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Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 small business issuer as specified in its charter)
New York 13-3641539
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification number)
275 North Middletown Road 10965
Pearl River, New York (ZIP Code)
(Address of principal executive offices)
Issuer's telephone number, including area code:
(914) 735-6000
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Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days.
YES _X_ NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common stock, $0.01 par value 5,085,820 shares
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Class Outstanding at March 31, 1999
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<PAGE>
Hudson Technologies, Inc.
Index
Part I. Financial Information Page Number
Item 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Cash flows 4
Notes to the Consolidated Financial statements 5
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other information
Item 1.- Legal Proceedings 15
Item 2.- Changes in Securities and Use of Proceeds 17
Item 6.- Exhibits and Reports on Form 8-K 17
Signatures 18
1
<PAGE>
Part 1 - Financial Information
Hudson Technologies, Inc. and subsidiaries
Consolidated Balance Sheet
(Amounts in thousands, except for share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------- -------
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,855 $ 776
Trade accounts receivable - net of allowance for doubtful
accounts of $300 and $240 1,609 1,075
Inventories 2,443 3,284
Prepaid expenses and other current assets 225 208
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Total current assets 11,132 5,343
Property, plant and equipment, less accumulated depreciation 5,248 5,332
Other assets 111 184
------- -------
Total Assets $16,491 $10,859
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 5,058 $ 4,250
Short-term debt 920 1,040
Loans from stockholders
365 --
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Total current liabilities 6,343 5,290
Deferred income 34 42
Long-term debt, less current maturities 1,530 1,885
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Total liabilities 7,907 7,217
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Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value; shares authorized
20,000,000; issued outstanding 5,085,820 51 51
Series A convertible preferred stock, $.01 par value ($100
liquidation preference value) shares authorized 5,000,000;
issued and outstanding 65,000 and none 6,500 --
Additional paid-in capital 21,843 22,545
Accumulated deficit (19,810) (18,954)
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Total stockholders' equity 8,584 3,642
------- -------
Total Liabilities and Stockholders' Equity $16,491 $10,859
======= =======
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
2
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Consolidated Statements of Operations
(Amounts in thousands, except for share and per share amounts)
(unaudited)
Three month period
ended March 31,
--------------------------
1999 1998
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Revenues $ 5,031 $ 6,705
Cost of Sales 3,837 4,684
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Gross Profit 1,194 2,021
Operating expenses:
Selling and marketing 383 392
General and administrative 1,253 1,242
Depreciation and amortization 336 273
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Total operating expenses 1,972 1,907
Operating income (loss) (778) 114
Other income (expense):
Interest expense (102) (84)
Other income 24 25
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Total other (expense) (78) (59)
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Income (loss) before income taxes (856) 55
Income taxes -- --
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Net income (loss) $ (856) $ 55
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Net income (loss) per common share - basic $ (0.17) $ 0.01
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Weighted average number of shares outstanding 5,085,820 5,065,820
=========== ===========
See accompanying Notes to the Consolidated Financial Statements.
3
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Hudson Technologies, Inc. and subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(unaudited)
(Amounts in thousands)
Three month period
ended March 31,
1999 1998
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Cash flows from operating activities:
Net Income (loss) $ (856) $ 55
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation and amortization 336 273
Allowance for doubtful accounts 32 17
Changes in assets and liabilities:
Trade receivables (566) (2,699)
Inventories 841 2,096
Prepaid and other current assets (16) (131)
Other assets 77 4
Accounts payable and accrued expenses 808 459
Deferred income (8) (5)
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Cash provided by operating activities 648 69
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Cash flows from investing activities:
Additions to property, plant, and equipment (257) (109)
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Cash used by investing activities (257) (109)
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Cash flows from financing activities:
Proceeds from issuance of Preferred Stock - net 5,798 --
Proceeds (Repayments) from short-term bank borrowings - net (364) 52
Proceeds from loans to stockholders 365 --
Repayment of long-term debt (111) (85)
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Cash provided (used) by financing activities 5,688 (33)
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Increase (decrease) in cash and cash equivalents 6,079 (73)
Cash and equivalents at beginning of period 776 626
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Cash and equivalents at end of period $ 6,855 $ 553
======= =======
Supplemental disclosure of cash flow information:
Cash paid during period for interest $ 102 $ 84
See accompanying Notes to the Consolidated Financial Statements
4
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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"), primarily sells refrigerants and provides RefrigerantSide(TM)
Services performed at a customer's site, consisting of system decontamination to
remove moisture, oils and other contaminants and recovery and reclamation of the
refrigerants used in commercial air conditioning and refrigeration systems. The
Company operates through its wholly owned subsidiary Hudson Technologies
Company.
Note 1- Summary of Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial statements
and with the instructions of Regulation SB. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial information included
in the quarterly report should be read in conjunction with the Company's audited
financial statements and related notes thereto for the year ended December 31,
1998.
In the opinion of management, all estimates and adjustments considered necessary
for a fair presentation have been included and all such adjustments were normal
and recurring.
Consolidation
The consolidated financial statements represent all companies of which Hudson
directly or indirectly has majority ownership or otherwise controls. Significant
intercompany accounts and transactions have been eliminated. The Company's
consolidated financial statements include the accounts of wholly-owned
subsidiaries Hudson Holdings, Inc. and Hudson Technologies Company. Effective
March 19, 1999 the Company sold 75% of its ownership interest in Environmental
Support Solutions, Inc. ("ESS") and as of that date no longer includes the
results of its operations in the consolidated results of the Company (See Note
3).
Fair value of financial instruments
The carrying values of financial instruments including trade accounts
receivable, and accounts payable approximate fair value at March 31, 1999 and
December 31, 1998, 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,
1999 and December 31, 1998.
Credit risk
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of temporary cash investments and trade
accounts receivable. The Company maintains its temporary cash investments in
highly-rated financial institutions. The Company's trade accounts receivables
are due from companies throughout the U.S. The Company reviews each customer's
credit history before extending credit.
The Company establishes an allowance for doubtful accounts based on factors
associated with the credit risk of specific accounts, historical trends, and
other information.
During the quarter ended March 31, 1999, one customer accounted for 23% and
another customer accounted for 14% of the Company's revenues. During the quarter
ended March 31, 1998, three customers each accounted for 32%, 15% and 11%,
respectively, of the Company's revenues. The loss of a principal customer or a
decline in the economic prospects and purchases of the Company's products or
services by any such customer would have a material adverse effect on the
Company's financial position and results of operations.
5
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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. 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.
Revenues and cost of sales
Revenues are recorded upon completion of service or product shipment or passage
of title to customers in accordance with contractual terms. Cost of sales is
recorded based on the cost of products shipped or services performed and related
direct operating costs of the Company's facilities.
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.
The Company recognized a reserve allowance against the deferred tax benefit for
the current and prior period losses. The tax benefit 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.
Income (Loss) per common and equivalent shares
Income (Loss) per common share (Basic) is computed on 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.
Estimates and Risks
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of certain assets and liabilities, the disclosure of
contingent assets and liabilities, and the results of operations during the
reporting period. Actual results could differ from these estimates.
The Company participates in an industry that is highly regulated, changes in
which could affect operating results. Currently the Company purchases virgin and
reclaimable refrigerants from domestic suppliers and its customers. The Company
has increased its inventory turnover rate and has less inventory than
historically maintained. The Company's inability to obtain refrigerants on
commercially reasonable terms or a decline in demand for refrigerants could
cause delays in refrigerant processing, possible loss of revenues, and would
have a material adverse affect on operating results.
6
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Impairment of long-lived assets and long-lived assets to be disposed of
The Company reviews for impairment long-lived assets 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.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ("SFAS No. 133") "Accounting for
Derivative Instruments and Hedging Activities," which requires entities to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS No. 133 is
effective for all fiscal years beginning after June 15, 1999.
The Company adopted SFAS No. 133 as of January 1, 1999. The adoption did not
have a material effect on the Company's financial position or results of
operations.
Note 2 -Stockholders Equity
On March 16, 1999, the Shareholders of the Company approved an amendment to the
Certificate of Incorporation to authorize the issuance of up to 5,000,000 shares
of Preferred Stock. This authorization allows the Board of Directors to, among
other things, set the number of shares, the dividend rate and the voting rights
on any issuance of Preferred Stock without further shareholder approval.
On March 30, 1999, the Company 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 Preferred Stock were $6,500,000. The
Preferred Stock has voting rights, with Common Stock, on an as if converted
basis up to 29% of the then outstanding voting shares. The holders of the
Preferred Stock will provide the CEO and Secretary of the Company a proxy to
vote all shares currently owned and subsequently acquired above the 29%
limitation. The Preferred Stock carries a dividend rate of 7%, which will
increase to 16% on the fifth anniversary date, and converts to Common Stock at a
rate of $2.375 per share, which is 27% above the closing market price of Common
Stock as of March 29, 1999. The conversion rate may be subject to certain
antidilution provisions, as defined in the agreement. The Company engaged an
advisor to facilitate the Company's efforts in connection with this transaction.
In addition to the advisor fees of $560,000, the Company issued to the advisor,
warrants to purchase 136,842 shares of the Company's Common Stock at an exercise
price per share of $2.73. The Company will use the net proceeds from the
issuance of Preferred Stock to expand its RefrigerantSide(TM) Services and for
working capital purposes.
The Company will pay dividends on the Preferred Stock, semi annually, either in
cash or additional shares, at the Company's option, during the first two years
after which the dividends will be paid in cash. The Company may redeem the
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, after March 30, 2001, the Company may
call the Preferred Stock if the market price of the 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.
The Company has provided certain registration, preemptive and tag along rights
to the holders of the Preferred Stock. The holders of the Preferred Stock,
voting as a separate class, have the right to elect up to two members to the
Company's Board of Directors or at their option, to designate up to two
observers to the Company's Board of Directors who will have the right to attend
and observe meetings of the Board of Directors.
7
<PAGE>
In connection with the sale of the Series A Preferred Stock, and in addition to
the sales fees of $560,000, the Company has issued 136,842 warrants to a
registered broker - dealer to purchase the Company's common stock at an exercise
price of $2.73 per share.
The Company incurred an aggregate of $701,793 in costs associated with the sale
of the Series A Preferred Stock and such costs have been charged to additional
paid-in capital.
Note 3 - Sale of ESS
Effective March 19, 1999, the Company sold 75% of its stock ownership in
Environmental Support Solutions ("ESS") to one of ESS's founders. The
consideration for the Company's sale of its interest was $100,000 in cash and a
six year 6% interest bearing note in the amount of $380,000. It is not
anticipated that the Company will be involved in or control the operations of
ESS. The Company will recognize as income the portion of the proceeds associated
with the net receivables upon the receipt of cash. This sale did not have a
material effect on the Company's financial condition or results of operation.
Note 4 - Loan from Stockholder
In February 1999, a former director made an unsecured loan in the aggregate
principal amount of $365,000 to the Company. Such loan was due on demand and
bore interest at 12% per annum. On April 16, 1999, the Company repaid the loan
together with outstanding interest.
8
<PAGE>
Hudson Technologies, Inc. and subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Safe Harbor Statement Under The Private Securities Litigation Reform Act of 1995
Certain statements contained in this section and elsewhere in this Form 10-QSB
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 the Company
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, including the need of the
Company to obtain additional working capital, seasonality, competition,
litigation, the nature of supplier or customer arrangements which become
available to the Company 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, uncertainties
related to the Company's year 2000 compliance efforts and the ability of key
suppliers and customers to be year 2000 compliant and other risks detailed in
the Company's other periodic reports filed with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date the statement was
made.
Overview
Sales of refrigerants continue to represent a significant portion of the
Company's revenues. The Company believes that there will be a trend towards
lower sales prices, volume and gross profit margins on refrigerant sales in the
foreseeable future, which will continue to have an adverse affect on operating
results.
Historically, the Company has derived a majority of its revenues from the sale
of refrigerants. The Company has begun to change its business focus towards
service revenues through the development of a service offering known as
RefrigerantSide(TM) Services. In addition, the Company also provides refrigerant
management services, consisting principally of recovery and reclamation of
refrigerant used in commercial air conditioning, industrial processing and
refrigeration systems. While refrigerant sales continue to represent a
significant portion of the Company's revenues, the Company has diverted a
substantial portion of its sales resources towards service sales.
The net proceeds of the sale of the Company's Series A Preferred Stock is
expected to be used to expand the Company's service offering through a network
of depots that provide a full range of the Company's on site RefrigerantSide(TM)
Services. Management believes that these services represent the Company's long
term growth potential. The Company expects that it will incur additional
expenses and potential losses during the coming quarters related to the
expansion of its depot network.
The change in business focus towards revenues generated from service may cause a
material reduction in revenues derived from the sale of refrigerants. In
addition, in an attempt to lower its exposure to market conditions, the Company
has increased its inventory turnover rate. As a result, the Company's inventory
levels have significantly been reduced. To the extent that the Company is unable
to obtain refrigerants on commercially reasonable terms or experiences a decline
in demand for refrigerants the Company could realize delays in refrigerant
processing, and possible loss of revenues which could have a material adverse
affect on operating results.
9
<PAGE>
Results of Operations
Three months ended March 31, 1999 as compared to the three months ended March
31, 1998
Revenues for the three months ended March 31, 1999 were $5,031,000, a decrease
of $1,674,000 or 25% from the $6,705,000 reported during the comparable 1998
period. The decrease was attributable to a lower volume of refrigerant and
service revenues primarily to a principal customer. During the 1999 period the
Company experienced a short fall of product availability to meet certain of its
refrigerant sales. If the Company is unable to obtain product in the future the
Company would experience a reduction in refrigerant revenues which would have a
material adverse affect on operating results.
Cost of sales for the three months ended March 31, 1999 were $3,837,000, a
decrease of $847,000 or 18% from the $4,684,000 reported during the comparable
1998 period due mainly to a lower volume of refrigerant sales. As a percentage
of sales, cost of sales were 76% of revenues for the three month period ended
March 31, 1999, an increase from the 70% reported for the comparable 1998
period. The increase in cost of sales as a percentage of revenues was primarily
attributable to an increase in labor costs and other operating costs.
Operating expenses for the three months ended March 31, 1999 were $1,972,000, an
increase of $65,000 or 3% from the $1,907,000 reported during the comparable
1998 period. The increase was primarily attributable to an increase in
depreciation and amortization expense.
Other income (expense) for the three months ended March 31, 1999 was ($78,000),
an increase of $19,000 or 32% from the ($59,000) reported during the comparable
1998 period. Other income (expense) includes interest expense of $102,000 and
$84,000 for 1999 and 1998, respectively, offset by other income of $24,000 and
$25,000 for 1999 and 1998, respectively. The increase in interest expense is
primarily attributed to an increase in borrowings during 1999 as compared to
1998. Other income primarily relates to sublease rental income.
No income taxes for the three months ended March 31, 1999 and 1998 were
recognized. The Company recognized a reserve allowance against the deferred tax
benefit for the 1999 and 1998 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.
Net loss for the three months ended March 31, 1999 was $856,000, as compared to
net income of $55,000 reported during the comparable 1998 period. The net loss
was primarily attributable to lower volume on refrigerant and service sales and
a slight increase in operating expenses.
Liquidity and Capital Resources
At March 31, 1999, the Company had working capital of approximately $4,789,000,
an increase of $4,736,000 from the $53,000 at December 31, 1998. The increase in
working capital is primarily attributable to the sale of the Company's Series A
Convertible Preferred Stock pursuant to which the Company received gross
proceeds of $6,500,000 offset by the net loss incurred during the quarter ended
March 31, 1999. A principal component of current assets is inventory. At March
31, 1999, the Company had inventories of $2,443,000, a decrease of $841,000 or
26% from the $3,284,000 at December 31, 1998. The Company's ability to sell and
replace its inventory and the prices at which it can be sold are subject, among
other things, to current market conditions (See Seasonality and Fluctuations in
Operating Results). The Company has historically financed its working capital
requirements through cash flows from operations, the issuance of debt and equity
securities, bank borrowings and loans from officers.
Net cash provided by operating activities for the three months ended March 31,
1999, was $648,000 compared with net cash provided by operating activities of
$69,000 for the comparable 1998 period. Net cash provided by operating
activities was attributable mainly to the reduction of inventories, an increase
in accounts payable and accrued expenses offset by the net loss for the 1999
period.
10
<PAGE>
Net cash used by investing activities for the three months ended March 31, 1999,
was $257,000 compared with net cash used by investing activities of $109,000 for
the prior comparable 1998 period. The net cash usage consisted primarily of
equipment additions primarily associated with the expansion of the depot
network.
Net cash provided by financing activities for the three months ended March 31,
1999, was $5,688,000 compared with net cash used by financing activities of
$33,000 for the comparable 1998 period. The net cash provided by financing
activities primarily consisted of proceeds from the sale of the Company's Series
A Preferred Stock offset by the repayment of long term debt for the 1999 period.
At March 31, 1999, the Company had cash and equivalents of $6,855,000.
During 1996, the Company mortgaged its property and building located in Ft.
Lauderdale with Turnberry Savings Bank, NA. The mortgage of $671,000 at March
31, 1999 bears interest rate of 9.25% and is repayable over 20 years through
January 2017. The Company has principally ceased its operations at this facility
and continues to sublease the entire facility for $7,500 per month increasing to
$12,500 per month on May 1, 1999.
During 1996, the Company obtained financing from two lending institutions which
enabled it to rent an additional $1.7 million of equipment under terms of
operating leases. Hudson utilized these facilities to acquire automated aerosol
packaging equipment of approximately $1,000,000, ten refrigerant gas bulk-tank
storage units of approximately $400,000, and other industrial equipment of
$300,000. The Company has signed a non-binding letter of intent with an
unrelated third party for the sale of the aerosol packaging equipment. The
letter of intent is subject to the execution of a formal agreement and
anticipates the completion of the sale by July 1999.
During January 1997, the Company entered into a month to month lease of, and a
contract to purchase, a 29,000 square foot facility on 5.15 acres in Congers,
New York for approximately $1.4 million; subject to approvals and ability to
obtain financing. In October 1998, the Company cancelled the contract pursuant
to its contingency provision. The Company has received a notice of cancellation
from the landlord to terminate the month to month lease on May 1, 1999 and the
Company remains in occupancy as a hold over pending the removal of its aerosol
packaging equipment located at the facility.
The anticipated sale, by the Company, of the aerosol packaging equipment
contained in the Congers facility and the exit from the Congers facility are not
expected to have a material adverse effect on the Company's financial position
or results of operations because the Company believes that it will continue to
sell certain refrigerants without the use of the aerosol packaging equipment.
However, there can be no assurance that the Company will be able to offset any
loss of revenues due to the sale of the aerosol packaging equipment and the exit
of the Congers facility.
On April 28, 1998, the Company entered into a credit facility with CIT
Group/Credit Finance Group, Inc. ("CIT") which makes available borrowings to the
Company of up to $5,000,000 and increases to $6,500,000 in 1999. The facility
requires minimum borrowings of $1,250,000. The facility provides for a revolving
line of credit and a six-year term loan and expires in April 2001. Advances
under the revolving line of credit are limited to (i) 80% of eligible trade
accounts receivable and (ii) 50% of eligible inventory (which inventory amount
shall not exceed 200% of eligible trade accounts receivable or $3,250,000). As
of March 31, 1999, the Company has availability under its revolving line of
credit of approximately $1,090,000. Advances, available to the Company, under
the term loan (currently approximately $818,000) are based on existing fixed
asset valuations and future advances under the term loan up to an additional
$1,000,000 are based on future capital expenditures. As of March 31, 1999, the
Company had $1,213,000 outstanding under this facility. The facility bears
interest at the prime rate plus 1.5%, 10% at March 31, 1999, and substantially
all of the Company's assets are pledged as collateral for obligations to CIT. In
addition, among other things, the
11
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agreements restrict the Company's ability to declare or pay any dividends on its
capital stock. The Company has obtained a waiver from CIT to permit the payment
of dividends on its Series A Preferred Stock.
In connection with the loan agreements, the Company issued to CIT warrants to
purchase 30,000 shares of the Company's common stock at an exercise price equal
to 110% of the then fair market value of the stock, which on the date of
issuance was $4.33 per share, and expires April 29, 2001. The value of the
warrants were not deemed to be material.
In February 1999, a former director made an unsecured loan in the aggregate
principal amount of $365,000 to the Company. Such loan was due on demand and
bore interest at 12% per annum. On April 16, 1999, the Company repaid the loan
together with outstanding interest.
Effective March 19, 1999, the Company sold 75% of its stock ownership in
Environmental Support Solutions ("ESS") to one of ESS's founders. The
consideration for the Company's sale of its interest was $100,000 in cash and a
six year 6% interest bearing note in the amount of $380,000. It is not
anticipated that the Company will be involved in or control the operations of
ESS. The Company will recognize as income the portion of the proceeds associated
with the net receivables upon the receipt of cash. This sale did not have a
material effect on the Company's financial condition or results of operation.
The Company is continuing to evaluate opportunities to rationalize its other
operating facilities based on its emphasis on the expansion of its service
sales. As a result, the Company may discontinue certain operations which it
believes do not support the growth of service sales and, in doing so, may incur
future charges to operations.
12
<PAGE>
The Company believes that its cash flow from operations, together with the
proceeds from the sale of its Series A Preferred Stock, and its credit facility,
will be sufficient to satisfy the Company's working capital requirements and
proposed expansion of its service business for the next year. Any additional
expansion or acquisition opportunities that may arise in the future may affect
the Company's future capital needs.
Reliance on Suppliers and Customers
The Company'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 the
Company is unable to obtain sufficient quantities of refrigerants in the future,
or resell reclaimed refrigerants at a profit, the Company's financial condition
and results of operations would be materially adversely affected.
During January 1997, the Company entered into agreements with DuPont to market
DuPont's SUVA(TM) refrigerants. Under the agreement, 100% of virgin refrigerants
provided to specified market segment customers must be purchased from DuPont.
During the quarter ended March 31, 1999 and 1998, two and three customers
accounted for an aggregate of 47% and 58%, respectively, of the Company's
revenues. The loss of a principal customer or a decline in the economic
prospects and purchases of the Company's products or services by any such
customer would have a material adverse effect on the Company's financial
position and results of 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, non-recurring
refrigerant and service sales, availability and price of refrigerant products
(virgin or reclaimable); changes in reclamation technology and regulations,
timing in introduction and/or retrofit or replacement of CFC-based refrigeration
equipment by domestic users of refrigerants, the rate of expansion of the
Company's operations, and by other factors. The Company's business has
historically been seasonal in nature with peak sales of refrigerants occurring
in the first half of each year. Accordingly, the second half of the year results
of operations have reflected losses. 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 principle customer could
result in significant losses. There can be no assurance that the foregoing
factors will not occur and result in a material adverse affect on the Company's
financial position and significant losses.
Year 2000 Compliance
The Company uses various types of technology in the operations of its business.
Some of this technology incorporates date identification functions; however,
many of these date identification functions were developed to use only two
digits to identify a year. These date identifications functions, if not
corrected, could cause their related technologies to fail or create erroneous
results on or before January 1, 2000.
The Company is currently assessing and modifying its computer, production and
facility systems and business processes to provide for their continued
functionality at the Year 2000. The Company is also continuing to assess the
readiness of third parties and is seeking to address the Year 2000 issue with
those entities. However, the Company has limited knowledge of the readiness and
has no control over the actions taken by these parties, and accordingly, there
can be no assurance that all third parties with which the Company does
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business will successfully resolve all of their Year 2000 compliance issues. The
Company is augmenting previously scheduled computer maintenance with procedures
designed to locate and correct Year 2000 problems. The Company continues to
expect that substantially all new system upgrades or reprogramming efforts will
be completed by June 30, 1999. The costs associated with these procedures have
not been and are not expected to be material to the Company's financial
condition or results of operations and such costs have been expensed as
incurred.
The Company believes that modification of existing software and conversions to
new software should result in Year 2000 compliance. However, given the
complexity of the Year 2000 issue, the impact on business operations due to
failure by the Company to achieve compliance or failure by external entities,
such as suppliers and vendors, to achieve compliance, which the Company cannot
control, could adversely affect the Company's future results of operations.
There can be no assurance that the Company will be entirely successful with its
compliance.
The Company's intention is to address its Year 2000 issues prior to being
affected by them. The Company has attempted to identify its exposure to the Year
2000 issue but there may be other unforeseen risks that the Company may not have
identified. However, if the Company identifies significant risks associated with
Year 2000 compliance issues or if the progress of its current projects deviates
from the expected timeline, the Company will develop a contingency plan at that
time. There can be no assurance that the Company's plans or contingency plan
will be entirely successful.
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PART II. OTHER INFORMATION
Hudson Technologies, Inc. and subsidiaries
Item 1. Legal Proceedings
During June 1995, United Water of New York Inc. ("United") alleged that it
discovered that two of its wells within close proximity to the Company's
facility showed elevated levels of refrigerant contamination, specifically
trichlorofluoromethane (R-11). During June 1996, United notified the Company
that it was seeking indemnification by the Company for costs incurred to date as
well as costs expected to be incurred in connection with United taking remedial
action. During July 1996, United threatened to institute legal action in the
event that the Company declined to settle this matter.
During August 1996, the Company received a letter from the New York State
Department of Environmental Conservation ("DEC") which stated that, in the
opinion of DEC, the Company was the cause of the contamination of United's
wells. The DEC letter stated that it is not aware of the extent of the
contamination or how the refrigerants entered the groundwater.
During December 1996, the Company and United entered into an interim settlement
agreement which provided for (a) reimbursement ($84,000) of United's operating
costs associated with certain wells through August 1996, (b) reimbursement,
subject to a dollar cap of $12,650 per month, of United's monthly operating
costs for certain wells from September 1996 through April 1997, and (c)
continued monitoring of R-11 refrigerant groundwater levels. Under the
agreement, United agreed not to commence legal action against the Company prior
to May 1, 1997. Neither party waived their rights as a result of the interim
agreement.
During December 1997, United alleged that it discovered levels of
Dichlorodifluoromethane (R-12) in two of its wells within close proximity to the
Company's facility, and has alleged that the Company is the source. Sampling by
the Company of various monitoring wells installed around the Company's
facilities have been taken on a monthly basis since August 1996 and have failed
to detect any levels of R-12 in the groundwater in and around the Company's
facility.
During August and September 1997, various proposals for possible further
remediation were discussed with the DEC and United in light of the reduction of
levels of R-11 in United's Wells. From August 1997 through March 1999 the levels
of R-11 remained nearly non-detectable and well under minimum contaminant levels
established by the State of New York. In January 1998, the Company agreed to
install a remediation system at the Company's facility to remove any remaining
R-11 levels in the groundwater under and around the Company's facility. In
August 1998 the DEC accepted the Company's proposal and requested that the
Company proceed with the installation of the system. The cost of this
remediation system was estimated to be approximately $100,000.
In June 1998, United commenced an action against 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 the foregoing. In December
1998, United served an amended complaint asserting a claim pursuant to the
Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901, et. seq. ("RCRA")
The Company maintains that the allegations in the complaint are without merit
and that the damages claimed by United are significantly overstated and bear
little relation to any damages that United allegedly sustained. A motion has
been filed on behalf of the Company to dismiss the RCRA cause of action, which
motion is now pending.
On April 1, 1999, the Company reported a release at the Company's Hillburn, New
York facility of what was ultimately determined to be 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. An amount of
the R-11 escaped the secondary containment area through an open drain from the
secondary containment area for removing accumulated rainwater and entered the
ground. The Company immediately commenced excavation
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operations to remove contaminated soil and has taken a number of other steps to
mitigate and minimize contamination, including acceleration of the installation
of the planned remediation system.
In April 1999, the Company was advised by United that one of its wells within
close proximity to the Company's facility showed elevated levels of R-11 in
excess of 200 ppb. and was taking certain steps and would be incurring costs in
an attempt to remediate any contamination. In response to the release, the
Company requested, and in May 1999, received permission from the DEC to operate
the system pending negotiation and finalization of a Consent Order covering the
operation of the system. The remediation system was put into operation on May 7,
1999. The Company continues to work with the NYSDEC, United and with the
Company's experts to determine the scope of any contamination, and to develop
and implement plans to deal with and remediate any such contamination.
In May 1999, United submitted supplemental affidavits and exhibits to the
Rockland County Supreme Court in connection with the Company's pending motion,
which relate to the April 1, 1999 release. The Company has responded to that
supplemental information, and the motion remains pending.
The Company carries $1,000,000 of pollution liability insurance per occurrence
and has put the insurance carrier on notice of the release and possible claims
of United. There can be no assurance that this action, or any settlement
thereof, will be resolved in a manner favorable to the Company, or that the
ultimate outcome of any legal action or settlement, or the effects of the April
1, 1999 release, will not have a material adverse effect on the Company's
financial condition and results of operations.
During March and April, 1998, six (6) complaints, each alleging violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, were filed by a
total of eight shareholders, on behalf of themselves and all others similarly
situated, against the Company and certain of its officers and directors in the
United States District Court for the Southern District of New York. Each of the
complaints alleges that the defendants, among other things, misrepresented
material information about the Company's financial results and prospects, and
its customer relationships. The complaints in five of these actions seek relief
on behalf of persons purchasing common stock between August 8, 1995 and August
15, 1997, and the complaint in the sixth action seeks relief on behalf of
persons purchasing common stock between March 31, 1997 and August 15, 1997. The
Company maintains that the allegations of wrongdoing alleged in the complaints
are without merit. The Company intends to vigorously defend the claims brought
against it and has retained the law firm of Davis, Polk and Wardwell for that
defense. A motion has been made on behalf of the Company to dismiss the claims
asserted, which motion is now pending.
There can be no assurance that any of these actions, or the settlement thereof,
will be resolved in a manner favorable to the Company, or that the ultimate
outcome of any legal action or settlement will not have a material adverse
effect on the Company's financial condition and results of operations.
In May 1998, an action was commenced in the Supreme Court of the State of New
York, Rockland County, by BNY Financial Corporation ("BNY") against the Company
seeking damages in the amount of $49,051 for legal fees and expenses allegedly
incurred in connection with certain financial dealings and discussions engaged
in between the Company and BNY. The Company denies any liability for such
expenses and intends to defend the action vigorously, and has also asserted
counterclaims seeking the return of certain fees paid by the Company to BNY in
connection with those financial dealings. BNY has filed a motion seeking summary
judgment against the Company. The Company's time to submit opposition to that
motion has not yet expired.
There can be no assurance that this action, or any settlement thereof, will be
resolved in a manner favorable to the Company.
In February 1999, an inspection was performed by the Occupational Safety and
Health Administration of the Company's Hillburn, New York facility in response
to a complaint by an unnamed third party. The Company has entered into a
settlement agreement with the Administration by which the Company has agreed to
take
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action to address certain allegations of the Administration and to pay a total
of $9,500 to the Administration in civil penalties.
Hudson Technologies and its subsidiaries are subject to various other claims
and/or lawsuits from both private and governmental parties arising from the
ordinary course of business; none of which are material.
Item 2. Changes in Securities and Use of Proceeds
During the three months ended March 31, 1999, the Company granted options to
purchase 28,000 shares of common stock to certain employees pursuant to its 1997
Stock Option Plan. The Company relied on Section 4(2) under the Securities Act
of 1933 as transactions by an issuer not involving a public offering.
On March 16, 1999, the shareholders of the Company approved an amendment to the
Certificate of Incorporation to authorize the issuance of up to 5,000,000 shares
of Preferred Stock. This authorization allows the Board of Directors to, among
other things, set the number of shares, the dividend rate and the voting rights
on any issuance of Preferred Stock without further shareholder approval.
On March 30, 1999, the Company 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 Preferred Stock were $6,500,000. The
Preferred Stock has voting rights, with Common Stock, on an as if converted
basis up to 29% of the then outstanding voting shares. The holders of the
Preferred Stock will provide the CEO and Secretary of the Company a proxy to
vote all shares currently owned and subsequently acquired above the 29%
limitation. The Preferred Stock carries a dividend rate of 7%, which will
increase to 16% on the fifth anniversary date, and converts to Common Stock at a
rate of $2.375 per share, which is 27% above the closing market price of Common
Stock as of March 29, 1999. The conversion rate may be subject to certain
antidilution provisions, as defined in the agreement. The Company engaged an
advisor to facilitate the Company's efforts in connection with this transaction.
In addition to the advisor fees of $560,000, the Company issued to the advisor,
warrants to purchase 136,842 shares of the Company's Common Stock at an exercise
price per share of $2.73. The Company will use the net proceeds from the
issuance of Preferred Stock to expand its RefrigerantSide(TM) Services and for
working capital purposes.
The Company will pay dividends on the Preferred Stock, semi annually, either in
cash or additional shares, at the Company's option, during the first two years
after which the dividends will be paid in cash. The Company may redeem the
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, after March 30, 2001, the Company may
call the Preferred Stock if the market price of the 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.
The Company has provided certain registration, preemptive and tag along rights
to the holders of the Preferred Stock. The holders of the Preferred Stock,
voting as a separate class, have the right to elect up to two members to the
Company's Board of Directors or at their option, to designate up to two
observers to the Company's Board of Directors who will have the right to attend
and observe meetings of the Board of Directors.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are attached to this report.
Exhibit 10: Contract of sale, dated March 19, 1999, for 75% interest in
Environmental Support Solutions, Inc.
Exhibit 27: Financial Data Schedule (for SEC use only)
(b) No report on Form 8-K filed during the quarter ended March 31, 1999.
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Hudson Technologies, Inc. and subsidiaries
Form 10-QSB of March 31, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed in its behalf by the
undersigned, thereunto duly authorized.
HUDSON TECHNOLOGIES, INC.
By: /s/ Kevin J. Zugibe May 14, 1999
------------------------------------
Kevin J. Zugibe Date
Chairman/CEO
By: /s/ Brian F. Coleman May 14,1999
------------------------------------
Brian F. Coleman Date
Vice President and
Chief Financial Officer
18
Hudson Technologies, Inc. and subsidiaries
Form 10-QSB of March 31, 1999
Exhibit 10: Contract of Sale for Environmental Support Solutions
CONTRACT OF SALE
THIS AGREEMENT is made March 19,1999 between Environmental Support
Solutions, Inc. ("ESS"), Hudson Holdings, Inc. ("Seller") and Robert Johnson
("Purchaser").
WHEREAS, the Seller owns and controls all of the issued and outstanding
capital stock of ESS; and
WHEREAS, the parties have determined to proceed with a transaction by which
ESS will redeem some of outstanding stock owned and held by Seller, and
Purchaser will acquire some of the remaining outstanding capital stock of ESS
from Seller;
NOW THEREFORE, in consideration of the mutual covenants and provisions
contained herein, and for other good and valuable consideration, receipt of
which is hereby acknowledged, IT IS AGREED AS FOLLOWS:
1. Repurchase of Capital Stock: ESS shall repurchase at Closing (the
"Repurchase") Two Thousand Six Hundred Sixty Six (2,666) shares of no par common
stock of ESS from Seller (the "Repurchase Shares")for the following
consideration (collectively, the "Repurchase Consideration"):
a. Promissory Note and Security Agreement made payable to the Seller, in the
principal amount of $380,000, on the forms annexed hereto as Exhibits "A"
and "B" to be executed and delivered to Seller at Closing; and
b. Robert Johnson shall execute the Guaranty of Payment on the form annexed
hereto as Exhibit "C" to be executed and delivered to Seller at Closing.
Upon a purchase of the Repurchase Shares, ESS shall cancel all certificates
for and retire all of the Repurchase Shares which will be restored to the
treasury of ESS as authorized and unissued shares.
2. Sale of Capital Stock: Seller hereby agrees to sell and deliver to Purchaser
at Closing, and Purchaser agrees to purchase One Thousand (1,000) shares of no
par value common stock of ESS (the "Purchaser Shares") for One Hundred Thousand
Dollars ($100,000) (the "Purchase Consideration") payable at Closing. Seller
hereby warrants that the Purchaser Shares represent Seventy Five Percent (75%)
of the remaining issued and outstanding shares of the capital stock of ESS after
the Repurchase.
3. Closing: The closing of the sale shall take place on or about March 19, 1999,
and shall take place at a place and time to be agreed upon by the parties (the
"Closing").
4. Seller' Representations and Warranties: The Seller makes the following
representations and warranties to Purchaser, which representations and
warranties shall be true at the time of closing as though such representations
and warranties were made at closing:
a. ESS is, and will be on the closing date, a corporation duly organized,
validly existing, and in
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good standing under the laws of the State of Arizona. Copies of ESS'
Certificate of Incorporation, and any and all amendments thereof to date,
certified by the Corporation's Secretary, and of ESS' By-laws as amended to
date, certified by the Secretary of ESS, have been delivered to Purchaser,
and are true, complete and correct as of the date of this Agreement. To the
best of Seller's knowledge, there is no state, other than Arizona, where
the character of the properties owned by ESS, or the nature of the business
transacted by ESS, require that ESS be licensed and authorized or qualified
as a foreign corporation
b. ESS has no subsidiaries.
c. The aggregate number of shares that ESS is authorized to issue is 100,000
common shares, of which 4,000 shares are issued and presently outstanding,
and 25,000 shares of Series A Preferred Stock of which no shares have been
issued or are currently outstanding. All such issued shares have been
validly issued and are fully paid and non-assessable. ESS has no
outstanding subscriptions, contracts, options, warrants, or other
obligations to issue, sell, or otherwise dispose of, or to purchase, redeem
or otherwise acquire any of its shares.
d. Seller now has, and at the Closing will have, valid and marketable title to
the shares of stock to be sold by such Seller, free and clear of any lien,
claim, security interest or other encumbrance, including, without
limitation, any restriction on transfer, and has full right, power and
authority to enter into this agreement, and there are no other shares, or
class of shares of ESS owned or claimed by any person or entity other than
Seller. No change will be made in the authorized corporate shares of ESS.
e. Seller now has, and at the Closing will have, upon delivery of any payment
for each share of stock, full right, power and authority, and any approval
required by law to sell, transfer, assign and deliver the stock being sold
by such Seller hereunder, and Purchaser will acquire valid and marketable
title to all of the stock being sold by such Seller, free and clear of any
liens, encumbrances, equities claims, restrictions or transfer or other
defects whatsoever.
f. Seller has full power and authority to execute and deliver this agreement
and to perform the obligations of the Seller hereunder; and this agreement
is a legally binding obligation of the Seller in accordance with its terms.
g. The performance of this agreement and the consummation of the transactions
contemplated hereby will not result (i) in a breach or violation by such
Seller of any of the terms or provisions of, or constitute a default by
such Seller under, (A) any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Seller is a party or by which such
Seller or any of his properties is bound, or (B) any judgment of any court
or government agency or body applicable to such Seller or any of his
properties, or (C) to the best of such Seller's knowledge, any statute,
decree, order, rule or regulation of any court or governmental agency or
body applicable to such Seller or any of his properties or (ii) to the best
of such Seller's knowledge, in the creation of a lien.
h. All necessary federal and state tax returns have been timely filed as
required by applicable law, and all taxes shown thereon have been paid when
due.
i. To the best of Seller's knowledge, ESS has good and marketable title to all
of its properties
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and assets, real and personal, including but not limited to all computer
software and programs, and other products and any patents, trademarks
and/or copyrights relating thereto or to any product or service provided by
ESS, subject to no mortgage, pledge, lien, encumbrance, security interest,
or charge.
j. ESS will not, on the closing date, be in default in the payment of any of
its obligations.
k. ESS has complied with all applicable federal and state laws relating to the
employment of labor, including the provisions relating to wages, hours,
collective bargaining, and the payment of social security taxes, and is not
liable for any arrears of wages, or any tax or penalties, for failure to
comply with any of the foregoing.
l. To the best of Seller's knowledge, ESS is, and at Closing will be, in
compliance with all laws, statutes, regulations, rules and other
requirements of any governmental authority applicable to it for which
non-compliance could have a material adverse affect on ESS or its business.
ESS has, and shall have on the date of Closing, all licenses, permits,
certificates and certifications required by any and all local and state
governments and governmental departments having jurisdiction over the
business of ESS. There is presently no proceeding pending or the best of
ESS's knowledge threatened with respect to the revocation or limitation of
any of its material licenses.
m. To the best of Seller's knowledge, based in part upon the information
provided by Purchaser, the unaudited financial statements of ESS on the
date of Closing shall accurately show all liabilities and assets owned and
controlled by ESS (excluding cash and marketable securities which shall be
retained by Seller), tangible or intangible, including without limitation,
accounts receivable, prepaid expenses, and inventories, together with any
licenses, patents, trademarks, trade names, service marks and copyrights
used in connection therewith, and all contract rights of ESS as of the date
of Closing. Seller represents, to the best of Seller's knowledge, that as
of the date of Closing, the liabilities of ESS will not be greater by more
than $25,000, and the total assets will not be less than, the amounts shown
on the balance sheet (the "Balance Sheet"). To the best of Seller's
knowledge, the financial statements are true, accurate and complete in all
material respects and fairly present the information in accordance with
generally accepted accounting practices as of the date thereof, and, to the
best of Sellers' knowledge, fairly present the financial condition of ESS
as of the date thereof, and there have been no significant material or
adverse changes in the financial condition since the date of that balance
sheet. The foregoing financial statements do not include footnote
disclosures that would be required for full conformity with generally
accepted accounting practices.
n. Except for the claims of Mach II, to the best of Seller's knowledge, there
is no litigation or proceeding pending, or to Sellers' knowledge threatened
which Purchaser has no knowledge, against or relating to ESS, its
properties, or business, nor does the Seller know or have reasonable
grounds to know of any basis for any such action or of any governmental
investigation relative to ESS, its properties, or business. Seller agrees
that Stephen Mandracchia will represent Purchaser at no cost in the
arbitration hearing with Mach II.
o. Seller represents and warrants that the transfer of its shares will not
constitute a prohibited assignment or transfer of any of ESS' licenses,
leases, notes or contracts, and that all of the foregoing will remain in
full force and effect without acceleration as a result of this
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transaction.
p. Seller represents that it is fully aware of Purchaser's position as the
current President of ESS and as a Director of Seller, and Seller hereby
waives any and all claims and causes of action against Purchaser for any
breach of fiduciary duty related to pursuing or executing the transaction
set forth in this Agreement.
5. Conduct of Business Pending Closing: The Seller covenants that, pending the
closing:
a. The business of ESS will be conducted in the ordinary course;
b. ESS shall not sell, transfer, assign, encumber or place a lien on any of
the assets, including patents, trademarks, copyrights and other
intellectual property, other than in the ordinary course of business;
c. No change will be made in the Certificate of Incorporation or the By-laws
of ESS, or in the authorized corporate shares of ESS, without the prior
written consent of Purchaser, except as may be necessary to implement and
accomplish the terms of this agreement;
d. No dividend or other distribution or payment will be declared or made in
respect of the shares of ESS, and ESS will not directly or indirectly
redeem, purchase, or otherwise acquire any of such shares.
e. ESS will keep all of its inventory and other property fully insured against
any loss, either by fire, other casualty, or theft, and shall maintain all
existing commercial liability insurance policies, commercial automobile
policies, and any other insurance policies insuring the assets, operations,
employees, officers and business of ESS. If prior to the closing date the
inventory or property of ESS at all or any of its facilities is totally or
substantially damaged by reason of fire or other casualty, or is lost by
reason of theft, Purchaser may, at its sole option, elect to terminate this
agreement and all moneys previously deposited by Purchaser with the Seller
shall be refunded to Purchaser and all parties shall be released from any
further liability. If Purchaser elects to proceed with this sale despite
such damage or loss, Purchaser shall receive the proceeds of any insurance
paid by reason of such damage or loss.
f. ESS shall not default on any contract, lease or other obligation, and all
debts and taxes will be paid as they become due.
g. ESS shall maintain all licenses, permits, authorizations and certifications
from all applicable state, federal and local governments, and all standard
industry certifications.
6. Purchaser's Representations and Warranties: Purchaser represents, covenants
and warrants to Seller as follows as of the date hereof and as of the Closing:
a. Purchaser is currently a director and is the President of ESS and is fully
familiar with the business, operations and financial condition of ESS and,
except as expressly stated in this Agreement, is not relying on any
statement or representation by Seller as to ESS's financial condition,
assets, liabilities, claims, contractual obligations, past financial
performance or the
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viability of ESS's business or business opportunities.
b. At or prior to Closing, Purchaser shall execute and deliver his resignation
as Vice President and as director of Hudson Technologies, Inc., and shall
deliver a written waiver of the "golden parachute" provisions of Paragraph
10 of Purchaser's Employment Agreement, dated April 23, 1996 with regard to
this transaction.
c. There are no claims, demands, suits, proceedings or litigation of any kind
pending or to the knowledge of Purchaser threatened toward Purchaser, and
there are no unreleased or unsatisfied judgments, decrees or orders of any
court or governmental authority, which involve or affect the ability of
Purchaser to enter into, or to perform all obligations and covenants
contained in, this agreement.
7. Assignment: This agreement may not be assigned by either party without the
express written agreement of the other party, except that Seller shall have the
absolute right to assign this contract to any parent or subsidiary corporation
heretofore or hereafter created.
8. Conditions Precedent: All obligations of Purchaser under this agreement
including each of the following conditions are, at its option, subject to the
fulfillment, prior to or at the Closing:
a. The Seller' representations and warranties contained in this agreement
shall be true at the time of closing as though such representations and
warranties were made at closing; and
b. At Closing, Seller's representatives shall execute and deliver their
resignations as directors and officers of ESS.
c. At the Closing or at a time mutually agreed upon by Seller and Purchaser,
Seller shall deliver the certificates for the Purchaser Shares to Purchaser
free and clear of all encumbrances, duly endorsed in negotiable form, with
all Arizona required transfer stamps attached, if any, together with such
other documents reasonably necessary to complete the sale, and Seller shall
deliver the certificates for the Repurchase Shares to ESS free and clear of
all encumbrances, duly endorsed in negotiable form, with all Arizona
required transfer stamps attached, if any, together with such other
documents reasonably necessary to complete the Repurchase. Provided,
however, Purchaser and ESS shall hold the Purchaser Shares and the
Repurchase Shares in trust for the benefit of Seller until Seller receives
the balance of the Purchase Consideration and the Repurchase Consideration.
d. Seller agrees that the options for shares of stock in Hudson Technologies,
Inc. ("Options") granted to Purchaser, Steve Ehrlich, Larry Hays and Mark
Yates (collectively, "Option Holders") shall survive the Closing and shall
vest according to the original terms governing the Options as if the Option
Holders remained employed by Hudson Technologies, Inc. For informational
purposes only, Seller acknowledges that Purchaser has been granted a total
of 60,000 Options and Steve Ehrlich, Larry Hays and Mark Yates have been
granted 5,000 Options each.
9. Indemnification: Seller shall indemnify, defend and hold harmless Purchaser,
at all times after the date of this agreement, and after the closing, against
and in respect of:
a. Any liabilities of ESS of any nature, which Seller has knowledge of and
Purchaser has no
23
<PAGE>
knowledge, whether accrued, absolute, contingent or otherwise, existing at
Closing, to the extent not reflected or reserved against in full in ESS's
balance sheet dated March 19, 1999, including without limitation, any tax
liabilities to the extent not so reflected or reserved against, accrued in
respect to, or measured by ESS's income for any period prior to, or arising
out of transactions into, or any state of facts existing, prior to Closing;
b. To the extent provided by the Seller's By-laws and as permitted by
applicable law, all actions, suits, proceedings, demands, assessments,
judgments, costs, and expenses asserted against Purchaser related to
Purchaser's position or as a former director of Seller, including
reasonable attorneys fees;
c. Any damage or deficiency resulting from any misrepresentation, breach of
warranty, or nonfulfillment of any agreement, or from any misrepresentation
in or commission from any certificate or other instrument furnished or to
be furnished to Purchaser hereunder; and
d. All other actions, suits, proceedings, demands, assessments, judgments,
costs, and expenses incident to any of the foregoing, including reasonable
attorneys fees.
10. Brokers: The parties represent and warrant to each other that they have not
retained or otherwise dealt with any broker or other intermediary to whom any
fees or payments are due on account of the transaction, and each agree to
indemnify and hold the other harmless on account of any such fees that may be
incurred.
11. Right of Redemption: From the date of Closing until September 30, 1999, ESS
shall have the right to redeem up to one hundred (100) of Seller's remaining
shares of no par value common stock of ESS at a price of $526.95 per share for
the purpose of issuing said shares to current ESS employees. Until March 31,
2000, ESS shall have the right to redeem some or all of Seller's remaining 334
(or so many of the shares that have not already been redeemed by ESS) shares of
no par value common stock of ESS (the "Remaining Shares") for $720.00 per share
or $240,480 (if all 334 shares are redeemed at $720 per share) for all of the
Remaining Shares (the "Redemption Consideration").
After the Closing, the Remaining Shares will be evidenced by a stock
certificate ("Certificate") which shall bear a legend stating that the Remaining
Shares are subject to a right of redemption until March 31, 2000.
12. Survival of Representations: All representations and warranties and
agreements shall survive the Closing and any examination or investigation at any
time made by Purchaser.
13. Entire Agreement: This agreement constitutes the entire agreement between
the parties. Any representation, warranty, or covenant made by Seller that is
not set forth in this agreement is not binding upon Seller.
14. Binding on Assigns: This agreement shall be binding upon and inure to the
benefit of the respective legal representatives, successors, heirs and assigns
of the parties.
15. Notices: All notice, requests, demands, and other communications hereunder
shall be in writing, and shall be deemed to have been duly given if delivered or
mailed first class, postage prepaid to the respective parties at the following
addresses:
24
<PAGE>
A. To Purchaser: Robert Johnson
Environmental Support Solutions, Inc.
210 N. Center, Suite 101
Mesa, Arizona 85201
With a copy to: Jeff Padden, Esq.
Bonn, Luscher, Padden & Wilkins
805 N. Second Street
Phoenix, Arizona 85004
B. To Sellers: c/o Hudson Technologies, Inc.
275 North Middletown Road
Pearl River, New York 10965
16. Construction: This agreement shall be construed in accordance with the laws
of the State of Arizona.
17. Waiver: Any waiver by either party of any breach of any term or condition of
this agreement shall not be deemed a waiver of any other breach of such term or
condition, nor shall the failure of either party to enforce such provision
constitute a waiver of such provision or of any other provision, nor shall such
action be deemed a waiver or release of any other party for any claims arising
out of or connected with this agreement.
18. Board of Directors: For so long as Seller owns any of the common stock of
ESS, Purchaser and Seller agree that Seller shall have the right to nominate and
elect one (1) director to the ESS board of directors at any time that the number
of directors of ESS exceeds two (2).
[SIGNATURES ON NEXT PAGE]
25
<PAGE>
IN WITNESS WHEREOF the parties have duly executed this agreement on the
date first written above.
ENVIRONMENTAL SUPPORT SOLUTIONS, INC.
By: /s/ Robert Johnson
------------------------------
Robert Johnson, President
ROBERT JOHNSON
/s/ Robert Johnson
----------------------------------------
Robert Johnson
HUDSON HOLDINGS, INC.
By: /s/ Stephen P. Mandracchia
------------------------------------
Print Name: Stephen P. Mandracchia
----------------------------
Title: Executive Vice President
----------------------------------
26
<PAGE>
EXHIBIT A
NON-NEGOTIABLE PROMISSORY NOTE
$380,000.00 March 19, 1999
Environmental Support Solutions, Inc., 210 N. Center, Suite 101, Mesa,
Arizona 85201 (the "Maker") promises to pay to HUDSON HOLIDNGS, INC., 275 North
Middletown Road, Pearl River, New York 10965 (the "Payee"), the principal sum of
Three Hundred Eighty Thousand and 00/100 ($380,000.00) Dollars on or before
March 1, 2006(the "Maturity Date").
1. The entire principal amount under this Note shall bear interest at an
annual rate of six (6.00%) percent. Payments under this Note shall be made as
follows:
a. No payments are required under this Note during the period from March
19, 1999 through December 28, 1999, and all interest on the principal
amount shall accrue during the period and will be added to the
principal amount as of December 28, 1999.
b. The entire principal amount will be repaid in Seventy-Two (72) equal
monthly payments of principal and interest, each payment being due on
the 1st day of each month commencing on January 1, 2000 except that
the first payment shall be due on December 28, 1999 instead of January
1, 2000.
c. The entire remaining unpaid principal, any interest and any other
amounts which may be due under this Note will be paid on or before
December 1, 2005.
The Maker shall pay a late charge, equal to five (5%) of any overdue
payment, in the event that the Payee has not received the full amount of any
monthly payment by the end of fifteen (15) calendar days after the date it is
due. All or any part of the unpaid principal amount of this indebtedness may be
prepaid at any time without penalty.
All payments, including any prepayment, shall be applied first to interest
and any other charges which may be due under this Note before being applied to
principal. Payments shall be made to the Payee at 275 North Middletown Road,
Pearl River, New York 10965, or at such other address as the Payee may
designate.
2. The Payee may declare the full amount of this Note, to be immediately
due and payable upon the Maker's default. The following shall constitute
default:
a. The Maker's failure to make any payment due under this Note on the
date it is due which default has not been cured within thirty (30)
days after the receipt of written notice from the Payee. However, if
the default is of a type that can not reasonably be cured within
thirty (30) days, and Maker is diligently working to cure said
default, then Maker shall have a reasonable time thereafter to cure
said default;
b. The Maker's failure to keep and perform all promises, agreements,
conditions and provisions of this Note;
c. The Maker's default under Security Agreement executed simultaneously
herewith and granted by the Maker to the Payee as additional security
for the promises made in this Note, which default is not cured within
the time period specified in the Security Agreement.
d. The Maker makes a general assignment for the benefit of creditors, or
files a voluntary petition in bankruptcy, or a petition for
reorganization under the
27
<PAGE>
bankruptcy laws, or if an involuntary petition in bankruptcy is filed
against any obligor and not dismissed within sixty (60) days; of if a
receiver or trustee is appointed for all or any part of the property
and assets of any obligor.
Upon such default, in addition to the unpaid principal amount of this
indebtedness, the Maker will be liable to the Payee for interest at the rate of
twelve (12%) per cent per annum from the date of such default, together with all
expenses incurred by the Payee in connection with such default or the collection
of this indebtedness including, without limitation, the Payee's reasonable
attorneys' fees.
3. Upon default in the making of any of the payments due under this Note,
the Payee does not have to present this Note, demand payment or protest.
4. Delay or failure on the part of the Payee to assert any right or take
any action hereunder will not be deemed a waiver thereof or a waiver of any
default by the Maker.
5. This Note shall be governed and construed in accordance with the laws of
the State of Arizona.
Environmental Support Solutions, Inc.
By __________________________________
Robert Johnson, President
28
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement ("Agreement") is made and entered into as of this
19th day of March, 1999 by and among Robert Johnson ("Johnson"), Hudson
Holdings, Inc., a Nevada corporation ("Secured Party"), and Environmental
Support Solutions, Inc., an Arizona corporation (the "Company").
RECITALS
WHEREAS, pursuant to the terms of that certain Contract of Sale (the
"Contract") of even date herewith by and among Company, Johnson and Secured
Party, Johnson has purchased from Secured Party One Thousand (1,000) shares of
common stock in the Company and such capital stock has been reissued in the name
of Johnson (the "Stock"); and
WHEREAS, Company has repurchased from Secured Party, Two Thousand Six
Hundred Sixty Six (2,666) shares of the common stock in the Company and such
stock has been retired and returned to the treasury of the Company. In
consideration therefore, Company has agreed in the Contract to make payments to
the Secured Party pursuant to a promissory note in the amount of Three Hundred
Eighty Thousand Dollars ($380,000.00) (the "Note") under the Contract; and
WHEREAS, Johnson has agreed to grant to Secured Party a security interest
in and to the Stock as security for the payment of the Note;
WHEREAS, Johnson has executed a personal guarantee for Company's
obligations under the Note in consideration of the Contract, the Note and this
Security Agreement; and
WHEREAS, the Secured Party would not have entered into the Contract but for
the execution of this Agreement by the Johnson.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions herein contained, the parties hereto hereby agree as
follows:
1. Recitals. The foregoing recitals are incorporated herein as a part of
this Agreement.
2. Security. Johnson delivers, and grants to Secured Party a security
interest in the Stock represented by Certificate No.__of Environmental Support
Solutions, Inc. (the "Certificate") together with all Stock Rights and any other
shares in the Company issued at any time to Johnson and the proceeds thereof.
The Certificate, along with a stock power duly executed in blank by Johnson (the
"Stock Power"), shall be delivered to Secured Party following the execution of
this Agreement for the benefit of Secured Party. The Certificate, Stock Rights,
additional stock, and the Stock Power shall individually and collectively be
referred to as the "Collateral".
3. Obligations Secured. Johnson grants to Secured Party a security interest
in the Stock to secure the performance of all of Company's obligations under the
Note and the Contract.
29
<PAGE>
4. Secured Party. Secured Party shall hold all Collateral as security upon
the terms and conditions herein and shall not encumber or dispose of the
Collateral or an interest therein, except in accordance with the provision
hereof.
5. Voting Rights; Ownership. So long as Company has not been notified by
Secured Party in writing that it is in default of the Note or the Contract,
Johnson shall retain all incidents of ownership in the Collateral, and Johnson
shall have the right to vote the Collateral without restriction except as to
those restrictions herein contained. Neither the Collateral, nor any interest
therein, nor the bulk of assets of the Company, may be (i) sold, consigned,
pledged, hypothecated or conveyed other than in the ordinary course of business
or to secure a working capital loan not to exceed $150,000 or (ii) subordinated
to any sale, consignment or conveyance, without the advance written consent of
the Secured Party. Notwithstanding anything to the contrary herein, Company
shall have the right to issue additional shares of stock in the Company to a
third party investor in an arms length transaction.
Company and Johnson jointly covenant and agree that the Stock and other
Collateral shall not be voted to permit the issuance of additional shares of
stock in the Company, to merge the Company with any other entity, to engage in
any corporate reorganization of the Company, to liquidate the Company or to take
any other action which would dilute in any manner the interest in Company which
is represented by the Collateral without the written consent of Secured Party.
Notwithstanding the foregoing, the Company shall have the right to issue and
sell additional shares of stock in the Company to an unrelated and unaffiliated
third-party investor in an arms length transaction that will not result in any
change in ownership of the Company, as that term in defined in paragraph "8 (e)"
below.
6. Dividends. So long as Company is not in default of the Note, the
Contract, or this Agreement, all cash dividends, distributions and payments of
every nature with respect to the Collateral (a "Dividend") shall be paid to
Johnson. No Dividend shall be paid at any time, or accepted by Johnson, if the
payment would cause Company to be in default of any obligation to which it is a
party or would render Company insolvent or unable to conduct its business as
theretofore conducted or would cause the Company to have less than $150,000 in
cash in the Company for working capital.
7. Adjustments. Johnson and the Company agree that no additional shares,
warrants, options, or rights to stock in the Company shall be issued to Johnson
without Secured Party's prior written consent. In the event of any stock
issuance, stock split, stock dividend or issuance of rights, warrants or options
relating to the Stock or other Collateral (collectively and individually "Stock
Rights") during the term of this Agreement, said Stock Rights and any and all
new shares or other securities of the Company acquired by Johnson thereby or
upon exercise of such rights shall be delivered to Secured Party by the Company
and Johnson to be held as Collateral in the same manner as the shares originally
secured by this Agreement. In the event the Company effects a share
classification or readjustment, any additional or substituted shares issued to
or in the name of Johnson shall be delivered to Secured Party by Company to be
held as Collateral in the same manner and for the same purposes as the Stock
originally secured by this agreement.
8. Default. The following shall constitute a default under this agreement:
(a) The default of Company in any of the obligations of the Note, which
default has not been cured within thirty (30) days after the receipt
of written notice from the Secured Party.
30
<PAGE>
However, if the default is of a type that can not reasonably be cured
within thirty (30) days, and Company is diligently working to cure
said default, then Company shall have a reasonable time thereafter to
cure said default;
(b) Any material representation, warranty or statement of fact made by
Johnson or Company to Secured Party shall, when made or deemed made,
prove inaccurate or materially misleading;
(c) Any judgment or judgments aggregating in excess of $75,000 or any
injunction or attachment is obtained against Johnson or Company which
remains unstayed for a period of twenty (20) days or is enforced;
(d) Any change in the president and chief executive officer or any change
in the controlling ownership of the Company. For purposes of this
provision, a change in ownership or control occurs: (i) when any
person is or becomes the beneficial owner, directly or indirectly, of
50% or more of the combined voting power of the Company's then
outstanding voting securities, or such lesser amount as is sufficient
to obtain controlling interest in the Company or (ii) the sale,
transfer and/or assignment of a substantial portion of the assets of
the Company;
(e) Any petition or application for any relief under the bankruptcy laws
of the United States now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or
hereafter in effect (whether at law or in equity) is filed by Johnson
or by Company, or is filed against Borrower or against ESS and is not
dismissed within thirty (30) days of filing;
(f) The indictment of Company or Johnson under any criminal statute, or
commencement of criminal or civil proceedings against Company or
Johnson or any guarantor, pursuant to which statute or proceedings the
penalties or remedies sought or available include forfeiture of any of
the property of Company or Johnson;
(g) The default of Company or Johnson in any of their obligations under
the Contract or this Security Agreement, which default has not been
cured within thirty (30) days after the receipt of written notice from
the Secured Party. However, if the default is of a type that can not
reasonably be cured within thirty (30) days, and Company is diligently
working to cure said default, then Company shall have a reasonable
time thereafter to cure said default.
Secured Party shall notify Johnson in writing of any default hereunder. In
the event Company or Johnson do not cure any such default within thirty (30)
days after receipt of written notice ( if the default is of a type that can not
reasonably be cured within thirty (30) days and Company is diligently working to
cure said default, Company shall have a reasonable time thereafter to cure said
default), the Secured Party shall be deemed to be the owner of the Collateral
or, in Secured Party's sole discretion, Secured Party may elect to seek its
remedies under the Note. If Secured Party elects to seek its remedies under the
Note, the Collateral shall be voted Sixty Percent (60%) by Secured Party and
Forty Percent (40%) by Debtor until such time as either:
i. Secured Party is paid in full under the Note, in which event this
Security Agreement shall be terminated and the Collateral returned to
Debtor; or
ii. The Collateral is accepted by Secured Party as payment in full
satisfaction of the obligation of Debtor to Secured Party under the
Note.
31
<PAGE>
Notwithstanding anything to the contrary in this Agreement, if the Company
disputes whether it is in default, Company shall have the right to demand
binding arbitration (in accordance with the terms of the Contract) as to the
issue of default only, and Secured Party's right to vote the Collateral shall be
stayed until the decision of the arbitrator is issued. Pending the arbitrator's
decision, no action will be taken by Company which would require a vote of
Company's shareholders under the Company's bylaws. If the arbitrator's decision
is not issued within 60 days following Company's demand for arbitration, Secured
Party shall have the right to vote the Collateral unless and until the
arbitrator issues a decision in favor of Company. Notwithstanding the foregoing,
if the arbitrator's decision is not issued within 30 days following Company's
demand for arbitration, Company may seek any and all available legal remedies,
and the issuance of any court order related thereto shall automatically cause
Company's demand for arbitration to become null and void.
If the default by Company remains uncured within the thirty (30) day time
period set forth above and Secured Party elects to retake the Collateral, in
such event Johnson hereby grants Secured Party an irrevocable power coupled with
an interest, for Secured Party's sole use and benefit, to exercise at any time
and from time to time any and all powers with respect to all or any of the
Collateral that Johnson could have exercised including, without limitation, the
power to vote, sell, transfer, assign or otherwise deal in or with the
Collateral, as fully and effectively as if Secured Party was the absolute owners
thereof.
Secured Party shall be under no obligation or duty to exercise any of the
powers hereby conferred upon it and shall be without liability for any failure
to act in connection with the collection of, or the preservation of any rights
under, any of the Collateral. Secured Party shall also have the right, at its
option, to accept the Collateral as payment in satisfaction of the liquidated
obligations of Company to Secured Party under the Note. In this latter event,
the Collateral shall be deemed liquidated damages.
The parties acknowledge that if Company breaches its obligations under the
Note, or defaults under this agreement it will cause serious and substantial
damages to the Secured Party and it will be difficult, if not impossible, to
prove the amount of the damages. Retention of the Collateral by Secured Party,
along with the retention of any prior monies paid to Secured Party under the
Contract and Note, and Secured Party's election to accept the same in
satisfaction of the liquidated obligations of Company to Secured Party, is
agreed to be liquidated damages and not a penalty.
9. Notices. Any notice or demand with respect to any party hereto shall be
given by personal delivery, a recognized national next-day delivery service, by
certified mail return receipt requested, or by facsimile, addressed to the
parties at the following addresses:
To Secured Party: Hudson Holdings, Inc.
275 North Middletown Road
Pearl River, New York 10965
Attention: Stephen P. Mandracchia
32
<PAGE>
To Johnson: Environmental Support Solutions, Inc.
210 N. Center, Suite 101
Mesa, Arizona 85201
with a copy to: Bonn, Luscher, Padden & Wilkins
805 N. Second Street
Phoenix, Arizona 85004
Attention: Jeff Padden
or at such other addresses as any party hereto may give by written notice to the
other. Notices shall be deemed to have been received (i) as of the date of
delivery to the recipient in the case of personal delivery; (ii) one day after
delivery to a national next-day delivery service company; (iii) three days after
mailing; or (iv) as of the date of acknowledged receipt by telecopier
transmission.
10. Construction and Successors. Except as otherwise provided herein and in
the Contract, or this Agreement:
(a) covers the entire understanding of the parties hereto, superseding
all prior agreements or understandings relating to any of the subject
matters hereof, and no modification or amendment of its terms and
conditions shall be effective unless in writing and signed by the parties
or their respective duly authorized agents;
(b) inures to the benefit of, and is binding upon, the successors,
assigns, distributees and personal representatives of the parties hereto;
(c) shall not be interpreted by reference to any if the titles or
headings to the paragraphs of this Agreement, which have been inserted for
convenience purposes only and are not deemed a part hereof;
(d) may be executed in one or more counterparts, all of which together
shall be deemed to constitute one and the same instrument;
(e) shall be construed by the actual gender and/or number of person,
persons, entity and/or entities referenced herein, regardless of the gender
and/or number used in such reference; and
(f) shall be fully enforceable and effective as to the partied hereto
as to its remaining provisions in the event any provision is held to be
invalid, illegal or unenforceable.
33
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
Hudson Holdings, Inc. (Secured Party)
By _______________________________________________
Its _____________________________________________
__________________________________________________
Robert Johnson
Environmental Support Solutions, Inc. (Company)
By _______________________________________________
Robert Johnson, President
34
<PAGE>
EXHIBIT C
GUARANTY OF PAYMENT
TO HUDSON HOLDINGS, INC.
The undersigned Guarantor hereby acknowledges that Hudson Holdings, Inc.
("Hudson") would not have entered into the Contract of Sale, Promissory Note and
Security Agreement dated March 19, 1999, unless Guarantor guaranteed the
performance of Environmental Support Solutions ("ESS") under the Non-Negotiable
Promissory Note. The undersigned Guarantor also requested Hudson to enter into
the Contract of Sale, Promissory Note and Security Agreement, and Guarantor
acknowledges that he has a substantial interest in ensuring compliance by ESS of
its obligations under the Promissory Note and , therefore enters into this
Guaranty of Payment.
The undersigned Guarantor does hereby personally guarantee to Hudson, the
full and timely payment of all sums and amounts due and owing to Hudson under
that certain Promissory Note dated March 19, 1999 (the "Note") from ESS made
payable to Hudson. Hudson may enforce this Guaranty against Guarantor directly
to the fullest extent permitted by applicable law, without requiring Hudson to
exercise, enforce or exhaust any rights or remedy against ESS, provided that
Hudson may not enforce this Guaranty against Guarantor until thirty (30)
business days following written demand received by Guarantor and ESS of a
default under the Note.
This Guaranty shall remain in full force and effect against Guarantor until
the debt evidenced by the Note due and owing to Hudson has been fully paid or
satisfied. The obligations of Guarantor hereunder shall remain in full force and
effect without regard to, and shall not be released, discharged or in any way
impaired by any amendment or modification of or supplement to the Note or any
extension of time which may be granted for payment or performance of any of
obligations under the Note or related documents.
Any notice required under this Guaranty shall be made in accordance with
the provisions set forth in that certain Security Agreement, dated March 19,
1999, by and between Guarantor, ESS and Hudson.
35
<PAGE>
This Guaranty shall be construed in accordance with the laws of the State
of Arizona, excluding its choice of law provisions, and the laws of the United
States of America.
__________________________________ Date: __________________________________
Robert Johnson
STATE OF ARIZONA )
)
County of Maricopa )
On March 19, 1999, before me personally came Robert Johnson, to me known,
and known by me to be the individual described in the foregoing Guaranty of
Payment, and duly acknowledged to me that he executed the same.
________________________________________
Notary Public
My Commission Expires
__________________________________
38
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-QSB AT MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 6855000
<SECURITIES> 0
<RECEIVABLES> 1909000
<ALLOWANCES> 300000
<INVENTORY> 2443000
<CURRENT-ASSETS> 11132000
<PP&E> 5248000
<DEPRECIATION> 0
<TOTAL-ASSETS> 16491000
<CURRENT-LIABILITIES> 6343000
<BONDS> 0
0
6500000
<COMMON> 51000
<OTHER-SE> 2033000
<TOTAL-LIABILITY-AND-EQUITY> 16491000
<SALES> 5031000
<TOTAL-REVENUES> 5031000
<CGS> 3837000
<TOTAL-COSTS> 3837000
<OTHER-EXPENSES> 336000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102000
<INCOME-PRETAX> (856000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (856000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (856000)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
