<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended: September 30, 1996
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 69270-NY
MACE SECURITY INTERNATIONAL, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 030311630
-------- ---------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
160 Benmont Avenue, Bennington, Vermont 05201
- - --------------------------------------- -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 802-447-1503
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 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 past 90 days. Yes X No
----- -----
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Statements of Operations and Accumulated Deficit-
Three Months and Nine Months Ended
September 30, 1996 and 1995 1
Balance Sheets - September 30, 1996 and
December 31, 1995 2
Statements of Cash Flows - Nine Months Ended
September 30, 1996 and September 30, 1995 3
Notes to Financial Statements 4
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 8
Item 6 - Exhibits and Reports on Form 8-K 9
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
- - -------------------------------- -------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
$ 1,702,058 $3,506,156 Net Sales $ 7,414,285 $10,529,393
907,436 2,189,452 Cost of Sales 4,201,190 6,216,201
----------- ---------- ----------- -----------
794,622 1,316,704 Gross Profit 3,213,095 4,313,192
Operating expenses:
658,882 689,295 General and Administrative 1,895,033 2,232,697
425,905 684,997 Selling 1,480,485 2,140,859
----------- ---------- ----------- -----------
(290,165) (57,588) Operating (loss) (162,423) (60,364)
Other (income) expense:
(4,413) (3,616) Interest income (18,030) (21,181)
21,455 29,200 Interest expense 67,972 62,895
(29,109) (112,492) Other income (57,339) (147,037)
----------- ---------- ----------- -----------
(12,067) (86,908) (7,397) (105,323)
(278,098) 29,320 (Loss) Income before income (155,026) 44,959
tax expense
(25,551) 14,910 Income tax (benefit) expense (12,013) 21,218
----------- ---------- ----------- ----------
(252,547) 14,410 Net (loss) income (143,013) 23,741
Accumulated (deficit),
(1,181,019) $ (696,869) beginning of period $(1,290,553) $ (706,200)
----------- ---------- ----------- ----------
Accumulated (deficit),
$(1,433,566) $ (682,459) end of period $(1,433,566) $ (682,459)
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
(Loss) Income per share
$ (0.04) $ 0.00 of common stock $ (0.02) $ 0.00
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Weighted average number
of common shares
6,825,000 6,805,000 outstanding 6,818,212 6,805,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part
of the financial statements.
1
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<C> <S> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 244,079 $ 505,638
Accounts receivable, less allowance for
doubtful accounts
($57,200, 1996; $48,600, 1995). . . . . . . . . 1,116,025 1,089,982
Inventories:
Finished goods. . . . . . . . . . . . . . . . . 1,978,599 1,926,932
Work in process . . . . . . . . . . . . . . . . 1,375,909 1,574,505
Raw material and supplies . . . . . . . . . . . . 2,775,371 2,427,311
Prepaid expenses. . . . . . . . . . . . . . . . . 217,941 416,005
----------- -----------
Total current assets. . . . . . . . . . . . . 7,707,924 7,940,373
Property and equipment, net . . . . . . . . . . . 2,978,285 3,079,446
Intangibles, net . . . . . . . . . . . . . . . . 2,852,594 3,041,440
Other assets . . . . . . . . . . . . . . . . . . 131,352 132,500
----------- -----------
Total Assets $13,670,155 $14,193,759
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . . $ 7,877 $ 127,797
Current maturities of long-term debt. . . . . . . 458,914 542,248
Accounts payable. . . . . . . . . . . . . . . . . 779,415 618,653
Accrued liabilities . . . . . . . . . . . . . . . 390,979 534,916
----------- -----------
Total current liabilities . . . . . . . . . . 1,637,185 1,823,614
Long-term debt. . . . . . . . . . . . . . . . . . . 345,215 567,177
----------- -----------
Total liabilities . . . . . . . . . . . . . . 1,982,400 2,390,791
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized 2,000,000 shares; no shares issued
Common stock, par value $.01 per share;
authorized 18,000,000 shares; issued
6,825,000 in 1996 and 6,805,000 in 1995 . . . 68,250 68,050
Additional paid in capital. . . . . . . . . . . 13,053,071 13,025,471
Retained deficit. . . . . . . . . . . . . . . . (1,433,566) (1,290,553)
----------- -----------
Total stockholders' equity. . . . . . . . . 11,687,755 11,802,968
----------- -----------
Total Liabilities and Stockholders' equity $13,670,155 $14,193,759
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part
of the financial statements.
2
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
INCREASE (DECREASE) IN CASH
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
Operating activities:
Net (loss) income $ (143,013) $ 23,741
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation 333,224 316,711
Amortization 208,772 198,882
Allowance for bad debts 8,600 2,602
Gain on sale of assets (10,249) --
Changes in operating assets and
liabilities:
Accounts receivable (34,643) (53,476)
Other receivable - related party -- 32,978
Inventories (201,131) (654,654)
Prepaid expenses 216,018 (126,781)
Accounts payable 160,762 (122,965)
Accrued liabilities (143,937) (105,181)
Corporate income tax payable -- (5,699)
Other assets (8,932) (78,445)
-------- ---------
Net cash provided by (used in)
operating activities 385,471 (572,287)
-------- ---------
Investing activities:
Purchase of property and equipment (251,664) (639,834)
Proceeds from sale of property
and equipment 29,850 --
-------- ---------
Net cash used in investing activities 221,814 (639,834)
-------- ---------
Financing activities:
Payment of principal of long-term debt (305,296) (204,685)
Proceeds from issuance of note payable -- (149,068)
Payment of notes payable (119,920) 869,816
-------- ---------
Net cash (used in) provided by
financing activities (425,216) 516,063
-------- ---------
Net decrease in cash (261,559) (696,058)
Cash:
Beginning of period 505,638 984,877
-------- ---------
End of period $ 244,079 $ 288,819
-------- ---------
-------- ---------
The accompanying notes are an integral part
of the financial statements.
3
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
________
1. MANAGEMENT OPINION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting of only normal, recurring
adjustments, necessary to present fairly the financial position, results
of operations and cash flows for the periods presented. The results of any
interim period are not necessarily indicative of results for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The financial statements should
be read in conjunction with the financial statements and notes thereto for
the year ended December 31, 1995.
2. EARNINGS PER SHARE
Earnings per share on common stock are computed using the weighted average
number of shares of common stock outstanding during each period presented.
3. STOCKHOLDER'S EQUITY
On April 3, 1996 the Company issued 20,000 shares of Common Stock to Robert
D. Norman, President and CEO, in accordance with the employment agreement
dated January 16, 1996 as disclosed on the Company's 1995 Form 10-KSB. The
shares were valued at $1.39 per share and the cost is being amortized
over a two year period. This non-cash transaction has been excluded from
proceeds from issuance of common stock as well as changes in prepaid
expenses on the Statement of Cash Flows for the nine months ended
September 30, 1996.
4. INCOME TAXES
The Company's effective tax rate for the year ended December 31, 1995 was
(5%) as compared to (7.7%) for the nine months ended September 30, 1996.
This approximates an anticipated effective tax rate for the full fiscal
year 1996.
5. SUBSEQUENT EVENTS
On October 31, 1996 the Company entered into a credit agreement with Key
Bank of New York which provides for a maximum of $2,000,000 of credit.
Availability under the entire credit agreement is subject to a borrowing
base formula of 80% of eligible accounts receivable and 25% of eligible
inventory. The inventory component of the borrowing base cannot exceed
$500,000. This credit agreement is separated into two "Facilities".
Facility #1 provides for a working capital line of credit up to $1,250,000.
The availability of funds under this Facility is reduced dollar for
dollar by any amounts under Letters of Credit issued by the Bank on behalf
of the Company. The Bank will not issue Letters of Credit
on behalf of the Company in excess of an aggregate of $250,000. This
Facility matures October 1, 1998 and calls for interest to be paid monthly
at Key Bank of New York's "base rate" plus 1% (9.25% as of October 31,
1996.) No amounts were outstanding on this Facility at November 12, 1996.
Facility #2 provides for a $750,000 term loan maturing October 1, 2000
calling for monthly principal payments of $15,625 plus accrued interest
at the Bank's "base rate" plus 1.25% (9.5% on October 31, 1996.) The
Company drew fully on the term loan and used the proceeds to pay off the
term loan at Vermont National Bank which totaled $399,526, including
accrued interest, and used the remaining $350,474 for working capital.
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS:
Net sales for the three and nine month periods ended September 30, 1996
decreased 51.5% and 29.6% respectively in comparison to the same periods in
1995. These decreases are principally due to lower sales by the Federal
Laboratories division. In the three and nine month periods ended September
30, 1996, the Federal Laboratories-Registered Trademark- product line
generated net sales of $507,046 and $2,628,051 as compared to $1,813,201 and
$5,618,190 during the coinciding periods in 1995. Management believes that
this fluctuation is consistent with the nature of sales of the Federal
Laboratories-Registered Trademark- division, which sells its products
primarily to law enforcement and military agencies. Agencies generally place
orders which are expected to cover their crowd control requirements for
several years. Consequently, individual sales orders in this division range
from several thousand dollars to close to one million dollars, thus yielding
significant quarterly fluctuations.
For the three and nine month periods ended September 30, 1996, the consumer
division realized a decline in net sales of 33.5% or $408,293 and 3.5% or
$125,870, respectively, from the corresponding periods in 1995. Management
believes that the consumer division sales decline in the third quarter, as
compared to the like period in 1995, reflects an industry wide trend in sales
to the consumer market.
Gross profit was 46.7% and 43.3% of net sales, respectively, for the three
and nine month periods ended September 30, 1996 as compared to 37.6% and
41.0% for the identical periods in 1995. The principal reason for the
increase in gross profit margin in the third quarter of 1996 as compared to
the third quarter in 1995 is due to the mix of products sold by the Company.
Higher margin consumer division sales represented 47.6% of the Company's net
sales for the three months ended September 30, 1996 as compared to 34.7% for
the like 1995 period. Sales by the lower margin Federal Laboratories
division represented 29.8% of the Company's net sales for the third quarter
of 1996 as compared to 51.7% for the third quarter of 1995.
Operating expenses for the three and nine month periods ended September 30,
1996 were 63.7% and 45.5% of net sales as compared to 39.2% and 41.5% for the
corresponding periods in 1995.
General and administrative expenses for the three month period ended
September 30, 1996 were $658,882, representing 38.7% of net sales, as
compared to $689,295, representing 19.7% of net sales, in the same quarter in
1995. General and administrative expenses for the nine month period ended
September 30, 1996 were $1,895,033, representing 25.6% of net sales, compared
to $2,232,697, representing 21.2% for the corresponding period in 1995.
These dollar decreases are the result of the aggressive cost cutting program
initiated in January 1996. The Company's general and administrative expenses
are mainly fixed costs. Because of the decrease in sales for the three and
nine month periods ended September 30, 1996, these expenses, as a percentage
of sales, have increased.
Selling expenses for the three month period ended September 30, 1996 were
$425,905, representing 25% of net sales, as compared to $684,997,
representing 19.5% of net sales, in the same quarter in 1995. The dollar
decline in selling expenses for the three and nine month periods ended
September 30, 1996, as compared to the like period in 1995, is primarily due
to decreased sales personnel and related costs as well as a decrease in
advertising expenses resulting from a more focused marketing program.
Expenses were further reduced by less commissions paid as a result of lower
sales.
5
<PAGE>
Other expense (income), net for the three and nine month periods ended
September 30, 1996, was ($12,067) and ($7,397) as compared to ($86,908) and
($105,323) for the identical periods in 1995. The primary reason for the
difference is the $97,511 the Company recorded as other income in the third
quarter in 1995 as a result of the arbitration claim settlement made with
TransTechnology Corporation.
LIQUIDITY AND CAPITAL RESOURCES
On October 31, 1996 the Company entered into a credit agreement with Key Bank
of New York which provides for a maximum of $2,000,000 of credit.
Availability under the entire credit agreement is subject to a borrowing base
formula of 80% of eligible accounts receivable and 25% of eligible inventory.
The inventory component of the borrowing base cannot exceed $500,000. This
credit agreement is separated into two "Facilities". Facility #1 provides
for a working capital line of credit up to $1,250,000. The availability of
funds under this Facility is reduced dollar for dollar by any amounts under
Letters of Credit issued by the Bank on behalf of the Company. The Bank will
not issue Letters of Credit on behalf of the Company in excess of an
aggregate of $250,000. This Facility matures October 1, 1998 and calls for
interest to be paid monthly at Key Bank of New York's "base rate" plus 1%
(9.25% as of October 31, 1996.) No amounts were outstanding on this Facility
at November 12, 1996. Facility #2 provides for a $750,000 term loan maturing
October 1, 2000 calling for monthly principal payments of $15,625 plus
accrued interest at the Bank's "base rate" plus 1.25% (9.5% on October 31,
1996.) The Company drew fully on the term loan and used the proceeds to pay
off the term loan at Vermont National Bank which totaled $399,526, including
accrued interest, and used the remaining $350,474 for working capital.
The entire credit agreement is collateralized by all presently owned and
after acquired machinery, equipment, fixtures, furniture, inventory, accounts
receivable, chattel paper, contract rights, documents, instruments, bills of
lading and intangibles of the Company.
Principal covenants under the Credit Agreement include (i) the maintenance of
certain levels of net worth, and compliance with certain current, leverage
and interest expense ratios; (ii) a limitation on capital expenditures; and
(iii) a prohibition on the purchase of other businesses and mergers or
consolidations with other businesses except upon the consent of the Bank.
Inventories increased $201,131 during the nine months ended September 30,
1996. This increase is primarily due to the increase in raw materials
purchases for Federal Laboratories division orders scheduled for production
and delivery in the fourth quarter. Open orders for the Federal Laboratories
Division totaled $1,589,091 as of September 30, 1996, $818,020 as of June 30,
1996, and $1,148,040 as of December 31, 1995. Open orders are orders that
have not yet been manufactured, and are tentatively scheduled for production
and delivery.
The Company has consolidated its administrative offices to the center wing of
its headquarters and will be subleasing its unused office space, effective
December 1, 1996, for five years. The arrangement calls for annual rent
payments of $25,200 in the first year increasing to $42,000 in the third
through fifth years.
For the nine months ended September 30, 1996 capital expenditures were
$251,664 compared to $639,834 for the first nine months of 1995. The major
components of the 1996 expenditures to date were for the purchase and
installation of an air filtration system in its manufacturing facility,
construction of leasehold improvements necessary for the sub-lease of a
portion of its office space, update of the sprinkler system and the planning
and construction of a fully operational, indoor testing facility for
pyrotechnics.
6
<PAGE>
The Company anticipates additional capital expenditures for 1996 to
approximate $40,000, to be principally comprised of leasehold improvements
needed for the Federal Laboratories manufacturing facility. The capital
expenditures are not currently expected to be made unless sufficient cash is
available from operations to pay for the improvements.
Long-term debt decreased by $305,296 during the nine month period ended
September 30, 1996 as scheduled payments were made on notes relating to the
purchase of certain assets and the assumption of certain liabilities of the
Federal Laboratories division and the term loan with Vermont National Bank.
At September 30, 1996 accounts payable has increased $160,762 to $779,415.
This increase is the result of a build up in raw materials inventory for the
Federal Laboratories division in order to manufacture and ship finished goods
on order for delivery in the fourth quarter.
On November 1, 1996 pepper sprays were legalized in New York State with
certain restrictions pertaining to product size, potency, and sales outlets.
Currently, licensed pharmacies and firearms dealers are authorized to sell
pepper sprays. Management does not expect a significant sales increase in the
near term as a result of the newly enacted legislation.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Although the Company is not aware of any substantiated claim of permanent
personal injury from its products, the Company is aware of recent incidents
in which, for example, defense spray products have been mischievously or
improperly used, in some cases by minors, have not been instantly effective
or have been ineffective against enraged or intoxicated individuals.
Incidents of this type, or others, could give rise to product liability or
other claims; or to claims that past or future advertising, packaging or
other practices should be, or should have been, modified, or that regulation
of products of this nature should be extended or changed.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on August 23, 1996. Of
the 6,825,000 shares of Common Stock entitled to vote at the meeting,
6,580,263 shares of Common Stock were present in person or by proxy and
entitled to vote. Such number of shares represented approximately 96.4% of
the Company's outstanding shares of Common Stock.
At the meeting, the Company's stockholders approved: (i) the election of Jon
E. Goodrich, Robert P. Gould, Robert D. Norman, Ralph A. Foote, Esq., John E.
Logan, Stuart DuBoff, M.D., Robert Rosberg, James E. West and Ronnie
Mitchell, Esq. to the Company's Board of Directors ("Proposal 1"); and (ii)
the appointment of Coopers & Lybrand LLP as the Company's independent
auditors for the fiscal year ending December 31, 1996 ("Proposal 2").
Proposals 1 and 2 were approved by the Company's shareholders as follows:
PROPOSAL 1: VOTES FOR VOTES AGAINST VOTES ABSTAINING
Jon E. Goodrich 6,369,908 13,850 196,505
Robert P. Gould 6,512,758 13,850 53,655
Robert D. Norman 6,536,501 13,850 29,912
Ralph A. Foote, Esq. 6,535,501 13,850 30,912
John E. Logan 6,348,913 13,850 217,500
Robert Rosberg 6,531,301 13,850 35,112
Stuart DuBoff, M.D. 6,522,201 13,850 44,212
James E. West 6,528,151 13,850 38,262
Ronnie Mitchell, Esq. 6,530,801 13,850 35,612
PROPOSAL 2: 6,535,315 36,216 8,732
ITEM 5 - OTHER INFORMATION
EMPLOYMENT/CONSULTING CONTRACTS
Richard A. Galt, Executive Vice President and General Counsel, entered into a
two year employment agreement with the Company dated as of August 22, 1996.
The agreement provides Mr. Galt with an annual salary of $78,000 and an
annual bonus equal to $1,000 for every $100,000 of net income for each fiscal
quarter. The agreement prohibits him from competing with the Company while
employed by the Company. Should Mr. Galt's employment be terminated without
cause, he shall be entitled to a lump sum payment equal to the balance of his
contract. As part of the agreement, Mr. Galt was also issued an option to
purchase 40,000 shares of the Company's Common Stock at an exercise price of
$1.50, which was above market price at the time of issuance. The option
expires fifteen years from the time of issuance.
8
<PAGE>
POTENTIAL CHANGE IN CONTROL
The Company is aware of a press release issued by Jon E.Goodrich, the
Chairman of the Board and a holder of approximately 29% of the Company's
outstanding stock, and Robert P. Gould, a director and holder of
approximately 27% of the outstanding stock, that they were each seeking
offers for the purchase of their shares in the Company. According to the
press release, Messrs. Goodrich and Gould have engaged in negotiations with
the same party, and it is likely that they will do so in the future. Neither
Mr. Gould nor Mr. Goodrich has informed the Company that they are negotiating
as a group or that the sale of their respective shares is contingent on sale
by the other. It is possible that one of them may sell his stock and the
other will not. No assurance can be made that either party will sell all or
any portion of his stock. A sale by both parties, however, will result in a
change in control of the Company. Further, a sale by only one party may
result in a change in control of the Company.
SHARE PURCHASES BY AN AFFILIATE
Jon E. Goodrich, Chairman of the Board and shareholder, has recently made the
Company aware of his purchase in August of 1994 of 5,000 shares of the
Company's Common Stock and of his purchases in May and June of 1995 of a
total of 20,000 shares of the Company's Common Stock. Mr. Goodrich failed to
file Forms 5 relating to the purchases and has been reminded of his filing
requirements. As a result of the foregoing, the Company has inaccurately
reported Mr. Goodrich's security ownership. However, the Company does not
believe that this inaccuracy is material.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (10.47) Employment Agreement
between the Company and Richard A.
Galt dated as of August 22, 1996
(11) Schedule of Computation of Per
Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K None
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MACE SECURITY INTERNATIONAL, INC.
Date: November 12, 1996 /s/ Robert D. Norman
--------------------
Robert D. Norman
President/CEO
Date: November 12, 1996 /s/ Brian L. Kelley
---------------------
Brian L. Kelley, Treasurer
Principal Financial Officer
<PAGE>
Exhibit 10.47
EMPLOYMENT AGREEMENT
This Agreement made as of the 22nd day of August, 1996 (hereinafter the
"Effective Date"), by and between MACE SECURITY INTERNATIONAL, INC., a
corporation duly organized and existing under the laws of the State of
Delaware, with a principal place of business at 160 Benmont Avenue, Town of
Bennington, County of Bennington and State of Vermont (hereinafter referred
to as "Employer") and RICHARD A. GALT, ESQ., with a residence at Post Office
Box 134, Route 28N, Town of North Creek, County of Warren and State of New
York (hereinafter referred to as "Employee"),
WHEREAS, Employee currently serves as Executive Vice President, General
Counsel and Corporate Secretary to Employer;
WHEREAS, Employer wishes to induce Employee to continue to serve Employer
in his present capacity as well as to take on increased responsibilities
toward management of Employer;
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties to this Agreement, in consideration of the services rendered by
the Employee prior to the Effective Date of this Agreement and for other good
and valuable consideration, the receipt of which is hereby acknowledged,
Employer and Employee agree as follows:
SECTION ONE
EMPLOYMENT
----------
Employer employs Employee in an executive capacity as Executive Vice
President, General Counsel and Corporate Secretary and Employee accepts such
employment with Employer subject to the terms and conditions of this
Agreement.
SECTION TWO
TERM OF EMPLOYMENT
------------------
This Agreement and the employment under this Agreement shall commence on
the Effective Date stated above and shall continue for a period of two (2)
years from the Effective Date.
<PAGE>
SECTION THREE
DUTIES OF EMPLOYEE
------------------
Employee shall serve Employer as Executive Vice President, General
Counsel and Corporate Secretary with such additional duties and
responsibilities as are specifically assigned to the Employee by the Board of
Directors from time to time. Such duties shall be carried out in accordance
with the direction of the Board of Directors of Employer.
Employee will devote such time, energy and skill doing such employment as
is necessary or appropriate to complete the tasks and duties of the position.
Notwithstanding the foregoing, Employee shall be permitted to take time from
his duties and responsibilities, as Employee deems appropriate, for the
purpose of meeting with prospective employers. Such time shall not be applied
against vacation or personal time.
During the term of this Agreement, Employee shall not in any way compete
with the business of Employer.
Notwithstanding the foregoing, Employee shall have the sole discretion in
choosing outside counsel, including but not limited to the choice of SEC
counsel, when the performance of Employee's duties require the assistance of
outside counsel.
Employee shall report directly to the Board of Directors of Employer.
SECTION FOUR
COMPENSATION
------------
Employee's compensation shall consist of:
(A) a salary of at least $1,500.00 per week during the term of the
Agreement; and
(B) participation in all benefit plans available to the Employer's
employees generally.
(C) a bonus equal to $1,000 for every $100,000 of net income for each
fiscal quarter, payable within thirty days following each such
fiscal quarter, beginning with the quarter ended March 31, 1996; and
2
<PAGE>
(D) four (4) weeks paid vacation. Should Employee not use the
full four weeks vacation, Employee shall be entitled to a cash
payment, based on Employee's salary, for vacation days remaining
due which shall be payable the pay period following cessation of
Employee's employment; and
(E) payment of fees and expenses to attend continuing education courses
necessary for satisfaction of the Vermont State Bar requirements;
and
(F) unlimited use of a company vehicle for the term of this Agreement.
Employer shall be responsible for normal maintenance and repairs; and
(G) immediate issuance of an option to purchase 40,000 shares of
common stock of Mace Security International at $1.50 per share.
Employee shall be entitled to piggyback registration rights with
respect to the underlying shares, as well as to the shares
underlying the option to purchase 10,000 shares previously granted
Employee. Employer shall be responsible for all legal, NASDAQ and
blue sky fees associated with the registration of all 50,000 of the
underlying shares. The options to purchase shares granted Employee,
as well as the additional benefits set forth in this section, shall
survive termination of service whether termination is for cause or
without cause; and
(H) Employee shall be reimbursed for such reasonable and necessary
business expenses as are approved by the Board of Directors.
Employee's moving expenses are deemed to be reasonable and
necessary business expenses.
SECTION FIVE
EMPLOYER'S OBLIGATIONS ON TERMINATION OF EMPLOYEE'S EMPLOYMENT
--------------------------------------------------------------
Except as provided in Section Four, if, during the term of this
Agreement, Employer terminates this Agreement, whether for cause or without
cause, the balance of payments provided for in Section Four (A) shall,
nevertheless, accelerate and become immediately payable in full. Employee
shall, however, have the option to continue to receive payments over time in
lieu of a lump sum payment. Further, the benefits provided for in Section
Four (C), shall be provided Employee for the two year term of the Agreement.
The benefits provided for in Section Four (G) shall continue to be provided
Employee for the two year term of the Agreement as set forth in that
provision.
3
<PAGE>
In addition to the foregoing, if, during the term of this Agreement,
Employee terminates this Agreement for any reason whatsoever, or if, upon the
expiration of the term of this Agreement, Employee fails to enter into a new
employment agreement with Employer, Employee shall be entitled to a lump sum
payment equal to fourteen (14) weeks salary, which shall be due and payable
the pay period following termination.
In addition, if, during the term of this Agreement, Employer terminates
this Agreement, whether for cause or without cause, or if Employee terminates
this Agreement for any reason whatsoever, Employee shall be entitled to the
benefits provided for in Section Four (B) and (E) for a period of three
months following termination.
Upon termination of this Agreement by Employer or Employee, with or
without cause, Employer agrees to refrain from comment, whether one is
required, requested or otherwise, regarding Employee's service with or
performance for Employer, unless first obtaining Employee's written consent,
except to state that Employee has worked for Employer satisfactorily and was
terminated by mutual agreement. Employer acknowledges and understands that
this provision is an integral part of the Agreement, breach of which
constitutes adequate justification for termination of this Agreement by
Employee for cause.
If during the term of this Agreement, Employee should become disabled
then the provisions of this Agreement shall apply as if Employee was
terminated without cause. If, during the term of this Agreement, Employee
should die, the benefits afforded Employee under the provisions of this
Agreement shall apply as if Employee was terminated without cause and shall
be made payable to Employee's beneficiary as designated by Employee under the
Employer's 401K Plan.
SECTION SIX
INDEMNIFICATION
---------------
Employer ratifies all actions of Employee taken prior to the execution of
this Agreement. Further, Employer restates and agrees to the provisions of
the Resolution indemnifying Employee against any and all claims against him
by reason of his employment with Employer, including claims of malpractice,
as set forth in the Written Consent to Action of the Board of Directors,
dated February 10, 1995.
4
<PAGE>
SECTION SEVEN
ARBITRATION
-----------
Any differences, claims or matters in dispute arising between Employer
and Employee out of, or connected with, this Agreement shall be submitted by
them to arbitration consistent with the commercial arbitration rules of the
American Arbitration Association in Albany, New York.
SECTION NINE
ATTORNEY'S FEES
---------------
In the event that any arbitration is commenced in relation to this
Agreement, Employer agrees to pay, in addition to all of the sums that
Employer may be called on to pay, a reasonable sum for Employee's attorney's
fees, whether Employee is the successful party or unsuccessful party.
SECTION TEN
GOVERNING LAW
--------------
It is understood that this Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of New York, without regard
to principles of conflicts of law.
SECTION ELEVEN
ENTIRE AGREEMENT
----------------
This Agreement shall constitute the entire Agreement between the parties
and any prior understanding or representation of any kind preceding the date
of this Agreement shall not be binding.
SECTION TWELVE
MODIFICATION OF THIS AGREEMENT
------------------------------
Any modification of this Agreement or additional obligation assumed by
either party in connection with this Agreement shall be binding only if
evidenced in writing signed by each party or an authorized representative of
each party.
5
<PAGE>
SECTION THIRTEEN
NOTICES
-------
Any notice provided for or concerning this Agreement shall be in writing
and be deemed sufficiently given when sent by certified or registered mail if
sent to the respective address of each party as set forth in the beginning of
this Agreement.
SECTION FOURTEEN
PARAGRAPH HEADINGS
------------------
The titles to the paragraphs of this Agreement are solely for the
convenience of the parties and shall not be used to explain, modify,
simplify, or aid in the interpretation of the provisions of this Agreement.
SECTION FIFTEEN
WAIVER
------
No waiver by either party of any failure or refusal by the other party to
comply with its or his obligations hereunder shall be deemed a waiver of any
kind or subsequent failure or refusal of a similar or different kind.
SECTION SIXTEEN
SUCCESSORS
----------
The terms of this Agreement shall be binding upon Employer, its
successors and assigns.
6
<PAGE>
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed as of the 22nd day of August, 1996.
MACE SECURITY INTERNATIONAL, INC.
By: /s/ Robert D. Norman
-------------------------------
Robert D. Norman
President and CEO
By: /s/ Richard A. Galt
-------------------------------
Richard A. Galt, Esq.
7
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
This amends the Employment Agreement between Richard A. Galt, Esq. and
Mace Security International,Inc. dated August 22, 1996, for the purpose of
clarifying an ambiguity in the Agreement.
Section Three, entitled "Duties of Employee," shall be amended by adding
the following paragraph to the end thereof:
"Employee shall perform his duties from the Bennington, Vermont
facility and shall not be required to relocate. Employee shall be
provided with such business accommodations, including an office
and secretary, as is necessary or appropriate to perform the
duties contemplated hereunder."
All other terms shall remain in full force and effect.
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed as of the 22nd day of August, 1996.
MACE SECURITY INTERNATIONAL, INC.
By: /s/ Robert D. Norman
-------------------------------
Robert D. Norman
President and CEO
By: /s/ Richard A. Galt
-------------------------------
Richard A. Galt, Esq.
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
Exhibit 11
Schedule of Computation of Primary Net Income
Per Share
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1996 1995 1996 1995
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
6,825,000 6,805,000 Common Stock outstanding at 6,825,000 6,805,000
end of period
Adjustment to ending shares to
arrive at weighted average for
the period: Shares issued to
Robert D. Norman in accordance
--- --- with Employment Agreement(1) 6,788 ---
---------- --------- --------- ---------
6,825,000 6,805,000 6,818,212 6,805,000
========== ========= ========= =========
$ (252,547) $ (14,410) Net (loss) income $(143,013) $ 23,741
========== ========= ========= =========
$ (0.04) $ (0.00) Net (loss) income per share $ (0.02) $ 0.00
========== ========= ========= =========
</TABLE>
(1) Calculated as follows: Number of shares outstanding multiplied by the
reciprocal of the number of days outstanding divided by the number of
days in the period.
Shares offered for the nine months:
September 30, 1996 20,000 x (93/274) 6,788
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 244,079
<SECURITIES> 0
<RECEIVABLES> 1,173,225
<ALLOWANCES> 57,200
<INVENTORY> 6,129,879
<CURRENT-ASSETS> 7,707,924
<PP&E> 4,168,525
<DEPRECIATION> 1,190,240
<TOTAL-ASSETS> 13,670,155
<CURRENT-LIABILITIES> 1,637,185
<BONDS> 345,215
0
0
<COMMON> 68,250
<OTHER-SE> 11,619,505
<TOTAL-LIABILITY-AND-EQUITY> 13,670,155
<SALES> 7,414,285
<TOTAL-REVENUES> 7,414,285
<CGS> 4,201,190
<TOTAL-COSTS> 7,576,708
<OTHER-EXPENSES> (7,397)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,972
<INCOME-PRETAX> (155,026)
<INCOME-TAX> (12,013)
<INCOME-CONTINUING> (143,013)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (143,013)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
