-----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, S/v0GW2xwNng6boCwArq5rtQ66AWJbls8SrAMMyzI9zuvhcD6m6GyOvvhZ+rNixv qkGgoMEeORN0ebm3bUQivA== 0001169232-03-004210.txt : 20030613 0001169232-03-004210.hdr.sgml : 20030613 20030613173101 ACCESSION NUMBER: 0001169232-03-004210 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20030613 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUDSON TECHNOLOGIES INC /NY CENTRAL INDEX KEY: 0000925528 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MACHINERY, EQUIPMENT & SUPPLIES [5080] IRS NUMBER: 133641539 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-105128 FILM NUMBER: 03744340 BUSINESS ADDRESS: STREET 1: 275 N MIDDLETOWN RD CITY: PEARL RIVER STATE: NY ZIP: 10965 BUSINESS PHONE: 8457356000 MAIL ADDRESS: STREET 1: 275 N MIDDLETOWN RD CITY: PEARL RIVER STATE: NY ZIP: 10965 FORMER COMPANY: FORMER CONFORMED NAME: REFRIGERANT RECLAMATION INDUSTRIES INC DATE OF NAME CHANGE: 19940617 SB-2/A 1 d56053_sb2-a.txt AMENDMENT NO. 1 TO SB-2 As Filed with the Securities and Exchange Commission on June 13, 2003. Registration No. 333-105128 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- HUDSON TECHNOLOGIES, INC. (Name of Small Business Issuer in Its Charter) New York 5080 13-3641539 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification No.)
275 North Middletown Road Pearl River, New York 10965 (845) 735-6000 (Address and Telephone Number of Principal Executive Offices) (Address of Principal Place of Business or Intended Principal Place of Business) Kevin J. Zugibe Chairman and Chief Executive Officer Hudson Technologies, Inc. 275 North Middletown Road Pearl River, New York 10965 (845) 735-6000 (Name, Address and Telephone Number of Agent for Service) ---------- Copies of Communications to: Robert J. Mittman, Esq. Ethan Seer, Esq. Blank Rome LLP 405 Lexington Avenue New York, New York 10174 Telephone: (212) 885-5000 Telecopier: (212) 885-5001 ---------- Approximate Date of Commencement of Proposed Sale to the Public: As soon as practicable after this registration statement becomes effective. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| _______ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| _______ If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| _______ If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. ----------
----------------------------------------------------------------------------- Title of each class of Proposed Maximum Amount of Securities to be Registered Aggregate Offering Price (1) Registration Fee --------------------------- ---------------------------- ---------------- ----------------------------------------------------------------------------- common stock, par value $5,000,000 $404.50 (2) $.01 per share -----------------------------------------------------------------------------
(1) Estimated and calculated pursuant to Rule 457 (o), solely for the purpose of computing the registration fee. (2) Previously paid with the initial filing of this Registration Statement on May 9, 2003. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED JUNE 13, 2003 PROSPECTUS _________ Shares HUDSON TECHNOLOGIES INC. COMMON STOCK We are distributing, together with this prospectus, at no charge, non-transferable subscription rights to purchase shares of our common stock to persons who own our common stock as of the close of business on _________, 2003, the record date. These are called basic subscription rights. You will not be entitled to receive any of these rights unless you are a stockholder of Hudson at that time. You will receive __ subscription right(s) for every ___ share(s) of our common stock that you own on the record date. Each subscription right will entitle you to purchase ___ share(s) of our common stock at the subscription price of $_____ per share. Rights may not be exercised for less than 1,000 shares of our common stock. The shares in the rights offering are being offered directly by us without the services of an underwriter or selling agent. The subscription rights are exercisable beginning on the date of this prospectus and will expire at 5:00 P.M. Eastern Time, on ________, 2003. We, at our sole discretion, may extend the period for exercising the rights. Rights which are not exercised by the expiration date will expire and will have no value. Your exercise of the rights may not be revoked unless the expiration date is extended for more than thirty days or there is a material change in the terms of the rights offering. You should carefully consider whether or not to exercise your rights before the expiration date. If you timely exercise all of your basic subscription rights, you will be entitled to exercise over-subscription privileges to purchase additional shares of our common stock at the same subscription price. The over-subscription privilege will expire concurrently with the expiration of the basic subscription rights. Shares for which subscription rights have not been exercised prior to the expiration date of the rights offering will first be offered to members of the public at the subscription price. Shares offered but not purchased by holders of subscription rights or by members of the public may be used to satisfy our obligations under our outstanding 10% subordinated convertible notes, which we refer to throughout this prospectus as the "Convertible Notes," held by certain of our officers, family members of our officers and directors and certain principal stockholders. There is no minimum number of shares which must be sold in the offering and we intend to close on sales of shares with respect to subscriptions we accept on a continuous basis without holding subscriptions in escrow until the offering is completed. The subscription rights may not be sold, transferred or assigned, and will not be listed for trading on any stock exchange. Our common stock trades on the NASDAQ SmallCap Market under the symbol HDSN. On June 11, 2003, the closing sale price of our common stock as reported by NASDAQ was $2.65. Investing in our common stock is speculative and involves a high degree of risk. See "Risk Factors" beginning on page 8.
- ----------------------------------------------------------------------------------------- Subscription Price Discounts and Commissions Net Proceeds - ----------------------------------------------------------------------------------------- Per Share $ $ $ - ----------------------------------------------------------------------------------------- Total $ $ $ - -----------------------------------------------------------------------------------------
The above table assumes that we may utilize the services of NASD member firms for sales made to members of the public and that we may pay them commissions not to exceed $_____ per share. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is _____________, 2003 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this prospectus. Each prospective investor is urged to read this prospectus in its entirety. References in this prospectus, to "Hudson", "we", "us" and "our" refer to Hudson Technologies, Inc. and its subsidiaries. Description of Business Hudson Technologies, Inc., incorporated under the laws of New York on January 11, 1991, together with its subsidiaries, is a refrigerant services company providing innovative solutions to recurring problems within the refrigeration industry. Hudson's products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems, including (i) refrigerant sales, (ii) RefrigerantSide(R) Services performed at a customer's site, consisting of system decontamination to remove moisture, oils and other contaminants and (iii) reclamation of refrigerants. Hudson operates through its wholly owned subsidiary Hudson Technologies Company. Hudson's Executive Offices are located at 275 North Middletown Road, Pearl River, New York and its telephone number is (845) 735-6000. Description of Offering The shares of our common stock being offered under this prospectus are initially being offered to our stockholders of record as of _____, 2003 to whom we are distributing, at no charge, subscription rights which are each exercisable to purchase ___ share(s) of our common stock at a subscription price of $ ____ per share. Stockholders who exercise all of their basic subscription rights prior to ____, 2003 will have an over-subscription privilege to subscribe for additional shares of our common stock also until ______, 2003. This is referred to in this prospectus as the rights offering. To the extent shares offered hereby are not subscribed for by the stockholders in the rights offering we will offer those shares to members of the public at the subscription price for a period ending on ___, 2003. Thereafter, any shares that remain unsold may be acquired by the holders of our Convertible Notes, at their election, by the reduction of the principal amount and, if applicable, accrued and unpaid interest of their respective Convertible Notes in an amount equal to the number of shares subscribed for multiplied by the subscription price. The term "offering" as used in this prospectus includes the rights offering and the subsequent offer of remaining shares to members of the public and holders of Convertible Notes. Questions and Answers About the Rights Offering What is a rights offering? A rights offering is an opportunity for you to purchase additional shares of our common stock at a fixed price and in an amount at least proportional to your existing interest. What is a subscription right? We are distributing to you, at no charge, _________ subscription right(s) for every _____ shares of our common stock that you owned as a holder of record on _________, 2003. We will not distribute any fractional subscription rights, but will round the number of subscription rights you receive up to the next largest whole number. Each whole subscription right entitles you to purchase ___ share(s) of our common stock for $___ per share. When you "exercise" a subscription right that means that you choose to purchase the number of shares of common stock that the subscription right entitles you to purchase. You may exercise any number of your subscription rights subject to the requirement that rights may not be exercised for less than 1,000 shares of our common stock, or you may choose not to exercise any subscription rights. You cannot give away, transfer or sell your subscription rights, except by operation of law or through involuntary transfers. Consequently, except in very limited circumstances, only you will be able to exercise your subscription rights. See "About the Rights Offering-The Subscription Rights." 3 What is the basic subscription privilege? The basic subscription privilege of each whole subscription right entitles you to purchase ___ share(s) of our common stock at a subscription price of $___. See "About the Rights Offering-Basic Subscription Privilege." What is the over-subscription privilege? We do not expect that all of our stockholders will exercise all of their basic subscription privileges. By extending over-subscription privileges to our stockholders, we are providing for the purchase of those shares that are not purchased through exercise of basic subscription privileges. The over-subscription privilege of each subscription right entitles you, if and when you fully exercise your basic subscription privilege, to subscribe for additional shares of common stock at the subscription price. See "About the Rights Offering-Over-Subscription Privilege." What are the limitations on the over-subscription privilege? If sufficient shares are available in the rights offering, we will honor all over-subscription requests in full. If over-subscription requests exceed the number of shares available, we will allocate the available shares among stockholders who over-subscribed in proportion to the number of shares purchased by those over-subscribing stockholders through the exercise of their basic subscription privilege. Will shares not sold as part of the rights offering be offered to other investors? Yes. Any shares not sold as part of the rights offering will be offered by us to members of the public at the subscription price. If any of the shares being offered to the public remain unsold, the holders of our Convertible Notes can then elect to purchase shares in this offering at the subscription price through a reduction of the amount of principal and, if applicable any accrued and unpaid interest under the Convertible Notes. The Convertible Notes will otherwise automatically convert on completion of this offering into restricted shares of common stock at prices ranging from the lesser of the subscription price or: (i) $.79 per share with respect to up to $655,000 principal amount of Convertible Notes, together with accrued and unpaid interest; (ii) $1.41 per share with respect to up to $500,000 principal amount of Convertible Notes, together with accrued and unpaid interest; and (iii) $1.13 per share, with respect to up to $495,000 principal amount of Convertible Notes, together with accrued and unpaid interest. These Convertible Notes are held by certain of our officers, family members of our officers and directors and two of our principal stockholders, Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P., which are referred to collectively in this prospectus as the "Flemings Funds". Moreover, the Flemings Funds have agreed that if the gross proceeds from the shares sold by us for cash in the offering to our stockholders and other investors (other than Flemings) together with the amount of principal and accrued interest due on the outstanding $1,650,000 principal amount of Convertible Notes that will be converted to common stock in connection with this offering is less than $2,575,000, the Flemings Funds will purchase from the shares being offered to the public that number of shares (not to exceed $ ________) necessary for us to reach the $2,575,000 level. See "About the Rights Offering - Sale of Shares Not Purchased Upon Exercise of Rights." Why are we engaging in a rights offering? We are making this offering with the intention of raising up to approximately $5,000,000 of gross proceeds. After payment of expenses and any fees or commissions of this offering, we intend to use the net cash proceeds of the offering for (i) sales and marketing support of our service business, (ii) infrastructure support for our refrigerant sales business, and (iii) working capital and general corporate purposes. See "Use of Proceeds." We want to give our stockholders the opportunity to participate in our equity offering so that they will have the ability to maintain their proportional ownership interest in us. What is the Board of Directors recommendation regarding the rights offering? Our Board of Directors is not making any recommendation as to whether or not you should exercise your subscription rights. You should make your decision based on your own assessment of your best interests. How many shares may I purchase? You will receive _________ subscription rights for each ____ share(s) of common stock that you owned on ___________, 2003. We will not distribute fractional subscription rights, but will round the number of subscription rights you 4 are to receive up to the next largest whole number. Each whole subscription right entitles you to purchase ___ share(s) of common stock for $___. See "About the Rights Offering-Basic Subscription Privilege." If you exercise all of the subscription rights that you receive, you may have the opportunity to purchase additional shares of common stock. In your subscription agreement, you may request to purchase as many additional shares as you wish for $___ per share. See "Our Subscription Privilege". Subject to compliance with applicable state securities laws, we intend to honor all of these over-subscription requests. However, you may not be able to purchase as many shares as you requested in your over-subscription request if a sufficient number of shares are not available after fulfillment of the basic subscription rights. We have the discretion to issue less than the total number of shares that may be available for over-subscription requests in order to comply with state securities laws. In the event that, as a result of the exercise of basic and over-subscription rights by our stockholders, the rights offering is over-subscribed, we will reduce the number of shares that may be purchased by each subscribing stockholder under the over-subscription privilege on a pro rata basis in proportion to the number of shares purchased by each subscribing stockholder through the exercise of their basic subscription rights. See "About the Rights Offering-Over-Subscription Privilege." If I owned less than 1,000 shares on the record date, can I still exercise my subscription rights in the rights offering? Yes, provided that you exercise all of your basic subscription rights and exercise at least enough over-subscription rights to reach the minimum subscription of 1,000 shares. Therefore, subscriptions of stockholders who owned less than 1,000 shares of our common stock on the record date and only exercise their basic subscription rights will not be accepted by Hudson in connection with this offering. Moreover, stockholders who owned less than 1,000 shares on the record date should note that even if you supplement your basic subscription exercise with an over-subscription exercise in order to meet the 1,000 share minimum threshold, in the event that the rights offering is over subscribed we will be required to reduce the number of shares subscribed for on a proportionate basis, thereby potentially reducing the number of shares for which you have subscribed below the 1,000 share minimum threshold. In this case, we would not accept your subscription in connection with this offering. How did we arrive at the $_____ per share subscription price? Members of our Board of Directors, other than the Board designee of the Flemings Funds, set all of the terms and conditions of the rights offering, including the subscription price. The $____ subscription price was based on the strategic alternatives available to us for raising capital, the limited trading volume in our common stock, the market price of our common stock before and after the announcement of the rights offering, our business prospects and general conditions in the securities markets. See "Determination of Offering Price." How do I exercise my subscription rights? You must properly complete the appropriate subscription agreement and it must be received by Hudson before 5:00 P.M. Eastern Time on ________, 2003, which is referred to throughout this prospectus as the "Expiration Date." The address for Hudson is on page 1 of this prospectus. See "About the Rights Offering-Exercise of Subscription Rights." How do I pay for my shares? Your subscription agreement must be accompanied by proper payment for each share that you wish to purchase pursuant to both your basic and over-subscription privileges. See "About the Rights Offering-Method of Payment." How long will the rights offering last? You will be able to exercise your subscription rights only during a limited period. If we do not receive your properly executed subscription agreement and payment for the shares being purchased before 5:00 P.M. Eastern time on the Expiration Date the subscription rights will expire. We may, in our discretion, decide to extend the rights offering. See "About the Rights Offering-Expiration Date." What if my shares are not held in my name? If you hold your shares of our common stock in the name of a broker, dealer or other nominee, then your broker, dealer or other nominee is the record holder of the shares you own. The record holder must exercise the subscription rights on 5 your behalf for the shares of common stock you wish to purchase. Therefore, you will need to have your record holder act for you. If you are not the record holder of your shares and you wish to participate in this rights offering and purchase shares of our common stock, please promptly contact the record holder of your shares. We will ask your broker, dealer or other nominee to notify you of this rights offering. You should complete and return to your record holder the form entitled "Beneficial Owner Election Form." You should receive this form from your record holder with the other rights offering materials. See "About the Rights Offering-Shares Held for Others." After I exercise my subscription rights, can I change my mind and cancel my purchase? No. Once you send in your subscription agreement and payment you cannot revoke the exercise of your subscription rights, even if you later learn information about us that you consider to be unfavorable and even if the market price of our common stock is below the $___ per share purchase price. You should not exercise your subscription rights unless you are certain that you wish to purchase additional shares of our common stock at a price of $___ per share. See "About the Rights Offering-No Revocation." Is exercising my subscription rights risky? The exercise of your subscription rights involves significant risks. Exercising your subscription rights means buying additional shares of our common stock and should be considered as carefully as you would consider any other equity investment. Among other things, you should carefully consider the risks described under the heading "Risk Factors," beginning on page 8. Must I exercise any subscription rights? No. You are not required to exercise your subscription rights or take any other action. What happens if I choose not to exercise my subscription rights? You will retain your current number of shares of our common stock even if you do not exercise your subscription rights. However, if other stockholders exercise their subscription rights and you do not, the percentage of Hudson that you own will diminish, and your voting and other rights will be diluted in excess of the dilution that will result from the conversion of the Convertible Notes upon the completion of this offering. See "Risk Factors-Risk Factors Relating to the Offering of Subscription Rights-Your Percentage Ownership of Hudson may be Diluted." Can I sell or give away my subscription rights? No. What are the Federal Income Tax consequences of exercising my subscription rights? The receipt and exercise of your subscription rights are intended to be nontaxable events. You should seek specific tax advice from your personal tax advisor. See "Federal Income Tax Considerations-Taxation of Stockholders." When will I receive my new shares? If you purchase shares of common stock through the rights offering, you will receive certificates or your account will be credited by an amount representing those shares as soon as practicable after the Expiration Date. Can the Board of Directors cancel the rights offering? Yes. The Board of Directors may decide to cancel the rights offering at any time, on or before ________, 2003, for any reason. See "About the Rights Offering-Cancellation Right." 6 How much money will Hudson receive from the rights offering? If we sell all the shares being offered for cash, we will receive gross proceeds of approximately $5,000,000. If shares being offered are not sold for cash they may be used to satisfy our obligations to repay all or a portion of the $1,650,000 principal amount as well as accrued and unpaid interest of our outstanding Convertible Notes. Under certain circumstances, two of our principal stockholders, the Flemings Funds, have indicated their intention to purchase up to $______ of the shares that are not subscribed for in the rights offering by other stockholders, by the public or acquired in this offering by holders of our outstanding Convertible Notes. See "About the Rights Offering-Sale of Shares Not Purchased Upon Exercise of Rights." How will we use the proceeds from the rights offering? We intend to use the cash proceeds for (i) sales and marketing support of our service business, (ii) infrastructure support for our refrigerant sales business, and (iii) working capital and general corporate purposes. See "Use of Proceeds." How many shares will be outstanding after the rights offering? Although we cannot at this time determine the number of shares of common stock that will be outstanding after the rights offering and after sales to the public and in satisfaction of outstanding Convertible Notes, if we sell all of the shares registered for sale in this offering then we will issue approximately ________ shares of common stock. In that case, we will have approximately __________ shares of common stock outstanding after the offering without giving effect to the shares of our common stock issuable upon conversion of the _____ shares of outstanding Series A Preferred Stock. Although the conversion price of the Series A Preferred Stock is currently $2.375, in accordance with applicable anti-dilution provisions, the conversion price of the Series A Preferred Stock will be adjusted downward to a conversion price equal to the lesser of the subscription price and $.79, which is the lowest conversion rate of our Convertible Notes. If all of the Series A Preferred Stock were converted into our common shares at the $ _____ subscription price, we would have an additional ________ shares of common stock outstanding. What if I have more questions? If you have more questions about the rights offering, please contact our President, Brian F. Coleman, at 275 North Middletown Road, Pearl River, New York 10965, or by telephone at (845) 735-6000. SUMMARY FINANCIAL DATA The following table presents summary historical financial data. We have derived the audited summary financial data as of and for the two-year period ended December 31, 2002 and the unaudited summary financial data as of and for the three months ended March 31, 2003 and 2002 from the consolidated financial statements and notes thereto included elsewhere in this prospectus. The following selected financial data are qualified in their entirety by reference to, and you should read the information contained in this table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and the notes to those consolidated financial statements contained elsewhere in this prospectus.
(In thousands except share and per share amounts) Three Months Year Ended Ended March 31, December 31, --------------- ------------ 2003 2002 2002 2001 ---------- ---------- ---------- ---------- Revenues ............................... $ 5,677 $ 6,111 $ 19,963 $ 20,768 Operating expenses ..................... 1,874 2,022 7,911 8,017 Net loss ............................... (422) (448) (2,522) (2,399) Available for common shares ............ (640) (645) (3,318) (3,122) Net loss per common share .............. (0.12) (0.13) (0.64) (0.61) Weighted average number of shares outstanding ............................ 5,165,020 5,156,895 5,162,228 5,103,733
7 Balance Sheet Data:
- ---------------------------------------------------------------------------------------------------- March 31, 2003 March 31, 2003 December 31, 2002 -------------- -------------- ----------------- - ---------------------------------------------------------------------------------------------------- (as adjusted for (unaudited) offering) - ---------------------------------------------------------------------------------------------------- Cash and cash equivalents .......... $ 5,053 $ 353 $ 545 - ---------------------------------------------------------------------------------------------------- Working capital (deficit) .......... 4,381 (319) (11) - ---------------------------------------------------------------------------------------------------- Total assets ....................... 13,871 9,171 8,422 - ---------------------------------------------------------------------------------------------------- Total long-term obligations ........ 1,100 1,100 1,171 - ---------------------------------------------------------------------------------------------------- Total Stockholders' equity ......... 5,786 1,086 1,508 - ----------------------------------------------------------------------------------------------------
The as adjusted Balance Sheet Data as of March 31, 2003 represents the financial results if Hudson was to received all of the net proceeds contemplated in this prospectus. RISK FACTORS The shares offered by this prospectus are speculative and involve a high degree of risk. In addition to other information in this prospectus, you should carefully consider the following risk factors before making an investment decision. Risk Factors Relating to Hudson We have incurred significant historical losses and expect to continue to incur losses in the future. Since inception, we have incurred significant losses, including net losses of $2,522,000 and $2,399,000 for the fiscal years ended December 31, 2002 and 2001, respectively, and a net loss of $422,000 for the three months ended March 31, 2003. At March 31, 2003, we had an accumulated deficit of $30,648,000. Losses are continuing through the date of this prospectus. Inasmuch as we will continue to have a high level of operating expenses following this offering and anticipate that we will incur additional expenditures in connection with any expansion of our RefrigerantSide(R) Services or other business, we anticipate that we will continue to incur losses until we generate revenues sufficient to offset our operating costs. We may not be able to generate significant revenues or ever achieve profitable operations. The proceeds from this offering may not be sufficient to meet our capital requirements and we may need additional subsequent financing which may not be readily available to us. Our capital requirements have been and will continue to be significant. We are dependent on the proceeds of this offering in order to continue our operations as currently conducted during the near term. There is no minimum amount of rights that must be exercised before a closing may occur and our stockholders or other prospective investors will not know whether all or a portion of the shares of common stock offered hereby have been sold. To the extent that less than all of the shares offered hereby are sold, we will have less resources available to us. See the section below entitled "Use of Proceeds." Consequently, the amount of proceeds we will raise in this offering may not be sufficient to satisfy our future cash requirements. Although the reorganization of our RefrigerantSide(R) Services business, to focus on vertical markets, is aimed at increasing our efficiencies and reducing our expenses, in the long term we expect to incur additional expenses in the development and implementation of this business strategy. In addition, unanticipated declines in revenues or increases in operating costs could require resources substantially greater than the proceeds available to us from this offering. As a result, we may be required to seek additional equity or debt financing in order to meet these increased operating expenses. We have no current arrangements with respect to, or sources of, additional financing, which if available to us, may not be on acceptable terms. Our inability to obtain additional capital financing when needed could materially adversely affect our business and financial condition and could require us to curtail or otherwise cease our existing operations. The nature of our business exposes us to potential liability. The refrigerant recovery and reclamation industry involves potentially significant risks of statutory and common law liability for environmental damage and personal injury. We, and in certain instances, our officers, directors and employees, may be subject to claims arising from our on-site or off-site services, including the improper release, spillage, misuse or mishandling of refrigerants classified as hazardous or nonhazardous substances or materials. We may be strictly liable for damages, which could be substantial, regardless of whether we exercised due care and complied with all relevant laws and regulations. Our current insurance coverage may not be sufficient to cover potential claims and adequate levels of insurance coverage may not be available in the 8 future at a reasonable cost. A partially or completely uninsured claim against us, if successful and of sufficient magnitude, would have a material adverse effect on us. We may not be successful in pursuing our contemplated growth strategy. Our business objective is to seek to expand our RefrigerantSide(R) Services business, which expansion is subject to the availability of adequate financing and will be largely dependent upon our ability to profitably operate our existing business and implement our vertical market penetration of certain industries in which we intend to co-market our RefrigerantSide(R) Services. We may not be successful in the implementation of this strategy. Our business and financial condition is substantially dependent on the sale and continued environmental regulation of chloroflurocarbons, or CFCs. Our sales of refrigerants continue to represent a significant portion of our revenues. Most of our refrigerant sales, however, are CFC based refrigerants which are no longer manufactured. Our inability to source CFC based refrigerants for resale would have a material adverse effect on our financial condition and result of operations. Moreover, our business and prospects are largely dependent upon continued regulation of the use and disposition of refrigerants containing CFCs. Changes in government regulations relating to the emission of refrigerants containing CFCs into the atmosphere could have a material adverse effect on us. Failure by government authorities to otherwise continue to enforce existing regulations or significant relaxation of regulatory requirements could also adversely affect demand for our services and products. Our business is subject to significant regulatory compliance burdens. The refrigerant reclamation and management business is subject to extensive, stringent and frequently changing federal, state and local laws and substantial regulation under these laws by governmental agencies, including the United States Environmental Protection Agency, the United States Occupational Safety and Health Administration and the United States Department of Transportation. Although we believe that we are in substantial compliance with all material regulations relating to our material business operations, amendments to existing statutes and regulations or adoption of new statutes and regulations which affect the marketing and sale of refrigerants could require us to continually alter our methods of operation and/or discontinue the sale of certain of our products resulting in costs to us that could be substantial. We may not be able, for financial or other reasons, to comply with applicable laws, regulations and permitting requirements, particularly as we seek to enter into new geographic markets. Our failure to comply with applicable laws, rules or regulations or permitting requirements could subject us to civil remedies, including substantial fines, penalties and injunctions, as well as possible criminal sanctions, which would materially adversely impact our operations and financial condition. As a result of the intense competition, and the strength of some of our competitors in the market, we may not be able to compete effectively. The markets for our services and products are highly competitive. We compete with numerous regional and national companies which provide refrigerant recovery and reclamation services, as well as companies which market and deal in reclaimed and alternative refrigerants, including certain of our suppliers, some of which possess substantially greater financial, technical, marketing, personnel and other resources than us. We also compete with numerous manufacturers of refrigerant recovery and reclamation equipment. Certain of these competitors have established reputations for success in the service of air conditioning and refrigeration systems. We may not be able to compete successfully, particularly as we seek to enter into new markets. A number of factors could negatively impact the price and/or availability of used refrigerants which would, in turn, adversely affect our business and financial condition. Our business is substantially dependent on the availability of used refrigerants in large quantities and the corresponding demand for reclaimed refrigerants which may be affected by several factors, including limitations on commercial production and use imposed by government regulation as the introduction and commercial use of new refrigerants and air conditioning and refrigeration equipment, price competition resulting from additional market entrants and changes in government regulation, particularly regulations repealing or imposing taxes on the use of refrigerants. Although we believe that sufficient quantities of used domestic refrigerants will continue to be available to us at a reasonable cost for the foreseeable future, we do not maintain agreements with any of our domestic suppliers to obtain refrigerants from time to time in the ordinary course of business. Sufficient amounts of used refrigerants may not be available to us in the future or may be 9 available on commercially unreasonable terms. Additionally, we may be subject to price fluctuations, periodic delays or shortages of used refrigerant or current levels of demand for reclaimed refrigerants may decrease. Our failure to recover and reclaim refrigerants for customers or to otherwise obtain, reclaim and resell sufficient quantities of refrigerants would have a material adverse effect on our operating margins and results of operations. The loss of key management personnel would adversely impact our business. Our success is largely dependent upon the efforts of our Chief Executive Officer and Chairman, the loss of the services of which would have a material adverse effect on our business and prospects. Proceeds from this offering applied to working capital may be allocated at the discretion of management. A substantial portion of the proceeds from this offering has been allocated to working capital and general corporate purposes. Accordingly, our management will have broad discretion as to the application of any such proceeds. We have the ability to designate and issue preferred stock which may have rights, preferences and privileges greater than our common stock and which could impede a subsequent change in control of Hudson. Our Certificate of Incorporation authorizes our Board of Directors to issue up to 5,000,000 shares of "blank check" preferred stock and to fix the rights, preferences, privileges and restrictions, including voting rights, of these shares, without further shareholder approval. A total of 150,000 of the shares of preferred stock have been designated as Series A Convertible Preferred Stock, 120,782 shares of which are currently outstanding. The rights of the holders of our common stock will be subject to and may be adversely affected by the rights of holders of any additional preferred stock that may be issued in the future. Our ability to issue preferred stock without shareholder approval could have the effect of making it more difficult for a third party to acquire a majority of our voting stock, thereby delaying, deferring or preventing a change in control of Hudson. If our common stock were delisted from NASDAQ it would be subject to "penny stock" rules which could negatively impact its liquidity and our stockholders' ability to sell their shares. Our common stock is currently listed on NASDAQ. We must comply with numerous NASDAQ MarketPlace rules in order to continue the listing of our common stock on NASDAQ and we are currently not in compliance with a NASDAQ MarketPlace rule relating to our maintaining a specified level of stockholders' equity. As a result, NASDAQ may seek to remove or "delist" our common stock. If our common stock is no longer traded on NASDAQ the common stock would be subject to certain rules promulgated under the Securities Exchange Act of 1934, which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock which, subject to certain exceptions, is any non-NASDAQ equity security that has a market price of less than $5.00 per share. Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith, and impose various sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transactions prior to sale. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market liquidity of our common stock. The issuance of our common stock in this offering will trigger adjustment of the conversion price of our Series A Preferred Stock, which, if converted, would have a substantially dilutive effect on the ownership interests of our common stockholders. Our Series A Preferred Stock provides for anti-dilution adjustment of the conversion price in the event of the issuance by Hudson of securities for consideration per share less than the then effective conversion price of the Series A Preferred Stock. The conversion price of the Series A Preferred Stock will be adjusted to equal the per share consideration received by Hudson in connection with this offering, or any subsequent issuance of securities below the current $2.375 per share conversion price. Similarly, any conversion of our outstanding Convertible Notes will result in a downward adjustment of the conversion price of the Series A Preferred Stock to equal the conversion rate of the Convertible Notes. Any downward adjustment of the conversion price of the Series A Preferred Stock would result in further dilution to the interests of Hudson's common stockholders upon conversion of the Series A Preferred Stock. Moreover, the percentage ownership of Hudson by existing common stockholders will decrease as a result of issuance of shares upon conversion of the Convertible Notes which will occur in connection with this offering. 10 Based on the current conversion rate of the Series A Preferred Stock, the holders of these shares effectively control the affairs of Hudson. The holders of our Series A Preferred Stock own approximately 48% of our outstanding common stock on a fully diluted, as converted basis, based upon the current $2.375 conversion price of the Series A Preferred Stock. Moreover, any downward adjustment of the conversion price below the current $2.375 conversion price of the Series A Preferred Stock will result in a substantial increase of the ownership percentage of Hudson by the holders of the Series A Preferred Stock. Accordingly, such persons acting together, will be in a position to significantly effect, and potentially fully control Hudson and the election of our directors and generally direct Hudson's affairs. There is no provision for cumulative voting for directors. The trading price of our common stock has been and is likely to continue to be volatile. The trading price of our common stock is subject to significant volatility, which is due, in part, to the lack of liquidity from our shares. This lack of liquidity may continue for the foreseeable future. Disclosures of our operating results, announcements of regulatory changes affecting our business, other factors affecting our operations and general conditions in the securities markets unrelated to our operating performance may cause the market price of our common stock to change significantly over short periods of time. In addition, sales of shares under this prospectus may have a depressive effect on the market price of our common stock. Risk Factors Relating to the Offering of Subscription Rights The market price of our common stock may decline after you have committed to purchase our common stock. The market price of our common stock may increase or decline before the subscription rights expire. Once you exercise your subscription rights, you may not revoke the exercise. Therefore, if you exercise your subscription rights and the market price of the common stock goes below $___, then you will have committed to buy shares of common stock in the rights offering at a price that is higher than the price at which our shares could be purchased in the open market. Moreover, you may not be able to sell the shares of common stock that you purchase in our rights offering at a price equal to or greater than the subscription price. Our determination of the subscription price was not based on an independent valuation and may not be the true value of the shares. We did not set the subscription price, or any of the terms and conditions of the rights offering, based on an independent valuation of Hudson. The $__ subscription price was based on the strategic alternatives available to us for raising capital, the market price of our common stock before and after the announcement of the rights offering, the limited trading volume in our stock, our business prospects and the general conditions in the securities markets. The subscription price does not necessarily bear any relationship to our past operations, cash flows, current financial condition, or any other established criteria for value. You should not consider the subscription price as an indication of the value of Hudson or our common stock. Your percentage ownership of Hudson may be diluted. If you do not exercise all of your basic subscription rights, you may suffer significant dilution of your percentage ownership of Hudson relative to stockholders who fully exercise their subscription rights in addition to any dilution that will result from any purchases of shares by the public and the conversion of our Convertible Notes. For example, if you own ______ shares of common stock before the rights offering, or approximately ___% of the equity of Hudson, and you exercise none of your subscription rights while all other subscription rights are exercised and purchased for cash through the basic subscription privilege and/or over-subscription privilege, then the percentage ownership represented by your _______ shares will be reduced to approximately ___%. After giving effect to the automatic conversion of our outstanding Convertible Notes upon completion of this offering, your percentage ownership in the above example will be further reduced by approximately __%. 11 You may not be able to sell your shares of common stock immediately upon expiration of the rights offering. Until certificates are delivered, or your account is credited for the purchased shares after expiration of the rights offering, you may not be able to sell the shares of our common stock that you purchase in the rights offering. Certificates representing shares of our common stock that you purchased will be delivered and/or your account will be credited as soon as practicable after __________, 2003, the Expiration Date of the rights offering, which may be extended by Hudson. The rights offering may be canceled and funds returned without interest. If we elect to cancel the rights offering, we will have no obligation with respect to the subscription rights except to return, without interest, any subscription payments. You will not earn interest on any funds delivered to us to exercise your subscription rights. We will not pay you interest on funds delivered to us pursuant to your exercise of rights regardless of the length of time during which we hold your subscription payment. FORWARD-LOOKING STATEMENTS Certain statements contained in this section and elsewhere in this prospectus constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Hudson to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are 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, seasonality, competition, litigation, the nature of supplier or customer arrangements which become available to Hudson in the future, adverse weather conditions, possible technological obsolescence of existing products and services, possible reduction in the carrying value of long-lived assets, estimates of the useful life of its assets, potential environmental liability, customer concentration, the ability to obtain financing, and other risks detailed in this prospectus. The words "believe", "expect", "anticipate", "may", "plan", "should" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. USE OF PROCEEDS In the event that all of the shares offered hereby are sold for cash, we expect to use the net cash proceeds of this offering, which are estimated to be approximately $4,700,000 assuming we do not incur any obligation for payment of fees or commissions in connection with the offer of shares, if any, to members of the public and after payment of the expenses of this offering, as follows: --------------------------------------------------------- Purpose Approximate Dollar Amount --------------------------------------------------------- Sales and marketing $ 2,400,000 --------------------------------------------------------- Capital expenditures 750,000 --------------------------------------------------------- Working capital 1,550,000 --------------------------------------------------------- Total $ 4,700,000 --------------------------------------------------------- In the event that less than all of the shares offered hereby are sold for cash, we currently intend to allocate the net proceeds in the priority of the following categories: (i) working capital; (ii) sales and marketing; and (iii) capital expenditures. Capital expenditures will generally be applied to the updating and/or acquiring of equipment and machinery used in Hudson's refrigerant and reclamation business, RefrigerantSide(R) Services business at its remaining service depots, as well as pursuant to strategic alliances that Hudson is seeking to establish in the implementation of its vertical markets strategy. 12 Working capital will be applied toward general and administrative expenses, and the further exploration, testing and recovery process development as described below under the section entitled "Our Business" beginning on page 28. Our indicated allocation of the net cash proceeds of this offering represents our best estimates based upon our currently proposed plans and assumptions relating to our operations and certain assumptions regarding general economic conditions. If any of these factors change, we may find it necessary or advisable to reallocate some of the cash proceeds within the categories set forth above or use portions of those proceeds for other purposes. In addition to shares which may be sold for cash, certain of the shares offered for sale by us under this prospectus may be acquired by the holders of our Convertible Notes, at their election, through the reduction of the principal and, if applicable accrued and unpaid interest in an amount equal to the number of shares subscribed for, multiplied by the subscription price. There are currently $1,650,000 principal amount of Convertible Notes outstanding which were issued by us between December 2002 and April 2003. These Convertible Notes bear interest at 10% per annum and will otherwise automatically convert into our common stock upon the consummation of this offering. The proceeds from the Convertible Notes were used for working capital and general corporate purposes. We may seek to use shares registered hereby and available after expiration of this offering for the repayment of certain of our outstanding loan obligations. MARKET PRICE FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS Hudson's common stock traded from November 1, 1994 to September 20, 1995 on the NASDAQ SmallCap Market under the symbol 'HDSN'. From September 20, 1995 through May 12, 2002, the common stock traded on the NASDAQ National Market. Since May 13, 2002, the common stock has traded on the NASDAQ SmallCap Market. There can be no assurance that, in the future, Hudson will be able to meet the requirements necessary for continued listing of its common stock on the NASDAQ SmallCap Market. The following table sets forth, for the periods indicated the range of the high and low sale prices for the common stock as reported by NASDAQ. - -------------------------------------------------------------------------------- High Low ---- --- - -------------------------------------------------------------------------------- 2001 - ---- - -------------------------------------------------------------------------------- o First Quarter $ 2.53 $ 1.50 - -------------------------------------------------------------------------------- o Second Quarter $ 3.50 $ 1.80 - -------------------------------------------------------------------------------- o Third Quarter $ 3.25 $ 1.90 - -------------------------------------------------------------------------------- o Fourth Quarter $ 4.13 $ 2.01 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2002 - ---- - -------------------------------------------------------------------------------- o First Quarter $ 3.95 $ 2.60 - -------------------------------------------------------------------------------- o Second Quarter $ 3.10 $ 1.60 - -------------------------------------------------------------------------------- o Third Quarter $ 2.09 $ 0.85 - -------------------------------------------------------------------------------- o Fourth Quarter $ 1.70 $ 0.56 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2003 - ---- - -------------------------------------------------------------------------------- o First Quarter $ 1.75 $ 1.20 - -------------------------------------------------------------------------------- The number of record holders of Hudson's common stock was approximately 250 as of May 30, 2003. Hudson believes that there are in excess of 4,000 beneficial owners of its common stock. To date, Hudson has not declared or paid any cash dividends on its common stock. The payment of dividends if any, in the future is within the discretion of Hudson's Board of Directors and will depend upon Hudson's earnings, its capital requirements and financial condition, borrowing covenants, and other relevant factors. Hudson presently intends to retain all earnings, if any, to finance Hudson's operations and development of its business and does not expect to declare or pay any cash dividends in the foreseeable future. In addition, Hudson has a credit facility with Keltic Financial Partners, LP or "Keltic" which, among other things, restricts Hudson's ability to declare or pay any cash dividends on its capital stock. The Series A Preferred Stock carries a dividend rate of 7% and as such has a dividend preference over the common stock. Hudson pays dividends, in arrears, on the Series A Preferred Stock, semi annually, either in cash or additional shares, at Hudson's option. To date Hudson has, and expects that it will continue to pay dividends on the Series A Preferred Stock in additional shares. 13 ABOUT THE RIGHTS OFFERING The Reason for the Rights Offering We are offering the subscription rights to our current stockholders with the intention of raising up to approximately $5,000,000 of gross proceeds. After payment of expenses and any fees or commissions of this offering, we intend to use the net cash proceeds of this offering for (i) sales and marketing support of our service business (ii) infrastructure support for our refrigerant sales business and (iii) working capital and general corporate purposes. Our Board of Directors has chosen to give you the opportunity to buy more shares and provide us with additional capital. This right provides each stockholder the opportunity to avoid additional dilution of their ownership interest, at least insofar as this current financing is concerned. However, our stockholders will experience dilution of their ownership interest as a result of the conversion of our Convertible Notes upon completion of this offering. Of course, we cannot assure you that we will not need to seek additional financing in the future that could result in dilution of your ownership and your ownership interest will be diluted as a result of the conversion of our outstanding Convertible Notes in connection with this offering. The Subscription Rights Without cost to you, we are distributing to you an instrument known as a "subscription right." You will receive ___ non-transferable subscription right(s) for each ___ share(s) of our common stock you owned as of __________, 2003, which we arbitrarily established as of the "record date" for the rights offering. Each subscription right will entitle you, at your option, to purchase - --- share(s) of our common stock at the "subscription price," which we have established as $____ per share. Should you elect to exercise your rights to subscribe, meaning that you choose to purchase the common stock offered to you, you may do so only on the terms and conditions of the offering. You may exercise any number of your subscription rights subject to your subscribing to purchase a minimum of 1,000 shares, or you may choose not to exercise any subscription rights. You cannot give or sell your subscription rights to anyone; only you can exercise them. If not exercised, your right will expire at 5:00 P.M. Eastern Time on ___________, 2003, the Expiration Date. Prior to that date and time, the Board of Directors may cancel the rights offering for any reason. After that date, the subscription rights will expire and will no longer be exercisable. There is no minimum that we must sell to complete the offering. The rights offering and any other sales of shares under this prospectus is being made on an "any or all basis," which means that we may accept payment for shares sold pursuant to any subscription received even if all of the shares of common stock offered are not subscribed for in the offering. Once you submit your subscription agreement to Hudson together with your payment, you may not revoke your subscription, even if you subsequently learn unfavorable information about Hudson or if the market price of our common stock declines to below the subscription price of the shares. Basic Subscription Privilege Each whole subscription right will entitle you to receive, upon payment of $______ per subscription right, ____ share(s) of our common stock. You will receive certificates, or your account will be credited by an amount representing shares that you purchase pursuant to your basic subscription privilege, as soon as practicable after the Expiration Date, whether you exercise your subscription rights immediately prior to that date or earlier. Over-Subscription Privilege Subject to the allocation described below, each subscription right also grants you an over-subscription privilege to purchase additional shares of common stock that are subject to basic subscription rights not exercised by other stockholders. You are entitled to exercise your over-subscription privilege only if you exercise your basic subscription privilege in full. If you wish to exercise your over-subscription privilege, you should indicate the number of additional shares that you would like to purchase in the space provided on your subscription agreement. When you send in your subscription agreement, you must also send the full purchase price for the number of additional shares that you have requested to purchase, which payment is in addition to the payment due for shares purchased through your basic subscription privilege. If we receive over-subscription requests for a number of shares greater than the number of shares available, we will allocate the available over-subscription shares to the over-subscribers in the same proportion that their basic subscription shares bears to the total of basic 14 subscriptions. Regardless of the proportion, however, you will not receive more over-subscription shares than you actually apply for, although you may receive fewer. We have the discretion to issue less than the total number of shares that may be available for over-subscription requests in order to comply with state securities laws. As soon as practicable after the Expiration Date, we will determine the number of shares of common stock that you may purchase pursuant to the over-subscription privilege. You will receive certificates, or your account will be credited by an amount, representing these shares as soon as practicable after the Expiration Date. We have the discretion to delay allocation and distribution of any and all shares to stockholders who elect to participate in the rights offering and are affected by state securities laws, if any, including shares that we issue with respect to basic or over-subscription privileges, in order to comply with such regulations. If you request and pay for more shares than are allocated to you, we will refund that overpayment, without interest. In connection with the exercise of the over-subscription privilege, banks, brokers and other nominee holders of subscription rights who act on behalf of beneficial owners will be required to certify to us as to the aggregate number of subscription rights that have been exercised, and the number of shares of common stock that are being requested through the over-subscription privilege, by each beneficial owner on whose behalf the nominee holder is acting. No Recommendation We are not making any recommendations as to whether or not you should exercise your subscription rights. You should make your decision based on your own assessment of your best interests. Expiration Date The rights will expire at 5:00 P.M. Eastern Time, on __________, 2003, unless we decide to extend the rights offering. If you do not exercise your subscription rights prior to that time, your subscription rights will be null and void. We will not be required to issue shares of common stock to you if we receive your subscription agreement or your payment after that time, regardless of when you sent the subscription agreement and payment. Board of Directors' Withdrawal Right Our Board of Directors may withdraw or cancel the rights offering in its sole discretion at any time prior to or on the Expiration Date for any reason including, without limitation, a change in the market price of our common stock. If we withdraw the rights offering, any funds you paid will be promptly refunded, without interest or penalty. Determination of Subscription Price Our Board of Directors chose the $_____ per share subscription price after considering a variety of factors, including the following: o the historic and current market price of the common stock; o our history of losses; o our business prospects; o our need for capital; o alternatives available to us for raising capital; o general conditions in the securities market; o the level of risk to investors; and o the need to offer shares at a price that would be attractive to investors relative to the current trading price of our common stock. The $____ per share subscription price should not be considered an indication of the actual value of Hudson or of our common stock. The market price of our common stock may decline during or after the rights offering. Moreover, you may not be able to sell shares of our common stock purchased during the rights offering at a price equal to or greater than $_____ per share subscription price. 15 Non-Transferability of Subscription Rights Except in the limited circumstances described below, both the basic subscription rights and over-subscription rights are non-transferable and non-assignable. Only you may exercise these rights. Notwithstanding the foregoing, your rights may be transferred by operation of law or through involuntary transfers. For example, a transfer of rights to the estate of the recipient upon the death of the recipient would be permitted. If the rights are transferred as permitted, evidence satisfactory to us that the transfer was proper must be received by us prior to the Expiration Date of the rights offering. Exercise of Subscription Rights Our stockholders may exercise their subscription rights by delivering to us the following, all of which must be received by us on or prior to the Expiration Date: o a properly completed and duly executed subscription agreement; o any required signature guarantees; and o payment in full of $_____ per share for the shares of common stock subscribed for by exercising basic subscription rights and, if desired, over-subscription rights. You should deliver your subscription agreement and payment to us at the following address: 275 North Middletown Road, Pearl River, New York 10965, Attention: Brian F. Coleman. We recommend registered mail or overnight delivery. We will not pay you interest on funds delivered to us pursuant to the exercise of rights. If you choose to wire transfer funds for payment, you are urged to send your subscription agreement by overnight delivery no later than the date of your wire transfer to assure proper matching with your payment and, in any event, in time for delivery on or prior to _________, 2003. In addition, we request that you provide the name and ABA routing number of the originating bank and the date of your wire transfer on your subscription agreement. Method of Payment Payment for the shares must be made by check or bank draft (cashier's check) drawn upon a United States bank or a postal, telegraphic or express money order payable to the order of Hudson Technologies, Inc. Payment for basic subscription rights and over-subscription rights may also be effected through wire transfer. Contact us at (845) 735-6000 for wiring information. Payment will be deemed to have been received by us only upon: o clearance of any uncertified check; o receipt by us of any certified check or bank draft drawn upon a U.S. bank or of any postal, telegraphic or express money order; o receipt by us of any funds transferred by wire transfer; or o receipt of funds by us through an alternative payment method approved by Hudson. Please note that funds paid by uncertified personal check may take at least ten business days to clear. Accordingly, if you wish to pay by means of an uncertified personal check, we urge you to make payment sufficiently in advance of the Expiration Date to ensure that the payment is received and clears before that date. We are not responsible for any delay in payment and urge you to consider payment by means of a certified or cashier's check, money order or wire transfer. Signature Guarantee Signatures on the subscription agreement do not need to be guaranteed if either the subscription agreement provides that the shares of common stock to be purchased are to be delivered directly to the record owner of such subscription rights, or the subscription agreement is submitted for the account of a member firm of a registered national securities exchange or a 16 member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the Untied States. If a signature guarantee is required, signatures on the subscription agreement must be guaranteed by an Eligible Guarantor Institution, as defined in Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended. Eligible Guarantor Institutions include banks, brokers, dealers, credit unions, national securities exchanges and savings associations. Shares Held for Others If you are a broker, a trustee or a depository for securities, or you otherwise hold shares of our common stock for the account of a beneficial owner of our common stock, you should notify the beneficial owner of such shares as soon as possible to obtain instructions with respect to their subscription rights. If you are a beneficial owner of our common stock held by a holder of record, such as a broker, trustee or a depository for securities and you wish to participate in this rights offering, you should contact the record holder and ask him or her to effect transactions in accordance with your instructions. Ambiguities in Exercise of Subscription Rights If you do not specify the number of subscription rights being exercised on your subscription agreement, or if your payment is not sufficient to pay the total purchase price for all of the shares that you indicated you wish to purchase, you will be deemed to have exercised the maximum number of subscription rights that could be exercised for the amount of the payment that we receive from you. If your payment exceeds the total purchase price for all of the subscription rights shown on your subscription agreement, your payment will be applied, until depleted, to subscribe for shares of common stock in the following order: 1. to subscribe for the number of shares, if any, that you indicated on your subscription agreement that you wished to purchase through your basic subscription privilege; 2. to subscribe for shares of common stock until your basic subscription privilege has been fully exercised; 3. to subscribe for additional shares of common stock pursuant to the over-subscription privilege, subject to any application proration. Any excess payment remaining after the foregoing allocation will be returned to you as soon as practicable by mail, without interest or deduction. Regulatory Limitation We will not be required to issue you shares of common stock pursuant to the rights offering if, in our opinion, you would be required to obtain prior clearance or approval from any state or federal regulatory authorities to own or control such shares if, at the time the subscription rights expire, you have not obtained such clearance or approval. State and Foreign Securities Law The rights offering is not being made in any state or other jurisdiction in which it is unlawful to do so, nor are we selling to you or accepting any offers to purchase any shares of common stock from you if you are a resident of any such state or other jurisdiction. We may delay the commencement of the rights offering in certain states or other jurisdictions in order to comply with the securities law requirements of such states and other jurisdictions. It is not anticipated that there will be any changes in the terms of the rights offering. In our sole discretion, we may decline to make modifications to the terms of the rights offering requested by certain states or other jurisdictions, in which case shareholders who live in those states or jurisdictions will not be eligible to participate in the rights offering. Minimum Share Purchase Requirement We will only accept subscriptions in this rights offering for the purchase of a minimum of 1,000 shares of our common stock. Stockholders who exercise all of their basic subscription rights may subscribe for an unlimited number of additional shares under their over-subscription privilege subject to state regulatory approval and our proportionate reduction of subscriptions in the event of over-subscription of the offering. Therefore, stockholders who, as a result of their share ownership on the record date, receive basic subscription rights for less than 1,000 shares of our common stock may still 17 participate in the rights offering by exercising all of their basic subscription rights and a sufficient amount of over-subscription rights which, in the aggregate, exceeds the minimum 1,000 purchase requirement. Nevertheless, in the event this rights offering is over-subscribed we will be required to reduce, on a proportionate basis, the number of shares that may be purchased by each subscribing stockholder as part of the over-subscription privilege. Consequently, stockholders with basic subscription rights for less than 1,000 shares who have exercised over-subscription rights necessary to exceed the 1,000 share purchase requirement may be subsequently reduced below the 1,000 share purchase requirement, in which case we would not accept that stockholder's subscription. Our Decision Regarding Certain Matters Binding on You All questions concerning the timeliness, validity, form and eligibility of any exercise of subscription rights will be determined by us, and our determinations will be final and binding. In our sole discretion, we may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as we may determine, or reject the purported exercise of any subscription right by reason of any defect or irregularity in such exercise. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as we determine in our sole discretion. We will not be under any duty to notify you of any defect or irregularity in connection with the submission of a subscription agreement or incur any liability for failure to give such notification. It is not anticipated that we will give notice to you of any defects in your subscription, if any, but we reserve the right to do so, and to condition the re-submission of your subscription upon such conditions as we deem necessary or appropriate under the circumstances. Under no circumstance, however, will we be obligated to give you notification of defects in your subscription. No exercise of rights will be accepted until all defects have been cured or waived. If your exercise is rejected, any payments made on account of this offering will be promptly returned. No Revocation After you have exercised your basic subscription privilege and, if applicable, your over-subscription privilege and delivered the appropriate payment, YOU MAY NOT REVOKE THAT EXERCISE EVEN IF THE SUBSCRIPTION PERIOD HAS NOT YET ENDED. You should not exercise your subscription rights unless you are certain that you wish to purchase additional shares of our common stock. Delivery of Subscribed Shares If you purchase shares of common stock through the rights offering, you will receive certificates or your account will be credited by an amount representing those shares as soon as practicable after the Expiration Date. Shares of Our Common Stock Outstanding After the Rights Offering Assuming we issue all of the shares of common stock offered in the rights offering, approximately _______ shares of our common stock will be issued and outstanding. This would represent a __% increase in the number of outstanding shares of our common stock. THE PERCENTAGE OF OUR COMMON STOCK THAT YOU HOLD WILL DECREASE AS A RESULT OF THE CONVERSION OF OUR OUTSTANDING CONVERTIBLE NOTES UPON THE COMPLETION OF THIS OFFERING AND MAY BE DECREASED FURTHER IF YOU DO NOT EXERCISE YOUR BASIC SUBSCRIPTION RIGHTS AND SHARES ARE PURCHASED IN THE OFFERING BY OTHER STOCKHOLDERS AND/OR MEMBERS OF THE PUBLIC. IN ADDITION, IN ACCORDANCE WITH ANTI-DILUTION PROVISIONS, THE SERIES A PREFERRED STOCK CONVERSION PRICE WILL BE ADJUSTED DOWNWARD FROM THE CURRENT CONVERSION PRICE OF $2.375 TO A CONVERSION PRICE EQUAL TO THE LESSER OF THE SUBSCRIPTION PRICE OF THE OFFERING AND $.79 WHICH IS THE LOWEST CURRENT CONVERSION RATE OF OUR CONVERTIBLE NOTES. TO THE EXTENT THAT ALL OR A PORTION OF THE SERIES A PREFERRED STOCK WERE CONVERTED INTO OUR COMMON STOCK AT THE ADJUSTED CONVERSION PRICE, OUR COMMON STOCKHOLDERS WOULD BE SUBJECT TO SIGNIFICANT DILUTION OF THEIR PERCENTAGE OWNERSHIP INTEREST IN HUDSON. 18 Fees and Expenses We are offering shares of our common stock through the issuance of rights directly to our stockholders as of the record date. We will not pay any commissions or similar remuneration to any underwriter, dealer or other person for soliciting the exercise of rights in the rights offering. We may utilize the services of NASD member firms for sales made to members of the public with respect to shares remaining after expiration of the rights offering. Consequently, we pay fees and/or commissions to these NASD firms for their services. You are responsible for paying any other commissions, fees, taxes or other expenses incurred in connection with the exercise of the subscription rights. Hudson will not pay such expenses. Sales of Shares for Which Subscription Rights have not been Exercised by Eligible Stockholders Any shares not sold as part of the rights offering will be offered by us to members of the public at the subscription price. If any of the shares being offered to the public remain unsold at the end of ___ days from the date of this prospectus the holders of our Convertible Notes can then elect to purchase shares in this offering at the subscription price through a reduction of the amount of principal and, if applicable, any accrued and unpaid interest under the Convertible Notes. If such an election is not made the Convertible Notes will otherwise automatically convert on completion of this offering into restricted shares of common stock at prices ranging from the lesser of the subscription price or: (i) $.79 per share with respect to up to $655,000 principal amount of Convertible Notes, together with accrued and unpaid interest; (ii) $1.41 per share with respect to up to $500,000 principal amount of Convertible Notes, together with accrued and unpaid interest; and (iii) $1.13 per share, with respect to up to $495,000 principal amount of Convertible Notes, together with accrued and unpaid interest. These Convertible Notes are held by certain of our officers and their family members and two of our principal stockholders, the Flemings Funds. Moreover, the Flemings Funds have agreed that if gross proceeds from the shares sold by us for cash in the offering to our stockholders and other investors (other than Flemings) together with the amount of principal and accrued interest due on the outstanding $1,650,000 principal amount of Convertible Notes that will be converted to common stock in connection with this offering is less than $2,575,000, the Flemings Funds will purchase from the shares being offered to the public that number of shares (not to exceed $_______) necessary for us to reach the $2,575,000 level. IMPORTANT We may offer to members of the public shares of our common stock, if any, that remain after the expiration date of the rights offering. As with the rights offering, members of the public interested in subscribing for shares must submit subscriptions for the purchase of a minimum of 1,000 shares. Subscriptions for shares offered to members of the public will be accepted and filled on a "first come first served" basis. The offering of shares to members of the public will expire on the later of (i) a date determined by our board of directors and (ii) ____, 2003, unless extended by us but not later than _____, 2003. PLEASE CAREFULLY READ THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION CERTIFICATE AND FOLLOW THOSE INSTRUCTIONS IN DETAIL. SEND SUBSCRIPTION AGREEMENTS DIRECTLY TO US. YOU ARE RESPONSIBLE FOR CHOOSING THE PAYMENT AND DELIVERY METHOD FOR YOUR SUBSCRIPTION AGREEMENT, AND YOU BEAR THE RISKS ASSOCIATED WITH SUCH DELIVERY. IF YOU CHOOSE TO DELIVER YOUR SUBSCRIPTION AGREEMENT AND PAYMENT BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. WE ALSO RECOMMEND THAT YOU ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO US AND CLEARANCE OF PAYMENT PRIOR TO __________, 2003 FOR STOCKHOLDERS SUBSCRIBING IN THE RIGHTS OFFERING, AND ___, 2003, FOR MEMBERS OF THE PUBLIC SUBSCRIBING AFTER THE RIGHTS OFFERING FOR REMAINING SHARES, IF ANY. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST TEN BUSINESS DAYS TO CLEAR, WE STRONGLY URGE YOU TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER. IF YOU HAVE QUESTIONS If you have questions or need assistance concerning the procedure for exercising subscription rights or if you would like additional copies of this prospectus or the subscription agreement you should contact our President, Brian F. Coleman, at (845) 735-6000. 19 Income Tax Effect of Exercising Subscription Rights The following summarizes the material federal income tax consequences to you as a United States stockholder of Hudson as a result of the receipt, lapse, or exercise of the subscription rights distributed to you pursuant to the rights offering. This discussion does not address the tax consequences of the rights offering under applicable state, local or foreign tax laws. Moreover, this discussion does not address every aspect of taxation that may be relevant to a particular taxpayer under special circumstances or who is subject to special treatment under applicable law and is not intended to be applicable in all respects to all categories of investors. Other tax considerations may apply to investors who are, for example, insurance companies, tax-exempt persons, financial institutions, regulated investment companies, dealers in securities, persons who hold their shares of common stock as part of a hedging, straddle, constructive sale or conversion transaction, persons whose functional currency is not the U.S. dollar and persons who are not treated as a U.S. stockholder. This summary is based on the Internal Revenue Code of 1986, as amended which we refer to in this prospectus as the "Code", the Treasury regulations promulgated thereunder, judicial authority and current administrative rules and practice, all of which are subject to change on a prospective or retroactive basis. This discussion assumes that your shares of common stock and the subscription rights and shares issued to you during the rights offering constitute capital assets within the meaning of Code Section 1221. Receipt and exercise of the subscription rights distributed pursuant to the rights offering is intended to be nontaxable to stockholders, and the following summary assumes you will qualify for such nontaxable treatment. If however, the rights offering does not qualify as nontaxable, you would be treated as receiving a taxable distribution equal to the fair market value of the subscription rights on the distribution date. The distribution would be taxed as a dividend to the extent made out of Hudson's current or accumulated earnings and profits; any excess would be treated first as a return of your basis, or investment in your common stock and then as a capital gain. Expiration of the subscription rights in that situation would result in a capital loss. Taxation of Stockholders Receipt of a Subscription Right. You will not recognize any gain or other income upon receipt of a subscription right in respect of your common stock. Your tax basis in each subscription right will effectively depend on whether you exercise the subscription right or allow the subscription right to expire. Except as provided in the following sentence, the basis of subscription rights you receive as a distribution with respect to your common stock will be zero. If, however, either (i) the fair market value of the subscription rights on the date of issuance is 15% or more of the fair market value on that same date of the common stock with respect to which they are received or (ii) you properly elect, in your federal income tax return for the taxable year in which the subscription rights are received, to allocate part of your basis in your common stock to the subscription rights, then upon exercise of the rights, your basis in the common stock will be allocated between the common stock and the rights in proportion to the fair market value of each on the date the rights are issued. Your holding period for a subscription right will include your holding period for the shares of common stock upon which the subscription right is issued. Expiration of Subscription Rights. You will not recognize any loss upon the expiration of a subscription right. Exercise of Subscription Rights. You generally will not recognize a gain or loss on the exercise of a subscription right. The tax basis of any share of common stock that you purchase through the rights offering will be equal to the sum of your tax basis, if any, in the subscription right exercised and the price paid for the shares. The holding period of the shares of common stock purchased through the rights offering will begin on the date that you exercise your subscription rights. THIS DISCUSSION IS INCLUDED FOR YOUR GENERAL INFORMATION ONLY. YOU SHOULD CONSULT YOUR TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO YOU OF THE RIGHTS OFFERING IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES, INCLUDING ANY STATE, LOCAL AND FOREIGN TAX CONSEQUENCES. PLAN OF DISTRIBUTION The common stock offered hereby is being offered by Hudson through the issuance of subscription rights directly to its stockholders of record as of __________, 2003. Shares for which subscription rights have not been exercised by eligible stockholders will first be offered to members of the public and, to the extent thereafter available, may be acquired by the 20 holders of our existing Convertible Notes through the reduction of the principal amount and, if applicable, accrued and unpaid interest on the Convertible Notes in an amount equal to the shares subscribed for multiplied by the subscription price. We may seek to use shares registered hereby and available after the expiration of this offering for the repayment of certain of our outstanding loan obligations. We intend to distribute subscription rights and copies of this prospectus to shareholders of record on _________, 2003, as well as to certain members of the public whom we believe may have an interest in purchasing shares as soon as the Registration Statement, of which this prospectus is a part, becomes effective with the Securities and Exchange Commission. Certain employees, officers or directors of Hudson may solicit responses from holders of subscription rights or members of the public who are sent copies of the prospectus, but such individuals will not receive any commissions or compensation for such services other than their normal employment compensation. We may engage one or more NASD member firms to provide marketing and assistance solely in connection with the offer of shares, if any, to members of the public. These firms will be under no obligation to purchase or sell any specific number or dollar amount of shares. In connection with the marketing services, we may pay a fee as well as commissions to the member firms for shares purchased by members of the public as a result of the efforts of these NASD member firms. These member firms may be deemed to be underwriters under the Securities Act of 1933, and therefore, the fees and commissions to be paid by us to the member firms may be deemed to be underwriting discounts and commissions. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Critical Accounting Policies Hudson's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Hudson to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Several of Hudson's accounting policies involve significant judgements, uncertainties and estimations. Hudson bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. To the extent that actual results differ from management's judgements and estimations, there could be a material adverse effect on Hudson. On an on-going basis, Hudson evaluates its estimates, including, but not limited to, those estimates related to its allowance for doubtful accounts, inventories and commitments and contingencies. With respect to accounts receivable, Hudson estimates the necessary allowance for doubtful accounts based on both historical and anticipated trends of payment history and the ability of the customer to fulfill its obligations. For inventory, Hudson evaluates both current and anticipated sales prices of its products to determine if a write down of inventory to net realizable value is necessary. Hudson utilizes both internal and external sources to evaluate potential current and future liabilities for various commitments and contingencies. In the event that the assumptions or conditions change in the future, the estimated liabilities could differ from the original estimates. Overview Over the past few years, Hudson has been attempting to grow its service revenues through the development of a service offering known as RefrigerantSide(R) Services. RefrigerantSide(R) Services are sold to contractors and end-users associated with refrigeration systems in commercial air conditioning and industrial processing industries. These services are offered in addition to refrigerant sales and Hudson's traditional refrigerant management services, which consist primarily of reclamation of refrigerants. Hudson has created a network of service depots that provide a full range of Hudson's RefrigerantSide(R) Services to facilitate the growth and development of its service offerings. During 1999 and 2001 Hudson completed sales of its Series A Preferred Stock. The net proceeds of these sales were used to expand Hudson's service offering through a network of service depots and to provide working capital. Management believes that its RefrigerantSide(R) Services represent Hudson's long term growth potential. However, in recent periods Hudson has not been successful in growing its RefrigerantSide(R) Services revenue. As part of Hudson's goal to grow its RefrigerantSide(R) Services business, in 2002, Hudson commenced a restructuring of its sales and marketing efforts including hiring a new Vice President of Sales and Marketing. In addition, Hudson has evaluated its sales and marketing strategy and has determined to focus its efforts on vertical markets; rather than geographic markets that had been the focus associated with its network of service depots. In pursuing its vertical markets strategy, Hudson expects to focus its RefrigerantSide(R) Services 21 on specific industries, including petrochemical, pharmaceutical, industrial power, manufacturing, commercial facility and property management, and maritime. Moreover, to maintain its current ability to quickly respond to customer service requests throughout the United States, Hudson intends to create strategic alliances with companies that will allow it to co-locate its equipment and to utilize these partners' sales and marketing resources to offer their customers Hudson's RefrigerantSide(R) Services. In addition, as a result of Hudson's new market strategy management has determined to close six of Hudson's service depots. The territories served by the depots to be closed will continue to be served by Hudson's remaining service depots. In the near term, Hudson expects that it will incur additional expenses and losses related to the development of its RefrigerantSide(R) Services. Sales of refrigerants continue to represent a majority of Hudson's revenues. Most of Hudson's refrigerant sales are chlorofluorocarbon, or CFC based refrigerants, which are no longer manufactured. In addition, Hudson expects that, over time, the demand for CFC based refrigerants will decrease as equipment that utilizes other chemical based refrigerants replaces those units that utilize CFC based refrigerants. To the extent that Hudson is unable to source CFC based refrigerants on commercially reasonable terms or at all, or the demand for CFC based refrigerants decreases, Hudson's financial condition and results of operations would be materially adversely affected. In addition, Hudson's long-term strategy of growth in revenues generated from RefrigerantSide(R) Services may cause reductions in revenues derived from the sale of refrigerants. Hudson believes that, for the foreseeable future in the refrigeration industry overall, there will be a trend towards lower sales prices, volumes and gross profit margins on refrigerant sales, which may result in an adverse effect on Hudson's operating results. In addition, to the extent that Hudson is unable to obtain refrigerants on commercially reasonable terms or experiences a decline in demand for refrigerants, Hudson could realize reductions in refrigerant processing, and possible loss of revenues which would have a material adverse effect on its operating results. Results of Operations Three months ended March 31, 2003 as compared to the three months ended March 31, 2002 Revenues for the three months ended March 31, 2003 were $5,677,000, a decrease of $434,000 or 7% from the $6,111,000 reported during the comparable 2002 period. The decrease in revenues was primarily attributable to a decrease in refrigerant revenues and a decrease in RefrigerantSide(R) Services revenues. The decrease in refrigerant revenues is related to a reduction in the sales prices per pound for certain refrigerants. The decrease in RefrigerantSide(R) Services was primarily a reduction in the number of jobs sold. Cost of sales for the three months ended March 31, 2003 was $4,037,000, a decrease of $644,000 or 14% from the $4,681,000 reported during the comparable 2002 period. The decrease in cost of sales was primarily due to a reduction in materials cost of refrigerants sold and payroll associated with Hudson's RefrigerantSide(R) Services. As a percentage of sales, cost of sales were 71% of revenues for 2003, a decrease from the 77% reported for the comparable 2002 period. The decrease in cost of sales as a percentage of revenues was primarily attributable to a reduction in material costs of refrigerants sold. Operating expenses for the three months ended March 31, 2003 were $1,874,000 a decrease of $148,000 or 7% from the $2,022,000 reported during the comparable 2002 period. The decrease was primarily attributable to a reduction in sales payroll costs associated with the Hudson's RefrigerantSide(R) Service offering. Other income (expense) for the three months ended March 31, 2003 was $(188,000), compared to the $144,000 reported during the comparable 2002 period. Other income (expense) includes interest expense of $188,000 and $97,000 for the comparable three month periods ended March 31, 2003 and 2002, respectively, offset by other income of $241,000 for 2002. The increase in interest expense is primarily attributed to additional CIT charges in connection with the Company's credit facility, interest on the Notes and amortization of the original issue discount associated with the Company's convertible notes. Other income during the 2002 quarterly period primarily relates to interest income and proceeds from the prepayment of the note receivable from ESS. No income taxes for the three months ended March 31, 2003 and 2002 were recognized. The Company recognized a reserve allowance against the deferred tax benefit for the 2003 and 2002 losses. The tax benefits associated with the Company's net operating loss carry forwards would be recognized to the extent that the Company recognizes net income in future periods. A portion of the Company's net operating loss carry forwards are subject to annual limitations. 22 Net loss for the three months ended March 31, 2003 was $422,000 a decrease of $26,000 or 6% from the $448,000 net loss reported during the comparable 2002 period. The decrease in net loss was primarily attributable to an increase in gross profit, attributable to a reduction in materials cost of refrigerant sales; and a decrease in sales payroll costs, offset by the non-recurring gain of $232,000 from the prepayment of the note receivable from ESS in 2002. Year ended December 31, 2002 as compared to year ended December 31, 2001 Revenues for 2002 were $19,963,000, a decrease of $805,000 or 4% from the $20,768,000 reported during the comparable 2001 period. The decrease in revenues was primarily attributable to a decrease in refrigerant revenues and a decrease in RefrigerantSide(R) Services revenues. The decrease in refrigerant revenues is related to a reduction in the sales prices per pound for certain refrigerants. The decrease in RefrigerantSide(R) Services was primarily a reduction in the number of jobs sold. Cost of sales for 2002 was $14,505,000, a decrease of $466,000 or 3% from the $14,971,000 reported during the comparable 2001 period. The decrease in cost of sales was primarily due to a reduction in payroll and supply costs associated with Hudson's RefrigerantSide(R) Services offset by an increase in cost of refrigerant. As a percentage of sales, cost of sales were 73% of revenues for 2002, an increase from the 72% reported for the comparable 2001 period. The increase in cost of sales as a percentage of revenues was primarily attributable to an increase in the cost of refrigerant sold. Operating expenses for 2002 were $7,911,000 a decrease of $106,000 or 1% from the $8,017,000 reported during the comparable 2001 period. The decrease was primarily attributable to a reduction in administrative payroll costs and a reduction in depreciation and amortization offset by an increase in marketing and sales payroll costs of $233,000 associated with Hudson's RefrigerantSide(R) Service offering. Other income (expense) for 2002 was $(69,000), compared to the $(179,000) reported during the comparable 2001 period. Other income (expense) includes interest expense of $347,000 and $423,000 for 2002 and 2001, respectively, offset by other income of $278,000 and $244,000 for 2002 and 2001, respectively. The decrease in interest expense is primarily attributed to a decrease in outstanding indebtedness and interest rates during 2002 as compared to 2001. Other income primarily relates to interest income and proceeds from the prepayment of the note receivable from Environmental Support Solutions, Inc. or ESS. No income taxes for the years ended December 31, 2002 and 2001 were recognized. Hudson recognized a reserve allowance against the deferred tax benefit for the 2002 and 2001 losses. The tax benefits associated with Hudson's net operating loss carry forwards would be recognized to the extent that Hudson recognizes net income in future periods. A portion of Hudson's net operating loss carry forwards are subject to annual limitations. See Note 4 to the Notes to the Consolidated Financial Statements contained elsewhere in this prospectus. Net loss for 2002 was $2,522,000 an increase of $123,000 or 5% from the $2,399,000 net loss reported during the comparable 2001 period. The increase in net loss was primarily attributable to a decrease in revenues resulting from lower sales prices of certain refrigerants sold as well as an increase in the cost of the refrigerant that was sold, offset by the non-recurring gain of $232,000 from the prepayment of the note receivable from ESS. Liquidity and Capital Resources At March 31, 2003, Hudson had a working capital deficit, which represents current assets less current liabilities, of approximately $319,000, an increase of $308,000 from working capital deficit of $11,000 at December 31, 2002. The increase in working capital deficit is primarily attributable to the net loss incurred during the three months ended March 31, 2003. Principal components of current assets are inventory and trade receivables. At March 31, 2003, Hudson had inventories of $2,985,000, an increase of $18,000 or 1% from the $2,967,000 at December 31, 2002. The increase in the inventory balance is due to the timing and availability of inventory purchases and the sale of refrigerants. Hudson's ability to sell and replace its inventory on a timely basis and the prices at which it can be sold are subject, among other things, to current market conditions and the nature of supplier or customer arrangements, See the subsection below entitled "Seasonality and Fluctuations in Operating Results". At March 31, 2003, Hudson had trade receivables of $3,082,000, an increase of $1,111,000 or 56% from the $1,971,000 at December 31, 2002. The increase in the accounts receivable balance related to seasonal revenue fluctuations. Hudson's trade receivables are concentrated with various wholesalers, brokers, contractors and end-users within the refrigeration industry that are primarily located in the continental United States. 23 Hudson has historically financed its working capital requirements through cash flows from operations, the issuance of debt and equity securities and bank and related party borrowings. In recent years, Hudson has not financed its working capital requirements through cash flows from operations but rather from issuances of equity securities and bank borrowings. In order for Hudson to finance its working capital requirements through cash flows from operations, Hudson must reduce its operating losses. There can be no assurances that Hudson will be successful in lowering its operating losses, in which case Hudson will be required to fund its working capital requirements from additional issuances of equity securities and/or additional bank borrowings. Based on the current investment environment there can be no assurances that Hudson would be successful in raising additional capital. The inability to raise additional capital could have a material adverse effect on Hudson. Net cash used by operating activities for the quarter ended March 31, 2003, was $772,000 compared with net cash provided by operating activities of $144,000 for the comparable 2002 period. Net cash used by operating activities was primarily attributable to the net loss for the 2003 period and an increase in trade receivables offset by an increase in trade payables. Net cash used by operating activities for the year ended December 31, 2002, was $1,342,000 compared with net cash used by operating activities of $2,361,000 for the comparable 2001 period. Net cash used by operating activities was primarily attributable to the net loss for the 2002 period and an increase in inventories offset by a reduction in trade receivables. Net cash used by investing activities for the quarter ended March 31, 2003, was $63,000 compared with net cash used by investing activities of $22,000 for the prior comparable 2002 period. The net cash used by investing activities was due to equipment additions primarily associated with the Company's depot network, as well as additions to patents. Net cash used by investing activities for the year ended December 31, 2002, was $80,000 compared with net cash provided by investing activities of $554,000 for the prior comparable 2001 period. The net cash used by investing activities was due to equipment additions primarily associated with Hudson's depot network. Net cash provided by financing activities for the quarter ended March 31, 2003, was $643,000 compared with net cash used by financing activities of $423,000 for the comparable 2002 period. The net cash provided by financing activities for the 2003 period primarily consisted of $754,000 of advances with the Company's credit facility with CIT, offset by the repayment of long term debt of $111,000. Net cash provided by financing activities for the year ended December 31, 2002, was $585,000 compared with net cash provided by financing activities of $2,326,000 for the comparable 2001 period. The net cash provided by financing activities for the 2002 period primarily consisted of $1,150,000 aggregate proceeds received by Hudson from the sale of Bridge Notes, described below, and the Convertible Notes to purchasers including the holders of Hudson's Series A Preferred Stock and certain officers and certain members of their family, offset by the repayment of long term debt of $788,000. At March 31, 2003, Hudson had cash and cash equivalents of $353,000. Hudson continues to assess its capital expenditure needs. Hudson may, to the extent necessary, continue to utilize its cash balances to purchase equipment primarily associated with its RefrigerantSide(R)Services offering and for consolidation of its reclamation facilities. Hudson estimates that capital expenditures during 2003 may range from approximately $400,000 to $500,000. The following is a summary of Hudson's significant contractual cash obligations for the periods indicated that existed as of December 31, 2002 and is more fully disclosed in Notes 8 and 10 of the Notes to the Consolidated Financial Statements included elsewhere in this prospectus. The amounts presented below are in thousands of dollars.
Year ended December 31, --------------------------------------------------------------- 2003 2004 2005 2006 2007 Total ------ ------- ------ ------ ------ ------- Long term debt and capital lease obligations $ 245 $ 1,045 $ 3 $ 3 $ 3 $ 1,299 Operating leases 664 324 120 70 72 1,250 ------ ------- ------ ------ ------ ------- Total contractual cash obligations $ 909 $ 1,369 $ 123 $ 73 $ 75 $ 2,549 ====== ======= ====== ====== ====== =======
Hudson entered into a credit facility with CIT, which provided for borrowings to Hudson of up to $6,500,000. As of March 31, 2003, Hudson had availability under its revolving line of credit of approximately $265,000. As of March 31, 2003, Hudson had approximately $256,000 outstanding under its term loans and $2,788,000 outstanding under its revolving line of credit. The facility bore interest at the prime rate plus 1.5%, 5.75% at March 31, 2003, and substantially all of Hudson's assets were pledged as collateral for obligations to CIT. On May 30, 2003, all of Hudson's obligations to CIT were satisfied. 24 On May 30, 2003 Hudson entered into a credit facility with Keltic which provides for borrowings of up to $5,000,000. The facility consists of a revolving line of credit and a term loan. Advances under the revolving line of credit may not exceed $4,600,000 and are limited to (i) 85% of eligible trade accounts receivable and (ii) 50% of eligible inventory. Advances available to Hudson under the term loan may not exceed $400,000. The facility bears interest at a rate equal to the greater of the prime rate plus 2.0%, or 6.5%. Substantially all of Hudson's assets are pledged as collateral for its obligations to Keltic under the credit facility. In addition, among other things, the agreements restrict Hudson's ability to declare or pay any cash dividends on its capital stock. As of May 30, 2003, Hudson had in the aggregate $1,932,000 outstanding under the Keltic credit facility and $1,140,000 available for borrowing under the credit facility. In connection with the Keltic credit facility, Hudson also entered into a loan arrangement with the Flemings Funds for the principal amount of $575,000. The loan is unsecured, is for a term of three years, and accrues interest at an annual rate equal to the greater of the prime rate plus 2.0%, or 6.5%. In accordance with the terms of the Keltic credit facility, the amount of principal and interest outstanding under this loan arrangement reduces Hudson's aggregate borrowing availability by a like amount under its credit facility with Keltic. This loan is expectd to be retired in conjection with completion of this Rights Offering. Effective March 19, 1999, Hudson sold 75% of its stock ownership in ESS to one of ESS's founders. The consideration for Hudson's sale of its interest was $100,000 in cash and a six-year 6% interest bearing note in the amount of $380,000. Hudson has recognized as income the portion of the proceeds associated with the note receivable upon the receipt of cash. This sale did not have a material effect on Hudson's financial condition or results of operations. Effective October 11, 1999, Hudson sold to three of ESS's employees an additional 5.4% ownership in ESS. Hudson received $37,940 from the sale of this additional ESS stock. Effective April 18, 2000, ESS redeemed the balance of Hudson's stock ownership in ESS. Hudson received cash in the amount of $188,000 from the redemption. Pursuant to an agreement dated January 22, 2002, ESS and Hudson agreed to a 16% discount of the outstanding balance on the note receivable. On January 25, 2002, as part of a capital financing completed by ESS, ESS paid Hudson $231,951, representing the discounted balance as of that date, as full satisfaction of the note receivable and as of that date Hudson recognized the proceeds as other income. In November 2002, Hudson consummated the private sale of 12% unsecured promissory notes referred to in this prospectus as the "Bridge Notes" to a limited number of purchasers, for which it received gross proceeds of $655,000. The Bridge Notes were for a term of one year and were subordinate in payment to Hudson's obligations under its credit facility with CIT. In accordance with the terms of the Bridge Notes, each of the purchasers, at their option, elected to defer quarterly interest payments which were to be added to the principal amount of the Bridge Notes as of each interest payment date and which accrued interest would, in turn, accrue interest at 12% per annum. The Bridge Notes automatically exchanged for convertible notes identical in terms to the Convertible Notes, upon approval of such exchange by Hudson's shareholders, which approval was obtained at the annual meeting on December 20, 2002. Effective December 2002, Hudson consummated the private sale of Convertible Notes to a limited number of purchasers, for which it received gross proceeds of $495,000. At or about the same time, the Bridge Notes were cancelled and exchanged for the convertible notes identical in terms to the Convertible Notes in a principal amount equal to the outstanding principal amount of the Bridge Notes immediately prior to the exchange together with accrued and unpaid interest thereon. For purposes of this prospectus, the convertible notes issued in exchange for the Bridge Notes are included in the term "Convertible Notes." The Convertible Notes have a term of two years and earn interest at an annual rate of 10% payable quarterly in arrears. Holders of the Convertible Notes had the one time option to elect to either receive payments of interest on a quarterly basis, subject to limitations described below, or defer quarterly interest payments, in which case, interest would be added to the outstanding amount of the Convertible Notes on each quarterly payment date and accrue interest at the then effective interest rate of the Convertible Notes. The Convertible Notes are unsecured and subordinate in payment to Hudson's obligations under its credit facility with Keltic. The Convertible Notes may not be prepaid in cash by Hudson without the prior consent of Keltic and payment of interest, if any, in cash on any scheduled quarterly interest payment date is limited to an aggregate of $20,000 per calendar year. Holders of the Convertible Notes have the right to convert all or a portion of the outstanding principal balance, and any accrued interest thereon, to common stock of Hudson, upon, but not prior to, the first anniversary of the issuance of the Convertible Notes. The initial conversion rate of these Convertible Notes was $.79 per share. On April 15, 2003 Hudson issued an additional $500,000 principal amount of Convertible Notes to the holders of the Series A Preferred Stock. The April 15, 2003 note issuance is identical to the December 2002 issuance, except that the conversion rate of these Convertible Notes is $1.41 per share. 25 The conversion rate of the Convertible Notes is subject to adjustment on a full ratchet basis; this means that if Hudson issues any stock at a price less than the conversion rate, the conversion rate for all shares issuable upon conversion of the Convertible Notes will be adjusted downward to such price. This adjustment is applicable in certain events including Hudson's issuance of common stock, warrants or rights to purchase common stock or securities convertible into common stock in each case for a consideration per share which is less than the then-effective conversion rate of the Convertible Notes. The anti-dilution adjustment would not apply, however where Hudson issues shares subject to stock options under or reserved for option grants under any shareholder approved stock option plan or upon exercise or conversion of options, warrants or other exercisable or exchangeable equity or debt securities that were outstanding immediately prior to the issuance of the Convertible Notes. In addition, the conversion rate is subject to an appropriate adjustment in the event of: (i) any subdivisions, combinations and reclassifications of Hudson's common stock; (ii) any payment, issuance or distribution by Hudson to its stockholders of a stock dividend; (iii) the consolidation or merger of Hudson with or into another corporation whereby Hudson is not the surviving entity; or (iv) the sale by Hudson of substantially all of its assets. The Convertible Notes provide that in the event of an equity offering by Hudson at any time prior to the first anniversary of the issuance of the Convertible Notes, for gross proceeds of not less than $2 million, inclusive of the application of all outstanding principal and interest of the Convertible Notes, which is referred to in this prospectus as the "Equity Offering", all outstanding principal and interest, if any, on the Convertible Notes shall be either (i) applied to the purchase of equity securities in the Equity Offering at the public offering purchase price, or (ii) converted into restricted shares of common stock at the then effective conversion rate. Holders of the Convertible Notes have the right to determine, to the extent that securities are available for purchase in the Equity Offering, whether to apply the Convertible Notes to acquire such equity securities sold in the Equity Offering or convert the Convertible Notes into common stock; provided, however, that in the event that all or a portion of outstanding principal and interest, if any, of the Convertible Notes exceeds the number of equity securities available in the Equity Offering, the balance of the Convertible Notes not applied to the purchase of equity securities will be converted into restricted shares of common stock at the then-effective conversion rate. In April 2003, the holders of $495,000 principal amount of Convertible Notes acquired as of December 2002 entered into agreements with Hudson whereby the holders agreed to modify the conversion rate of their Convertible Notes to the modified conversion rate of $1.13, which was the average closing sale price of Hudson's common stock as reported on the NASDAQ SmallCap Market for the five business days immediately preceding the execution of the modification agreements; provided further, that, in the event of an Equity Offering by Hudson prior to the first anniversary of the issuance of the Convertible Notes, at a public offering price, which includes the exercise price of stock purchase rights offered in the Equity Offering below the modified conversion rate but in excess of $.79, the conversion rate of the Convertible Notes will be adjusted to not less than the public offering price. Hudson is obligated to issue to the holders of the Convertible Notes, on the earlier of (a) the first anniversary of their respective date of issuance, or (b) the consummation by Hudson of an Equity Offering, warrants to purchase an aggregate number of shares of common stock equal to 10% of the number of shares of common stock into which the Convertible Notes were convertible at their date of issuance. Each warrant will be exercisable to purchase one share of common stock for a period of five years from issuance at an exercise price equal to 110% of the lesser of (i) the conversion rate of the Convertible Notes as of their date of issuance, or (ii) the conversion rate of the Convertible Notes on the date of issuance of the warrants. The exercise price of the warrants will be subject to anti-dilution adjustment on terms substantially similar to anti-dilution adjustment of the conversion rate of the Convertible Notes. As of December 20, 2002, Hudson has recognized an original issue discount of $220,000 in connection with the obligation to issue the warrants. On March 30, 1999, Hudson completed the sale of 65,000 shares of its Series A Preferred Stock, with a liquidation value of $100 per share, to Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. The gross proceeds from the sale of the Series A Preferred Stock were $6,500,000. These shares of Series A Preferred Stock currently convert to common stock at a conversion price of $2.375 per share, which was 27% above the closing market price of common stock on March 29, 1999. On February 16, 2001, Hudson completed the sale of 30,000 shares of its Series A Preferred Stock, with a liquidation value of $100 per share, to Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. The gross proceeds from the sale of the Series A Preferred Stock were $3,000,000. These shares of Series A Preferred Stock currently convert to common stock at a conversion price of $2.375 per share, which was 23% above the closing market price of common stock on February 15, 2001. 26 The Series A Preferred Stock provides for anti-dilution adjustment of the conversion price in the event of the subsequent offering by Hudson of securities for consideration per share less than the then-effective conversion price of the Series A Preferred Stock. At the direction of the NASDAQ Stock Market, Inc., a minimum conversion price floor of $1.78 per share, below which the conversion price of the Series A Preferred Stock could not be adjusted, had been instituted by Hudson and the holders of the Series A Preferred Stock by amendment to the designation of the Series A Preferred Stock, and at the same time Hudson agreed not to offer securities for consideration per share less than the $1.78 conversion price floor without the consent of the holders of the Series A Preferred Stock. Subsequently, in consideration for the consent of the holders of the Series A Preferred Stock to Hudson's engagement in the private offering of the Convertible Notes at a conversion price below the $1.78 conversion price floor, the stockholders of Hudson, at the annual meeting on December 20, 2002, voted in favor of a proposal to remove the $1.78 conversion price floor and the designation of the Series A Preferred Stock was amended accordingly. Although the holders of the Series A Preferred Stock agreed to waive their rights to an immediate downward adjustment of the current $2.375 conversion price of the Series A Preferred Stock in connection with the issuance of the Convertible Notes, any subsequent conversion of the Convertible Notes will result in a downward adjustment of the conversion price of the Series A Preferred Stock to equal the then effective conversion rate of the Convertible Notes. Consequently, upon conversion of the Convertible Notes at the $.79 per share conversion rate, the anti-dilution provisions of the Series A Preferred Stock will cause the conversion rate of the Series A Preferred Stock to adjust downward to the $.79 per share. Assuming that the Series A Preferred Stock converts to common stock at a conversion price of $.79 per share and based upon 120,782 shares of Series A Preferred Stock issued as of March 30, 2003, the holders of the Series A Preferred Stock would receive 15,288,860 shares of common stock. Similarly, the conversion price of such Series A Preferred Stock may be adjusted to equal the consideration received by Hudson in connection with any issuance of securities, such as that contemplated in this offering, below the current $2.375 conversion price. The Series A Preferred Stock has voting rights on an as-if converted basis. The number of votes applicable to the Series A Preferred Stock is equal to the number of shares of common stock into which the Series A Preferred Stock is then convertible. The designation of the Series A Preferred Stock provided for a proxy granted by the holders of the Series A Preferred Stock in favor of certain of Hudson's officers to vote all shares of common stock into which the Series A Preferred Stock converts including any additional shares subsequently acquired by such holders in excess of 29% of the votes entitled to be cast by the Series A Preferred Stock holders. As noted above, in consideration for consent of the holders of the Series A Preferred Stock to Hudson's engagement in the private offering of the Convertible Notes at a conversion rate below the $1.78 conversion price floor, the stockholders of Hudson, at the annual meeting on December 20, 2002, voted in favor of a proposal to remove the proxy from the designation of the Series A Preferred Stock and the designation of the Series A Preferred Stock was amended accordingly. The Series A Preferred Stock carries a dividend rate of 7%, which will increase to 16%, if the stock remains outstanding on or after March 31, 2004. Hudson used the net proceeds from the issuance of the Series A Preferred Stock to expand its RefrigerantSide(R) Services business and for working capital purposes. Hudson pays dividends, in arrears, on the Series A Preferred Stock, semi-annually, either in cash or additional shares, at Hudson's option. On March 30 and September 30, 2002, and March 30, 2003 Hudson declared and paid, in-kind, the dividends on the outstanding Series A Preferred Stock and issued 3,873 and 4,011 and 4,153, respectively, additional shares of its Series A Preferred Stock in satisfaction of the dividends due. Hudson may redeem the Series A Preferred Stock on March 31, 2004 either in cash, or shares of common stock valued at 90% of the average trading price of the common stock for the 30 days preceding March 31, 2004. In addition, Hudson may call the Series A Preferred Stock if the market price of its common stock is equal to or greater than 250% of the conversion price and the common stock has traded with an average daily volume in excess of 20,000 shares for a period of thirty consecutive days. Hudson has provided certain registration, preemptive and tag along rights to the holders of the Series A Preferred Stock. The holders of the Series A Preferred Stock have agreed to waive their registration rights with respect to the registration of the securities in this offering. In addition, the holders of the Series A Preferred Stock, voting as a separate class, have the right to elect up to two members to Hudson's Board of Directors, or at their option to designate up to two advisors to Hudson's Board of Directors who will have the right to attend and observe meetings of the Board of Directors. Currently, the holders of the Series A Preferred Stock have elected one member to the Board of Directors. Hudson is continuing to evaluate opportunities to rationalize its operating facilities and its depot network based on ways to reduce costs or to increase revenues. Recently, based on evaluations by management, Hudson has consolidated certain of its facilities. Hudson is also considering whether to reduce or eliminate certain of its operations that have not performed to its expectations. Moreover, as we begin to implement our sales and marketing strategy to focus on industry rather than geographic markets we may discontinue certain operations, eliminate additional depots and related overhead costs and, in doing so, may incur future charges to exit certain operations. 27 Hudson believes that it will be able to satisfy its working capital requirements for the immediate future from anticipated cash flow from operations and available funds under its credit facility with Keltic. However, Hudson believes that it will need additional financing during 2003 to support its continuing operations. In addition, any unanticipated expenses, including, but not limited to, an increase in the cost of refrigerants purchased by Hudson, an increase in operating expenses or failure to achieve expected revenues from Hudson's depots and/or refrigerant sales or additional expansion or acquisition costs that may arise in the future would adversely affect Hudson's future capital needs. There can be no assurances that Hudson's proposed or future plans will be successful, and as such, Hudson may need to significantly modify its plans or it may require additional capital sooner than anticipated. Hudson is currently seeking to obtain additional financing through the issuance of debt and/or equity securities, which includes the offering contemplated by this prospectus. There can be no assurance that Hudson will be able to obtain any additional capital on commercially reasonable terms or at all, and its inability to do so would have a material adverse affect on Hudson. Inflation Inflation has not historically had a material impact on Hudson's operations. Reliance on Suppliers and Customers Hudson's financial performance is in part dependent on its ability to obtain sufficient quantities of virgin and reclaimable refrigerants from manufacturers, wholesalers, distributors, bulk gas brokers, and from other sources within the air conditioning and refrigeration and automotive aftermarket industries, and on corresponding demand for refrigerants. To the extent that Hudson is unable to obtain sufficient quantities of virgin or reclaimable refrigerants in the future, or resell reclaimed refrigerants at a profit, Hudson's financial condition and results of operations would be materially adversely affected. During the quarter ended March 31, 2003, two customers accounted for 17% and 11% of the Company's revenues. During the quarter ended March 31, 2002, one customer accounted for 14% of the Company's revenues. During the year ended December 31, 2002, one customer accounted for 11% of Hudson's revenues. During the year ended December 31, 2001, one customer accounted for 15% of Hudson's revenues. The loss of a principal customer, or a decline in the economic prospects and purchases of Hudson's products or services by any such customer, could have a material adverse effect on Hudson's financial position and results of operations. Seasonality and Fluctuations in Operating Results Hudson's operating results vary from period to period as a result of weather conditions, requirements of potential customers, non-recurring refrigerant and service sales, availability and price of refrigerant products (virgin or reclaimable), changes in reclamation technology and regulations, timing in the introduction and/or retrofit or replacement of CFC-based refrigeration equipment by domestic users of refrigerants, the rate of expansion of Hudson's operations, and by other factors. Hudson's business is seasonal in nature with peak sales of refrigerants occurring in the first half of each year. During past years, the seasonal decrease in sales of refrigerants have resulted in additional losses during the second half of the year. Delays in securing adequate supplies of refrigerants at peak demand periods, lack of refrigerant demand, increased expenses, declining refrigerant prices and a loss of a principal customer could result in significant losses. There can be no assurance that the foregoing factors will not occur and result in a material adverse effect on Hudson's financial position. With respect to Hudson's RefrigerantSide(R) Services, to date, Hudson has not identified any seasonal pattern. However, Hudson could experience a similar seasonal element to this portion of its business in the future. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued FASB statement No. 143, Accounting for Asset Retirement Obligations ("SFAS 143"). SFAS 143 addresses financial reporting for obligations associated with retirement of tangible long-lived assets and the associated retirement costs. SFAS 143 is effective for fiscal years beginning after June 15, 2002. In April 2002, the FASB issued FASB statement No. 145 ("SFAS 145"), which rescinds FASB statements No. 4, 44 and 64 and amends FASB statement No. 13. SFAS 145 is effective for fiscal years beginning after May 15, 2002. 28 In June 2002, the FASB issued FASB statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS 146"). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 is effective for fiscal years beginning after December 31, 2002. In December 2002, the FASB issued FASB statement No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure ("SFAS 148"), an amendment of SFAS No. 123. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Hudson plans to continue to use the intrinsic value method for stock-based compensation. SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. Hudson adopted each of the above pronouncements effective January 1, 2003, except that SFAS 148 was adopted as of December 31, 2002 and these adoptions did not have a material impact on its financial position and results of operations. OUR BUSINESS Industry background The production and use of refrigerants containing CFCs and hydrochlorofluorocarbons or HCFCs, the most commonly used refrigerants, are subject to extensive and changing regulation under the Clean Air Act. The Clean Air Act, which was amended during 1990 in response to evidence linking the use of CFCs and damage to the earth's ozone layer, prohibits any person in the course of maintaining, servicing, repairing and disposing of air conditioning or refrigeration equipment, to knowingly vent or otherwise release or dispose of ozone depleting substances used as refrigerants. That prohibition also applies to substitute, non-ozone depleting, refrigerants. The Clean Air Act further requires the recovery of refrigerants used in residential, commercial and industrial air conditioning and refrigeration systems. In addition, the Clean Air Act prohibited production of CFC refrigerants effective January 1, 1996 and limits the production of HCFC refrigerants, which production is scheduled to be phased out by the year 2030. Owners, operators and companies servicing cooling equipment are responsible for the integrity of their systems regardless of the refrigerant being used and for the responsible management of their refrigerant. Products and Services RefrigerantSide(R) Services Hudson provides services that are performed at a customer's site through the use of portable, high volume, high-speed proprietary equipment, including the patented ZugiBeast(R) system. Certain of these RefrigerantSide(R) Services, which encompass system decontamination, and refrigerant recovery and reclamation, are also proprietary and are covered by certain process patents. Refrigerant Sales Hudson sells reclaimed and virgin or new refrigerants to a variety of customers in various segments of the air conditioning and refrigeration industry. Virgin refrigerants are purchased by Hudson from several suppliers, including E.I. DuPont de Nemours and Company, or DuPont as part of Hudson's strategic alliance with DuPont discussed in greater detail below under the subsection "Strategic Alliance", and resold by Hudson, typically at wholesale. In addition, Hudson regularly purchases used or contaminated refrigerants from many different sources; which refrigerants are then reclaimed using Hudson's high volume proprietary reclamation equipment, and resold by Hudson. Refrigerant Management Services Hudson provides a complete offering of refrigerant management services, which primarily include reclamation of refrigerants, testing and banking (storage) services tailored to individual customer requirements. Hudson also separates "crossed" (i.e. commingled) refrigerants and provides re-usable cylinder repair and hydrostatic testing services. 29 Hudson's Network Hudson operates from a network of facilities located in: Charlotte, North Carolina --RefrigerantSide(R)Service depot Fremont, New Hampshire --Telemarketing office Hillburn, New York --RefrigerantSide(R)Service depot Pearl River, New York --Company headquarters and administration offices Punta Gorda, Florida --Refrigerant separation and reclamation center Champaign, Illinois --Reclamation and cylinder refurbishment center and RefrigerantSide(R) Service depot Seattle, Washington --RefrigerantSide(R)Service depot Strategic Alliance In January 1997, Hudson entered into agreements with DuPont, pursuant to which Hudson (i) provides recovery, reclamation, separation, packaging and testing services directly to DuPont for marketing through DuPont's Authorized Distributor Network and (ii) markets DuPont's SUVA(TM) refrigerant products together with Hudson's reclamation and refrigerant management services. These agreements provide for automatic annual renewal subject to termination by either party. Hudson has recently evaluated its sales and marketing strategy and has determined to reorganize its RefrigerantSide(R) Services business to focus its efforts on vertical markets; rather than the geographic markets that had been the focus associated with its network of service depots. In order to maintain its current ability to quickly respond to customer service requests throughout the United States, Hudson intends to create strategic alliances with companies that service larger customers in targeted industries which would enable Hudson to co-locate its equipment with these strategic partners and utilize these partners' sales and marketing resources to offer their customers Hudson's RefrigerantSide(R) Services. Suppliers Hudson's financial performance is in part dependent on its ability to obtain sufficient quantities of virgin and reclaimable refrigerants from manufacturers, wholesalers, distributors, bulk gas brokers and from other sources within the air conditioning and refrigeration and automotive aftermarket industries, and on corresponding demand for refrigerants. Most of Hudson's refrigerant sales are CFC based refrigerants, which are no longer manufactured. To the extent that Hudson is unable to source CFC based refrigerants or virgin refrigerants, or resell refrigerants at a profit, Hudson's financial condition and results of operations would be materially adversely affected. Customers Hudson provides its services to commercial, industrial and governmental customers, as well as to refrigerant wholesalers, distributors, contractors and to refrigeration equipment manufacturers. Agreements with larger customers generally provide for standardized pricing for specified services. During the quarter ended March 31, 2003, two customers accounted for 17% and 11% of the Company's revenues. During the quarter ended March 31, 2002, one customer accounted for 14% of the Company's revenues. During the year ended December 31, 2002, one customer accounted for 11% of Hudson's revenues. During the year ended December 31, 2001, one customer accounted for 15% of Hudson's revenues. The loss of a principal customer or a decline in the economic prospects of and/or a reduction in purchases of Hudson's products or services by any such customer could have a material adverse effect on Hudson's financial position and results of operations. Marketing Marketing programs are conducted through the efforts of Hudson's executive officers, sales personnel, and third parties. Hudson employs various marketing methods, including direct mailings, technical bulletins, in-person solicitation, print advertising, response to quotation requests and the internet (www.hudsontech.com). 30 Hudson's sales personnel are compensated on a combination of a base salary and commission. Hudson's executive officers devote significant time and effort to customer relationships. Competition Hudson competes primarily on the basis of the performance of its proprietary high volume, high-speed equipment used in its operations, the breadth of services offered by Hudson (including proprietary RefrigerantSide(R) Services and other on-site services) and price (particularly with respect to refrigerant sales). Hudson competes with numerous regional and national companies, which provide refrigerant reclamation services, as well as market reclaimed and virgin refrigerants. Certain of these competitors may possess greater financial, marketing, distribution and other resources for the sale and distribution of refrigerants than Hudson and, in some instances, provide services or products over a more extensive geographic area than Hudson. Hudson's RefrigerantSide(R) Services provide new and innovative solutions to certain problems within the refrigeration industry and as such the demand and market acceptance for these services are subject to uncertainty. Competition for these services primarily consists of traditional methods of solving the industry's problems and as a result there can be no assurance that Hudson will be able to compete successfully or penetrate this service market as rapidly as it anticipates. Insurance Hudson carries insurance coverage that it considers sufficient to protect Hudson's assets and operations. Hudson currently maintains general commercial liability insurance and excess liability coverage for claims up to $7,000,000 per occurrence and $8,000,000 in the aggregate. Hudson attempts to operate in a professional and prudent manner and to reduce potential liability risks through specific risk management efforts, including employee training. Nevertheless, a partially or completely uninsured claim against Hudson, if successful and of sufficient magnitude, would have a material adverse effect on Hudson. The refrigerant industry involves potentially significant risks of statutory and common law liability for environmental damage and personal injury. Hudson, and in certain instances its officers, directors and employees, may be subject to claims arising from Hudson's on-site or off-site services, including the improper release, spillage, misuse or mishandling of refrigerants classified as hazardous or non-hazardous substances or materials. Hudson may be held strictly liable for damages, which could be substantial, regardless of whether it exercised due care and complied with all relevant laws and regulations. Hudson maintains environmental impairment insurance and pollution liability insurance, each in amounts of $1,000,000 per occurrence, and $2,000,000 annual aggregate for events occurring subsequent to November 1996. As a result of Hudson's settlement in June 2000 of a claim brought by United Water of New York, Inc., Hudson has exhausted all if its environmental impairment insurance coverage related to this matter. See the subsection entitled "Legal Proceedings" described below in this prospectus. Government Regulation The business of refrigerant sales, reclamation and management is subject to extensive, stringent and frequently changing federal, state and local laws and substantial regulation under these laws by governmental agencies, including the Environmental Protection Agency or EPA, the United States Occupational Safety and Health Administration and the United States Department of Transportation. Among other things, these regulatory authorities impose requirements which regulate the handling, packaging, labeling, transportation and disposal of hazardous and non-hazardous materials and the health and safety of workers, and require Hudson, and in certain instances its employees, to obtain and maintain licenses in connection with its operations. This extensive regulatory framework imposes significant compliance burdens and risks on Hudson. Hudson and its customers are subject to the requirements of the Clean Air Act, and the regulations promulgated thereunder by the EPA, which make it unlawful for any person in the course of maintaining, servicing, repairing, and disposing of air conditioning or refrigeration equipment to knowingly vent or otherwise release or dispose of ozone depleting substances, and non-ozone depleting substitutes, used as refrigerants. 31 Pursuant to the Clean Air Act, reclaimed refrigerant must satisfy the same purity standards as newly manufactured refrigerants in accordance with standards established by the Air Conditioning and Refrigeration Institute or ARI prior to resale to a person other than the owner of the equipment from which it was recovered. The ARI and the EPA administer certification programs pursuant to which applicants are certified to reclaim refrigerants in compliance with ARI standards. Under such programs, the ARI issues a certification for each refrigerant and conducts periodic inspections and quality testing of reclaimed refrigerants. Hudson has obtained ARI certification for most refrigerants at each of its reclamation facilities, and is certified by the EPA. In order to maintain ARI certification, Hudson is required, among other things, to submit periodic reports to the ARI and pay annual fees based on the number of pounds of refrigerants reclaimed by Hudson. However, certification by the ARI is not required. During February 1996, the EPA published proposed regulations, which, if enacted, would require participation in third-party certification programs similar to the ARI program. Such proposed regulations would also require laboratories designed to test refrigerant purity to undergo a certification process. Extensive comments to these proposed regulations were received by the EPA. The EPA is still considering these comments and no further or additional regulations have been proposed or published. In addition, the EPA has established a mandatory certification program for air conditioning and refrigeration technicians. Hudson's technicians have applied for or obtained such certification. Hudson is also subject to regulations adopted by the Department of Transportation which classify most refrigerants handled by Hudson as hazardous materials or substances and impose requirements for handling, packaging, labeling and transporting refrigerants. The Resource Conservation and Recovery Act of 1976 or RCRA requires that facilities that treat, store or dispose of hazardous wastes comply with certain operating standards. Before transportation and disposal of hazardous wastes off-site, generators of such waste must package and label their shipments consistent with detailed regulations and prepare a manifest identifying the material and stating its destination. The transporter must deliver the hazardous waste in accordance with the manifest to a facility with an appropriate RCRA permit. Under RCRA, impurities removed from refrigerants consisting of oils mixed with water and other contaminants are not presumed to be hazardous waste. The Emergency Planning and Community Right-to-Know Act of 1986 requires the annual reporting of Emergency and Hazardous Chemical Inventories also known as Tier II reports to the various states in which Hudson operates and to file annual Toxic Chemical Release Inventory Forms with the EPA. Hudson believes that it has been and remains in full compliance with these requirements. The Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, establishes liability for clean-up costs and environmental damages to current and former facility owners and operators, as well as persons who transport or arrange for transportation of hazardous substances. Almost all states have similar statutes regulating the handling and storage of hazardous substances, hazardous wastes and non-hazardous wastes. Many such statutes impose requirements, which are more stringent than their federal counterparts. Hudson could be subject to substantial liability under these statutes to private parties and government entities, in some instances without any fault, for fines, remediation costs and environmental damage, as a result of the mishandling, release, or existence of any hazardous substances at any of its facilities. The Occupational Safety and Health Act of 1970 mandates requirements for safe work place for employees and special procedures and measures for the handling of certain hazardous and toxic substances. State laws, in certain circumstances, mandate additional measures for facilities handling specified materials. Hudson believes that it is in compliance with all material regulations relating to its material business operations. Quality Assurance & Environmental Compliance Hudson utilizes in-house quality and regulatory compliance control procedures. Hudson maintains its own analytical testing laboratories to assure that reclaimed refrigerants comply with ARI purity standards and employs portable testing equipment when performing on-site services to verify certain quality specifications. Hudson employs three persons engaged full-time in quality control and to monitor Hudson's operations for regulatory compliance. 32 Employees Hudson has 72 full and 6 part time employees including air conditioning and refrigeration technicians, chemists, engineers, sales and administrative personnel. None of Hudson's employees is represented by a union. Hudson believes that its employee relations are good. Patents and Proprietary Information Hudson holds a United States patent relating to the high-speed equipment, components and process to reclaim refrigerants, and a registered trademark for its "ZugiBeast(R)". The patent expires in January 2012. Hudson believes that patent protection is important to its business and has received additional United States patents relating to high-speed refrigerant recovery and to various RefrigerantSide(R) Services. There can be no assurance as to the breadth or degree of protection that patents may afford Hudson, that any patent applications will result in issued patents or that patents will not be circumvented or invalidated. Technological development in the refrigerant industry may result in extensive patent filings and a rapid rate of issuance of new patents. Although Hudson believes that its existing patents and Hudson's equipment do not and will not infringe upon existing patents or violate proprietary rights of others, it is possible that Hudson's existing patent rights may not be valid or that infringement of existing or future patents or violations of proprietary rights of others may occur. In the event Hudson's equipment or processes infringe or are alleged to infringe patents or other proprietary rights of others, Hudson may be required to modify the design of its equipment, obtain a license or defend a possible patent infringement action. There can be no assurance that Hudson will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action or that Hudson will not become liable for damages. Hudson also relies on trade secrets and proprietary know-how, and employs various methods to protect its technology. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop such know-how or obtain access to Hudson's know-how, concepts, ideas and documentation. Failure to protect its trade secrets could have a material adverse effect on Hudson. Description of Properties Hudson's Baltimore, Maryland depot facility is located in a 2,700 square foot building leased from an unaffiliated third party at an annual rent of $27,000 pursuant to an agreement expiring in August 2005. Hudson's Baton Rouge, Louisiana depot facility is located in a 3,800 square foot building leased from an unaffiliated third party at an annual rental of $21,000 pursuant to an agreement expiring in July 2005. Hudson's Champaign, Illinois facility is located in a 48,000 square foot building leased from an unaffiliated third party at an annual rental of $132,000 pursuant to an agreement expiring in November 2004. Hudson sublets a portion of the facility to an unaffiliated third party at an annual rental of $48,000 pursuant to a rental agreement expiring in November 2004. In 2003, this facility will consolidate the operations that are currently located in Hudson's Rantoul, Illinois facility. Hudson's Charlotte, North Carolina facility is located in a 12,000 square foot building leased from an unaffiliated third party pursuant to a month to month rental agreement at a monthly rental of $3,500. Hudson's Villa Park, Illinois depot facility is located in a 3,500 square foot building leased from an unaffiliated third party at an annual rent of $25,000 pursuant to an agreement expiring in August 2005. Hudson's Fremont, New Hampshire telemarketing facility is located in a 2,100 square foot building leased from an unaffiliated third party at an annual rent of $8,000 pursuant to an agreement expiring in June 2004. Hudson's Hillburn, New York facility is located in a 21,000 square foot building leased from an unaffiliated third party at an annual rent of $103,000 pursuant to an agreement expiring in May 2004. 33 Hudson's headquarters are located in a 3,625 square foot building in Pearl River, New York. The building is leased from an unaffiliated third party pursuant to a five year agreement at an annual rental of approximately $64,000 through December 2007. Hudson's Punta Gorda, Florida separation facility is located in a 15,000 square foot building leased from an unaffiliated third party at an annual rent of $76,000 pursuant to an agreement expiring in December 2003. Hudson's Rantoul, Illinois facility is located in a 29,000 square foot building leased from an unaffiliated third party at an annual rent of $78,000 pursuant to an agreement that expired in September 2002. Hudson currently occupies the facility pursuant to a month to month rental agreement at a monthly rate of $6,500. Hudson is in the process of relocating all of its operations at this facility to its Champaign, Illinois facility. Hudson's Seattle, Washington depot facility is located in a 3,000 square foot building leased from an unaffiliated third party at an annual rent of $20,000 pursuant to an agreement expiring in March 2004. Hudson typically enters into short-term leases for its facilities and whenever possible extends the expiration date of such leases. Hudson is beginning to implement a change in its sales and marketing strategy toward vertical rather than geographic markets, and as a result, Hudson is in the process of terminating the operations at its Baltimore, Baton Rouge and Villa Park service depots. Legal Proceedings In June 1998, United Water of New York Inc., or United commenced an action against Hudson in the Supreme Court of the State of New York, Rockland County, seeking damages in the amount of $1.2 million allegedly sustained as a result of alleged contamination of certain of United's wells which are in close proximity to Hudson's Hillburn, New York facility. On April 1, 1999, Hudson reported a release at Hudson's Hillburn, New York facility of approximately 7,800 lbs. of R-11, as a result of a failed hose connection to one of Hudson's outdoor storage tanks allowing liquid R-11 to discharge from the tank into the concrete secondary containment area in which the subject tank was located. Between April 1999 and May 1999, with the approval of the New York State Department of Environmental Conservation, or DEC, Hudson constructed and put into operation a remediation system at Hudson's Hillburn facility to remove R-11 levels in the groundwater under and around Hudson's facility. The cost of this remediation system was $100,000. In July 1999, United amended its complaint in the Rockland County action to allege facts relating to, and to seek damages allegedly resulting from the April 1, 1999 R-11 release. In June 2000, the Rockland County Supreme Court approved a settlement of the Rockland County action commenced by United. Under the settlement, Hudson paid to United the sum of $1,000,000 and has been making additional monthly payments in the amount of $5,000, which payments will continue through December 2003. The proceeds of the settlement were required to be used to fund the construction and operation by United of a new remediation tower, as well as for the continuation of temporary remedial measures implemented by United that have successfully contained the spread of R-11. The remediation tower was completed in March 2001, and is designed to treat all of United's impacted wells and restore the water to New York State drinking water standards for supply to the public. Hudson carries $1,000,000 of environmental impairment insurance per occurrence and in connection with the settlement, exhausted all insurance proceeds available for that occurrence under all applicable policies. In June 2000, Hudson signed an Order on Consent with the DEC regarding all past contamination of the United well field, whereby, Hudson agreed to continue operating the remediation system it installed at its Hillburn facility in May 1999, until remaining groundwater contamination has been effectively abated. In May 2001, Hudson signed an amendment to the Order on Consent with the DEC, pursuant to which Hudson installed one additional monitoring well and modified Hudson's existing remediation system to incorporate a second recovery well. Hudson is continuing to operate the remediation system. In May 2000, Hudson's Hillburn facility was nominated by the EPA for listing on the National Priorities List, pursuant to CERCLA. Hudson believes that the agreements reached with the DEC and United, together with the reduced levels of contamination present in the United wells, make such listing unnecessary and counterproductive. Hudson submitted opposition to the listing within the sixty-day comment period. The EPA has advised that it has no current plans to finalize the 34 process for listing the Hillburn facility on the NPL. The EPA has also advised that it will not at this time withdraw the proposal of the facility or the NPL. In October 2001, Hudson learned that trace levels of R-11 were detected in one of United's wells that is closest to the village of Suffern's well system. During February 2002, Suffern expressed concern over the possibility of R-11 reaching its well system and has advised Hudson that it was investigating available options to protect its well system. No contamination of R-11 has ever been detected in any of the Suffern's wells and, as of October 2002, the level of R-11 in the United well closest to Suffern was below 1 parts per billion. In October, 2002 Suffern advised Hudson it intends to proceed with plans to protect its wells and could look to Hudson to reimburse Suffern for any costs it may incur. To date, no detailed cost estimate, formal demand or claim has been presented by Suffern, however, to the extent Suffern proceeds with its plans, Hudson may incur additional costs. Hudson has reimbursed Suffern for approximately $10,000 of costs incurred to date for additional sampling by Suffern of its wells and for minor preparatory work in connection with Suffern's plan for protecting its wells. Hudson continues cooperate with all applicable governmental agencies to prevent contamination of Suffern's wells and its water supply. In February 2003, Hudson agreed to extend the statute of limitations applicable to any claims that may be available to Ramapo Land Company, the lessor of the Hillburn facility, arising out of the April 1, 1999 incident for an additional two years. To date, no claims against Hudson have been asserted or threatened by Ramapo Land Company. During the year ended December 31, 2002, Hudson recognized $115,000 in additional remediation costs in connection with these matters. There can be no assurance that the R-11 will not spread beyond the United well system and impact the village of Suffern's wells, or that the ultimate outcome of such a spread of contamination will not have a material adverse effect on Hudson's financial condition and results of operations. There can be no assurance that the EPA will withdraw the proposal for listing of Hudson's Hillburn facility on the NPL, or that the ultimate outcome of such a listing will not have a material adverse effect on Hudson's financial condition and results of operations. Furthermore, there can be no assurance that Ramapo Land Company will not assert any claim against Hudson, or that any such claim will not have a material adverse effect on Hudson's financial condition and results of operations. Management The following table sets forth information with respect to the directors and executive officers of Hudson:
- ------------------------------------------------------------------------------------------- Name Age Position - ------------------------------------------------------------------------------------------- Kevin J. Zugibe 39 Chairman of the Board and Chief Executive Officer - ------------------------------------------------------------------------------------------- Brian F. Coleman 41 President and Chief Operating Officer - ------------------------------------------------------------------------------------------- James R. Buscemi 50 Chief Financial Officer - ------------------------------------------------------------------------------------------- Neil B. Gafarian 55 Vice President Sales and Marketing - ------------------------------------------------------------------------------------------- Charles F. Harkins, Jr. 41 Vice President Refrigerant Product Services - ------------------------------------------------------------------------------------------- Stephen P. Mandracchia 43 Vice President Operations and Secretary - ------------------------------------------------------------------------------------------- Vincent Abbatecola 56 Director - ------------------------------------------------------------------------------------------- Robert L. Burr 52 Director - ------------------------------------------------------------------------------------------- Dominic J. Monetta 61 Director - ------------------------------------------------------------------------------------------- Otto C. Morch 69 Director - ------------------------------------------------------------------------------------------- Harry C. Schell 68 Director - ------------------------------------------------------------------------------------------- Robert M. Zech 37 Director - -------------------------------------------------------------------------------------------
Kevin J. Zugibe, P.E. is a founder of Hudson and has been a director and Chief Executive Officer of Hudson since its inception in 1991. From May 1987 to May 1994, Mr. Zugibe was employed as a power engineer with Orange and Rockland Utilities, Inc., a major public utility, where he was responsible for all HVAC applications. Mr. Zugibe is a licensed professional engineer, and from December 1990 to May 1994, he was a member of Kevin J. Zugibe & Associates, a professional engineering firm. Mr. Zugibe is the brother-in-law of Stephen P. Mandracchia. Brian F. Coleman has been President and Chief Operating Officer since his appointment on August 21, 2001 and served as Chief Financial Officer of Hudson from May 1997 until December 31, 2002. From June of 1987 to May of 1997, Mr. Coleman was employed by and since July 1995, was a partner with BDO Seidman, LLP, Hudson's independent auditors. 35 James R. Buscemi joined Hudson as Corporate Controller in June 1998 and has served as its Chief Financial Officer since December 31, 2002. Prior to joining Hudson, Mr. Buscemi held various financial positions within Avnet, Inc, including Chief Financial Officer of Avnet's electric motors and component part subsidiary, Brownell Electro, Inc. Neil B. Gafarian joined Hudson in February 2002 as Vice President of Sales and Marketing. Prior to joining Hudson, Mr. Gafarian spent more than 20 years in the building automation and energy field, the last nine with Invensys, Plc. Also, Mr. Gafarian owned and operated his own telemarketing and consulting business. Charles F. Harkins, Jr. has been with Hudson since 1992 and has served in a variety of capacities and currently is Vice President of Refrigerant Product Services ("RPS") a position he has held since October 2000. Prior to joining Hudson, Mr. Harkins served in the U.S. Army for 13 years attaining the rank of Staff Sergeant; he is a graduate of the U.S. Army Engineer School and the U.S. Army Chemical School. Stephen P. Mandracchia has been an officer of Hudson since 1993 and is currently the Vice President Operations and Secretary a position he has held since October 2000. Mr. Mandracchia is responsible for operations and regulatory legal affairs of Hudson. Mr. Mandracchia was a member of the law firm of Martin, Vandewalle, Donohue, Mandracchia & McGahan, Great Neck, New York until December 31, 1995 (having been affiliated with such firm since August 1983). Mr. Mandracchia is the brother in-law of Mr. Zugibe. Vincent P. Abbatecola has been a director of Hudson since June 1994. Mr. Abbatecola is the owner and General Manager of Abbey Ice & Spring Water Company, a leading ice and bottled water company in the New York metropolitan area since May 1971. He serves as a Board Member and past Chairman of the Mid Atlantic Ice Association, Board Member and past Chairman of the National Packaged Ice Association and Past Chairman of the Food Safety Committee of the National Packaged Ice Association. Mr. Abbatecola also serves as Vice Chairman, Board of Governors of the Rockland County Health Center; Member, St. Thomas Aquinas College President's Council; Member, Rockland Business Association Board of Directors; Member, Nyack Hospital Corporation and Member, Union State Bank Chairman's Council. Robert L. Burr has been a Director of Hudson since August 1999. Mr. Burr has been a partner of Windcrest Discovery Capital Partners, LLC since October 2001 and has a consulting agreement with J.P. Morgan Partners under which he is the lead partner of Fleming US Discovery Partners, L.P., a private equity sponsor affiliated with J.P. Morgan Chase & Co. Fleming US Discovery Partners, L.P. is the general partner of Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. Mr. Burr was employed by J. P. Morgan Chase & Co. from July 1995 to October 2001. From 1992 to 1995, Mr. Burr was head of Private Equity at Kidder, Peabody & Co., Inc. Previously, Mr. Burr served as the Managing General Partner of Morgan Stanley Ventures and General Partner of Morgan Stanley Venture Capital Fund I, L.P. and was a corporate lending officer with Citibank, N.A. Mr. Burr serves on the Board of Directors of Displaytech, Inc. and Impax Laboratories, Inc. Dominic J. Monetta has been a director of Hudson since April 1996. Since August 1993, Mr. Monetta has been the President of Resource Alternatives, Inc., a corporate development firm concentrating on solving management and technological problems facing chief executive officers and their senior executives. From December 1991 to May 1993, Mr. Monetta served as the Director of Defense Research and Engineering for Research and Advanced Technology for the United States Department of Defense. From June 1989 to December 1991, Mr. Monetta served as the Director of the Office of New Production Reactors of the United States Department of Energy. Otto C. Morch has been a director of Hudson since March 1996. Mr. Morch was a Senior Vice President of Commercial Banking at Provident Bank and retired from that position in December 1997. Harry C. Schell has been a director of Hudson since August 1998. Mr. Schell is the former chairman and chief executive officer of BICC Cables Corporation, from where he retired, and has served on the board of directors of the BICC Group (London), Phelps Dodge Industries, the National Electrical Manufacturers Association and the United Way of Rockland (New York). Robert M. Zech has been a Director of Hudson since June 1999. Mr. Zech has been a Partner of Windcrest Discovery Investments, LLC, an investment management firm, from its inception in February 2002. From April 1996 to October 2001, Mr. Zech was employed by J.P. Morgan Chase & Co., where he was a Partner of Fleming US Discovery Partners, L.P., the general partner of Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. From 1994 to 1996, Mr. Zech was an Associate with Cramer Rosenthal McGlynn, Inc., an investment management firm. Previously Mr. 36 Zech served as an Associate with Wolfensohn & Co., a mergers & acquisitions advisory firm, and was a Financial Analyst at leveraged buyout sponsor Merrill Lynch Capital Partners, Inc. and in the investment banking division of Merrill Lynch & Co. Hudson has established a Compensation/Stock Option Committee of the Board of Directors, which is responsible for recommending the compensation of Hudson's executive officers and for the administration of Hudson's Stock Option Plans. The members of the Committee are Messrs. Abbatecola, Burr, Morch and Zech. Hudson also has an Audit Committee of the Board of Directors, which supervises the audit and financial procedures of Hudson. The members of the Audit Committee are Messrs. Abbatecola, Morch and Monetta. Hudson also has an Executive Committee of the Board of Directors, which is authorized to exercise the powers of the board of directors in the general supervision and control of the business affairs of Hudson during the intervals between meetings of the board. The members of the Executive Committee are Messrs. Burr, Schell and Zugibe. Hudson's Occupational, Safety And Environmental Protection Committee is responsible for satisfying the Board that Hudson's Environmental, Health and Safety policies, plans and procedures are adequate. The members of the Occupational, Safety and Environmental Protection Committee are Messrs. Monetta and Zugibe. The By-laws of Hudson provide that the Board of Directors is divided into two classes. Each class is to have a term of two years, with the term of each class expiring in successive years, and is to consist, as nearly as possible, of one-half of the number of directors constituting the entire Board. The By-laws provide that the number of directors shall be fixed by the Board of Directors but in any event, shall be no less than seven (7) (subject to decrease by a resolution adopted by the shareholders). The holders of the Series A Preferred Stock, voting as a separate class, have the right to elect up to two members to Hudson's Board of Directors. Currently, the holders have elected one member to the Board of Directors. At Hudson's December 20, 2002 Annual Meeting of the Shareholders, Messrs. Monetta, Schell, Zech and Zugibe were elected as directors to terms of office that will expire at the Annual Meeting of Shareholders to be held in the year 2004. Messrs. Abbatecola, Burr and Morch are currently serving as directors and whose terms of office expire at the Annual Meeting of the Shareholders to be held in the year 2003. EXECUTIVE COMPENSATION The following table discloses, for the years indicated, the compensation for Hudson's Chief Executive Officer and each executive officer that earned over $100,000 during the year ended December 31, 2002 (the "Named Executives"). Summary Compensation Table
Long Term Compensation Annual Compensation(1) Awards ---------------------- Securities Underlying Name Position Year Salary Bonus Options ---- -------- ---- ------ ----- ------- Kevin J. Zugibe (2) Chairman of the Board 2002 $ 97,471 -- 45,000 shares and Chief Executive 2001 $ 76,366 -- 170,000 shares Officer 2000 $ 80,981 -- 140,000 shares Brian F. Coleman President and Chief 2002 $138,799 -- -- Operating 2001 $138,799 -- 100,000 shares Officer 2000 $138,799 $12,248 37,500 shares Neil B. Gafarian Vice President Sales and 2002 $120,000 $37,917 40,000 shares Marketing Charles F. Harkins, Jr. Vice President RPS 2002 $110,079 $29,976 -- 2001 $108,852 $68,492 27,500 shares 2000 $103,289 $10,126 42,500 shares Stephen P. Mandracchia Vice President Operations and 2002 $123,800 -- -- Secretary 2001 $123,800 -- 15,000 shares 2000 $113,415 -- 77,500 shares
- ---------- (1) The value of personal benefits furnished to the Named Executives during 2000, 2001 and 2002 did not exceed 10% of their respective annual compensation. 37 (2) A certain portion of Mr. Zugibe's compensation has been paid in stock option awards rather than cash. As a result, options to purchase shares of common stock of 45,000 and 120,000 for the years ended December 31, 2002 and 2001, respectively, were issued in lieu of cash compensation. Hudson granted options, which vested upon the date of grant, to the Named Executives during the fiscal year ended December 31, 2002, as shown in the following table: Summary of Option Grants in the 2002 Fiscal Year
% of Total Number of Options Securities Granted to Underlying Employees Options in Fiscal Exercise or Expiration Name Position Granted year Base price($/sh) Date ---- -------- ------- ---- ---------------- ---- Kevin J. Zugibe Chairman and Chief 15,000 9.2% $2.50 04/18/2007 Executive Officer 15,000 9.2% $1.90 07/01/2007 15,000 9.2% $1.40 10/01/2007 Brian F. Coleman President and Chief -- -- -- -- Operating Officer Neil B. Gafarian Vice President Sales and 40,000 24.5% $2.65 02/13/2007 Marketing Charles F. Harkins, Jr. Vice President RPS -- -- -- -- Stephen P. Mandracchia Vice President Operations -- -- -- -- and Secretary
38 The following table sets forth information concerning the value of unexercised stock options held by the Named Executives at December 31, 2002. No options were exercised by the Named Executives during the fiscal year ended December 31, 2002. Aggregated Fiscal Year End Option Values
Number of Securities Underlying Value of Unexercised Options In-the-money Options At December 31, 2002 At December 31, 2002(1) -------------------- ----------------------- Shares Acquired on Name Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable ---- -------- -------------- ----------- ------------- ----------- ------------- Kevin J. Zugibe Chairman and -- -- 362,668 33,332 -- -- Chief Executive Officer Brian F. Coleman President and Chief -- -- 150,168 13,332 -- -- Operating Officer Neil B. Gafarian Vice President Sales and -- -- 40,000 -- -- -- Marketing Charles F. Harkins, Jr -- -- 94,332 6,668 -- -- Vice President RPS Stephen P. Mandracchia Vice President Operations -- -- 108,500 10,000 -- -- And Secretary
- ---------- (1) Year-end values of unexercised in-the-money options represent the positive spread between the exercise price of such options and the year-end market value of the common stock of $.85. Compensation of Directors Non-employee directors receive an annual fee of $3,000 and receive reimbursement for out-of-pocket expenses incurred, and an attendance fee of $500 and $250, respectively, for attendance at meetings of the Board of Directors and Board committee meetings. In addition, commencing in August 1998, non-employee directors receive 5,000 nonqualified stock options per year of service under Hudson's Stock Option Plans. In addition to the standard annual director's remuneration, Mr. Schell receives $20,000 and 5,000 stock options for serving as a director and a consultant to Hudson. The additional stock options are issued with an exercise price equal to that of the other directors' option grants. As of December 31, 2002, Hudson has granted to Harry C. Schell nonqualified options to purchase 40,000 shares of common stock at exercise prices ranging from $2.38 to $3.00 per share. Such options vested and are fully exercisable as of December 31, 2002. Hudson has also granted to each of Dominic J. Monetta, Otto Morch and Vincent Abbatecola, nonqualified options to purchase 20,000 shares of common stock at exercise prices ranging from $2.38 to $3.00 per share. Such options vested and are fully exercisable as of December 31, 2002. In addition, in connection with the appointment of two of their nominees as members of the Board of Directors, Hudson has granted to Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. nonqualified options to purchase 25,854 and 4,146 shares of common stock, respectively, at an exercise price of $2.38 per share. All such options issued to the directors are vested and fully exercisable at December 31, 2002. Employment Agreements Hudson has entered into a two-year employment agreement with Kevin J. Zugibe, which expires in May 2005 and is automatically renewable for two successive terms. Pursuant to the agreement, effective February 1, 2000, Mr. Zugibe is 39 receiving an annual base salary of $141,000 with such increases and bonuses as the Board may determine. During 2002, the Board of Directors and Mr. Zugibe agreed, at Mr. Zugibe's option, to reduce the cash compensation and issued 45,000 additional stock options to Mr. Zugibe in satisfaction of his annual base salary. Hudson is the beneficiary of a "key-man" insurance policy on the life of Mr. Zugibe in the amount of $1,000,000. Stock Option Plans Hudson has adopted each of an Employee Stock Option Plan (the "1994 Plan") and the 1997 Stock Option Plan (the "1997 Plan") pursuant to which an aggregate of 2,750,000 shares of common stock are currently reserved for issuance upon the exercise of options designated as either (i) options intended to constitute incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as amended (the "Code"), or (ii) nonqualified options. ISOs may be granted under either of the 1994 Plan or 1997 Plan to employees and officers of Hudson. Non-qualified options may be granted to consultants, directors (whether or not they are employees), employees or officers of Hudson. Stock appreciation rights may also be issued in tandem with stock options. Each of the 1994 Plan and 1997 Plan is intended to qualify under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and is administered by the Compensation/Stock Option Committee of the Board of Directors. The Committee, within the limitations of each of the 1994 Plan and 1997 Plan, determines the persons to whom options will be granted, the number of shares to be covered by each option, whether the options granted are intended to be ISOs, the duration and rate of exercise of each option, the exercise price per share and the manner of exercise and the time, manner and form of payment upon exercise of an option. Unless sooner terminated, the 1994 Plan will expire on December 31, 2004 and the 1997 Plan will expire on June 11, 2007. ISOs granted under either of the 1994 Plan or 1997 Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of Hudson). The aggregate fair market value of shares for which ISOs granted to any employee are exercisable for the first time by such employee during any calendar year (under all stock option plans of Hudson) may not exceed $100,000. Non-qualified options granted under the 1994 Plan may not be granted at a price less than 85% of the market value of the common stock on the date of grant and new qualified options granted under the 1997 Plan may not be granted at a price less than the par value of our common stock. Options granted under the 1994 Plan and 1997 Plan will expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of Hudson). Except as otherwise provided by the committee with respect to non-qualified options, all options granted under the 1994 Plan and 1997 Plan are not transferable during an optionee's lifetime but are transferable at death by will or by the laws of descent and distribution. In general, upon termination of employment of an optionee, all options granted to such person which are not exercisable on the date of such termination immediately terminate, and any options that are exercisable terminate 90 days following termination of employment. As of December 31, 2002, Hudson had options outstanding to purchase 610,000 shares of common stock under the 1994 Plan. During 2000, Hudson granted options to purchase 40,000 shares each to Kevin J. Zugibe, Stephen P. Mandracchia and Thomas P. Zugibe exercisable at $2.375 per share. Such options vest and are fully exercisable as of August 3, 2000. During 2001, Hudson granted options to purchase shares to Kevin J. Zugibe, 50,000 shares; Brian F. Coleman, 20,000 shares; Stephen P. Mandracchia, 15,000 shares; and Thomas P. Zugibe, 20,000 shares, all of which are exercisable at $2.55 per share. Such options vest quarterly in equal amounts over three years, commencing with the first quarter of 2002. In addition, during 2001, in lieu of salary, Hudson also granted options to purchase 15,000 shares to Kevin J. Zugibe exercisable at $2.55 per share, all of which vested and are fully exercisable as of December 13, 2001. During 2001, Hudson also granted options to purchase 80,000 shares to Brian F. Coleman exercisable at $2.55 per share, all of which vested as of December 13, 2001, and which became exercisable as follows: 39,215 on 12/13/01, 39,215 on 12/13/02 and 1,570 on 12/13/03. In addition, during 2001, Hudson also granted options to certain employees to purchase 20,000 shares exercisable at $2.55 per share. Such options vest quarterly in equal amounts over three years, commencing with the first quarter of 2002. During 2002, Hudson granted options to purchase 40,000 shares to Neil B. Gafarian exercisable at $2.65 per share. In addition, during 2002, in lieu of salary, Hudson granted options to purchase 45,000 shares to Kevin J. Zugibe exercisable at prices ranging from $1.40 to $2.50 per share. All such options vest immediately and become exercisable at various dates through June 2003. See Note 11 to the Notes of the Consolidated Financial Statements included elsewhere in this prospectus. As of December 31, 2002, Hudson had options outstanding to purchase 1,152,716 shares of common stock under the 1997 Plan. During 1998, Hudson granted non-qualified options to purchase 40,000, 25,000 and 25,000 shares at an exercise price of $3.00 per share to Kevin J. Zugibe, Stephen P. Mandracchia and Thomas P. Zugibe, respectively. Such options vested 40 on August 31, 1998. In addition, during 1998, Hudson also granted options to purchase 430,666 shares to certain officers, directors and employees, exercisable at prices ranging from $2.50 to $4.375 per share. During 1999, Hudson granted options to purchase 1,000 shares each at an exercise price of $2.00 per share to Kevin J. Zugibe, Stephen P. Mandracchia and Thomas P. Zugibe, respectively. Such options vested and are fully exercisable as of November 3, 2000; November 3, 1999 and November 3, 1999, respectively. In addition, during 1999, Hudson also granted options to purchase 156,000 shares to certain officers, directors and employees, exercisable at prices ranging from $1.781 to $2.63 per share. During 2000, Hudson granted options to purchase 100,000 shares at an exercise price of $2.375 per share to Kevin J. Zugibe, which options vest at a rate of 50% upon issuance and 50% on the first anniversary date, and which become exercisable as follows: 14,500 on 8/4/00, 27,500 on 11/3/00, 14,500 on 8/4/01, 27,000 on 11/3/01, 14,500 on 8/4/02 and 2,000 on 11/2/02. During 2000, Hudson granted options to purchase 37,500 and 62,500 shares at an exercise price of $2.375 per share to Stephen P. Mandracchia and Thomas P. Zugibe, respectively. Such options vest at a rate of 50% upon issuance and 50% on the first anniversary date. In addition, during 2000, Hudson also granted options to purchase 274,500 shares to certain officers, directors and employees, exercisable at prices ranging from $2.375 to $2.78 per share. During 2001, Hudson granted options to purchase 105,000 shares at an exercise price of $2.375 per share to Kevin J. Zugibe, which options vested and were fully exercisable as of February 7, 2001, as to 60,000 shares, and as of October 23, 2001 as to 45,000 shares. In addition, during 2001, Hudson granted options to purchase 131,000 shares to certain directors and employees ranging from $2.375 to $3.08 per share. Such options vested and were fully exercisable as of the date of issuance. During 2002, Hudson granted options to purchase 10,000 shares to James R. Buscemi exercisable at $1.30 per share. In addition, during 2002, Hudson granted options to purchase 68,400 shares to certain employees at prices ranging from $1.30 to $1.60 per share. All such 2002 option issuances vested and were fully exercisable as of the date of issuance. See Note 11 to the Notes to the Consolidated Financial Statements included elsewhere in this prospectus. 41 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as of May 30, 2003 based on information obtained from the persons named below, with respect to the beneficial ownership of Hudson's common stock by (i) each person known by Hudson to be the beneficial owner of more than 5% of Hudson's outstanding common stock, (ii) the Named Executives, (iii) each director of Hudson, and (iv) all directors and executive officers of Hudson as a group:
Amount and Nature of Percentage of Beneficial Common Shares Name and Address of Beneficial Owner (1) Ownership (2) Owned ---------------------------------------- ------------- ----- Kevin J. Zugibe 687,980(3) 12.3% Brian F. Coleman 203,190(4) 3.8% Neil B. Gafarian 41,875(5) * Charles F. Harkins 107,498(6) 2.1% Stephen P. Mandracchia 390,128(7) 7.3% Vincent P. Abbatecola 30,000(8) * Robert L. Burr --(9) * Dominic J. Monetta 35,000(8) * Otto C. Morch 25,600(8) * Harry C. Schell 79,000(10) 1.5% Robert M. Zech 5,000(11) * DuPont Chemical and Energy Operations, Inc. 500,000(12) 9.7% Flemings Funds 5,120,558(13) 49.8% All directors and executive officers as a group (12 persons) 1,635,271(14) 26.3%
* = Less than 1% - ---------- (1) Unless otherwise indicated, the address of each of the persons listed above is the address of Hudson, 275 North Middletown Road, Pearl River, New York 10965. (2) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from May 30, 2003. Each beneficial owner's percentage ownership is determined by assuming that options and warrants that are held by such person (but not held by any other person) and which are exercisable within 60 days from May 30, 2003 have been exercised. Unless otherwise noted, Hudson believes that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. (3) Includes (i) 40,000 shares which may be purchased at $3.00 per share; (ii) 1,000 shares which may be purchased at $2.00 per share; (iii) 245,000 shares which may be purchased at $2.375 per share; (iv) 40,002 shares which may be purchased at $2.551 per share; (v) 15,000 shares which may be purchased at $2.50 per share; (vi) 15,000 shares which may be purchased at $1.90 per share; (vii) 15,000 shares which may be purchased at $1.40 per share; (viii) 15,000 shares which may be purchased at $.77 per share; and (ix) 64,250 shares which may be purchased at $1.14 per share under immediately exercisable options. (4) Includes (i) 25,000 shares which may be purchased at $2.50 per share; (ii) 1,000 shares which may be purchased at $1.78 per share; (iii) 37,500 shares which may be purchased at $2.375 per share; (iv) 90,002 shares which may be purchased at $2.551 per share; and (v) 46,688 shares which may be purchased at $1.14 per share under immediately exercisable options. (5) Represents (i) 40,000 shares which may be purchased at $2.65 per share; and (ii) 1,875 shares which may be purchased at $1.14 per share under immediately exercisable options. (6) Represents (i) 25,000 shares which may be purchased at $2.50 per share; (ii) 55,000 shares which may be purchased at $2.375 per share; (iii) 5,000 shares which may be purchased at $2.53 per share; (iv) 4,998 shares which may be purchased at $2.55 per share; and (v) 17,500 shares which may be purchased at $1.14 per share under immediately exercisable options. 42 (7) Includes (i) 25,000 shares which may be purchased at $3.00 per share; (ii) 76,300 shares which may be purchased at $2.375 per share; (iii) 7,500 shares which may be purchased at $2.551 per share; and (iv) 42,500 shares which may be purchased at $1.14 per share under immediately exercisable options. (8) Includes (i) 5,000 shares which may be purchased at $3.00 per share; (ii) 10,000 shares which may be purchased at $2.375 per share; (iii) 5,000 shares which may be purchased at $3.08 per share; and (iv) 5,000 shares which may be purchased at $.85 per share under immediately exercisable options. (9) Mr. Burr has been appointed a director by the Flemings Funds. The Flemings Funds have not designated a second director for Hudson's board. Mr. Burr's share ownership excludes all shares of common stock beneficially owned by the Flemings Funds. (10) Includes (i) 10,000 shares which may be purchased at $3.00 per share; (ii) 10,000 shares which may be purchased at $2.375 per share; (iii) 10,000 shares which may be purchased at $2.785 per share; (iv) 10,000 shares which may be purchased at $3.08 per share; and (v) 10,000 shares which may be purchased at $.85 per share under immediately exercisable options. (11) Represents 5,000 shares which may be purchased at $.85 per share under immediately exercisable options. (12) According to a Schedule 13D filed with the Securities and Exchange Commission, DuPont Chemical and Energy Operations, Inc. ("DCEO") and E.I. DuPont de Nemours and Company claim shared voting and dispositive power over the shares. DCEO's address is DuPont Building, Room 8045, 1007 Market Street, Wilmington, DE 19898. (13) Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P., and their general partner, Fleming US Discovery Partners, L.P. and its general partner, Fleming US Discovery Partners LLC, collectively referred to as ("Flemings Funds") are affiliates. The beneficial ownership of the Flemings Funds assumes the conversion of Series A Preferred Stock owned by the Flemings Funds (which constitutes all of the outstanding Series A Preferred Stock) to common stock at a conversion rate of $2.375 per share. The holders of shares of Series A Preferred Stock vote together with the holders of the common stock based upon the number of shares of common stock into which the Series A Preferred Stock is then convertible. Also includes (i) 10,000 shares which may be purchased at $2.375 per share; (ii) 10,000 shares which may be purchased at $2.785 per share; (iii) 10,000 shares which may be purchased at $3.08 per share; and (iv) 5,000 shares which may be purchased at $.85 per share under immediately exercisable options. Flemings Funds address is c/o JP Morgan Chase & Co., 1221 Avenue of the Americas, 40th Floor, New York, New York 10020, except for Fleming US Discovery Offshore Fund III, L.P. whose address is c/o Bank of Bermuda LTD., 6 Front Street, Hamilton HM11 Bermuda. (14) Includes exercisable options to purchase 1,047,115 shares of common stock owned by the directors and officers as a group. Excludes 5,120,558 shares beneficially owned by the Flemings Funds. 43 Equity Compensation Plan The following table provides certain information with respect to all of Hudson's equity compensation plans in effect as of December 31, 2002.
Number of securities remaining Number of securities to be Weighted-average available for issuance under issued upon exercise of exercise price of equity compensation plans outstanding options, outstanding options, (excluding securities reflected in warrants and rights warrants and rights column a) Plan Category (a) (b) (c) Equity compensation plans approved by security holders: 1,762,716 $3.14 802,844 Equity compensation plans not approved by security holders (1): 166,842 $3.02 -- --------- ------- Total 1,929,558 $3.13 802,844
- ---------- (1) Represents the aggregate number of shares of common stock issuable upon exercise of individual arrangements with option and warrant holders. These options and warrants are five years in duration, expire at various dates between March 2003 and March 2004, contain anti-dilution provisions providing for adjustments of the exercise price under certain circumstances and have termination provisions similar to options granted under stockholder approved plans. See Note 11 of Notes to the Consolidated Financial Statements for a description of Hudson's Stock Option Plans included elsewhere in this prospectus. DESCRIPTION OF SECURITIES General Hudson is authorized to issue 50,000,000 shares of common stock, and 5,000,000 shares of preferred stock. As of April 15, 2003, there were 5,165,020 shares of common stock outstanding and 120,782 shares of preferred stock outstanding, which has been designated as Series A Convertible Preferred Stock. Common Stock The holders of common stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voting for the election of directors can elect all of the directors then up for election. The holders of common stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor. In the event of liquidation, dissolution or winding up of Hudson, the holders of common stock are entitled to share in all assets remaining which are available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the common stock. Holders of shares of common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to the common stock. All of the outstanding shares of common stock are fully paid and nonassessable. Preferred Stock The authorized preferred stock can be issued from time to time in one or more series. The Board has the power, without stockholder approval, to issue shares of one or more series of preferred stock, at any time, for such consideration and with such relative rights, privileges, preferences and other terms as the Board may determine, including terms relating to dividend rates, redemption rates, liquidation preferences and voting, sinking fund and conversion or other rights. The rights and terms relating to any new series of preferred stock could adversely affect the voting power or other rights of the holders of the common stock or could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of Hudson. 44 Series A Convertible Preferred Stock The description of the Series A Convertible Preferred Stock (the "Preferred A Stock") as set forth below is only a summary of the terms of the Preferred A Stock which is qualified in its entirety by reference to the Certificates of Amendment to our Certificate of Incorporation designating the Preferred A Stock, a copy of which is available upon request from Hudson. The Preferred A Stock converts to common stock at an initial rate of $2.375 per share, subject to adjustment under certain circumstances, including a sale of common stock at less than the effective conversion price of the Preferred A Stock or the issuance of any security convertible into common stock with an exercise or conversion price less than the conversion price of the Preferred A Stock. The Preferred A Stock has voting rights on an as-if converted basis. The number of votes applicable to the Preferred A Stock is equal to the number of shares of common stock into which the Preferred A Stock is then convertible. Hudson pays dividends, in arrears, on the Preferred A Stock, semi-annually, either in cash or additional shares of Preferred A Stock, at our option. Hudson may redeem the Preferred A Stock on March 31, 2004 either in cash or shares of common stock valued at 90% of the average trading price of the common stock for the 30 days preceding March 31, 2004. In addition, we may call the Preferred A Stock if the market price of our common stock is equal to or greater than 250% of the Preferred A Stock conversion price and the common stock has traded with an average daily volume in excess of 20,000 shares for a period of thirty consecutive days. We have provided certain registration, preemptive and tag along rights to the holders of the Series A Preferred Stock. The holders of the Series A Preferred Stock have agreed to waive their registration rights with respect to the registration of the securities in this offering. In addition, the holders of the Preferred A Stock, voting as a separate class, have the right to elect up to two members of Hudson's Board of Directors or at their option, to designate up to two advisors to our Board of Directors who will have the right to attend and observe meetings of the Board of Directors. Currently, the holders have elected one member to the Board of Directors. Convertible Notes Between December 2002 and April 2003 Hudson issued an aggregate of $1,650,000 principal amount of Convertible Notes. The Convertible Notes have a term of two years and earn interest at an annual rate of 10% payable quarterly in arrears. The Convertible Notes are unsecured and subordinate in payment to our obligations under our credit facility with Keltic. We may not prepay the Convertible Notes in cash without the prior consent of Keltic and payment of interest, if any, in cash on any scheduled quarterly interest payment date is limited to an aggregate of $20,000 per calendar year. In connection with this offering, the principal and all accrued and unpaid interest on the Notes will convert to shares of our common stock as follows: (i) to the extent shares offered hereby are available after expiration of the rights offering and the sale to members of the public, holders of the Convertible Notes may elect to purchase such shares by a reduction of the principal amount and, if applicable, accrued and unpaid interest of the Convertible Notes in an amount equal to the number of shares to be acquired multiplied by the $ ___ subscription price; (ii) to the extent shares are not available for purchase by the holders of the Convertible Notes in this offering or such holders do not elect to purchase these shares, upon completion of this offering the remaining outstanding principal amount and accrued and unpaid interest of the Convertible Notes will automatically convert into restricted shares of our common stock at conversion prices ranging from the lesser of the subscription price and: (i) $0.79 per share with respect to up to $655,000 principal amount and accrued and unpaid interest; (ii) $1.41 with respect to up to $500,000 principal amount and accrued and unpaid interest and (iii) $1.13 per share with respect to up to $495,000 principal amount and accrued and unpaid interest. Warrants Hudson is obligated to issue to the holders of the Convertible Notes, on the earlier of (a) the first anniversary of their respective date of issuance, or (b) the consummation by Hudson of an equity offering, warrants to purchase an aggregate number of shares of our common stock equal to 10% of the number of shares of common stock into which the Convertible Notes were convertible at their date of issuance. Each warrant will be exercisable to purchase one share of common stock for a period of five years from issuance at an exercise price equal to 110% of the lesser of (i) the conversion rate of the Convertible Notes as of their date of issuance, or (ii) the conversion rate of the notes on the date of issuance of the warrants. The exercise price of the warrants will be subject to anti-dilution adjustment on terms substantially similar to anti-dilution adjustment of the conversion rate of the Convertible Notes. 45 Transfer Agent The transfer agent and registrar for the common stock is Continental Stock Transfer & Trust Company, New York, New York. CERTAIN TRANSACTIONS In connection with the Keltic credit facility, Hudson also entered into a loan arrangement with the Flemings Funds for the principal amount of $575,000. The loan is unsecured, is for a term of three years, and accrues interest at an annual rate equal to the greater of the prime rate plus 2.0%, or 6.5%. In accordance with the terms of the Keltic credit facility, the amount of principal and interest outstanding under this loan arrangement reduces Hudson's aggregate borrowing availability by a like amount under its credit facility with Keltic. This loan is expected to be retired in conjunction with the completion of this Rights Offering. In November 2002, Hudson consummated the private sale of Bridge Notes to a limited number of purchasers, including certain officers of Hudson and their family members as well as holders of Hudson's Series A Preferred Stock, for which Hudson received gross proceeds of $655,000. The Bridge Notes were for a term of one year and were subordinate in payment to Hudson's obligations under its credit facility with CIT. The Bridge Notes automatically exchanged for convertible notes identical in terms to the Convertible Notes, upon approval of such exchange by Hudson's shareholders, which approval was obtained at the annual meeting on December 20, 2002. Effective December 2002, Hudson consummated the private sale of Convertible Notes to a limited number of purchasers, including certain officers of Hudson and their family members as well as holder of Hudson's Series A Preferred Stock, for which Hudson received gross proceeds of $495,000. At or about the same time, the Bridge Notes were cancelled and exchanged for Convertible Notes in a principal amount equal to the outstanding principal amount of the Bridge Notes immediately prior to the exchange together with accrued and unpaid interest thereon. The Convertible Notes have a term of two years and earn interest at an annual rate of 10% payable quarterly in arrears. The Convertible Notes are unsecured and are subordinate in payment to Hudson's obligations under its credit facility with Keltic. Holders of the Convertible Notes have the right to convert all or a portion of the outstanding principal balance, and any accrued interest thereon, to common stock of Hudson, upon, but not prior to, the first anniversary of the issuance of the Convertible Notes. The initial conversion rate of these Convertible Notes was $.79 per share. On April 15, 2003 Hudson issued an additional principal amount of $500,000 of Convertible Notes to the holders of the Series A Preferred Stock. The April 15, 2003 Convertible Notes are identical to the Convertible Notes issued in December 2002, except that the conversion rate of these notes is $1.41 per share and the first anniversary of their issuance will be in April 2004. In April 2003, holders of the Convertible Notes holding an aggregate principal amount of $495,000 entered into agreements with Hudson whereby the holders agreed to modify the conversion rate of their Convertible Notes to the modified conversion rate of $1.13 which was the average closing sale price of Hudson's common stock as reported on the NASDAQ SmallCap Market for the five business days immediately preceding the execution of the modification agreements; provided further, that, in the event of an Equity Offering by Hudson prior to the first anniversary of the issuance of the Convertible Notes, at a public offering price which includes the exercise price of stock purchase rights offered in the Equity Offering below the modified Conversion Rate but in excess of $.79, the conversion rate of the Convertible Notes will be adjusted to not less than the public offering price. Hudson is obligated to issue to the holders of the Convertible Notes, on the earlier of (a) the first anniversary of their respective date of issuance, or (b) the consummation by Hudson of an Equity Offering, warrants to purchase an aggregate number of shares of common stock equal to 10% of the number of shares of common stock into which the Convertible Notes were convertible at their date of issuance. Each warrant will be exercisable to purchase one share of common stock for a period of five years from issuance at an exercise price equal to 110% of the lesser of (i) the conversion rate of the Convertible Notes as their date of issuance, or (ii) the conversion price of the Convertible Notes on the date of issuance of the warrants. The exercise price of the warrants will be subject to anti-dilution adjustment on terms substantially similar to anti-dilution adjustment of the conversion rate of the Convertible Notes. As of December 20, 2002, Hudson has recognized an original issue discount of $220,000 in connection with the obligation to issue the warrants. 46 On February 16, 2001, Hudson completed the sale of 30,000 shares of its Series A Preferred Stock, with a liquidation value of $100 per share, to Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. The gross proceeds from the sale of the Series A Preferred Stock were $3,000,000. These shares of Series A Preferred Stock currently convert to common stock at a conversion price of $2.375 per share, which was 23% above the closing market price of common stock on February 15, 2001. The Series A Preferred Stock provides for anti-dilution adjustment of the conversion price in the event of the subsequent offering by Hudson of securities for consideration per share less than the then-effective conversion price of the Series A Preferred Stock. At the direction of the NASDAQ Stock Market, Inc., a minimum conversion price floor of $1.78 per share, below which the conversion price of the Series A Preferred Stock could not be adjusted, had been instituted by Hudson and the holders of the Series A Preferred Stock by amendment to the designation of the Series A Preferred Stock, and at the same time Hudson agreed not to offer securities for consideration per share less than the Conversion Price Floor without the consent of the holders of the Series A Preferred Stock. Subsequently, in consideration for the consent of the holders of the Series A Preferred Stock to Hudson's engagement in the private offering of the Convertible Notes at a conversion price below the $1.78 minimum conversion price floor, the stockholders of Hudson, at the annual meeting on December 20, 2002, voted in favor of a proposal to remove the $1.78 minimum conversion price floor and the designation of the Series A Preferred Stock was amended accordingly. Although the holders of the Series A Preferred Stock agreed to waive their rights to an immediate downward adjustment of the current $2.375 conversion price of the Series A Preferred Stock in connection with the issuance of the Convertible Notes, any subsequent conversion of the Convertible Notes will result in a downward adjustment of the conversion price of the Series A Preferred Stock to equal the then effective conversion rate of the Convertible Notes. Consequently, upon conversion of the Convertible Notes at the $.79 per share conversion rate the anti-dilution provisions of the Series A Preferred Stock will cause the conversion rate of the Series A Preferred Stock to adjust downward to the $.79 per share. Assuming that the Series A Preferred Stock converts to common stock at a conversion price of $.79 per share and based upon 120,782 shares of Series A Preferred Stock issued as of March 30, 2003, the holders of the Series A Preferred Stock would receive 15,288,860 shares of common stock. Similarly, the conversion price of such Series A Preferred Stock may be adjusted to equal the consideration received by Hudson in connection with any issuance of securities, such as that contemplated in this offering, below the current $2.375 conversion price. The designation of the Series A Preferred Stock provided for a proxy granted by the holders of the Series A Preferred Stock in favor of certain of Hudson's officers to vote all shares of common stock into which the Series A Preferred Stock converts (including any additional shares subsequently acquired by such holders) in excess of 29% of the votes entitled to be cast by the Series A Preferred Stock holders. As noted above, in consideration for consent of the holders of the Series A Preferred Stock to Hudson's engagement in the private offering of Convertible Notes at a conversion rate below the Conversion Price Floor, the stockholders of Hudson, at the annual meeting on December 20, 2002, voted in favor of a proposal to remove the proxy from the designation of the Series A Preferred Stock. INDEMNIFICATION OF DIRECTORS AND OFFICERS The New York Business Corporation Law (Sections 721 through 726) permits a corporation to indemnify any of its directors and officers for acts performed in their capacities, subject to certain conditions. Paragraph 3 of Hudson's Certificate of Incorporation provides that a director shall not be liable to Hudson or its shareholders for damages for any breach of duty in such capacity except for liability if a judgment or other final adjudication adverse to the director establishes that his or her acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that the director personally gained a financial profit or other advantage to which he or she was not legally entitled or that the director's acts violated Section 719 of the New York Business Corporation Law. Paragraph 17 of Article III of Hudson's By-laws provide for indemnification of Hudson's directors and officers to the fullest extent permitted by the New York Business Corporation Law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Hudson pursuant to the foregoing procedures, or otherwise, Hudson has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. 47 HUDSON TECHNOLOGIES, INC. INDEX TO FINANCIAL STATEMENTS Report of Independent Certified Accountants 49 Audited Consolidated Financial Statements: o Consolidated Balance Sheet 50 o Consolidated Statements of Operations 51 o Consolidated Statements of Stockholders' Equity 52 o Consolidated Statements of Cash Flows 53 o Notes to the Consolidated Financial Statements 54 48 Report of Independent Certified Accountants To Stockholders and Board of Directors Hudson Technologies, Inc. Pearl River, New York We have audited the accompanying consolidated balance sheet of Hudson Technologies, Inc. and subsidiaries as of December 31, 2002 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hudson Technologies, Inc. and subsidiaries as of December 31, 2002 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States. /s/ BDO Seidman, LLP Valhalla, New York March 7, 2003, except for Note 12 which is as of May 30, 2003 49 Hudson Technologies, Inc. and subsidiaries Consolidated Balance Sheet (Amounts in thousands, except for share and par value amounts)
March 31, December 31, 2003 2002 --------- ------------ (unaudited) Assets Current assets: Cash and cash equivalents $ 353 $ 545 Trade accounts receivable 3,082 1,971 Inventories 2,985 2,967 Prepaid expense and other current assets 246 249 -------- -------- Total current assets 6,666 5,732 Property, plant and equipment, less accumulated depreciation 2,360 2,551 Other assets 145 139 -------- -------- Total Assets $ 9,171 $ 8,422 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $ 3,777 $ 3,278 Short-term debt 3,208 2,465 -------- -------- Total current liabilities 6,985 5,743 Long-term debt, less current maturities 140 241 Long-term debt - related parties 960 930 -------- -------- Total Liabilities 8,085 6,914 -------- -------- Commitments and contingencies Stockholders' equity: Preferred stock, shares authorized 5,000,000: Series A Convertible Preferred Stock, $.01 par value ($100 liquidation preference value); shares authorized 150,000; issued and outstanding 120,782 and 116,629 12,078 11,663 Common stock, $0.01 par value; shares authorized 50,000,000; issued outstanding 5,165,020 52 52 Additional paid-in capital 19,604 20,019 Accumulated deficit (30,648) (30,226) -------- -------- Total Stockholders' Equity 1,086 1,508 -------- -------- Total Liabilities and Stockholders' Equity $ 9,171 $ 8,422 ======== ========
See accompanying Notes to the Consolidated Financial Statements 50 Hudson Technologies, Inc. and subsidiaries Consolidated Statement of Operations (Amounts in thousands, except for share and per share amounts)
Three Month Period Year Ended Ended March 31, December 31, --------------- ------------ 2003 2002 2002 2001 ---- ---- ---- ---- (unaudited) Revenues $ 5,677 $ 6,111 $ 19,963 $ 20,768 Cost of sales 4,037 4,681 14,505 14,971 ----------- ----------- ----------- ----------- Gross Profit 1,640 1,430 5,458 5,797 ----------- ----------- ----------- ----------- Operating expenses: Selling and marketing 539 672 2,412 2,322 General and administrative 1,092 1,065 4,357 4,475 Depreciation and amortization 243 285 1,142 1,220 ----------- ----------- ----------- ----------- Total operating expenses 1,874 2,022 7,911 8,017 ----------- ----------- ----------- ----------- Operating loss (234) (592) (2,453) (2,220) ----------- ----------- ----------- ----------- Other income (expense): Interest expense (188) (97) (347) (423) Other income -- 241 253 230 Gain on sale of assets -- -- 25 14 ----------- ----------- ----------- ----------- Total other income (expense) (188) 144 (69) (179) ----------- ----------- ----------- ----------- Loss before income taxes (422) (448) (2,522) (2,399) Income taxes -- -- -- -- ----------- ----------- ----------- ----------- Net loss (422) (448) (2,522) (2,399) Preferred stock dividends (218) (197) (796) (723) ----------- ----------- ----------- ----------- Available for common shareholders $ (640) $ (645) $ (3,318) $ (3,122) =========== =========== =========== =========== - ------------------ Net loss per common share - basic and diluted $ (0.12) $ (0.13) $ (0.64) $ (0.61) =========== =========== =========== =========== Weighted average number of shares outstanding 5,165,020 5,156,895 5,162,228 5,103,733 =========== =========== =========== ===========
See accompanying Notes to the Consolidated Financial Statements 51 Hudson Technologies, Inc. and subsidiaries Consolidated Statements of Stockholders' Equity (Amounts in thousands, except for share amounts)
Preferred Stock Common Stock --------------- ------------ Additional Accumulated Shares Amount Shares Amount Paid-in Capital Deficit Total ------- ------- --------- ------ --------------- ------------ ------- Balance at December 31, 2000 72,195 $ 7,219 5,088,820 $ 51 $21,133 $(25,305) $ 3,098 Issuance of common stock upon exercise of stock options -- -- 67,700 1 150 -- 151 Issuance of Series A Preferred Stock - Net 30,000 3,000 -- -- (60) -- 2,940 Dividends paid in-kind on Series A Preferred Stock 6,550 656 -- -- (656) -- -- Net Loss -- -- -- -- -- (2,399) (2,399) ------- ------- --------- ---- ------- -------- ------- Balance at December 31, 2001 108,745 10,875 5,156,520 52 20,567 (27,704) 3,790 Issuance of common stock upon exercise of stock options -- -- 8,500 -- 20 -- 20 Dividends paid in-kind on Series A Preferred Stock 7,884 788 -- -- (788) -- -- Original issue discount on related party debt in connection with issuance of warrants -- -- -- -- 220 -- 220 Net Loss -- -- -- -- -- (2,522) (2,522) ------- ------- --------- ---- ------- -------- ------- Balance at December 31, 2002 116,629 11,663 5,165,020 52 20,019 (30,226) 1,508 Dividends paid in-kind on Series A Preferred Stock 4,153 415 -- -- (415) -- -- Net Loss -- -- -- -- -- (422) (422) ------- ------- --------- ---- ------- -------- ------- Balance at March 31, 2003 (unaudited) 120,782 $12,078 5,165.020 $ 52 $19,604 $(30,648) $ 1,086 ======= ======= ========= ==== ======= ======== =======
See accompanying Notes to the Consolidated Financial Statements. 52 Hudson Technologies, Inc. and subsidiaries Consolidated Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents (Amounts in thousands)
Three month period Year ended ended March 31, December 31, --------------- ------------ 2003 2002 2002 2001 ---- ---- ---- ---- (unaudited) Cash flows from operating activities: Net loss $ (422) $ (448) $(2,522) $(2,399) Adjustments to reconcile net loss to cash provided (used) by operating activities: Depreciation and amortization 243 285 1,142 1,220 Allowance for doubtful accounts 30 36 144 60 Amortization of original issue discount 30 -- -- -- Gain on sale of assets -- -- (25) (14) Changes in assets and liabilities: Trade accounts receivable (1,142) (1,069) 631 (218) Inventories (18) 16 (580) (486) Prepaid expense and other current assets 3 72 (99) 47 Other assets 5 1 (24) (17) Accounts payable and accrued expenses 499 1,251 (9) (548) Deferred income -- -- -- (6) ------- ------- ------- ------- Cash provided (used) by operating activities (772) 144 (1,342) (2,361) ------- ------- ------- ------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment -- 203 244 937 Additions to patents (14) -- -- (9) Additions to property, plant and equipment (49) (225) (324) (374) ------- ------- ------- ------- Cash provided (used) by investing activities (63) (22) (80) 554 ------- ------- ------- ------- Cash flows from financing activities: Proceeds from issuance of preferred stock - net -- -- -- 2,940 Proceeds from issuance of common stock - net -- 10 20 151 Proceeds from (repayment of) short-term debt - net 754 (285) 28 272 Proceeds from long-term debt -- 151 1,325 -- Repayment of long-term debt (111) (299) (788) (1,037) ------- ------- ------- ------- Cash provided (used) by financing activities 643 (423) 585 2,326 ------- ------- ------- ------- Increase (decrease) in cash and cash equivalents (192) (301) (837) 519 Cash and equivalents at beginning of period 545 1,382 1,382 863 ------- ------- ------- ------- Cash and equivalents at end of period $ 353 $ 1,081 $ 545 $ 1,382 ======= ======= ======= ======= - ------------------------------------------------- Supplemental disclosure of cash flow information: Cash paid during period for interest $ 188 $ 97 $ 347 $ 423 Supplemental schedule of non-cash investing and financing activities: In-kind payment of preferred stock dividends $ 415 $ 387 $ 788 $ 656
See accompanying Notes to the Consolidated Financial Statements 53 Hudson Technologies, Inc. and subsidiaries Notes to the Consolidated Financial Statements Note 1- Summary of Significant Accounting Policies Business Hudson Technologies, Inc., incorporated under the laws of New York on January 11, 1991, together with its subsidiaries (collectively, "Hudson" or the "Company"), is a refrigerant services company providing innovative solutions to recurring problems within the refrigeration industry. Hudson's products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems, including (i) refrigerant sales, (ii) RefrigerantSide(R) Services performed at a customer's site, consisting of system decontamination to remove moisture, oils and other contaminants and (iii) reclamation of refrigerants. Hudson operates through its wholly owned subsidiary Hudson Technologies Company. Consolidation The consolidated financial statements represent all companies of which Hudson directly or indirectly has majority ownership or otherwise controls. Significant intercompany accounts and transactions have been eliminated. Hudson's consolidated financial statements include the accounts of wholly-owned subsidiaries Hudson Holdings, Inc. and Hudson Technologies Company. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principals for interim financial statements and with the instructions of Regulation S-B. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. 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. Operating results for the three month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ended December 31, 2003. Fair value of financial instruments The carrying values of financial instruments including trade accounts receivable, and accounts payable approximate fair value at March 31, 2003 and December 31, 2002, because of the relatively short maturity of these instruments. The carrying value of short-and long-term debt approximates fair value, based upon quoted market rates of similar debt issues, as of March 31, 2003 and December 31, 2002. Credit risk Financial instruments, which potentially subject Hudson to concentrations of credit risk, consist principally of temporary cash investments and trade accounts receivable. Hudson maintains its temporary cash investments in highly-rated financial institutions that exceed FDIC insurance coverage. Hudson's trade accounts receivables are due from companies throughout the U.S. Hudson reviews each customer's credit history before extending credit. Hudson establishes an allowance for doubtful accounts based on factors associated with the credit risk of specific accounts, historical trends, and other information and the carrying value of its accounts receivable are reduced by the established allowance. The allowance for doubtful accounts includes any accounts receivable balances that are determined to be uncollectable, along with a general reserve for the remaining accounts receivable balances. Hudson may adjust its general or specific reserves based on factors that affect the collectibility of the accounts receivable balances. During the quarter ended March 31, 2003, two customers accounted for 17% and 11% of the Company's revenues and as of March 31, 2003 there were $483,000 and $10,000, respectively, of accounts receivable balances from these customers. During the quarter ended March 31, 2002, one customer accounted for 14% of the Company's revenues and as of March 31, 2002 there was an $11,000 accounts receivable balance from this customer. 54 During the year ended December 31, 2002, one customer accounted for 11% of Hudson's revenues and as of December 31, 2002 there was $223,000 accounts receivable balance from this customer. During the year ended December 31, 2001, one customer accounted for 15% of Hudson's revenues and as of December 31, 2001 there were no related accounts receivable balance from this customer. The loss of a principal customer or a decline in the economic prospects and purchases of Hudson's products or services by any such customer could have an adverse effect on Hudson's financial position and results of operations. During the years ended December 31, 2002 and 2001, Hudson had sales to E.I. DuPont de Nemours and Company ("DuPont"), an affiliate, in the amount of $974,000 and $1,124,000, respectively. 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. The cost to complete equipment that is under construction is not considered to be material to Hudson's financial position. Provision for depreciation is recorded (for financial reporting purposes) using the straight-line method over the useful lives of the respective assets. Leasehold improvements are amortized on a straight-line basis over the shorter of economic life or terms of the respective leases. Costs of maintenance and repairs are charged to expense when incurred. Due to the specialized nature of Hudson's business, it is possible that Hudson's estimates of equipment useful life periods may change in the future. Revenues and cost of sales Revenues are recorded upon completion of service or product shipment and passage of title to customers in accordance with contractual terms. Hudson evaluates each sale to ensure collectibility. In addition, each sale is based on an arrangement with the customer and the sales price to the buyer is fixed. Cost of sales is recorded based on the cost of products shipped or services performed and related direct operating costs of Hudson's facilities. To the extent that Hudson charges shipping fees such amounts are included as a component of revenue and the corresponding costs are included as a component of cost of sales. Hudson's revenues are derived from refrigerant and reclamation sales and RefrigerantSide(R) Services revenues. The revenues for each of these lines are as follows:
Three Months Ended March 31, Year Ended December 31, (unaudited) (in thousands) 2003 2002 2002 2001 ---- ---- ---- ---- Refrigerant and reclamation sales $5,002 $5,296 $16,528 $16,810 RefrigerantSide(R) Services 675 815 3,435 3,958 ------ ------ ------- ------- Total $5,677 $6,111 $19,963 $20,768 ====== ====== ======= =======
Income taxes Hudson 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. 55 Hudson recognized a reserve allowance against the deferred tax benefit for the current and prior period losses. The tax benefit associated with Hudson's net operating loss carry forwards would be recognized to the extent that Hudson recognized net income in future periods. Loss per common and equivalent shares Loss per common share, Basic, is calculated based on the net loss for the period plus dividends on the outstanding Series A Preferred Stock, $218,000 and $197,000 for the quarter ended March 31, 2003 and 2002, respectively, and $796,000 and $723,000 for the years ended December 31, 2002 and 2001, respectively, divided by the weighted average number of shares outstanding. If dilutive, common equivalent shares (common shares assuming exercise of options and warrants or conversion of Preferred Stock) utilizing the treasury stock method are considered in the presentation of dilutive earnings per share. The effect of equivalent shares was not dilutive in either 2002 or 2001. Estimates and Risks The preparation of financial statements in conformity with generally accepted accounting principles in the United States 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. Hudson participates in an industry that is highly regulated, changes in which could affect operating results. Currently Hudson purchases virgin and reclaimable refrigerants from domestic suppliers and its customers. To the extent that Hudson is unable to obtain refrigerants on commercially reasonable terms or experiences a decline in demand for refrigerants, Hudson could realize reductions in refrigerant processing and possible loss of revenues, which would have a material adverse affect on operating results. Hudson is subject to various legal proceedings. Hudson assesses the merit and potential liability associated with each of these proceedings. In addition, Hudson estimates potential liability, if any, related to these matters. To the extent that these estimates are not accurate, or circumstances change in the future, Hudson could realize liabilities which would have a material adverse affect on operating results and its financial position. Impairment of long-lived assets and long-lived assets to be disposed of Hudson reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell. Stock options Hudson has historically used the intrinsic value method of accounting for employee stock options as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, compensation cost for stock options has been measured as the excess, if any, of the quoted market price of Company stock at the date of the grant over the amount the employee must pay to acquire the stock. The compensation cost is recognized over the vesting period of the options. Both the stock-based employee compensation cost included in the determination of the net income as reported and the stock-based employee compensation cost that would have been included in the determination of net income if the fair value based method had been applied to all awards, as well as the resulting pro-forma net income and earning per share using the fair value approach, are presented in the following table. These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years. 56
Three months ended Years ended March 31, December 31, --------- ------------ 2003 2002 2002 2001 ---- ---- ---- ---- (unaudited) Pro forma results (In thousands, except per share amounts) Net loss available for common shareholders: As reported $(640) $(645) $(3,318) $(3,122) Total stock based employee compensation expense determined under fair value based method 74 97 387 447 ----- ----- ------- ------- Pro forma $(714) $(742) $(3,705) $(3,569) Loss per common share-basic and diluted: As reported $(.12) $(.13) $ (.64) $ (.61) Pro forma $(.14) $(.14) $ (.72) $ (.70)
Recent accounting pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued FASB statement No. 143, Accounting for Asset Retirement Obligations ("SFAS 143"). SFAS 143 addresses financial reporting for obligations associated with retirement of tangible long-lived assets and the associated retirement costs. SFAS 143 is effective for fiscal years beginning after June 15, 2002. In April 2002, the FASB issued FASB statement No. 145 ("SFAS 145"), which rescinds FASB statements No. 4, 44 and 64 and amends FASB statement No. 13. SFAS 145 is effective for fiscal years beginning after May 15, 2002. In June 2002, the FASB issued FASB statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS 146"). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 is effective for fiscal years beginning after December 31, 2002. In December 2002, the FASB issued FASB statement No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure ("SFAS 148"), an amendment of SFAS No. 123. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Hudson plans to continue to use the intrinsic value method for stock-based compensation. SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. Hudson adopted each of the above pronouncements effective January 1, 2003, except that SFAS 148 was adopted as of December 31, 2002 and these adoptions did not have a material impact on its financial position and results of operations. Note 2 - Dispositions Effective March 19, 1999, Hudson sold 75% of its stock ownership in Environmental Support Solutions, Inc. ("ESS") to one of ESS's founders. The consideration for Hudson's sale of its interest was $100,000 in cash and a six-year 6% interest bearing note in the amount of $380,000. Hudson has recognized as income the portion of the proceeds associated with the note receivable upon the receipt of cash. Hudson recognized a valuation allowance for 100% of the note receivable. Subsequent to March 19, 1999, in two separate transactions, ESS redeemed the balance of Hudson's stock ownership in ESS and the proceeds from the redemption were included as other income. Pursuant to an agreement dated January 22, 2002, ESS and Hudson agreed to a 16% discount of the outstanding balance on the note receivable. On January 25, 2002, as part of a capital financing completed by ESS, ESS paid Hudson $231,951, representing the discounted balance as of that date, as full satisfaction of the note received and as of that date, Hudson recognized the proceeds as other income. Note 3 - Other income For the three months ended March 31, 2003, other expense of $188,000 consisted of interest expense of approximately $88,000, finance charges associated with Hudson's credit facility of $70,000 and amortization of the original issue discount associated with the Company's Convertible Notes to related parties. For the three months ended March 31, 2002, other income 57 of $144,000 consisted primarily of the prepayment of the remaining balance of the note receivable from ESS and, to a lesser extent, interest income offset by interest expense of $97,000. For the year ended December 31, 2002, other income of $253,000 consisted primarily of the prepayment of the remaining balance of the note receivable from ESS and to a lesser extent, interest income. For the year ended December 31, 2001, other income of $230,000 consisted primarily of interest income, lease rental income from Hudson's Ft. Lauderdale facility, which was sold on March 22, 2001, and payments received from the note receivable from ESS. Note 4 - Income taxes During the quarters ended March 31, 2003 and 2002, and the years ended December 31, 2002 and 2001, there was no income tax expense recognized due to Hudson's net losses. Reconciliation of Hudson's actual tax rate to the U.S. Federal statutory rate is as follows:
Three months ended Year ended March 31, December 31, --------- ------------ (unaudited) (in percents) 2003 2002 2002 2001 ---- ---- ---- ---- Income tax rates - Statutory U.S. Federal rate (34%) (34%) (34%) (34%) - States, net U.S. benefits (4%) (4%) (4%) (4%) - Valuation allowance 38% 38% 38% 38% ---- ---- ---- ---- Total --% --% --% --% ==== ==== ==== ====
As of December 31, 2002, Hudson has net operating loss carryforwards, ("NOL's") of approximately $27,900,000 expiring 2007 through 2022 for which a 100% valuation allowance has been recognized. Included in the NOL's are NOL's from Refrigerant Reclamation Corporation of America, acquired during 1995 as a subsidiary of Hudson, in the amount of approximately $4,488,000, which are subject to annual limitations of approximately $367,000 and expire from 2007 through 2010. Elements of deferred income tax assets (liabilities) are as follows:
March 31, December 31, (in thousands) 2003 2002 -------------- ---- ---- Deferred tax assets (liabilities) (unaudited) - Depreciation & amortization $ 92 $ 91 - Reserves for doubtful accounts 103 92 - NOL 10,678 10,631 - Other 8 8 ------- ------- Subtotal 10,881 10,822 ------- ------- Total $ -- $ -- ======= =======
Note 5- Trade accounts receivable - net At March 31, 2003 and December 31, 2002, trade accounts receivable are net of reserves for doubtful accounts of $292,000 and $262,000, respectively. 58 Note 6 - Inventories Inventories consisted of the following:
March 31, December 31, (in thousands) 2003 2002 ---- ---- (unaudited) Refrigerant and cylinders $ 2,089 $ 2,328 Packaged refrigerants 896 639 ------- ------- Total $ 2,985 $ 2,967 ======= =======
Note 7 - Property, plant, and equipment Elements of property, plant, and equipment are as follows:
March 31, December 31, (in thousands) 2003 2002 ---- ---- Property, plant, & equipment (unaudited) - Equipment $ 6,668 $ 6,661 - Equipment under capital lease 253 253 - Vehicles 1,288 1,288 - Furniture & fixtures 205 203 - Leasehold improvements 569 542 - Equipment under construction 201 188 ------- ------- Subtotal 9,184 9,135 Accumulated depreciation & amortization 6,824 6,584 ------- ------- Total $ 2,360 $ 2,551 ======= =======
Note 8- Short-term and long-term debt Elements of short-term and long-term debt are as follows:
March 31, December 31, (in thousands) 2003 2002 ---- ---- Short-term & long-term debt (unaudited) Short-term debt: - Bank credit line $ 2,788 $ 2,034 - Long-term debt: current 420 431 ------- ------- Subtotal 3,208 2,465 ------- ------- Long-term debt: - Bank term loan 256 303 - Capital lease obligations 62 79 - Vehicle loans 242 290 - Loans from related parties 960 930 - Less: current maturities (420) (431) ------- ------- Subtotal 1,100 1,171 ------- ------- Total $ 4,308 $ 3,636 ======= =======
Bank credit line and term loan Hudson entered into a credit facility with CIT, which provided for borrowings to Hudson of up to $6,500,000. As of March 31, 2003, Hudson had availability under its revolving line of credit of approximately $265,000. As of March 31, 2003, Hudson had approximately $256,000 outstanding under its term loans and $2,788,000 outstanding under its revolving line of credit. The facility bore interest at the prime rate plus 1.5%, 5.75% at March 31, 2003, and substantially all of Hudson's assets were pledged as collateral for obligations to CIT. 59 On May 30, 2003 Hudson satisfied all outstanding obligations to CIT by entering into a credit facility with Keltic Financial Partners, LLP, or "Keltic", see Note 12. Vehicle Loans During 1999, Hudson entered into various vehicle loans. The vehicles are primarily used in connection with Hudson's on-site services. The loans are payable in 60 monthly payments through October 2004 and bear interest at 9.0% to 9.98%. Scheduled maturities of Hudson's long-term debts and capital lease obligations are as follows: Debts and capital lease obligations Years ended December 31, Amount ------------------------ ------ (in thousands) - 2003 $ 245 - 2004 1,045 - 2005 3 - 2006 3 - 2007 3 ------ Total $1,299 ====== Capital Lease Obligations Hudson rents certain equipment with a net book value of approximately $124,000 for leases which have been classified as capital leases. Scheduled future minimum lease payments under capital leases net of interest are as follows: Scheduled capital lease obligation payments Years ended December 31, Amount ------------------------ ------ (in thousands) - 2003 $ 52 - 2004 18 - 2005 3 - 2006 3 - 2007 3 ------ Total $ 79 ====== Loans from Related Parties In November 2002, Hudson consummated the private sale of unsecured 12% subordinated promissory notes or referred to herein as "Bridge Notes" to certain officers and certain members of their family and holders of the Series A Preferred Stock, for which it received gross proceeds of $655,000. The Bridge Notes were for a term of one year and were subordinate in payment to Hudson's obligations under its credit facility with CIT. In accordance with the terms of the Bridge Notes, each of the purchasers, at their option, elected to defer quarterly interest payments which were to be added to the principal amount of the Bridge Notes as of each interest payment date and which accrued interest would, in turn, accrue interest at 12% per annum. The Bridge Notes automatically exchanged for unsecured convertible subordinated promissory notes, described in more detail immediately below, "Exchange Notes" upon approval of such exchange by Hudson's shareholders, which approval was obtained at the annual meeting on December 20, 2002. Effective December 2002, Hudson consummated the private sale of unsecured 10% convertible subordinated promissory notes, certain officers and certain members of their family and holders of the Series A Preferred Stock, for which it received gross proceeds of $495,000. At or about the same time, the Bridge Notes were cancelled and exchanged for the Exchange Notes in a principal amount equal to the outstanding principal amount of the Bridge Notes immediately prior to the exchange together with accrued and unpaid interest thereon. As of December 2002, the Exchange Notes and the December 2002 promissory notes were identical in terms and for the purpose of this prospectus together are referred to herein as the Convertible Notes. The Convertible Notes have a term of two years and earn interest at an annual rate of 10% payable quarterly in arrears. Holders of the Convertible Notes had the one time option to elect to either receive payments of interest on a quarterly basis, subject to the limitations described below, or defer quarterly interest payments, in which case, interest would be added to the outstanding amount of the Convertible Notes on each quarterly payment date and accrue interest at the then 60 effective Convertible Notes interest rate. The Convertible Notes are unsecured and subordinate in payment to Hudson's obligations under its credit facility with Keltic. The Convertible Notes may not be prepaid in cash by Hudson without the prior consent of Keltic and payment of interest, if any, in cash on any scheduled quarterly interest payment date is limited to an aggregate of $20,000 per calendar year. Holders of the Convertible Notes have the right to convert all or a portion of the outstanding principal balance, and any accrued interest thereon, to common stock of Hudson, upon, but not prior to, the first anniversary of the issuance of the Convertible Notes. The conversion rate of these Convertible Notes was $.79 per share. On April 15, 2003 Hudson issued an additional $500,000 principal amount of Convertible Notes to the holders of the Series A Preferred Stock. The April 15, 2003 note issuance is identical to the December 2002 issuance, except that the conversion rate of these Convertible Notes is $1.41 per share. The conversion rate of the Convertible Notes is subject to adjustment on a full ratchet basis; this means that if Hudson issues any stock at a price less than the conversion rate, the conversion rate for all shares issuable upon conversion of the Convertible Notes will be adjusted downward to such price. This adjustment is applicable in certain events including Hudson's issuance of common stock, warrants or rights to purchase common stock or securities convertible into common stock in each case for a consideration per share which is less than the then-effective conversion rate of the Convertible Notes. The anti-dilution adjustment would not apply, however where Hudson issues shares subject to stock options under or reserved for option grants under any shareholder approved stock option plan or upon exercise or conversion of options, warrants or other exercisable or exchangeable equity or debt securities that were outstanding immediately prior to the issuance of the Convertible Notes. In addition, the conversion rate is subject to an appropriate adjustment in the event of: (i) any subdivisions, combinations and reclassifications of Hudson's common stock; (ii) any payment, issuance or distribution by Hudson to its stockholders of a stock dividend; (iii) the consolidation or merger of Hudson with or into another corporation whereby Hudson is not the surviving entity; or (iv) the sale by Hudson of substantially all of its assets. The Convertible Notes provide that in the event of an equity offering by Hudson at any time prior to the first anniversary of the issuance of the Convertible Notes, for gross proceeds of not less than $2 million inclusive of the application of all outstanding principal and interest of the Convertible Notes, which is referred to in this prospectus as the "Equity Offering", all outstanding principal and interest, if any, on the Convertible Notes shall be either (i) applied to the purchase of equity securities in the Equity Offering at the public offering purchase price, or (ii) converted into restricted shares of common stock at the then effective conversion rate. Holders of the Convertible Notes have the right to determine, to the extent that securities are legally available for purchase in the Equity Offering, whether to apply the Convertible Notes to acquire equity securities or convert the Convertible Notes into common stock; provided, however, that in the event that all or a portion of outstanding principal and interest, if any, of the Convertible Notes exceeds the number of equity securities available in the Equity Offering, the balance of the Convertible Notes not applied to the purchase of equity securities will be converted into restricted shares of common stock at the then-effective conversion rate. In April 2003, holders of $495,000 principal amount of Convertible Notes acquired as of December 2002 entered into agreements with Hudson whereby the holders agreed to modify the conversion rate of their Convertible Notes to $1.13, which was the average closing sale price of Hudson's common stock as reported on the NASDAQ Small Cap Market for the five business days immediately preceding the execution of the modification agreements; provided further, that, in the event of an Equity Offering by Hudson prior to the first anniversary of the issuance of the Convertible Notes, at a public offering price which includes the exercise price of stock purchase rights offered in the Equity Offering below the modified conversion rate but in excess of $.79, the conversion rate of the Convertible Notes will be adjusted to not less than the public offering price. Hudson is obligated to issue to the holders of the Convertible Notes, on the earlier of (a) the first anniversary of their respective date of issuance, or (b) the consummation by Hudson of an Equity Offering, warrants to purchase an aggregate number of shares of common stock equal to 10% of the number of shares of common stock into which the Convertible Notes were convertible at their date of issuance. Each warrant will be exercisable to purchase one share of common stock for a period of five years from issuance at an exercise price equal to 110% of the lesser of (i) the conversion rate of the Convertible Notes as of their date of issuance, or (ii) the conversion rate of the Convertible Notes on the date of issuance of the warrants. The exercise price of the warrants will be subject to anti-dilution adjustment on terms substantially similar to anti-dilution adjustment of the conversion rate of the Convertible Notes. As of December 20, 2002, Hudson has recognized an original issue discount of $220,000 in connection with the obligation to issue the warrants. Average short-term debt for the year ended December 31, 2002 totaled $2,577,000 with a weighted average interest rate of approximately 6.15%. 61 Note 9 - Stockholders' equity (i) On April 28, 1998, in connection with the loan agreements with CIT, Hudson issued to CIT warrants to purchase 30,000 shares of Hudson'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. The value of the warrants was not deemed to be material and the warrants expired on May 30, 2003. In addition, among other things, the agreements restrict Hudson's ability to declare or pay any dividends on its capital stock. Hudson has obtained a waiver from CIT to permit the payment of dividends on its Series A Preferred Stock. (ii) On March 30, 1999, Hudson completed the sale of 65,000 shares of its Series A Preferred Stock, with a liquidation value of $100 per share, to Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. The gross proceeds from the sale of the Series A Preferred Stock were $6,500,000. The Series A Preferred Stock currently converts to common stock at a price of $2.375 per share, which was 27% above the closing market price of common stock on March 29, 1999. (iii) On February 16, 2001, Hudson completed the sale of 30,000 shares of its Series A Preferred Stock, with a liquidation value of $100 per share, to Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. The gross proceeds from the sale of the Series A Preferred Stock were $3,000,000. The Series A Preferred Stock currently converts to common stock at a price of $2.375 per share, which was 23% above the closing market price of common stock on February 15, 2001. The Series A Preferred Stock provides for anti-dilution adjustment of the conversion price in the event of the subsequent offering by Hudson of securities for consideration per share less than the then effective conversion price of the Series A Preferred Stock. At the direction of the NASDAQ Stock Market, Inc., a minimum of $1.78 per share (the "Conversion Price Floor"), below which the conversion price of the Series A Preferred Stock could not be adjusted, had been instituted by Hudson and the holders of the Series A Preferred Stock by amendment to the designation of the Series A Preferred Stock, and at the same time Hudson agreed not to offer securities for consideration per share less than the Conversion Price Floor without the consent of the holders of the Series A Preferred Stock. Subsequently, in consideration for the consent of the holders of the Series A Preferred Stock to Hudson's engagement in the private offering of the Notes at a conversion price below the Conversion Price Floor, the stockholders of Hudson, at the annual meeting on December 20, 2002, voted in favor of a proposal to remove the Conversion Price Floor and the designation of the Series A Preferred Stock was amended accordingly. Although the holders of the Series A Preferred Stock agreed to waive their rights to an immediate downward adjustment of the current $2.375 conversion price of the Series A Preferred Stock in connection with the issuance of the Notes, any subsequent conversion of the Notes will result in an immediate downward adjustment of the conversion price of the Series A Preferred Stock to equal the conversion rate of the Notes. Consequently, upon conversion of the Exchange Notes at the $.79 per share conversion price the anti-dilution provisions of the Series A Preferred Stock will cause the conversion price of the Series A Preferred Stock to adjust downward to the $.79 per share. Assuming that the Series A Preferred Stock converts to common stock at a conversion price of $.79 per share and based upon 116,629 shares of Series A Preferred Stock issued as of December 31, 2002, the holders of the Series A Preferred Stock would receive 14,763,164 shares of common stock. Similarly, the conversion price of such Series A Preferred Stock may be subsequently adjusted to equal the consideration received by Hudson in connection with any subsequent issuance of securities below $2.375. The Series A Preferred Stock has voting rights on an as-if converted basis. The number of votes applicable to the Series A Preferred Stock is equal to the number of shares of common stock into which the Series A Preferred Stock is then convertible. The designation of the Series A Preferred Stock provided for a proxy granted by the holders of the Series A Preferred Stock in favor of certain of Hudson's officers to vote all shares of common stock into which the Series A Preferred Stock converts (including any additional shares subsequently acquired by such holders) in excess of 29% of the votes entitled to be cast by the Series A Preferred Stock holders. As noted above, in consideration for consent of the holders of the Series A Preferred Stock to Hudson's engagement in the private offering of the Notes at a conversion rate below the Conversion Price Floor, the stockholders of Hudson, at the annual meeting on December 20, 2002, voted in favor of a proposal to remove the proxy from the designation of the Series A Preferred Stock and the designation of the Series A Preferred Stock was amended accordingly. The Series A Preferred Stock carries a dividend rate of 7%, which will increase to 16%, if the stock remains outstanding on or after March 31, 2004. Hudson used the net proceeds from the issuance of the Series A Preferred Stock to expand its RefrigerantSide(R) Services business and for working capital purposes. Hudson pays dividends, in arrears, on the Series A Preferred Stock, semi annually, either in cash or additional shares, at Hudson's option. On March 30 and September 30, 2002 and March 30, 2003, Hudson declared and paid, in-kind, the 62 dividends outstanding on the Series A Preferred Stock and issued 3,873 and 4,011and 4,153, respectively, additional shares of its Series A Preferred Stock in satisfaction of the dividends due. Hudson may redeem the Series A Preferred Stock on March 31, 2004 either in cash or shares of common stock valued at 90% of the average trading price of the common stock for the 30 days preceding March 31, 2004. In addition Hudson may call the Series A Preferred Stock if the market price of its common stock is equal to or greater than 250% of the conversion price and the common stock has traded with an average daily volume in excess of 20,000 shares for a period of thirty consecutive days. Hudson has provided certain registration, preemptive and tag along rights to the holders of the Series A Preferred Stock. The holders of the Series A Preferred Stock have agreed to waive their registration rights with respect to the registration of the securities in this offering. In addition, the holders of the Series A Preferred Stock, voting as a separate class, have the right to elect up to two members to Hudson's Board of Directors or at their option, to designate up to two advisors to Hudson's Board of Directors who will have the right to attend and observe meetings of the Board of Directors. Currently, the holders have elected one member to the Board of Directors. (iv) Hudson engaged an advisor to facilitate Hudson's efforts in connection with the March 30, 1999 sale of the Series A Preferred Stock. In addition to the advisor fees, Hudson issued to the advisor, warrants, which expire on March 30, 2004, to purchase 136,482 shares of Hudson's common stock at an exercise price per share of $2.73. The value of the warrants was not deemed to be material. Note 10 - Commitments and contingencies Rents, operating leases and contingent income Hudson utilizes leased facilities and operates equipment under non-cancelable operating leases through December 31, 2007. Properties Location Annual Rent Lease Expiration Date -------- ----------- --------------------- Baltimore, Maryland $ 27,000 8/2005 Baton Rouge, Louisiana $ 21,000 7/2005 Champaign, Illinois $132,000 11/2004 Charlotte, North Carolina $ 42,000 Month to Month Chicago, Illinois $ 25,000 8/2005 Fremont, New Hampshire $ 8,000 6/2004 Fort Myers, Florida $ 15,000 Month to Month Hillburn, New York $103,000 5/200 Norfolk, Virginia $ 4,000 Month to Month Pearl River, New York $ 64,000 12/2007 Plainview, New York $ 3,000 Month to Month Punta Gorda, Florida $ 76,000 12/2003 Rantoul, Illinois $ 39,000 Month to Month Salem, New Hampshire $ 14,000 8/2003 Seattle, Washington $ 18,450 3/2004 Hudson rents properties and various equipment under operating leases Rent expense, net of sublease rental income, for the years ended December 31, 2002 and 2001 totaled approximately $743,000 and $837,000, respectively. 63 Future commitments under operating leases, are summarized as follows: Rent expense Years ended December 31, Amount ------------------------ ------ (in thousands) - 2003 $ 664 - 2004 324 - 2005 120 - 2006 70 - 2007 72 ------- Total $ 1,250 ======= Legal Proceedings In June 1998, United Water of New York Inc. ("United") commenced an action against Hudson in the Supreme Court of the State of New York, Rockland County, seeking damages in the amount of $1.2 million allegedly sustained as a result of alleged contamination of certain of United's wells which are in close proximity to Hudson's Hillburn, New York facility. On April 1, 1999, Hudson reported a release at Hudson's Hillburn, New York facility of approximately 7,800 lbs. of R-11, as a result of a failed hose connection to one of Hudson's outdoor storage tanks allowing liquid R-11 to discharge from the tank into the concrete secondary containment area in which the subject tank was located. Between April 1999 and May 1999, with the approval of the New York State Department of Environmental Conservation ("DEC"), Hudson constructed and put into operation a remediation system at Hudson's Hillburn facility to remove R-11 levels in the groundwater under and around Hudson's facility. The cost of this remediation system was $100,000. In July 1999, United amended its complaint in the Rockland County action to allege facts relating to, and to seek damages allegedly resulting from the April 1, 1999 R-11 release. In June 2000, the Rockland County Supreme Court approved a settlement of the Rockland County action commenced by United. Under the settlement, Hudson paid to United the sum of $1,000,000 and has been making additional monthly payments in the amount of $5,000, which payments will continue through December 2003. The proceeds of the settlement were required to be used to fund the construction and operation by United of a new remediation tower, as well as for the continuation of temporary remedial measures implemented by United that have successfully contained the spread of R-11. The remediation tower was completed in March 2001, and is designed to treat all of United's impacted wells and restore the water to New York State drinking water standards for supply to the public. Hudson carries $1,000,000 of pollution liability insurance per occurrence and in connection with the settlement, exhausted all insurance proceeds available for that occurrence under all applicable policies. In June 2000, Hudson signed an Order on Consent with the DEC regarding all past contamination of the United well field, whereby, Hudson agreed to continue operating the remediation system it installed at its Hillburn facility in May 1999, until remaining groundwater contamination has been effectively abated. In May 2001, Hudson signed an amendment to the Order on Consent with the DEC, pursuant to which Hudson installed one additional monitoring well and modified Hudson's existing remediation system to incorporate a second recovery well. Hudson is continuing to operate the remediation system. In May 2000, Hudson's Hillburn facility was nominated by the United States Environmental Protection Agency ("EPA") for listing on the National Priorities List ("NPL"), pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980. Hudson believes that the agreements reached with the DEC and United Water, together with the reduced levels of contamination present in the United Water wells, make such listing unnecessary and counterproductive. Hudson submitted opposition to the listing within the sixty-day comment period. To date, no final decision has been made by the EPA regarding the proposed listing. In October 2001, Hudson learned that trace levels of R-11 were detected in one of United's wells that is closest to the Village of Suffern's ("Village") well system. During February 2002, the Village expressed concern over the possibility of R-11 reaching its well system and has advised Hudson that it was investigating available options to protect its well system. No contamination of R-11 has ever been detected in any of the Village's wells and, as of October 2002, the level of R-11 in the United well closest to the Village was below 1 ppb. In October, 2002 the Village advised Hudson it intends to proceed with 64 plans to protect its wells and could look to Hudson to reimburse the Village for any costs it may incur. To date, no detailed cost estimate, formal demand or claim has been presented by the Village, however, to the extent the Village proceeds with its plans, Hudson may incur additional costs. Hudson has agreed to reimburse the Village for approximately $10,000 of costs incurred to date for additional sampling by the Village of its wells and for minor preparatory work in connection with the Village's plan for protecting its wells. Hudson continues to work with the Village, and all applicable governmental agencies, to prevent contamination of Village's wells and its water supply. In February 2003, Hudson agreed to extend the statute of limitations applicable to any claims that may be available to Ramapo Land Company, the lessor of the Hillburn facility, arising out of the April 1, 1999 incident for an additional two years. To date, no claims against Hudson have been asserted or threatened by Ramapo Land Company. During the year ended December 31, 2002, Hudson charged to operating expense $115,000 in additional remediation costs in connection with these matters. There can be no assurance that the R-11 will not spread beyond the United Water well system and impact the Village of Suffern's wells, or that the ultimate outcome of such a spread of contamination will not have a material adverse effect on Hudson's financial condition and results of operations. There can be no assurance that Hudson's opposition to the EPA's listing of Hudson's Hillburn facility on the NPL will be successful, or that the ultimate outcome of such a listing will not have a material adverse effect on Hudson's financial condition and results of operations. Furthermore, there can be no assurance that Ramapo Land Company will not assert any claim against Hudson, or that any such claim will not have a material adverse effect on Hudson's financial condition and results of operations. Note 11 - Stock Option Plans Effective October 31, 1994, Hudson adopted an Employee Stock Option Plan ("1994 Plan") pursuant to which 725,000 shares of common stock are reserved for issuance upon the exercise of options designated as either (i) options intended to constitute incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as amended, or (ii) nonqualified options. ISOs may be granted under the 1994 Plan to employees and officers of Hudson. Non-qualified options may be granted to consultants, directors (whether or not they are employees), employees or officers of Hudson. Stock appreciation rights may also be issued in tandem with stock options. Unless sooner terminated, the 1994 Plan will expire on December 31, 2004. ISOs granted under the 1994 Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of Hudson). Non-qualified options granted under the 1994 Plan may not be granted at a price less than 85% of the market value of the common stock on the date of grant. Options granted under the 1994 Plan expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of Hudson). Effective July 25, 1997, and as amended on August 19, 1999, Hudson adopted its 1997 Employee Stock Option Plan ("1997 Plan") pursuant to which 2,000,000 shares of common stock are reserved for issuance upon the exercise of options designated as either (i) options intended to constitute incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as amended, or (ii) nonqualified options. ISOs may be granted under the 1997 Plan to employees and officers of Hudson. Non-qualified options may be granted to consultants, directors (whether or not they are employees), employees or officers of Hudson. Stock appreciation rights may also be issued in tandem with stock options. Unless sooner terminated, the 1997 Plan will expire on June 11, 2007. ISOs granted under the 1997 Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of Hudson). Non-qualified options granted under the 1997 Plan may not be granted at a price less than the par value of the common stock on the date of grant. Options granted under the 1997 Plan expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of Hudson). All stock options have been granted to employees and non-employees at exercise prices equal to or in excess of the market value on the date of the grant. 65 SFAS No. 123 requires Hudson to provide pro forma information regarding net loss and net loss per share as if compensation cost for Hudson's stock option plan had been determined in accordance with the fair value based method prescribed in SFAS No. 123. Hudson estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants since 1995. Years ended December 31, 2002 2001 ---- ---- Assumptions Dividend Yield 0% 0% Risk free interest rate 3.0% 4.4% Expected volatility 60% 60% Expected lives 5 5 A summary of the status of Hudson's 1994 and 1997 Plans as of December 31, 2002 and 2001 and changes for the years ending on those dates is presented below: Weighted Average Stock Option Plan Grants Shares Exercise Price Outstanding at December 31, 2000 1,598,082 $ 3.60 o Granted 456,000 $ 2.52 o Forfeited (112,700) $ 4.19 o Exercised (67,700) $ 2.23 --------- Outstanding at December 31, 2001 1,873,682 $ 3.35 o Granted 163,400 $ 1.88 o Forfeited (265,866) $ 4.12 o Exercised (8,500) $ 2.30 --------- Outstanding at December 31, 2002 1,762,716 $ 3.14 ========= Data summarizing year-end options exercisable and weighted average fair-value of options granted during the years ended December 31, 2002 and 2001 is shown below: Options Exercisable Year ended Year ended December 31, December 31, 2002 2001 Options exercisable at year-end 1,689,383 1,656,397 Weighted average exercise price $3.17 $3.42 Weighted average fair value of options granted during the year $1.80 $2.63 Options Exercisable at December 31, 2002 Weighted-average Number Exercise Range of Prices Outstanding Price --------------- ----------- ----- $1 to $4 1,556,617 $ 2.59 $4 to $8 12,766 $ 4.04 $8 to $12 120,000 $10.50 --------- $1 to $12 1,689,383 $ 3.17 ========= 66 The following table summarizes information about stock options outstanding at December 31, 2002: Options Outstanding At December 31, 2002 Weighted-average Remaining Weighted-average Range of Number Contractual Exercise Prices Outstanding Life Price ------ ----------- ---- ----- $1 to $4 1,629,950 2.92 years $ 2.59 $4 to $8 12,766 1.00 years $ 4.04 $8 to $12 120,000 1.00 years $10.50 --------- $1 to $12 1,762,716 2.78 years $ 3.14 ========= During the initial phase-in period of SFAS 123, the effects on the pro-forma results are not likely to be representative of the effects on pro-forma results in future years since options vest over several years and additional awards could be made each year. Note 12 - Subsequent Events On May 30, 2003 Hudson entered into a credit facility with Keltic, which provides for borrowings of up to $5,000,000. The facility consists of a revolving line of credit and a term loan. Advances under the revolving line of credit may not exceed $4,600,000 and are limited to (i) 85% of eligible trade accounts receivable and (ii) 50% of eligible inventory. Advances available to Hudson under the term loan may not exceed $400,000. The facility bears interest at a rate equal to the greater of the prime rate plus 2.0%, or 6.5%. Substantially all of Hudson's assets are pledged as collateral for its obligations to Keltic under the credit facility. In addition, among other things, the agreements restrict Hudson's ability to declare or pay any cash dividends on its capital stock. As of May 30, 2003, Hudson had in the aggregate $1,932,000 outstanding under the Keltic credit facility and $1,140,000 available for borrowing under the credit facility. In connection with the Keltic credit facility, Hudson also entered into a loan arrangement with the Flemings Funds for the principal amount of $575,000. The loan is unsecured, is for a term of three years, and accrues interest at an annual rate equal to the greater of the prime rate plus 2.0%, or 6.5%. In accordance with the terms of the Keltic credit facility, the amount of principal and interest outstanding under this loan arrangement reduces Hudson's aggregate borrowing availability by a like amount under its credit facility with Keltic. This loan is expected to be retired in conjunction with the completion of this Rights Offering. 67 ================================================================================ You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, common shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. ---------------------- TABLE OF CONTENTS Page PROSPECTUS SUMMARY ..................................................... 3 RISK FACTORS ........................................................... 8 FORWARD-LOOKING STATEMENTS ............................................. 12 USE OF PROCEEDS ........................................................ 12 MARKET PRICE FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS ...... 13 ABOUT THE RIGHTS OFFERING .............................................. 14 PLAN OF DISTRIBUTION ................................................... 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .................................... 21 OUR BUSINESS ........................................................... 29 MANAGEMENT ............................................................. 35 EXECUTIVE COMPENSATION ................................................. 37 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ......... 42 DESCRIPTION OF SECURITIES .............................................. 44 CERTAIN TRANSACTIONS ................................................... 46 INDEMNIFICATION OF DIRECTORS AND OFFICERS .............................. 47 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ............................. 48 ================================================================================ _____________ Shares HUDSON TECHNOLOGIES, INC. Common Stock -------------------- PROSPECTUS -------------------- _____________ ___, 2003 ================================================================================ - -------------------------------------------------------------------------------- Part II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers. The New York Business Corporation Law (Sections 721 through 726) permits a corporation to indemnify any of its directors and officers for acts performed in their capacities, subject to certain conditions. Paragraph 3 of the Certificate of Incorporation of the Registrant provides that a director shall not be liable to the corporation or its shareholders for damages for any breach of duty in such capacity except for liability if a judgment or other final adjudication adverse to the director establishes that his or her acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that the director personally gained a financial profit or other advantage to which he or she was not legally entitled or that the director's acts violated Section 719 of the New York Business Corporation Law. Paragraph 17 of Article III of the Registrant's By-laws provide for indemnification of directors and officers to the fullest extent permitted by the New York Business Corporation Law. Item 25. Other Expenses of Issuance and Distribution. The expenses of the offering, which, except for the SEC filing fee, are estimated, are set forth below. SEC registration fee................................... $ 404.50 Legal fees and expenses *.............................. ** Accounting fees and expenses *......................... ** Printing fees and expenses *........................... ** Miscellaneous *........................................ ** --------- Total......................................... $ 300,000 ========= - ---------- * Estimated ** To be provided by amendment Item 26 Recent Sales of Unregistered Securities. On March 30 and September 30, 2000; March 30 and September 30, 2001; March 30 and September 30, 2002 and March 30, 2003 the Registrant issued a total of 2,398; 2,483; 2,571; 3,740; 3,873; 4,011 and 4,153, respectively, additional shares of its Series A Preferred Stock to the holders thereof in satisfaction of the dividends then due. On March 17, 2000, the Registrant issued 3,000 shares of its common stock to Brian F. Coleman as bonus compensation. On February 16, 2001, the Registrant completed the sale of 30,000 shares of its Series A Preferred Stock with gross proceeds of $3,000,000 to the Flemings Funds. In November 2002, the Registrant consummated the private sale of 12% Unsecured Bridge Notes to certain officers and certain members of their family and the holders of the Series A Preferred Stock, for which it received gross proceeds of $655,000. The Bridge Notes automatically exchanged for the convertible notes, upon approval of such exchange by Hudson's shareholders, which approval was obtained at the annual meeting on December 20, 2002. Effective December 2002, the Registrant consummated the private sale of 10% Subordinated Convertible Notes to certain officers and certain members of their family and the holders of the Series A Preferred Stock, for which it received gross proceeds of $495,000. The Notes have a term of two years and earn interest at an annual rate of 10% payable quarterly in arrears. On April 15, 2003, the Registrant issued an additional $500,000 principal amount of 10 % Subordinated Convertible Notes to the holders of the Series A Preferred Stock. The April 15, 2003 note issuance is identical to the December 2002 issuance, except that the conversion rate of these notes is $1.41 per share. II-1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Registrant is obligated to issue warrants to the holders of Convertible Notes which warrants will have exercise prices equal to 110% of the per share conversion price of the Convertible Notes on the date of issuance. With respect to these foregoing sales and issuances, the Registrant relied on the exemption from registration provided by Section 4 (2) under the Securities Act of 1933 as amended and upon Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. Item 27. Exhibits Exhibit Description of Exhibit - ------- ---------------------- 3.1 Certificate of Incorporation and Amendment. (1) 3.2 Amendment to Certificate of Incorporation dated July 20, 1994. (1) 3.3 Amendment to Certificate of Incorporation dated October 26, 1994. (1) 3.4 By-Laws. (1) 3.5 Certificate of Amendment of the Certificate of Incorporation dated March 16, 1999. (5) 3.6 Certificate of Correction of the Certificate of Amendment dated March 27, 1999. (5) 3.7 Certificate of Amendment of the Certificate of Incorporation dated March 29, 1999. (5) 3.8 Certificate of Amendment to the Certificate of Incorporation dated February 16, 2001. (7) 3.9 Amendment to the Certificate of Incorporation dated January 3, 2003. (9) 5 Opinion of Blank Rome LLP. (***) 10.1 Lease Agreement between the Company and Ramapo Land Co., Inc. (1) 10.2 1994 Stock Option Plan of the Company. (1) (*) 10.3 Employment Agreement with Kevin J. Zugibe. (1) (*) 10.4 Assignment of patent rights from Kevin J. Zugibe to the Company. (1) 10.5 Agreements dated January 27, 1997 between E.I. DuPont de Nemours, DECEO, and the Company. (2) 10.6 Loan and security agreements and warrant agreements dated April 29, 1998 between the Company and CIT Group/Credit Financing Group, Inc. (3) 10.7 Stock Purchase Agreement, Registration Rights Agreement and Stockholders Agreement dated March 30, 1999 between the Company and Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. (4) 10.8 1997 Stock Option Plan of the Company, as amended. (6) (*) 10.9 Stock Purchase Agreements dated February 16, 2001 between the Company and Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. (7) 10.10 First Amendment to Registration Rights Agreement dated February 16, 201 between the Company and Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. (7) 10.11 First Amendment to the Stockholders Agreement dated February 16, 2001 between the Company and Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. (7) 10.12 Certificate of Amendment to the Certificate of Incorporation of the Company dated March 20, 2002. (8) 10.13 First Amendment to Stock Purchase Agreements and Waiver, between the Company and Fleming US Discovery Fund III, L.P. dated March 5, 2002. (8) 10.14 First Amendment to Stock Purchase Agreements and Waiver, between the Company and Fleming US Discovery Offshore Fund III, L.P. dated March 5, 2002. (8) 10.15 Form of 10% Subordinated Convertible Note dated December 20, 2002. (9) 10.16 Form of Common Stock Purchase Warrants to be issued to Holders of 10% Subordinated Convertible Note dates December 20, 2002. (9) 10.17 Revolving Loan agreement dated May 30, 2003 between Hudson Technologies Company and Keltic Financial Partners, LP. 10.18 Security Agreement dated May 30, 2003 between Hudson Technologies Company and Keltic Financial Partners, LP. 10.19 Letter Agreement between the Company and Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. dated May 30, 2003. 21 Subsidiaries of the Registrant. (9) 23.1 Consent of BDO Seidman, LLP. II-2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 23.2 Consent of Blank Rome LLP (included in Exhibit 5) 24 Power of Attorney (included on the signature page of this Registration Statement). (**) 99.1 Form of Subscription Agreement for Stockholders. (**) 99.2 Form of Subscription Agreement for Members of the Public and Holders of Hudson Technologies, Inc.'s 10% Subordinated Convertible Notes. (**) - ---------- (1) Incorporated by reference to the comparable exhibit filed with Hudson's Registration Statement on Form SB-2 (No. 33-80279-NY). (2) Incorporated by reference to the comparable exhibit filed with Hudson's Current Report in Form 8-K dated January 29, 1997. (3) Incorporated by reference to the comparable exhibit filed with the Company's Quarterly Report on Form 10-QSB for the quarter ended March 31, 1998. (4) Incorporated by reference to the comparable exhibit filed with Hudson's Annual Report on Form 10-KSB for the year ended December 31, 1998. (5) Incorporated by reference to the comparable exhibit filed with Hudson's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999. (6) Incorporated by reference to the comparable exhibit filed with Hudson's Annual Report on Form 10-KSB for the year ended December 31, 1999. (7) Incorporated by reference to the comparable exhibit filed with Hudson's Annual Report on Form 10-KSB for the year ended December 31, 2000. (8) Incorporated by reference to the comparable exhibit filed with Hudson's Annual Report on Form 10-KSB for the year ended December 31, 2001. (9) Incorporated by reference to the comparable exhibit filed with Hudson's Annual Report on Form 10-KSB for the year ended December 31, 2002. - ---------- * Denotes management compensation arrangement ** Previously filed *** To be filed by amendment Item 28. Undertakings The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement or the most recent post-effective amendment thereof which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the registration statement is on Form S-3, Form S-8, and the Information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by Hudson pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof, and (3) To remove from registration by means of a post-effective amendment any of the securities being registered, which remain, unsold at the termination of this offering. II-3 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-4 - -------------------------------------------------------------------------------- SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, in the city of Pearl River, State of New York, on the day 12th of June 2003. HUDSON TECHNOLOGIES, INC. By: /s/ Kevin J. Zugibe ----------------------------------------- Name: Kevin J. Zugibe Title: Chairman of the Board and Chief Executive Officer In accordance with the requirements of the Securities Act of 1933, this Amendment No. 1 to the registration statement has been signed by the following persons in the capacities and on the dates stated:
Signature Title Date --------- ----- ---- /s/ Kevin J. Zugibe Chairman of the Board, Chief June 12, 2003 - ------------------------------- Executive Officer and a Director Kevin J. Zugibe /s/ James R. Buscemi Chief Financial Officer (Principal June 12, 2003 - ------------------------------- Financial and Accounting Officer) James R. Buscemi * Director June 12, 2003 - ------------------------------- Vincent P. Abbatecola * Director June 12, 2003 - ------------------------------- Robert L. Burr * Director June 12, 2003 - ------------------------------- Dominic J. Monetta * Director June 12, 2003 - ------------------------------- Otto C. Morch * Director June 12, 2003 - ------------------------------- Harry C. Schell Director - ------------------------------- Robert M. Zech * By /s/ Kevin J. Zugibe --------------------------- Attorney in-fact
EX-10.17 3 d56053_ex10-17.txt REVOLVING LOAN AGREEMENT Exhibit 10.17 REVOLVING LOAN AGREEMENT between HUDSON TECHNOLOGIES COMPANY and KELTIC FINANCIAL PARTNERS, LP Dated: May 30, 2003 i) REVOLVING LOAN AGREEMENT This Revolving Loan Agreement is made this 30th day of May, 2003, between HUDSON TECHNOLOGIES COMPANY ("Borrower"), a corporation organized and existing pursuant to the laws of the State of Tennessee having an address at 275 North Middletown Road, Pearl River, New York 10965. and KELTIC FINANCIAL PARTNERS, LP ("Lender"), a Delaware limited partnership, with a place of business at 555 Theodore Fremd Avenue, Suite C-207, Rye, New York 10580 (this "Agreement"). W I T N E S S E T H: WHEREAS, Borrower has requested that Lender extend a FOUR MILLION SIX HUNDRED THOUSAND and 00/100 Dollars ($4,600,000.00) revolving credit facility, the proceeds of which will be used to repay existing indebtedness to CIT Small Business Lending Corporation and to also provide Borrower with working capital support. WHEREAS, Borrower has requested that Lender extend a FOUR HUNDRED THOUSAND and 00/100 Dollars ($400,000.00) term loan, the proceeds of which will be used to repay existing indebtedness to CIT Small Business Lending Corporation and to provide Borrower with working capital support. WHEREAS, Lender is willing to extend the credit facilities on the terms and subject to the conditions set forth in this Agreement. ii) AGREEMENT B. DEFINITIONS. As used herein, the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): i. "Account Debtor" shall mean any Person who is or may become obligated under or on account of any Receivable. ii. "Advance" shall mean any loan or advance made by Lender in connection with the Revolving Loan. iii. "Affiliate" shall mean any Person: (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, Borrower including, without limitation, Hudson Holdings, Inc. and Hudson Technologies, Inc.; (ii) which beneficially owns or holds 5% or more of any class of the voting stock or other equity interest in Borrower; or (iii) 5% or more of the voting stock or other equity interest of which is beneficially owned or held by Borrower. For purposes hereof, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting stock or other equity interests, by contract or otherwise. 1 iv. "Authenticate" shall mean to sign or to execute or otherwise adopt a symbol, or encrypt or similarly process a record in whole or in part, with the present interest of the authenticating person to identify the person and adopt or accept a Record. v. "Bank Accounts" shall have the meaning set forth in Section 5.23 of this Agreement. vi. "Banking Day" shall mean any day on which commercial banks are not authorized or required to close in New York State. vii. "Borrower" shall mean Hudson Technologies Company. viii. "Borrowing Capacity" shall have the meaning set forth in Section 2.1 of this Agreement. ix. "Borrowing Base Certificate" shall mean a borrowing base certificate substantially in the form of Exhibit D attached hereto. x. "Capital Expenditure" shall mean, as determined in accordance with GAAP, the dollar amount of gross expenditures (including obligations under capital leases) made or incurred for fixed assets, real property, plant and equipment, and all renewals, improvements and replacements thereto (but not repairs thereof) during any period. xi. "Code" shall mean the Internal Revenue Code of the United States. xii. "Collateral" shall mean all of the Property and interests in Property described in the General Security Agreement, and all other personal property of Borrower and interests of Borrower in personal property that now or hereafter secures the payment and performance of any of the Obligations pursuant to any of the Loan Documents or otherwise including, without limitation, any proceeds and insurance proceeds of the foregoing. xiii. "Contract Year" shall mean, during the term of the Loans, each consecutive twelve (12) month period commencing on the date hereof and, in each case, ending on the date, which is one day prior to the applicable anniversary date hereof. xiv. "Default" shall mean an event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default, whether or not Lender has declared an Event of Default to have occurred. xv. "EBITDA" shall mean Borrower's total income before interest expense, taxes, depreciation and amortization, all calculated in accordance with GAAP. xvi. "Eligible Inventory" shall mean Inventory which has been identified and described to Lender's satisfaction, is represented by Borrower (by its 2 acceptance of Revolving Loans thereon) as meeting all of the following criteria on the date of any Revolving Loan based thereon and thereafter while any Obligation is outstanding, and is in all other respects acceptable to Lender: a. Borrower is the sole owner of the Inventory; none of the Inventory is being held or shipped by Borrower on a consignment or approval basis; Borrower has not sold, assigned or otherwise transferred all or any portion thereof; and none of the Inventory is subject to any claim, lien or security interest; b. If any of the Inventory is represented or covered by any document of title, instrument or chattel paper, Borrower is the sole owner of all such documents, instruments and chattel paper, all thereof are in the possession of Borrower, none thereof has been sold, assigned or otherwise transferred, and none thereof is subject to any claim, lien or security interest; c. The Inventory consists of refrigerants which have been processed in accordance with all Governmental Rules, or finished goods consisting of saleable cylinders to hold refrigerants acquired by Borrower in the ordinary course of its business, as conducted on the date hereof, subject to its contract or sole possession and, located in compliance with Section 5.15 of this Agreement or at locations approved by Lender in writing for which landlord or bailee waivers in form and substance acceptable to Lender have been executed and delivered by such landlord or bailee to Lender. xvii. "Eligible Receivables" shall mean and include only Receivables of Borrower, the records and accounts of which are located in compliance with Section 5.14 of this Agreement, are acceptable to Lender in Lender's sole and absolute discretion, arise out of sales in the ordinary course of Borrower's business as currently conducted, made by Borrower to a Person which is not an Affiliate of Borrower nor an employee of Borrower nor controlled by an Affiliate of Borrower, which are not in dispute and which do not then violate any warranty with respect to Eligible Receivables set forth in the General Security Agreement, and the Inventory which is the subject matter of such Receivable, must have been shipped to the customer on or prior to the invoice date, or the services described in any such invoice must have been provided on or prior to the invoice date. No Receivable shall be an Eligible Receivable if more than ninety (90) days have passed since the original invoice date. Lender may treat any Receivable as ineligible if: a. any warranty contained in this Agreement or in the General Security Agreement with respect to Eligible Receivables or any warranty with respect to such Receivable contained in this Agreement or in the General Security Agreement has been breached; or b. the Account Debtor or any Affiliate of the Account Debtor has disputed liability, or made any claim with respect to such Receivable 3 or with respect to any other Receivable due from such customer or Account Debtor to Borrower, with respect to any Receivable which Lender, in its sole and absolute discretion, deems material; or c. the Account Debtor or any Affiliate of the Account Debtor has filed a case for bankruptcy or reorganization under the Bankruptcy Code, or if any case under the Bankruptcy Code has been filed against the Account Debtor or any Affiliate of the Account Debtor, or if the Account Debtor or any Affiliate of the Account Debtor has made an assignment for the benefit of creditors, or if the Account Debtor or any Affiliate of the Account Debtor has failed, suspended business operations, become insolvent, or had or suffered a receiver or a trustee to be appointed for all or a significant portion of its assets or affairs; or d. if the Account Debtor is also a supplier to or creditor of Borrower or if the Account Debtor has or asserts any right of offset with respect to any Receivable or asserts any claim or counterclaim against Borrower with respect to any Receivable or otherwise (so long as the Account Debtor does not assert any right of set off or counterclaim, Lender, subject to all the other provisions of this Agreement, will only consider the Receivable ineligible in an amount equal to the amount owed such Account Debtor by Borrower); or e. the sale is to an Account Debtor outside the United States, unless the sale is secured by a letter of credit or acceptance acceptable to Lender in its sole discretion, or is insured by a credit risk insurance policy acceptable to Lender in its sole discretion or on other terms acceptable to Lender in its sole discretion; or f. fifty percent (50%) or more of the Receivables of any Account Debtor and its Affiliates are ineligible, then all the Receivables of such Account Debtor and its Affiliates may be deemed ineligible by Lender under this Agreement; or g. the total unpaid Receivables of the Account Debtor exceed twenty percent (20%) of the net amount of all Receivables, to the extent of such excess, except that with respect to NRP/COOLGAS, INC., USA/ B & B and GENUINE PARTS COMPANY, the percentage shall be twenty-five percent (25%), provided the credit worthiness of any such Account Debtor is acceptable to Lender in its sole discretion and credit insurance coverage is in existence covering such Account Debtor's Receivables acceptable to Lender in its sole and absolute discretion; or h. it relates to a sale of goods or services to the United States of America, or any agency or department thereof, unless Borrower assigns its right to payment of such Receivable to Lender, in form and substance 4 satisfactory to Lender, so as to comply with the Assignment of Claims Act of 1940, as amended; or i. it relates to a sale of goods or services to a state or local governmental authority or an agency or department thereof in excess of $50,000.00 in the aggregate; or j. it relates to intercompany sales, employee sales or any Receivable due from an Affiliate of Borrower; or k. it consists of a sale to an Account Debtor on consignment, bill and hold, guaranteed sale, sale or return, sale on approval, payment plan, scheduled installment plan, extended payment terms or any other repurchase or return basis; or l. the Account Debtor is located in a state in which Borrower is deemed to be doing business under the laws of such state and which denies creditors access to its courts in the absence of qualifications to transact business in such state or of the filing of any reports with such state, unless Borrower has qualified as a foreign corporation authorized to do business in such state or has filed all required reports; or m. the Receivable is evidenced by chattel paper or an instrument of any kind, or has been reduced to judgment; or n. the Receivable arises from a sale of goods or services to an individual who is purchasing such goods primarily for personal, family or household purposes; o. if Lender believes, in its sole and absolute judgment, that collection of such Receivable is insecure or that such Receivable may not be paid by reason of the Account Debtor's financial inability to pay. xviii. "Environment" shall mean any water or water vapor, any land surface or subsurface, air, fish, wildlife, biota and all other natural resources. xix. "Environmental Laws" shall mean all federal, state and local environmental, land use, zoning, health, chemical use, safety and sanitation laws, statutes, ordinances and codes relating to the protection of the Environment and/or governing the use, storage, treatment, generation, transportation, processing, handling, production or disposal of "hazardous substances" and the rules, regulations, policies, guidelines, interpretations, decisions, orders and directives of federal, state and local governmental agencies and authorities with respect thereto. xx. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 5 xxi. "Events of Default" shall have the meaning set forth in Article 12 of this Agreement. xxii. "Fiscal Year" shall mean with respect to any Person, a year of 365 or 366 days, as the case may be, ending on the last day of December in any calendar year. xxiii. "Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of EBITDA over the sum of (i) interest and fees due in respect of Indebtedness for such period, excluding the commitment and closing fees payable pursuant to Section 3.3 of this Agreement, (ii) principal payments due on any Loan during such period, (iii) principal payments on any other Indebtedness during such period, (iv) capital expenditures for such period, (v) taxes due for such period, (vi) cash dividends declared during such period, and (vii) distributions paid on subordinated debt or equity during such period. xxiv. "GAAP" shall mean generally accepted accounting principles consistently applied and maintained throughout the period indicated and consistent with the prior financial practice of Borrower, except for changes mandated by the Financial Accounting Standards Board or any similar accounting authority of comparable standing. Whenever any accounting term is used herein which is not otherwise defined, it shall be interpreted in accordance with GAAP. xxv. "General Security Agreement" shall mean the general security agreement dated the date hereof executed and delivered by Borrower to Lender. xxvi. "Governmental Rules" shall have the meaning given to such term in Section 5.24 of this Agreement. xxvii. "Indebtedness" shall mean and include all obligations for borrowed money of any kind or nature, including funded debt and unfunded liabilities, contingent obligations under guaranties or letters of credit, and all obligations for the acquisition or use of any fixed asset, including capitalized leases, or improvements which are payable over a period longer than one year, regardless of the term thereof or the Person or Persons to whom the same is payable and the Obligations. xxviii. "Inventory" shall have the meaning given to such term in the General Security Agreement. xxix. "LIBOR" shall mean the London Inter-Bank Offered Rate as quoted by Citibank, N.A. in New York City at 11:00 a.m. (New York time) based upon Citibank, N.A.'s or an affiliated agency's or branch's quotes to prime banks in the London Inter-Bank Euro-currency Market for Eurodollar deposits. xxx. "Loan Documents" shall mean this Agreement, the General Security Agreement and all other documents and instruments to be delivered by Borrower or any other Person under this Agreement or in connection with the Loans or any other Indebtedness or Obligations of Borrower to Lender, as the same may be amended, modified or supplemented from time to time. 6 xxxi. "Loan Interest Rate" shall mean, at the option of Lender, the greater of: (a) the prime rate published in the "Money Rates" column of The Wall Street Journal from time to time or, in the event that The Wall Street Journal is not available at any time, such rate published in another publication as determined by Lender plus two hundred (200) basis points per annum, or (b) six and one-half percent (6-1/2%) per annum. xxxii. "Loans" shall mean the loans and advances made by Lender hereunder, including all Advances and the Term Loan. xxxiii. "Lockbox" shall mean the account established by Borrower pursuant to the lockbox agreement among Borrower, Lender and a financial institution with which Borrower maintains a depository account into which the proceeds of all Collateral are to be deposited. xxxiv. "Material Adverse Effect" shall mean any material adverse effect, as determined in Lender's sole and absolute discretion, on (a) the business, assets, operations, prospects or condition, financial or otherwise, of Borrower or any guarantor; (b) Borrower's or any guarantor's ability to pay or perform the Obligations in accordance with their terms; (c) the value, collectability or salability of the Collateral or the perfection or priority of Lender's liens; (d) the validity or enforceability of this Agreement or any of the Loan Documents; or (e) the practical realization of the benefits, rights and remedies inuring to Lender under this Agreement or under the other Loan Documents. xxxv. "Maximum Facility" shall mean Five Million and 00/100 Dollars ($5,000,000.00). xxxvi. "Notice of Borrowing" shall mean a borrowing request in a Record substantially in the form of Exhibit C attached hereto. xxxvii. "Obligations" shall mean and include all loans (including the Loans), advances, debts, liabilities, obligations, covenants and duties owing by Borrower to Lender or any Affiliate of Lender of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether arising under this Agreement, the other Loan Documents or under any other agreement or by operation of law, whether or not for the payment of money, whether arising by reason of an extension of credit, opening, guaranteeing or confirming of a letter of credit, loan, guaranty, indemnification or in any other manner, whether direct or indirect (including those acquired by purchase or assignment), absolute or contingent, due or to become due, now due or hereafter arising and howsoever acquired including, without limitation, all interest, charges, expenses, commitment, facility, collateral management or other fees, attorneys' fees and expenses, consulting fees and expenses and any other sum chargeable to Borrower under this Agreement, the other Loan Documents or any other agreement with Lender. 7 xxxviii. "Person" shall mean an individual, partnership, limited liability company, limited liability partnership, corporation, joint venture, joint stock company, land trust, business trust or unincorporated organization, or a government or agency or political subdivision thereof. xxxix. "Plan" shall mean an employee benefit plan or other plan now or hereafter maintained for employees of Borrower or any subsidiary of Borrower and covered by Title IV of ERISA. xl. "Property" shall have the meaning set forth in the General Security Agreement. xli. "Receivables" shall have the meaning set forth in the General Security Agreement. xlii. "Reconciliation Report" shall mean a report in form satisfactory to Lender, reconciling Borrower's month-end Receivable agings, payable agings and Inventory listings to Borrower's monthly financial statements, and including bank reconciliations. xliii. "Record" shall mean information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form. If Lender so specifies with respect to a particular type of Record, that type of Record shall be signed or otherwise authenticated by Borrower. xliv. "Reportable Event" shall have the meaning assigned to that term in Title IV of ERISA. xlv. "Revolving Loan" shall mean the Advances to be made by Lender to Borrower pursuant to Section 2.1 of this Agreement, and all interest thereon and all fees, costs and expenses payable by Borrower in connection therewith. xlvi. "Revolving Note" shall mean, the promissory note substantially in the form annexed hereto as Exhibit A, to be given by Borrower to Lender to evidence the Revolving Loan. xlvii. "Solvent" shall mean when used with respect to any Person, such Person (i) owns property the fair value of which is greater than the amount required to pay all of such Person's Indebtedness (including contingent debts), (ii) owns property the present fair salable value of which is greater than the amount that will be required to pay the probable liabilities of such Person on its then existing Indebtedness as such become absolute and matured, (iii) is able to pay all of its Indebtedness as such Indebtedness matures, and (iv) has capital sufficient to carry on its then existing business. xlviii. "Tangible Net Worth" shall mean the net worth of Borrower less the value of intangible assets and other assets whose value, in the sole opinion of Lender, are less than the stated value carried on the balance sheet of Borrower. 8 xlix. "Termination Date" shall mean the earlier of the date that is three (3) years from the date hereof, or the date on which Lender terminates this Agreement pursuant to Section 12.1 of this Agreement. l. "Termination Notice" shall have the meaning set forth in Section 3.7 of this Agreement. li. "Term Loan" shall mean the term loan made by Lender to Borrower pursuant to Section 2.2 of this Agreement. lii. "Term Note" shall mean the promissory note substantially in the form annexed hereto as Exhibit B to be given by Borrower to Lender to evidence the Term Loan. liii. "UCC" means the Uniform Commercial Code as in effect from time to time. C. THE REVOLVING LOAN. i. Advances. Subject to the terms and conditions of this Agreement and relying upon the representations and warranties set forth in this Agreement, for so long as no Default or Event of Default exists, Lender shall lend in its discretion to Borrower on its request, a sum ("Borrowing Capacity") equal to the lesser of: a. Four Million Six Hundred Thousand and 00/100 Dollars ($4,600,000.00), or b. the sum of (i) up to eighty-five percent (85%) of the net face amount of Borrower's Eligible Receivables and (ii) up to fifty percent (50%) of the Value of Borrower's Eligible Inventory. Value shall mean the lesser of cost or the fair market value of such Inventory. Within the limits of the Borrowing Capacity, and subject to the limitations set forth in this Agreement, Borrower may borrow, repay and reborrow Advances. ii. Term Loan. Lender shall make a loan to Borrower on the date hereof in the amount of Four Hundred Thousand and 00/100 Dollars ($400,000.00), the proceeds of which will be used to refinance the indebtedness of Borrower to CIT Small Business Lending Corporation and the balance for Borrower's working capital needs (the "Term Loan"). The Term Loan shall be payable as follows: equal monthly principal installments each in the amount of $6,666.67, commencing July 1, 2003 payable on the first day of each month thereafter until May 30, 2006 on which date the entire unpaid principal balance of the Term Loan together with all accrued but unpaid interest shall be immediately due and payable. Notwithstanding the foregoing, the Term Loan must be repaid in full if Borrower prepays all or substantially all of the Revolving Advances. 9 iii. Overline. Borrower acknowledges that Lender has advised Borrower that Lender does not intend to permit Borrower to incur Obligations at any time in an outstanding principal amount exceeding either the Borrowing Capacity or the Maximum Facility; however, it is agreed that should the Obligations of Borrower to Lender incurred under the Loans or otherwise exceed either, then such excess Obligations shall (a) constitute Obligations under this Agreement, (b) be entitled to the benefit of all security and protection under this Agreement and the other Loan Documents, (c) be secured by the Collateral and (d) be payable immediately without notice or demand by Lender. iv. Reserves. The Borrowing Capacity shall be subject to such reserves, as Lender shall deem necessary and proper in Lender's sole and absolute discretion. Reserves may be established by Lender from time to time in such manner (including reduction of the advance rates set forth in Subsection 2.1(b) above) and for such reasons as Lender may determine from time to time in Lender's sole and absolute discretion. Payments, deposits, guaranties or indemnifications made by Lender under any reimbursement agreement, guaranty or similar instrument made in respect of any such instrument may be treated by Lender as Advances to Borrower under this Agreement. v. Manner of Borrowing. (a) Each Advance shall be requested in an Authenticated Record sent via facsimile or electronic transmission including, without limitation, via e-mail by a Notice of Borrowing executed by an authorized officer of Borrower, not later than 11:00 a.m. Eastern Time on any Banking Day on which an Advance is requested. Provided that Borrower shall have satisfied all conditions precedent set forth in this Agreement, including the reaffirmation of the representations and warranties and covenants provided in Article 10 of this Agreement, and Borrower shall have sufficient Borrowing Capacity to permit an Advance under this Agreement in accordance with Section 2.1 of this Agreement, Lender shall make the Advance to Borrower in the amount requested in the Record by Borrower in immediately available funds for credit to any account of Borrower (other than a payroll account) at a bank in the United States of America as Borrower may specify (provided, however, that Borrower shall pay Lender its usual and customary fees for such transfer). Lender shall not be responsible for any failure of any amount so transferred to be credited to any such account, unless such failure is due to Lender's gross negligence or willful misconduct. (b) The Term Loan shall be advanced in a single advance on the date of this Agreement. vi. Evidence of Borrower's Obligations. Borrower's obligation to pay the principal of, and interest on, the Advances made to Borrower shall be evidenced by the Revolving Note executed by Borrower and delivered to Lender. Borrower's obligation to pay the principal of, and interest on, the Term Loan shall be evidenced by the Term Note. vii. Payments. All payments with respect to the Obligations shall either be charged by Lender to Borrower's account pursuant to Section 2.8 hereof, 10 charged as an Advance or made by Borrower to Lender in U.S. currency and without any defense, offset or counterclaim of any kind, at 555 Theodore Fremd Avenue, Suite C-207, Rye, New York 10580, or to such other address as Lender shall specify, by 12:00 noon New York, New York time on the date when due. Whenever any payment to be made shall otherwise be due on a day that is not a Banking Day, such payment shall be made on the next succeeding Banking Day and such extension of time shall be included in computing interest in connection with any such payment. Lender may make an Advance to reimburse itself for any payments on the Obligations (including fees and expenses payable by Borrower), which are not paid when due, without notice or demand to Borrower. Any delay or failure by Lender in submitting any invoice for such interest or fee or in the making of an Advance against the Revolving Loan shall not discharge or relieve Borrower of its obligation to make such interest or fee payment. viii. Collections/Balance/Statements/etc. (a) Collection and Remittance. (i) Borrower covenants and agrees to enter into a depository account service agreement with Fleet Bank, F.A. to establish a depository account for the benefit of Borrower over which Lender shall have the sole power of withdrawal. (ii) All proceeds of Collateral whether cash, checks, drafts, notes, acceptances or other forms of payment, if received by Borrower, shall be received by Borrower in trust for Lender, and Borrower agrees to deliver or cause to be delivered, such payments forthwith, in the identical form in which received, to Lender or into a depository account established for the benefit of Borrower, as Lender shall require from time to time. (iii) Collected funds in the depository account for the benefit of Borrower shall be swept daily and the proceeds deposited to an account of Lender or as Lender shall otherwise elect. (b) Determination of balance of Revolving Loans. In determining the outstanding balance of the Revolving Loans, (i) available/collected funds received from the depository account for the benefit of Borrower in the Lender's account at Fleet Bank, F.A. CT (Keltic Financial Partners, L.P. f/b/o Fleet Capital Corp.) account number 9428395446 ABA 011900571 (or such other account as Lender may direct from time to time), before 2 p.m. Eastern Time of a Banking Day will be credited on that Banking Day, and thereafter on the following Banking Day, as follows: (A) First, to unpaid interest, (B) second to unpaid fees and expenses; (C) third to the outstanding principal balance of the Revolving Loan, and (D) fourth to all other Obligations in such order as Lender shall elect; (ii) any other form of funds received by Lender will be credited on the Banking Day when Lender has received notification that such funds are collected/available to Lender if before 2 p.m. (Eastern Time), and thereafter on the following Banking Day; (iii) all credits shall be conditional upon final payment to Lender in cash or solvent credits of the items giving rise to them and, if any item is not so paid, the amount of any credit given for it shall be charged to the balance of the Revolving Loan whether or not the item is returned; and (iv) for the purpose of computing interest on the 11 Revolving Loan and other Obligations, interest shall continue to accrue on the amount of any payment credited to Borrower's Revolving Loan balance by Lender for a period of three (3) Banking Days after the date so credited. ix. Payment on Termination Date. Notwithstanding anything herein to the contrary, the entire outstanding principal balance of the Loans, plus all accrued and unpaid interest thereon and all fees and other amounts payable under this Agreement and the other Loan Documents, shall be due and payable in full, on the Termination Date. D. LENDER'S COMPENSATION. i. Interest on Advances. Borrower shall pay interest monthly, in arrears, on the first day of each month, commencing June 1, 2003, on the average daily, unpaid principal amount of the Revolving Loans at a fluctuating rate, which is equal to the Loan Interest Rate. Notwithstanding the foregoing, on and after the occurrence of a Default or Event of Default, Borrower shall pay interest on the Revolving Loan at a rate which is three and one-half percent (3.50%) per annum above the Loan Interest Rate; provided, however, in no event shall any interest to be paid under this Agreement or under any Loan Document that would exceed the maximum rate permitted by law. ii. Interest on the Term Loan. Borrower shall pay interest monthly, in arrears, on the first day of each month, commencing June 1, 2003 on the unpaid principal amount of the Term Loan at a fluctuating rate which is equal to the Loan Interest Rate. Notwithstanding the foregoing, after the occurrence of an Event of Default hereunder, Borrower shall pay interest on the unpaid principal balance of the Term Loan at a rate which is three and one-half percent (3.5%) per annum above the interest rate which would otherwise be applicable to the Term Loan; provided, however, in no event shall any interest to be paid hereunder or under any Loan Document that would exceed the maximum rate permitted by law. iii. Commitment and Closing Fee. Borrower has paid to Lender Seventy-Five Thousand and 00/100 Dollars ($75,000.00) as a commitment and closing fee which fee has been fully earned by Lender. iv. Facility Fee. Borrower shall pay to Lender monthly, in arrears, on the first day of each month a facility fee in an amount equal to one percent (1.0%) per annum of the Maximum Facility, which facility fee is deemed earned in full for each year on the date hereof and on each anniversary hereof. v. Collateral Management Fee. Borrower shall pay to Lender monthly, in arrears, on the first day of each month, a collateral management fee in the amount of Two Thousand and 00/100 Dollars ($2,000.00). Upon the occurrence of a Default or an Event of Default and during the continuance of such Default or Event of Default, the fee shall, in the sole discretion of Lender, be increased by $1,000.00 per month. vi. Field Examination Fees. Borrower shall promptly reimburse Lender for all reasonable costs and expenses associated with periodic field examinations and fixed asset appraisals performed by Lender and its agents, as deemed necessary by Lender. 12 vii. Liquidated Damages. If Borrower prepays the principal of the Revolving Loan to Borrower (other than from time to time from working capital) or if the outstanding Obligations become due prior to the Termination Date for any reason or no reason, Borrower shall pay to Lender at the time of such prepayment, liquidated damages in an amount equal to: (a) five percent (5.0%) of the Maximum Facility if the prepayment is made prior to June 1, 2004; (b) three percent (3.0%) of the Maximum Facility if the prepayment is made on or after June 1, 2004, but prior to June 1, 2005; and (c) one percent (1.0%) of the Maximum Facility if the prepayment is made after June 1, 2005. Borrower shall give Lender at least ninety (90) days' advance written notice ("Termination Notice") of Borrower's election to terminate the availability of Revolving Loans under this Agreement prior to the Termination Date. The Termination Notice shall be irrevocable and shall specify the effective date of such termination, which effective date shall not be less than ninety (90) days after the giving of the Termination Notice and shall in no event be later than the Termination Date. After the Termination Date, Lender shall have no obligation to make any Advance(s) to Borrower. viii. Computation of Interest and Fees. All interest and fees under this Agreement shall be computed on the basis of a year consisting of three hundred sixty (360) days for the number of days actually elapsed. E. APPLICATION OF PROCEEDS. The proceeds of the Term Loan and the Advances shall be used solely by Borrower to affect the acquisition of certain assets, to repay existing indebtedness incurred in connection therewith, for working capital needed in the normal operation of Borrower's business and as provided in Section 9.6 of this Agreement. F. INDUCING REPRESENTATIONS. In order to induce Lender to make the Loans, Borrower makes the following representations and warranties to Lender: i. Organization and Qualifications. Borrower is and always has been a corporation duly organized and validly existing under the laws of the State of Tennessee. Borrower's tax identification number is 62-1478695. Borrower is qualified to do business in every jurisdiction where the nature of its business requires it to be so qualified. ii. Name and Address. During the preceding five (5) years, Borrower has not been known by nor has used any other name whether corporate, fictitious or otherwise, except as set forth on Schedule 5.2 attached hereto. Borrower's chief executive office is 275 North Middletown Road, Pearl River, New York 10965. iii. Structure. Borrower has no subsidiaries or Affiliates, except as set forth on Schedule 5.3 attached hereto. iv. Legally Enforceable Agreement. The execution, delivery and performance of this Agreement, each and all of the other Loan Documents and each and all other instruments and documents to be delivered by Borrower or its Affiliates under this Agreement and the creation of all liens and security interests provided for herein are 13 within Borrower's corporate power, have been duly authorized by all necessary or proper corporate action (including the consent of shareholders where required), are not in contravention of any agreement or indenture to which Borrower is a party or by which it is bound, or of the Certificate of Incorporation or By-Laws of Borrower, and are not in contravention of any provision of law and the same do not require the consent or approval of any governmental body, agency, authority or any other Person which has not been obtained and a copy thereof furnished to Lender. v. Solvent Financial Condition. Borrower is Solvent. vi. Financial Statements. The audited financial statements of Borrower as of December 31, 2002, copies of which have been delivered to Lender, fairly present Borrower's financial condition and results of operations in accordance with GAAP, and as of such dates and there have been no changes since such dates. Borrower has no contingent liabilities, liabilities for taxes, unusual forward or long-term commitments, or unrealized or unanticipated losses from any unfavorable commitments, which were not disclosed in such financial statements or the notes thereto. vii. Joint Ventures. Borrower is not engaged in any joint venture or partnership with any other Person. viii. Real Estate. Attached hereto as Schedule 5.8 is a list showing all real property owned or leased by Borrower, and if leased, the correct name and address of the landlord and the date and term of the applicable lease. ix. Intellectual Property. Borrower owns or possesses all the patents, trademarks, service marks, trade names, copyrights, licenses and other intellectual property necessary for the present and planned future conduct of its business without any conflict with the rights of others. All such patents, trademarks, service marks, trade names, copyrights, licenses and other similar rights are listed on Schedule 5.9 attached hereto, if any. x. Existing Business Relationship. There exists no actual or threatened termination, cancellation or limitation of, or any adverse modification or change in, the business relationship of Borrower with any supplier, customer or group of customers whose purchases individually or in the aggregate could effect the operations or the financial condition of Borrower. xi. Investment Company Act: Federal Reserve Board Regulations. Borrower is not an "investment company", or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company"; as such terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C. ss. 80(a)(1), et seq.). The making of the Loans under this Agreement by Lender, the application of the proceeds and repayment thereof by Borrower and the performance of the transactions contemplated by this Agreement will not violate any provision of such Act, or any rule, regulation or order issued by the Securities and Exchange Commission thereunder. Borrower does not own any margin security as that term is defined in Regulation U of the Board of Governors of 14 the Federal Reserve System and the proceeds of the Loans made pursuant to this Agreement will be used only for the purposes contemplated under this Agreement. None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry margin security or for any other purpose which might constitute any of the Loans under this Agreement a "purpose credit" within the meaning of said Regulation U or Regulations T or X of the Federal Reserve Board. Borrower will not take, or permit any agent acting on its behalf to take, any action which might cause this Agreement or any document or instrument delivered pursuant hereto to violate any regulation of the Federal Reserve Board. xii. Tax Returns. Borrower and the guarantor have filed all tax returns (Federal, state or local) required to be filed and paid all taxes shown thereon to be due including interest and penalties or has provided adequate reserves therefor. No assessments have been made against Borrower or any guarantor by any taxing authority nor has any penalty or deficiency been made by any such authority. To the best of Borrower's knowledge, no Federal income tax return of Borrower or any guarantor is presently being examined by the Internal Revenue Service nor are the results of any prior examination by the Internal Revenue Service or any state or local tax authority being contested by Borrower or any guarantor. xiii. Litigation. Except as disclosed in Schedule 5.13, no action or proceeding is now pending or, to the knowledge of Borrower, threatened against Borrower or any guarantor, at law, in equity or otherwise, before any court, board, commission, agency or instrumentality of the Federal or state government or of any municipal government or any agency or subdivision thereof, or before any arbitrator or panel of arbitrators, and neither Borrower nor any guarantor has accepted liability for any such action or proceeding. There is no proceeding pending before any governmental agency (Federal, state or local) and, to the best of Borrower's knowledge, no investigation has been commenced before any such governmental agency the effect of which, if adversely decided, would or could, have a Material Adverse Effect. xiv. Receivables Locations. Annexed hereto as Schedule 5.14 is a list showing all places at which Borrower maintains, or will maintain, records relating to Receivables. Borrower will provide Lender thirty (30) days prior written notice by means of an Authenticated Record of any new location where Borrower maintains records relating to Receivables or closes any location where it maintained records related to Receivables. xv. Inventory Locations. Annexed hereto as Schedule 5.15 is a list showing all places where Borrower maintains, or will maintain, Inventory. Such list indicates whether the premises are owned or leased by Borrower or whether the premises are the premises of a warehouseman or other third party, and if owned by a third party, the name and address of such third party. Borrower shall provide Lender thirty (30) days prior written notice by means of an Authenticated Record of any new location of where Borrower maintains Inventory or closes any location where it maintains Inventory. This notice shall indicate whether the premises are owned or leased by Borrower or whether 15 such premises are the premises of a warehouseman or other third party, and if owned by a third party, the name and address of such third party. Prior to moving any Inventory to a new location, Borrower shall obtain a landlord's waiver in form and content acceptable to Lender in its discretion. xvi. Equipment List and Locations. Annexed hereto as Schedule 5.16 is a list showing all of Borrower's equipment, and describing the places where the same is located. Such list indicates whether such premises are owned or leased by Borrower or whether the premises are the premises of another third party, and if leased, the name and address of such third party. Borrower shall provide Lender thirty (30) days prior written notice by means of an Authenticated Record of any new location of where Borrower maintains Equipment or closes any location where it maintains Equipment. This notice shall indicate whether the premises are owned or leased by Borrower or whether such premises are the premises of a warehouseman or other third party, and if owned by a third party, the name and address of such third party. Prior to moving any Equipment to a new location, Borrower shall obtain a landlord's waiver in form and content acceptable to Lender in its discretion. xvii. Title/ Liens. Borrower has good and marketable title to the Collateral as sole owner thereof. There are no existing liens on any Property of Borrower, except for liens in favor of Lender and liens described in Schedule 5.17. Except as set forth on Schedule 5.17, none of the Collateral is subject to any prohibition against encumbering, pledging, hypothecating or assigning the same or requires notice or consent in connection therewith. xviii. Existing Indebtedness. Borrower has no existing Indebtedness except the Indebtedness described in Schedule 5.18. xix. ERISA Matters. The present value of all accrued vested benefits under any Plan (calculated on the basis of the actuarial evaluation for the Plan) did not exceed as of the date of the most recent actuarial evaluation for such Plan the fair market value of the assets of such Plan allocable to such benefits. Borrower is not aware of any information since the date of such evaluation that would affect the information contained therein. Such Plan has not incurred an accumulating funding deficiency, as that term is defined in Section 302 of ERISA or Section 412 of the Code (whether or not waived), no liability to the Pension Benefit Guaranty Corporation (other than required premiums which have become due and payable, all of which have been paid) has been incurred with respect to the Plan and there has not been any Reportable Event which presents a risk of termination of the Plan by the Pension Benefit Guaranty Corporation. Borrower has not engaged in any transaction which would subject Borrower to tax, penalty or liability for prohibited transactions imposed by ERISA or the Code. xx. O.S.H.A. Borrower has duly complied with, and its facilities, business, leaseholds, equipment and other property are in compliance in all respects with, the provisions of the Federal Occupational Safety and Health Act and all rules and regulations thereunder and all similar state and local Governmental Rules. There are no outstanding citations, notices or orders of non-compliance issued to Borrower or relating 16 to its facilities, business, leaseholds, equipment or other property under any such Governmental Rules. xxi. Environmental Matters. Except as disclosed in Schedule 5.21, a. No Property owned or used by Borrower is or has been used for the generation, manufacture, refining, transportation, treatment, storage, handling or disposal of any "hazardous substances" or "hazardous wastes". The following are all of the Standard Industrial Classification Codes applicable to the properties and operations of Borrower: 1711; (b) Borrower is in compliance with all applicable Environmental Laws; (c) there has been no contamination or release of hazardous substances at, upon, under or within any Property owned or leased by Borrower, and there has been no contamination (as defined in any applicable Environmental Law) or release of hazardous substances (as defined in any applicable Environmental Law) on any other Property that has migrated or threatens to migrate to any Property owned or leased by Borrower; (d) to the best of Borrower's knowledge, there are not now and never have been above-ground or underground storage tanks at any Property owned or leased by Borrower; (e) there are no transformers, capacitors or other items of Equipment containing polychlorinated biphenyls at levels in excess of 49 parts per million, violative of any applicable Environmental Law, at any Property owned or leased by Borrower; (f) no hazardous substances are present at any Property owned or leased by Borrower, nor will any hazardous substances be present upon any such Property or in the operation thereof by Borrower; (g) all permits and authorizations required under Environmental Laws for all operations of Borrower have been duly issued and are in full force and effect including, but not limited to, those for air emissions, water discharges and treatment, storage tanks and the generation, treatment, storage and disposal of hazardous substances; (h) there are no past, pending or threatened environmental claims against Borrower or any Property owned or leased by Borrower; and there is no condition or occurrence on any Property owned or leased by Borrower that could be anticipated (1) to form the basis of an environmental claim against Borrower or its properties or (2) to cause any Property owned or leased by Borrower to be subject to any restrictions on its ownership, occupancy or transferability under any Environmental Law; (i) no portion of any Property owned or leased by Borrower contains asbestos-containing material that is or threatens to become friable; (j) the representations and warranties set forth in this Section 5.21 shall survive repayment of the Obligations and the termination of this Agreement and the other Loan Documents. xxii. Labor Disputes. There are no pending or, to Borrower's knowledge, threatened labor disputes which could have a Material Adverse Effect. 17 xxiii. Location of Bank and Securities Accounts. Annexed hereto as Schedule 5.23 is a complete and accurate list of all deposit, checking and other bank accounts, all securities and other accounts maintained with any broker dealer and all other similar accounts maintained by Borrower (collectively, "Bank Accounts"), together with a description thereof. xxiv. Compliance With Laws. Borrower is in compliance with all Federal, state and local governmental rules, ordinances and regulations ("Governmental Rules") applicable to its ownership or use of properties or the conduct of its business. xxv. No Other Violations. Borrower is not in violation of any term of its Certificate of Incorporation or By-laws and no event or condition has occurred or is continuing which constitutes or results in (or would constitute or result in, with the giving of notice, lapse of time or other condition) (a) a breach of, or a default under, any agreement, undertaking or instrument to which Borrower is a party or by which it or any of its Property may be affected, or (b) the imposition of any lien on any Property of Borrower. xxvi. Survival of Representations and Warranties. Borrower covenants, warrants and represents to Lender that all representations and warranties of Borrower contained in this Agreement or in any other Loan Documents shall be true at the time of Borrower's execution of this Agreement and the other Loan Documents, and Lender's right to bring an action for breach of any such representation or warranty or to exercise any remedy under this Agreement based upon the breach of any such representation or warranty shall survive the execution, delivery and acceptance hereof by Lender and the closing of the transactions described herein or related hereto until the Obligations are finally and irrevocably paid in full. G. FINANCIAL STATEMENTS AND INFORMATION; CERTAIN NOTICES TO LENDER. So long as Borrower shall have any Obligations to Lender under this Agreement, Borrower shall deliver to Lender, or shall cause to be delivered to Lender: i. Borrowing Base Certificate. Weekly (on or before Tuesday of each week as of the preceding week end), and monthly (within two (2) days after the end of each month) and contemporaneously with each request for an Advance, a satisfactorily completed and executed Borrowing Base Certificate. ii. Monthly Reports. Within fifteen (15) days after the end of each month, an accounts receivable aging, accounts payable aging, an inventory listing, a collateral update certificate, and a Reconciliation Report of Borrower for such month, all in form satisfactory to Lender, prepared by Borrower and if Lender so requests, customer statements, sales journals, cash receipts journals and detailed sales credit reports. iii. Annual Financial Statements. Within ninety (90) days after the close of each Fiscal Year of Borrower, a copy of audited annual financial statements of Borrower and its Affiliates prepared by an independent certified public accountant on a combined basis consisting of a balance sheet, statements of operations and retained 18 earnings and accompanying footnotes, statements of cash flow, together with the unqualified opinion of such accounting firm, acceptable to Lender in its sole discretion. iv. Monthly Financial Statements. Within thirty (30) days after the end of each month of Borrower, financial statements consisting of a balance sheet, statements of operations and retained earnings and statements of cash flow, prepared by management of Borrower, or Hudson Technologies Company in accordance with GAAP, together with a compliance certificate in the form attached as Exhibit E hereto. v. Projections. Within thirty (30) days prior to the end of each Fiscal Year of Borrower, monthly financial projections for the next fiscal year and annual projections for each succeeding Fiscal Year of Borrower in form satisfactory to Lender. vi. Customer Lists. Annually, a list of all of Borrower's customers and vendors, including the addresses, and telephone and facsimile numbers of such customers and vendors which lists shall be delivered within thirty (30) days of each Fiscal Year end. vii. Insurance. Annually, within thirty (30) days of the renewal date of such insurance policy, evidence of insurance in form and content satisfactory to Lender and otherwise in compliance with Section 8.6 of this Agreement, together with the original insurance policy. viii. Notice of Event of Default and Adverse Business Developments. Immediately after becoming aware of the existence of a Default or an Event of Default or after becoming aware of any developments or other information which is likely to adversely affect Borrower's properties, business, prospects, profits or condition (financial or otherwise) or its ability to perform its obligation under this Agreement or any other Loan Documents including, without limitation, the following: a. any dispute that may arise between Borrower and any governmental regulatory body or law enforcement authority, including any action relating to any tax liability of Borrower or guarantor; b. any labor controversy resulting in or threatening to result in a strike or work stoppage against Borrower; c. any proposal by any public authority to acquire the assets or business of Borrower; d. the location of any Collateral other than at Borrower's place of business or as permitted under this Agreement; e. any proposed or actual change of Borrower's name, identity, state of organization or corporate structure; or f. any other matter which has resulted or may result in a Material Adverse Effect. 19 In each case, Borrower will provide Lender with telephonic notice followed by notice in a Record specifying and describing the nature of such Default, Event of Default or development or information, and such anticipated effect. ix. Other Information. Such other information respecting the financial condition of Borrower or any guarantor, or any Property of Borrower in which Lender may have a lien as Lender may, from time to time, request. Borrower authorizes Lender to communicate directly with Borrower's independent certified public accountants and authorizes those accountants to disclose to Lender any and all financial statements and other information of any kind that they may have with respect to Borrower and its business and financial and other affairs. Lender shall treat information so obtained as confidential. On or before the date of this Agreement, Borrower shall deliver to Lender a letter addressed to such accountants instructing them to comply with the provisions of this Section 6.9, which letter shall be acknowledged by such accountants. H. ACCOUNTING. Lender may account monthly to Borrower. Each and every account shall be deemed final, binding and conclusive upon Borrower in all respects, as to all matters reflected therein, unless Borrower, within fifteen (15) days after the date the account was rendered, delivers to Lender notice in a Record of any objections which Borrower may have to any such account and in that event only those items expressly objected to in such notice shall be deemed to be disputed by Borrower. If Borrower disputes the correctness of any statement, Borrower's notice shall specify in detail the particulars of its basis for contending that such statement is incorrect. I. AFFIRMATIVE COVENANTS. Borrower represents and warrants that, so long as it shall have any Obligations to Lender under this Agreement, Borrower will: i. Business and Existence. Preserve and maintain Borrower's separate existence and rights, privileges and franchises. ii. Trade Names. Transact business in Borrower's own name and invoice all of Borrower's Receivables in Borrower's own name. iii. Intentionally Left Blank. iv. Taxes. Pay and discharge all taxes, assessments, government charges and levies imposed upon Borrower, Borrower's income or Borrower's profits or upon any Property belonging to Borrower prior to the date on which penalties attach thereto, except where the same may be contested in good faith by appropriate proceedings being diligently conducted. Borrower will pay all taxes, assessments, governmental charges or private encumbrances levied, assessed, imposed or payable upon or with respect to the Inventory, the equipment or any other Collateral or any part thereof. v. Compliance with Laws. Comply with all Governmental Rules applicable to Borrower including, without limitation, all laws and regulations regarding 20 the collection, payment and deposit of employees' income, unemployment and Social Security taxes. vi. Maintain Properties: Insurance. Safeguard and protect all Property used in the conduct of Borrower's business and keep all of Borrower's Property insured with insurance companies licensed to do business in the states where the Property is located against loss or damage by fire or other risk under extended coverage endorsement and against theft, burglary, and pilferage together with such other hazards as Lender may from time to time request, in amounts satisfactory to Lender. Borrower shall deliver the policy or policies of such insurance or certificates of insurance to Lender containing endorsements in form satisfactory to Lender naming Lender as lender, loss payee and additional insured and providing that the insurance shall not be canceled, amended or terminated except upon thirty (30) days' prior written notice to Lender. All insurance proceeds received by Lender shall be retained by Lender for application to the payment of such portion of the Obligations as Lender may determine in Lender's sole discretion. Borrower shall promptly notify Lender of any event or occurrence causing a loss or decline in the value of Property insured or the existence of an event justifying a claim under any insurance and the estimated amount thereof. vii. Business Records. Keep adequate records and books of account with respect to Borrower's business activities in which proper entries are made in accordance with sound bookkeeping practices reflecting all financial transactions of Borrower; and Borrower shall maintain all of its Bank Accounts as set forth on Schedule 5.23 of this Agreement. viii. Litigation. Give Lender prompt notice of any suit at law or in equity against Borrower involving money or property valued in excess of Fifty Thousand and 00/100 Dollars ($50,000.00) except where the same is fully covered by insurance and the insurer has accepted liability therefore in writing. ix. Damage or Destruction of Collateral. Maintain or cause to be maintained the Collateral and all its Properties in good condition and repair at all times, preserve the Collateral and all its other Properties from loss, damage, or destruction of any nature whatsoever and provide Lender with prompt notice in a Record of any destruction or substantial damage to any Collateral subject to Lender's security interest and of the occurrence of any condition or event which has caused, or may cause, loss or depreciation in the value of any Collateral. x. Name Change. Provide Lender with not fewer than thirty (30) days notice in an Authenticated Record prior to any proposed change of name or the creation of any subsidiary. xi. Access to Books and Records. Provide Lender with such reports and with such access to Borrower's books and records and permit Lender to copy and inspect such reports and books and records all, as Lender deems necessary or desirable to enable Lender to monitor the credit facilities extended hereby. Lender may examine and inspect the Inventory, equipment or other Collateral and may examine, inspect and copy 21 all books and records with respect thereto at any time during Borrower's normal business hours. Borrower shall maintain full, accurate and complete records respecting the Inventory, including a perpetual inventory, and all other Collateral at all times. xii. Solvent. Continue to be Solvent. xiii. Compliance With Environmental Laws. Comply with all applicable Environmental Laws. xiv. Compliance with ERISA and other Employment Laws. Comply with all applicable provisions of ERISA and the Internal Revenue Code of 1986, as amended, and any other applicable laws, rules or regulations relating to the compensation of employees and funding of employee pension plans. xv. Proceeds of Collateral. Forthwith upon receipt, pay to Lender the proceeds of all Collateral, whereupon such proceeds shall be applied to the Obligations in such order and manner as shall be determined in the sole and absolute discretion of Lender. xvi. Delivery of Documents. Notify Lender if any proceeds of Receivables shall include, or any of the Receivables shall be evidenced by, notes, trade acceptances or instruments or documents, or if any Inventory is covered by documents of title or chattel paper, whether or not negotiable, and if required by Lender, immediately deliver them to Lender appropriately endorsed. Borrower waives protest regardless of the form of the endorsement. If Borrower fails to endorse any instrument or document, Lender is authorized to endorse it on Borrower's behalf. J. NEGATIVE COVENANTS. So long as Borrower shall have any Obligation to Lender under this Agreement and unless Lender has first consented thereto in an Authenticated Record, Borrower shall not: i. Indebtedness. Create, incur, assume or suffer to exist, voluntarily or involuntarily, any Indebtedness, except (i) Obligations to Lender, (ii) trade debt incurred in the ordinary course of Borrower's business as currently conducted; (iii) purchase money financing and equipment leases not to exceed Fifty Thousand and 00/100 Dollars ($50,000.00) in any Fiscal Year; and (iv) existing Indebtedness described on Schedule 5.18. ii. Mergers; Consolidations; Acquisitions. Enter into any merger, consolidation, reorganization or recapitalization with any other Person; take any steps in contemplation of dissolution or liquidation; conduct any part of its business through any corporate subsidiary, unincorporated association or other Person; acquire the stock or assets of any Person, whether by merger, consolidation, purchase of stock or otherwise; or acquire all or any substantial part of the properties of any Person. iii. Sale or Disposition. Sell or dispose of all or any Properties or grant any Person an option to acquire any such Property, provided, however, that the 22 foregoing shall not prohibit sales of Inventory in the ordinary course of Borrower's business. iv. Defaults. Permit any landlord, mortgagee, trustee under deed of trust or lienholder to declare a default under any lease, mortgage, deed of trust or lien on real estate owned or leased by Borrower, which default remains uncured after any stated cure period or for a period in excess of thirty (30) days from its occurrence, whichever is less, unless such default is being contested by Borrower in good faith by appropriate proceedings being diligently conducted. v. Limitations on Liens. Suffer any lien, encumbrance, mortgage or security interest on any of its Property, except such liens as appear on Schedule 5.17 attached hereto, if any. vi. Dividends and Distributions. Pay any cash dividends, make any capital distribution in cash or other Property or return of capital, or purchase or redeem any of its stock or other securities, or retire any of its stock, or take any action which would have an effect equivalent to any of the foregoing. Notwithstanding the foregoing, Borrower may make (i) periodic payments to Hudson Holdings, Inc. and/or Hudson Technologies, Inc. solely to make periodic interest payments due on its promissory note to Joseph P. Mandracchia, Sr. in the original principal amount of $40,556.02 dated December 20, 2002, and its promissory note to Fredrick T. Zugibe, Sr. in the original principal amount of $101,390.17 dated December 20, 2002 in accordance with the terms and conditions of the subordination and pledge agreement executed by each such individual, and (ii) periodic payments of principal and/or interest due on the promissory note payable to Fleming Discovery Offshore Fund III, L.P. in the original principal amount of $79,450.00 and the promissory note payable to Fleming Discovery Fund III, L.P. in the original principal amount of $495,550.00, in accordance with the terms and conditions of the subordination and pledge agreement executed by each respective entity. vii. Borrower's Name and Offices. Transfer Borrower's chief executive office or change its organizational name or the office where it maintains its records (including computer printouts and programs) with respect to Receivables or any other Collateral. viii. Fiscal Year. Change its Fiscal Year. ix. Change of Control. Allow any current change in the ownership structure of Borrower such that Hudson Holdings, Inc. or Hudson Technologies, Inc. is not the sole shareholder of Borrower. x. Guaranties; Contingent Liabilities. Assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any Person, except by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of its business as currently conducted. xi. Removal of Collateral. Remove, or cause or permit to be removed, any of the Collateral or other Property from the premises where such Collateral 23 or Property is currently located and as set forth on Schedule 5.14, 5.15 or 5.16 of this Agreement, except for sales of Inventory in the ordinary course of business as currently conducted and except as provided in Sections 5.14, 5.15 or 5.16. xii. Transfer of Notes or Accounts. Sell, assign, transfer, discount or otherwise dispose of any Receivables or any promissory note or other instrument payable to it with or without recourse. xiii. Settlements. Compromise, settle or adjust any claim relating to any of the Collateral. xiv. Change of Business. Cause or permit a change in the nature of its business as conducted on the date of this Agreement. xv. Change of Accounting Practices. Change its present accounting principles or practices in any respect, except, upon notice to Lender in a Record, as may be required by changes in GAAP. xvi. Inconsistent Agreement. Enter into any agreement containing any provision which would be violated by the performance of Borrower's Obligations or other obligations under this Agreement or any other Loan Document. xvii. Loan or Advances. Make any loans or advances to any Person. For purposes of this Subsection 9.17, monetary obligation owed to any Affiliate, subsidiary or guarantor including, without limitation, those in connection with its performance of services or the sale of goods, shall constitute loans or advances subject to the provisions of this Subsection 9.17 but excluding salaries paid to employees. xviii. Investments. Make any investment in any Person including, without limitation, any Affiliates or form any Affiliates or subsidiaries not existing on the date hereof. xix. Tangible Net Worth. Permit Borrower's Tangible Net Worth to be less than the amounts set forth below, for the period ending: Amount Time Period ------ ----------- $330,000.00 June 30, 2003 $2,515,000.00 September 30, 2003 $2,356,000.00 December 31, 2003 $2,156,000.00 March 31, 2004 $2,406,000.00 June 30, 2004 24 $2,656,000.00 September 30, 2004 $2,556,000.00 December 31, 2004 $2,356,000.00 March 31, 2005 $2,656,000.00 June 30, 2005 $2,956,000.00 September 30, 2005 $2,856,000.00 December 31, 2005 $2,656,000.00 March 31, 2006 $3,006,000.00 June 30, 2006 and until the Termination Date -------------- --------------------------------------- xx. Fixed Charge Coverage Ratio. Permit Borrower's Fixed Charge Coverage Ratio for the periods set forth below to be greater than the levels set forth below, tested quarterly based on a rolling twelve-month period: Ratio Time Period ----- ----------- N/A xxi. Capital Expenditures. Make or agree to make Capital Expenditures in an amount which exceeds the levels set forth below during the periods set forth below: Amount Time Period ------ ----------- $375,000.00 Fiscal Year 2003 $425,000.00 Fiscal Year 2004 $475,000.00 Fiscal Year 2005 $525,000.00 Fiscal Year 2006 prorated through the Termination Date --------------------- ---------------------------------------- xxii. Transactions with Affiliates. Engage in any transaction with any of Borrower's Affiliates except the Indebtedness described on Schedule 5.18 hereof. 25 xxiii. EBITDA. Permit Borrower's EBITDA to be less than the following during the time periods set forth below tested quarterly based on a rolling twelve-month period: Amount Time Period ------ ----------- ($1,308,700.00) For the period ended June 30, 2003 $147,050.00 For the period ended September 30, 2003 $1,106,700.00 For the period ended December 31, 2003 $1,108,910.00 For the period ended March 31, 2004 $1,146,820.00 For the period ended June 30, 2004 $1,216,435.00 For the period ended September 30, 2004 $1,217,710.00 For the period ended December 31, 2004 $1,220,005.00 For the period ended March 31, 2005 $1,260,737.00 For the period ended June 30, 2005 $1,337,314.00 For the period ended September 30, 2005 $1,339,787.00 For the period ended December 31, 2005 $1,342,189.00 For the period ended March 31, 2006 and thereafter through the Termination Date K. CONDITIONS TO ADVANCES. i. Lender's Right to Take Certain Actions. Lender's obligation to make any Advance is subject to the condition that, as of the date of the Advance, no Default or Event of Default shall have occurred and be continuing and that the matters set forth in Article 5 of this Agreement and the representations and covenants set forth in the other Loan Documents continue to be true and complete. Borrower's acceptance of each Advance under this Agreement shall constitute a confirmation, as of the date of the Advance, of the matters set forth in Article 5 of this Agreement, of the representations and covenants set forth in the other Loan Documents, and that no Default or Event of Default then exists. If requested by Lender, Borrower shall further confirm such matters by delivery of a Record dated the day of the Advance and signed by an authorized officer of Borrower. 26 L. TERM. Unless sooner terminated by Lender pursuant to the terms of this Agreement, the period during which the Revolving Loan shall be available shall initially be a period commencing on the date hereof and concluding on the Termination Date. M. EVENTS OF DEFAULT. i. Defaults. Upon the happening of any of the following events (individually, an "Event of Default," collectively, "Events of Default"): a. if Borrower shall fail to make any payment when due on any Obligation under this Agreement or any other Loan Document; or b. if Borrower shall fail to comply with any term, condition, covenant, warranty or representation contained in Articles 6 or 9 of this Agreement; or c. if Borrower shall fail to comply with any term, condition, covenant or warranty of or in this Agreement other than in Articles 6 or 9 of this Agreement, and such failure continues for a period in excess of ten (10) days after notice thereof is given by Lender to Borrower; or d. if Borrower shall fail to comply with any term, condition, covenant, warranty or representation contained in any of the other Loan Documents or any other agreement between Lender and Borrower; or e. if Borrower shall cease to be Solvent, make an assignment for the benefit of its creditors, call a meeting of its creditors to obtain any general financial accommodation, suspend business or if a case under any provision of the Bankruptcy Code including provisions for reorganizations, shall be commenced by or against Borrower or if a receiver, trustee or equivalent officer shall be appointed for all or any of the Properties of Borrower; or f. if any statement or representation contained in any financial statement or certificate delivered by Borrower to Lender shall be false, in any respect, when made; or g. if any Federal or state tax lien is filed of record against Borrower and is not bonded or discharged within ten (10) days of filing; or h. if Borrower's independent certified public accountants shall refuse to deliver any financial statement required by this Agreement; or i. if a judgment for more than One Hundred Thousand and 00/100 Dollars ($100,000.00) shall be entered against Borrower in any action or proceeding and shall not be stayed, vacated, bonded, paid or discharged within ten (10) days of entry, except a judgment where the 27 claim is fully covered by insurance and the insurance company has accepted liability therefore in writing; or j. if any obligation of Borrower in respect of any Indebtedness (other than Indebtedness to Lender) shall be declared to be or shall become due and payable prior to its stated maturity or such obligation shall not be paid as and when the same becomes due and payable; or there shall occur any event or condition which constitutes an event of default under any mortgage, indenture, instrument, agreement or evidence of Indebtedness relating to any obligation of Borrower in respect of any such Indebtedness the effect of which is to permit the holder or the holders of such mortgage, indenture, instrument, agreement or evidence of Indebtedness, or a trustee, agent or other representative on behalf of such holder or holders, to cause the Indebtedness evidenced thereby to become due prior to its stated maturity; or k. upon the happening of any Reportable Event which Lender in its sole discretion determines might constitute grounds for the termination of any Plan, or if a trustee shall be appointed by an appropriate United States District Court or other court or administrative tribunal to administer any Plan, or if the Pension Benefit Guaranty Corporation shall institute proceedings to terminate any Plan or to appoint a trustee to administer any Plan; or l. upon the occurrence and continuance of any Material Adverse Effect, which in the sole and absolute opinion of Lender, impairs Lender's security, increases Lender's risks or impairs Borrower's ability to perform under this Agreement or under the other Loan Documents; or m. upon the happening of any of the events described in Subsections 12.1 (d), (e), (f), (g), (h), (i) or (j) with respect to any guarantor or if any such guarantor purports to terminate its guaranty or upon the death of a guarantor that is a natural person, if any; or n. if either Brian F. Coleman or James R. Buscemi does not occupy the same position with Borrower as at the time of the closing of the Loans or is not actively engaged in the day-to-day operations of Borrower's business unless within sixty (60) days of such event, (i) an individual is hired by Borrower to perform substantially the same duties as Brian F. Coleman or James R. Buscemi, as the case may be; (ii) such individual and their qualifications and experience are acceptable to Lender which approval will not be unreasonably withheld; and (iii) such individual executes a validity and support agreement in substantially the same form as the validity and support agreement executed by Brian F. Coleman or James R. Buscemi, as the case may be. 28 Then, and in any such event, Lender may terminate this Agreement without prior notice or demand to Borrower or may demand payment in full of all Obligations (whether otherwise then payable on demand or not) without terminating this Agreement and shall, in any event, be under no further responsibility to extend any credit or afford any financial accommodation to Borrower, whether under this Agreement or otherwise. ii. Obligations Immediately Due. Upon the Termination Date for any reason, all of Borrower's Obligations to Lender including, but not limited to, the Loans shall immediately become due and payable without further notice or demand. iii. Continuation of Security Interests. Notwithstanding any termination, until all Obligations of Borrower shall have been fully paid and satisfied, Lender shall retain all security in and title to all existing and future Receivables, General Intangibles, Inventory, Equipment, Fixtures, Investment Property, and other Collateral held by Lender under the General Security Agreement or under any other Loan Document and Borrower shall continue to assign Receivables and consign Inventory to Lender and continue to turn over all proceeds of Collateral to Lender. iv. Lockbox. Upon the occurrence of and during the continuation of an Event of Default, Lender shall have the right to require Borrower to establish a Lockbox over which Lender shall have the sole power of withdrawal. Upon the establishment of such Lockbox, all proceeds of Collateral, whether cash, checks, drafts, notes, acceptances or other forms of payment including, without limitation, electronic payment if received by Borrower, shall be received by Borrower in trust for Lender and Borrower shall deliver or cause to be delivered such payments forthwith, in the identical form in which received, to Lender or to the Lockbox, as Lender shall require from time to time. N. REMEDIES OF LENDER. Upon the occurrence of any Event of Default or upon any termination of this Agreement, then Lender shall have, in addition to all of its other rights under this Agreement all of the rights and remedies provided in the General Security Agreement. O. GENERAL PROVISIONS. i. Rights Cumulative. Lender's rights and remedies under this Agreement shall be cumulative and non-exclusive of any other rights or remedies which Lender may have under any other agreement or instrument, by operation of law or otherwise. ii. Successors and Assigns. This Agreement is entered into for the benefit of the parties hereto and their successors and assigns. It shall be binding upon and shall inure to the benefit of the parties, their successors and assigns. Lender shall have the right, without the necessity of any further consent or authorization by Borrower, to sell, assign, securitize or grant participation in all, or a portion of, Lender's interest in the Loans, to other financial institutions of the Lender's choice and on such terms as are acceptable to Lender in its sole discretion. 29 iii. Notice. Wherever this Agreement provides for notice to any party (except as expressly provided to the contrary), it shall be given by messenger, facsimile transmission, certified U.S. mail with return receipt requested, or nationally recognized overnight courier with receipt requested, effective when either received or receipt rejected by the party to whom addressed, and shall be addressed as follows, or to such other address as the party affected may hereafter designate: If to Lender: Keltic Financial Partners, LP Attn: John P. Reilly, Managing Partner 555 Theodore Fremd Avenue, Suite C-207 Rye, New York 10580 Fax: (914) 921-1154 30 With a copy to: Clinton A. Poff, Esq. Poff & Bowman LLC 1600 Route 208 North PO Box 24 Hawthorne, NJ 07507 Tel: (973) 636-9770 Fax: (973) 636-9777 If to Borrower: Hudson Technologies Company 275 North Middletown Road Pearl River, NY 10965 Tel: (845) 735-6000 Fax: (845) 512-6070 With a copy to: Stephen P. Mandracchia, Esq. Hudson Technologies Company 275 North Middletown Road Pearl River, New York 10965 Tel: (845) 735-6000 Fax: (845) 512-6070 iv. Strict Performance. The failure, at any time or times hereafter, to require strict performance by Borrower of any provision of this Agreement shall not waive, affect or diminish any right of Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Lender of any Default or Event of Default by Borrower under this Agreement or any other Loan Document shall not suspend, waive or affect any other Default or Event of Default by Borrower under this Agreement or any other Loan Document, whether the same is prior or subsequent thereto and whether of the same or a different type. v. Waiver. Borrower waives presentment, protest, notice of dishonor and notice of protest upon any instrument on which it may be liable to Lender as maker, endorser, guarantor or otherwise. vi. Construction of Agreement. The parties hereto agree that the terms and language of this Agreement were the result of negotiations between the parties, and, as a result, there shall be no presumption that any ambiguities in this Agreement shall be resolved against either party. Any controversy over the construction of this Agreement shall be decided mutually without regard to events of authorship or negotiation. vii. Expenses. If, at any time or times prior or subsequent to the date hereof, regardless of whether or not a Default or an Event of Default then exists or any of the transactions contemplated under this Agreement are concluded, Lender employs counsel for advice or other representation, or incurs legal expenses, or consulting fees and expenses, or other costs or out-of-pocket expenses in connection with: (a) the 31 negotiation and preparation of this Agreement or any other Loan Document, or any amendment of or modification of this Agreement or any other Loan Document; (b) the administration of this Agreement or any of the other Loan Documents and the transactions contemplated hereby and thereby; (c) periodic audits and appraisals performed by Lender; (d) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lender, Borrower or any other Person) in any way relating to the Collateral, this Agreement or any other Loan Document or Borrower's affairs; (e) the perfection of any lien on the Collateral; (f) any attempt to enforce any rights or remedies of Lender against Borrower or any other Person which may be obligated to Lender by virtue of this Agreement or any other Loan Document including, without limitation, the Account Debtors; or (g) any attempt to inspect, verify, protect, preserve, restore, collect, sell, liquidate or otherwise dispose of or realize upon the Collateral; then, in any such event, the actual reasonable attorneys' fees and expenses arising from such services and all reasonable expenses, costs, charges and other fees of such counsel of Lender or relating to any of the events or actions described in this Section 14.7 shall be payable by Borrower to Lender, and shall be additional Obligations under this Agreement secured by the Collateral. Additionally, if any taxes (excluding taxes imposed upon or measured by the net income of Lender, but including any intangibles tax, stamp tax or recording tax) shall be payable on account of the execution or delivery of this Agreement, or the execution, delivery, issuance or recording of any other Loan Document, or the creation of any of the Obligations under this Agreement, by reason of any existing or hereafter enacted Federal or state statute, Borrower will pay (or will promptly reimburse Lender for the payment of) all such taxes including, but not limited to, any interest and penalties thereon, and will indemnify, defend and hold Lender harmless from and against any liability in connection therewith. Borrower shall also reimburse Lender for all other expenses incurred by Lender in connection with the transactions contemplated under this Agreement or the other Loan Documents, including, without limitation, fees in connection with any bank account, the Lockbox, wire charges, automatic clearing house fees and other similar costs and expenses. viii. Reimbursements Charged to Revolving Loan. With respect to any amount advanced by Lender and required to be reimbursed by Borrower pursuant to the foregoing provisions of Section 14.7, it is hereby agreed that Lender may charge any such amount to Borrower's Revolving Loan on the dates such reimbursement is made. Borrower's obligations under Section 14.7 shall survive termination of the other provisions of this Agreement. ix. Waiver of Right to Jury Trial. A. Borrower and Lender recognize that in matters related to the Loans and this Agreement, and as it may be subsequently modified and/or amended, any such party may be entitled to a trial in which matters of fact are determined by a jury (as opposed to a trial in which such matters are determined by a Federal or state judge). By execution of this Agreement, Lender and Borrower will give up their respective right to a trial by jury. Borrower and Lender each hereby expressly acknowledge that this waiver is entered into to avoid delays, minimize trial expenses, and streamline the legal proceedings in order to accomplish a quick resolution of 32 claims arising under or in connection with the Revolving Note, the Term Note and this Agreement. B. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, BORROWER AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT BORROWER OR LENDER MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION, DIRECTLY OR INDIRECTLY, AT ANY TIME ARISING OUT OF, UNDER, OR IN CONNECTION WITH THE LOANS, THIS AGREEMENT, OR ANY TRANSACTION CONTEMPLATED THEREBY OR HEREBY, BEFORE OR AFTER MATURITY. C. CERTIFICATIONS. BORROWER HEREBY CERTIFIES THAT NEITHER ANY REPRESENTATIVE NOR AGENT OF LENDER NOR LENDER'S COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. BORROWER ACKNOWLEDGES THAT LENDER HAS BEEN INDUCED TO ENTER INTO THE TRANSACTIONS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATION HEREIN. x. Indemnification by Borrower/Waiver of Claims. Borrower hereby covenants and agrees to indemnify, defend (with counsel selected by Lender) and hold harmless Lender and its officers, partners, employees, consultants and agents from and against any and all claims, damages, liabilities, costs and expenses (including, without limitation, the actual fees and expenses of counsel) which may be incurred by or asserted against Lender or any such other Person in connection with: a. any investigation, action or proceeding arising out of or in any way relating to this Agreement, any of the Loans, any of the other Loan Documents, any other agreement relating to any of the Obligations, any of the Collateral, or any act or omission relating to any of the foregoing; or b. any taxes, liabilities, claims or damages relating to the Collateral or Lender's liens thereon; or c. the correctness, validity or genuineness of any instrument or document that may be released or endorsed to Borrower by Lender (which shall automatically be deemed to be without recourse to Lender in any event), or the existence, character, quantity, quality, condition, value or delivery of any goods purporting to be represented by any such documents; or d. any broker's commission, finder's fee or similar charge or fee in connection with the Loans and the transactions contemplated in this Agreement. xi. Savings Clause for Indemnification. To the extent that the undertaking to indemnify, pay and hold harmless set forth in Section 14.10 above may be 33 unenforceable because it is violative of any law or public policy, Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all matters referred to under Section 14.10. xii. Waiver. To the extent permitted by applicable law, no claim may be made by Borrower or any other Person against Lender or any of its Affiliates, partners, officers, employees, agents, attorneys or consultants for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract, tort or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or the other Loan Documents or any act, omission or event occurring in connection therewith; and Borrower hereby waives, releases and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. Neither Lender nor any of its Affiliates, partners, officers, employees, agents, attorneys or consultants shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the transactions contemplated hereby, except for its or their own gross negligence or willful misconduct. xiii. Entire Agreement; Amendments; Lender's Consent. This Agreement (including the Exhibits and Schedules thereto) and the other Loan Documents supersede, with respect to their subject matter, all prior and contemporaneous agreements, understandings, inducements or conditions between the respective parties, whether express or implied, oral or written. No amendment or waiver of any provision of this Agreement or any other Loan Document, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in a Record Authenticated by Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. xiv. Cross Default; Cross Collateral. Borrower hereby agrees that (a) all other agreements between Borrower and Lender are hereby amended so that a Default or an Event of Default under this Agreement is a default under all such other agreements and a default under any one of the other agreements is a Default or an Event of Default under this Agreement, and (b) the Collateral under this Agreement secures the Obligations now or hereafter outstanding under all other agreements between Borrower and Lender and the Collateral pledged under any other agreement with Lender secures the Obligations under this Agreement. xv. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. xvi. Severability of Provisions. Any provision of this Agreement or any of the other Loan Documents that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or the other Loan Documents or affecting the validity or enforceability of such provision in any other jurisdiction. 34 xvii. Table of Contents; Headings. The table of contents and headings preceding the text of this Agreement are inserted solely for convenience of reference and shall not constitute a part of this Agreement or affect its meaning, construction or effect. xviii. Exhibits and Schedules. All of the Exhibits and Schedules to this Agreement are hereby incorporated by reference herein and made a part hereof. P. GOVERNING LAW; CONSENT TO JURISDICTION. (A) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY LENDER AND ACCEPTED BY BORROWER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE REVOLVING NOTE DELIVERED PURSUANT THERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREIN, AND IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE APPLICABLE INDIVIDUAL PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE VALIDITY AND THE ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, LENDER AND BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVE ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE REVOLVING NOTE, AND THIS AGREEMENT AND THE REVOLVING NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (B) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER, ANY GUARANTOR OR OTHER PARTY TO THIS TRANSACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN THE SOLE OPTION OF LENDER IN ANY FEDERAL OR STATE COURT LOCATED IN WESTCHESTER COUNTY, NEW YORK, PURSUANT TO ss. 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, AND LENDER AND BORROWER WAIVE ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND LENDER AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER SHALL DESIGNATE FROM TIME TO TIME AN AUTHORIZED AGENT HAVING AN OFFICE IN THE STATE OF NEW YORK TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING AND AGREES THAT SERVICE OF PROCESS UPON SUCH AGENT AT SUCH ADDRESS AND WRITTEN NOTICE OF SUCH SERVICE ON SUCH BORROWER MAILED OR DELIVERED TO SUCH BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON SUCH BORROWER IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGE OF ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH OFFICE SHALL BE DESIGNATED AS THE ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR. BORROWER REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS CONSENT TO JURISDICTION PROVISION 35 WITH ITS LEGAL COUNSEL, AND HAS MADE THIS WAIVER KNOWINGLY AND VOLUNTARILY. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers thereunto duly authorized on the day and year first above written. KELTIC FINANCIAL PARTNERS, LP By: KELTIC FINANCIAL SERVICES LLC, its general partner By: /s/ John P. Reilly --------------------------------------------- Name: John P. Reilly Title: Managing Partner HUDSON TECHNOLOGIES COMPANY By: /s/ Brian F. Coleman --------------------------------------------- Name: Brian F. Coleman Title: President and Chief Operating Officer 36 2. EXHIBIT A a) REVOLVING NOTE $4,600,000.00............................................. May 30, 2003 Rye, New York FOR VALUE RECEIVED, HUDSON TECHNOLOGIES COMPANY a corporation organized and existing under the laws of the State of Tennessee, having an address at 275 North Middletown Road, Pearl River, New York 10965 ("Borrower"), promises to pay to the order of KELTIC FINANCIAL PARTNERS, LP ("Lender"), at 555 Theodore Fremd Avenue, Suite C-207, Rye, New York 10580 or at such other place as Lender may from time to time in writing designate, the principal sum of each Advance made by Lender to Borrower under that certain revolving loan agreement dated even date herewith between Borrower and Lender as it may be subsequently amended and/or modified (collectively, the "Loan Agreement") (the Loan Agreement together with all of the other documents, instruments or agreements executed in connection therewith, as the same may be modified, amended, restated or replaced from time to time are hereinafter collectively referred to as, the "Loan Documents"). The aggregate unpaid principal balance hereof shall not exceed at any time the sum of FOUR MILLION SIX HUNDRED THOUSAND and 00/100 Dollar ($4,600,000.00). Capitalized terms used herein and not otherwise defined shall have the meaning given such terms in the Loan Documents. The entire unpaid principal balance hereof, together with the accrued interest thereon and accrued late charges, if any, and all other sums due hereunder and under the Loan Documents shall be due and payable on the Termination Date. Borrower also promises to pay interest to Lender monthly, in arrears, on the first day of each month commencing on June 1, 2003 on the average daily unpaid principal balance of this Note at the rate set forth in Section 3.1 of the Loan Agreement. This is the "Revolving Note" referred to in the Loan Agreement and is entitled to the benefit of all of the terms and conditions and the security of all of the security interests and liens granted by Borrower or any other person to Lender pursuant to the Loan Agreement or any other Loan Document including, without limitation, provisions regarding mandatory and optional prepayment rights. Upon the occurrence of any Event of Default, the entire unpaid principal amount owed Lender hereunder shall become immediately due and payable without further notice or demand. Whenever any payment to be made under this Note shall be stated to be due on a day other than a Banking Day, such payment shall be made on the next succeeding Banking Day and such extension of time shall be included in the computation of any interest then due and payable hereunder. The undersigned and all other parties who, at any time, may be liable hereon in any capacity waive presentment, demand for payment, protest and notice of dishonor of this Note. This Note and any provision hereof may not be waived, modified, amended or discharged orally, but only by an agreement in writing which is signed by the holder and the party or parties against whom enforcement of any waiver, change, modification, amendment or discharge is sought. 37 This Note shall be governed by and construed under the internal laws of the State of New York, as the same may from time to time be in effect, without regard to principles of conflicts of laws thereof. IN WITNESS WHEREOF, the undersigned has executed this Note the day and year first above written. WITNESS:. HUDSON TECHNOLOGIES COMPANY ___________________________ By:____________________________________ Stephen P. Mandracchia, Esq. Name: Brian F. Coleman Title: President and Chief Operating Officer 38 3. EXHIBIT B a) TERM NOTE $400,000.00 May 30, 2003 Rye, New York FOR VALUE RECEIVED, HUDSON TECHNOLOGIES COMPANY, a corporation organized and existing pursuant to the laws of the State of Tennessee having an address at 275 North Middletown Road, Pearl River, New York 10965 ("Borrower"), promises to pay to the order of KELTIC FINANCIAL PARTNERS, LP ("Lender") a Delaware limited partnership with a place of business at 555 Theodore Fremd Avenue, Suite C-207, Rye, New York 10580, or at such other place as Lender may from time to time in writing designate, the sum of FOUR HUNDRED THOUSAND DOLLARS AND 00/100 ($400,000.00) as follows: equal monthly installments each in the amount of $6,666.67 commencing on July 1, 2003 and payable on the first day of each month thereafter through and including May 1, 2006, followed by one (1) final payment on May 30, 2006 ("Maturity Date"), on which date all sums payable hereunder are immediately due and payable. Borrower also promises to pay interest to Lender monthly, in arrears, on the first day of each month, commencing on June 1, 2003 on the average daily unpaid principal balance of this Note at a fluctuating rate which is equal to the Loan Interest Rate. Notwithstanding the foregoing, after the occurrence of an Event of Default, Borrower shall pay interest on the unpaid principal balance of this Note at a rate which is three and one-half percent (3.5%) per annum above the Loan Interest Rate, provided, however, in no event shall any interest to be paid hereunder exceed the maximum rate permitted by law. Any partial prepayments made by the undersigned will be applied against the remaining unpaid payments due hereunder in the inverse order of the maturity of such payments. This is a term note referred to in the revolving loan agreement between Borrower and Lender dated even date herewith (the "Loan Agreement")(the Loan Agreement together with the other documents, instruments and agreements executed in connection therewith, as they may from time to time be modified, amended, restated or replaced are hereinafter collectively referred to as, the "Loan Documents"). This Note is entitled to the benefits of all of the terms and conditions and the security of all of the security interests and liens granted by Borrower or any other person to Lender pursuant to the Loan Agreement or any of the other Loan Documents including, without limitation, supplemental provisions regarding mandatory and/or optional prepayment rights and premiums. Capitalized terms used herein and not otherwise defined shall have the meaning given such terms in the Loan Documents. Whenever any payment to be made under this Note shall otherwise be due on a day that is not a Banking Day, such payment shall be made on the next succeeding Banking Day, and such extension of time shall be included in computing interest in connection with any such payment. This Note shall be binding upon and shall insure to the benefits of the parties, their successors and assigns. Lender shall have the right, without the necessity of any further consent or authorization by Borrower, to sell, assign, securitize or grant participations in all, or a portion of, Lender's interest in this Note, to other financial institutions of Lender's choice and on such terms as are acceptable to Lender in its sole discretion. This Note shall be governed by and construed under the internal laws of the State of New York, as the same may from time to time be in effect, without regard to principles of conflicts of laws thereof. Borrower and all other parties who, at any time, may be liable hereon in any capacity waive presentment, demand for payment, protest and notice of dishonor of this Note. This Note may not be changed orally, but only by an agreement in writing which is signed by the holder and the party or parties against whom enforcement of any waiver, change, modification or discharge is sought. IN WITNESS WHEREOF, the undersigned has executed this Note on the day and year first above written. 39 WITNESS: HUDSON TECHNOLOGIES COMPANY __________________________ By:______________________________ Stephen Mandracchia, Esq. Name: Brian F. Coleman Title: President and Chief Operating Officer 40 4. EXHIBIT C FORM OF NOTICE OF BORROWING Keltic Financial Partners, LP 555 Theodore Fremd Avenue, Site C-207 New York, New York 10580 (1) Re: Request for loan/advance The undersigned requests a $____________ loan advance pursuant to Section 2.1 of the Loan Agreement dated May 30, 2003 between Keltic Financial Partners, LP and the undersigned ("Loan Agreement"). Capitalized terms used herein and not otherwise defined herein shall have the meanings given to them in the Loan Agreement. Please wire the requested loan advance [to our operating account number _________ at __________ or [in accordance with the following wire instructions [insert instructions]. Please call the undersigned to confirm receipt of this fax at ____________. Thank you. HUDSON TECHNOLOGIES COMPANY By:___________________________ Name: Brian F. Coleman Title: President and Chief Operating Officer 41 5. EXHIBIT D a) BORROWING BASE 42 EXHIBIT E COMPLIANCE CERTIFICATE HUDSON TECHNOLOGIES COMPANY ("Borrower") hereby certifies to KELTIC FINANCIAL PARTNERS, LP ("Lender") in accordance with the provisions of a Loan Agreement between Borrower and Lender dated the 30th day of May, 2003, as the same from time to time may be amended, supplemented or otherwise modified ("Agreement") that: A. General (i) Borrower has complied in all respects with all the terms, covenants and conditions of the Agreement which are binding upon them; (ii) there exists no Event of Default or Default as defined in the Agreement; (iii) the representations and warranties contained in the Agreement are true in all respects with the same effect as though such representations and warranties had been made on the date hereof; and B. Financial Covenants As of the date hereof or, from such period as may be designated below, the computations and ratios as set forth below, are true and correct: (a) Tangible Net Worth (b) Capital Expenditures (c) EBITDA WITNESS the signature of the undersigned duly authorized officer of Borrower on _____________, 200___. HUDSON TECHNOLOGIES COMPANY By_________________________________ Name: Brian F. Coleman Title: President and Chief Operating Officer 43 Schedule 5.2 Other Names Hudson Technologies Company dba Hudson Technologies of Tennessee dba Hudson Technologies Company of Tennessee 44 Schedule 5.3 b) Subsidiaries and Affiliates Parent Company is Hudson Technologies, Inc. ("Parent"), a New York corporation Parent is the sole stockholder of Hudson Holding's, Inc. ("Holding"), a Nevada Corporation Holding is the sole stockholder of Borrower, Hudson Technologies Company, a Tennessee Corporation The following Persons may be deemed "Affiliates" as that term is defined in Section 1.3: Hudson Technologies, Inc. Hudson Holdings, Inc. Fleming US Discovery Fund III, LP Fleming US Discovery Offshore Fund III, L.P. DuPont Chemical and Energy Operations, Inc. Kevin J. Zugibe Thomas P. Zugibe Frederick T. Zugibe, Sr. Stephen P. Mandracchia 45 Schedule 5.8 Real Estate Leased by Borrower
Facility Address Landlord Term - -------- -------- -------- ---- Champaign, Il 3402 North Mattis Avenue Busey Bank 12/1/02 - 11/30/04 Champaign, Illinois 201 West Main Street Urbana, Illinois 61803-7430 Houston, Tx. 12820 Hempstead Hwy., Suite D Two Ninety, Ltd. 7/15/00-6/30/03 Houston, Texas 1527 West Alabama Houston, Texas 77006 Seattle, Wa. 1320 26th St. NW, Ste 11 Park 26, LLC 4/1/02 -3/31/04 Auburn, Washington c/o The Andover Company, Inc. 415 Baker Boulevard, Suite 200 Tukwila, WA 98188 Charlotte, NC 2720 Westport Road Thomas & Nancy Cox 4/24/98 -4/23/00 Charlotte, North Carolina c/o Colliers Pinkard now month to month 330 S. Tryon Street, Suite 301 Charlotte, NC 28202-1916 Punta Gorda, Fl. 5474 Williamsburg Drive Rick Treworgy 12/15/01 - 12/14/03 Punta Gorda, Florida 5445 Williamsburg Drive Punta Gorda, Florida 33982 Pearl River, NY 275 N. Middletown Road 275 N. Middletown Road, LLC 1/1/03 - 12/31/06 Pearl River, New York 275 North Middletown Road Pearl River, New York 10965 Baton Rouge, La. 11245 Airline Highway Reulet Family Holdings, LLC 8/1/02 - 7/31/05 Baton Rouge, Louisiana c/o John A. Reulet, Sr., President 3037 Jones Creek Road Baton Rouge, Louisiana 70817 Villa Park, Il. 739 North Harvard Ave. HVP Partners 6/1/99 - 8/31/05 Villa Park, Illinois 17 W 335 Belmont Bensenville, Illinois 60106 Baltimore, Md. 2605 Lord Baltimore Dr. MIE Properties, Inc. 9/1/01 - 8/31/05 Baltimore, Maryland 5720 Executive Drive Baltimore, Maryland 21288-1757 Rantoul, IL 896 West Champaign St. Roeco Enterprises, Inc. 10/1/97 - 9/30/02 Rantoul, Illinois PO Box 583 now month to month Rantoul, Illinois 61866 Freemont, NH 1 Coopers Common Phoenix Fremont LLC 7/1/02 - 6/30/04 Freemont, New Hampshire 189 Mill Road North Hampton, New Hampshire 03862
46 Schedule 5.8 (continued) Leased by Parent, Hudson Technologies, Inc. Hillburn, NY 60 Torne Valley Road Ramapo Land Co., Inc. 6/1/99 - 5/31/04 Hillburn, New York 145 Route 17 Sloatsburg, New York 10974
Owned None 47 Schedule 5.9 c) Intellectual Property i) U.S. Patents
TITLE-NAME INVENTOR OWNER DATE ISSUED NUMBER - ---------- -------- ----- ----------- ------ Method & Apparatus for Refrigerant Reclamation K. Zugibe Parent 1/3/95 5,377,499 Hydraulic System for Recovering Refrigerants K. Zugibe Parent 4/2/96 5,502,974 Method & Apparatus for Reclaiming a Refrigerant J. Todack Borrower 6/11/91 5,022,230 Apparatus & Method For Recovering Volatile Refrigerants K. Zugibe Parent 9/8/98 5,802,859 Apparatus & Method K. Zugibe Parent 11/7/00 6,141,977 For Recovering Volatile Refrigerants Method & Apparatus For Sonic Cleaning of Heat Exchangers K. Zugibe Parent 9/18/01 6,290,778 Apparatus & Method For Flushing a K. Zugibe & Chiller System A. Mika Parent 3/19/02 6,357,240 Apparatus & Method For Flushing a C. Harkins & Refrigeration System A. Mika Parent 2/26/00 6,164,080 Method & Apparatus For Measuring and Improving Efficiency K. Zugibe & In Refrigeration Systems D. Schmidt Borrower 1/14/03 6,505,475 Patent Pending - Method & Apparatus For Measuring and K. Zugibe & Improving Efficiency D. Schmidt Parent filed 1/7/03 App. # 10/338,941
48 Schedule 5.9 (continued) Patent Pending - Method & Apparatus For Measuring and Improving Efficiency K. Zugibe & In Refrigeration Systems D. Schmidt Parent filed 1/7/00 App. # 09/577,703 Provisional - Method & Apparatus For Measuring and Improving Efficiency in Refrigeration Systems K..Zugibe Parent filed 12/9/02 60/431,901 Foreign license granted 3/13/2003 Provisional - Method & Apparatus For Optimizing Refrigeration Systems K..Zugibe Parent filed 12/19/02 60/434,847 Foreign license granted 2/25/2003
ii) Foreign Patents 1. U.S. Patent # 5,377,499, issued to Hudson Technologies, Inc., has been filed in the following jurisdictions; BRAZIL - Patent Issued 8/8/00 - Expires 12/6/2014, Patent #PI9404879-7 8/8/00 CANADA - Patent Issued 8/20/02 - Expires 12/8/2014, Patent #2137771 CHINA - Patent issued 11/9/2001- Expires 12/9/2014, Registration #82500 COSTA RICA - Patent Pending, application filed 12/7/94 ISRAEL - Patent issued 10/14/97 -Expires 12/6/14, Patent#111899 JAPAN - Patent Pending, application filed 12/8/94 MEXICO- Patent Issued 6/25/99 - Expires 12/9/14, Patent # 192486 POLAND - Patent Issued 12/1/98 - Expires 12/5/14. Patent#176 518 RUSSIA- Patent Issued 8/20/99 - Expires 8/20/14. Patent # 2134851 UNITED STATES - Patent Issued 1/3/95- Expires 1/3/12. Patent # 5,377,499 EUROPEAN COMMUNITY - Patent Issued 3/31/99. Expires 12/8/14. Patent # 0682218 (Belgium, Denmark, France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland/Liechtenstein, United Kingdom) 2. U.S. Patent #5,022,230, issued to Hudson Technologies Company, has been filed in the following jurisdictions; 49 CANADA - Patent Issued 7/31/01 - Expires 5/23/2011, Patent #2,084,088 AUSTRALIA - Patent #660280 iii) iv) Patent Licenses Reciprocal licenses between Parent and Borrower (not formalized) License of Borrower's Patent #5,022,230 granted to James Todack for a total of 10 machines that were leased to Borrower in 1994, of which six were purchased by Borrower in 2001 and four were returned to James Todack in 2001. v) Trademark Registrations
TITLE-NAME OWNER DATE ISSUED NUMBER - ---------- ---------- ----- ----------- ------ GLACIER Parent 3/2/99 2,227,148 ZUGIBEAST Parent 7/9/96 1,985,422 HTI Parent 4/23/96 1,970,063 R-SIDE Borrower 7/30/02 2,601434 REFRIGERANTSIDE Borrower 4/9/02 2,559,214 Hudson Technologies, Parent 4/23/96 1,969,986 Inc.
vi) Trademark Applications None vii) Trademark Licenses All trademarks licensed to Borrower (not formalized) viii) Copyrights None ix) Copyright Licenses None 50 Schedule 5.13 d) Litigation A. In June 1998, United Water of New York Inc. ("United") commenced an action against the Hudson Technologies, Inc. (the "Company") in the Supreme Court of the State of New York, Rockland County, seeking damages in the amount of $1.2 million allegedly sustained as a result of alleged contamination of certain of United's wells which are in close proximity to the Company's Hillburn, New York facility. On April 1, 1999, the Company reported a release at the Company's Hillburn, New York facility of approximately 7,800 lbs. of R-11, as a result of a failed hose connection to one of the Company's outdoor storage tanks allowing liquid R-11 to discharge from the tank into the concrete secondary containment area in which the subject tank was located. In July 1999, United amended its complaint in the Rockland County action to allege facts relating to, and to seek damages allegedly resulting from the April 1, 1999 R-11 release. In June 2000, the Rockland County Supreme Court approved a settlement of the Rockland County action commenced by United. Under the settlement, the Company paid to United the sum of $1,000,000 and has been making additional monthly payments in the amount of $5,000, which payments are expected to continue through December 2003. . In June 2000, the Company signed an Order on Consent with the DEC regarding all past contamination of the United well field, whereby, the Company agreed to continue operating a remediation system it installed at its Hillburn facility in May 1999, until remaining groundwater contamination has been effectively abated. In May 2001, the Company signed an amendment to the Order on Consent with the DEC, pursuant to which the Company installed one additional monitoring well and modified the Company's existing remediation system to incorporate a second recovery well. The Company is continuing to operate the remediation system pursuant to that Order on Consent. In May 2000, the Company's Hillburn facility was nominated by the United States Environmental Protection Agency ("EPA") for listing on the National Priorities List ("NPL"), pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980. The Company submitted opposition to the listing within the sixty-day comment period. To date, no final decision has been made by the EPA regarding the proposed listing. The Company has requested that the EPA remove the Hillburn facility from nomination for the NPL due to the continued reduction of contamination. In October 2001, the Company learned that trace levels of R-11 were detected in one of United's wells that are closest to the Village of Suffern's ("Village") well system. During February 2002, the Village expressed concern over the possibility of R-11 reaching its well system and has advised the Company that it was investigating available options to protect its well system. No contamination of R-11 has ever been detected in any of the Village's wells. In October 2002, the Village advised the Company that it intends to proceed with plans to protect its wells and could look to the Company to reimburse the Village for any costs it may incur. To date, no detailed cost estimate, formal demand or claim has been presented by the Village. In February 2003, the Company agreed to extend the statute of limitations applicable to any claims that may be available to Ramapo Land Company, the lessor of the Hillburn facility, arising out of the April 1, 1999 incident for an additional two years. To date, no claims against the Company have been asserted or threatened by Ramapo Land Company. B. In February 2000, an action was commenced in the Supreme Court of the State of New York, Rockland by CS Dowling Inc. d/b/a Dow-Tech Associates against the Company seeking recovery of the sum of $20,000 allegedly due in connection with the hiring of two employees by the Company. The Company maintains that the allegations 51 in the complaint are without merit, that no amounts are due the plaintiff and that the plaintiff owes $4,000 to the Company for unearned deposits. 52 Schedule 5.13 (continued) B. In April 2003, NASDAQ advised the Guarantor that, based upon Guarantor's Stock holders equity as reported in Form 10KSB for the 12 months ended December 31, 2002, the Guarantor failed to comply with Nasdaq SmallCap Market listing requirements and was subject to delisting unless the Guarantor could demonstrate a plan to achieve and sustain compliance with Nasdaq SmallCap Market listing requirements. The Guarantor has submitted a plan, based upon the proposed rights offering, to Nasdaq which the Guarantor believes will achieve and sustain compliance. 53 Schedule 5.14 e) Receivables Locations
Facility Address Landlord Term - --------- ------- -------- ---- Pearl River, NY 275 N. Middletown Road 275 N. Middletown Road, LLC 1/1/03 - 12/31/06 Pearl River, New York 275 North Middletown Road Pearl River, New York 10965
54 Schedule 5.15 f) Current Inventory Locations - as of 5/22/03
Facility Address Landlord Term - -------- -------- -------- ---- Champaign, Il 3402 North Mattis Avenue Busey Bank 12/1/02 - 11/30/04 Champaign, Illinois 201 West Main Street Urbana, Illinois 61803-7430 Houston, Tx. 12820 Hempstead Hwy., Suite D Two Ninety, Ltd. 7/15/00-6/30/03 Houston, Texas 1527 West Alabama Houston, Texas 77006 The Houston facility has been closed, and all inventory and equipment will be removed by 6/30/03 Seattle, Wa. 1320 26th St. NW, Ste 11 Park 26, LLC 4/1/02 -3/31/04 Auburn, Washington c/o The Andover Company, Inc. 415 Baker Boulevard, Suite 200 Tukwila, WA 98188 Borrower anticipates that the Seattle facility will be closed and all inventory and equipment removed witching sixty (60) days. Charlotte, NC 2720 Westport Road Thomas & Nancy Cox 4/24/98 -4/23/00 Charlotte, North Carolina c/o Colliers Pinkard now month to month 330 S. Tryon Street, Suite 301 Charlotte, NC 28202-1916 Punta Gorda, Fl. 5474 Williamsburg Drive Rick Treworgy 12/15/01 - 12/14/03 Punta Gorda, Florida 5445 Williamsburg Drive Punta Gorda, Florida 33982 Pearl River, NY 275 N. Middletown Road 275 N. Middletown Road, LLC 1/1/03 - 12/31/06 Pearl River, New York 275 North Middletown Road Pearl River, New York 10965 Baton Rouge, La. 11245 Airline Highway Reulet Family Holdings, LLC 8/1/02 - 7/31/05 Baton Rouge, Louisiana c/o John A. Reulet, Sr., President 3037 Jones Creek Road Baton Rouge, Louisiana 70817 Borrower anticipates that the Baton Rouge facility will be closed and all inventory and equipment removed witching sixty (60) days. Villa Park, Il. 739 North Harvard Ave. HVP Partners 6/1/99 - 8/31/05 Villa Park, Illinois 17 W 335 Belmont Bensenville, Illinois 60106 The Villa Park facility has been closed and all inventory and equipment will be removed by 6/30/03 Baltimore, Md. 2605 Lord Baltimore Dr. MIE Properties, Inc. 9/1/01 - 8/31/05 Baltimore, Maryland 5720 Executive Drive Baltimore, Maryland 21288-1757 Rantoul, IL 896 West Champaign St. Roeco Enterprises, Inc. 10/1/97 - 9/30/02 Rantoul, Illinois PO Box 583 now month to month Rantoul, Illinois 61866
55 The Rantoul facility will be closed and all inventory and equipment transferred to Champaign facility within sixty (60) days 56 Schedule 5.16 g) Current Equipment List and Locations h) 1. Equipment List - See attached Equipment List i) j) 2. List of Locations - as of 5/22/03 When equipment is not in use at a customer's facility, the equipment is maintained at the following locations:
Facility Address Landlord Term - -------- -------- -------- ---- Champaign, Il 3402 North Mattis Avenue Busey Bank 12/1/02 - 11/30/04 Champaign, Illinois 201 West Main Street Urbana, Illinois 61803-7430 Houston, Tx. 12820 Hempstead Hwy., Suite D Two Ninety, Ltd. 7/15/00-6/30/03 Houston, Texas 1527 West Alabama Houston, Texas 77006 The Houston facility has been closed, and all inventory and equipment will be removed by 6/30/03 Seattle, Wa. 1320 26th St. NW, Ste 11 Park 26, LLC 4/1/02 -3/31/04 Auburn, Washington c/o The Andover Company, Inc. 415 Baker Boulevard, Suite 200 Tukwila, WA 98188 Borrower anticipates that the Seattle facility will be closed and all inventory and equipment removed within sixty (60) days. Charlotte, NC 2720 Westport Road Thomas & Nancy Cox 4/24/98 -4/23/00 Charlotte, North Carolina c/o Colliers Pinkard now month to month 330 S. Tryon Street, Suite 301 Charlotte, NC 28202-1916 Punta Gorda, Fl. 5474 Williamsburg Drive Rick Treworgy 12/15/01 - 12/14/03 Punta Gorda, Florida 5445 Williamsburg Drive Punta Gorda, Florida 33982 Pearl River, NY 275 N. Middletown Road 275 N. Middletown Road, LLC 1/1/03 - 12/31/06 Pearl River, New York 275 North Middletown Road Pearl River, New York 10965 Baton Rouge, La. 11245 Airline Highway Reulet Family Holdings, LLC 8/1/02 - 7/31/05 Baton Rouge, Louisiana c/o John A. Reulet, Sr., President 3037 Jones Creek Road Baton Rouge, Louisiana 70817 Borrower anticipates that the Baton Rouge facility will be closed and all inventory and equipment removed within sixty (60) days. Villa Park, Il. 739 North Harvard Ave. HVP Partners 6/1/99 - 8/31/05 Villa Park, Illinois 17 W 335 Belmont
57 Bensenville, Illinois 60106 The Villa Park facility has been closed and all inventory and equipment will be removed by 6/30/03 Schedule 5.16 (continued) Baltimore, Md. 2605 Lord Baltimore Dr. MIE Properties, Inc. 9/1/01 - 8/31/05 Baltimore, Maryland 5720 Executive Drive Baltimore, Maryland 21288-1757 Rantoul, IL 896 West Champaign St. Roeco Enterprises, Inc. 10/1/97 - 9/30/02 Rantoul, Illinois PO Box 583 now month to month Rantoul, Illinois 61866 The Rantoul facility will be closed and all inventory and equipment transferred to Champaign facility within sixty (60) days Hillburn, NY 60 Torne Valley Road Ramapo Land Co., Inc. 6/1/99 - 5/31/04 Hillburn, New York 145 Route 17 Sloatsburg, New York 10974
58 Schedule 5.17 k) Liens 1. Hudson Technologies Company A. Financed - Equipment Loans
Acct # Item Expiration 12/31/2002 12/31/2003 12/31/2004 12/31/2005 Total - ----------------------------------------------------------------------------------------------------------------------------------- Loans - Recovery Vans Sub-Total $289,688.00 $192,926.00 $ 96,762 $289,688.00 ----------- CIT TERM LOAN $302,812.00 $186,053.00 $ 93,693 $ 23,066 $302,812.00 ------------------------------------------------------------------- Total Indebtedness $592,500.00 $378,979.00 $ 190,455 $ 23,066 $592,500.00 ------------------------------------------------------------------- Expiration 12/31/2002 12/31/2003 12/31/2004 Total 25020 Loans-Recovery Vans ----------------------------------- 1999 Econoline - Ford Credit Houston 6709 Mar-04 $ 7,214.00 $ 6,633.00 $ 581.06 $ 7,214.06 1999 Chev Cube Van - GMAC Hillburn 0280 Feb-04 $ 9,071.00 $ 7,712.00 $ 1,359.65 $ 9,071.65 1999 Frht Med Con - GMAC Houston 0813 Feb-04 $ 14,310.00 $ 12,165.40 $ 2,144.32 $ 14,309.72 1999 Chev Cube Van - GMAC Chicago 9744 Mar-04 $ 8,411.00 $ 6,527.00 $ 1,884.00 $ 8,411.00 1999 Chev Cube Van - GMAC Charlotte 0665 Mar-04 $ 8,411.00 $ 6,527.00 $ 1,884.00 $ 8,411.00 1999 Frht Med Con - GMAC Hillburn 3176 Mar-04 $ 15,271.00 $ 12,067.35 $ 3,203.83 $ 15,271.18 1999 Frht FL 70 - GMAC Seattle 3177 Apr-04 $ 16,225.00 $ 11,970.09 $ 4,254.80 $ 16,224.89 1999 Frht FL 70 - GMAC Chicago 3178 Apr-04 $ 16,225.00 $ 11,970.09 $ 4,254.80 $ 16,224.89 1999 Ford Econoline - Ford Credit Seattle 5434 May-04 $ 9,148.00 $ 6,757.45 $ 2,390.83 $ 9,148.28 1999 Frht FL 70 - Intek Assoc Baltimore 3175 Apr-04 $ 17,706.00 $ 13,067.01 $ 4,639.34 $ 17,706.35 Ford Econoline Baltimore 2761 Jun-04 $ 10,039.00 $ 6,541.19 $ 3,497.71 $ 10,038.90 Ford Econoline Baton Rouge 9771 Jun-04 $ 10,039.00 $ 6,541.19 $ 3,497.71 $ 10,038.90 Ford Econoline Detroit 5427 Jun-04 $ 11,192.00 $ 7,292.70 $ 3,899.17 $ 11,191.87 Ford Econoline Long Island 9772 Jun-04 $ 11,192.00 $ 7,292.70 $ 3,899.17 $ 11,191.87 Ford Econoline Boston 5423 Jun-04 $ 11,192.00 $ 7,292.70 $ 3,899.17 $ 11,191.87 Frht Fl 70 - Intek Assoc Detroit 6207 Jul-04 $ 20,783.00 $ 12,759.90 $ 8,023.55 $ 20,783.45 Frht Fl 70 - Intek Assoc Boston 6206 Jul-04 $ 20,783.00 $ 12,759.90 $ 8,023.55 $ 20,783.45 Frht Fl 70 - Intek Assoc. 6208 Sep-04 $ 23,492.00 $ 12,456.00 $ 11,037.12 $ 23,493.12 Frht Fl 70 - Intek Assoc. 6209 Oct-04 $ 24,492.00 $ 12,297.00 $ 12,194.00 $ 24,491.00 Frht Fl 70 - Intek Assoc. 6210 Oct-04 $ 24,492.00 $ 12,297.00 $ 12,194.00 $ 24,491.00 --------------------------------------- ----------- Total - Loans - Recovery Vans $289,688.00 $192,926.67 $ 96,761.78 $289,688.45 --------------------------------------- -----------
59 Schedule 5.17 (continued) B. Operating Leases Item Expiration ---- ---------- Trade Winds chassis (3) Mo-Mo Matlack Leasing Mo-Mo Mail Machine (PR) Pitney Bowes May-03 Dell Computer (MD) (PR) (008) May-03 Dell Computer (PR) (010) Jun-03 Ascom Hasler (NC) Mo-Mo Neopost (LA) Nov-04 Copelco-2 Hysler Fork Lift (IL) Mar-05 Mellon Leasing Fax Machine (PR) Sep-03 Mellon Leasing Fax Machine (NY) Qtr/Qtr Mellon Leasing Fax Machine (IL) Dec-03 Sharp-Copier (IL) Dec-03 PBCC(Mailing System) (IL) Sep-05 C. Capital Leases Item Expiration ---- ---------- Computers Jul-03 Gas Chromograph- NY Mar-03 Greentree Vendor Service NY Sept=03 Gas Chromograph- FL Mar-03 CIT/Norstar Phone Equip-NC Feb-05 Yale Forklift-GE Capital-TX Nov-04 Panas DBS Phone Sys-Wells Fargo-Ch Dec-07 2001 Chevy Silverado-Charlotte NC Nov-04 1998 Chevy Truck-Ft. Meyers Fl Nov-03 Load Cells for Champaign Bulk Storage June - 08 2. Hudson Technologies, Inc. A. Operating Leases Item Expiration ---- ---------- Postage Meter (NY) Pitney Bowes Qtr/Qtr Minolta Copier (PR) Sep-04 Dell Computer (018) Jun-04 GE Capital-Xerox fax (PR) Apr-05 B. Capital Leases Item Expiration ---- ---------- Computers Sep-03 Poweredge 2400 Server Aug-03 Toyota 5FBE-18 Elec Forklift-NC Oct-04 60 Schedule 5.18 l) Indebtedness 1. Obligations of Parent, Hudson Technologies, Inc. A. Convertible Debt:
Convertible Note holder Note Amount Date of Note Interest - ----------------------- ----------- ------------ -------- Fleming U S Discovery Fund III, L. P. $302,000 12/20/02 10% Accrued and 1221 Avenue of the Americas, 40th Floor, Added to principal New York, New York 10020 Fleming US Discovery Offshore Fund III, L.P. 1221 Avenue of the Americas, 40th Floor, $ 48,000 12/20/02 10% Accrued and New York, New York 10020 Added to principal Matthew M. Zugibe $ 50,000 12/20/02 10% Accrued and 20 Colonel Conklin Drive, Added to principal Stony Point, New York 10980 Frederick T. Zugibe, Jr. $ 50,000 12/20/02 10% Accrued and 509 East Avenue, Added to principal Newark, New York 14513 Phyllis J. LeFrois $ 35,000 12/20/02 10% Accrued and 990 Lake Road, Added to principal Webster, New York 20 14580 Joseph Longo $ 10,000 12/20/02 10% Accrued and 66 Bergen Avenue, Added to principal Waldwick, New Jersey 07463 Fleming US Discovery Fund III, L.P. $431,000 4/15/03 10% Accrued and 1221 Avenue of the Americas, 40th Floor, Added to principal New York, New York 10020 Fleming US Discovery Offshore Fund III, L.P. $ 69,000 4/15/03 10% Accrued and 1221 Avenue of the Americas, 40th Floor, Added to principal New York, New York 10020
61 Schedule 5.18 (continued)
Exchange Note holder Note Amt. Date of Note Interest - -------------------- --------- ------------ -------- Brian F. Coleman at 41 Mountainview Avenue, $15,214.75 12/20/02 10% Accrued and Pearl River, New York 10965 Added to principal Stephen P. Mandracchia $50,715.84 12/20/02 10% Accrued and 2 Heritage Court Added to principal Warwick, New York 10990 Joseph P. Mandracchia, Sr. $40,556.07 12/20/02 10% - interest paid 512 Fourth Avenue in cash on interest Pelham, New York 10803 payment dates Fleming US Discovery Fund III, L.P. $349,939.27 12/20/02 10% Accrued and 1221 Avenue of the Americas, 40th Floor, Added to principal New York, New York 10020 Fleming US Discovery Offshore Fund III, L.P. $55,787.42 12/20/02 10% Accrued and 1221 Avenue of the Americas, 40th Floor, Added to principal New York, New York 10020 Frederick T. Zugibe, Sr. $101,390.17 12/20/02 10% - interest paid One Angelus Drive in cash on interest Garnerville, New York 10923 payment dates Thomas P. Zugibe $50,715.84 12/20/02 10% Accrued and 30 Tavarone Street Added to principal Garnerville, New York 10923
Copies of the form Convertible Note and Exchange Note are attached hereto. B. Other Debt: i. Premium Finance Agreement with A.I. Credit Corp. in the amount of $308,664.30 representing financed Insurance premiums on liability, workers compensation, business auto, property and umbrella policies, covering period 4/27/03 through 4/27/04, requiring 8 equal payments through 12/17/03. ii. Premium Finance Agreement with First Insurance Funding in the amount of $68,592 representing financed Insurance premiums on Pollution and Environmental impairment policies, covering period 1/20/03 through 1/20/03, requiring 9 equal payments through 10/20/03. iii Premium Finance Agreement with A.I. Credit Corp. in the amount of $77,000representing financed Insurance premiums on Directors and Officers liability policy, covering period 11/1/02 through 11/1/03, requiring 9 equal payments through 8/1/03. iv. Premium Finance Agreement with Premium Financing Specialists in the amount of $26,000, expected to be renewed on or about June 1, 2003 for financing of premiums on A/R Credit Indemnity Policy. 2002-2003 policy paid in full, coming up for renewal and will be refinanced. 2. Obligations of Borrower, Hudson Technologies Company A. Unsecured Obligations 62 i. $62,500.00 unsecured note to Busey Bank made pursuant to lease agreement for Champaign, Illinois facility (see Schedule 5.8), dated May 15, 2003, based upon 5 year amortization. ii. A total of $575,000 unsecured notes to Fleming U.S. Discovery Fund III, L.P. and Fleming U.S. Discovery Offshore Fund III, L.P., 1221 Avenue of the Americas, 40th Floor, New York, New York 10020 ("Fleming Funds"), dated the date of this Revolving Loan Agreement. B. Additional Secured Debt/Equipment financing:
Acct # Item Expiration 12/31/2002 12/31/2003 12/31/2004 12/31/2005 Total - ----------------------------------------------------------------------------------------------------------------------------------- Loans - Recovery Vans Sub-Total $289,688.00 $192,926.00 $ 96,762 $289,688.00 ----------- CIT TERM LOAN $302,812.00 $186,053.00 $ 93,693 $ 23,066 $302,812.00 ------------------------------------------------------------------- Total Indebtedness $592,500.00 $378,979.00 $ 190,455 $ 23,066 $592,500.00 ------------------------------------------------------------------- Expiration 12/31/2002 12/31/2003 12/31/2004 Total 25020 Loans-Recovery Vans - -------------------------------- 1999 Econoline - Ford Credit Houston 6709 Mar-04 $ 7,214.00 $ 6,633.00 $ 581.06 $ 7,214.06 1999 Chev Cube Van - GMAC Hillburn 0280 Feb-04 $ 9,071.00 $ 7,712.00 $ 1,359.65 $ 9,071.65 1999 Frht Med Con - GMAC Houston 0813 Feb-04 $ 14,310.00 $ 12,165.40 $ 2,144.32 $ 14,309.72 1999 Chev Cube Van - GMAC Chicago 9744 Mar-04 $ 8,411.00 $ 6,527.00 $ 1,884.00 $ 8,411.00 1999 Chev Cube Van - GMAC Charlotte 0665 Mar-04 $ 8,411.00 $ 6,527.00 $ 1,884.00 $ 8,411.00 1999 Frht Med Con - GMAC Hillburn 3176 Mar-04 $ 15,271.00 $ 12,067.35 $ 3,203.83 $ 15,271.18 1999 Frht FL 70 - GMAC Seattle 3177 Apr-04 $ 16,225.00 $ 11,970.09 $ 4,254.80 $ 16,224.89 1999 Frht FL 70 - GMAC Chicago 3178 Apr-04 $ 16,225.00 $ 11,970.09 $ 4,254.80 $ 16,224.89 1999 Ford Econoline - Ford Credit Seattle 5434 May-04 $ 9,148.00 $ 6,757.45 $ 2,390.83 $ 9,148.28 1999 Frht FL 70 - Intek Assoc Baltimore 3175 Apr-04 $ 17,706.00 $ 13,067.01 $ 4,639.34 $ 17,706.35 Ford Econoline Baltimore 2761 Jun-04 $ 10,039.00 $ 6,541.19 $ 3,497.71 $ 10,038.90 Ford Econoline Baton Rouge 9771 Jun-04 $ 10,039.00 $ 6,541.19 $ 3,497.71 $ 10,038.90 Ford Econoline Detroit 5427 Jun-04 $ 11,192.00 $ 7,292.70 $ 3,899.17 $ 11,191.87 Ford Econoline Long Island 9772 Jun-04 $ 11,192.00 $ 7,292.70 $ 3,899.17 $ 11,191.87 Ford Econoline Boston 5423 Jun-04 $ 11,192.00 $ 7,292.70 $ 3,899.17 $ 11,191.87 Frht Fl 70 - Intek Assoc Detroit 6207 Jul-04 $ 20,783.00 $ 12,759.90 $ 8,023.55 $ 20,783.45 Frht Fl 70 - Intek Assoc Boston 6206 Jul-04 $ 20,783.00 $ 12,759.90 $ 8,023.55 $ 20,783.45 Frht Fl 70 - Intek Assoc. 6208 Sep-04 $ 23,492.00 $ 12,456.00 $ 11,037.12 $ 23,493.12 Frht Fl 70 - Intek Assoc. 6209 Oct-04 $ 24,492.00 $ 12,297.00 $ 12,194.00 $ 24,491.00 Frht Fl 70 - Intek Assoc. 6210 Oct-04 $ 24,492.00 $ 12,297.00 $ 12,194.00 $ 24,491.00 --------------------------------------- ----------- Total - Loans - Recovery Vans $289,688.00 $192,926.67 $ 96,761.78 $289,688.45 --------------------------------------- -----------
63 Schedule 5.21 Environmental Matters (a) The Borrower is a refrigerant services company providing innovative solutions to recurring problems within the refrigeration industry. The Borrower's products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems, including (i) refrigerant sales, (ii) RefrigerantSide(R) Services performed at a customer's site, consisting of system decontamination to remove moisture, oils and other contaminants and (iii) reclamation of refrigerants. The Company's products and services are centered around refrigerants of all types, including Chlorofluorocarbons (CFC's), Hydrochlorofluorocarbons (HCFC's), Hyrofluorocarbons (HFC's), and Anhydrous Ammonia. Most refrigerants handled, processed or sold by the Borrower are classified as hazardous materials and some are classified as hazardous substances. Additionally, the Borrower's facilities located at Champaign, Illinois and Rantoul, Illinois, and Punta Gorda, Florida, are classified as small waste generators and generate and store small amounts of hazardous waste representing spent laboratory chemicals used in the Borrower's refrigerant testing laboratories. (c) (i) On April 1, 1999, the Borrower reported a release at its Hillburn, New York facility of approximately 7,800 lbs. of R-11, as a result of a failed hose connection to one of the Borrower's outdoor storage tanks allowing liquid R-11 to discharge from the tank into the concrete secondary containment area in which the subject tank was located. The R-11 migrated to ground water and impacted four wells operated by United Water New York used for supply of drinking water to Rockland County. (ii) In January 1999, the Borrower had a vapor release at its Baton Rouge, Louisiana facility of a quantity of ammonia. (iii) Normal operation of the Borrower's equipment results in de minimis releases of refrigerants. EPA regulations permit a loss of up to 1.5% of refrigerant processed during reclamation procedures. (d) The Borrower has above ground bulk storage tanks used for the storage of refrigerant at the following facilities: Rantoul, Illinois; Champaign, Illinois, Charlotte, North Carolina; Punta Gorda, Florida. Additionally, the Company stores refrigerants at each of its facilities in cylinders and tanks ranging in size from 30 lbs to 10,000 lbs. (f) All of the Borrower's facilities, except for the Pearl River, New York and Fremont, New Hampshire facilities, have various refrigerants at the facilities, including Chlorofluorocarbons (CFC's), Hydrochlorofluorocarbons (HCFC's), Hyrofluorocarbons (HFC's), and Anhydrous Ammonia. Most refrigerants handled, processed or sold by the Borrower are classified as hazardous materials and some are classified as hazardous substances. (h) See schedule 5.13 above. 64 EX-10.18 4 d56053_ex10-18.txt SECURITY AGREEMENT Exhibit 10.18 GENERAL SECURITY AGREEMENT This GENERAL SECURITY AGREEMENT is made this 30 day of May 2003, between HUDSON TECHNOLOGIES COMPANY ("Debtor"), a corporation organized and existing pursuant to the laws of the State of Tennessee having an address at 275 North Middletown Road, Pearl River, New York 10965 and KELTIC FINANCIAL PARTNERS, LP ("Lender"), a Delaware limited partnership, with a place of business at 555 Theodore Fremd Avenue, Suite C-207, Rye, New York 10580. DEFINITIONS. All words and terms used in this Agreement shall have the meanings as set forth herein and where not otherwise defined herein shall be deemed to have the meanings as accorded to them in the Uniform Commercial Code as in effect from time to time ("UCC"). As used herein, the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): B. "Account" shall have the meaning given to such term in the UCC. C. "Account Debtor" shall mean any Person who is or may become obligated under or on account of any Account, Chattel Paper or General Intangible. D. "Agreement" shall mean this General Security Agreement. E. "Authenticate" shall mean to sign or to execute or otherwise adopt a symbol, or encrypt or similarly process a record in whole or in part, with the present interest of the authenticating person to identify the person and adopt or accept a Record. F. "Chattel Paper" shall have the meaning given to such term in the UCC. G. "Collateral" shall have the meaning given to such term in Section 2.1 hereof. H. "Commercial Tort Claim" shall have the meaning given to such term in Section 2.1 hereof. I. "Deposit Account" shall have the meaning given to such term in the UCC. J. "Document" shall have the meaning given to such term in the UCC. K. "Equipment" shall mean all machinery, equipment, office machinery, furniture, fixtures, conveyors, tools, materials storage and handling equipment, molds, dies, stamps and other equipment of every kind and nature and wherever situated now or hereafter owned by Debtor or in which Debtor may have any interest (to the extent of such interest), together with all additions and accessions thereto, all replacements and all accessories and parts therefor, all manuals, blueprints, know-how, warranties and records in connection therewith, all rights against suppliers, warrantors, manufacturers, sellers or others in connection therewith, and together with all substitutes for any of the foregoing. L. "General Intangibles" shall mean all personal property and general intangibles, including, without limitation, all choses in action, causes of action, payment intangibles, corporate or other business records, inventions, blueprints, designs, patents, 66 patent applications, copyrights, copyright applications, trademarks, trademark applications, trade names, trade secrets, goodwill, brand names, registrations, licenses, franchises, customer lists, tax refund claims, computer programs and software, operational manuals, capitalized finance costs, origination fees, all equipment formulations, manufacturing procedures, quality control procedures and product specifications relating to products sold under patents, trademarks or copyrights owned by Debtor or in which Debtor has an interest, the right to sue for all past, present and future infringements of such patents, trademarks and copyrights, all claims under guaranties, security interests or other security held by or granted to Debtor to secure payment of any of the Accounts by an Account Debtor, all rights to indemnification and all other intangible and personal property of every kind and nature (other than Receivables). M. "Goods" shall have the meaning given to such term in the UCC. N. "Instruments" shall have the meaning given to such term in the UCC. O. "Inventory" shall have the meaning given to such term in the UCC. P. "Investment Property" shall have the meaning given to such term in the UCC. Q. "Loan Agreement" shall mean the Revolving Loan Agreement dated the date hereof between the Debtor and Lender, as the same may be modified, amended, restated or replaced from time to time. R. "Loan Documents" shall mean the Revolving Note, the Term Note, the Loan Agreement executed and delivered by the Debtor to Lender, together with this Agreement and any and all other documents, instruments or agreements executed in connection therewith as the same may be modified, amended, restated or replaced from time to time. S. "Letter-of-Credit Rights" shall have the meaning given to such term in the UCC. T. "Obligations" shall mean and include all loans, advances, debts, liabilities, obligations, covenants and duties owing by Debtor to Lender or any affiliate of Lender of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether arising under this Agreement, the other Loan Documents or under any other agreement or by operation of law, whether or not for the payment of money, whether arising by reason of an extension of credit, opening, guaranteeing or confirming of a letter of credit, loan, guaranty, indemnification or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now due or hereafter arising and however acquired, including, without limitation, all interest, charges, expenses, commitment, facility, collateral management or other fees, attorneys' fees and expenses, and any other sum chargeable to Debtor under this Agreement, the other Loan Documents or any other agreement with Lender. U. "Person" shall mean an individual, partnership, limited liability company, limited liability partnership, corporation, joint venture, joint stock company, land trust, business trust or unincorporated organization, or a government agency or political subdivision thereof. 67 V. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. W. "Receivables" shall mean and include all present and future Accounts including, without limitation, healthcare receivables, credit card receivables, software and license fees, contract rights, promissory notes, chattel paper, electronic chattel paper, Instruments and documents, all tax refunds and rights to receive tax refunds, bonds, certificates, rights to payment for the sale, lease or license of equipment and policies of insurance and insurance proceeds, investment securities, notes and instruments, deposit accounts book accounts, credits and reserves and all forms of obligations whatsoever owing, together with all instruments, all documents of title representing any of the foregoing, and all rights in any merchandise or goods which any of the same may represent, all files and records with respect to any collateral or security given by Debtor to Lender, together with all right, title, security and guaranties with respect to each Receivable, including any right of stoppage in transit, whether now owned or hereafter created or acquired by Debtor or in which Debtor now has or hereafter acquires any interest. X. "Record" shall mean information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form. If Lender so specifies with respect to a particular type of Record, that type of Record shall be signed or otherwise authenticated by Debtor. SECURITY INTEREST. Y. Security Interest. To secure the prompt payment and performance of all of the Obligations to Lender, Debtor hereby grants to Lender a first priority lien and security interest in all of Debtor's right, title and interest in all Properties and rights in Properties, whether now owned or existing or hereafter created, acquired or arising and wheresoever located including, without limitation, the following (collectively, "Collateral"): All Accounts; All Chattel Paper; All Commercial Tort Claims; All Deposit Accounts; All Documents; All Equipment; All General Intangibles; All Goods; All Instruments; All Inventory; All Investment Property; Letter-of-Credit Rights; 68 All monies or other Property of any kind, now or at any time or times hereafter, in the possession or under the control of Lender or any affiliate of Lender or any representative, agent or correspondent of Lender; All accessions to, substitutions for and all replacements, products and cash and non-cash proceeds of (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l) and (m) above, including, without limitation, proceeds of and unearned premiums with respect to insurance policies insuring any of the Collateral and claims against any Person for loss of, damage to, or destruction of any or all of the Collateral; and All books and records (including, without limitation, customer lists, credit files, computer programs, printouts and other computer materials and records) of Debtor pertaining to any of (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m) and (n) above. Z. Perfection. Debtor will execute and deliver to Lender such security agreements, assignments (including, without limitation, assignments of specific Receivables, Inventory and General Intangibles), and other papers as Lender may at any time or from time to time reasonably request that are required to perfect or protect the security interest granted hereby. Debtor shall also cooperate with Lender in obtaining appropriate waivers or subordinations of interests from any Person having an interest in any Collateral and Debtor shall cooperate with Lender in obtaining control of Collateral consisting of Deposit Accounts, Investment Property, Letter-of-Credit Rights or Electronic Chattel Paper. In the event that Lender requests, Debtor shall instruct its Account Debtors to remit payments directly to Lender or to Lender's designee, which may be a Lockbox. Debtor authorizes Lender to execute alone any financing statements or other documents or instruments that Lender may require to perfect, protect or establish any lien or security interest granted to Lender by Debtor and further authorizes Lender to sign Debtor's name on the same and\or to file or record the same without Debtor's signature thereon. Debtor will perform any and all steps that Lender may request to perfect Lender's security interest in Inventory, including, but without limitation, placing and maintaining signs, appointing custodians, executing and filing financing or continuation statements in form and substance satisfactory to Lender, maintaining stock records and transferring of Inventory to warehouses. If any Inventory is in the possession or control of any third party other than a purchaser in the ordinary course of business or a public warehouseman where the warehouse receipt is in the name of or held by the Debtor, Debtor shall notify such person of Lender's security interest therein and, instruct such person or persons to hold all such Inventory for the account and benefit of Lender and subject to Lender's instructions. Debtor will deliver to Lender warehouse receipts covering any Inventory located in warehouses showing Lender as the beneficiary thereof and will also deliver to the warehouseman such agreements relating to the release of warehouse Inventory as Lender may request. If the Collateral is a motor vehicle required to be titled under applicable law, Debtor warrants that Lender's security interest will be recorded on the title certificates covering the Collateral and will deliver such certificates or other evidence of ownership to Lender as Lender requests. Debtor hereby appoints Lender as its attorney in fact to execute and deliver notices of lien, financing statements, assignments, and any other documents, notices, and agreements necessary for the perfection of Lender's security interests in the Collateral. Debtor appoints such person or persons as Lender may designate as Debtor's attorney-in-fact to endorse the name of Debtor on any checks, notes, drafts or other forms of payment or security that may come into the possession of Lender or any Affiliate of Lender, to sign Debtor's name on invoices or bills of lading, drafts against customers, notice of assignment, verifications and schedules and, generally, to do all things necessary to carry out this Agreement. Such attorney-in-fact may notify the Post Office authorities to change the 69 address of delivery of mail to an address designated by Lender, and open and dispose of mail addressed to Debtor. The powers granted herein, being coupled with an interest, are irrevocable, and Debtor approves and ratifies all acts of the attorney-in-fact. Neither Lender nor the attorney-in-fact shall be liable for any act or omission, error in judgment or mistake of law so long as the same is not willful or grossly negligent. Debtor agrees to pay the costs of the continuation of Lender's security interests and releases or assignments of Lender's interests. REPRESENTATIONS, WARRANTIES AND COVENANTS. Debtor represents, warrants and covenants to Lender, and shall be deemed to continually do so, as long as this Agreement shall remain in force, that: AA. Inventory. Warranties With Respect to Inventory. (i) all representations made by Debtor to Lender and all documents and schedules given by Debtor to Lender, relating to the description, quantity, quality, condition and valuation of Inventory are true and correct, and (ii) Debtor has not received any Inventory on consignment or approval unless Debtor has notified Lender thereof in a Record, has marked such Inventory on consignment or approval or has segregated it from all other Inventory, and has appropriately marked its records to reflect that such Inventory is held on consignment or approval. Lender's Rights in Inventory. Lender's security interests in the Inventory shall continue through all steps of manufacture and sale and attach without further act to raw materials, work in process, finished goods, returned goods, documents of title, warehouse receipts, and to proceeds resulting from sale or disposition of Inventory. Until all Obligations of Debtor to Lender have been satisfied, Lender's security interest in Inventory and in all proceeds thereof shall continue in full force and effect. Upon the occurrence of a Default or an Event of Default (as defined below), Lender shall have, in its discretion and at any time, the right to take physical possession of the Inventory and to maintain it on Debtor's premises, in a public warehouse, or at such place as Lender may remove the Inventory or any part thereof. If Lender exercises its right to take possession of Inventory, Debtor will, upon demand, and at Debtor's own cost and expense assemble the Inventory and make it available to Lender at a place or places reasonably convenient to Lender. Debtor's Obligation with Respect to Inventory. All Inventory is and shall be maintained at the locations shown on Schedule 3.1(c) hereof. No Inventory shall be removed therefrom, except for the purpose of sale or in the ordinary course of Debtor's business, and except for such sales, Debtor will not sell, encumber, grant a security interest in, dispose of or permit the sale, encumbrance, return or disposal of any Inventory without Lender's prior consent contained in an Authenticated Record. If sales are made for cash, Debtor shall immediately deliver to Lender the identical checks or other forms of payment, which it receives. In the event that Inventory is stored with the manufacturer thereof, Debtor shall cause such manufacturer to enter into a no offset agreement with Lender which agreement is in form and substance satisfactory to Lender. Debtor shall provide Lender thirty (30) days prior written notice by means of an Authenticated Record of any new location of where Debtor maintains Inventory or closes any location where it maintains Inventory. This notice shall indicate whether the premises are owned or leased by Debtor or whether such premises are the premises of a warehouseman or other third party, and if owned by a third party, the name and address of such third party. Prior to 70 moving any Inventory to a new location, Debtor shall obtain a landlord's waiver in form and content acceptable to Lender in its discretion. Further Obligations of Debtor with Respect to Inventory. From time to time, and at least once every month in any event, Debtor shall execute and deliver to Lender, a confirmatory Record, in form and substance satisfactory to Lender, listing Debtor's Inventory, but any failure to execute or deliver the same shall not affect or limit Lender's security interest in and to the Inventory. Maintenance of Inventory Records. Debtor shall maintain full, accurate and complete records respecting Inventory, including a perpetual inventory, and all other Collateral at all times. Debtor will pay all costs to be paid on taxes, assessments, governmental charges or private encumbrances levied, assessed, imposed or payable upon or with respect to the Inventory, Equipment or other Collateral or any part thereof. Inventory Report. A physical verification of all Inventory wherever located will be taken by Debtor monthly at the end of each month and as often as reasonably required by Lender, and a copy of such physical verification shall be submitted to Lender. If Lender so requests, Debtor shall also submit to Lender a copy of any physical inventory. Debtor shall maintain full, accurate and complete records respecting Inventory, including a perpetual inventory, and all other Collateral at all times, and shall diligently endeavor to prepare an inventory reporting system that converts the perpetual inventory on hand into Inventory that is merchantable which Lender, in Lender's sole and absolute discretion, shall deem eligible to serve as the Collateral for Advances. Debtor covenants and agrees that beginning on that date that Debtor creates said inventory report and continuing through the Termination Date, Debtor shall deliver to Lender on a bi-monthly basis, said converted inventory report together with any additional reports that Lender in its sole discretion deems necessary to make an Advance. BB. Receivables. Warranties With Respect to Receivables. (i) will cover a bona fide sale and delivery of merchandise usually dealt in by Debtor in the ordinary course of its business or will cover the rendition of services by Debtor to customers of a kind ordinarily rendered in the ordinary course of Debtor's business, (ii) will be for a liquidated amount from a customer competent to contract therefor, (iii) is not subject to renegotiation, (iv) is not subject to any prepayment or credit and will not be subject to any deduction, offset, counterclaim, lien or other condition, and (v) is generally enforceable in accordance with its terms. Debtor further represents and warrants that all services to be performed by Debtor in connection with each Receivable have been performed. Confirmatory Written Assignments. Promptly after the creation of any Receivable, if Lender shall so request, Debtor shall execute and deliver confirmatory written assignments to Lender of Receivables, but the failure to execute or deliver any schedule or assignment shall not affect or limit any lien or other right of Lender in and to any Receivable. Debtor shall cause all of its invoices to be printed and to bear consecutive numbers, and to issue its invoices in such consecutive numerical order. On Lender's request therefor, Debtor shall also furnish to Lender copies of invoices to customers and shipping and delivery receipts or warehouse receipts thereof. Debtor will also furnish Lender with such other documents and instruments as Lender may request in connection with any Receivables, including detailed monthly agings. Debtor shall deliver to Lender 71 the originals of all letters of credit, notes, and Instruments in its favor and such endorsements or assignments as Lender may request. Notice of Certain Events. Debtor will notify Lender of all returns and recoveries of merchandise and of all claims asserted with respect to merchandise which such returns, recoveries or claims exceed $2,500.00 per occurrence. Debtor shall promptly report each such return, repossession or recovery of merchandise to Lender, advising it of the location thereof and providing it with a description of such goods and its location. Debtor shall not settle or adjust any dispute or claim, or grant any discount (except ordinary trade discounts), credit or allowance or accept any return of merchandise (except in the ordinary course of Debtor's business, provided that, such credit, allowance or return does not exceed $2,500.00), without Lender's consent. Upon the occurrence of a Default or an Event of Default, Lender may settle or adjust disputes or claims directly with customers or Account Debtors of Debtor for amounts and upon terms which it considers advisable. Where a Debtor receives Collateral of any kind or nature by reason of transactions between itself and its customers or Account Debtors, it will hold the same on Lender's behalf, subject to Lender's instructions, and as property forming part of the Receivables. Communication with Account Debtors. Debtor authorizes Lender, before or after the occurrence of an Event of Default, without notice to or the consent of Debtor, to communicate directly with customers or Account Debtors by whatever means Lender shall elect for the purpose of verifying the information supplied by Debtor to Lender with respect to Receivables. Upon Lender's request, before or after the occurrence of an Event of Default, Debtor shall provide Lender with a list of the addresses of its Account Debtors. CC. Equipment. Warranties With Respect to Equipment. Annexed hereto as Schedule 3.3(a) is a list showing all of Debtor's Equipment and describing the location where the same is kept. All Equipment, now owned or hereafter acquired, will be kept at the location or locations shown on the Schedule unless Debtor shall provide Lender thirty (30) days prior written notice by means of an Authenticated Record of any new location of where Debtor maintains Equipment or closes any location where it maintains Equipment. This notice shall indicate whether the premises are owned or leased by Debtor or whether such premises are the premises of a warehouseman or other third party, and if owned by a third party, the name and address of such third party. Prior to moving any Equipment to a new location, Debtor shall obtain a landlord's waiver in form and content acceptable to Lender in its discretion. Debtor's Obligations With Respect to Equipment. Debtor shall keep all of its Equipment in a good state of repair, and will make all repairs and replacements when and where necessary, will not waste or destroy Equipment or any part thereof, and will not be negligent in the care, or use, thereof. Debtor shall keep accurate lists and records reflecting its Equipment and shall retain copies of all warranties, manuals and manufacturers or vendors' requirements with respect thereto. All Equipment shall be used in accordance with law and prudent business practice and the manufacturer's instructions and shall be kept separate from and shall not be annexed or affixed to or become part of the realty except where Lender first consents in an Authenticated Record. DD. Ownership and Maintenance of Collateral. Debtor is the owner of the Collateral with good, marketable and indefeasible title thereto, free and clear of all liabilities, 72 mortgages, security interests, leases, liens, pledges, encumbrances, restrictions, charges, claims or imperfections of title whatsoever, except for the lien granted to the Lender pursuant to this Agreement and the other liens permitted to exist on the Collateral pursuant to the Loan Agreement. EE. Maintenance of Collateral. Debtor shall continually take such steps as are necessary and prudent to protect the interest of Lender in the Collateral including, but not limited to, the following: Maintain books and records relating to the Collateral satisfactory to Lender and shall allow Lender or its representatives access to such records and the Collateral at all reasonable times for the purpose of examination, inspection, verification, copying, extracting and other reasonable purposes as Lender may require; Maintain the Collateral and the books and records relating to the Collateral at Debtor's address indicated above, at any address listed on Schedule A or at such other address as Lender shall permit, in its sole discretion, upon the request to Lender contained in an Authenticated Record from Debtor; Execute and deliver to Lender such other and further documentation necessary to evidence, effectuate or perfect its security interest in the Collateral including, without limitation, any documentation to give Lender control of all Deposit Accounts, Investment Properties, Letter of Credit Rights, and Electronic Chattel Paper; Defend the Collateral against all claims and demands of third parties at any time claiming the same or any interest therein, except buyers of Inventory in the ordinary course of Debtor's business; Except for the security interest of Lender, and except as permitted pursuant to the Loan Agreement, Debtor will not, without prior consent of Lender contained in an Authenticated Record, sell, transfer or otherwise dispose of the Collateral or any interest therein, in bulk or otherwise, except for the sale of Inventory in the ordinary course of business; Notify Lender in the event of material loss or damage to the Collateral or of any material adverse change in Debtor's business, financial condition or the Collateral, or of any other occurrences which could materially and adversely affect the security of Lender; Pay all expenses incurred in the manufacture, delivery, storage or other handling of the Collateral and all taxes which are or may become a lien on the Collateral, promptly when due, and in any event reimburse Lender, on demand, for any expenses which Lender might incur following the occurrence of a Default or an Event of Default, in satisfying such expenses or taxes, which Lender, in its sole discretion, deems necessary in order to protect the Collateral; Maintain insurance on the Collateral from carriers acceptable to Lender of such types, coverage, form and amount as is usually carried on similar goods by similar enterprises. In the event Debtor fails to maintain such insurance, the same may be maintained by Lender, at its option, and Debtor shall reimburse Lender for the cost thereof, on demand; and 73 If requested by Lender: (i) mark its records evidencing the Collateral in a manner satisfactory to Lender so as to indicate the security interest of Lender hereunder; (ii) furnish to Lender any chattel paper, invoices, documents, schedules, purchase orders, delivery receipts, contracts or other documents representing or relating to any of the Collateral; (iii) promptly reflect in its books, records, and reports to Lender the rejection of goods, delay in delivery or performance, or claims made, in regard to any Collateral and after a Default or an Event of Default inform Lender immediately of any of the same; (iv) prior to a Default or an Event of Default, with respect to material debtors and obligors, and thereafter with respect to all debtors and obligors, furnish to Lender all information received by Debtor indicating a material adverse change in the financial standing of any Account Debtor, debtor under any General Intangible, or obligor under any Receivables; (v) immediately notify Lender if any of the Collateral arises out of contracts for the improvement of real property, deals with a public improvement or is with the United States, any state, or any department, agency or instrumentality thereof, and execute any instruments and take any steps required by Lender in order that all moneys due or to become due under any such contract shall be assigned to Lender and notice thereof be given as required by law; (vi) furnish to Lender such financial statements, reports, certificates, lists of Account Debtors (showing names, addresses, telephone and facsimile numbers, and amounts owing) and other data concerning the Collateral and other matters as Lender may, from time to time, request; and (vii) fully cooperate with Lender in the exercising of its rights and methods for verification of the Collateral. FF. Authority. Debtor is authorized to enter into and implement this Agreement and has taken all necessary actions, corporate or otherwise, in relation to such authorization. GG. Fixtures/Landlords. The Collateral will remain personalty and will not be permanently affixed to real estate without the prior consent of Lender contained in an Authenticated Record. If any of the Collateral is or will be a fixture, Debtor will provide legal descriptions and the names of record owners of the premises to which the Collateral will be affixed sufficient for perfection of the security interests of Lender. Debtor will provide disclaimers of interest and removal agreements, in form satisfactory to Lender. HH. Commercial Tort Claims. If Debtor at any time holds or acquires a Commercial Tort Claim (as such term is defined in the New York Uniform Commercial Code), it shall promptly notify Lender in a writing signed by it of the particulars thereof and grant to Lender in such writing a security interest in such Commercial Tort Claim and in the proceeds thereof, all upon the terms of this Guaranty, with that writing to be in form and substance approved by Lender. EVENTS OF DEFAULT. Any of the following events or occurrences shall constitute an "Event of Default" under this Agreement: the occurrence of any Event of Default under any of the Loan Documents; the failure of Debtor to perform or comply with any provision of this Agreement and the continuance of such failure beyond any applicable grace and/or notice period; or 74 the occurrence of a material adverse change in the condition, marketability or value of the Collateral, unless such change is caused by an event for which insurance coverage is in effect and the proceeds of such insurance are paid to Lender. RIGHTS OF LENDER. II. General Rights. The rights of Lender shall at all times be those of a secured party under the UCC. Without limiting the generality of the foregoing, Lender shall have the additional rights set forth in this Agreement. JJ. Lender's Right to Perform Debtor's Obligations. In the event that Debtor shall fail to purchase or maintain insurance, or to pay any tax, assessment, government charge or levy, except as the same may be otherwise permitted hereunder, or under the other Loan Documents, or in the event that any lien, encumbrance or security interest prohibited hereby shall not be paid in full or discharged, or in the event that Debtor shall fail to perform or comply with any other covenant, promise or Obligation to Lender hereunder or under any other Loan Document, Lender may, but shall not be required to, perform, pay, satisfy, discharge or bond the same for the account of Debtor, and all monies so paid by Lender, including actual attorneys' fees and expenses, shall be treated as part of the Obligations. KK. Collections; Modifications of Terms. Without limiting any rights Lender may have pursuant to this Agreement or otherwise, upon the occurrence and during the continuance of a Default or an Event of Default, Lender may demand, sue for, collect and give receipts for any money, Instruments or property payable or receivable on account of or in exchange for any of the Collateral, or make any compromises it deems necessary or proper, including without limitation, extending the time of payment, permitting payment in installments, or otherwise modifying the terms or rights relating to any of the Collateral, all of which may be effected without notice to or consent by Debtor and without otherwise discharging or affecting the Obligations, the Collateral or the security interest granted under this Agreement or any of the Loan Documents. LL. Notification of Account Debtors. Without limiting any rights of Secured Party pursuant to this Agreement or under applicable law, after a Default or an Event of Default has occurred, (i) Debtor, at the request of Lender, shall notify the Account Debtors of Lender's security interest in Debtor's Receivables; and (ii) Lender may notify the Account Debtors of Lender's security interest in the Receivables and to make payment directly to Lender, and Lender may endorse all items of payment received by it that are payable to Debtor. Debtor authorizes such parties to make such payments directly to Lender and to rely on notice from Lender without further inquiry. Lender may demand and take all necessary or desirable steps to collect such Collateral in either its or Debtor's, name, with the right to enforce, compromise, settle, or discharge any of the foregoing. MM. Insurance. Without limiting any rights of Lender pursuant to this Agreement or under applicable law, after a Default or Event of Default has occurred, Lender may file proofs of loss and claim with respect to any of the Collateral with the appropriate insurer, and may endorse in its own and Debtor's name any checks or drafts constituting insurance proceeds. Any insurance proceeds received by Lender may be applied by it against Debtor's Obligations under the Loan Documents. NN. Waiver of Rights by Debtor. Except as may be otherwise specifically provided herein, Debtor waives, to the extent permitted by law, any bonds, security or sureties 75 required by any statute, rule or otherwise by law as an incident to any taking of possession by Lender of any Collateral. Debtor authorizes Lender, upon the occurrence of an a Default or Event of Default, to enter upon any premises owned by or leased to Debtor where the Collateral is kept, without obligation to pay rent or for use and occupancy, through self help, without judicial process and without having first given notice to Debtor or obtained an order of any court, and peacefully retake possession thereof by securing at or removing same from such premises. OO. Lender's Rights. Debtor agrees that Lender shall not have any obligation to preserve rights to any Collateral against prior parties or to marshall any Collateral of any kind for the benefit of any other creditor of Debtor or any other Person. After the occurrence of a Default or an Event of Default, Lender is hereby granted a license or other right to use, without charge, Debtor's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and Debtor's rights under all licenses and any franchise, sales or distribution agreements shall inure to Lender's benefit for such purpose. PP. Rights on Default. Upon the occurrence of any Default or an Event of Default, and after giving effect to any applicable grace period, in addition to and without limiting any rights Lender may have under any agreement, document or instrument evidencing or representing any obligation of Debtor to Lender or executed in connection with any such obligation, Lender is hereby authorized to declare any or all of the Obligations to be immediately due and payable, and the rights and remedies of Lender with respect to the Collateral shall be as set forth herein, in the UCC and as otherwise available under applicable law. Lender may, without demand, advertising or notice, all of which Debtor hereby waives (except as the same may be required by law), sell, lease, license, dispose of, deliver and grant options to a third party to purchase, lease or otherwise dispose of any and all Collateral held by it or for its account at any time or times in one or more public or private sales or other dispositions, for cash, on credit or otherwise, as such prices and upon such terms as Lender, in its sole discretion, deems advisable. Lender, in its sole discretion, is authorized to disclaim any and all warranties under ss.9-610(d) of the UCC. Without requiring notice to Debtor, all requirements of reasonable notice under this section shall be met if such notice is mailed, postage prepaid, to Debtor at its address set forth herein or such other address as Debtor may have provided to Lender, in a Record, at least ten (10) days before the time of such sale or disposition. Lender may, if it deems it reasonable, postpone or adjourn any sale of any Collateral from time to time by an announcement at the time and place of the sale to be so postponed or adjourned without being required to give a new notice of sale, provided, however, that Lender shall provide Debtor with written notice of the time and place of such postponed or adjourned sale. Lender may be the purchaser at any such sale, and payment may be made, in whole or in part, in respect of such purchase price by the application of Obligations due from Debtor to Lender. Debtor shall be obligated for, and the proceeds of sale shall be applied first to, the costs of retaking, refurbishing, storing, guarding, insuring, preparing for sale, and selling the Collateral, including the fees and disbursements of attorneys, auctioneers, appraisers, consultants and accountants employed by Lender. Proceeds from the Sale or other disposition or Collateral shall be applied to the payment, in whatever order Lender may elect, of all Obligations of Debtor. Lender shall return any excess to Debtor and 76 Debtor shall remain liable for any deficiency. Collateral securing purchase money security interests also secures non-purchase money security interests. To the extent Debtor uses an advance under the Loan Documents to purchase Collateral, Debtor's repayment of such advance shall apply on a "first-in-first-out" basis so that the portion of the advance used to purchase a particular item of Collateral shall be paid in the chronological order the Debtor purchased the Collateral. Upon request of Lender, Debtor will assemble and make the Collateral available to Lender, at a reasonable place and time designated by Lender. Debtor's failure to take possession of any Collateral at any time and place reasonably specified by Lender in a Record to the Debtor shall constitute an abandonment of such Property. Lender shall not be responsible to Debtor for loss or damage resulting from Lender's failure to enforce or collect any Collateral or any monies due or to become due under any liability of Debtor to Lender. After a Default or an Event of Default, Debtor (i) will make no change in any Receivable or General Intangible, and (ii) shall receive as the sole property of Lender and hold in trust for Lender all monies, checks, notes, drafts, and other property (collectively called "Items of Payment") representing the proceeds of any Collateral. After a Default or an Event of Default, Lender may but shall be under no obligation to: (i) notify all appropriate parties that the Collateral, or any part thereof, has been assigned to Lender; (ii) collect any Receivables or General Intangibles in its or Debtor's name, and apply any such collections against such obligations of Debtor to Lender as Lender may select; (iii) take control of any cash or non?cash proceeds of any item of the Collateral; (iv) compromise, extend or renew any Receivables, General Intangible, or document, or deal with the same as it may deem advisable; and (v) make exchanges, substitutions or surrender of items comprising the Collateral. QQ. Lender's Right of Set-Off. Lender may, at any time upon the occurrence of a Default or an Event of Default hereunder and without any further notice to Debtor (such notice being expressly waived), set-off or apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, or any other Indebtedness at any time owing by Lender or any affiliate of Lender or any participant in Lender's loans, to Debtor to or for the credit or the account of Debtor against any Obligation irrespective of whether any demand has been made hereunder or whether such Obligation is mature. RR. Expense of Collection and Sale. Debtor agrees to pay all costs and expenses incurred by Lender in connection with the negotiation and preparation of this Agreement or any other document, or any other Loan Documents executed in connection herewith, in determining Lender's rights under, and in enforcing and collecting the indebtedness represented by the guaranty and in determining its rights under and enforcing the security interests created by this Agreement, including, without limitation, costs and expenses relating to taking, holding, insuring, preparing for sale, appraising, selling or otherwise realizing on the Collateral, and reasonable attorneys' fees and expenses in connection with any of the foregoing. All such reasonable costs and expenses shall be payable on demand, and shall bear interest at the highest rate charged on any Obligation, payable on demand, from the date of Lender's payment of such costs and expenses until payment in full is made by Debtor, at the highest rate of interest permitted by law. 77 SS. Compliance with Other Laws. Lender may comply with any applicable law requirements in connection with a disposition of the Collateral, and compliance will not be considered adversely to effect the commercial reasonableness of any sale of the Collateral. TT. Warranties. Lender may sell the Collateral without giving any warranties. Lender may specifically disclaim any warranties of title or the like. This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. UU. Sales on Credit. If Lender sells any of the Collateral on credit, Debtor will be credited only with payments actually made by the purchaser, received by Lender and applied to the Indebtedness. If the purchaser fails to pay for the Collateral, Lender may resell the Collateral, and Debtor shall be credited with the proceeds of the sale. GENERAL PROVISIONS. VV. Waivers. Debtor expressly waives notice of nonpayment, demand, presentment, protest or notice of protest in relation to the Loan Documents or the Collateral. No delay or omission of Lender in exercising or enforcing any of its rights, powers, privileges, options or remedies under this Agreement shall constitute a waiver thereof, and no waiver by Lender of any default by Debtor shall operate as a waiver of any other default. WW. Remedies Not Exclusive. All rights and remedies of Lender under this Agreement shall be cumulative and not alternative or exclusive, irrespective of any other collateral guaranty, right or remedy and may be exercised by Lender at such time or times and in such order as Lender, in its sole discretion, may determine, and are for the sole benefit of Lender. The exercise or failure to exercise such rights and remedies shall not result in liability to Debtor or others except in the event of willful misconduct or bad faith by Lender, and in no event shall Lender be liable for more than it actually receives as a result of the exercise or failure to exercise such rights and remedies. XX. Successors and Assigns. This Agreement is entered into for the benefit of the parties hereto and their successors and assigns. It shall be binding upon and shall inure to the benefit of such parties, their successors and assigns. Lender shall have the right, without the necessity of any further consent or authorization by the Debtor, to sell, assign, securitize or grant participation in all, or a portion of, Lender's interest in the Collateral, to other financial institutions of the Lender's choice and on such terms as are acceptable to Lender in its sole discretion. YY. Notices. Wherever this Agreement provides for notice to any party (except as expressly provided to the contrary), it shall be given by messenger, facsimile, certified U.S. mail with return receipt requested, or nationally recognized overnight courier with receipt requested, effective when received by the party to whom addressed, and shall be addressed as follows, or to such other address as the party affected may hereafter designate: If to Lender: Keltic Financial Partners, LP Attn: John P. Reilly, Managing Partner 555 Theodore Fremd Avenue, Suite C-207 Rye, New York 10580 Tel: (914) 921-3555 Fax: (914) 921-1154
78 With a copy to: Clinton A. Poff, Esq. Poff & Bowman LLC 1600 Route 208 North PO Box 24 Hawthorne, New Jersey 07507 Tel: (973) 636-9770 Fax: (973) 636-9777 79 If to Debtor: Hudson Technologies Company Attn: Brian F. Coleman, President and Chief Operating Officer 275 North Middletown Road Pearl River, New York 10965 Tel: (845) 735-6000 Fax: (845) 512-6070 With a copy to: Stephen P. Mandracchia, Esq. Hudson Technologies Company 275 North Middletown Road Pearl River, New York 10965 Tel: (845) 735-6000 Fax: (845) 512-6070 ZZ. Strict Performance. The failure, at any time or times hereafter, to require strict performance by the Debtor of any provision of this Agreement shall not waive, affect or diminish any right of Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Lender of any Default or Event of Default by the Debtor under this Agreement or any other Loan Document shall not suspend, waive or affect any other Default or Event of Default by the Debtor under this Agreement or any other Loan Document, whether the same is prior or subsequent thereto and whether of the same or a different type. AAA. Construction of Agreement. The parties hereto agree that the terms and language of this Agreement were the result of negotiations between the parties, and, as a result, there shall be no prescription that any ambiguities in this Agreement shall be resolved against either party. Any controversy over the construction of this Agreement shall be decided mutually without regard to events of authorship or negotiation. BBB. WAIVER OF RIGHT TO JURY TRIAL. Debtor and Lender recognize that in matters related to this Agreement, and as it may be subsequently modified and/or amended, any such party may be entitled to a trial in which matters of fact are determined by a jury (as opposed to a trial in which such matters are determined by a federal or state judge). By execution of this Agreement, Debtor and Lender will give up their respective right to a trial by jury. Debtor and Lender each hereby expressly acknowledged that this waiver is entered into to avoid delays, minimize trial expenses, and streamline the legal proceedings in order to accomplish a quick resolution of claims arising under or in connection with this Agreement. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, DEBTOR AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT DEBTOR OR LENDER MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION, DIRECTLY OR INDIRECTLY, AT ANY TIME ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, OR ANY TRANSACTION CONTEMPLATED THEREBY OR HEREBY, BEFORE OR AFTER MATURITY. CERTIFICATIONS. DEBTOR HEREBY CERTIFIES THAT NEITHER ANY REPRESENTATIVE NOR AGENT OF LENDER NOR LENDER'S COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. DEBTOR ACKNOWLEDGES THAT LENDER HAS BEEN 80 INDUCED TO ENTER INTO THE TRANSACTION BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATION HEREIN. CCC. Entire Agreement; Amendments; Lender's Consent. This Agreement (including the Exhibits and Schedules thereto) and the other Loan Documents supersede, with respect to their subject matter, all prior and contemporaneous agreements, understandings, inducements or conditions between the respective parties, whether express or implied, oral or written. No amendment or waiver of any provision of this Agreement or any of the Loan Documents, nor consent to any departure by Debtor therefrom, shall in any event be effective unless the same shall be in a Record Authenticated by Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. DDD. Cross Default; Cross Collateral. Debtor hereby agrees that (a) all other agreements between Debtor and Lender are hereby amended so that a Default or an Event of Default under this Agreement is a default under all such other agreements and a default under any of such other agreements is a Default or an Event of Default under this Agreement, and (b) the Collateral under this Agreement secures the Obligations now or hereafter outstanding under all other agreements between Debtor and Lender and the Collateral pledged under any other agreement with Lender secures the Obligations under this Agreement. EEE. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. FFF. Severability of Provisions. Any provision of this Agreement or any of the other Loan Documents that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or the other Loan Documents or affecting the validity or enforceability of such provision in any other jurisdiction. GGG. Table of Contents; Headings. The table of contents and headings preceding the text of this Agreement are inserted solely for convenience of reference and shall not constitute a part of this Agreement or affect its meaning, construction or effect. HHH. Exhibits and Schedules. All of the Exhibits and Schedules to this Agreement are hereby incorporated by reference herein and made a part hereof. III. Governing Law; Consent To Jurisdiction. THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY LENDER AND ACCEPTED BY DEBTOR IN THE STATE OF NEW YORK, AND THE PROCEEDS OF OBLIGATIONS DELIVERED PURSUANT THERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREIN, AND IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE 81 UNITED STATES OF AMERICA EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE APPLICABLE INDIVIDUAL PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE VALIDITY AND THE ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, LENDER AND DEBTOR HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVE ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE OBLIGATIONS, AND THIS AGREEMENT AND THE OBLIGATIONS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR DEBTOR, ANY GUARANTOR OR OTHER PARTY TO THIS TRANSACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN THE SOLE OPTION OF LENDER IN ANY FEDERAL OR STATE COURT LOCATED IN WESTCHESTER COUNTY, NEW YORK, PURSUANT TO ss. 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, AND LENDER AND DEBTOR WAIVE ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND LENDER AND DEBTOR HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. DEBTOR SHALL DESIGNATE FROM TIME TO TIME AN AUTHORIZED AGENT HAVING AN OFFICE IN THE STATE OF NEW YORK TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING, AND AGREES THAT SERVICE OF PROCESS UPON SUCH AGENT AT SUCH ADDRESS AND WRITTEN NOTICE OF SUCH SERVICE ON DEBTOR MAILED OR DELIVERED TO DEBTOR IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON SUCH DEBTOR IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. DEBTOR (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGE OF ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH OFFICE SHALL BE DESIGNATED AS THE ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR. DEBTOR REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS CONSENT TO JURISDICTION PROVISION WITH ITS LEGAL COUNSEL, AND HAS MADE THIS WAIVER KNOWINGLY AND VOLUNTARILY. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers thereunto duly authorized on the day and year first above written. 82 KELTIC FINANCIAL PARTNERS, LP By: KELTIC FINANCIAL SERVICES LLC, its general partner By: /s/ John P. Reilly --------------------------------- John P. Reilly, Managing Partner HUDSON TECHNOLOGIES COMPANY By: /s/ Brian F. Coleman --------------------------------- Brian F. Coleman President and Chief Operating Officer 83 Schedule A Collateral Locations
Facility Address Landlord Term - -------- ------- -------- ---- Champaign, Il 3402 North Mattis Avenue Busey Bank 12/1/02 - 11/30/04 Champaign, Illinois 201 West Main Street Urbana, Illinois 61803-7430 Houston, Tx. 12820 Hempstead Hwy., Suite D Two Ninety, Ltd. 7/15/00-6/30/03 Houston, Texas 1527 West Alabama Houston, Texas 77006 Seattle, Wa. 1320 26th St. NW, Ste 11 Park 26, LLC 4/1/02 -3/31/04 Auburn, Washington c/o The Andover Company, Inc. 415 Baker Boulevard, Suite 200 Tukwila, WA 98188 Charlotte, NC 2720 Westport Road Thomas & Nancy Cox 4/24/98 -4/23/00 Charlotte, North Carolina c/o Colliers Pinkard now month to month 330 S. Tryon Street, Suite 301 Charlotte, NC 28202-1916 Punta Gorda, Fl. 5474 Williamsburg Drive Rick Treworgy 12/15/01 - 12/14/03 Punta Gorda, Florida 5445 Williamsburg Drive Punta Gorda, Florida 33982 Pearl River, NY 275 N. Middletown Road 275 N. Middletown Road, LLC 1/1/03 - 12/31/06 Pearl River, New York 275 North Middletown Road Pearl River, New York 10965 Baton Rouge, La. 11245 Airline Highway Reulet Family Holdings, LLC 8/1/02 - 7/31/05 Baton Rouge, Louisiana c/o John A. Reulet, Sr., President 3037 Jones Creek Road Baton Rouge, Louisiana 70817 Villa Park, Il. 739 North Harvard Ave. HVP Partners 6/1/99 - 8/31/05 Villa Park, Illinois 17 W 335 Belmont Bensenville, Illinois 60106 Baltimore, Md. 2605 Lord Baltimore Dr. MIE Properties, Inc. 9/1/01 - 8/31/05 Baltimore, Maryland 5720 Executive Drive Baltimore, Maryland 21288-1757 Rantoul, IL 896 West Champaign St. Roeco Enterprises, Inc. 10/1/97 - 9/30/02 Rantoul, Illinois PO Box 583 now month to month Rantoul, Illinois 61866
Schedule 3.1 (c) Inventory Locations
Facility Address Landlord Term - -------- ------- -------- ---- Champaign, Il 3402 North Mattis Avenue Busey Bank 12/1/02 - 11/30/04 Champaign, Illinois 201 West Main Street Urbana, Illinois 61803-7430 Houston, Tx. 12820 Hempstead Hwy., Suite D Two Ninety, Ltd. 7/15/00-6/30/03 Houston, Texas 1527 West Alabama Houston, Texas 77006 Seattle, Wa. 1320 26th St. NW, Ste 11 Park 26, LLC 4/1/02 -3/31/04
84 Auburn, Washington c/o The Andover Company, Inc. 415 Baker Boulevard, Suite 200 Tukwila, WA 98188 Charlotte, NC 2720 Westport Road Thomas & Nancy Cox 4/24/98 -4/23/00 Charlotte, North Carolina c/o Colliers Pinkard now month to month 330 S. Tryon Street, Suite 301 Charlotte, NC 28202-1916 Punta Gorda, Fl. 5474 Williamsburg Drive Rick Treworgy 12/15/01 - 12/14/03 Punta Gorda, Florida 5445 Williamsburg Drive Punta Gorda, Florida 33982 Baton Rouge, La. 11245 Airline Highway Reulet Family Holdings, LLC 8/1/02 - 7/31/05 Baton Rouge, Louisiana c/o John A. Reulet, Sr., President 3037 Jones Creek Road Baton Rouge, Louisiana 70817 Villa Park, Il. 739 North Harvard Ave. HVP Partners 6/1/99 - 8/31/05 Villa Park, Illinois 17 W 335 Belmont Bensenville, Illinois 60106 Baltimore, Md. 2605 Lord Baltimore Dr. MIE Properties, Inc. 9/1/01 - 8/31/05 Baltimore, Maryland 5720 Executive Drive Baltimore, Maryland 21288-1757 Rantoul, IL 896 West Champaign St. Roeco Enterprises, Inc. 10/1/97 - 9/30/02 Rantoul, Illinois PO Box 583 now month to month Rantoul, Illinois 61866
85 Schedule 3.3(a) Equipment and Equipment Location
Facility Address Landlord Term - -------- ------- -------- ---- Champaign, Il 3402 North Mattis Avenue Busey Bank 12/1/02 - 11/30/04 Champaign, Illinois 201 West Main Street Urbana, Illinois 61803-7430 Houston, Tx. 12820 Hempstead Hwy., Suite D Two Ninety, Ltd. 7/15/00-6/30/03 Houston, Texas 1527 West Alabama Houston, Texas 77006 Seattle, Wa. 1320 26th St. NW, Ste 11 Park 26, LLC 4/1/02 -3/31/04 Auburn, Washington c/o The Andover Company, Inc. 415 Baker Boulevard, Suite 200 Tukwila, WA 98188 Charlotte, NC 2720 Westport Road Thomas & Nancy Cox 4/24/98 -4/23/00 Charlotte, North Carolina c/o Colliers Pinkard now month to month 330 S. Tryon Street, Suite 301 Charlotte, NC 28202-1916 Punta Gorda, Fl. 5474 Williamsburg Drive Rick Treworgy 12/15/01 - 12/14/03 Punta Gorda, Florida 5445 Williamsburg Drive Punta Gorda, Florida 33982 Pearl River, NY 275 N. Middletown Road 275 N. Middletown Road, LLC 1/1/03 - 12/31/06 Pearl River, New York 275 North Middletown Road Pearl River, New York 10965 Baton Rouge, La. 11245 Airline Highway Reulet Family Holdings, LLC 8/1/02 - 7/31/05 Baton Rouge, Louisiana c/o John A. Reulet, Sr., President 3037 Jones Creek Road Baton Rouge, Louisiana 70817 Villa Park, Il. 739 North Harvard Ave. HVP Partners 6/1/99 - 8/31/05 Villa Park, Illinois 17 W 335 Belmont Bensenville, Illinois 60106 Baltimore, Md. 2605 Lord Baltimore Dr. MIE Properties, Inc. 9/1/01 - 8/31/05 Baltimore, Maryland 5720 Executive Drive Baltimore, Maryland 21288-1757 Rantoul, IL 896 West Champaign St. Roeco Enterprises, Inc. 10/1/97 - 9/30/02 Rantoul, Illinois PO Box 583 now month to month Rantoul, Illinois 61866
86 EX-10.19 5 d56053_ex10-19.txt LOAN AGREEMENT Exhibit 10.19 May 30, 2003 Hudson Technologies, Inc. Hudson Technologies Company c/o 275 North Middletown Road Pearl River, New York 10965 Attention: President Re: New Notes Reference is made to the registration statement on Form SB-2 filed by Hudson Technologies, Inc. (the "Company") with the Securities and Exchange Commission on May 9, 2003 (the "Registration Statement") in connection with the offering of shares of common stock of the Company. The Registration Statement states that Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. (the "Fleming Funds") have agreed that if the gross proceeds from the shares sold by the Company for cash in the offering to the Company's stockholders and other investors (other than the Fleming Funds) together with the amount of principal and accrued interest due on the outstanding $1,650,000 principal amount of Convertible Notes (as defined in the Registration Statement) that will be converted to common stock in connection with the offering is less than $2,575,000, the Fleming Funds will purchase from the shares being offered to the public that number of shares (not to exceed $ ) necessary for the Company to reach the $2,575,000 level (hereinafter referred to as the "Top-Off Amount"). In connection with a certain loan agreement between Hudson Technologies Company, a wholly-owned subsidiary of the Company ("Hudson") and Keltic Financial, LP ("Lender"), the Company has requested that the Fleming Funds loan an aggregate of $575,000 to Hudson in exchange for the issuance of non-convertible unsecured promissory notes in the aggregate principal amount of $575,000 (the "New Notes"). The Fleming Funds are considering such request. The confirmation in writing below by each of the Company and Hudson of the following terms and conditions is a condition precedent to the making of such loan by the Fleming Funds in exchange for the New Notes (the "New Note Transaction"), and in order to induce the Fleming Funds to enter into the New Note Transaction and in consideration therefor, and in consideration of the mutual covenants set forth herein, each of the Company and Hudson enter into this letter agreement and make such confirmation: 1. The Top-Off Amount shall not exceed $925,000. 2. The Company and Hudson acknowledge that in the event that the Fleming Funds enter into the New Note Transaction, the Fleming Funds will and should rely on the amounts owed to the Fleming Funds by Hudson under the New Notes to first be repaid prior to and in order to make the payment of any "Top-Off Amount" contemplated by the Registration Statement. 3. In the event that (i) the Fleming Funds enter into the New Note Transaction, and (ii) there is an Event of Default under the terms of the New Notes such that the New Notes may not be repaid, in whole or in part, to satisfy the Top-Off Amount, then the Top-Off Amount shall be immediately reduced, without any further action on the part of the Fleming Funds, by the amount of such default (including both principal and interest due under the New Notes). This letter agreement shall be binding upon the Company, Hudson and their respective successors and assigns. Each of the Company and Hudson represents and warrants that it has the power and authority to enter into this letter agreement and agree to, and perform, the terms and conditions herein. [Signature page to follow] FLEMING US DISCOVERY FUND III, L.P. By: FLEMING US DISCOVERY PARTNERS, L.P., its general partner By: FLEMING US DISCOVERY, LLC, its general partner By: /s/ Robert L. Burr --------------------------------- Robert L. Burr, member FLEMING US DISCOVERY OFFSHORE FUND III, L.P. By: FLEMING US DISCOVERY PARTNERS, L.P., its general partner By: FLEMING US DISCOVERY, LLC, its general partner By: /s/ Robert L. Burr --------------------------------- Robert L. Burr, member AGREED AND ACCEPTED: HUDSON TECHNOLOGIES, INC. By: /s/ Brian F. Coleman -------------------------- Name: Brian F. Coleman Title: President and Chief Operating Officer HUDSON TECHNOLOGIES COMPANY By: /s/ Brian F. Coleman -------------------------- Name: Brian F. Coleman Title: President and Chief Operating Officer EX-23.1 6 d56053_ex23-1.txt CONSENT Exhibit 23.1 Hudson Technologies, Inc. Pearl River, New York We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated March 7, 2003 except for Note 12 which is as of May 30, 2003, relating to the consolidated financial statements of Hudson Technologies, Inc., which is contained in that Prospectus. /s/ BDO Seidman, LLP BDO Seidman, LLP Valhalla, New York June 10, 2003 -----END PRIVACY-ENHANCED MESSAGE-----