to any of the foregoing. 45 SECTION 5. COLLECTION AND ADMINISTRATION 5.1 Collections. Borrower shall, at Borrower's expense and in the manner requested by Lender from time to time, direct that remittances and all other proceeds of accounts and other Collateral be sent to a lock box designated by and/or maintained in the name of Lender, and deposited into a bank account now or hereafter selected by Lender and maintained in the name of Lender under arrangements with the depository bank under which all funds deposited to such bank account are required to be transferred solely to Lender. Borrower shall bear all risk of loss of any funds deposited into such account. In connection therewith, Borrower shall execute such lock box and bank account agreements as Lender shall specify. Any collections or other proceeds received by Borrower shall be held in trust for Lender and immediately remitted to Lender in kind. 5.2 Payments. All Obligations shall be payable at Lender's office set forth below or at Lender's bank designated in Section 10.6(a) or at such other bank or place as Lender may expressly designate from time to time for purposes of this Section. Lender shall apply all proceeds of accounts or other Collateral received by Lender and all other payments in respect of the Obligations to the Revolving Loans or to any other Obligations then due, in whatever order or manner Lender shall determine. For purposes of determining Gross Availability and Net Availability and for the calculation of the Minimum Borrowing, remittances and other payments with respect to the Collateral and Obligations will be treated as credited to the loan account of Borrower maintained by Lender and Collateral balances to which they relate, upon the date of Lender's receipt of advice from Lender's bank that such remittances or other payments have been credited to Lender's account or in the case of remittances or other payments received directly in kind by Lender, upon the date of Lender's deposit thereof at Lender's bank, subject to final payment and collection. In computing interest charges, the loan account of Borrower maintained by Lender will be credited with remittances and other payments the number of days set forth in Section 10.4(b) after the day Lender has received advice of receipt of remittances in Lender's account at Lender's Bank. For purposes of this Agreement, "Business Day" shall mean any day other than a Saturday, Sunday or any other day on which banks located in states where Lender has its offices, are authorized to close. 5.3 Loan Account Statements. Lender shall render to Borrower monthly a loan account statement. Each statement shall be considered correct and binding upon Borrower as an account stated, except to the extent that Lender receives, within sixty (60) days after the mailing of such statement, written notice from Borrower of any specific exceptions by Borrower to that statement. 5.4 Direct Collections. Lender may, at any time, whether or not an Event of Default has occurred, without notice to or assent of Borrower, (a) notify any account debtor that the accounts and other Collateral which includes a monetary obligation have been assigned to Lender by Borrower and that payment thereof is to be made to the order of and directly to Lender, (b) send, or cause to be sent by its designee, requests (which may identify the sender by a pseudonym) for verification of accounts and other Collateral directly to any account debtor or any other obligor or any bailee with respect thereto, and (c) demand, collect or enforce payment of any accounts or such other Collateral, but without any duty to do so, and Lender shall not be liable for any failure to collect or enforce payment thereof; provided that, so long as no Event of Default has occurred, Lender agrees to use its best efforts to provide Borrower with notice of any demand, collection or enforcement of payment by Lender pursuant to this Section 5.4(c). At Lender's request, all invoices and statements sent to any account debtor, other obligor or bailee, shall state that the accounts and such other Collateral have been assigned to Lender and are payable directly and only to Lender. 46 5.5 Attorney-in-Fact. Borrower hereby appoints Lender and any designee of Lender as Borrower's attorney-in-fact and authorizes Lender or such designee, at Borrower's sole expense, to exercise at any times in Lender's or such designee's discretion all or any of the following powers, which powers of attorney, being coupled with an interest, shall be irrevocable until all Obligations have been paid in full: (a) receive, take, endorse, assign, deliver, accept and deposit, in the name of Lender or Borrower, any and all cash, checks, commercial paper, drafts, remittances and other instruments and documents relating to the Collateral or the proceeds thereof, (b) transmit to account debtors, other obligors or any bailees notice of the interest of Lender in the Collateral or request from account debtors or such other obligors or bailees at any time, in the name of Borrower or Lender or any designee of Lender, information concerning the Collateral and any amounts owing with respect thereto, (c) notify account debtors or other obligors to make payment directly to Lender, or notify bailees as to the disposition of Collateral, (d) take or bring, in the name of Lender or Borrower, all steps, actions, suits or proceedings deemed by Lender necessary or desirable to effect collection of or other realization upon the accounts and other Collateral, (e) after an Event of Default, change the address for delivery of mail to Borrower and to receive and open mail addressed to Borrower (Lender agrees to use its best efforts to forward to Borrower any mail addressed to Borrower actually received by Lender pursuant to this Section 5.5(e) which does not relate to the Obligations, the Collateral, any transactions arising hereunder or related hereto), (f) after an Event of Default, extend the time of payment of, compromise or settle for cash, credit, return of merchandise, and upon any terms or conditions, any and all accounts or other Collateral which includes a monetary obligation and discharge or release the account debtor or other obligor, without affecting any of the Obligations, and (g) execute in the name of Borrower and file against Borrower in favor of Lender financing statements or amendments with respect to the Collateral. 5.6 Liability. Borrower hereby releases and exculpates Lender, its officers, employees and designees, from any liability arising from any acts under this Agreement or in furtherance thereof, whether as attorney-in-fact or otherwise, whether of omission or commission, and whether based upon any error of judgment or mistake of law or fact, except for willful misconduct or gross negligence. In no event will Lender have any liability to Borrower for lost profits or other special or consequential damages. 5.7 Administration of Accounts. After written notice by Lender to Borrower and automatically, without notice, after an Event of Default, Borrower shall not, without the prior written consent of Lender in each instance, (a) grant any extension of time of payment of any of the accounts or any other Collateral which includes a monetary obligation, (b) compromise or settle any of the accounts or any such other Collateral for less than the full amount thereof, (c) release in whole or in part any account debtor or other person liable for the payment of any of the accounts or any such other Collateral, or (d) grant any credits, discounts, allowances, deductions, return authorizations or the like with respect to any of the accounts or any such other Collateral. 5.8 Documents. At such times as Lender may request and in the manner specified by Lender, Borrower shall deliver to Lender or Lender's representative, as Lender shall designate, copies or original invoices, agreements, proofs of rendition of services and delivery of goods and other documents evidencing or relating to the transactions which gave rise to accounts or other Collateral, together with customer statements, schedules describing the accounts or other Collateral and/or statements of account and confirmatory assignments to Lender of the accounts or other Collateral, in form and substance satisfactory to Lender and duly executed by Borrower. Without limiting the provisions of Section 5.7, Borrower's granting of credits, discounts, allowances, deductions, return authorizations or the like will be promptly reported to Lender in writing. In no event shall any such schedule or confirmatory assignment (or the absence thereof or omission of any of the accounts or other Collateral therefrom) limit or in any way be construed as a waiver, limitation or modification of the security interests or rights of Lender or the warranties, representations and covenants of Borrower under this Agreement. Any documents, schedules, invoices or other paper delivered to Lender by Borrower may be destroyed or otherwise disposed of by Lender six (6) months after receipt by Lender, unless Borrower requests their return in writing in advance and makes prior arrangements for their return at Borrower's expense. 47 5.9 Access. From time to time as requested by Lender, at the sole expense of Borrower, Lender or its designee shall have access, prior to an Event of Default during reasonable business hours and on or after an Event of Default at any time, to all of the premises where Collateral is located for the purposes of inspecting the Collateral, and all Borrower's books and records, and Borrower shall permit Lender or its designee to make such copies of such books and records or extracts therefrom as Lender may request. Without expense to Lender, Lender may use such of Borrower's personnel, equipment, including computer equipment, programs, printed output and computer readable media, supplies and premises for the collection of accounts and realization on other Collateral as Lender, in its sole discretion, deems appropriate. Borrower hereby irrevocably authorizes all accountants and third parties to disclose and deliver to Lender at Borrower's expense all financial information, books and records, work papers, management reports and other information in their possession regarding Borrower. 5.10 Environmental Audits. From time to time, as reasonably requested by Lender, at the sole expense of Borrower, Borrower shall provide Lender, or its designee, complete access to all of Borrower's facilities for the purpose of conducting an environmental audit of such facilities as Lender or its designees may deem necessary. Borrower agrees to cooperate with Lender with respect to any environmental audit conducted by Lender or its designee pursuant to this Section 5.10. 5.11 Appointment of Affiliated Borrower as Agent for Borrower. The Borrower hereby irrevocably appoints Affiliated Borrower, and each officer thereof, as its agent and attorney-in-fact to request Revolving Loans on its behalf, at Lender's option, to receive disbursements of Revolving Loans on its behalf (which may be made to the same account of Affiliated Borrower to which disbursements of loans to Affiliated Borrower are made), to receive notices and statements of account from Lender, to take such other actions on its behalf as is provided hereunder or under any of the other Financing Agreements and generally to deal with Lender on its behalf, for all matters pertaining to the financing arrangements under this Agreement. SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS Borrower hereby represents, warrants and covenants to Lender the following, the truth and accuracy of which, and compliance with which, shall be continuing conditions of the making of loans or other credit accommodations by Lender to Borrower: 6.1 Financial and Other Reports. Borrower shall keep and maintain its books and records in accordance with generally accepted accounting principles, consistently applied. Borrower shall, at its expense, deliver to Lender (a) on or before Wednesday of each week, weekly inventory reports; (b) on or before the fifteenth (15th) day of each month, true and complete monthly agings of its accounts receivable, accounts payable and notes payable, and (c) on or before the twenty-fifth (25th) day of each month, monthly internally prepared interim financial statements. Annually, Borrower shall deliver audited financial statements of Borrower accompanied by the report and opinion thereon of independent certified public accountants acceptable to Lender, as soon as available, but in no event later than ninety (90) days after the end of Borrower's fiscal year. All of the foregoing shall be in such form and together with such information with respect to the business of Borrower or any guarantor, as Lender may in each case request. 48 6.2 Trade Names. Borrower may from time to time render invoices to account debtors under its trade names set forth in Section 10.6(g) after Lender has received prior written notice from Borrower of the use of such trade names and as to which, Borrower agrees that: (a) each trade name does not refer to another corporation or other legal entity, (b) all accounts and proceeds thereof (including any returned merchandise) invoiced under any such trade names are owned exclusively by Borrower and are subject to the security interest of Lender and the other terms of this Agreement, and (c) all schedules of accounts and confirmatory assignments including any sales made or services rendered using the trade name shall show Borrower's name as assignor and Lender is authorized to receive, endorse and deposit to any loan account of Borrower maintained by Lender all checks or other remittances made payable to any trade name of Borrower representing payment with respect to such sales or services. 6.3 Losses. Borrower shall promptly notify Lender in writing of any loss, damage, investigation, action, suit, proceeding or claim relating to a material portion of the Collateral or which may result in any material adverse change in Borrower's business, assets, liabilities or condition, financial or otherwise. 6.4 Books and Records. Borrower's books and records concerning accounts and its chief executive office are and shall be maintained only at the address set forth in Section 10.6(d). Borrower's only other places of business and the only other locations of Collateral, if any, are and shall be the addresses set forth in Section 10.6(e) and Section 10.6(f) hereof, except Borrower may change such locations or open a new place of business after thirty (30) days prior written notice to Lender. Prior to any change in location or opening of any new place of business, Borrower shall execute and deliver or cause to be executed and delivered to Lender such financing statements, financing documents and security and other agreements as Lender may reasonably require, including, without limitation, those described in Section 6.14. 6.5 Title. Borrower has and at all times will continue to have good and marketable title to all of the Collateral, free and clear of all liens, security interests, claims or encumbrances of any kind except in favor of Lender and except, if any, those set forth on Schedule A hereto. 6.6 Disposition of Assets. Borrower shall not directly or indirectly without Lender's prior written consent: (a) sell, lease, transfer, assign, abandon or otherwise dispose of any part of the Collateral or any material portion of its other assets (other than sales of inventory to buyers in the ordinary course of business) or (b) consolidate with or merge with or into any other entity, or permit any other entity to consolidate with or merge with or into Borrower or (c) form or acquire any interest in any firm, corporation or other entity. 6.7 Insurance. Borrower shall at all times maintain, with financially sound and reputable insurers, insurance (including, without limitation, at the option of Lender, earthquake and flood insurance) with respect to the Collateral and other assets. All such insurance policies shall be in such form, substance, amounts and coverage as may be satisfactory to Lender and shall provide for thirty (30) days' prior written notice to Lender of cancellation or reduction of coverage. Borrower hereby irrevocably appoints Lender and any designee of Lender as attorney-in-fact for Borrower to obtain at Borrower's expense, any such insurance should Borrower fail to do so and, after an Event of Default, to adjust or settle any claim or other matter under or arising pursuant to such insurance or to amend or cancel such insurance. Borrower shall deliver to Lender evidence of such insurance and a lender's loss payable endorsement satisfactory to Lender as to all existing and future insurance policies with respect to the Collateral. Borrower shall deliver to Lender, in kind, all instruments representing proceeds of insurance received by Borrower. Lender may apply any insurance proceeds received at any time to the cost of repairs to or replacement of any portion of the Collateral and/or, at Lender's option, to payment of or as security for any of the Obligations in any order or manner as Lender determines. 49 6.8 Compliance With Laws. Borrower is and at all times will continue to be in compliance with the requirements of all material laws, rules, regulations and orders of any governmental authority relating to its business (including laws, rules, regulations and orders relating to taxes, payment and withholding of payroll taxes, employer and employee contributions and similar items, securities, employee retirement and welfare benefits, employee health and safety, or environmental matters) and all material agreements or other instruments binding on Borrower or its property. All of Borrower's inventory shall be produced in accordance with the requirements of the Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations and orders related thereto. Borrower shall pay and discharge all taxes, assessments and governmental charges against Borrower or any Collateral prior to the date on which penalties are imposed or liens attach with respect thereto, unless the same are being contested in good faith and, at Lender's option, Reserves are established for the amount contested and penalties which may accrue thereon. 6.9 Accounts. With respect to each account deemed an Eligible Account, except as reported in writing to Lender, Borrower has no knowledge that any of the criteria for eligibility are not or are no longer satisfied. As to each account, except as disclosed in writing to Lender at the time such account arises (a) each is valid and legally enforceable and represents an undisputed bona fide indebtedness incurred by the account debtor for the sum reported to Lender, (b) each arises from an absolute and unconditional sale of goods, without any right of return or consignment, or from a completed rendition of services, (c) each is not, at the time such account arises, subject to any defense, offset, dispute, contra relationship, counterclaim, or any given or claimed credit, allowance or discount, and (d) all statements made and all unpaid balances and other information appearing in the invoices, agreements, proofs of rendition of services and delivery of goods and other documentation relating to the accounts, and all confirmatory assignments, schedules, statements of account and books and records with respect thereto, are true and correct and in all respects what they purport to be. 6.10 Equipment. With respect to Borrower's equipment, Borrower shall keep the equipment in good order and repair, and in running and marketable condition, ordinary wear and tear excepted. 6.11 [Intentionally Omitted]. 6.12 Affiliated Transactions. Borrower will not, without Lender's prior written consent, directly or indirectly: (a) lend or advance money or property to, guarantee (other than the guarantee of the obligations of Affiliated Borrower, Hudson Holdings, Inc. or Hudson Technologies, Inc.) or assume indebtedness of, or invest (by capital contribution or otherwise) in any person, firm, corporation or other entity; or (b) declare, pay or make any dividend, redemption or other distribution on account of any shares of any class of stock of Borrower now or hereafter outstanding; or (c) make any payment of the principal amount of or interest on any indebtedness owing to any officer, director, shareholder, or affiliate of Borrower; or (d) make any loans or advances to any officer, director, employee, shareholder or affiliate of Borrower, except for loans and advances made to Affiliated Borrower in the ordinary course of Borrower's business as presently conducted; or (e) enter into any sale, lease or other transaction with any officer, director, employee, shareholder or affiliate of Borrower on terms that are less favorable to Borrower than those which might be obtained at the time from persons who are not an officer, director, employee, shareholder or affiliate of Borrower. 50 6.13 Fees and Expenses. Borrower shall pay, on Lender's demand, all costs, expenses, filing fees and taxes payable in connection with the preparation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Lender's rights in the Collateral, this Agreement and all other existing and future agreements or documents contemplated herein or related hereto, including any amendments, waivers, supplements or consents which may hereafter be made or entered into in respect hereof, or in any way involving claims or defense asserted by Lender or claims or defense against Lender asserted by Borrower, any guarantor or any third party directly or indirectly arising out of or related to the relationship between Borrower and Lender or any guarantor and Lender, including, but not limited to the following, whether incurred before, during or after the initial or any renewal Term or after the commencement of any case with respect to Borrower or any guarantor under the United States Bankruptcy Code or any similar statute: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all title insurance and other insurance premiums, appraisal fees, fees incurred in connection with any environmental report, audit or survey and search fees; (c) all fees as then in effect relating to the wire transfer of loan proceeds and other funds and fees then in effect for returned checks and credit reports; (d) all expenses and costs heretofore and from time to time hereafter incurred by Lender during the course of periodic field examinations of the Collateral and Borrower's operations, plus a per diem charge at the rate set forth in Section 10.4(g) for Lender's examiners in the field and office, provided, however, that notwithstanding anything to the contrary contained herein and so long as no Event of Default has occurred, Borrower and Affiliated Borrower shall not be liable for per diem charges for Lender's examiners (exclusive of out-of-pocket expenses) pursuant to this Section 6.13(d) in any contract year (as measured from the date hereof) in excess of $13,000 per annum; and (e) the costs, fees and disbursements of in-house and outside counsel to Lender, including but not limited to such fees and disbursements incurred as a result of litigation between the parties hereto, any third party and in any appeals arising therefrom. 6.14 Further Assurances. At the request of Lender, at any time and from time to time, at Borrower's sole expense, Borrower shall execute and deliver or cause to be executed and delivered to Lender, such agreements, documents and instruments, including waivers, consents and subordination agreements from mortgagees or other holders of security interests or liens, landlords or bailees, and do or cause to be done such further acts as Lender, in its discretion, deems necessary or desirable to create, preserve, perfect or validate any security interest of Lender or the priority thereof in the Collateral and otherwise to effectuate the provisions and purposes of this Agreement. Borrower hereby authorizes Lender to file financing statements or amendments against Borrower in favor of Lender with respect to the Collateral, without Borrower's signature and to file as financing statements any carbon, photographic or other reproductions of this Agreement or any financing statements signed by Borrower. 6.15 Revolving Loans. The Revolving Loans will not at any time exceed the Gross Availability unless Lender has consented. 6.16 Environmental Condition. None of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute. No lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower. Borrower has not received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state governmental agency any action or omission by Borrower resulting in the releasing, or otherwise exposing of hazardous waste or hazardous substances into the environment. Borrower is, and at all times will be, in compliance (in all material respects) with all statutes, regulations, ordinances and other legal requirements pertaining to the production, storage, handling, treatment, release, transportation or disposal of any hazardous waste or hazardous substance. 6.17 Investment Property. Borrower will take any and all actions reasonably required or requested by Lender, from time to time, to (a) cause Lender to obtain exclusive control of any investment property in a manner acceptable to Lender and (b) obtain from any issuers of investment property and such other persons as Lender shall specify, for the benefit of Lender, written confirmation of Lender's exclusive control over such investment property and take such other actions as Lender may request to perfect Lender's security interest in such investment property. 51 SECTION 7. EVENTS OF DEFAULT AND REMEDIES 7.1 Events of Default. All Obligations shall be immediately due and payable, without notice or demand, and any provisions of this Agreement as to future loans and credit accommodations by Lender shall terminate automatically, upon the termination or non-renewal of this Agreement or, at Lender's option, upon or at any time after the occurrence or existence of any one or more of the following "Events of Default": (a) Borrower fails to pay when due any of the Obligations or fails to perform any of the terms of this Agreement or any other existing or future financing, security or other agreement between Borrower and Lender or any affiliate of Lender; (b) Any representation, warranty or statement of fact made by Borrower to Lender in this Agreement or any other agreement, schedule, confirmatory assignment or otherwise, or to any affiliate of Lender, shall, when made or deemed made, prove inaccurate or materially misleading; (c) Any guarantor revokes, terminates or fails to perform any of the terms of any guaranty, endorsement or other agreement of such party in favor of Lender or any affiliate of Lender; (d) Any judgment or judgments aggregating in excess of $75,000 or any injunction or attachment is obtained against Borrower or any guarantor which remains unstayed for a period of twenty (20) days or is enforced; (e) Borrower or any guarantor or a general partner of a guarantor or Borrower (which is a partnership), being a natural person, dies, or Borrower or any guarantor which is a partnership or corporation, is dissolved, or Borrower or any guarantor which is a corporation fails to maintain its corporate existence in good standing, or the usual business of Borrower or any guarantor ceases or is suspended; (f) Any change in the president and chief executive officer or any change in the controlling ownership of Borrower; (g) Borrower or any guarantor becomes insolvent, makes an assignment for the benefit of creditors, makes or sends notice of a bulk transfer or calls a general meeting of its creditors or principal creditors; (h) Any petition or application for any relief under the bankruptcy laws of the United States now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or in equity) is filed by Borrower or any guarantor, or is filed against Borrower or any guarantor and is not dismissed within thirty (30) days of filing; (i) The indictment of Borrower or any guarantor under any criminal statute, or commencement of criminal or civil proceedings against Borrower or any guarantor, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of any of the property of Borrower or such guarantor; 52 (j) Any default or event of default occurs on the part of Borrower under any agreement, document or instrument to which Borrower is a party or by which Borrower or any of its property is bound, creating or relating to any indebtedness of Borrower to any person or entity other than Lender in an amount exceeding $75,000, if the effect of such default is to accelerate, or to permit the acceleration of, the maturity of all or any part of such indebtedness, or all or any part of any such indebtedness shall be declared to be due and payable or required to be prepaid or any other reason, in either event prior to the stated maturity thereof; (k) Lender in good faith believes that either (i) the prospect of payment or performance of the Obligations is impaired or (ii) the Collateral is not sufficient to secure fully the Obligations; (l) Any default or event of default under the Affiliate Loan Agreements; or (m) any material change occurs in the nature or conduct of Borrower's business and such material change remains unremedied for ten (10) days. 7.2 Remedies. Upon the occurrence of an Event of Default and at any time thereafter, Lender shall have all rights and remedies provided in this Agreement, any other agreements between Borrower and Lender, the Uniform Commercial Code and other applicable law, all of which rights and remedies may be exercised without notice to Borrower, all such notices being hereby waived, except such notice as is expressly provided for hereunder or is not waivable under applicable law. All rights and remedies of Lender are cumulative and not exclusive and are enforceable, in Lender's discretion, alternatively, successively, or concurrently on any one or more occasions and in any order Lender may determine. Without limiting the foregoing, Lender may (a) accelerate the payment of all Obligations and demand immediate payment thereof to Lender, (b) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (c) require Borrower, at Borrower's expense, to assemble and make available to Lender any part or all of the Collateral at any place and time designated by Lender, (d) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (e) extend the time of payment of, compromise or settle for cash, credit, return of merchandise, and upon any terms or conditions, any and all accounts or other Collateral which includes a monetary obligation and discharge or release the account debtor or other obligor, without affecting any of the Obligations, (f) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including, without limitation, entering into contracts with respect thereto, by public or private sales at any exchange, broker's board, any office of Lender or elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon credit or for future delivery, with the Lender having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of Borrower, which right or equity of redemption is hereby expressly waived and released by Borrower. If any of the Collateral is sold or leased by Lender upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Lender. If notice of disposition of Collateral is required by law, seven (7) days prior notice by Lender to Borrower designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and Borrower waives any other notice. In the event Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, Borrower waives the posting of any bond which might otherwise be required. 7.3 Application of Proceeds. Lender may apply the cash proceeds of Collateral actually received by Lender from any sale, lease, foreclosure or other disposition of the Collateral to payment of any of the Obligations, in whole or in part (including reasonable attorneys' fees and legal expenses incurred by Lender with respect thereto or otherwise chargeable to Borrower) and in such order as Lender may elect. Borrower shall remain liable to Lender for the payment of any deficiency together with interest at the highest rate provided for herein and all costs and expenses of collection or enforcement, including reasonable attorneys' fees and legal expenses. 53 7.4 Lender's Cure of Third Party Agreement Default. Lender may, at its option, cure any default by Borrower under any agreement with a third party or pay or bond on appeal any judgment entered against Borrower, discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and pay any amount, incur any expense or perform any act which, in Lender's sole judgment, is necessary or appropriate to preserve, protect, insure, maintain, or realize upon the Collateral. Lender may charge Borrower's loan account for any amounts so expended, such amounts to be repayable by Borrower on demand. Lender shall be under no obligation to effect such cure, payment, bonding or discharge, and shall not, by doing so, be deemed to have assumed any obligation or liability of Borrower. SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS 8.1 JURY TRIAL WAIVER. BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER, OR, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES. 8.2 Counterclaims. Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of any kind, nature or description in any action or proceeding instituted by Lender with respect to this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating thereto, except compulsory counterclaims. 8.3 Jurisdiction. Borrower hereby irrevocably submits and consents to the nonexclusive jurisdiction of the State and Federal Courts located in the State in which the office of Lender designated in Section 10.6(a) is located and any other State where any Collateral is located with respect to any action or proceeding arising out of this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating thereto. In any such action or proceeding, Borrower waives personal service of the summons and complaint or other process and papers therein and agrees that the service thereof may be made by mail directed to Borrower at its chief executive office set forth herein or other address thereof of which Lender has received notice as provided herein, service to be deemed complete five (5) days after mailing, or as permitted under the rules of either of said Courts. Any such action or proceeding commenced by Borrower against Lender will be litigated only in a Federal Court located in the district, or a State Court in the State and County, in which the office of Lender designated in Section 10.6(a) is located and Borrower waives any objection based on forum non conveniens and any objection to venue in connection therewith. 8.4 No Waiver by Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights or remedies unless such waiver shall be in writing and signed by an authorized officer of Lender. A waiver by Lender of any right or remedy on any one occasion shall not be construed as a bar to or waiver of any such right or remedy which Lender would otherwise have on any future occasion, whether similar in kind or otherwise. 54 SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS 9.1 Term. This Agreement shall only become effective upon execution and delivery by Borrower and Lender and shall continue in full force and effect for a term set forth in Section 10.7 from the date hereof and shall be deemed automatically renewed for successive terms of two (2) years thereafter unless terminated as of the end of the initial or any renewal term (each a "Term") by either party giving the other written notice at least sixty (60) days' prior to the end of the then current Term. 9.2 Early Termination. Borrower may also terminate this Agreement by giving Lender at least thirty (30) days prior written notice (the "Early Termination Notice") and payment in full of all of the Obligations as provided herein, including the Early Termination Fee (as hereinafter defined), unpaid Facility Fee and any other fees, provided that, the Affiliated Borrower simultaneously terminates the Affiliate Loan Agreements contemporaneously therewith. Borrower shall have no right to terminate this Agreement as aforesaid if the Affiliate Loan Agreements are not being simultaneously terminated by the Affiliated Borrower. Lender shall also have the right to terminate this Agreement at any time upon or after the occurrence of an Event of Default. If Lender terminates this Agreement upon or after the occurrence of an Event of Default, Borrower, jointly and severally with Affiliated Borrower, shall pay Lender forthwith, in full, payment of all Obligations, including Early Termination Fee, Facility Fee and any other fees. In view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Lender's lost profits, the early termination fee (the "Early Termination Fee"), which shall be the joint and several obligation of Borrower and Affiliated Borrower, shall be equal to: (a) If such termination occurs on or prior to the first anniversary of this Agreement, three (3%) percent of the Maximum Credit; (b) If such termination occurs after the first anniversary of this Agreement, but on or prior to the second anniversary of this Agreement, two (2%) percent of the Maximum Credit; and (c) If such termination occurs after the second anniversary of this Agreement, one (1%) percent of the Maximum Credit. Notwithstanding anything to the contrary contained herein, Borrower acknowledges, confirms and agrees that from and after the date which is thirty (30) days after receipt by Lender of the Early Termination Notice, Lender shall have no obligation to make any loans, advances or other financial accommodations to or for the benefit of Borrower hereunder. 9.3 Termination Indemnity Deposit. Upon termination of this Agreement by Borrower, as permitted herein, in addition to payment of all Obligations which are not contingent, Borrower shall deposit such amount of cash collateral as Lender reasonably determines is necessary to secure Lender from loss, cost, damage or expense, including reasonable attorneys' fees, in connection with any open Accommodations or remittance items or other payments provisionally credited to the Obligations and/or to which Lender has not yet received final and indefeasible payment. 9.4 Notices. Except as otherwise provided, all notices, requests and demands hereunder shall be (a) made to Lender at its address set forth in Section 10.6(a) and to Borrower at its chief executive office set forth in Section 10.6(d), or to such other address as either party may designate by written notice to the other in accordance with this provision, and (b) deemed to have been given or made: if by hand, immediately upon delivery; if by telex, telegram or telecopy (fax), immediately upon receipt; if by overnight delivery service, one day after dispatch; and if by first class or certified mail, three (3) days after mailing. 55 9.5 Severability. If any provision of this Agreement is held to be invalid or unenforceable, such provision shall not affect this Agreement as a whole, but this Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable. 9.6 Entire Agreement; Amendments; Assignments. This Agreement contains the entire agreement of the parties as to the subject matter hereof, all prior commitments, proposals and negotiations concerning the subject matter hereof being merged herein. Neither this Agreement nor any provision hereof shall be amended, modified or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns, except that any obligation of Lender under this Agreement shall not be assignable nor inure to the successors and assigns of Borrower. 9.7 Discharge of Borrower. No termination of this Agreement shall relieve or discharge Borrower of its Obligations, grants of Collateral, duties and covenants hereunder or otherwise until such time as all Obligations to Lender have been indefeasibly paid and satisfied in full, including, without limitation, the continuation and survival in full force and effect of all security interests and liens of Lender in and upon all then existing and thereafter-arising or acquired Collateral and all warranties and waivers of Borrower. 9.8 Usage. All terms used herein which are defined in the Uniform Commercial Code shall have the meanings given therein unless otherwise defined in this Agreement and all references to the singular or plural herein shall also mean the plural or singular, respectively. 9.9 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State in which the office of Lender set forth in Section 10.6(a) below is located. [Remainder of Page Intentionally Left Blank] 56 SECTION 10. ADDITIONAL DEFINITIONS AND TERMS 10.1 (a) Aggregate Maximum Credit for Borrower and Affiliated Borrower: $5,000,000; except that, from and after the first (1st) anniversary of the date hereof, the Maximum Credit shall be $6,500,000. (b) Gross Availability Formulas: (i) Eligible Accounts Percentage: Subject to the succeeding terms of this Section 10.1(b)(i), 80%. If the aggregate amount of Borrower's credits, allowances, discounts, write-offs, contra-accounts, and other offsets which reduce the value of accounts, as determined by Lender, in its sole discretion, divided by gross sales ("Dilution Percentage") is equal to or greater than 5%; then the Eligible Accounts Percentage shall be reduced by the percentage point or points, or fraction thereof, by which the Dilution Percentage exceeds 5%; the Eligible Accounts Percentage will be subsequently increased by one percentage point for every percentage point that the Dilution Percentage decreases, but in no event shall the Eligible Accounts Percentage exceed 80%. The Dilution Percentage shall be calculated on a rolling 90 day average. (ii) [Intentionally Omitted] (c) Inventory Sublimit(s): N/A (d) (i) Maximum days after Invoice Date for Eligible Accounts: 90 (ii) Maximum days after due date for Eligible Accounts: 60 (e) Minimum Borrowing: $1,250,000 10.2 Term Loan: (a) Amount: None (b) Monthly Amortization: None (c) Maturity Date: N/A 10.3 Accommodations: (a) Lender's Charge for Accommodations: N/A (b) Sublimit for Accommodations: N/A 57
10.4 Interest, Fees & Charges: (a) Interest Rate: Prime Rate plus 1.5% per annum (b) Clearance: 2 Business Days (c) Closing Fee: $12,500 (d) Facility Fee: (i) Initial Term: $65,000 (1) First Anniversary: $32,500 (2) Second Anniversary: $32,500 (ii) Renewal Term: 1% of Maximum Credit (1) First day of each Renewal Term: 50% of the amount set forth in 10.4(d)(ii) above (2) First Anniversary of each Renewal Term: 50% of the amount set forth in 10.4(d)(ii) above (e) Account Servicing Fee: N/A (f) Unused Line Fee: .2% per annum (g) Field Examination-per diem charge, per examiner: $650 10.5 [Intentionally Omitted] 10.6 (a) Lender's Office: 1211 Avenue of the Americas New York, New York 10036 (b) Lender's Bank: THE CHASE MANHATTAN BANK 270 Park Avenue New York, New York 10017 (c) Borrower: ENVIRONMENTAL SUPPORT SOLUTIONS, INC. (d) Borrower's Chief Executive Office: 210 N. Center, Suite 101 Mesa, Arizona 85201 (e) Locations of Eligible Inventory Collateral: 210 N. Center, Suite 101 Mesa, Arizona 85201 25 Torne Valley Road Hillburn, New York 10931 (f) Borrower's Other Offices and Locations of Collateral: N/A (g) Borrower's Trade Names for Invoicing: None 10.7 Term: 3 Years
58 10.8 Affiliate Loan Agreements: The term "Affiliate Loan Agreements" shall mean and include, without limitation, the Loan and Security Agreement dated of even date herewith between Affiliated Borrower and Lender, together with any other agreement, document, instrument, mortgage, note and guaranty executed and delivered in connection therewith as the same may now exist or may hereafter be amended, modified, supplemented, renewed, extended or replaced. IN WITNESS WHEREOF, Borrower and Lender have duly executed this Agreement this ____ day of April, 1998. LENDER: BORROWER: THE CIT GROUP/CREDIT FINANCE, INC. ENVIRONMENTAL SUPPORT SOLUTIONS, INC. By: By: ------------------------ --------------------------------- Title: Title: ------------------------ --------------------------------- 59 ACKNOWLEDGEMENT AND AGREEMENT The undersigned, being the "Affiliated Borrower" referred to and as defined in the within and foregoing Loan and Security Agreement ("Loan Agreement"), hereby acknowledge each of the terms and provisions of the foregoing Loan Agreement and agrees to be bound by the terms and provisions of Sections 2.1(g), 3.2, 3.3, 3.4, 3.5, 6.12 and 9.2 of the Loan Agreement. The undersigned acknowledges and agrees that although it may acknowledge this Loan Agreement, it is not a party thereto and does not and will not receive any right, benefit, priority or interest under or because of the existence of the Loan Agreement. HUDSON TECHNOLOGIES COMPANY By: --------------------------------------- Title: --------------------------------------- 60 SCHEDULE A Permitted Liens None 61 EX-10 4 EXHIBIT 10.2 Exhibit 10.2 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. BOTH THIS WARRANT AND SUCH SHARES HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT. WARRANT to purchase 30,000 shares of Common Stock of HUDSON TECHNOLOGIES Expiring April 29, 2001 or later as provided herein THIS IS TO CERTIFY that for good and valuable consideration, the receipt of which is hereby acknowledged, THE CIT GROUP/CREDIT FINANCE, INC., a Delaware corporation with a place of business at 1211 Avenue of the Americas, New York, New York 10036 and its successors and assigns (the "Holder" or sometimes "Holders" of this Warrant) may, at any time after the date hereof and, before 3:00 P.M., New York City time, on the later of (i) April 29, 2001 and (ii) the date of termination of that certain Loan and Security Agreement dated of even date herewith by and between The CIT Group/Credit Finance, Inc. and Hudson Technologies Company and the payment in full of all Obligations thereunder and as defined therein (the "Expiration Date"), exercise this Warrant in whole or in part from time to time for the purchase of Thirty Thousand (30,000) shares of Common Stock, par value $.01 per share (such number of shares being subject to adjustment as hereinafter provided) of the Company (as hereinafter defined) at the purchase price of $4.33 per share and to exercise all other appurtenant rights, powers and privileges provided in this Warrant, all on the terms and conditions hereinafter specified. 62 As used herein the following terms have the following respective meanings: "Common Stock" shall mean the common stock, $.01 par value, of the Company. "Company" shall mean Hudson Technologies, Inc., a Tennessee corporation, with a place of business at 25 Torne Valley Road, Hillburn, New York 10931 and any corporation which shall succeed to or assume the obligations of the Company hereunder whether by operation of law or otherwise. "Purchase Price" shall mean $4.33 per share of Common Stock, the price at which the Holder can exercise this Warrant to purchase shares of Common Stock, as adjusted in accordance with the provisions of Section 4 of this Warrant. "register", "registered", "registration" shall mean a registration effected by filing a registration statement in compliance with the Securities Act. "Securities Act" or "Act" shall mean the Securities Act of 1933, as amended, or any similar Federal statute in effect after the date hereof, and the rules and regulations of the Securities and Exchange Commission (or of any other Federal agency then administering the Securities Act) promulgated thereunder, as the same shall be amended from time to time. "Warrant Common Stock" shall mean all shares of Common Stock issued upon the exercise, by a Holder, of the right to purchase Common Stock pursuant to the terms of this Warrant. 63 SECTION 1. Exercise of Warrant. 1.1 The Holder may, at any time and from time to time after the date hereof, and, before 3:00 P.M., New York City time, on the Expiration Date, exercise this Warrant in whole or in part for the purchase of such number of shares of Common Stock as to which this Warrant is then exercisable, at the Purchase Price. In order to exercise this Warrant in whole or in part, the Holder shall deliver to the Company at its principal office (a) a written notice of such Holder's election to exercise this Warrant, in substantially the form annexed hereto, specifying the number of shares of Common Stock to be purchased, (b) a certified or official bank check or checks payable to the order of the Company in an amount equal to the aggregate Purchase Price of the shares of Common Stock being purchased and (c) this Warrant. 1.2 Issuance of Warrant Common Stock. The Company shall, as promptly as practicable after receipt of the items specified in Section 1.1, issue to the Holder a single certificate, registered in the name of the Holder, or Holder's nominee or designee, representing the number of shares of Common Stock purchased upon such exercise. Such certificate shall be deemed to have been issued, and such Holder or such nominee or designee shall be deemed for all purposes to have become the holder of record of such shares of Common Stock, as of the close of business on the day payment for such shares is received by the Company as provided in Section 1.1(b). If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of said certificate, deliver to the Holder a new Warrant evidencing the rights of such Holder to purchase the number of remaining shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. The obligations of the Company to issue shares of Common Stock upon exercise of this Warrant shall be conditional on the Holder's compliance with Section 3 hereof. All shares of Common Stock issued upon exercise of this Warrant shall be validly issued, fully paid and non-assessable. The Company shall pay all expenses, taxes (other than stock transfer taxes) and other charges payable in connection with the preparation, issue and delivery of stock certificates and a new Warrant under this Section 1. 64 1.3 Company to Reaffirm Obligations. The Company will, at the time of the exercise of this Warrant, in full or in part, upon the request of the Holder, acknowledge in writing its continuing obligation to afford to such Holder any rights (including, without limitation, the right to registration of the Warrants and the shares of Common Stock issued and issuable upon exercise) to which the Holder shall continue to be entitled in accordance with the provisions of this Warrant, provided that if the Holder of this Warrant shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Holder any such rights. 1.4 Absence of Rights of Holder. This Warrant shall not entitle the Holder to any voting rights or other rights as a shareholder of the Company, or to any rights whatsoever except the rights herein expressed, and no dividend or interest shall be payable or accrue in respect to this Warrant or the interest represented hereby or the shares issuable upon the exercise hereof unless and until, and except to the extent that, this Warrant shall be exercised. SECTION 2. Transfer and Exchange; Mutilated or Missing Warrants. 2.1 Transfer of Warrant. This Warrant is transferable, subject to requirements set forth herein, in whole or in part, on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant, in substantially the form annexed hereto, duly executed by the Holder hereof, and funds sufficient to pay any stock transfer taxes payable upon such transfer. Upon such surrender and payment the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the authorized denominations specified in such instrument of assignment, and this Warrant shall promptly be cancelled. If and when this Warrant is assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner of this Warrant for all purposes. 65 2.2 Exchange of Warrant. This Warrant is exchangeable upon the surrender hereof at the principal office of the Company, for new Warrants in authorized denominations and of like tenor and date representing in the aggregate the right to purchase the number of shares of Common Stock then issuable upon the exercise hereof. 2.3 Lost, Stolen, Destroyed or Mutilated Warrant. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of an indemnity satisfactory to it, and, in the case of mutilation upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor and date, upon reimbursement to the Company for all reasonable expense incidental thereto. Any such new Warrant executed and delivered pursuant to this section shall constitute a contractual obligation on the part of the Company, whether or not this Warrant (so lost, stolen, destroyed or mutilated) shall thereafter at any time be enforceable by anyone. 2.4 Payment of Expenses, Taxes and Charges. Except as otherwise provided in Section 2.3, the Company shall pay all expenses, taxes (other than stock transfer taxes) and other charges payable in connection with the preparation, issue and delivery of Warrants under this Section 2. 2.5 Warrant Registration. The Company agrees to maintain, at its principal office, books for the registration and transfer of the Warrant. Until transfer on the books of the Company, the Company may treat the registered holder of this Warrant as the owner hereof for all purposes. The foregoing provisions of this Section 2 pertaining to transfer or exchange of the Warrant are subject to the provisions of Section 3. SECTION 3. Compliance with Securities Act; Registration, etc. 3.1 Restrictions on Transfer. (a) The Holder, by acceptance hereof, represents and warrants that this Warrant, and upon exercise hereof the holder of any Warrant Common Stock will represent and warrant that any shares of Warrant Common Stock, are being acquired for its own account for investment without any intent to make a public distribution thereof in violation of the securities laws and that this Warrant and such Warrant Common Stock may not be sold, encumbered or otherwise transferred except pursuant to an effective Registration Statement under the Act or an exemption from such registration requirement and, if an exemption shall be applicable, the Holder or the holder of Warrant Common Stock shall have delivered an opinion of counsel reasonably satisfactory to the Company that such registration is not required under the Act. 66 (b) The Holder acknowledges that the Company may direct the Transfer Agent for the Warrant and the Warrant Common Stock to note a stop transfer order upon its records in respect of this Warrant and any certificates evidencing shares of the Warrant Common Stock and that in the event of any sale, transfer or exchange of this Warrant, any Warrant certificate issued by the Company shall bear the legend contained on the front part of this Warrant. In addition, each certificate for shares of Common Stock issued upon exercise of this Warrant shall bear the following legend: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended. Such shares have been acquired by the Holder for its own account for investment and may not be sold, encumbered or otherwise transferred except pursuant to an effective registration statement under such Act or an exemption from such registration requirement, and, if an exemption shall be applicable, the holder shall have delivered an opinion of counsel reasonably satisfactory to the issuer that such registration is not required under said Act." (c) As a condition to any sale, transfer or other disposition of this Warrant, the transferee shall be required to make the representations and warranties contained in Section 3.1(a) hereof and acknowledge the stop transfer order and consent to the legend contained in Section 3.1(b) hereof. 3.2 Registration Rights. If at any time or from time to time the Company shall determine to register any of its securities (other than by means of a registration statement on a form (e.g., Form S-8) which by its terms could not be used for the sale and distribution of any Warrant Common Stock) the Company will: 67 (a) promptly (but not less than thirty (30) days prior to the filing of any registration statement) give written notice thereof (which shall include a list of the jurisdictions, if any, in which the Company intends to register or qualify such securities under the applicable blue sky or other state securities laws) to each holder of Warrant Common Stock; (b) if so requested in writing by any holder of Warrant Common Stock, use its best efforts to effect such registration and any qualification and compliance relating thereto, including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with the Securities Act and any other governmental requirements or regulations as would permit or facilitate the sale and distribution of all Warrant Common Stock, unless, in the opinion of counsel to the Company reasonably acceptable to the holder of the Warrant Common Stock who wishes to have them included in such registration statement, registration under the Act is not required for the sale of such Warrant Common Stock in the manner proposed by such holders. Notwithstanding the foregoing, if any managing underwriter of the Company's offering shall advise the Company in writing that, in its opinion, the distribution of all or a portion of the Warrant Common Stock (the "Piggy-back Shares") requested to be included in the registration statement concurrently with the securities being registered by the Company would materially adversely affect the distribution of such securities by the Company for its own account, then the holders of such Warrant Common Stock shall delay their offering and sale of Warrant Common Stock (or the portions thereof so designated by such managing underwriter) for such period, not to exceed thirty (30) days, as the managing underwriter shall request. In the event of such delay, the Company shall file such supplements, post-effective amendments or separate registration statement, and take any such other steps as may be necessary to permit such holders to make their proposed offering and sale for a period of 90 days immediately following the end of such period of delay ("Piggy-back Termination Date"); provided, however, that if at the Piggy-back Termination Date the Piggy-back Shares are covered by a registration statement which is, or is required to remain, in effect beyond the Piggy-back Termination Date, the Company shall maintain in effect the registration statement as it relates to the Piggy-back Shares for so long as such registration statement remains or is required to remain in effect for any other such securities. 68 (c) bear all expenses in connection with such registration, qualification and compliance, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of the Company's counsel (but exclusive of the fees and disbursements of legal counsel retained by holders of Warrant Common Stock) and expenses of any audits incident to or required by any such registration, qualification or compliance, provided, that the Company shall not, in any event, be required to bear the cost of any commissions and compensation paid, and concessions and discounts allowed to, underwriters, dealers or others performing similar functions in connection with the sale and distribution of the Warrant Common Stock sold by any holders thereof. 3.3 No Additional Liability. Notwithstanding anything to the contrary contained in this Section 3 or elsewhere herein, the Company will not, in any event, be obligated to qualify any Warrant Common Stock covered by a registration statement under any blue sky or other state securities law if the Company would by reason thereof be required to qualify to do business in any jurisdiction where it is not then so qualified. 3.4 Notification; Continuation of Effectiveness. In the case of each registration, qualification and compliance pursuant to this Section 3, the Company will keep all holders of Warrant Common Stock promptly advised in writing as to the initiation of proceedings for such registration, qualification and compliance and as to the completion thereof, and will advise, upon request, of the progress of such proceedings. The Company will, at its expense, keep such registration, qualification and compliance effective for a period of 90 days (subject to Section 3.2(a)(ii) hereof), or for such longer period as may be required by the Securities Act, by such action as may be necessary or appropriate to permit the sale or distribution of Warrant Common Stock not theretofore sold or distributed including, without limitation, the filing of post-effective amendments and supplements to any registration statement or prospectus necessary to keep the registration current and for further qualification under any applicable blue sky or other state securities law, all as requested by any holder of Warrant Common Stock with respect to which such registration is being effected. 69 3.5 Information From Holders. The Company may require the holder of Warrant Common Stock, as a condition to having the Warrant Common Stock included among the securities as to which any registration, qualification or compliance referred to in this Section 3 is being effected, to furnish to the Company such reasonable information regarding the proposed distribution of the Warrant Common Stock as the Company may request in writing and as shall be required in connection with such registration, qualification or compliance. 3.6 Prospectuses, etc. The Company will, at its expense, furnish to each holder of Warrant Common Stock with respect to which registration has been effected, such number of prospectuses, offering circulars and other documents incident to such registration and related qualification or compliance as such holder from time to time may reasonably request. 3.7 Indemnification. The Company will indemnify each holder of Warrant Common Stock (and each person, if any, who or which controls such holder) and each underwriter of the Warrant Common Stock held by or issuable to such holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any registration, qualification or compliance referred to in this Section 3, or arising out of or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such holder of Warrant Common Stock (and each person, if any, who or which controls such holder of Warrant Common Stock) and each such underwriter for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, provided, that the Company will not be liable in any such case to the extent that any such claim, loss, damage or liability arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by an instrument duly executed by such holder of Warrant Common Stock (and each person, if any, who or which controls such holder of Warrant Common Stock) or underwriter and stated specifically to be for use therein. The Company may require of such holder of Warrant Common Stock, as a condition to having such Warrant Common Stock held or issuable to holder of Warrant Common Stock included among the securities as to which such registration, qualification or compliance is being effected, that each such holder of Warrant Common Stock and underwriter will indemnify the Company, its directors, and its officers who sign the registration statement in respect of such registration against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any written information furnished by such holder for inclusion in the registration statement by such holder of Warrant Common Stock or underwriter, as the case may be, or an omission (or alleged omission) to state in any such written information a material fact required to be stated therein or necessary to make the statement therein not misleading. 70 3.8 Notice of Claim, etc. Each party entitled to indemnification hereunder (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to participate in the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall participate in the defense of such claim or litigation, shall be acceptable to the Indemnified Party (which acceptance shall not be unreasonably withheld), and provided further, that the failure of any Indemnified Party to give notice as provided in this Section 3.8 shall not relieve the Indemnifying Party of its obligation under Section 3.7. 3.9 Listing on Securities Exchanges, etc. The Company will, at its expense, promptly list on each national securities exchange on which Common Stock is at the time listed, or, if applicable, the NASDAQ National List, upon official notice of issuance upon the exercise of the Warrant, and maintain such listing of, all shares of Common Stock from time to time issuable upon the exercise of the Warrant, and when and if required by the Securities Exchange Act of 1934 (or any similar statute then in effect) will register thereunder all shares of Common Stock from time to time so issuable. 3.10 Right to Deliver Cash. Notwithstanding the provisions of this Warrant, the Company shall have the right, in lieu of including the shares of Warrant Stock in a registration statement pursuant to Section 3.2(a) or effecting a demand registration pursuant to Section 3.2(b) hereof, to elect to purchase the Warrant Common Stock to be included in such registration statement by delivering to a holder of Warrant Common Stock cash in the amount ("Repurchase Amount") equal to the number of shares of Warrant Common Stock to be included in such registration statement multiplied by an amount equal to the closing price (or, if applicable, the average of the closing bid and asked prices) of the Company's Common Stock on the last trading day immediately preceding the day of notice by the Company pursuant to Section 3.2(a)(1) or the day preceding the day of demand pursuant to Section 3.2(b), as the case may be. If the Company elects to exercise its rights hereunder, it should so notify the holders of Warrant Common Stock within 10 business days of such notice or demand, as the case may be. The holders shall thereupon promptly deliver the certificates evidencing shares of Warrant Common Stock to be sold at the time and place designated in the Company's notice, in duly transferable form, together with a representation and warranty of good title free and clear of all liens and encumbrances against receipt from the Company of a bank or certified check payable to the respective order of such holders in the Repurchase Amount. 71 SECTION 4. Adjustment of Number and Purchase Price of Shares Covered by Warrant. 4.1 Adjustment of Number of Shares. In order to protect the Holder from dilution with respect to the shares of Common Stock as to which this Warrant may be exercised, the Company hereby agrees to adjust the number of shares issuable upon the exercise of this Warrant as follows: (a) In case the outstanding shares of Common Stock shall be subdivided into a greater or combined into a lesser number of shares of such stock, the number of shares of Common Stock deliverable upon the exercise of this Warrant shall be proportionately increased or decreased, as the case may be, effective at the close of business on the date that such subdivision or combination shall become effective. (b) If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful or adequate provision shall be made whereby the Holder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant and in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of this Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore purchasable and receivable upon the exercise of this Warrant had such reorganization, reclassification, consolidation, merger or sale not taken place; and in any such case appropriate provision shall be made with respect to the rights and provisions contained herein (including without limitation provisions for adjustment of the number of shares issuable upon the exercise of this Warrant) which shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon exercise of this Warrant. The Company shall not effect any such consolidation, merger or sale, unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and delivered to the Holder, the obligation to deliver to the Holder such shares of stock, securities or assets as, in acceptance with the foregoing provisions, the Holder may be entitled to purchase. 72 4.2 Adjustment of Purchase Price. In case of any adjustment in the number of shares issuable upon exercise of this Warrant in accordance with Section 4.1(a) or Section 4.1(b) the purchase price of such shares shall be non-commitently adjusted. No increase or decrease in the number of shares of Common Stock issuable upon exercise of this Warrant shall affect the aggregate Purchase Price for all shares so issuable, which shall be $129,900. 4.3 Fractional Shares. In case at any time the total number of shares issuable upon exercise of this Warrant shall be increased or decreased pursuant to any of the provisions of this Section 4, such total number of shares issuable shall be rounded out to the nearest full share and no adjustment shall be made with respect to any fractional share of Common Stock which otherwise would be issuable as a result of any computation made pursuant to this Section. 4.4 Certificate. Whenever there is an adjustment in the number and/or purchase price of shares of Common Stock issuable upon exercise of this Warrant, as provided herein, the Company shall promptly file with the Holder a certificate signed by the President or a Vice President of the Company and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company, showing in detail the facts requiring such adjustment and the purchase price per share and number and kind of securities issuable upon exercise of the Warrant after such adjustment. 73 SECTION 5. Covenants. 5.1 Reservation of Shares. The Company shall reserve out of its authorized shares of Common Stock a number of shares sufficient at all times to enable it to comply with its obligation to issue shares of fully paid and non-assessable Common Stock upon the exercise of the Warrant. 5.2 Further Action. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Warrants against dilution or other impairment. 5.3 Prior Notice of Certain Events. If the Company shall take any action: (a) to make any distribution to the holders of Common Stock; (b) to offer for subscription pro rata to the holders of Common Stock any additional shares of stock of any class or other rights; (c) to accomplish any capital reorganization, or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets, to another corporation; or (d) to effect a voluntary or involuntary dissolution, liquidation or winding up of the Company; then in any one or more of such events, the Company shall (i) at least 30 days prior to the date on which the books of the Company shall close or a record shall be taken for such distribution or subscription rights or for determining stockholders entitled to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, cause written notice thereof to be sent to the Holder as provided in Section 6.1 hereof, and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale dissolution, liquidation or winding up, cause at least 20 days' prior written notice of the date when the same shall become effective to be given to the Holder in the same manner. Such notice in accordance with the foregoing clause (i) shall also specify, in the case of any such distribution or subscription rights, the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. 74 SECTION 6. Miscellaneous. 6.1 Notice. All communications in connection herewith shall be in writing and if sent to the Holder or to the holders of Warrant Common Stock shall be mailed, delivered or telegraphed to such Holder or holders of Warrant Common Stock at the last address shown on the books of the Company maintained for the registry and transfer of the Warrant or if sent to the Company shall be mailed, delivered or telegraphed to it at Hudson Technologies, Inc. 25 Torne Valley Road, Hillburn, New York 10931, Attention: President (until another address is furnished to the Holder or holders of Warrant Common Stock in writing by the Company). 6.2 Governing Law. This Warrant and the provisions contained herein shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of New York. 6.3 Specific Performance. The Company stipulates that the remedies at law of the Holder hereof and of the holders of Warrant Common Stock in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its President or Vice President thereunto duly authorized and its corporate seal to be hereunto affixed and attested by its Secretary or Assistant Secretary as of the ____ day of April, 1998. HUDSON TECHNOLOGIES, INC. By: ------------------------------------ Title: ------------------------------------ ATTEST: - ------------------------------------ Secretary 75 FORM OF SUBSCRIPTION [To be signed only upon exercise of Warrant] TO: HUDSON TECHNOLOGIES, INC. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder 1 shares of Common Stock of _____________________________, and herewith makes payment of $ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to, , whose address is . Dated: (Signature must conform in all respects to name of holder specified on the face of the Warrant) - ------------------------------------ - -------- 1 Insert here the number of shares called for on the face of the Warrant (or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised), in either case with making any adjustment for additional Common Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be deliverable upon exercise. 76 FORM OF ASSIGNMENT [To be signed only upon transfer of Warrant] For value received, the undersigned hereby sells, assigns and transfers unto ___________the right represented by the within Warrant to purchase ________ shares of Common Stock of HUDSON TECHNOLOGIES, INC., to which the within Warrant relates, and appoints___________________________________________________________ Attorney to transfer such right on the books of____________________________ with full power of substitution in the premises. Dated: - ------------------------------ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) - ------------------------------ (Address) Signed in the presence of: - ------------------------------ 77 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB AT MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1998 MAR-31-1998 553,000 0 4,728,000 309,000 1,659,000 7,114,000 5,775,000 0 12,981,000 5,542,000 0 0 0 51 6,267,000 12,981,000 6,705,000 6,705,000 4,684,000 4,684,000 273,000 0 84,000 55,000 0 55,000 0 0 0 55,000 0.01 0.01
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