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Item 2.03
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Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement
of a Registrant
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New Revolving Credit Facility
On December 19, 2019, Hudson Technologies
Company (“HTC”), Hudson Holdings, Inc. (“Holdings”) and Aspen Refrigerants, Inc. (“ARI”), as
borrowers (collectively, the “Borrowers”), and Hudson Technologies, Inc (the “Company”) as a guarantor,
became obligated under a Credit Agreement (the “Wells Fargo Facility”) with Wells Fargo Bank, National Association,
as administrative agent and lender (“Agent” or “Wells Fargo”) and such other lenders as may thereafter
become a party to the Wells Fargo Facility.
Under the terms of the Wells Fargo Facility,
the Borrowers may borrow, from time to time, up to $60 million at any time consisting of revolving loans in a maximum amount up
to the lesser of $60 million and a borrowing base that is calculated based on the outstanding amount of the Borrowers’ eligible
receivables and eligible inventory, as described in the Wells Fargo Facility. The Wells Fargo Facility also contains a sublimit
of $5 million for swing line loans and $2 million for letters of credit.
Amounts borrowed under the Wells Fargo
Facility were used by the Borrowers to repay existing revolving indebtedness under its Prior Revolving Credit Facility (as defined
below), repay certain principal amounts under the Term Loan Facility (as defined below), and may be used for working capital needs,
certain permitted acquisitions, and to reimburse drawings under letters of credit.
Interest on loans under the Wells Fargo
Facility is payable in arrears on the first day of each month. Interest charges with respect to loans are computed on the actual
principal amount of loans outstanding during the month at a rate per annum equal to (A) with respect to Base Rate loans, the sum
of (i) a rate per annum equal to the higher of (1) the federal funds rate plus 0.5%, (2) one month LIBOR plus 1.0%, and (3) the
prime commercial lending rate of Wells Fargo, plus (ii) between 1.25% and 1.75% depending on average monthly undrawn availability
and (B) with respect to LIBOR rate loans, the sum of the LIBOR rate plus between 2.25% and 2.75% depending on average monthly undrawn
availability.
In connection with the closing of the Wells
Fargo Facility, the Company also entered into a Guaranty and Security Agreement, dated as of December 19, 2019 (the “Revolver
Guaranty and Security Agreement”), pursuant to which the Company and certain subsidiaries unconditionally guaranteed the
payment and performance of all obligations owing by Borrowers to Wells Fargo, as Agent for the benefit of the revolving lenders.
Pursuant to the Revolver Guaranty and Security Agreement, Borrowers, the Company and ten other subsidiaries granted to the Agent,
for the benefit of the Wells Fargo Facility lenders, a security interest in substantially all of their respective assets, including
receivables, equipment, general intangibles (including intellectual property), inventory, subsidiary stock, real property, and
certain other assets.
The Wells Fargo Facility contains a financial
covenant requiring the Company to maintain at all times minimum liquidity (defined as availability under the Wells Fargo Facility
plus unrestricted cash) of at least $5 million, of which at least $3 million must be derived from availability. The Wells Fargo
Facility also contains a springing covenant, which takes effect only upon a failure to maintain undrawn availability of at least
$7.5 million, requiring the Company to maintain a Fixed Charge Coverage Ratio (FCCR) of not less than 1.00 to 1.00, as of the end
of each trailing period of twelve consecutive fiscal months commencing with the month prior to the triggering of the covenant.
The FCCR (as defined in the Wells Fargo Facility) is the ratio of (a) EBITDA for such period, minus unfinanced capital expenditures
made during such period, to (b) the aggregate amount of (i) interest expense required to be paid (other than interest paid-in-kind,
amortization of financing fees, and other non-cash interest expense) during such period, (ii) scheduled principal payments (but
excluding principal payments relating to outstanding revolving loans under the Wells Fargo Facility), (iii) all net federal, state,
and local income taxes required to be paid during such period (provided, that any tax refunds received shall be applied to the
period in which the cash outlay for such taxes was made), (iv) all restricted payments paid (as defined in the Wells Fargo Facility)
during such period, and (v) to the extent not otherwise deducted from EBITDA for such period, all payments required to be made
during such period in respect of any funding deficiency or funding shortfall with respect to any pension plan. The FCCR covenant
ceases after the Borrowers have been in compliance therewith for two consecutive months.
The Wells Fargo Facility also contains
customary non-financial covenants relating to the Company and the Borrowers, including limitations on Borrowers’ ability
to pay dividends on common stock or preferred stock, and also includes certain events of default, including payment defaults, breaches
of representations and warranties, covenant defaults, cross-defaults to other obligations, events of bankruptcy and insolvency,
certain ERISA events, judgments in excess of specified amounts, impairments to guarantees and a change of control. The Wells Fargo
Facility also contains certain covenants contained in the Fourth Amendment to the Term Loan Facility described below.
The commitments under the Wells Fargo Facility
will expire and the full outstanding principal amount of the loans, together with accrued and unpaid interest, are due and payable
in full on December 19, 2022, unless the commitments are terminated and the outstanding principal amount of the loans are accelerated
sooner following an event of default.
The descriptions of the foregoing agreements
do not purport to be complete and are qualified in their entirety by reference to the full text of the Wells Fargo Facility agreement
and the Revolver Guaranty and Security Agreement, which are filed as Exhibits 10.1 and 10.2, respectively, to this Report.
Termination of Prior Revolving Credit
Facility
In conjunction with entry into the Wells
Fargo Credit Facility as described above, on December 19, 2019 the Company's existing secured revolving loan set forth in the Amended
and Restated Revolving Credit and Security Agreement, as amended (the “Prior Revolving Credit Facility”), with PNC
Bank, National Association, as administrative agent, collateral agent and lender (“PNC”) and the lenders thereunder,
which had a principal balance of approximately $6.7 million, was repaid in full and the Prior Revolving Credit Facility was terminated.
Term Loan Facility Amendment
On December 19, 2019, Hudson Technologies
Company (“HTC”), an indirect subsidiary of Hudson Technologies, Inc. (the “Company”), and HTC’s affiliates
Hudson Holdings, Inc. and Aspen Refrigerants, Inc. (formerly known as Airgas-Refrigerants, Inc.), as borrowers (collectively, the
“Borrowers”), and the Company as a guarantor, entered into a Waiver and Fourth Amendment to Term Loan Credit and Security
Agreement (the “Fourth Amendment”) with U.S. Bank National Association, as collateral agent and administrative agent,
and the various lenders thereunder.
The Fourth Amendment waived financial covenant
defaults at June 30, 2019 and September 30, 2019 and amended the Term Loan Credit and Security Agreement dated October 10, 2017
(as previously amended, the “Term Loan Facility”) to reset the maximum Total Leverage Ratio covenant contained in the
Term Loan Facility at the indicated dates as follows: (i) September 30, 2019 - 15.67:1.00; (ii) December 31, 2019 – 14.54:1.00;
(iii) March 31, 2020 – 16.57:1.00; (iv) June 30, 2020 – 10.87:1.00; (v) September 30, 2020 – 8.89:1.00; (vi)
December 31, 2020 – 8.89:1.00; (vii) March 31, 2021 – 7.75:1.00; (viii) June 30, 2021 – 7.03:1.00; (ix) September
30, 2021 – 6.08:1.00; and (x) December 31, 2021 – 5:36:1.00. The Fourth Amendment also reset the minimum liquidity
requirement (consisting of cash plus undrawn availability on the Borrowers’ revolving loan facility) of $5 million, measured
monthly. Furthermore, the Fourth Amendment added a minimum LTM Adjusted EBITDA covenant as of the indicated dates as follows: (i)
September 30, 2019 - $7.887 million; (ii) December 31, 2019 – $7.954 million; (iii) March 31, 2020 – $7.359 million;
(iv) June 30, 2020 – $11.745 million; (v) September 30, 2020 – $12.021 million; (vi) December 31, 2020 – $12.300
million; (vii) March 31, 2021 –$14.295 million; (viii) June 30, 2021 – $14.566 million; (ix) September 30, 2021 –
$15.431 million; and (x) December 31, 2021 – $16.267 million.
The Fourth Amendment also (i) continues
the limitation on acquisitions and dividends, (ii) required a principal repayment of $14,000,000 upon execution of the Fourth Amendment
and (iii) increases the scheduled quarterly principal repayments to $562,000 effective March 31, 2020 and $1,312,000 effective
December 31, 2020.
The Fourth Amendment also terminated the
exit fee payable to the term loan lenders, which would have been payable in full in cash upon the earlier to occur of (x) repayment
in full of the term loans, or (y) any acceleration of the term loans. In lieu of the exit fee, the Fourth Amendment reinstated
a prepayment premium equal to the following percentages of the principal amount prepaid, depending upon the date of prepayment:
(i) through March 31, 2020 – 0.50%; (ii) from April 1, 2020 through March 31, 2021 – 2.50%; and (iii) from April 1,
2021 and thereafter – 5.00%.
The Fourth Amendment also requires that
within two weeks from the date of the Fourth Amendment a representative of Grant Thornton LLP shall serve as Chief Restructuring
Officer of the Company and its subsidiaries (the “CRO”). In the event that, following the retention of the CRO, LTM
Adjusted EBITDA exceeds the greater of (x) 105% of the minimum LTM Adjusted EBITDA and (y) $9.55 million for two consecutive quarterly
reporting periods, the Company may terminate the CRO if the Company reasonably determines that the services of the CRO are no longer
needed; provided, that no default shall have occurred or be continuing under the Term Loan Facility.
The Fourth Amendment also provides the
Term Loan Facility lenders with the right to appoint one board observer to attend all meetings of the board of directors and any
restructuring committee of the Company and its subsidiaries.
The Fourth Amendment also adds a new covenant
providing that in the event of a breach of a financial covenant contained in the Term Loan Facility or any failure to make a required
principal repayment (a “Trigger Event”), then on or prior to six months after a Trigger Event, the Company shall commence
a process to (x) sell its businesses and/or assets, and/or (y) consummate a refinancing transaction with respect to the Term Loan
Facility (a “Transaction”), in each case, subject to enumerated time milestones contained in the Fourth Amendment,
and which requires that Transaction shall, in any event, be consummated on or prior to the eighteen (18) month anniversary of the
Trigger Event.
As closing conditions to the execution
and delivery of the Fourth Amendment, the Company was required to: (i) amend its Bylaws in a manner acceptable to the Term Loan
Facility lenders; (ii) appoint two new independent directors to the board of directors (the “Special Directors”); and
(iii) pay an amendment fee of 0.50% of the amount of the outstanding loans under the Term Loan Facility.
The Fourth Amendment also adds a covenant
requiring the Company and each of its subsidiaries to maintain at least two (2) Special Directors on their respective board of
directors. The Special Directors shall be individuals acceptable to the Term Loan Facility lenders acting reasonably. In the event
that any such Special Director is unable to serve by reason of death, resignation, or removal without cause, such vacancy shall
be promptly filled by an individual meeting the requirements for a Special Director set forth in the applicable entity’s
by-laws and acceptable to the Term Loan Facility lenders acting reasonably. The Fourth Amendment also added a covenant that the
Company will not (i) amend, modify or waive any term or provision of its articles of incorporation or by-laws without the consent
of (A) a majority of the Company’s then-serving directors, including any Special Directors, and (B) the Required Lenders
under the Term Loan Facility; or (ii) issue any equity securities of that are senior to, or that have voting rights that exceed
the rights of, the common stock.
The description of the Fourth Amendment
does not purport to be complete and is qualified in its entirety by reference to the full text of the Fourth Amendment which is
filed as Exhibit 10.3 to this Report.