Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-13412
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Hudson Technologies, Inc.
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(Exact name of registrant as specified in its charter)
New York 13-3641539
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
25 Torne Valley Road
Hillburn, New York 10931
(address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code:
(914) 368-4990
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding twelve months ( or for such shorter period that the
registrant was required to file such reports),and (2) has been subject to such
filing requirements for the last 90 days.
YES __X__ NO _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common stock, $0.01 par value 4,350,495 shares
----------------------------- ----------------
Class Outstanding at July 24, 1996
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Hudson Technologies, Inc.
Index
Part I. Financial Information Page Number
- - ------- --------------------- -----------
Item 1
Consolidated Statements of Earnings 2
Consolidated Statements of Financial Position 3
Consolidated Statements of Cash flows 4
Notes to the Consolidated Financial statements 5
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other information
- - -------- -----------------
Legal information 12
Submission of Matters to a Vote of Shareholders 12
Other Items 13
Exhibits and Reports on Form 8-K 13
Signatures 14
Page 1
<PAGE>
Part I - Financial Information
Hudson Technologies, Inc. and subsidiaries
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Three month Six month
Unaudited period ended period ended
(In thousands, except for share and per share amounts) June 30, June 30,
- - ------------------------------------------------------ -------------------------- --------------------------
<S> <C> <C> <C> <C>
Revenues $ 5,450 $ 9,726 $ 9,207 $ 15,938
Cost of Sales 3,227 6,441 5,264 10,490
----------- ----------- ----------- -----------
Gross Profit 2,223 3,285 3,943 5,448
Operating expenses:
Selling and marketing 251 160 483 540
General and administrative 1,433 1,245 2,586 2,092
Depreciation and amortization 251 46 483 131
Restructuring reserve 1,333 -- 1,333
----------- ----------- ----------- -----------
Total operating expenses 3,268 1,451 4,885 2,763
----------- ----------- ----------- -----------
Operating income (loss) (1,045) 1,834 (942) 2,685
Other income (expenses):
Interest income 1 3 39 11
Interest expense (31) (40) (83) (66)
Other 27 3 26 3
----------- ----------- ----------- -----------
Total other income (expense) (3) (34) (18) (52)
----------- ----------- ----------- -----------
Earnings (loss) before income taxes (1,048) 1,800 (960) 2,633
Provision (benefit) for income taxes (350) 727 (342) 1,070
----------- ----------- ----------- -----------
Net earnings (loss) $ (698) $ 1,073 $ (618) $ 1,563
- - ------------------------------------------------------ ----------- ----------- ----------- -----------
Net earnings (loss) per common and
common stock equivalents $ (0.15) $ 0.27 $ (0.13) $ 0.50
----------- ----------- ----------- -----------
Weighted average number of shares outstanding 4,564,527 4,065,712 4,597,433 3,305,744
----------- ----------- ----------- -----------
Net earnings (loss) per common stock
assuming full dilution $ (0.15) $ 0.27 $ (0.13) $ 0.41
----------- ----------- ----------- -----------
Weighted average number of shares outstanding 4,564,527 4,065,712 4,597,433 4,009,663
- - ------------------------------------------------------ ----------- ----------- ----------- -----------
</TABLE>
Certain 1995 amounts have been reclassified to conform with 1996 presentation
format. See accompanying Notes to the Consolidated Financial Statements.
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
Hudson Technologies, Inc. and subsidiaries
Consolidated Statements of Financial Position
<TABLE>
<CAPTION>
Balance as of
Unaudited ----------------------------------
(Dollars in thousands, except for share amounts) June 30, 1996 December 31, 1995
- - ------------------------------------------------ ------------- -----------------
<S> <C> <C>
Assets
- - ------
Current assets:
Cash and cash equivalents $ 3,121 $ 2,460
Marketable securities - 1,100
Trade accounts receivable 5,329 2,381
Inventories 5,887 5,344
Income taxes receivable 318 136
Prepaid expenses and other current assets 970 943
------- -------
Total current assets 15,625 12,364
Property and equipment, less accumulated depreciation 5,466 4,536
Goodwill and intangible assets, less accumulated amortization 7,754 7,027
Deferred income taxes 2,038 -
Other assets 233 228
------- -------
Total assets $31,116 $24,155
------- -------
Liabilities and Stockholders' Equity
- - ------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 2,111 $ 1,527
Short-term debt (Notes 2 and 4) 6,424 273
Reserve for restructuring (Note 5) 1,333 -
------- -------
Total current liabilities 9,868 1,800
Deferred income taxes - 85
Long-term debt, less current maturities 1,009 1,933
------- -------
Total liabilities 10,877 3,818
Stockholders' equity (Note 3)
Common stock, $.01 par value-shares authorized, 20,000,000;
issued and outstanding, 4,350,495 and 4,242,435 44 42
Additional paid-in capital 18,915 18,252
Retained earnings 1,425 2,043
------- -------
20,384 20,337
Less: Treasury stock, 16,000 shares at cost (145) -
------- -------
Total Stockholders' equity 20,239 20,337
------- -------
Total liabilities and Stockholders' equity $31,116 $24,155
------- -------
</TABLE>
- - ------------------------------------
Commitments and Contingencies (Note 6 and Part II)
Certain 1995 amounts have been reclassified to conform with 1996 presentation
format. See accompanying Notes to the Consolidated Financial Statements.
Page 3
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six month period ended
Unaudited ------------------------------
(In thousands) June 30, 1996 June 30, 1995
- - -------------------------------------------------- ------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (618) $ 1,563
Adjustments to reconcile net earnings (loss) to cash
provided (used) by operating activities:
Depreciation and amortization 483 131
Deferred income taxes (228) --
Decrease (increase) in trade receivables (2,948) (375)
Decrease (increase) in inventories (543) (3,693)
Decrease (increase) in income taxes receivable (182) --
Decrease (increase) in prepaid and other current assets (27) 358
Decrease (increase) in other assets (5) 123
Increase (decrease) in accounts payable & accrued expenses 584 1,224
Increase (decrease) in reserve for restructuring 1,333 --
------- -------
Cash provided (used) by operating activities (2,151) (669)
------- -------
Cash flows from investing activities:
Proceeds from sale of marketable securities 1,100 --
Additions to property, plant, and equipment (1,245) (2,075)
Acquisitions accounted for as purchases (715) --
------- -------
Cash provided(used) by investing activities (860) (2,075)
------- -------
Cash flows from financing activities:
Proceeds from issuance of warrants -- 500
Proceeds from redemption of warrants 265 --
Proceeds from short-term convertible debt issue 3,500 --
Proceeds from short-term bank borrowings 432 --
Proceeds from long-term debt issue -- 675
Repayment of debt (380) (27)
Purchase of treasury stock (145) --
------- -------
Cash provided(used) by financing activities 3,672 1,148
------- -------
Increase(decrease) in cash and cash equivalents 661 (1,596)
Cash and cash equivalents at beginning of period 2,460 2,216
------- -------
Cash and cash equivalents at end of period $ 3,121 $ 620
------- -------
- - ------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during period for interest $ 73 $ 49
Cash paid during period for taxes $ 69 $ 250
</TABLE>
Certain 1995 amounts have been reclassified to conform with 1996 presentation
format. See accompanying Notes to the Consolidated Financial Statements.
Page 4
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Notes to Consolidated Financial Statements
General
Hudson Technologies, Inc., incorporated under the laws of New York on
January 11, 1991, together with its subsidiaries (collectively, "Hudson" or the
"Company"), is a leading provider of products and technical services related to
the recovery and / or reclamation of refrigerants used in commercial air
conditioning and refrigeration systems. The Company's services have been
developed to facilitate compliance with the Federal Clean Air Act as amended in
1990, which prohibits the venting, and requires the recovery, of specified
chlorofluorocarbon ("CFCs") and hydrochlorofluorocarbon ("HCFCs") refrigerants.
The Company participates in an industry that is substantially
regulated, changes in which could affect operating results. Currently the
Company purchases unprocessed refrigerants from domestic suppliers. The
Company's inability to obtain refrigerants could cause delays in refrigerant
processing, possible loss of revenues, and resulting possible adverse affect on
operating results.
Note 1- Summary of Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in
accordance with the instructions of Regulation S-B and therefore do not include
certain information and footnotes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles.
The information furnished, in the opinion of management, reflects all
estimates and adjustments, which include normal recurring adjustments, necessary
to present fairly the results of operations of the Company for the three-month
and six-month periods ended June 30, 1996 and 1995.
Results of operations for interim periods are not necessarily
indicative of results which may be expected for the total year as a whole.
Consolidation The consolidated financial statements represent the adding
together of all companies of which Hudson directly or indirectly has majority
ownership or otherwise controls. Significant intercompany accounts and
transactions have been eliminated. The Company's consolidated financial
statements include the accounts of its wholly-owned subsidiaries, Refrigerant
Reclamation Corporation of America, Inc. ("RRCA") and Environmental Support
Solutions, Inc. ("ESS"), together with their subsidiaries, and other controlled
affiliates.
Reclassifications Certain 1995 amounts have been reclassified to conform with
1996 presentation format. Amounts reclassified had no impact on consolidated
operating income or earnings.
Fair value of Financial Instruments The carrying values of financial instruments
including cash, trade accounts receivable, and accounts payable approximate fair
value at June 30, 1996 and at December 31, 1995, because of the relatively short
maturity of these instruments. The carrying value of short- and long-term debt
approximates fair value, based upon quoted market prices of similar debt issues,
as of June 30, 1996 and at December 31, 1995.
Revenue Revenues are recorded upon completion of service or product shipment or
passage of title to customers in accordance with contractual terms.
Cash and cash equivalents Money market accounts and temporary investments with
original maturities of ninety days or less are included in cash and cash
equivalents.
Marketable securities The Company follows Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". All marketable securities at
December 31, 1995 were deemed by management to be available for sale and
therefore are reported at fair value with net unrealized gains and losses
reported in stockholders' equity, when required.
Page 5
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 1- Summary of Significant Accounting Policies (continued)
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. None of the Company's inventory at June 30, 1996 exceeded net
realizable market values.
Property, plant, and equipment Property, plant, and equipment are stated at
cost; including internally manufactured equipment. Provision for depreciation is
recorded (for financial reporting purposes) using the straight-line method over
the useful lives of the respective assets. Leasehold improvements are amortized
on a straight-line basis over the shorter of economic life or terms of the
respective leases.
Due to the specialized nature of the Company's business, it is possible
that the Company's estimates of equipment useful life periods may change in the
future.
Intangible assets Goodwill is amortized over periods ranging from ten to 25
years using the straight-line method. Other intangible assets consist primarily
of patents or acquired contract rights and are amortized on a straight-line
basis over periods ranging from two to fifteen years.
Income taxes Hudson utilizes the assets and liability method for recording
deferred income taxes, which provides for the establishment of deferred tax
asset or liability accounts based on the difference between tax and financial
reporting bases of certain assets and liabilities.
Short-term debt Short term debt includes a portion of long-term debt with
payment maturities under one year, convertible debentures, and the current
portion of capital lease obligations which aggregated $0.8 million and $0.3
million at June 30, 1996 and December 30, 1995 respectively.
Long term debt Long-term debt includes capital lease obligations with maturities
over one year.
Treasury stock Common stock, acquired by the Company under a repurchase program
authorized by the Board of Directors on May 10, 1996, is carried at acquisition
cost (market price at acquisition date).
Earnings per common and equivalent shares Earnings per common and common
equivalent shares are computed on the weighted average number of shares, less
treasury stock and, if dilutive, common equivalent shares (common shares
assuming exercise of options and warrants).
Note 2 - Issuance of Convertible Debentures
On June 18, 1996, the Company issued a $3.5 million principal amount
non-interest bearing convertible debenture due June 18, 1998. Twenty-five
percent of the principal amount of the debenture is convertible into Common
Stock at any time commencing August 18, 1996; fifty percent is convertible at
any time commencing September 18, 1996; seventy-five percent is convertible at
any time commencing October 18, 1996; and the entire principal amount is
convertible at any time commencing November 18, 1996 at a conversion price equal
to the lesser of (i) $14.00 per share or (ii) 85% of the average closing bid
price as reported by NASDAQ for the five trading days immediately prior to the
conversion, subject to a floor of $4.00 per share.
The debenture may be redeemed by the Company, in whole or in part, at any
time, for an amount equal to 115% of the principal amount so redeemed, together
with the issuance of a five-year warrant, entitling the holder to purchase
25,000 shares of Common Stock, at an exercise price of $18.00 per share. At any
time commencing August 18, 1996, the holder may require the Company to redeem $1
million principal amount of the debenture for an amount equal to 115% of the
principal amount so redeemed. In the event that the market price of the
Page 6
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 2 - Issuance of Convertible Debentures (continued)
Common Stock does not exceed $4.00 per share during a period of the later of
forty trading days or 60 days, the holder will have the option to (i) require
the Company to redeem $1 million principal amount of the debenture at 115% of
the principal amount so redeemed or (ii) convert the entire principal amount of
the debenture into Common Stock without restriction.
The debenture provides for certain events of default, including a default
on the payment of any debts in excess of $250,000, judgments, liens or
attachments in an aggregate amount in excess of $250,000, any merger or
consolidation or the disposition of all or substantially all of the Company's
assets or the redemption of more than a de minimus amount of its Common Stock.
Note 3 - Capital transactions
On September 15, 1995, the Company called for redemption of warrants
pursuant to its initial public offering and overallotment option. A total of
1,530,139 shares of common stock were issued in connection with this redemption
through December 31, 1995. Net proceeds of $9,289,138 were used to reduce
liabilities and to finance increased levels of inventory. An additional 66,500
shares were issued in connection with this redemption during the three months
ended March 31, 1996. Net proceeds of $265,000 were used for working capital
purposes.
Note 4 - Acquisitions
On August 15, 1995, the Company acquired Refrigerant Reclamation
Corporation of America ("RRCA"). The purchase price was approximately $6,068,000
which consisted of cash ($1,250,000), a note ($750,000) paid during December
1995, and 174,964 shares of the Company's common stock. The acquisition was
accounted for as a purchase from the date of acquisition with the assets
acquired and liabilities assumed recorded at fair values, resulting in an excess
of cost over assets acquired of approximately $4,150,000. Results RRCA's
operations have been included in the Company's consolidated financial statements
from the date of acquisition.
The unaudited pro forma results of operations which follow assume
that the acquisition occurred at the beginning of 1995. The unaudited pro forma
calculations include adjustments for the estimated effect on the Company's
historical operations for depreciation and amortization, interest and income
taxes related to the acquisition.
Six months ended June 30, 1996 1995
------------------------- ---- ----
Sales $ 9,207,000 $ 18,101,000
Net earnings (loss) $ (618,000) $ 1,571,000
Net earnings (loss) per common and
common stock equivalents $(0.13) $ 0.50
Net earnings (loss) per common stock
assuming full dilution $(0.13) $ 0.41
The pro forma information presented is for information purposes only
and does not purport to be indicative of the results which would actually have
been obtained if the combination had been in effect for the periods indicated
Page 7
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 4 - Acquisitions (continued)
On April 23, 1996, the Company acquired all the outstanding capital stock
of Environmental Support Solutions, Inc. ("ESS"), a Phoenix, Arizona developer
and provider of environmental software, training, and management services. The
capital stock of ESS was purchased for $2,375,000, which was delivered in part
by cash ($700,000) and in part by promissory notes, payable to each of the ESS
stock sellers, in the aggregate amount of $1,675,000. The Notes become due and
payable on or before October 23, 1996 and bear interest at an annual rate of 7%
commencing August 23, 1996. The parties have entered into a Stock pledge
agreement for the purpose of securing the Company's obligation under the Notes.
On June 14, 1996, ESS acquired all the net assets, subject to
liabilities, of E-Soft, Inc. ("E-Soft"), a Georgia-based developer and marketer
of software programs related to hazardous material management, in exchange for a
cash payment of $50,000 and 41,560 unregistered shares of the Company's stock.
Subsequent to the acquisition, all E-Soft assets and activities were relocated
to ESS headquarters in Phoenix. The former owner of E-Soft has become an
employee of ESS.
On July 24, 1996, the Company acquired all the outstanding common stock of
GRR Co., Inc. dba Golden Refrigerants ("Golden"); a refrigerant reclamation and
recovery company located in Punta Gorda, Florida; in exchange for 20,000
unregistered shares of the Company's stock with a valuation of $0.1 million at
the transaction date. Concurrent with the acquisition, the Company purchased,
for nominal consideration, all the net assets, subject to liabilities, of
Golden, and dissolved GRR Co., Inc.
On July 25, 1996, the Company announced that it was discontinuing
negotiations to acquire Total Reclaim, Inc.; a Seattle-based reclamation and
recovery firm which specializes in the scrapping of appliances.
Note 5 - Reserve for Restructuring
During the second quarter 1996, the Company established a Reserve for
Restructuring totaling $1.3 million. The reserve was established for the
following purposes:
(Amounts in millions) Reserve established
-------------------
Consolidation of RRCA activities $0.2
including the closure of 2 leased facilities,
termination of redundant personnel, and
other items.
Relocation of Hudson NY facilities 0.9
including closure of existing leased facility
Consolidation of product offerings
including disposal of inventory and equipment 0.2
---
Total reserve $1.3
----
The Company had not expended any funds chargeable against the reserve as
of June 30, 1996.
Note 6 - Equipment commitment
During June, 1996, the Company entered into commitments to acquire an
additional $1.1 million of equipment consisting primarily of automated container
packaging equipment (about $0.7 million) and ten refrigerant gas, bulk-tank
(so-called `ISO') storage units (about $0.4 million). The Company is currently
seeking financing which would permit it to rent this equipment under the terms
of an operating lease.
Page 8
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three months ended June 30, 1996
Revenues totaled $5.5 million, a decrease of $4.3 million or 44% from
the $9.7 million reported during the comparable prior year period. The decrease
was attributable primarily to the discontinuation, during May 1995, of the
Company's program to resell imported refrigerants which accounted for
approximately 81% of 1995 second quarter revenues.
Cost of sales totaled $3.2 million, a decrease of $3.2 million or 50%
from the $6.4 million reported during the comparable prior year period. As a
percentage of sales, cost of sales were 59% of revenues for the three month
period ended June 30, 1996, a decrease from the 66% reported for the comparable
prior year. The decrease in both dollars and percentage of revenues was
attributable primarily to the discontinuation, during May 1995, of the Company's
program to resell imported refrigerants which accounted for approximately 81% of
1995 second quarter revenues.
Operating expenses totaled $3.3 million, an increase of $1.8 million or
125% from the $1.5 million reported during the comparable prior year period. The
increase was attributable mainly to a lack of 1995 counterpart to the Reserve
for Restructuring (See Note 5, above) totaling $1.3 million established during
the current year's second quarter; to higher ($ 0.3 million) sales, marketing,
and administrative costs generally related to the Company's expanded marketing
programs and the inclusion of ESS operations during part of the 1996 reporting
period; and to higher ($0.2 million) depreciation and amortization attributable
to the growth of the Company's equipment assets and to amortization of goodwill
and intangibles related mainly to the Company's August 1995 acquisition of RRCA.
As a percentage of revenues, operating expenses totaled 60% of revenues, up from
15% for the comparable 1995 period, due mainly to the 1996 Reserve for
Restructuring and a lack of counterpart to the 1995 imported refrigerant
revenues.
Net loss totaled $0.7 million, a decrease of $1.8 million or 164% from
the $1.1 million net earnings reported during the comparable prior year period.
The decrease was attributable mainly to discontinuation, during May 1995, of the
Company's program to resell imported refrigerants, higher operating costs and
lack of counterpart to the 1996 reserve for restructuring; offset partly by
higher revenue volume from domestic operations.
Six months ended June 30, 1996
Revenues totaled $9.2 million, a decrease of $6.7 million or 42% from
the $15.9 million reported during the comparable prior year period. The decrease
was attributable primarily to the discontinuation, during May 1995, of the
Company's program to resell imported refrigerants which accounted for
approximately 84% of 1995 first half revenues.
Cost of sales totaled $5.3 million, a decrease of $5.2 million or 50%
from the $10.5 million reported during the comparable prior year period. As a
percentage of sales, cost of sales were 57% of revenues for the six month period
ended June 30, 1996, a decrease from the 66% reported for the comparable prior
year period. The decrease in both dollars and percentage of revenues was
attributable primarily to the discontinuation, during May 1995, of the Company's
program to resell imported refrigerants which accounted for approximately 84% of
1995 first half revenues.
Operating expenses totaled $4.9 million, an increase of $2.1 million or
77% from the $2.8 million reported during the comparable prior year period. The
increase was attributable mainly to a lack of 1995
Page 9
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Results of Operations (continued)
Six months ended June 30, 1996 (continued)
counterpart to the Reserve for Restructuring (See Note 5, above) totaling $1.3
million established during the current year's second quarter; to higher ($0.4
million) sales, marketing, and administrative costs generally related to the
Company's expanded marketing programs and the inclusion of ESS operations for
part of the 1996 reporting period; and to higher ($0.3 million) depreciation and
amortization attributable to the growth of the Company's equipment assets and to
amortization of goodwill and intangibles related mainly to the Company's August
1995 acquisition of RRCA. As a percentage of revenues, operating expenses
totaled 53% of revenues, up from 17% for the comparable 1995 period, due mainly
to the 1996 Reserve for Restructuring and a lack of counterpart to the 1995
imported refrigerant revenues.
Net loss totaled $0.6 million, a decrease of $2.2 million or 140% from
the $1.6 million net earnings reported during the comparable prior year period.
The decrease was attributable mainly to discontinuation, during May 1995, of the
Company's program to resell imported refrigerants, higher operating costs and
lack of counterpart to the 1996 reserve for restructuring; offset partly by
higher volume from domestic operations.
Liquidity and Capital Resources
Net cash used in operating activities totaled $2.2 million for the six
month period ended June 30, 1996 compared with a net cash usage of $0.7 million
for the prior year comparable period. Increase ($1.5 million) in cash usage was
attributable mainly to higher ($2.6 million) trade receivables and decreased
($2.2 million) net earnings; offset partly by the 1996 Reserve for Restructuring
($1.3 million) and a lack of counterpart to 1995 inventory (net accounts
payable) investments totaling $2.5 million.
Net cash used in investing activities ($0.9 million for the six months
ended June 30, 1996) decreased $1.2 million from the prior comparable year
period due mainly to decreased ($0.8 million) capital expenditures.
Cash flows from financing activities totaled $3.7 million for the six
months ended June 30, 1996, $2.6 million higher than the $1.1 million reported
for the comparable 1995 period. Increase was attributable mainly to 1996
issuance of Convertible Debentures ($3.5 million, see Note 2 above) offset
partly by lack of 1996 counterpart to prior year issuance of warrants ($0.5
million) and long-term debt proceeds ($0.7 million).
At June 30, 1996, the Company reported cash and equivalents totaling
$3.1 million, an increase of $2.5 million from the comparable prior year period.
For the six months ended June 30, 1996, the Company reported capital
expenditures totaling $1.2 million. As of June 30, 1996, the Company had entered
into commitments to acquire an additional $1.1 million of equipment consisting
primarily of automated container packaging equipment (about $0.7 million) and
ten refrigerant gas, bulk-tank storage units (about $0.4 million). The Company
is currently seeking financing which would permit it to rent this equipment
under the terms of an operating lease.
On May 10, 1996, the Board of Directors authorized the Company to
acquire, from publicly traded markets, a maximum of 25,000 issued and
outstanding shares of its own Common Stock. As of June 30, 1996, the Company had
repurchased 16,000 shares at a average price of $9.06 per share.
On June 18, 1996, the Company issued Convertible Debentures (See Note 2
above) with a face value of $3.5 million. Proceeds ($3.5 million) to the Company
from the offering, was used to finance its acquisition of Environmental Support
Solutions, Inc. and E-Soft, Inc. (see Note 4, above), and for other purposes.
Page 10
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Liquidity and Capital Resources (continued)
On July 24, 1996, the Company completed the acquisition of GRR Co.,
Inc. in consideration of 20,000 unregistered shares of the Company's Common
stock (See Note 4, above).
In connection with its bankruptcy reorganization in June 1994, as
modified by a settlement during April 1996 (See Note II), below, RRCA has
obligations (totaling $1.6 million at June 30, 1996) to make periodic payments
to bankruptcy creditors through September 1999.
The Company has historically used its cash flows from operations,
together with its available cash resources including borrowings under the terms
of its agreement with MTB Bank (maximum operating line of credit equivalent to
$3.0 million secured by certain scheduled receivables and inventory of Hudson),
to satisfy the Company's working capital requirements and to fund proposed
acquisitions and capital expenditure programs. Based on the Company's increasing
quarter-to-quarter revenue volume, recent acquisitions, and funding needs for
expansion of capital equipment, the Company has issued Convertible Debentures
(see Note 2, above) and is actively seeking additional credit lines from lending
institutions. The Company expects that it will be able to implement a
significantly expanded bank(s) credit line during the third fiscal quarter of
1996. There can be no assurance, however, that any such financing will be
available to the Company; lack of which could materially adversely affect the
Company's financial condition, results of operations, and activities.
Reliance on Suppliers
The Company's financial performance is in part dependent on its ability
to obtain sufficient quantities of domestic virgin (pure) and reclaimable
refrigerants from wholesalers, distributors, bulk gas brokers, and from other
sources. To the extent that the Company is unable to obtain sufficient
quantities of refrigerants in the future, the Company's financial condition and
results of operations would be materially adversely affected.
Inflation
Inflation has not historically had a material impact on the Company's
operations.
Seasonality and Fluctuations in Operating Results
The Company's operating results vary from period to period as a result
of weather conditions, requirements of potential customers, availability of
refrigerant products (virgin or reclaimable), changes in reclamation technology,
timing in introduction and / or retrofit of CFC-based refrigeration equipment by
domestic users of refrigeration, the rate of expansion of the Company's
operations, and by other factors.
The Company's business has historically been seasonal in nature with
peak sales of refrigerants occurring in the first half of each year.
Unforeseen events, including the delays in securing adequate supplies
of refrigerants at peak demand periods, could result in significant fluctuations
in Company operating results or losses which might not be easily reversed.
There can be no assurance that the foregoing factors could not result
in material adverse affect of the Company's financial condition, results of
operations, and activities.
Page 11
<PAGE>
Hudson Technologies, Inc. and subsidiaries
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In connection with RRCA's bankruptcy reorganization of June 1994, prior
to acquisition of RRCA by the Company, RRCA had issued a secured promissory Note
in principal amount of $1.0 million due August 15, 1997 to James J. Todack
("Todack"), a supplier to RRCA. In anticipation of a possible claim of default
by Todack as a result of an alleged breach of Note security agreement(s), RRCA
during January 1995 petitioned the United States Bankruptcy Court for the Middle
District of Tennessee seeking judgment that RRCA was in compliance with the Note
security agreement and seeking certain other ancillary relief. During November
1995, Todack filed a counterclaim, in the same venue, alleging RRCA had
defaulted on its Note under terms of the security agreement.
During April 1996, RRCA entered into a settlement with Todack, pursuant
to which the actions were dismissed and RRCA agreed to pay the total sum of
$100,000 to Todack at the time of settlement and the sum of $800,000 payable in
sixteen equal monthly installments of principal and interest with a final
payment on August 10, 1997.
During December 1995, Earle Palmer Brown Companies, Inc. filed a
compliant against the Company in the Circuit Court for Montgomery County
Maryland seeking the sum of $238,761 plus interest for advertising, marketing,
and public relations services provided by Kerr Kelly Thompson, a predecessor
company. During May 1996, this action was dismissed, on the Company's motion,
for lack of jurisdiction.
On July 19, 1996, the Company reached a negotiated settlement and
obtained a full release from Earle Palmer Brown Companies, Inc. in consideration
of a one-time payment of $180,000.
During December 1995, PSJ Vans, Inc. filed a complaint against the
Company in the Third District Court, State of Utah, seeking judgment for $41,570
plus attorney fees, for transportation services allegedly provided to the
Company. The Company has paid previously an independent broker all such amounts
related to this claim. During May 1996, this action was dismissed, on the
Company's motion, for lack of jurisdiction.
In June 1995, United Water of New York Inc. ("United") alleged that it
discovered that two of its wells within close proximity to the Company's
facility showed elevated levels of refrigerant contamination. In June 1996,
United notified the Company that it was seeking indemnification by the Company
for costs incurred to date as well as costs expected to be incurred in
connection with United taking remedial action. In July 1996, United threatened
to institute legal action in the event that the Company declines to settle this
matter. The Company is currently conducting an investigation to determine the
source of the alleged contamination in United's wells and the need, if any, for
remediation. There can be no assurance that United will not commence legal
action seeking substantial damages and/or other relief, that any legal action or
settlement will resolved in a manner favorable to the Company or that ultimate
outcome of any legal action or settlement will not have a material adverse
effect on the Company's financial condition and results of operations.
Page 12
<PAGE>
Hudson Technologies, Inc. and subsidiaries
PART II. OTHER INFORMATION (Continued)
Item 1. Legal Information (continued)
Hudson Technologies and its subsidiaries are subject to various claims and
lawsuits from both private and governmental parties arising from the ordinary
course of business, none of which are material.
Item 4. Submission of Matters to a Vote of Security Holders
None. The Company has scheduled to hold its Annual Meeting of
Shareholders on August 16, 1996.
Item 5. Other Items
On May 23, 1996, 1996, Mr. Richard Johnson, Hudson's Vice President -
Strategic Affairs and former owner of ESS, was appointed to the Company's Board
of Directors. Mr. Johnson replaced Mr. Richard Baker on the Board.
On April 18, 1996, Mr. Dominic J. Monetta, President of Resource
Alternatives, Inc. of Washington D.C., was appointed to the Company's Board of
Directors. Mr. Monetta replaced Mr. Mandracchia on the Board.
On March 14, 1996, Mr. Otto Morch, Senior Vice President, Commercial
Lending at Provident Savings Bank F.A. of Montebello, New York, was appointed to
the Company's Board of Directors. Mr. Morch replaced Dr. Frederick Zugibe on the
Board.
Item 6. Exhibits and Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K under the
Securities Exchange Act of 1934 during the quarter ended June 30, 1996.
1. Form 8-K: Acquisition of Environmental Support Solutions, Inc.,
filed May 1, 1996.
Exhibits
The following exhibits are attached to this report.
Exhibit 10: Convertible Promissory Note dated June 18, 1996
Exhibit 27: Financial Data Schedule
Page 13
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Form 10-QSB of June 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed in its behalf by the
undersigned, thereunto duly authorized.
HUDSON TECHNOLOGIES, INC.
By: /s/ William A. Barron July 29, 1996
------------------------------------
William A. Barron Date
Vice President
and Chief Financial Officer
Page 14
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO OR FOR THE
ACCOUNT OR BENEFIT OF U.S. PERSONS UNLESS THE SECURITIES ARE REGISTERED UNDER
THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT IS AVAILABLE. IT IS THE RESPONSIBILITY OF ANY INVESTOR PURCHASING
THESE SECURITIES TO SATISFY ITSELF AS TO FULL OBSERVANCE OF THE LAWS OF ANY
RELEVANT TERRITORY OUTSIDE THE UNITED STATES IN CONNECTION WITH ANY SUCH
PURCHASE, INCLUDING OBTAINING ANY REQUIRED GOVERNMENTAL OR OTHER CONSENTS AND
OBSERVING ANY OTHER APPLICABLE REQUIREMENTS. THE SECURITIES REPRESENTED HEREBY
ARE ALSO SUBJECT TO AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ENCUMBERED OR
OTHERWISE DISPOSED OF EXCEPT UPON SATISFACTION OF CERTAIN TERMS AND CONDITIONS
SET FORTH IN A CERTAIN REGULATION S SUBSCRIPTION AGREEMENT DATED AS OF JUNE 18,
1996 BETWEEN THE COMPANY AND THE PURCHASER NAMED THEREIN.
U.S. $3,500,000
HUDSON TECHNOLOGIES, INC.
CONVERTIBLE DEBENTURE DUE JUNE 18, 1999
THIS DEBENTURE is issued by Hudson Technologies, Inc., a New York
corporation (the "Company"), and is designated as its Convertible Debenture due
June 18, 1999.
FOR VALUE RECEIVED, the Company promises to pay to Cameron Capital Ltd.
registered holder hereof (the "Holder"), the principal sum of U.S. $3,500,000 on
June 18, 1999 (the "Maturity Date") to the person in whose name this Debenture
is registered on the records of the Company regarding registration and transfers
of the Debentures (the "Debenture Register"); provided, however, that the
Company's obligation to a transferee of this Debenture arises only if such
transfer, sale or other disposition is made in accordance with the terms and
conditions of Regulation S, promulgated under the Securities Act ("Regulation
S") and the Regulation S Subscription Agreement executed by the original Holder
in connection with the purchase of this Debenture (the "Subscription
Agreement"). No interest shall accrue upon the outstanding principal hereof. The
principal of this Debenture is payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder from time to
time.
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<PAGE>
This Debenture is subject to the following additional provisions:
I. The Company shall be entitled to prepay the entire amount of this
Debenture, or any portion hereof, at anytime after the date of this Debenture
for an amount equal to One Hundred Fifteen percent (I 15%) of the principal
amount so to be prepaid. Such prepayment shall be effected by written notice to
the Holder, accompanied by prepayment by wire transfer of immediately available
funds to an account designated by the Holder. In such event, the Company shall
issue to the Holder, a warrant, in the form attached hereto as Exhibit A, for no
additional consideration, entitling the Holder to purchase Twenty Five Thousand
(25,000) shares (subject to adjustment for stock splits, reverse stock splits
and similar recapitalizations affecting such shares) of the Common Stock of the
Company at an exercise price of Eighteen Dollars ($18.00) (subject to adjustment
for stock splits, reverse stock splits and similar recapitalizations affecting
such shares) and exercisable for a period of five (5) years from the date of
issuance.
2. At any time from and after the sixtieth (60th) day following the
date of this Debenture, the Holder shall be entitled to cause the Company to
prepay One Million Dollars ($1,000,000) of the principal amount of this
Debenture for an amount equal to One Hundred Fifteen percent (115%) of the
principal amount so to be prepaid. The Company shall make such prepayment by
wire transfer of immediately available funds to an account designated by the
Holder within three (3) business days of Holder's written notice requesting such
prepayment.
3. This Debenture has been issued subject to certain investment
representations of the Holder hereof and may be offered, sold, transferred or
exchanged only in compliance with the Securities Act. Prior to due presentment
for transfer of this Debenture, the Company and any agent of the Company may
treat the person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
4. Subject to the provisions of Section 6 hereof, the Holder of this
Debenture shall have the option to convert up to (i) Twenty-Five percent (25%)
at any time from and after the sixtieth (60th) day following the date of this
Debenture, (ii) Fifty percent (50%) at any time from and after the ninetieth
(90th) day following the date of this Debenture, (iii) Seventy-Five percent
(75%) at any time from and after the one hundred twentieth (120th) day following
the date of this Debenture, and (iv) One Hundred percent (100%) at any time
from and after the one hundred fiftieth (150th) day following the date of this
Debenture, of the original principal amount of this Debenture (in increments of
not less than One Hundred Thousand Dollars (U.S. $100,000)) into shares of the
Company's common stock, $.0l par value (the "Common Stock"), at a conversion
price for each share of Common Stock equal to the lesser of (i) Fourteen Dollars
($14.00) per share or (ii) Eighty-Five percent (85%) of the average closing
bid price (as reported by The Nasdaq Stock Market) of the Company's Common Stock
for the five (5) trading days immediately prior to the Conversion Date
(hereinafter deemed) (such lesser value is hereinafter referred to as the
"Conversion Price"); provided, however, that in the event such average closing
bid price is equal to or less than Four Dollars ($4.00)
2
<PAGE>
per share, the Holder shall not be entitled to effectuate the conversion of the
Debenture or any portion hereof, provided further, however, that in the event
the average closing bid price (as reported by The Nasdaq Stock Market) of the.
Common Stock of the Company does not exceed Four Dollars ($4.00) per share for a
period equal to the later to occur of forty (40) trading days or sixty (60)
days, as the case may be, the Holder shall have the option to either (a) require
the Company to prepay One Million Dollars ($1,000,000) of the principal amount
of the Debenture for an amount equal to One Hundred Fifteen percent (115%) of
the principal amount so to be prepaid, such payment to take place within three
(3) business days after the Holder's written notice to the Company so requesting
prepayment or (b) convert the entire outstanding principal amount of the
Debenture or any portion thereof into shares of Common Stock of the Company
without restriction. Conversion shall be effectuated by surrendering the
Debenture to be converted to the Company with the form of Notice of Conversion
attached hereto as Exhibit B, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion (as provided for above) hereof. No fractional shares of the Common Stock
or scrip representing fractional shares will be issued on conversion, but the
number of shares of Common Stock issuable shall be rounded to the nearest whole
share. The date on which notice of conversion is given shall be deemed to be the
date on which the Holder has delivered this Debenture, with the notice of
conversion duly executed, to the Company, or if earlier, the date such notice of
conversion is delivered to the Company provided the Debenture is received by the
Company within three (3) business days thereafter. Such date is referred to
herein as the "Conversion Date." Facsimile delivery of the conversion notice
shall be accepted by the Company. Certificates representing the shares of Common
Stock issuable upon conversion will be delivered to the Holder within five (5)
business days from the date the Debenture and notice of conversion are delivered
to the Company.
6. The Conversion Price and number of shares of Common Stock issuable
upon conversion shall be subject to adjustment from time to time as provided in
this Section 6.
(a) In the event the Company should at any time or from time to time
after the date of this Debenture fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents"), without payment of any consideration by such holder
for the additional shares of Common Stock of the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend,
distribution, split or subdivision if no record date is fixed), the Conversion
Price shall be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of this Debenture shall be increased in proportion
to such increase in the aggregate number of shares of Common Stock outstanding
and those issuable with respect to such Common Stock Equivalents.
(b) If the number of shares of Common Stock outstanding at any time
after the date of this Debenture is decreased by a combination of the
outstanding shares of Common Stock,
3
<PAGE>
then, following the record date of such combination, the Conversion Price shall
be appropriately increased so that the number of shares of Common Stock issuable
on conversion of this Debenture shall be decreased in proportion to such
decrease in outstanding shares.
7. The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of this Debenture, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the outstanding principal amount thereon, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of this Debenture, in addition to such other remedies as shall be
available to the Holder, the Company will take such corporate action as may, in
the opinion of its counsel be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, using its best efforts to obtain the
requisite stockholder approval necessary to increase the Company's authorized
Common Stock.
8. In no event shall the holder of this Debenture be entitled to
convert the outstanding principal of this Debenture to the extent such
conversion would result in such holder's beneficially owning more than five
percent (5%) of the outstanding shares of the Company's Common Stock. For these
purposes, beneficial ownership shall be defined and calculated in accordance
with Rule 13d-3, promulgated under the Securities Exchange Act of 1934, as
amended.
9. Any of the following shall constitute an "Event of Default":
a. The Company shall fail to make any payment (whether principal or
otherwise) on this Debenture as and when the same shall be due
and payable and such default shall continue for five (5) business
days after the due date thereof;
b. Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate or
financial or other written statements heretofore or hereafter
furnished by or on behalf of the Company in connection with the
execution and delivery of this Debenture or the Subscription
Agreement shall be false or misleading in any material respect as
of the date made;
C. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of the Company under this Debenture or
the Subscription Agreement and such failure shall continue
uncured for a period of five (5) business days after the first
date on which such failure arises (it being understood that in
the case of defaults which can not reasonably be cured within a
5-day period no grace period shall be necessary as a precondition
to the failure to perform such covenant constituting an Event of
Default);
4
<PAGE>
d. The Company shall (1) make an assignment for the benefit of its
creditors or commence proceedings for its dissolution; or (2)
apply for or consent to the appointment of a trustee, liquidator,
custodian or receiver thereof, or for a substantial part of its
property or business;
e. A trustee, liquidator, custodian or receiver shall be appointed
for the Company or for a substantial part of its property or
business without its consent and shall not be discharged within
sixty (60) days after such appointment;
f. Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against
the Company and, if instituted against the Company, shall not be
dismissed within sixty (60) days after such institution or the
Company shall by any action or answer approve of, consent to, or
acquiesce in any such proceeding or admit the material
allegations of, or default in answering a petition filed in any
such proceeding;
g. The Company shall have its Common Stock delisted from The Nasdaq
Stock Market or suspended from trading thereon, and shall not
have its Common Stock relisted or have such suspension lifted, as
the case may be, within five (5) business days;
h. The Company shall default on the payment of any debts in excess
of $250,000 beyond any applicable grace period;
i. Any judgments, levies or attachments shall be rendered against
the Company or any of its assets or properties in an aggregate
amount in excess of $250,000 and such judgments, levies or
attachments shall not be dismissed, stayed, bonded or discharged
within thirty (30) days of the date of entry thereof, or
j. The Company shall be a party to any merger or consolidation or
shall dispose of all or substantially all of its assets in one or
more transactions or shall redeem more than a de minimis amount
of its outstanding shares of capital stock.
Upon the occurrence of any Event of Default or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived in
writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent Event of Default) at the option of the Holder in the Holder's sole
discretion, the Holder may, upon written notice to the Company, accelerate the
maturity hereof, whereupon the principal hereunder shall be immediately due and
payable without presentment, demand, protest or notice of any kind, all of which
are hereby expressly waived,
5
<PAGE>
anything herein or in any note or other instruments contained to the contrary
notwithstanding, and the Holder may immediately, and without expiration of any
period of grace, enforce any and all of the Holder's rights or remedies afforded
by law.
10. The Company expressly waives demand and presentment for payment,
notice of nonpayment, protest, notice of protest, notice of dishonor, notice of
acceleration or intent to accelerate, bringing of suit and diligence in taking
any action to collect amounts called for hereunder and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
11. No provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of
this Debenture at the time and place, and in the coin or currency, herein
prescribed. This Debenture and all other Debentures now or hereafter issued of
similar terms are direct obligations of the Company. This Debenture ranks
equally with all other Debentures now or hereafter issued under the terms set
forth herein.
12. Notices hereunder shall be given in the manner specified in the
Subscription Agreement of even date between the Holder and the Company.
13. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York without regard to the choice of law
provisions thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: June 18, 1996 HUDSON TECHNOLOGIES, INC.
By: STEPHEN J. COLE-HATCHARD
---------------------------------
Name: STEPHEN J. COLE-HATCHARD
---------------------------------
Title: Vice President/Treas.
---------------------------------
7
<PAGE>
EXHIBIT A
THIS WARRANT AND THE SHARES OF COMMON STOCK OF HUDSON TECHNOLOGIES, INC. TO BE
ISSUED UPON ANY EXERCISE OF THE WARRANT HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND THIS
WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON (AS DEFINED IN
REGULATION S UNDER THE SECURITIES ACT) UNLESS REGISTERED UNDER THE SECURITIES
ACT OR AN EXEMPTION FROM SUCH REGISTATION IS AVAILABLE. IT IS THE RESPONSIBILITY
OF ANY INVESTOR PURCHASING THE SECURITIES REPRESENTED HEREBY TO SATISFY ITSELF
AS TO FULL OBSERVANCE OF THE LAWS OF ANY RELEVANT TERRITORY OUTSIDE THE UNITED
STATES IN CONNECTION WITH ANY SUCH PURCHASE, INCLUDING OBTAINING ANY REQUIRED
GOVERNMENTAL OR OTHER CONSENTS AND OBSERVING ANY OTHER APPLICABLE REQUIREMENTS.
WARRANT
to Purchase Shares
of
Common Stock ($.01 par value)
of
HUDSON TECHNOLOGIES, INC.
____________ ___, 199__
This certifies that, for value received, Cameron Capital Ltd. ("CCL")
and any subsequent transferee pursuant to the terms of the Agreement (as defined
below) of even date and this Warrant (each, a "Holder") is entitled to purchase,
subject to the provisions of this Warrant, from Hudson Technologies, Inc., a New
York corporation (the "Issuer"), at any time or from time to time on or after
the date hereof and on or before _______ __, ____ (the "Expiration Date"),
Twenty Five Thousand (25,000) fully paid and nonassessable shares of common
stock, $.01 par value (the "Common Stock"), of the Issuer at an exercise price
equal to U.S. $18.00 per share, subject to adjustment pursuant to the terms
hereunder (the "Exercise Price") (such shares of Common Stock and other
securities issued and issuable upon exercise of this Warrant, the "Warrant
Shares").
Section 1. Definitions. Except as otherwise specified herein, terms
defined herein shall have the meanings assigned to them in the Offshore
Subscription Agreement of even date herewith by and between CCL and the Issuer
(the "Agreement").
8
<PAGE>
Section 2. Exercise of Warrant.
(a) Subject to the provisions hereof, this Warrant may be
exercised, in whole or in part, but not as to a fractional share, at
any time or from time to time on or after the date hereof and on or
before the Expiration Date, by presentation and surrender hereof to the
Issuer at the address which, in accordance with the provisions of
Section 9 hereof, is then effective for notices to the Issuer, with the
Election to Purchase Form annexed hereto as Schedule One, duly executed
and accompanied by payment to the Issuer as further set forth below in
this Section 2, for the account of the Issuer, of the Exercise Price
for the number of Warrant Shares specified in such form. If this
Warrant should be exercised in part only, the Issuer shall, upon
surrender of this Warrant, execute and deliver a new Warrant evidencing
the rights of the Holder hereof to purchase the balance of the Warrant
Shares purchasable hereunder. The Issuer shall maintain at its
principal place of business a register for the registration of this
Warrant and registration of transfer of this Warrant. The Exercise
Price for the number of Warrant Shares specified in the Election to
Purchase Form shall be payable in United States Dollars by certified or
official bank check payable to the order of the Issuer or by wire
transfer of immediately available funds to an account specified by the
Issuer for that purpose.
(b) Certificates representing Warrant Shares shall not bear
any restrictive legend.
Section 3. Reservation of Shares; Preservation of Rights of Holder. The
Issuer hereby agrees that there shall be reserved for issuance and/or delivery
upon exercise of this Warrant, such number of Warrant Shares as shall be
required for issuance or delivery upon exercise of this Warrant. The Warrant
surrendered upon exercise shall be canceled by the Issuer. After the Expiration
Date, no shares of Common Stock shall be subject to reservation in respect of
this Warrant. The Issuer further agrees (i) that it will not, by amendment of
its Articles of Incorporation or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observation or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by the Issuer, (ii) promptly to
take such action as may be required of the Issuer to permit the Holder to
exercise this Warrant and the Issuer duly and effectively to issue shares of its
Common Stock or other securities as provided herein upon the exercise hereof,
and (iii) promptly to take all action required or provided herein to protect the
rights of the Holder granted hereunder against dilution. Without limiting the
generality of the foregoing, should the Warrant Shares at any time consist in
whole or in part of shares of capital stock having a par value, the Issuer
agrees that before taking any action which would cause an adjustment of the
Exercise Price so that the same would be less than the then par value of such
Warrant Shares, the Issuer shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Issuer may validly and
legally issue fully paid and nonassessable shares of such Common Stock at the
Exercise Price as so adjusted. The Issuer further agrees that it will not
establish a par value for its Common Stock while this Warrant is outstanding in
an amount greater than the Exercise Price.
9
<PAGE>
Section 4. Exchange, Transfer, Assigment or Loss of Warrant. Any
attempted transfer of this Warrant, the Warrant Shares or any new Warrant not in
accordance with this Section shall be null and void, and the Issuer shall not in
any way be required to give effect to such transfer. Any transfer of this
Warrant shall also be subject to Section 4 of the Agreement. No transfer of this
Warrant shall be effective for any purpose hereunder until (i) written notice of
such transfer and of the name and address of the transferee has been received by
the Issuer, and (ii) the transferee shall first agree in a writing deposited
with the Secretary of the Issuer to be bound by all the provisions of this
Warrant and the Agreement. Upon surrender of this Warrant to the Issuer by any
transferee authorized under the provisions of this Section 4, the Issuer shall,
without charge, execute and deliver a new Warrant registered in the name of such
transferee at the address specified by such transferee, and this Warrant shall
promptly be canceled. The Issuer may deem and treat the registered holder of any
Warrant as the absolute owner thereof for all purposes, and the Issuer shall not
be affected by any notice to the contrary. Any Warrant if presented by an
authorized transferee, may be exercised by such transferee without prior
delivery of a new Warrant issued in the name of the transferee.
Upon receipt by the Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Issuer will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute a separate contractual obligation on the
part of the Issuer, whether or not the Warrant so lost, stolen, destroyed or
mutilated shall be at any time enforceable by anyone.
Section 5. Rights of Holder. Neither a Holder nor his transferee by
devise or the laws of descent and distribution or otherwise shall be, or have
any rights or privileges of, a shareholder of the Issuer with respect to any
Warrant Shares, unless and until certificates representing such Warrant Shares
shall have been issued and delivered thereto.
Section 6. Adjustments in Exercise Price and Warrant Shares. The
Exercise Price and Warrant Shares shall be subject to adjustment from time to
time as provided in this Section 6.
(a) If the Issuer is recapitalized through the subdivision or
combination of its outstanding shares of Common Stock into a larger or
smaller number of shares, the number of shares of Common Stock for
which this Warrant may be exercised shall be increased or reduced, as
of the record date for such recapitalization, in the same proportion as
the increase or decrease in the outstanding shares of Common Stock, and
the Exercise Price shall be adjusted so that the aggregate amount
payable for the purchase of all Warrant Shares issuable hereunder
immediately after the record date for such recapitalization shall
equal the aggregate amount so payable immediately before such record
date.
(b) If the Issuer declares a dividend on Common Stock, or
makes a distribution to holders of Common Stock, and such dividend or
distribution is payable or made in Common Stock or securities
convertible into or exchangeable for Common Stock, or rights
10
<PAGE>
to purchase Common Stock or securities convertible into or
exchangeable for Common Stock, the number of shares of Common Stock for
which this Warrant may be exercised shall be increased, as of the
record date for determining which holders of Common Stock shall be
entitled to receive such dividend or distribution, in proportion to the
increase in the number of outstanding shares (and shares of Common
Stock issuable upon conversion of all such securities convertible into
Common Stock) of Common Stock as a result of such dividend or
distribution, and the Exercise Price shall be adjusted so that the
aggregate amount payable for the purchase of all the Warrant Shares
issuable hereunder immediately after the record date for such dividend
or distribution shall equal the aggregate amount so payable immediately
before such record date.
(c) If the Issuer declares a dividend on Common Stock (other
than a dividend covered by subsection (b) above) or distributes to
holders of its Common Stock, other than as part of its dissolution or
liquidation or the winding up of its affairs, any shares of its capital
stock, any evidence of indebtedness or any cash or other of its assets
(other than Common Stock or securities convertible into or exchangeable
for Common Stock), the Holder shall receive notice of such event as set
forth in Section 8 below.
(d) In case of any consolidation of the Issuer with, or merger
of the Issuer into, any other corporation (other than a consolidation
or merger in which the Issuer is the continuing corporation and in
which no change occurs in its outstanding Common Stock), or in case of
any sale or transfer of all or substantially all of the assets of the
Issuer, or in the case of any statutory exchange of securities with
another corporation (including any exchange effected in connection with
a merger of a third corporation into the Issuer, except where the
Issuer is the surviving entity and no change occurs in its outstanding
Common Stock), the corporation formed by such consolidation or the
corporation resulting from such merger or the corporation which shall
have acquired such assets or securities of the Issuer, as the case may
be, shall execute and deliver to the Holder simultaneously therewith a
new Warrant, satisfactory in form and substance to the Holder, together
with such other documents as the Holder may reasonably request,
entitling the Holder thereof to receive upon exercise of such Warrant
the kind and amount of shares of stock and other securities and
property receivable upon such consolidation, merger, sale, transfer, or
exchange of securities, or upon the dissolution following such sale or
other transfer, by a holder of the number of shares of Common Stock
purchasable upon exercise of this Warrant immediately prior to such
consolidation, merger, sale, transfer, or exchange. Such new Warrant
shall contain the same basic other terms and conditions as this Warrant
and shall provide for adjustments which, for events subsequent to the
effective date of such written instrument, shall be as nearly
equivalent as may be practicable to the adjustments provided for in
this Section 6. The above provisions of this paragraph (d) shall
similarly apply to successive consolidations, mergers, exchanges, sales
or other transfers covered hereby.
(e) If the Issuer shall, at any time before the expiration of
this Warrant, dissolve, liquidate or wind up its affairs, the Holder
shall, upon exercise of this Warrant have the right
11
<PAGE>
to receive, in lieu of the shares of Common Stock of the
Issuer that the Holder otherwise would have been entitled to receive,
the same kind and amount of assets as would have been issued,
distributed or paid to the Holder upon any such dissolution,
liquidation or winding up with respect to such shares of Common Stock
of the Issuer had the Holder been the holder of record of such shares
of Common Stock receivable upon exercise of this Warrant on the date
for determining those entitled to receive any such distribution. If
any such dissolution, liquidation or winding up results in any cash
distribution in excess of the Exercise Price provided by this Warrant
for the shares of Common Stock receivable upon exercise of this
Warrant, the Holder may, at the Holder's option, exercise this Warrant
without making payment of the Exercise Price and, in such case, the
Issuer shall, upon distribution to the Holder, consider the Exercise
Price to have been paid in full and, in making settlement to the
Holder, shall obtain receipt of the Exercise Price by deducting an
amount equal to the Exercise Price for the shares of Common Stock
receivable upon exercise of this Warrant from the amount payable to
the Holder. For purposes of this paragraph, the sale of all or
substantially all of the assets of the Issuer and distribution of the
proceeds thereof to the Issuer's shareholders shall be deemed a
liquidation.
(f) If an event occurs which is similar in nature to the
events described in this Section 6, but is not expressly covered
hereby, the Board of Directors of the Issuer shall make or arrange for
an equitable adjustment to the number of Warrant Shares and the
Exercise Price.
(g) The term "Common Stock" shall mean the Common Stock, $.01
par value, of the Issuer as the same exists at the Closing Date or
as such stock may be constituted from time to time, except that for the
purpose of this Section 6, the term "Common Stock" shall include any
stock of any class of the Issuer which has no preference in respect of
dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Issuer and
which is not subject to redemption by the Issuer.
(h) The Issuer shall retain a firm of independent public
accountants of recognized standing (who may be any such firm regularly
employed by the Issuer) to make any computation required under this
Section 6, and a certificate signed by such firm shall be conclusive
evidence of the correctness of any computation made under this Section
6.
(i) Whenever the number of Warrant Shares or the Exercise
Price shall be adjusted as required by the provisions of this Section
6, the Issuer forthwith shall file in the custody of its secretary or
an assistant secretary, at its principal office, and furnish to each
Holder hereof, a certifirate prepared in accordance with paragraph (h)
above, showing the adjusted number of Warrant Shares and the Exercise
Price and setting forth in reasonable detail the circumstances
requiring the adjustments.
(j) Notwithstanding any other provision, this Warrant shall
be binding upon and inure to the benefit of any successors and assigns
of the Issuer.
12
<PAGE>
(k) No adjustment in the Exercise Price in accordance with the
provisions of this Section 6 need be made if such adjustment would
amount to a change in such Exercise Price of less than $.01; provided
however, that the amount by which any adjustment is not made by reason
of the provisions of this paragraph (k) shall be carried forward and
taken into account at the time of any subsequent adjustment in the
Exercise Price.
(l) If an adjustment is made under this Section 6 and the
event to which the adjustment relates does not occur, then any
adjustments in accordance with this Section 6 shall be readjusted to
the Exercise Price and the number of Warrant Shares which would be in
effect had the earlier adjustment not been made.
Section 7. Taxes on Issue or Transfer of Common Stock and Warrant. The
Issuer shall pay any and all documentary stamp or similar issue or transfer
taxes payable in respect of the issue or delivery of shares of Common Stock or
other securities on the exercise of this Warrant. The Issuer shall not be
required to pay any tax which may be payable in respect of any transfer of this
Warrant or in respect of any transfers involved in the issue or delivery of
shares or the exercise of this Warrant in a name other than that of the Holder
and the person requesting such transfer, issue or delivery shall be responsible
for the payment of any such tax (and the Issuer shall not be required to issue
or deliver said shares until such tax has been paid or provided for).
Section 8. Notice of Adjustment. So long as this Warrant shall be
outstanding, (a) if the Issuer shall propose to pay any dividends or make any
distribution upon the Common Stock, or (b) if the Issuer shall offer generally
to the holders of Common Stock the right to subscribe to or purchase any shares
of any class of Common Stock or securities convertible into Common Stock or any
other similar rights, or (c) if there shall be any proposed capital
reorganization of the Issuer in which the Issuer is not the surviving entity,
recapitalization of the capital stock of the Issuer, consolidation or merger of
the Issuer with or into another corporation, sale, lease or other transfer of
all or substantially all of the property and assets of the Issuer, or voluntary
or involuntary dissolution, liquidation or winding up of the Issuer, or (d) if
the Issuer shall give to its stockholders any notice, report or other
communication respecting any significant or special action or event, then in
such event the Issuer shall give to the Holder, at least ten days prior to the
relevant date described below (or such shorter period as is reasonably possible
if thirty days is not reasonably possible), a notice containing a description of
the proposed action or event and stating the date or expected date on which a
record of the Issuer's stockholders is to be taken for any of the foregoing
purposes, and the date or expected date on which any such dividend,
distribution, subscription, reclassification, reorganization, consolidation,
combination, merger, conveyance, sale, lease or transfer, dissolution,
liquidation or winding up is to take place and the date or expected date, if any
is to be fixed, as of which the holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such event.
13
<PAGE>
Section 9. Notices. All communications hereunder shall be in writing,
and, if sent to the Holder shall be sufficient in all respects if delivered,
sent by registered mail, or by facsimile and confirmed to the Holder at:
Cameron Capital Ltd.
10 Cavendish Road
Hamilton, Bermuda HM19
Attention: Nic Snelling
Telephone: (441) 295-5455
Facsimile: (441) 295-9022
or if to any other Holder, addressed to such Holder at such address as it shall
have specified to the Issuer in writing, or, if sent to the Issuer, shall be
delivered, sent by registered mail or by facsimile and confirmed to the Issuer
at:
Hudson Technologies, Inc.
25 Torne Valley Road
Hillburn, New York 10931
Attention: Stephen J. Cole-Hatchard
Telephone: (914) 368-4990
Facsimile: (914) 368-2540
Section 10. Governing Law. This Warrant shall be governed by, and
interpreted in accordance with, the laws of the State of New York.
Dated:__________ _____, ________
HUDSON TECHNOLOGIES, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
ATTEST:
_____________________________________
, Secretary
14
<PAGE>
Schedule One
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise this Warrant and
to purchase ______ shares of Hudson Technologies, Inc. Common Stock issuable
upon the exercise of this Warrant, and requests that certificates for such
shares be issued in the name of:
_______________________________________________________________________________
(Name)
_______________________________________________________________________________
(Address)
_______________________________________________________________________________
(United States Social Security or other taxpayer
identifying number, if applicable)
and, if different from above, be delivered to:
_______________________________________________________________________________
(Name)
_______________________________________________________________________________
(Address)
and, if the number of Warrant Shares so purchased are not all of the Warrant
Shares issuable upon exercise of this Warrant, that a Warrant to purchase the
balance of such Warrant Shares be registered in the name of, and delivered to,
the undersigned at the address stated below.
Date: ___________________, 19__
Name of Registered Owner:______________________________________________________
_______________________________________________________________________________
Address: ______________________________________________________________________
_______________________________________________________________________________
Signature:_____________________________________________________________________
15
<PAGE>
Schedule Two
[Warrant Agent]
Dear Sir/Madam:
In connection with the warrant of Hudson Technologies, Inc., issued to
CCL on _____ _____, _____ and attached hereto, the undersigned certifies,
represents and warrants as follows:
(1) I/We hereby exercise the warrants identified above. (Give details
of how payment is being made, in accordance with the terms of the
Warrant.) ______________________________________________________
_______________________________________________________________.
(2) I/We hereby certify that I am/we are not a U.S. person (as that
term is defined in Regulation S under the Securites Act); nor am
I/we acting for or on behalf of a U.S. person.
(3) At the time of exercise of the warrants I am/we are and any
person for whom we are acting is located outside the United
States.
(4) Please deliver the common stock of Hudson Technologies, Inc. as
follows:
____________________________________________
Name in which certificate is to be delivered
____________________________________________
Address (must be outside the U.S.)
____________________________________________
Very truly yours,
WARRANT HOLDER
By:____________________________________
Name:__________________________________
Title:_________________________________
16
<PAGE>
[Warrant Agent]
Dear Sir/Madam:
In connection with the Warrant of Hudson Technologies, Inc., issued to
CCL on ______ _____, _____ and attached hereto, the undersigned performed the
functions of managing underwriter in connection with the offering of such
warrants and certifies, represents and warrants as follows:
We hereby certify that the distribution of the warrants identified
above was completed on ______________ _____, ______.
Very truly yours,
CAMERON CAIPITAL LTD.
By:____________________________________
Name:__________________________________
Title:_________________________________
17
<PAGE>
EXHIBIT B
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above
Debenture No.______ into shares of Common Stock of Hudson Technologies, Inc.
(the "Company") according to the conditions hereof, as of the date written
below.
The undersigned represents that it is not a U.S. person as defined in
Regulation S promulgated under the United States Securities Act of 1933, as
amended, and is not converting the Debenture on behalf of any U.S. person.
_______________________________________
Date of Notice
_______________________________________
Signature
_______________________________________
Name
Address:
_______________________________________
_______________________________________
_______________________________________
* The original Debenture and a manually signed original of this Notice of
Conversion must be received by the Company by the third business day
following the date of delivery of this Notice of Conversion by facsimile.
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-QSB AT JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,121,000
<SECURITIES> 0
<RECEIVABLES> 5,329,000
<ALLOWANCES> 0
<INVENTORY> 5,887,000
<CURRENT-ASSETS> 15,625,000
<PP&E> 5,466,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,116,000
<CURRENT-LIABILITIES> 9,868,000
<BONDS> 0
0
0
<COMMON> 44,000
<OTHER-SE> 20,195,000
<TOTAL-LIABILITY-AND-EQUITY> 31,116,000
<SALES> 9,207,000
<TOTAL-REVENUES> 9,207,000
<CGS> 5,264,000
<TOTAL-COSTS> 5,264,000
<OTHER-EXPENSES> 4,885,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83,000
<INCOME-PRETAX> (960,000)
<INCOME-TAX> (342,000)
<INCOME-CONTINUING> (618,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (618,000)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
