Form 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to ______________
Commission File Number 69270-NY
MACE SECURITY INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 03-0311630
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160 Benmont Avenue, Bennington, Vermont 05201
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (802) 447-1503
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B (ss.229.405) is not contained herein, and no disclosure will
be contained, to the best of registrant's knowledge, in definite proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ ].
The registrant's net sales for 1996 were $10,824,203.
As of March 31, 1997 the aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the closing price of $1.125 on that
date, was $3,295,037.
As of March 31, 1997 the registrant had issued and outstanding 6,825,000 shares
of Common Stock.
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PART I
ITEM 1. BUSINESS
The following can be interpreted as including forward looking statements
under the Private Securities Litigation Reform Act of 1995. Such statements are
typically identified by the words "intends", "plans", "effort", "anticipates",
"believes", "expects", or words of similar support. Various important factors
that could cause actual results to differ materially from those expressed in the
forward looking statements are identified below and may vary significantly based
on a number of factors including, but not limited to, marketing success, product
development, production, manufacturing costs, competitive conditions, and the
change in economic conditions of the various markets the Company serves. Actual
future results may differ materially from those suggested in the following
statements.
GENERAL
Mace Security International, Inc. (the "Company") is a well known producer
of less-lethal defense sprays for the Consumer and Law Enforcement Markets and a
marketer of consumer safety and security products. The Company also supplies
chemical munitions and accessories to law enforcement, correctional and military
agencies throughout the world (the "Law Enforcement Market") and conducts
training for all types of professionals responsible for the management and
control of violent behavior in individuals. These programs encompass basic and
specialized use of force and weapons training, including chemical munitions and
aerosols.
The Company's goal is to maximize profitability by: generating planned
growth in the Consumer and Law Enforcement Markets through product
diversification, planning for and meeting the challenges of the ever changing
and competitive business climate, and striving to enlarge market share and
expand distribution channels within each product category.
The Company believes it is one of the leading manufacturers and
distributors of safety and security items to civilian consumers (the "Consumer
Market") and chemical munitions and accessories to the Law Enforcement Market.
The Company was incorporated in Vermont in December of 1987 under the name
Mark Sport, Inc. after two of its principal stockholders obtained an exclusive
license to produce and market defense sprays to the Consumer Market under the
Mace(R) trademark within the continental United States, and a non-exclusive
license to market defense sprays outside of the continental United States. In
1992, this license was renegotiated to include a purchase option.
The Company changed its name to Mace Security International, Inc. in
September 1993. In November 1993, prior to its initial public offering, it
merged into a new company incorporated in the state of Delaware.
The Company exercised its option to purchase the Mace(R) trademark and, in
December 1993, the Company paid in full all amounts due under its promissory
note for the purchase of all rights, title and interest to the Mace(R) brand and
related trademarks.
In March 1994, the Company acquired certain assets and liabilities of the
Federal Laboratories division of TransTechnology Corporation. The Company's
Federal Laboratories division offers a full line of chemical munitions and
accessories designed for outdoor crowd dispersement and confined area use as
well as for riot and barricade situations.
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PRODUCTS AND LINES OF MERCHANDISE
The Company designs, markets and sells its Consumer product line for use
in protection of the home and automobile, and for personal and child protection.
These products include a line of personal alarms, whistles, window and door
security alarms and defense sprays.
The Company's Law Enforcement product line of chemical munitions consists
of, among others, defense sprays, tear gas smoke grenades, projectiles,
launchers, stun munitions and protective masks. The Company's Law Enforcement
Market includes any law enforcement, correctional, or military organization that
deals with violent individuals or situations.
DISTRIBUTION/MARKET SEGMENTS
Distribution of the Company's products and services is aimed at two
distinct segments/markets: Consumer and Law Enforcement.
The Company's sales efforts are coordinated by a team of in-house sales
and support personnel dealing with a network of manufacturers' representatives
and buyers for a variety of distributors and retail accounts.
Consumer Market
The Company's in-house sales and support staff work with a nationwide
network of manufacturers' representative groups and sells directly to wholesale
distributors. Significant retail accounts are generally handled directly by the
Company as are mail order and specialty accounts.
The Company's Consumer Market includes: mass merchants/department stores,
consumer catalogues and guns/sporting goods, hardware, auto, convenience, and
drug stores. Each market category is reached through in-house sales managers,
and/or through manufacturers' representatives. Market categories are also
reached through catalogue, magazine and trade publication advertising and
promoting at industry trade shows.
Law Enforcement Market
The Company's Law Enforcement sales are conducted mainly through
manufacturers' representative groups, wholesale law enforcement distributors and
directly to various governmental agencies. Additionally, sales are conducted
through smaller distributors and dealers specializing in the Law Enforcement
supply business. International Law Enforcement sales are primarily generated
through bidding processes from a variety of law enforcement, correctional and
military agencies. Law Enforcement sales continue to be "high profile" sales for
the Company and act as the foundation for the level of market recognition
enjoyed by the Mace(R) brand consumer products.
The Company markets its Law Enforcement products in over 50 countries
worldwide. The majority of the international sales for 1996 and 1995, which
totaled approximately $3,157,000 and $4,735,000 respectively, were from the
Federal Laboratories(R) product line.
The Company continued to expand its training division course offerings
with the introduction in 1996 of an advanced level of training programs. The
training division acts in concert with the Law Enforcement sales group to
generate familiarity with the Company's product line for the Law Enforcement
Market.
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COMPETITION
The Company faces intense competition in both the Consumer and Law
Enforcement Markets.
Domestically, there continues to be a large number of companies marketing
defense sprays to civilian consumers. While the Company continues to offer
defense spray products that Management believes distinguish themselves through
brand name recognition, superior product features and formulations and research
and development, the Consumer division has experienced a sales decline for these
products. The Company attributes this decline not only to the strong
competition, but also to lower demand in general. In an attempt to reverse these
factors, Management is restructuring its sales force to open new markets for its
products and plans to introduce new products over the course of the next few
years.
The Law Enforcement Market is also highly competitive. The number of
competitors remains small, but departmental bidding processes and related sales
expenses continually put pressure on pricing and margins. By combining the well
recognized names of Mace Security International and Federal Laboratories,
Management believes it is in a strong position to compete in the worldwide Law
Enforcement Market.
PRODUCTION
The Company has expanded its production line in Bennington, Vermont since
1994 with the transfer of the Federal Laboratories production operations from
Saltsburg, Pennsylvania. Substantially all of the Company's manufacturing
processes are now performed at the Company's Bennington facility.
The Company's Law Enforcement and Consumer defense spray products are
manufactured on one of three aerosol filling machines. Most Consumer Market
products are packaged in sealed, tamper resistant "clamshells."
Production equipment for the Company's chemical munitions is expansive and
consists of: spin welders, presses, volumetric feeders, a prime, powder and wad
machine, a pneumatic black powder loader, silkscreen machines, crimpers and
vacuum heat sealers, among others.
The KinderGard(R) product line is primarily manufactured by an unrelated
company and packaged off-site with the finished goods transferred to the Vermont
facility for distribution.
The Company relies on domestic and foreign contractors to supply chemicals
for its defense sprays and chemical munitions and to manufacture certain other
components for its Federal Laboratories product line. There are numerous
potential suppliers of the chemicals, components and parts required in the
Company's production process.
The Company has developed strong beneficial long-term relationships with
many of its suppliers including the following: Allplax, Inc., Moldamatic, Inc.,
Piper Impact, Inc., Amber International, Inc. and Springfield Printing, Inc.
In addition, the Company purchases for resale a variety of products
produced by others including gas masks, shot guns, whistles, alarms, flashers,
and window locks, among others. There are numerous suppliers available for each
of these items.
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MAJOR CUSTOMERS
The Company's top ten customers represented approximately 36.7% of the
total net sales in 1996. No single customer accounted for over 8.5% of those
sales.
TRADEMARKS/PATENTS
The Company began marketing products in 1988 under the Mace(R) brand name
and related trademarks pursuant to an exclusive license for sales of defense
sprays to the Consumer Market in the continental United States, and a
non-exclusive license for sales to the Consumer Market worldwide. The license
agreement was renegotiated in 1992 to include a purchase option. The Company
exercised this option and purchased outright the Mace(R) brand name and related
trademarks (Pepper Mace(R), Chemical Mace(R), Mace(R)...Just in Case(R),....Just
in Case(R), CS Mace(R) and Magnum Mace(R)). In conjunction with this purchase,
the Company acquired a non-exclusive worldwide license to promote a patented
pepper spray formula in both Markets for the approximately six years remaining
on the patent. The Company does not intend to market products using this patent.
The Company acquired a patent and trademark to the Big Jammer(R) door
brace, as part of its purchase of the assets of Home Protection Concepts, Inc.,
in July 1991.
In 1995, the Company developed the trademark Cool-It!(TM) decontamination
spray. The Company also developed internally the trademarks: Window Jammer(TM),
Sonic Alert(TM), Safety Flasher(TM), Sport Strobe(TM), Child Safe Alarm(TM),
Window Alert(TM), Motion Alert(TM), Emergency Whistle(TM), and Auto Alert(TM);
and acquired the trademarks Screecher(R) and Pepperguard(R). The Company markets
products manufactured by other companies under the foregoing trademarks.
The Company developed the Viper(R) trademark in 1993. In August 1993, the
Company acquired an exclusive worldwide license to the patent for the safety top
device used on the Viper(R) brand defense spray.
As part of the March 1994 acquisition of the assets of the Federal
Laboratories division, the Company acquired the following trademarks: Federal
Laboratories(R), TG Guard(TM), Guard(TM), Triple-Chaser(R), Skat Shell(R),
Ferret(R), Mini-Streamer(R) and MPG(TM).
In June 1994, as part of a license for a defense spray disarming device,
the Company acquired a co-exclusive license to manufacture and sell products
under U.S. Patent No. 5,310,086 until the expiration of the last patent covering
the invention. The Company does not intend to market products using this patent.
As part of the August 1994 acquisition of the assets of KinderGard
Corporation, the Company acquired the trademark KinderGard(R) which is
registered in the United States and Japan.
As part of a January 1995 license agreement for a child-to-parent strap,
which is part of the KinderGard(R) line, the Company acquired the following
trademarks: Zip-a-Babe(R), Hand n-Hand(R) and Safe-T-Zip(R).
The Company currently has federal trademark registration applications
pending on the trademarks: PepperFoam(TM), Slam(TM), and Pest Away(TM).
Applications are also pending in Mexico for Mace(R) and in Canada for Muzzle(R).
The Company has been issued letters patent on the locking mechanism for
the Mark VI defense spray unit and has an application pending for letters patent
on the PepperFoam(TM) formulation.
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Except as described above, the Company holds no material patents or patent
licenses, although it endeavors to maintain the confidentiality, as trade
secrets, of certain formulations and processes.
An essential part of the Company's business strategy has been to
capitalize on, promote aggressively, and enhance the public's awareness and
confidence in the Mace(R) trademark. The Company relies on the trademark laws to
protect its proprietary rights to the Mace(R) trademark. The Company uses a
newspaper clipping service to identify significant unauthorized uses of the
Mace(R) trademark and provides notice to such users of the Company's willingness
to take legal action for continued unauthorized use. The Company also engages in
trademark advertising in several literary publications. All of the Company's
distributors are authorized to use the Mace(R) trademark for advertising. The
Company is not aware of any competitors repeatedly misusing the Mace(R)
trademark in any material manner. There can be no assurance, however, that the
efforts taken by the Company to protect its proprietary rights are or will be
adequate to prevent misappropriation or that the frequent use of the Mace(R)
trademark by the public as an encompassing description of defense sprays will
not jeopardize its proprietary status.
REGULATORY MATTERS
The distribution, sale, ownership and use of Consumer defense sprays are
legal in all 50 states and the District of Columbia. On January 1, 1996,
California eased restrictions on defense sprays. On November 1, 1996, New York
lifted an overall ban on defense sprays, allowing for the sale of oleoresin
capsicum (OC) only in licensed pharmacies and licensed gun stores. Massachusetts
requires both users and sellers to be licensed. Wisconsin allows the sale of
oleoresin capsicum (OC) pepper sprays only and they must be sold from behind a
counter or under glass. Michigan does not permit sales of chloroacetophenone
(CN) sprays. Nevada permits sales of orthochlorobenzalmalononitrile (CS) sprays
only. The Company has been successful notwithstanding these state regulations.
There can be no assurance, however, that broader, more severe restrictions will
not be enacted that would have an adverse impact on the Company's financial
condition.
The Company generates hazardous waste as a by-product of manufacturing
certain products of its Federal Laboratories(R) line. The Company believes that
it is in compliance with all state and local statutes governing the disposal of
such hazardous material through its contract with a licensed hazardous material
disposal company. The disposal of hazardous waste expense is not a significant
cost of manufacturing.
The Company has constructed a self-contained testing chamber for its
products which is located inside its Bennington, Vermont facility.
In early 1997 the Company completed the installation of the air filtration
and recirculation equipment in its manufacturing facility. The Company believes
it is in compliance with all federal, state, and local environmental laws.
RESEARCH AND DEVELOPMENT
Research and development expenses were approximately $53,000 in 1996 and
$70,000 in 1995. The Company has an on-site laboratory.
Research and development is used by the Company to maintain its reputation
in the defense spray and chemical munitions industries. The Company is
continually reviewing ideas and potential licensing arrangements to expand its
product line in the Consumer and Law Enforcement Markets.
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EMPLOYEES
As of March 31, 1997, the Company employed 102 individuals of whom 3 were
part time. The Company's employees are not subject to a collective bargaining
agreement.
TERMINATED ACQUISITION PROPOSAL
In March of 1996, the Company entered into letters of intent to acquire
all of the outstanding capital stock of Gould & Goodrich Leather, Inc., Howard
Uniform Company and Balco Uniform Cap Corp. The acquisition was contingent on
satisfactory due diligence reviews by each party of all the other parties. The
letters of intent were terminated in May of 1996 after receipt of notice by the
parties that Howard Uniform Company was dissatisfied with the results of its due
diligence review of Gould & Goodrich Leather, Inc.
ITEM 2. PROPERTIES
The Company leases its headquarters in Bennington, Vermont. Substantially
all of the Company's operations, including administration and sales, and
virtually all of its production facilities are located at the Bennington
facility. The facility consists of approximately 220,000 square feet; 60,000
square feet is referred to as the South Wing of the Holden-Leonard Mill (the
"South Wing") and is leased from one landlord while the remaining 160,000 square
feet is leased from another owner (made up of the "Center Wing" and "North
Wing"). The Company acquired from G&G Realty Inc. a purchase option with respect
to the South Wing and has entered into a real estate purchase agreement with the
Vermont Economic Development Authority for the Center and North Wings.
The term of the South Wing lease expires on January 31, 2000, and requires
monthly payments of $4,800, plus the Company's proportionate share of taxes,
insurance, utilities and an annual cost of living increase. The purchase option
may be exercised for $600,000 at the end of the lease term.
The purchase agreement with respect to the Center and North Wings
contemplates that the Company will purchase the property for $1,000,000 after
certain contingencies are satisfied, including specific environmental
contingencies to be met by the seller. If these contingencies are not
satisfactorily met or waived, the Company has a right to lease the Center &
North Wings through August 2005. The lease requires monthly payments of $4,000
together with all utilities, assessments, taxes and maintenance. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and See Note 10 to "Notes to
Financial Statements").
The Company subleases a portion of the South and North Wings of the
Holden-Leonard Mill. One of the sublease agreements is with a tenant owned
partially by Jon Goodrich, the Company's President. Rental income from this
tenant was $24,000 in both 1995 and 1996. Total sublease rental income was
$65,160 and $57,641 in 1996 and 1995, respectively.
The Company has consolidated its administrative offices to the Center
Wing, and commencing November 1, 1996, pursuant to a month to month verbal
agreement, has subleased its unused office space formerly located in the South
Wing. The arrangement calls for monthly rental payments of $1,800.
The Company does not have any current plan to invest in other real estate,
however, the Company may invest in various parcels of real estate from time to
time without stockholder approval.
The Company believes that all of its properties are adequately covered by
insurance and believes its properties are suitable and adequate for its current
and near term needs.
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ITEM 3. LEGAL PROCEEDINGS
As disclosed in the Company's 1994 Form 10-KSB, on January 25, 1994 a suit
was filed by Carmeta Gentles on her own behalf and as personal representative of
the estate of Robert Gentles in Ontario Court (General Division), Ontario,
Canada, claiming intentional or negligent manufacture and distribution of the
Mark V Mace(R) brand defense spray unit and that its contents contributed to the
suffering and death of Robert Gentles while in the Kingston Penitentiary in
October 1993. The Company was added as a party defendant on February 8, 1995.
The plaintiff seeks five million dollars in damages. The Company forwarded this
suit to its insurance carrier for defense. The Company does not anticipate that
this claim will result in the payment of damages in excess of the Company's
insurance coverage.
As disclosed in the Company's Form 10-QSB for the quarter ended June 30,
1995, on April 19, 1995 a suit was filed by Elaine Thomlinson, et al., in
Ontario Court (General Division), Ontario, Canada, claiming unspecified damages
for personal injuries, pain and suffering, emotional trauma and financial loss
and expense in consequence of their exposure to noxious and hazardous substances
while participating in a simulated emergency exercise conducted at a local
school by municipal authorities. The Company forwarded this suit to its
insurance carrier for defense. The Company does not anticipate that this claim
will result in the payment of damages in excess of the Company's insurance
coverage.
On August 10, 1995, a suit was filed by B.P. Apparel, Inc., Easley, South
Carolina, in the Court of Common Pleas, County of Lexington, South Carolina. The
Complaint alleges breach of contract, fraud and negligent misrepresentation by
the Company as a result of the actions of a Company employee in facilitating the
sale of an airplane formerly leased by the Company from G&G Realty, Inc.,
Lillington, North Carolina. The plaintiff seeks damages in the amount of
$200,000 as well as punitive damages and attorney's fees. The Company has asked
G&G Realty, Inc. to indemnify the Company for a portion of expenses on this
claim. No written agreement has been reached, as of March 31, 1997, regarding
such indemnification. G&G Realty is wholly owned by Robert P. Gould, a former
director and significant stockholder of the Company.
Although the Company is not aware of any substantiated claim of permanent
personal injury from its products, the Company is aware of recent reports of
incidents in which, among other things, defense sprays 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
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ National Market System
under the symbol MACE.
The following table sets forth for the calendar periods indicated the high
and low sales price for the Common Stock for each quarter within the last two
fiscal years.
QUARTER ENDED HIGH LOW
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March 31, 1995 2 1/4 1 1/2
June 30, 1995 2 1 7/16
September 30, 1995 1 15/16 1 7/16
December 31, 1995 1 15/16 1 1/8
March 31, 1996 1 3/4 3/4
June 30, 1996 1 3/4 1
September 30, 1996 2 1/4 1
December 31, 1996 1 5/8 1
The past performance of the Company's securities is not necessarily
indicative of future performance.
As of March 31, 1997, there were approximately 243 holders of record of
the Company's Common Stock.
The Company has not paid cash dividends on its Common Stock since its
initial public offering. Payment of dividends, if any, will be at the discretion
of the Company's Board of Directors and will depend on, among other factors,
earnings, capital requirements and the results of operations and financial
condition of the Company. The Company does not intend to pay dividends in the
foreseeable future.
Pursuant to Part III, Section 5(a)(5), of Schedule D of the NASD By-Laws,
to remain eligible for continued inclusion on the Nasdaq Stock Market, among
other things, a security must have a bid price of at least $1.00 per share, or
in the alternative, the security's market value of publicly held shares must be
at least $3,000,000 and the Company's net tangible assets must be at least
$4,000,000. To the extent these requirements are not satisfied, the security is
subject to being removed from the Nasdaq Stock Market and listed on the Nasdaq
Small Cap Market.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following can be interpreted as including forward looking statements
under the Private Securities Litigation Reform Act of 1995. Such statements are
typically identified by the words "intends", "plans", "effort", "anticipates",
"believes", "expects", or words of similar support. Various important factors
that could cause actual results to differ materially from those expressed in the
forward looking statements are identified below and may vary significantly based
on a number of factors including, but not limited to, marketing success, product
development, production, manufacturing costs, competitive conditions, and the
change in economic conditions of the various markets the Company serves. Actual
future results may differ materially from those suggested in the following
statements.
Year Ended December 31, 1996 compared to Year Ended December 31, 1995.
The following discussion should be read in conjunction with the accompanying
Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
Net sales decreased by $1,925,654 or 15.1% in 1996 compared to 1995. The
major component contributing to this decrease is the 30.6% decline in Federal
Labortories product line sales from $6,516,280 in 1995 to $4,523,918 in 1996.
Management believes that the fluctuation is consistent with the nature of the
Federal Laboratories division, which sells its products primarily to law
enforcement, correctional and military agencies through lengthy bidding
processes. Agencies generally place orders which are expected to cover their
crowd control requirements for several years. Consequently, sales orders in the
division range from several thousand dollars to close to one million dollars,
thus yielding significant quarterly and yearly fluctuation.
Gross profit as a percent of sales decreased to 39.05% as compared to
39.1% in 1995. Gross profit from the Law Enforcement division decreased to 33.4%
in 1996 from 35.5% in 1995. A primary reason for this decline in 1996 is sales
of large orders to several domestic law enforcement agencies that yielded lower
gross margins as a result of highly competitive bidding. Gross profit from the
Consumer Division increased to 47.1% in 1996 from 45.3% in 1995. A contributing
factor to the Company's increase in gross profit in the Consumer division is the
decrease in the lower margin consumer non-aerosol product sales as a percent of
total Consumer division sales to 20% in 1996 from 23.0% in 1995.
General, administrative and selling expenses overall decreased 21.3% in
1996 compared to 1995. As a percentage of net sales, these expenses decreased to
41.4% in 1996 from 44.7% in 1995. In January 1996, management reviewed
operations and implemented an aggressive cost savings program.
General and administrative expenses decreased by $399,136 or 13.3% in 1996
compared to 1995. The principal reasons for the decrease are the reduction of
administrative staff and their associated costs and various expenses as a result
of the implementation of the cost savings program. However, as a percent of net
sales, these expenses were 24.1% and 23.6% for 1996 and 1995, respectively, as a
result of lower sales in 1996.
Selling expenses decreased by $816,696 or 30.4% in 1996 compared to 1995.
As a percentage of net sales, these expenses declined to 17.3% in 1996 from
21.1% in 1995. The decrease is a result of Management's planned efforts to match
selling expenses to revenues. The major components of this decline are the
reduction of certain sales staff and their associated costs, lower commissions
as a result of lower sales, and reductions in advertising/sales promotions and
literature.
Operating loss as a percentage of net sales decreased to 2.3% in 1996 from
5.5% in 1995, primarily as a result of the implementation of the aggressive cost
savings program that commenced in January 1996.
Other income/expense was income of $7,175 in 1996 compared to income of
$91,572 in 1995. The primary reason for this decrease is the effect of the
settlement agreement with TransTechnology Corporation in 1995. (See Note 9 to
"Notes to Financial Statements").
The Company has experienced sales declines over the past few years
primarily as a result of strong competition and lower demand in general. In an
attempt to reverse these factors, Management is restructuring its sales force
and plans to introduce new products over the next few years. The Company expects
to continue the cost savings program in a manner that does not negatively impact
sales and marketing. However, it will continue its effort to match selling
expenses to revenues.
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LIQUIDITY AND CAPITAL RESOURCES
On October 31, 1996, the Company entered into a credit agreement with
KeyBank National Association which provides for a maximum of $2,000,000 of
credit (the "Credit Agreement") and is subject to a borrowing basic formula. The
amounts outstanding under the Credit Agreement are secured by virtually all of
the Company's presently owned and after-acquired assets.
The Credit Agreement is separated into two "facilities." One facility
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 December 31, 1996). The Company drew fully on the term loan
and used the proceeds to pay off the term loan with Vermont National Bank that
totaled $395,823, including accrued interest, and used the remaining $354,177
for working capital.
Availability under the second facility, the line of credit facility, can
not exceed $1,250,000; is reduced, dollar for dollar, by any amounts outstanding
under letters of credit issued by the Bank on behalf of the Company; and is
limited to the amount by which the borrowing base (as calculated pursuant to a
formula) exceeds the amount outstanding under the term loan. The Bank will not
issue letters of credit on behalf of the Company in excess of $250,000. The line
of credit facility matures on October 1, 1998 and calls for interest to be paid
monthly at thc Bank's "base rate" plus 1.25% (9.25% as of December 31, 1996). No
amounts were outstanding on the line of credit facility at December 31, 1996.
The Credit Agreement contains various financial and subjective covenants
that are measured at each fiscal quarter end. Principal covenants include (i)
the maintenance of certain levels of net worth and compliance with certain
current, leverage and interest expense ratios, (ii) limitation on capital
expenditures; and (iii) prohibition on the purchase of other businesses and
mergers or consolidations with other businesses, except with Bank consent. As of
December 31, 1996, the Company was in violation of most of the financial ratios
and the subjective covenants. The Company has obtained a waiver of these
violations for the year ended December 31, 1996 and for the quarter ended March
31, 1997. As partial consideration for the waiver, the Company agreed, in April
1997, to modifications of the definition of the borrowing base set forth in the
Credit Agreement. As so modified, the borrowing basic formula is 50% of eligible
accounts receivable in excess of $3,000,000. The Company has not had eligible
accounts receivable in excess of $3,000,000 and, consequently, does not expect
to be entitled to borrow any amounts under the line of credit facility.
The Company believes it has adequate cash to meet its needs for the second
quarter of 1997. The Company anticipates that it will be in covenant violation
of the Credit Agreement as of June 30, 1997, and does not expect to obtain an
additional waiver. In that event it is likely that the Bank will accelerate the
amounts due under the tern loan, and the entire amount will become due and
payable at that time. The Company intends to pay off the amounts due to the
Bank under the term loan with proceeds from alternate bank financing, the
issuance of debt securities or other forms of external financing. The Company is
currently negotiating with other financial institutions, but no commitment has
been obtained. There can be no assurance that alternate financing will be
obtained.
Subsequent to year end, the Company's President and the Chairman of the
Board supplied the Company with lines-of-credit for up to $375,000 each
($750,000 in total) with interest at prime plus 1.25%. The lines-of-credit
expire in April 1998 at which time all accrued interest and unpaid principal
will be due and payable. The lines-of-credit will be payable at an earlier date
if the Company obtains a bank line-of-credit or similar financing in the amount
of at least $750,000. The Company believes that these lines-of-credit will be
adequate to meet its operating needs over the next twelve months and the
repayment of the KeyBank National Association term loan if payment is demanded
after June 30,1997.
The Company's principal sources of cash in 1996 were funds borrowed under
the term loan facility of which $354,177 was used for working capital, and
internally generated funds from a substantial decrease in inventories, and a
decline in prepaid expenses. The Company's principal uses of cash were an
increase in accounts receivable and additional investments in leasehold
improvements in Bennington, Vermont.
At December 31, 1996, the Company's open orders total $1,681,463 as
compared to $1,215,488 for the prior year-end. This increase is primarily due to
an increase in several large international orders for the Federal
Laboratories(R) product line. Open orders are orders that have not yet been
manufactured but are scheduled for production and delivery.
Inventory decreased $702,869 in 1996. The decrease is primarily due to the
use of certain chemicals that were maintained at a higher level in 1995 to cover
the transitional period resulting from the final relocation of the Federal
Laboratories production facilities from Pennsylvania to Vermont.
The Company has consolidated its administrative offices to the Center Wing
of its headquarters and has subleased a portion of its unused office space,
effective November 1, 1996 pursuant to a month to month verbal agreement. (See
"Properties"). The arrangement calls for monthly rent payments of $1,800.
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For the year ended December 31, 1996, capital expenditures were $304,403
compared to $781,229 in 1995. This decrease is due to the near completion, in
1995, of the renovations needed to accommodate the Federal Laboratories
manufacturing operation at the Company's Bennington, Vermont headquarters.
The major components of the 1996 capital expenditures were for the
purchase and installation of an air filtration system in the Company's
manufacturing facility, construction of leasehold improvements necessary for the
sub-lease of its unused office space, update of the sprinkler system and the
planning and construction of a fully operational indoor testing facility for
pyrotechnics.
The Company is considering additional capital expenditures for 1997 of
approximately $50,000, to be principally comprised of leasehold improvements to
relocate the defense spray filling room from the first floor of the South Wing
to the first floor of the Center Wing. The Company does not anticipate that this
relocation will occur unless the Company is able to obtain adequate financing.
Additionally, the Company is a party to a real estate purchase agreement
with the Vermont Economic Development Authority (VEDA) for the purchase of the
Center and North Wings of its headquarters, after the satisfaction or waiver of
certain contingencies by VEDA. The Company cannot predict when, or if, these
contingencies will be met. The purchase price is $1,000,000, payable by delivery
of $150,000 in cash and a promissory note to VEDA for $850,000 at 4% interest
per annum, based on a 20 year amortization schedule with a balloon payment of
$100,000 due at the end of ten years. (See "Properties"). The Company has
deposited $75,000 of the total cash portion into an escrow account as required
by the agreement. (See Note 10 to "Notes to Financial Statements").
ITEM 7. FINANCIAL STATEMENTS
Financial Statements filed as a part of this report:
Report of Independent Accountants F-2
Balance Sheets at December 31, 1996 and 1995 F-3
Statements of Operations for the Years Ended
December 31, 1996 and 1995 F-4
Statements of Stockholders' Equity for the
Years Ended December 31, 1996 and 1995 F-5
Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995 F-6
Notes to Financial Statements F-7
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons are directors and officers of the Company as of March 31,
1997.
Name Age Title
- ---- --- -----
Marvin P. Brown ..................67 Chairman of the Board
Jon E. Goodrich...................51 CEO, President and Director
Bernard D. Graney, Jr.............36 Vice President of Operations
Kenneth J. Blakey.................52 Vice President of Sales
Brian L. Kelley...................38 Principal Financial Officer, Treasurer
James E. West.....................51 Director
Virginia de Ganahl Russell........65 Director
Marvin P. Brown was elected President, Chief Executive Officer, and
director of the Company in January 1997. On March 14, 1997, Mr. Brown resigned
as President and CEO and assumed the position of Chairman of the Board. Since
1993 he has been associated with Wolff Investment Company, Inc., a brokerage
firm member of the National Association of Securities Dealers, as Director of
Corporate Finance and Senior Vice President. From 1988 through 1992 he had been
a senior vice president of Tucker Anthony, a member of the New York Stock
Exchange. Prior to that period, he had held senior officer positions with
various members of the New York Stock Exchange. He also has served as president
of Zenith Laboratories, Inc., formerly a leading independent manufacturer of
generic pharmaceuticals from 1968 to 1969. Wolff Investment Group, Inc. has
served as a financial consultant to the Company on several occasions from 1993
to 1996. (See "Certain Relationships and Related Transactions" and
"Employment/Consulting Contracts and Termination of Employment and
Change-In-Control arrangements").
Jon E. Goodrich served as Chairman of the Board of Directors of the
Company from its inception in 1987 until June 1995. He served as President of
the Company from its inception until January 15, 1996 when he tendered his
resignation and was renamed Chairman of the Board. On March 14, 1997, he was
reappointed as President and CEO and resigned as Chairman of the Board. He was
also a vice president of Gould & Goodrich Leather, Inc., a manufacturer of
holsters, belts and related products and president of G&G Realty, Inc., a real
estate management corporation until January of 1997 when he resigned from his
positions and terminated his interest in both companies. (See "Certain
Relationships and Related Transactions" and "Employment/Consulting Contracts and
Termination of Employment and Change-in-Control Arrangements").
Bernard D. Graney, Jr., is Vice President of Operations. He has been
employed by the Company for more than five years and has, during that time, held
a variety of managerial positions. He served as the Company's Secretary from
August 1993 until June 1995 and was reappointed Secretary on March 14, 1997.
Kenneth J. Blakey, is Vice President of Law Enforcement Sales. He has been
employed by the Company since 1994. Prior to joining the Company he was employed
by TransTechnology Corporation as the International and Domestic Law Enforcement
Sales Director of the Federal Laboratories division for at least 5 years prior
to joining the Company. Prior to that he was domestic sales manager for Smith &
Wesson chemical company - tear gas division.
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<PAGE>
Brian L. Kelley is Principal Financial Officer and Treasurer. He has been
employed by the Company since May 1994 and was appointed Treasurer in April
1996. Prior to that he held the position of Senior Cost Analyst for the Company.
In 1993 he was the business manager for Commonwealth Thomas Group, a multi-line
bus dealership and from 1991 to 1993 he was the Controller for Strawberry Banke,
Inc., a historical museum located in Portsmouth, NH.
James E. West was appointed to the Board of Directors in June 1996 and was
employed by the Company in July and August of 1996 as a marketing consultant. He
founded By-Line Data in May 1994. Since that time he has served as president of
that company. By-Line Data develops and markets new products for newspaper
clients to create "paperless" on-line information services for use by their
printed product. Prior to 1994 he served as a consultant to several companies.
Mr. West was the original founder of TV Data and served in the role of president
and CEO and, later, as consultant to that Company.
Virginia de Ganahl Russell was appointed a director in January 1997. Ms.
Russell, who previously had served as a director of the Company in 1995, is
president of Natural Elegance, Inc., a leading nationwide marketer of marble
products. Ms. Russell is Chairman of the Board of the Vermont Leadership Center
of East Charleston, VT and is a member or serves on the board of various
organizations.
BOARD OF DIRECTORS
The number of directors on the Board is currently fixed at five. Each
director serves for a term of one year or until a successor is elected and
qualified. Officers are appointed by, and serve at the discretion of, the Board
of Directors. No director missed more than two board meetings held during 1996.
The Chairman receives a fee of $750 and each director $500 per day plus
out of pocket travel, meals and lodging expenses for attendance at each board
meeting. Messrs. Brown and Goodrich have waived their right to the fees. In
addition, in 1996 all directors, other than Robert P Gould and Jon E. Goodrich,
were granted options to purchase shares of common stock. The then directors,
Messrs. Duboff, Logan, Foote, Mitchell, Norman and West each received options to
purchase 10,000 shares at an exercise price of $1.50 per share and Messrs.
Duboff, Logan, Foote, and Norman each received additional options to purchase
10,000 shares at an exercise price of $1.1875 per share.
On January 10, 1997, at the request of the parties to the voting
agreement, six members of the Board of Directors (Messrs. Foote, Logan, Norman,
Duboff, Mitchell, and Rosberg), the then president, Robert D. Norman, and the
then Executive Vice President, General Counsel and Secretary, Richard Galt,
resigned. Marvin Brown was appointed as President. The size of the Board was
reduced from nine to five members and Ms. Virginia de Ganahl Russell was
appointed as a director.
On March 14, 1997, Robert Gould resigned from the Board and Jon Goodrich,
the former President, who had been acting under an advisory agreement with the
Company, was reelected to serve as President and CEO. Marvin Brown resigned as
President and accepted the position of Chairman of the Board.
The Audit Committee of the Board of Directors consist of Messrs. Brown and
West and Ms Russell. The Compensation Committee members are Messrs. Brown, and
West. The Planning Committee members are Ms. Russell and Messrs. Goodrich, and
Brown. The Nominating Committee consists of Messrs. Goodrich and Brown.
Mr. Brown and the Company have a verbal agreement pursuant to which Mr.
Brown consults with the Company on an as needed basis and receives $500 per day
and reimbursement of expenses.
14
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COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely on a review of Forms 3 and 4 and amendments thereto furnished
to the Company during its fiscal year ended December 31, 1996, no person (other
than Messrs. Gould and Goodrich) known to be the beneficial owner of more than
10% of the Company's outstanding Common Stock, failed to file on a timely basis,
reports required to be filed by Section 16(a) of the Exchange Act during the
most recent fiscal year.
Messrs. Mitchell and West failed to file timely Forms 3 to disclose their
appointment as directors. Messrs. Goodrich and Gould failed to file timely
reports on Form 4 regarding purchases and sales of stock, respectively. All
directors and executive officers failed to file timely reports on Form 4 to
disclose option grants. All required filings have been made to date.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation, cash and non-cash,
awarded to, earned by or paid by the Company to its Chief Executive Officer and
all other persons acting in similar capacities. No other executive officers
received annual compensation (consisting solely of base salary and bonus, if
any) in excess of $100,000 for the year ended December 31, 1996:
Summary Compensation Table
Year
Ended Annual Other
Name and Principal Position December 31 Salary Bonus Compensation
- ----------------------------- ------------ ------ ----- ------------
Jon E. Goodrich(1) 1996 $124,023 $25,000 --
President and Chief 1995 161,000 -- --
Executive Officer 1994 175,108 2,500 --
Robert D. Norman(2) 1996 $ 71,655 $ -- $27,800(3)
Former President and Chief 1995 -- -- --
Executive Officer 1994 -- -- --
Richard A. Galt(4) 1996 $ 60,400 $ 4,200 --
Former Executive Vice President, 1995 32,540 -- --
General Counsel and Secretary 1994 -- -- --
(1) Mr. Goodrich served as President and CEO until January 15, 1996, and, for
the remainder of 1996, served as an advisor to the Board of Directors. He
was reappointed as President and CEO on March 14, 1997.
(2) Tendered his resignation effective 1/10/97.
(3) Represents the issuance of 20,000 shares of the Company's common stock in
connection with his employment as President, valued at $1.39 per share.
(4) Tendered his resignation effective 4/1/97. Mr. Galt had certain of the
duties of chief executive officer throughout certain periods of 1996.
15
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Options/Warrants
In September 1993, the Board of Directors of the Company adopted the Mace
Security International, Inc. Non-qualified Stock Option Plan (the "Plan"), which
was approved by the stockholders of the Company. The Plan provides for the
issuance of up to 630,000 shares of Common Stock upon exercise of the options.
The options are considered non-qualified stock options and are not transferable
by the recipient.
The Plan is administered by the Compensation Committee of the Board of
Directors, which may grant options to employees, former employees, directors and
distributors for, and consultants to, the Company. The term of each option may
not exceed fifteen years from the date of grant. Immediately exercisable options
to purchase approximately 276,400 shares of Common Stock are currently
outstanding to employees, former employees, consultants, and former directors.
To date no options have been exercised.
The following table shows certain information with respect to options
granted in 1996 to the named executive officers of the Company.
Options Granted in last Fiscal Year
Number Percentage Exercise Expiration
Name of Options of Total Price Date
- ---- ---------- ---------- -------- ----------
Jon E. Goodrich ---- ----- ----- -----
Robert D. Norman 10,000 7.6% $1.50 4/17/11
10,000 7.6% $1.1875 9/10/11
Richard A. Galt 10,000 7.6% $1.50 4/17/11
40,000 38.7% $1.50 8/21/11
The following table shows certain information with respect to the year-end
value of options held by the named executive officers of the Company. No options
were exercised during 1996.
Fiscal Year-End Option Values
Value of Unexercised
Number of Unexercised In the Money
Name Options at 12/31/96(1) Options at 12/31/96(2)
- ---- ---------------------- ------------------------
Jon E. Goodrich ----- -----
Robert D. Norman(3) 10,000 $625
10,000 0
Richard A. Galt, Esq. 50,000 0
(1) All options are immediately exercisable
(2) Based upon a 12/31/96 closing price of $1.25 per share
(3) Options issued in connection with his role as a director
In connection with the Company's initial public offering, the Company
granted C.L. King & Associates, Inc., its underwriter, warrants to purchase
75,000 shares of the Company's Common Stock at a per share exercise price of
$6.60, and certain "demand" and "piggyback" registration rights with respect to
such shares, for a four year period which began November 12, 1994.
In connection with the acquisition of the trademarks and assets of
Kindergard Corporation, the Company granted to the stockholders of Kindergard
Corporation warrants to purchase 60,000 shares of the Company's Common Stock at
a per share exercise price equal to $4.25 exercisable until August 2004.
16
<PAGE>
Employment/Consulting Contracts and Termination of Employment and
Change-in-Control Arrangements
Jon E. Goodrich was employed by the Company under an employment agreement
until January 1996. Thereafter he was retained as an advisor to the Board under
an advisory employment agreement. Mr. Goodrich is currently employed as
President and CEO under an employment agreement dated as of March 14, 1997. The
agreement supersedes the September 1, 1993 employment agreement between Mr.
Goodrich and the Company as well as the Advisory Employment Agreement dated as
of January 17, 1996 and is effective until September 1, 1998. Mr. Goodrich is
entitled to an annual salary of $125,000. The agreement prohibits Mr. Goodrich
from accepting employment with any other entity and further prohibits him from
competing with the Company for a two year period following his voluntary
termination of employment with the Company or termination of his employment by
the Company for cause, as defined in the agreement. Should Mr. Goodrich's
employment be terminated without cause, he shall be entitled to all payments for
the term of the agreement.
Robert D. Norman, a former director, the former President and CEO and
stockholder, entered into a two-year employment agreement with the Company to
serve as President/Chief Executive Officer dated as of January 16, 1996. The
agreement provided Mr. Norman with an annual salary of $110,000, an annual bonus
equal to $1,000 for every $100,000 of net income for each fiscal quarter, and
20,000 shares of Common Stock which have been issued. Notwithstanding, Mr.
Norman agreed to an annualized salary reduction to $42,000, commencing July 1996
through December, 1996. The agreement prohibits him from competing with the
Company for a two year period following his voluntary termination of employment
with the Company or termination of his employment by the Company for cause, as
defined in the agreement. Mr. Norman resigned in January 1997 in response to a
request from the Board. Mr. Norman received his contractual severance payment
equal to fourteen weeks pay, plus an additional $25,000. Such payment was made
in recognition that his resignation was requested without cause.
Richard A. Galt, the former Executive Vice President, General Counsel,
and Secretary served as such pursuant to an employment agreement dated August
22, 1996, as amended, pursuant to which he was entitled to $1500 per week for a
period of two years, plus a bonus based on net income, if any. At the Company's
request, the August 22, 1996 agreement was terminated and replaced with an
agreement dated as of January 22, 1997, as amended on that same date. Pursuant
to such agreement, Mr. Galt would remain employed by the Company until April 1,
1997 as General Counsel but not as an executive officer. He was paid his regular
salary through February 14, 1997 and received total additional payments equal to
$62,000 in 1997.
Change In Control
On January 9, 1997, a voting agreement was signed representing in excess
of 51% of the Company's outstanding stock. The Agreement dated January 9, 1997,
is among Jon E. Goodrich, the recently appointed President and Chief Executive
Officer, Robert P. Gould, a former director and significant shareholder, and
Marvin P. Brown, a former director and newly appointed Chairman of the Board.
Pursuant to the terms of the Agreement, on all matters covered by the Agreement,
the shares subject to the agreement will be voted in the manner determined by a
majority of the three parties to the Agreement. The Agreement also contains
restrictions on transfer of the shares and allows certain of the shares to be
released from the terms of the Agreement.
Prior to entering into the Agreement, the three parties to the Agreement
voted their respective shares individually; not as a group. Mr. Goodrich owns a
total of 2,659,246 shares, 2,400,000 of which are covered by the Agreement; Mr.
Gould owns 1,136,444 shares, 1,100,000 of which are covered by the Agreement,
and Mr. Brown owns 70,388 shares, all of which are covered by the Agreement.
17
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On January 10, 1997, at the request of the parties to the voting
agreement, six members of the Board of Directors (Messrs. Foote, Logan, Norman,
Duboff, Mitchell, and Rosberg), the then president, Robert D. Norman, and the
then Executive Vice President, General Counsel and Secretary, Richard Galt,
resigned; Marvin Brown was appointed as President; the size of the Board was
reduced from nine to five members and Ms. Virginia de Ganahl Russell was
appointed as a director.
On March 14, 1997, Robert Gould resigned from the Board and Jon Goodrich,
the former President, who had been acting under an advisory agreement with the
Company, was reelected to serve as President and CEO. Marvin Brown resigned as
President and accepted the position of Chairman of the Board.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1997 certain information
with respect to beneficial ownership of the Common Stock of the Company (the
only outstanding security) by each director, each executive officer and all
directors and executive officers as a group and by each person known by the
Company to be the beneficial owner of more than five percent of the Company's
Common Stock. The address for all executive officers and directors is 160
Benmont Avenue, Bennington, Vermont 05201.
Amount & Nature of
Owner Beneficial Ownership Beneficially Percent(1)
- -------------------------- --------------- -------
Jon E. Goodrich(2),(3) 2,659,246 38.96%
Marvin P. Brown(3),(4) 170,388 2.46%
Virginia de Ganahl Russell(5) 40,000 *
James E. West(5) 10,000 *
Robert D. Norman(6) 120,000 1.75%
Richard A. Galt(7) 50,000 *
Brian L. Kelley(5) 10,000 *
Kenneth J. Blakey(5) 10,000 *
All executive officers and
directors as a group (9 persons) 3,052,734 43.39%
Robert P. Gould (2),(3) 1,136,444 16.65%
709 East McNeil Street
Lillington, NC 27546
TransTechnology Corporation 580,000 8.50%
700 Liberty Avenue
Union, New Jersey 07083
* Indicates beneficial ownership of less than 1%
(1) Calculation based on 6,825,000 outstanding shares plus shares issuable to
the named person under options exercisable in 60 days.
(2) Excludes shares held by the named persons' spouses. The named directors do
not have shared voting or dispositive power with respect to such shares.
(3) Excludes shares over which the named person has shared voting power by
virtue of being party to a voting agreement which covers in excess of 51%
of the Company's Common Stock. (See "Security Ownership" and
"Employment/Consulting Contracts and Termination of Employment and
Change-in-Control Arrangements")
(4) Includes immediately exercisable options to purchase 100,000 shares of
Common Stock.
(5) Includes immediately exerciseable options to purchase 10,000 shares of
Common Stock.
(6) Includes immediately exerciseable options to purchase 20,000 shares of
Common Stock.
(7) Includes immediately exerciseable options to purchase 50,000 shares of
Common Stock.
18
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the acquisitions of the assets of the Federal Laboratories
division from TransTechnology Corporation, the Company leased, from March 1994,
until September 1995, the operating facilities in Saltsburg, Pennsylvania. Total
lease payments were $60,568 in 1995 and $0 in 1996.
In September 1995, the Company reached an agreement to settle certain
claims with TransTechnology Corporation as a result of the March 1, 1994
purchase of the Federal Laboratories division. As a result of this agreement,
TransTechnology Corporation paid the Company $202,485. This receipt included
$91,230 which offset obligations of the Company, $97,511 of other income and
$13,744 as a reimbursement of current operating expenses.
The Company believes that all transactions with related individuals and
entities were on terms at least as favorable to the Company as those that would
have been reached with unrelated third parties.
SUBSEQUENT EVENTS:
On January 9, 1997, a voting agreement was signed representing in excess
of 51% of the Company's outstanding stock. The Agreement dated January 9, 1997,
is among Jon E. Goodrich, the recently appointed President and Chief Executive
Officer, Robert P. Gould, a former director and significant shareholder, and
Marvin P. Brown, a former director and newly appointed Chairman of the Board.
Pursuant to the terms of the Agreement, on all matters covered by the Agreement,
the shares subject to the agreement will be voted in the manner determined by a
majority of the three parties to the Agreement. The Agreement also contains
restrictions on transfer of the shares and allows certain of the shares to be
released from the terms of the Agreement.
Prior to entering into the Agreement, the three parties to the Agreement
voted their respective shares individually; not as a group. Mr. Goodrich owns a
total of 2,659,246 shares, 2,400,000 of which are covered by the Agreement; Mr.
Gould owns 1,136,444 shares, 1,100,000 of which are covered by the Agreement,
and Mr. Brown owns 70,388 shares, all of which are covered by the Agreement.
On January 10, 1997, at the request of the parties to the voting
agreement, six members of the Board of Directors (Messrs. Foote, Logan, Norman,
Duboff, Mitchell and Rosberg), the then president, Robert D. Norman, and the
then Executive Vice President, General Counsel and Secretary, Richard Galt,
resigned; Marvin Brown was appointed as President; the size of the Board was
reduced from nine to five members; and Ms. Virginia de Ganhal Russell was
appointed as a director.
On March 14, 1997, Robert Gould resigned from the Board and Jon Goodrich,
the former President, who had been acting under an advisory agreement with the
Company, was reelected to serve as President and CEO. Marvin Brown resigned as
President and accepted the position of Chairman of the Board.
19
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of 1996.
(b) Exhibits
3(i) Articles of Incorporation - Vermont(1)
3(i)2 Articles of Incorporation - Delaware(1)
3(i)3 Merger Agreement(1)
3(i)4 Certificate of Amendment for Name Change(1)
3(ii) By-Laws(1)
3(ii)2 Amendment No. 1 to By-Laws, effective 11/12/93(1)
3(ii)3 Amendment No. 2 to By-Laws, effective 2/24/96(5)
9.1 Shareholders Voting Agreement between 321 Investments, Inc.,
Rajan Shamdasani, Jon E.Goodrich, Robert P. Gould and Robert D.
Norman dated March 22, 1996(5)
10.1 Employment Agreement between the Company and Jon E. Goodrich
dated as of September 1, 1993(1)
10.2 Consulting Agreement between the Company and Robert P. Gould
dated as of September 1, 1993(1)
10.3 1993 Non-Qualified Stock Option Plan(1)
10.4 Form of Underwriter Warrants(1)
10.5 Form of Selected Dealers Agreement(1)
10.6 Sales Agreement dated May 1, 1992 between the Company and Mosler
Inc.(1)
10.7 Purchase and Sales Agreement dated July 19, 1991
between the Company and Home Protection Concepts, Inc.(1)
10.8 Purchase and Sales Agreement dated April 1, 1993 between the
Company and Personal Protection Consultants, Inc.(1)
10.9 Purchase Agreement between the Company and Defense Technology
Corp. of America dated October 24, 1992(1)
10.10 Amendment to Purchase Agreement of October 24, 1992
between Defense Technology Corporation of America and the
Company dated as of August 15, 1993(1)
10.11 Purchase and Sales Agreement between the Company and Personal
Security, Inc., dated as of July 1, 1993(1)
10.12 Purchase and Sale Agreement between the Company and Messrs.
Diamond and Helmrich, dated August 16, 1993(1)
10.13 Lease Agreement between the Company and G&G Realty, Inc.
10.14 Form of Lock-up Agreement(1)
10.15 Term Loan with Vermont National Bank(1)
10.16 Working Capital Line of Credit with Vermont National Bank for
$500,000(1)
10.17 Loan with Vermont National Bank for $400,000
10.18 Guarantees of Messrs. Gould and Goodrich under the loans with
Vermont National Bank(1)
10.19 Waiver/amendment of capital expenditure limitation contained in
the term loan agreement with Vermont National Bank(1)
20
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10.20 Amended and Restated Employment Agreement between the Company
and Jon E. Goodrich(1)
10.21 Aircraft Lease dated as of June 1, 1993 between the Company and
G&G Realty, Inc.(1)
10.22 Trademarks(1)
10.23 Amendment No. 1 to Amended and Restated Employment Agreement(1)
10.24 Asset Purchase Agreement between the Company and TransTechnology
Corporation dated March 1, 1994(2)
10.25 Agreement for Sale between KinderGard Corporation and Mace
Security International, Inc.(3)
10.26 Consulting Agreement between Sheldon Hibbard and Mace Security
International, Inc.(3)
10.27 Consulting agreement between P.D.M. Corporation and Mace
Security International, Inc.(3)
10.28 Warrants in connection with the acquisition of the assets of the
KinderGard Corporation(3)
10.29 Purchase and Sale Agreement between Robert Mainhardt and Mace
Security International, Inc.(3)
10.30 Consulting and Sales Representative Agreement between Robert
Mainhardt and Mace Security International, Inc.(3)
10.31 License Agreement between Robert Mainhardt and Mace Security
International, Inc.(3)
10.32 Assignment and Assumption Agreement between G&G Realty, Inc.and
Mace Security International, Inc.(3)
10.33 Lease Agreement and Option to Purchase between G&G Realty, Inc.
and James Comi and Rhoda Comi(3)
10.34 Real Estate Purchase Agreement between Vermont Economic
Development Authority and Mace Security International, Inc.(3)
10.35 Consulting Agreement effective April 1, 1994 between Robert R.
Rosberg and Mace Security International, Inc.(4)
10.36 Supplemental Agreement effective January 1, 1995 between Robert
R. Rosberg and Mace Security International, Inc.(4)
10.37 Aircraft Lease effective June 1, 1994 betweeen G&G Realty, Inc.
and Mace Security International, Inc.(4)
10.38 Aircraft Lease Termination Agreement effective March 31, 1995
between G&G Realty, Inc. and Mace Security International,
Inc.(4)
10.39 Line of Credit Note for $1,500,000 with Vermont National Bank(5)
10.40 Term Note for $1,500,000 with Vermont National Bank(5)
10.41 Security Agreement with Vermont National Bank(5)
10.42 Advisory Employment Agreement between Mace Security
International, Inc. and Jon E. Goodrich, dated as of January 17,
1996(6)
10.43 Employment Agreement between Mace Security International, Inc.
and Robert D. Norman, dated as of January 16, 1996(6)
10.44 Letter of Intent between Mace Security International, Inc. and
Gould & Goodrich Leather, Inc., dated March 22, 1996(6)
10.45 Letter of Intent between Mace Security International, Inc. and
321 Investments, Inc., dated March 22, 1996(6)
10.46 Letter of Intent between Mace Security International, Inc. and
Rajan Shamdasani, dated March 22, 1996(6)
10.47 Employment Agreement between the Company and Richard A. Galt
dated as of August 22, 1996(7).
21
<PAGE>
10.48 Amendment 1 to Employment Agreement between the Company and
Richard A. Galt dated as of August 22, 1996(7).
10.49 Employment Agreement between the Company and Richard A. Galt
dated as of January 22, 1997.(8)
10.50 Amendment 1 to Employment Agreement between the Company and
Richard A. Galt dated as of January 22, 1997.(8)
10.51 Employment Agreement between the Company and Jon E. Goodrich
dated as of March 14, 1997.(8)
10.52 Loan Agreement between the Company and KeyBank National
Association dated March 31, 1996.(8)
10.54 Line-of-credit agreement between the Company and Marvin Brown(8)
10.55 Line-of-credit agreement between the Company and Jon E.
Goodrich(8)
10.53 Waiver and Modification of Loan Agreement between the Company
and KeyBank National Association dated April 11, 1997.(8)
11 Statement re: computation of per share earnings(8)
27 Financial Data Schedule(8)
(1) Incorporated by reference to the exhibit of the same number filed with the
Company's registration statement on Form SB-2 (33-69270) that was declared
effective on November 12, 1993.
(2) Incorporated by reference to the Company's report on Form 8-K filed March
14, 1994.
(3) Incorporated by reference to the Company's Form 10-QSB report for the
quarter ended 9/30/94 filed on November 14, 1994. It should be noted that
Exhibits 10.25 through 10.34 were previously numbered 10.1 through 10.10
in that report.
(4) Incorporated by reference to the Company's Form 10-KSB for the year ended
12/31/94.
(5) Incorporated by reference to the Company's Form 10-KSB for the year ended
December 31, 1995.
(6) Incorporated by reference to the Company's Form 10-QSB for the quarter
ended March 31, 1996.
(7) Incorporated by reference to the Company's Form 10-QSB for the quarter
ended September 30, 1996.
(8) Filed herewith.
22
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
Page No.
Report of Independent Accountants F-2
Balance Sheets at December 31, 1996 and 1995 F-3
Statements of Operations
for the Years Ended December 31, 1996 and 1995 F-4
Statements of Stockholders' Equity
for the Years Ended December 31, 1996 and 1995 F-5
Statements of Cash Flows for the Years
Ended December 31, 1996 and 1995 F-6
Notes to Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Mace Security International, Inc.
We have audited the accompanying balance sheets of Mace Security International,
Inc. as of December 31, 1996 and 1995 and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mace Security International,
Inc. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Albany, New York
March 25, 1997, except for
Note 7 for which the date is
April 14, 1997.
F-2
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 345,554 $ 505,638
Accounts receivable, less allowance for
doubtful accounts
($101,603, 1996; $48,600, 1995) ............. 2,567,920 1,089,982
Inventories:
Finished goods .............................. 1,729,882 1,926,932
Work in process ............................. 1,184,590 1,574,505
Raw material and supplies ................... 2,311,407 2,427,311
Prepaid expenses .............................. 171,271 416,005
------------ ------------
Total current assets ........................ 8,310,624 7,940,373
Property and equipment, net ...................... 2,919,230 3,079,446
Intangibles, net ................................. 2,761,193 3,041,440
Other assets ..................................... 131,543 132,500
------------ ------------
Total Assets ................................ 14,122,590 $ 14,193,759
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ................................. $ -- $ 127,797
Current maturities of long-term debt .......... 949,827 542,248
Accounts payable .............................. 1,012,777 618,653
Accrued liabilities ........................... 411,233 534,916
------------ ------------
Total current liabilities ................... 2,373,837 1,823,614
Long-term debt ................................... 143,271 567,177
------------ ------------
Total liabilities ........................... 2,517,108 2,390,791
------------ ------------
Commitments and contingencies (Note 10)
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
and outstanding 6,825,000 shares
in 1996, 6,805,000 shares in 1995 ........... 68,250 68,050
Additional paid in capital .................... 13,080,133 13,025,471
Deficit ....................................... (1,542,901) (1,290,553)
------------ ------------
Total Stockholders' equity .................. 11,605,482 11,802,968
------------ ------------
Total Liabilities and Stockholders' equity .. $ 14,122,590 $ 14,193,759
============ ============
The accompanying notes are an integral part
of the financial statements.
F-3
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net Sales ................................................ $ 10,824,203 $ 12,749,857
Cost of sales ............................................ 6,596,992 7,760,702
------------ ------------
Gross profit ......................................... 4,227,211 4,989,155
Operating expenses:
General and administrative ............................. 2,606,045 3,005,181
Selling ................................................ 1,873,884 2,690,580
------------ ------------
Operating loss ....................................... (252,718) (706,606)
Other (income) expense:
Write down of long-lived assets to net realizeable value 28,453 --
Interest income ........................................ (22,646) (24,785)
Interest expense ....................................... 97,998 95,958
Other income ........................................... (110,980) (162,745)
------------ ------------
(7,175) (91,572)
------------ ------------
Loss before income tax expense (benefit) ............. (245,543) (615,034)
Income tax expense (benefit) ............................. 6,805 (30,681)
------------ ------------
Net loss ............................................. $ (252,348) $ (584,353)
============ ============
Net loss per common share ............................ $ (.04) $ (.09)
============ ============
</TABLE>
The accompanying notes are an integral part
of the financial statements.
F-4
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Additional
Shares Par Paid-in Capital Deficit
------ --- --------------- -------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 6,805,000 $68,050 $13,025,471 $ (706,200)
Net loss (584,353)
--------- ------- ----------- -----------
Balance at December 31, 1995 6,805,000 68,050 13,025,471 (1,290,553)
Distribution of 20,000 shares
to former president and CEO 20,000 200 27,600
Fair value of 30,000 stock options
issued to consultants 27,062
Net loss (252,348)
--------- ------- ----------- -----------
Balance at December 31, 1996 6,825,000 $68,250 $13,080,133 ($1,542,901)
========== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
F-5
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Operating activities:
Net loss ....................................................... $ (252,348) $ (584,353)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation ............................................. 445,018 429,721
Amortization ............................................. 267,222 265,190
Allowance for bad debts .................................. 53,003 (5,700)
(Gain) Loss on sale of assets ............................ (10,249) 1,250
Write down of long-lived assets to net realizeable value . 28,453 11,019
Fair value of stock options to consultants ............... 27,062 --
Shares issued as compensations ........................... 27,800 --
Changes in operating assets and liabilities:
Accounts receivable ...................................... (1,530,941) 1,078,861
Other receivable-related party ........................... -- 32,978
Inventories .............................................. 702,869 (758,797)
Prepaid expenses ......................................... 265,594 (146,597)
Accounts payable ......................................... 394,124 (49,476)
Accrued liabilities ...................................... (123,683) (327,673)
Corporate income taxes payable ........................... -- (5,699)
Other assets ............................................. (12,483) (77,660)
----------- -----------
Net cash provided by (used in) operating
activities ............................................ 281,441 (136,936)
----------- -----------
Investing activities:
Purchases of property and equipment ............................ (304,403) (781,229)
Proceeds from sale of property and equipment ................... 29,850 2,200
----------- -----------
Net cash used in investing activities .................. (274,553) (779,029)
----------- -----------
Financing activities:
Payment of principal of long-term debt ......................... (392,080) (278,257)
Proceeds from issuance of long-term debt ....................... 375,753 20,823
Payment of notes payable ....................................... (127,797) (609,439)
Proceeds from issuance of notes payable ........................ -- 1,303,599
Debt issue costs ............................................... (22,848) --
----------- -----------
Net cash (used in) provided by
financing activities ................................. (166,972) 436,726
----------- -----------
Net decrease in cash and cash equivalents ......................... (160,084) (479,239)
Cash and cash equivalents:
Beginning of year .............................................. 505,638 984,877
----------- -----------
End of year .................................................... $ 345,554 $ 505,638
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
F-6
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of organization:
Mace Security International, Inc. is incorporated under the laws of
the state of Delaware. The Company's revenues are generated primarily
through the manufacture, distribution and sale of defense sprays, tear gas
grenades, projectiles, cartridges and other self-defense and personal
safety products for the Consumer and Law Enforcement Markets.
Summary of significant accounting policies:
Revenue recognition:
Substantially all revenue from domestic sales is recognized when
shipments are made and export sales are recognized when title has passed.
Cash and cash equivalents:
Cash and cash equivalents consist of cash and highly liquid
short-term investments with original maturities of three months or less.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property and equipment:
Property and equipment are stated at cost.
Depreciation is recorded using the straight-line method over the
estimated useful lives of the assets.
Significant additions or improvements extending assets' useful lives
are capitalized; normal maintenance and repair costs are expensed as
incurred.
The cost of fully depreciated assets remaining in use are included
in the respective asset and accumulated depreciation accounts. When items
are sold or retired, related gains or losses are included in operations.
Intangibles:
Trademarks are stated at cost and are amortized on a straight-line
basis over 15 years.
The excess purchase price over fair values assigned to assets
acquired is amortized on a straight-line basis over 15 years.
Research expense:
Research and development expense, which is charged to operations as
incurred, was approximately $53,000 in 1996 and $70,000 in 1995.
Income taxes:
The Company accounts for income taxes using the asset and liability
method. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable for future years to differences
between financial statement and tax bases of existing assets and
liabilities. The effect of tax rate changes on deferred taxes is
recognized in the income tax provision in the period that includes the
enactment date.
The provision for taxes is reduced by investment and other tax
credits in the years such credits become available.
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
1. DESCRIPTION OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Advertising:
The Company expenses the production costs of advertising the first
time the advertising takes place. Advertising expense was $212,813 and
$291,039 in 1996 and 1995, respectively.
Earnings per share:
Earnings per share of common stock are computed based on the
weighted average number of shares of common stock and common stock
equivalents outstanding during the year, including the dilutive effect of
warrants and stock options outstanding, if any. The weighted average
number of common shares and common stock equivalents outstanding during
1996 and 1995 was 6,819,918 and 6,805,000, respectively.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at December 31, 1996 and
1995 and the reported amounts of revenues and expenses for the years ended
December 31, 1996 and 1995. Actual results could differ from those
estimates.
Disclosures about Fair Value of Financial Instruments:
All financial instruments are held for purposes other than trading.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the
short term maturity of those instruments.
Long Term Debt
The carrying value approximates fair value for variable rate
debt.
Impairment of long-lived assets
During 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
For Long-Lived Assets to Be Disposed Of" (SFAS No. 121)
SFAS No. 121 requires that long-lived assets, including related
goodwill, be reviewed for impairment and written down to fair value
whenever events or changes in circumstances indicate that the carrying
value may not be recoverable.
Adoption of SFAS No. 121 resulted in an impairment charge included
in pre-tax income of $28,453. The impaired assets are primarily
trademarks.
Measurements of the impairment loss is based on fair value of the
asset. Generally, fair value is determined using valuation techniques such
as the present value of expected future cash flows.
2. SUPPLEMENTARY CASH FLOW INFORMATION
In October 1996, The Company refinanced $395,823 of its long-term
debt with Vermont National Bank through the issuance of long-term debt
from KeyBank National Association. (See Note 7) This non-cash transaction
has been excluded from payment of principal long term debt and proceeds
from the issuance of long-term debt.
In December 1995, the Company refinanced $600,000 on a bank line of
credit (See Note 7) through the issuance of long-term debt. This non-cash
transaction has been excluded from payment of notes payable as well as
proceeds from the issuance of long-term debt.
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
3. PROPERTY AND EQUIPMENT
The components of property and equipment are summarized below:
1996 1995
----------- ----------
Office Furniture ........................ $ 127,144 $ 144,147
Computer equipment ...................... 386,608 389,553
Vehicles ................................ 37,285 61,087
Leasehold improvements .................. 1,539,976 1,352,760
Machinery and equipment ................. 2,130,302 2,032,291
----------- ----------
Total property and equipment ......... 4,221,315 3,979,838
Less: Accumulated depreciation .......... (1,302,085) 900,392
----------- ----------
Total property and equipment, net .... $ 2,919,230 $3,079,446
=========== ==========
Depreciation expense was $445,018 in 1996 and $429,721 in 1995.
Expenditures for maintenance and repairs are charged to income as
incurred and amounted to $38,290 in 1996 and $93,337 in 1995.
4. INTANGIBLES
The components of intangibles are summarized below:
1996 1995
---------- ----------
Trademarks .............................. $3,099,208 $3,132,968
Trademark protection costs .............. 154,088 154,088
Excess purchase price over fair value 422,405 422,405
---------- ----------
Total intangibles .................... 3,675,701 3,709,461
Less: Accumulated amortization .......... 914,508 668,021
---------- ----------
Total intangibles, net ................ $2,761,193 $3,041,440
========== ==========
Amortization expense was $251,794 in 1996 and $251,750 in 1995.
5. NOTES PAYABLE
Notes payable classified as short-term borrowings are principally debt
instruments which matured in 1996, with weighted average interest rates of
6.61% at December 31, 1995.
During 1995, the Company had a line of credit with KeyBank National
Association in the amount of $250,000 for the issuance of letters of credit
for international purchases. The Company had $80,000 in letters of credit
outstanding at December 31, 1995.
The Company now has a working capital line of credit with KeyBank
National Association in the amount of $1,250,000 (See Note 7). 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 KeyBank National
Association "base rate" plus 1% (9.25% as of December 31, 1996.) No amounts
were outstanding on this Facility at December 31, 1996. As of December 31,
1996 the Company was in violation of most of the convenants under the
facility (See Note 7).
6. ACCRUED LIABILITIES
Accrued liabilities at December 31, consist of:
1996 1995
-------- --------
Commissions ............................... $ 51,924 $ 19,532
Interest .................................. 7,893 12,303
Customer prepayments ...................... 70,482 60,853
Payroll and related expenses .............. 120,661 91,266
Compensated absences ...................... 22,101 77,699
Professional fees ......................... 54,297 52,700
Advertising ............................... 30,000 64,515
Inventory return .......................... -- 45,936
Other ..................................... 53,875 110,112
-------- --------
$411,233 $534,916
======== ========
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
7. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Note payable--TransTechnology Corporation,
a stockholder, payable in quarterly
installments of $33,957 plus interest at
prime in effect at the beginning of each
quarter (8.25% at December 31, 1996) maturing
January 1997 $ 33,957 $ 169,786
Note payable--TransTechnology Corporation,
a stockholder, payable in quarterly installments
in an amount equal to seven percent of annualized
net sales of the Federal Laboratories division
in excess of an agreed upon base plus interest
at prime in effect at the beginning of each
quarter (8.25% at December 31, 1996) with no
set maturity date; collateralized by the equipment
purchased in connection with the Federal Laboratories
division acquisition 340,391 318,816
Note payable--KeyBank National Association, bearing
interest at the Bank's "base rate" plus 1.25% (9.5% at
December 31, 1996) payable in monthly installments of
$15,625 plus interest, due October 1, 1998, collateralized
by all assets of the Company. 718,750 --
Note payable--Vermont National Bank, bearing interest at
prime plus .50% (9.0% at December 31, 1995) payable in
monthly installments of $25,000 plus interest, due
December 2000, collateralized by all accounts receivable,
fixed assets and inventory.
This liability was satisfied in 1996. -- 620,823
1,093,098 1,109,425
Less: Current maturities 949,827 542,248
---------- ----------
Total long-term debt $ 143,271 $ 567,177
========== ==========
</TABLE>
Scheduled and estimated principal repayments on long-term debt are as
follows:
1997 418,577
1998 330,771
1999 187,500
2000 156,250
----------
1,093,098
Interest paid was $102,408 in 1996 and $129,562 in 1995.
On October 31, 1996, the Company entered into a credit agreement with
KeyBank National Association which provides for a maximum of $2,000,000 of
credit (the "Credit Agreement") and is subject to a borrowing base formula. The
amounts outstanding under the Credit Agreement are secured by virtually all of
the Company's presently owned and after-acquired assets.
The Credit Agreement is separated into two "facilities". One facility
provides for a $750,000 term loan maturing October 1, 2000, calling for monthly
principal payments of $l5,625 plus accrued interest at the Bank's "base rate"
plus 1.25% (9.5% on December 31, 1996). The Company drew fully on the term loan
and used the proceeds to pay off the term loan with Vermont National Bank that
totaled $395,823, including interest, and used the remaining $354,177 for
working capital.
Availability under the second facility, the line of credit facility,
cannot exceed $1,250,000; is reduced, dollar for dollar by any amounts
outstanding under letters of credit issued by the bank on behalf of the
Company; and is limited to the amount by which the borrowing base (as calculated
pursuant to a formula) exceeds the amount outstanding under the term loan. The
Bank will not issue letters of credit on behalf of the company in excess of
$250,000. The line of credit facility matures on October 1, 1998 and calls for
interest to be paid monthly at the Bank's "base rate" plus 1.25% (9.25% as of
December 3 1, 1996). No amounts were outstanding on the line of credit facility
at December 31, 1996.
The credit agreement contains various covenants which include the
maintenance of certain financial ratios and limitations on capital expenditures,
debt and dividends. As of December 31, 1996, the Company was in violation of
most of these covenants. The Company has obtained a waiver of these violations
for the year ended December 31, 1996 and for the quarter ended March 31, 1997.
As partial consideration for the waiver, the Company agreed, in April 1997, to
modifications of the definition of the borrowing base set forth in the Credit
Agreement. As so modified, the borrowing base formula is 50% of eligible
accounts receivable in excess of $3,000,000. The Company has not had eligible
accounts receivable in excess of $3,000,000 and, consequently, does not expect
to be entitled to borrow any amounts under the line of credit facility. The
Company anticipates it will be in covenant violation of the Credit Agreement as
of June 30, 1997, and does not expect to obtain an additional waiver. In that
event it is likely that the Bank will accelerate the amounts due under the term
loan, and the entire amount will become due and payable at that time.
Accordingly, this debt has been classified as current. The Company intends to
pay off the amounts due to the Bank under the term loan with proceeds from
alternate bank financing, the issuance of debt securities or other forms of
external financing. The Company is currently negotiating with other financial
institutions, but no commitment letter has been obtained. There can be no
assurance that alternate financing will be obtained.
Subsequent to year end, the Company's President and the Chairman of the
Board supplied the Company with lines-of-credit for up to $375,000 each
($750,000 in total) with interest at prime plus 1.25%. The lines-of-credit
expire in April 1998 at which time all accrued interest and unpaid principal
will be due and payable. The lines-of-credit will be payable at an earlier date
if the Company obtains a bank line-of-credit or similar financing in the amount
of at least $750,000.
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
8. INCOME TAXES
The components of income tax expense (benefit) are:
1996 1995
------ --------
Current $6,805 $(30,681)
Deferred -- --
------ --------
Total income tax (benefit) expense $6,805 $(30,681)
====== ========
The significant components of deferred income tax (benefit) expense
attributed to loss from operations for the years ended December 31, 1996
and 1995 are as follows:
1996 1995
--------- ---------
Current deferred tax expense $ 152,618 $ 107,056
Loss Carryforward (247,244) (289,049)
Valuation allowance for deferred
tax assets 94,626 181,993
--------- ---------
$ -0- $ -0-
========= =========
A comparison of the federal statutory rate to the Company's effective
rate is as follows:
1996 1995
---- ----
U.S. statutory rate (34%) (34%)
State taxes, net of federal benefit 2% 7%
Miscellaneous permanent differences 2% 2%
Valuation allowance for deferred tax assets 34% 24%
Carryback of alternative minimum tax net
operating loss -- (6%)
Adjustments for prior year taxes (1%) 2%
--- ---
Effective tax rate 3% (5%)
--- ---
The significant components of deferred tax assets and liabilities are
as follows:
1996 1995
--------- ---------
Current assets (liabilities):
Allowance for doubtful accounts $ 40,077 $ 19,171
Inventories, principally due to
additional costs inventoried for
tax purposes, pursuant to the Tax
Reform Act of 1986 92,764 212,918
Accrued expenses 42,407 105,572
Other 7,449 7,449
--------- ---------
Current deferred assets 182,697 345,110
Valuation allowance (182,697) (345,110)
--------- ---------
Net current deferred tax assets $ 0 $ 0
========= =========
Noncurrent assets (liabilities):
Intangibles (7,586) (22,590)
Plant, equipment and depreciation (268,158) (263,321)
Net operating loss carryforwards 536,293 289,049
Alternative minimum tax credit carryforward -- 372
--------- ---------
Net noncurrent deferred assets 260,549 3,510
Valuation allowance (260,549) (3,510)
--------- ---------
Net noncurrent deferred tax assets $ 0 $ 0
========= =========
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
8. INCOME TAXES (continued)
A valuation allowance is provided to reduce the deferred tax assets
to a level which, more likely than not, will be realized. The deferred tax
assets recorded reflects management's estimate of the amount which will be
realized based upon current operating results and contingencies.
During the year ended December 31, 1996, the valuation allowance
increased by $94,626.
At December 31, 1996, the Company has net operating loss
carryforward for federal income tax purposes of approximately $1,360,000.
The federal net operating loss carryforward, if unused, will begin to
expire during the year ended December 31, 2009.
Net taxes refunded were $64,628 and $50,464 in 1996 and 1995,
respectively.
9. RELATED PARTY TRANSACTIONS
The Company receives sublease rental income from a tenant owned
partially by then President of the Company, Jon Goodrich. Rental income
from this agreement was $24,000 in 1996 and 1995.
Pursuant to the acquisition of the assets of the Federal
Laboratories division from TransTechnology Corporation, the Company
leased, from March 1994 until September 1995, the operating facilities in
Saltsburg, Pennsylvania. Total lease payments were $60,568 in 1995.
On June 1, 1994, the Company entered into a lease agreement for a
1977 Cessna 340A twin engine airplane from a related entity. The airplane
was used for business travel by employees of the Company. This lease was
terminated in March 1995 with no further obligation. Lease payments paid
to the affiliate for 1995 were $11,678.
The Company had both sales to and purchases from related entities.
Total sales amounted to $46,422 and $35,003 and purchases amounted to
$29,235 and $25,242, for 1996 and 1995, respectively.
During 1994, the then President of the Company, Jon Goodrich,
purchased certain assets in exchange for a note of $21,041. This note was
paid in February 1995.
The Company paid the following fees to officers and directors:
1996 1995
-------- --------
Legal $ 0 $ 5,091
Management/consulting 35,360 46,034
In September 1995, the Company reached an agreement to settle
certain claims with TransTechnology Corporation as a result of the March
1, 1994 purchase of the Federal Laboratories division. As a result of this
agreement, TransTechnology Corporation paid the Company $202,485. This
receipt included $91,230 which offset obligations of the Company, $97,511
of other income and $13,744 as a reimbursement of current operating
expenses.
The current President, Jon Goodrich, purchased a vehicle from the
Company in September 1996 for $9,000 resulting in a gain of $3,519 for the
Company.
In 1996, the former interim President, Robert Norman, purchased
office furniture and a vehicle for $17,000 from the Company. The result
was a net gain of $6,697.
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
10. COMMITMENTS AND CONTINGENCIES
The Company is engaged in various legal proceedings incidental to
its normal business activities. In the opinion of the Company's
management, none of these proceedings are material in relation to the
Company's results of operations, liquidity, cash flows or financial
condition.
The Company is a defendant in a lawsuit which alleges breach of
contract, fraud and negligent misrepresentation by the Company as a result
of the actions of a Company employee in facilitating the sale of an
airplane formerly leased by the Company from an affiliated entity. The
plaintiff seeks damages in the amount of $200,000 as well as punitive
damages and attorney's fees. Management does not expect that the outcome
of this case will have a material-adverse effect on the financial position
of the Company, although it could have an effect on annual operation
results in the period in which it is resolved. The Company has not accrued
any liabilities in the financial statements as of December 31, 1996. The
Company believes it has strong defenses against the lawsuit.
Operating lease expense for equipment, vehicles and real estate
amounted to $171,947 and $186,420 for 1996 and 1995, respectively. Certain
of these leases contain purchase options, renewal provisions, and
contingent rentals for proportionate share of taxes, utilities, insurance
and annual cost of living increases. Future minimum rental payments
required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year as of December 31, 1996
are:
1997................................. 88,479
1998................................. 63,541
1999................................. 57,600
2000................................. 4,800
--------
$214,420
========
The Company has entered into month to month sublease agreements with
tenants of their operating facility in Bennington, Vermont, including
those with related parties. Total sublease rental income was $65,160 and
$57,641 in 1996 and 1995, respectively.
The Company has employment agreements with certain of its executive
officers and directors, the terms of which expire at various times through
September 1998. Such agreements, which have been revised from time to
time, provide for minimum termination payments, salary levels, and certain
agreements including incentive bonuses which are payable if specified
management goals are attained. The aggregate commitment for future
salaries and payments to terminated executives at December 31, 1996 was
approximately $337,000.
In 1993, the Company entered into a consulting agreement with a
former director/stockholder which provides for a fixed annual fee of
$50,000 and is renewable annually for a period of five years. In 1995 and
1996, the director/stockholder waived his right to receive payments under
his consulting agreement. The director/stockholder resigned from the Board
of Directors on March 14, 1997.
The Company entered into a consulting agreement with a
director/stockholder calling for a monthly consulting fee of $1,930 for
the period January 1, 1995 to December 31, 1995. This agreement was
extended through December 31, 1996.
During 1994, the Company paid $75,000 to a related entity to acquire
all of the rights and obligations under a lease agreement, including an
option to purchase the south wing of its principal operating facility.
Amortization of this deferrred cost was $13,440 in 1996 and 1995,
respectively. The term of the lease expires on January 31, 2000, and
requires monthly payments of $4,800, plus the Company's proportionate
share of taxes, insurance, utilities and an annual cost of living
increase. The option may be exercised for $600,000 at the end of the lease
term.
The Company is party to a Real Estate Purchase Agreement with the
Vermont Economic Development Authority (VEDA) for the purchase of the
Center and North wings of its Headquarters, after the satisfaction of
certain contingencies by VEDA. The purchase price is $1,000,000, payable
in cash of $150,000 and a $850,000 promissory note to VEDA at 4% interest,
based on a 20 year amortization schedule with a balloon payment of
$100,000 due at the end of ten years. The Company has temporarily elected
to lease the facility for $4,000 per month, together with taxes, insurance
and utilities. The lease is through August 12, 1997 with a renewal option
for two, five year periods in the event that the purchase does not occur.
The Company routinely executes purchase order commitments all of
which will be used in the normal course of business.
As previously disclosed on the Company's 1995 Form 10-KSB, on March
22, 1996, the Company signed Letters of Intent to acquire all of the
outstanding shares of capital stock of three separate companies. By May 9,
1996, the Company had terminated its Letters of Intent to purchase these
companies.
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
11. STOCK OPTIONS AND WARRANTS
During September 1993, the Company adopted the 1993 Stock Option
Plan (the "Plan"). The Plan provides for the issuance of up to 630,000
shares of common stock upon exercise of the options. The Company has
reserved 630,000 shares of common stock to satisfy the requirements of the
Plan. The options are non-qualified stock options and are not transferable
by the recipient. The Plan is administered by the Compensation Committee
of the Board of Directors, which may grant options to employees, directors
and consultants to the Company. The term of each option may not exceed
fifteen years from the date of grant. Options are exercisable over either
a 10 or 15 year period and exercise prices are not less than the market
value of the shares on the date of grant.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", in accounting for the stock
option plans. Accordingly, no employee compensation cost has been
recognized in 1996. Had compensation cost and fair value been determined
pursuant to Financial Accounting Standard No. 123 ("FAS 123"), "Accounting
for Stock-Based Compensation", net loss would increase from $252,348 to
$454,085 in 1996. Net loss per share would increase from $.04 to $.07 in
1996. The weighted average fair value of options granted during 1996, for
the purpose of FAS 123, is $.85 per share. No options were granted in
1995.
In accordance with FAS 123, the fair value of each option granted is
estimated on the grant date using the Black-Scholes Single Option model,
assuming no dividend yield and an expected volatility of 77.6% in 1996.
The expected life of the option is 5 years and the risk-free interest rate
ranges from 5.95% to 6.78% in 1996.
Activity with respect to these plans is as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Shares under option, January 1 .......... 90,100 $ 5.34 116,500 $ 5.38
Options granted ......................... 270,000 1.44 --
Options exercised ....................... -0- -- -0- --
Options canceled ........................ 83,700 5.32 26,400 5.50
------- ------ ------- ------
Shares under option, December 31 ........ 276,400 1.54 90,100 5.34
======= ====== ======= ======
Options exercisable, December 31 ........ 276,400 1.54 90,100 5.34
======= ====== =======
Shares available for granting of options,
December 31 ............................. 353,600 539,900
======= ========
</TABLE>
The following is a summary of the status of options outstanding at
December 31, 1996:
Outstanding Options Exercisable Options
------------------- -------------------
Weighted
Average Weighted Weighted
Exercise Remaining Average Average
Price Contractual Exercise Exercise
Range Number Life Price Number Price
------------------------------------------ --------------------
$5.50 6,400 6.96 $5.50 6,400 $5.50
1.50 220,000 14.53 1.50 220,000 1.50
1.19 50,000 14.91 1.19 50,000 1.19
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
11. STOCK OPTIONS & WARRANTS (Continued)
In connection with the initial public offering of the Company's
securities on November 12, 1993, the Company issued a total of 75,000
common stock purchase warrants to the underwriters of the securities.
These warrants are exercisable over a four-year period which began
November 12, 1994 at $6.60 per share.
On August 23, 1994, the Company issued warrants to purchase 60,000
shares of Mace Security International, Inc. common stock at 4.25 per share
in connection with the purchase of certain assets of Kindergard
Corporation. The warrants are exercisable over a ten year period, expiring
on August 24, 2004. During the exercise periods, the Company will reserve
a sufficient number of shares of its common stock to provide for the
exercise of the rights represented by these warrant holders.
During the exercise periods, the Company will reserve a sufficient
number of shares of its common stock to provide for the exercise of the
rights represented by option and warrant holders.
12. CONCENTRATION OF CREDIT RISK
The Company maintains its cash accounts in commercial banks.
Accounts at each bank are guaranteed by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000. A summary of the total insured and
uninsured cash on deposit as of December 31, follows:
1996 1995
-------- ----------
Total cash in banks................. $311,963 $ 736,814
Less: Portion insured by FDIC....... 202,667 221,407
-------- ----------
Uninsured cash balance.............. $109,296 $ 515,407
======== ==========
The Company limits the concentration of credit risk in receivables
from retailers by closely monitoring credit and collection policies. Risk
of losses from international sales are minimized by requiring the majority
of customers to provide irrevocable confirmed letters of credit and/or
cash advances. Management believes that the allowance for doubtful
accounts is adequate to absorb estimated losses.
13. EMPLOYEE BENEFIT PLAN
The Company maintains a voluntary 401(k) plan covering substantially
all of its employees. Employees may contribute from 1% to 20% of their
regular wages, up to the limit permitted by the Department of Labor. The
Company matches 25% of each dollar contributed by employees up to 16% of
their wages. The cost of the plan amounted to $30,573 and $34,872 in 1996
and 1995, respectively.
In connection with the acquisition of Federal Laboratories, the
Company also contributed to the Western Pennsylvania Teamsters and
Employers Pension Fund through 1995 when operations were moved to Vermont.
The cost of the plan amounted to $20,654 in 1995.
14. SUBSEQUENT EVENTS
On January 9, 1997, a voting agreement was signed representing at
least 51% of the Company's outstanding stock. The Agreement is among Jon
E. Goodrich, Chairman of the Board of Directors, Robert P. Gould, a
director, and Marvin P. Brown, a director and newly appointed President
and Chief Executive Officer. Pursuant to the terms of the Agreement, on
all matters covered by the Agreement (the "Shares") will be voted in the
manner determined by a majority of the three parties to the Agreement. The
Agreement also contains restrictions on transfer of the shares and allows
certain of the shares to be released from the terms of the Agreement.
Prior to entering into the Agreement, the three parties to the
Agreement voted their respective shares individually; not as a group. Mr.
Goodrich owns a total of 2,659,246 shares, 2,400,000 of which are covered
by the Agreement; Mr. Gould owns 1,136,444 shares, 1,100,000 of which are
covered by the Agreement; and Mr. Brown owns 70,388 shares, all of which
are covered by the Agreement.
On January 10, 1997, at the request of the parties to the voting
agreement, six members of the Board of Directors (Messrs. Foote, Logan,
Norman, Duboff, Mitchell, and Rosberg), the then President, Robert D.
Norman, and the then Executive Vice President and General Counsel and
Secretary, Richard A. Galt; resigned; Marvin Brown was appointed as
President; the size of the Board was reduced from nine to five members and
Ms. Virgina de Ganahl Russell was appointed as a director.
On March 14, 1997, Jon Goodrich, the former President, who had been
acting under an advisory consulting agreement with the Company, was
re-elected to serve as President. Marvin Brown resigned as President and
accepted the position of Chairman of the Board. Mr. Gould resigned from
the Board.
<PAGE>
15. FOURTH QUARTER ADJUSTMENTS
Results for the fourth quarter of 1996 were negatively impacted by
the expensing of stock grants, stock based compensation and a bonus (in an
aggregate of $57,272) and the write off of impaired intangibles ($28,453).
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
16. SEGMENT INFORMATION
The Company operates in principally two industry segments: (1), the
manufacture, distribution and sale of Mace(R) brand defense sprays and
personal safety products to the civilian consumer market, "Consumer"; and
(2), the manufacture, distribution and sale of tear gas grenades, defense
sprays, projectiles and cartridges to law enforcement agencies, "Law
Enforcement". The Law Enforcement segment represented 59% and 62.6% of
sales for the Company in 1996 and 1995, respectively. Intersegment sales
are not material and operating income represents total revenues less
operating expenses. Identifiable assets are those assets employed in each
segment's operation, including an allocated value to each segment of cost
in excess of net assets acquired.
Information concerning the Company's business segments in fiscal
1996 and 1995 is as follows:
1996 1995
------------ ------------
NET SALES
Consumer $ 4,437,020 $ 4,771,383
Law Enforcement 6,387,183 7,978,474
------------ ------------
Total net sales 10,824,203 $ 12,749,857
============ ============
OPERATING (LOSS) INCOME
Consumer 252,739 (336,758)
Law Enforcement (505,457) (369,848)
------------ ------------
Total operating loss $ (252,718) $ (706,606)
============ ============
IDENTIFIABLE ASSETS
Consumer 3,953,740 4,747,367
Law Enforcement 8,969,970 7,795,540
Unallocated, corporate 1,198,880 1,650,852
------------ ------------
Total assets $ 14,122,590 $ 14,193,759
============ ============
DEPRECIATION AND AMORTIZATION
Consumer 266,854 257,225
Law Enforcement 445,380 437,686
------------ ------------
Total depreciation and amortization $ 712,240 $ 694,911
============ ============
CAPITAL EXPENDITURES
Consumer 41,563 195,380
Law Enforcement 225,783 402,779
Unallocated, corporate 37,057 183,070
------------ ------------
Total capital expenditures $ 304,403 $ 781,229
============ ============
The Company sells its products on a worldwide basis with its principal
markets listed in the table below where information on export sales is
summarized for 1996 and 1995 by geographic area for the Company as a
whole:
1996 1995
---------- ----------
GEOGRAPHIC AREA
Central/South America $1,356,000 $1,876,000
Middle East 761,000 1,716,000
Asia 660,000 597,000
Europe 151,000 301,000
Canada 137,000 161,000
Other 92,000 84,000
---------- ----------
Total Export Sales $3,157,000 $4,735,000
========== ==========
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
MACE SECURITY INTERNATIONAL, INC.
By: /s/ Jon E. Goodrich
-------------------------------------
Jon E. Goodrich
President and CEO
Date: March 31, 1997
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.
Signature Title Date
/s/ Jon E. Goodrich President, CEO March 31, 1997
- ------------------------------
Jon E. Goodrich And Director
/s/ Marvin P. Brown Chairman of the March 31, 1997
- ------------------------------
Marvin P. Brown Board
/s/ Virginia de Ganahl Russell Director March 31, 1997
- ------------------------------
Virginia de Ganahl Russell
/s/ James West Director March 31, 1997
- ------------------------------
James West
/s/ Brian L. Kelley Treasuer/Principal March 31, 1997
- ------------------------------
Brian L. Kelley Financial Officer
EMPLOYMENT AGREEMENT
This Agreement made as of the 22nd day of January, 1997, (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 Bennigton and State of Vermont, (hereinafter referred to as
"Employer") and Richard A. Galt, 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, the parties entered into an employment agreement as of the 22nd
day of August, 1996 ("the Original Agreement");
WHEREAS, Employer and Employee have mutually agreed to terminate the
Original Agreement and enter into a new Employment Agreement;
NOW, Therefore, in consideration of the termination of the Original
Agreement, the release of each by the other from any and all liability arising
out of the "Original Agreement", and the mutual covenants, agreements, releases
and promises of the parties to 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, not as an officer, with the title of Executive
Vice President and General Counsel and Employee accepts such employment with
Employer subject to the terms and conditions of this Agreement.
SECTION TWO
TERMS OF EMPLOYMENT
This Agreement and employment under this Agreement shall commence upon the
Effective Date and shall continue until April 1,1997.
SECTION THREE
DUTIES OF EMPLOYEE
Employee shall serve Employer as Executive Vice President and General
Counsel with duties and responsibilities as are specifically assigned to the
Employee by the President and Chief Executive Officer from time to time. Such
duties shall be carried out in accordance with the direction of the President
and Chief Executive Officer.
Employer is aware that Employee is an attorney licensed to practice in the
States of Vermont and New York and has certain managerial capabilities. Employer
may consult and utilize Employee's skills with regard to legal issues from time
to time as requested, including those associated with preparing Employer's Form
10-KSB, which may be performed from Employee's home. Notwithstanding the
foregoing, the Employee shall not be required to devote any minimum amount of
time to complete the tasks and duties of the position.
Employer agrees that the performance of Employee's duties as contemplated
by this agreement shall not prevent Employee from taking additional employment
elsewhere after February 14, 1997.
<PAGE>
SECTION FOUR
COMPENSATION
Employee's compensation shall consist of:
(A) Upon signing, a lump sum payment of $9,000.00 representing partial
consideration for the release attached hereto and marked Exhibit A
and personal days owed Employee by Employer.
(B) A salary of $1,500.00 per week through the week ending February 14,
1997, to be paid biweekly with the final payment to be made February
27, 1997. In addition, upon execution of this Agreement, Employer
shall pay into an escrow account with the law firm of McCabe & Mack,
Poughkeepsie, New York, for Employee's benefit, the sum of
$31,000.00, with irrevocable instruction to release that sum,
together with interest, to Employee on April 1, 1997. Escrow fees,
if any, up to $250 shall be paid by Employer; and
(C) Participation in all benefit plans available to the Employer's
employees generally, including health and dental insurance, until
April 1,1997, or until Employee obtains other coverage through new
employment or other means, which ever comes earlier; and
(D) $1,000 for every $100,000 of net income for the fourth quarter of
1996 and the first quarter of 1997, payable within thirty days
following each such fiscal quarter; and
(E) A biweekly car allowance of $131.08 to be applied toward payment for
the unlimited use of a company vehicle (a 1996 Mazda 626) until
April 1,1997. Employer shall be responsible for insurance, normal
maintenance and repairs; and
(F) Employee shall be reimbursed all reasonable and necessary business
expenses incurred through February 14, 1997. In addition, Employer
agrees to pay reasonable and necessary business expenses associated
with Employee's attendance at continuing legal education conferences
in Chicago, Illinois February 9 through 11, 1997, and March 5
through 8, 1997, up to, but not in excess of, the sum of $500
(exclusive of airfare, hotel, and registration costs).
SECTION FIVE
PREVIOUSLY ISSUED STOCK OPTIONS/BONUSES
Employer acknowledges the issuances by Employer to Employee, pursuant to
the Mace Security international, Inc. Non-Qualified Stock Option Plan, of
options to purchase 50,000 shares of common stock of Mace Security international
at $1.50 per share, each with a duration of fifteen (15) years and each to
survive termination of Employee's employment. Employer agrees that Employee
shall be entitled to piggyback registration rights with respect to the shares
underlying the options to purchase 50,000 share previously granted Employee.
Further, Employer agrees that Employer shall be responsible for all legal,
NASDAQ and blue sky fees associated with the registration of all 50,000 shares
underlying the options.
2
<PAGE>
Employer acknowledges that the $ 21,000.00 paid Employee by Employer
pursuant to the January 10, 1997 agreement between the resigning member of the
Board of Directors of Employer and Jon E. Goodrich, Robert P. Gould and Marvin
P. Brown was not severance pay but was a bonus, and is not to be considered as
part of the compensation to Employee as contemplated by this Agreement. Further,
Employer acknowledges that Employee has received as a bonus from the Employer, a
Cannon laptop computer.
SECTION SIX
EMPLOYER'S OBLIGATIONS ON TERMINATION OF EMPLOYEE'S EMPLOYMENT
If, during the term of this Agreement, Employer terminates this Agreement
for any reason whatsoever, whether for cause or without cause, the balance of
payments called for in Section Four(B) including the amounts paid into escrow,
shall, notwithstanding the termination, be immediately due and payable to
Employee.
Upon expiration of this Agreement, or upon termination of this Agreement
by Employer, with or without cause, Employer agrees to refrain from comment,
whether one is required or requested, 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 has
since resigned.
Upon expiration of this Agreement, Employee agrees to refrain from public
comment regarding Employer unless first obtaining Employer's consent, except to
state that Employee has worked for Employer satisfactorily and has since
resigned.
SECTION SEVEN
BOARD APPROVAL
Employer acknowledges that it has obtained the requisite authority from
Employer's Board of Directors to enter into this Agreement with Employee.
SECTION EIGHT
INDEMNIFICATION
Employer agrees to indemnify Employee against any and all claims of
malpractice arising out of work performed, or to be performed, on behalf of
Employer, including any and all costs and expenses, as they are incurred, to
investigate and defend any and all claims of malpractice including but not
limited to actual attorney's fees, damages, and amounts paid in settlement. Mace
Security International, Inc. shall pay attorney's fees for investigating in
advance the disposition of any claim. Notwithstanding the foregoing, in no event
will Mace Security International, Inc. indemnify, and Mr. Galt will reimburse,
all advances with respect to actions that were not made in good faith or made
knowingly in violation of any law, rule, regulation and constituting
malpractice.
SECTION NINE
ARBITRATION
Any differences, claims of matters in dispute arising between Employer and
Employee out of or connected with this Agreement shall be submitted by them to
arbitration consistent
3
<PAGE>
with the commercial arbitration rules of the American Arbitration Association in
Albany, New York.
SECTION TEN
ATTORNEY'S FEES
In the event that any arbitration is commenced in relation to this
Agreement, Employer's 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 and costs of litigation if Employee is the successful party.
SECTION ELEVEN
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
its principles of conflicts of law.
SECTION TWELVE
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 THIRTEEN
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.
SECTION FOURTEEN
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 FIFTEEN
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.
4
<PAGE>
SECTION SIXTEEN
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 SEVENTEEN
SUCCESSORS
The terms of this Agreement shall be binding upon Employer and Employee,
their heirs, successors and assigns.
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed as of the 22nd day of January. 1997.
MACE SECURITY INTERNATIONAL, INC.
By: /s/ Marvin P. Brown
---------------------------------
Marvin P. Brown
President and CEO
By: /s/ Richard A. Galt
---------------------------------
Richard A. Galt
5
AMENDMENT TO EMPLOYMENT AGREEMENT
This amends the Employment Agreement between Richard A. Galt and Mace
Security International, Inc. Dated January 22, 1997 for the purpose of
clarifying an ambiguity in the Agreement.
Paragraph (B) of Section Four, entitled "Compensation", shall be amended
by deleting the following paragraph in its entirety:
(B) a salary of $1500.00 per week through the week ending February 14,
1997, to be paid biweekly with the final payment to be made February
27, 1997. In addition, upon execution of this Agreement, Employer
shall pay into an escrow account with the law firm of McCabe & Mack,
Poughkeepsie, New York, for Employee's benefit, the sum of
$31,000.00, with irrevocable instructions to release that sum,
together with interest, to Employee on April 1, 1997. Escrow fees,
if any, up to $250 shall paid by Employer; and
and replacing it with the following paragraph:
(B) a salary of $1,500.00 per week through the week ending February 14,
1997, to be paid biweekly with the final payment to be made February
27, 1997. In addition, upon execution of this Agreement, Employer
shall pay into an escrow account with the law firm of McCabe & Mack,
Poughkeepsie, New York, for Employee's benefit, the sum of
$31,000.00, with irrevocable instructions to release, on April 1,
1997, $14,622.59, together with all interest accrued on the
$31,000.00, to Employee and to release $16,377.41 to Employer,
$499.50 of which Employer shall apply toward Employee's Medicare tax
withholdings, $1,854.11 of which Employer apply toward Employee's
Social Security tax withholdings, $7,291.00 of which Employer shall
apply toward Employee's federal income tax withholdings, $1,822.80
of which Employer shall apply toward Employee's state income tax
withholdings and $4,960.00 of which Employer shall deposit as a 401K
Plan contribution on Employee's behalf. Escrow fees, if any, up to
$250.00 shall paid by Employer.
All other terms shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed as of the 22nd day of January, 1997.
MACE SECURITY INTERNATIONAL, INC.
By: /s/ Marvin P. Brown
---------------------------------
Marvin P. Brown
President and CEO
By: /s/ Richard A. Galt
---------------------------------
Richard A. Galt
2
EMPLOYMENT AGREEMENT
This Agreement made, effective as of March 14,1997, by and between MACE
SECURITY INTERNATIONAL, INC., a Vermont corporation with a principal place of
business at 160 Benmont Avenue, Town of Bennington, County of Bennington and
State of Vermont ("Employer" or "Company"), and JON GOODRICH, of the Town of
Bennington, County of Bennington and State of Vermont ("Employee").
In consideration of the mutual covenants and promises of the parties to
this Agreement, and in consideration of the services rendered by the Employee
prior to the effective date of this Agreement, Employer and Employee agree as
follows:
SECTION ONE
EMPLOYMENT
Employer employs Employee in an executive capacity as President and Chief
Executive Officer, 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 continue until September 1, 1998.
SECTION THREE
DUTIES OF EMPLOYEE
Employee shall serve Employer faithfully, to the best of his ability,
under the direction of the Board of Directors of Employer. Employee will devote
all of his time, energy, and skill during regular business hours doing such
employment. Employee shall perform such services and act in such executive
capacity as the Board of Directors of Employer shall direct. Employee shall not
engage in employment for any other company. Should employee voluntarily leave
the employment of Employer, then he shall be prohibited for a period of two (2)
years from competing with Employer either directly or indirectly in the business
of Employer, to wit, the manufacture and sale of defense sprays, safety products
or chemical munitions.
SECTION FOUR
NON-COMPETE
Should employee voluntarily leave the employment of Employer or should his
employment be terminated by action of the Board of Directors for cause, then he
shall be prohibited for a period of two (2) years from the termination date from
competing with Employer, either directly or indirectly in the business of
Employer, as such business is conducted on the date of termination or at any
time during the two (2) year period following
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termination. The determination of whether acts or omissions constitute cause
shall be made by the Board of Directors, in good faith.
Nothing herein shall be deemed to restrict Employee's ability to vote and
sell or transfer his shares of the Company's common stock in opposition to
recommendations of the Board.
Nothing herein will limit or restrict Employee's ability to vote in any
manner as a Board member, so long as he remains a Board member.
Employee will not, at any time, other than for the benefit of Employer,
exploit, publish or disclose any non-public, confidential or propriety
information or trade secrets relating to the business of Employer except in
pursuit of his duties hereunder, as required by law, or to Employer's Board of
Directors. All documents and copies thereof containing any of the same in the
possession of Employee shall be and remain the property of Employer, and shall
be surrendered to Employer upon termination of Employee's employment.
During the term of this Agreement and for two (2) years from the
termination date of Employee's employment: (i) the Employee will not solicit any
of the Employer's clients for the purpose of interfering with Employer's past,
present or future business relationship with such clients;(ii) the Employee will
not solicit or attempt to solicit any of Employer's officers or managers as of
the date sixty (60) days prior to the date of Employee's termination.
SECTION FIVE
COMPENSATION
Employee's annual compensation shall consist of (a) a salary of $125,000;
and (b) participation in all benefit plans available to the Company's employees
generally. Employee shall be reimbursed for such reasonable and necessary
business expenses as are approved by the Board of Directors.
SECTION SIX
EMPLOYER'S OBLIGATIONS UPON TERMINATION
Except as provided for in Section Seven, if during the term of this
Agreement, Employer terminates this Agreement without cause, as determined by
the Board of Directors in good faith, Employer shall nevertheless continue the
salary payments provided in Section 5(a) of this Agreement for the above-stated
term.
SECTION SEVEN
EMPLOYER'S OBLIGATION ON TERMINATION OF
EMPLOYMENT BY EMPLOYEE OR BY EMPLOYER FOR CAUSE
If, during the term of this Agreement, Employee should resign, die, become
disabled or be terminated by the Board of Directors for cause (as determined by
the Board in good faith), then Employer's obligation to make the payments
provided for in this Agreement shall cease; provided that all payments for
periods prior to termination must be paid by Employer.
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SECTION EIGHT
RELEASE
Employee hereby releases Employer and its affiliates from any liability or
obligation under any prior employment agreements. Nothing herein will be deemed
to be a release by Employer of any Employee's obligations to Employer under
prior employment agreements, including but not limited to the non-compete
provisions.
SECTION NINE
ARBITRATION
Any differences, claims, or matters in dispute arising between Employer
and Employee out of or connected with this Agreement shall be submitted to
arbitration consistent with the rules of the American Arbitration Association.
SECTION TEN
ATTORNEY'S FEES
In the event that any action is filed in relation to this Agreement, the
unsuccessful party in the action shall pay to the successful party, in addition
to all of the sums that either party may be called on to pay, a reasonable sum
for the successful party's attorney's fees.
SECTION ELEVEN
GOVERNING LAW
It is understood that this Agreement shall be governed by, construed, and
enforced in accordance with the laws of the State of Vermont.
SECTION TWELVE
ENTIRE AGREEMENT
This Agreement shall constitute the entire Agreement between the parties
and any prior understandings or representation of any kind preceding the date of
this Agreement shall not be binding.
SECTION THIRTEEN
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.
SECTION FOURTEEN
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
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addresses of each party as set forth at the beginning of this Agreement, or at
such other address as may hereafter be furnished by either party to the other.
SECTION FIFTEEN
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 SIXTEEN
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
other or subsequent failure or refusal of a similar or different kind.
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed on this 14th day of March, 1997.
MACE SECURITY INTERNATIONAL, INC.
By: /s/ Marvin P. Brown
---------------------------------
Marvin P. Brown, Chairman
/s/ Jon Goodrich
---------------------------------
Jon Goodrich
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LOAN AGREEMENT
THIS AGREEMENT, made this 31st day of October, 1996, by and among the
parties (was identified in Paragraph "1" below).
For and in consideration of the mutual covenants and conditions contained
herein, the parties hereto agree as follows:
1. PARTIES. The parties to this Agreement are each of the following:
(a) MACE SECURITY INTERNATIONAL, INC., a Vermont corporation with its
principal office and place of business at 160 Benmont Avenue, Bennington,
Vermont 05201 (hereafter referred to as the "Borrower");
(b) KEY BANK OF NEW YORK, a banking corporation organized and existing
under the laws of the State of New York with an office and place of business at
66 South Pearl Street, Albany, New York 12207 (hereafter referred to as the
"Bank").
In this Agreement, the term "Parties" shall mean collectively the
Borrower and the Bank.
2. FACILITIES. Subject to the terms and conditions of this Agreement, the
Bank hereby establishes for the Borrower a line of credit in the principal
amount of One Million Two Hundred Fifty Thousand and 00/100ths Dollars
($1,250,000.00) ("Facility 1") and a term loan in the principal amount of Seven
Hundred Fifty Thousand and 00/100ths Dollars ($750,000.00) ("Facility 2" and
together with Facility 1, the "Facilities"). The maximum amount of Facility 1
(the "Maximum Credit") shall be $1,250,000.00 of which sum $250,000.00 may be
used for letters of credit to be issued for Borrower's benefit (the "Letters of
Credit") and the balance (up to the Maximum Credit less outstanding Letters of
Credit) lent pursuant to a line of credit note.
3. NOTES. At the time of execution of this Agreement the Borrower shall
execute and deliver to the Bank a line of credit note and a term note (the
"Notes"), which Notes shall evidence the Borrower's indebtedness to the Bank for
the Facilities. The Notes shall provide that the Borrower shall pay interest on
the Facilities at the interest rate set forth in the Notes.
4. COLLATERAL. As a condition precedent to the Bank entering into the
Facilities, the Bank shall receive a continuing first priority security interest
in and assignment of all presently owned and after acquired machinery and
equipment, fixtures, furniture,
<PAGE>
inventory, goods, accounts receivable, chattel paper, contract rights,
documents, instruments, bills of lading and general intangibles of the Borrower
(including without limitation, all trademarks, trade names, patents, patents
pending, good will, customer lists, copyrights and the corporate name), in all
forms, and the proceeds of any of the foregoing (the "Collateral").
5. DOCUMENTS. In addition to this Agreement, Borrower shall execute the
Notes, a security agreement (the "Security Agreement"), UCC-1 Financing
Statements (the "Financing Statements"), an application and agreement with
regard to the Letters of Credit (the "Letter of Credit Agreement") and such
other documents as may be deemed necessary by the Bank or its counsel to
document the Facilities (the "Loan Documents").
6. PURPOSES OF FACILITIES. The Borrower agrees to use the Advances made
under Facility 1 solely for working capital purposes and to use the Advances
under Facility 2 solely for purposes of paying off existing debt owed Vermont
National Bank and to fund future capital expenditures. Letters of Credit shall
be issued solely as contract enhancements.
7. ADVANCES.
(a) Advances. Subject to the terms of this Agreement, the Borrower
may receive Advances (as defined in the Note for Facility 1) upon request and
upon compliance with the procedures set forth herein and in the Note for
Facility 1. No Advance shall be made which, by itself or together with the
principal balance then outstanding under Facility 1, would bring the total
outstanding principal balance due under Facility 1 to an amount in excess of
either the Maximum Credit for Facility 1 or would cause the aggregate of all
Advances and Letters of Credit under Facility 1 to exceed the Borrowing Base (as
hereafter defined). On each Business Day (defined to be any day that the Bank is
open for business) during the term of the Facilities, Borrower shall provide the
Bank with a Borrowing Base certificate, signed by the Borrower's President or
Chief Financial Officer in form acceptable to the Bank, certifying the amount of
the Borrowing Base as of the prior Business Day.
(b) Proceeds. All Advances shall be deposited in the Borrower's
General Account which will be maintained by the Borrower at the Bank (the
"General Account"). The deposit of the proceeds of each Advance in the General
Account shall be conclusive evidence as to the receipt of an Advance by the
Borrower.
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(c) Bank's Right to Deny an Advance Request. The Bank shall have the
right to deny any request for an Advance if at the time of such request: (1)
there has occurred an Event of Default as defined herein or there has occurred
an event which with the passage of time or the giving of notice or both would
constitute such an Event of Default; or (2) there has occurred in the opinion of
the Bank, a material adverse change in the financial condition or business
prospects of the Borrower; or (3) there has occurred in the opinion of the Bank,
a material adverse change in the value of the Collateral.
(d) Review of the Facilities. Facility 1 shall be fully due and
payable on October 1, 1998 and Facility 2 shall be fully due and payable on
October 1, 2000 or, as to either Facility, on such earlier date as the Bank may
be entitled to accelerate Borrower's obligations to pay the Facilities, at which
time all principal, unpaid and accrued interest and other charges due under the
Notes, the Security Agreement, this Agreement or any other Loan Documents shall
be due and payable in full, unless the Bank agrees in writing to an extension
thereof. No commitment is hereby made, however, that the Bank will extend the
Borrower's right to receive Advances or its obligations to repay all sums due
under the Loan Documents beyond said dates.
(e) Borrowing Base. The "Borrowing Base" shall be the sum of eighty
percent (80%) of Eligible Accounts Receivable (hereinbelow defined), twenty-five
percent (25%) of that portion of Eligible Inventory (hereinbelow defined).
Notwithstanding the foregoing, the Eligible Inventory component of the Borrowing
Base shall not exceed $500,000.00.
Notwithstanding the foregoing, if the Bank reasonably concludes
that there has been an adverse change in the Collateral or in the perceived
collectibility of the Facilities or that there are circumstances or conditions
which adversely affect the value of the Collateral, the Bank reserves the right
in its sole discretion to modify the Borrowing Base including without
limitation, modifying the definitions of Eligible Accounts Receivable and
Eligible Inventory or deleting certain accounts or inventory from the Borrowing
Base which might otherwise qualify for inclusion or to make changes in the
formula for calculating the Borrowing Base.
"Eligible Accounts Receivable" and "Eligible Accounts" mean all
accounts receivable recorded on the Borrower's books in accordance with
generally accepted accounting principles ("GAAP") consistently applied, aged not
more than sixty (60) days from due date,
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<PAGE>
which meet the criteria set forth in subparagraph (f) below, but shall not
include any such account which is evidenced by an "instrument" or which
constitutes "chattel paper".
"Accounts", "instrument", and "chattel paper" shall have the
same meaning as that given to those terms under the New York Uniform Commercial
Code.
"Eligible Inventory" shall mean first quality, readily
marketable inventory owned by Borrower, valued at the lower of cost (on a FIFO
basis) or market, minus (i) work in progress inventory, (ii) non-saleable
inventory, (iii) historical reserves established by Borrower (including but not
limited to shrinkage reserves, mark down reserves and reserves which restore
standard costs to actual costs), (iv) inventory on consignment, (v) inventory
which is not the result of Borrower's ordinary course of business as it exists
on the date of this agreement, (vi) inventory which is not at all times subject
to the perfected, first priority security interest of the Bank and no other
lien, (vii) inventory which is not located on Borrower's premises within the
United States (unless covered by a landlord/mortgagee waiver acceptable to the
Bank) or in a public warehouse (unless Borrower holds a non-negotiable warehouse
receipt or similar document of title), (viii) inventory which does not conform
in all respects to the warranties contained in this Agreement or any other Loan
Document and (ix) inventory which is not subject to any licensing agreement with
third parties.
(f) Eligible Accounts Receivable Criteria. The Borrower hereby represents,
warrants and agrees that in order to qualify as an Eligible Account Receivable,
an Account shall meet each of the following criteria:
(1) The account arose from a bona fide outright sale of goods or for
services performed under an enforceable contract, and such goods have been
shipped to the appropriate account debtors, or the sale has otherwise been
consummated, or the services have been performed for the appropriate account
debtors in accordance with such order or contract;
(2) The title to each account is in Borrower and such title is
absolute and is not subject to any prior assignment, claim, lien, or security
interest;
(3) The amount shown on the books of the Borrower and on any invoice
or statement delivered to the Bank is owing to the Borrower, and no partial
payment has been made thereon by anyone;
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<PAGE>
(4) The account is not a contra account or subject to any claim of
reduction, counterclaim, set-off, recoupment, or any claim for credits,
allowances, or readjustments by the account debtor because of returned,
inferior, or damaged goods or unsatisfactory services, or for any other reason;
(5) The account is not an account that the Bank, in its discretion
based upon a reasonable evaluation of the credit worthiness of the account
debtor, has determined to be a high risk account or otherwise ineligible in
whole or in part and has notified the Borrower thereof;
(6) The account debtor has not returned or refused to retain any of
the goods from the sale of which the account rose;
(7) The account is due and payable not more than thirty (30) days from
the date of the delivery of the goods or performance of the services therefore
(except to the extent that the Bank accepts accounts arising out of goods sold
on extended terms);
(8) No account arises out of a contract with or order from an account
debtor that, by its terms, forbids or makes the assignment of that account to
the Bank void and unenforceable;
(9) The Borrower has not received any note, trade acceptance, draft,
or other instrument with respect to or in payment of the account, or any chattel
paper with respect to the goods giving rise to the account;
(10) The Borrower has not received any notice of the death of the
account debtor or a partner thereof, nor of the dissolution, termination of
existence, insolvency, business failure, appointment of a receiver for any part
of the property of, assignment for the benefit of creditors by, or the filing of
a petition in bankruptcy or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against the account debtor;
(11) The account debtor is not an affiliate or subsidiary of the
Borrower;
(12) The total of accounts from any one account debtor does not exceed
twenty five percent (25%) of Eligible Accounts Receivable, which, for purposes
of this percentage calculation, shall include all Eligible Accounts Receivable
of such account debtor;
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<PAGE>
(13) More than fifty (50%) percent of the aggregate amount of the
accounts owed the Borrower by the account debtor otherwise meet all of the
criteria set forth in this subparagraph (f) to constitute an Eligible Account
Receivable;
(14) The account has not been reinvoiced or otherwise altered so as to
bring it into a more current status unless the Bank is aware of and has
consented to such action;
(15) The account does not arise from a bonded contract or job and is
not, and cannot be, subject to a prior lien by a bonding agent;
(16) If the account debtor does not have a substantial business
operation in the United States, payment of the account is backed by an
irrevocable letter of credit satisfactory to the Bank or is guaranteed by a
party approved by the Bank (except for Canadian accounts approved by the Bank);
(17) The account is not an employee account;
(18) The account does not arise out of a transaction where goods have
been shipped but not billed;
(19) The account does not include any added finance charges which have
not been deducted from the accounts receivable totals reported to the Bank;
(20) The account debtor is not more than sixty (60) days past due with
respect to any other invoice or amount owing to Borrower;
(21) The account is not an account evidenced by a credit memo issued
more than sixty (60) days from due date;
(22) The account is not one of a group of accounts from a single
debtor (or affiliate thereof) fifty (50%) percent or more of which are more than
thirty (30) days from due date.
(g) Condition to Initial Advances. Notwithstanding any other provision of
this Agreement, Borrower shall not be entitled to an initial Advance under
either Facility unless the Borrowing Base would permit aggregate Advances under
the Facilities of not less than $100,000.00 in excess of the requested initial
Advances. As further conditions to initial Advances, Borrower shall have no
accounts payable more than sixty (60) days past due and no delinquent tax
payments.
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(h) Reports. Borrower shall provide the Bank with the following reports
which shall be in such form and detail as required by the Bank and shall be
certified by an officer of Borrower:
(1) At the time of execution of this Agreement, (i) a detailed list of
all Eligible Accounts Receivable dated as of the date of this Agreement, or as
near thereto as is practicable, setting forth the name and mailing address of
each account debtor, the date, number, and amount of each invoice, the balance
owing, the age of the account, and the total of Eligible Accounts Receivable;
and (ii) a report of Eligible Inventory as of the date of this Agreement, or as
near thereto as is practicable, showing the total cost (on a FIFO basis)
thereof.
(2) On a daily basis, the Borrowing Base certificate referenced at
Section 7(a) hereof.
(3) No later than the fifteenth (15th) day after each month-end (or if
such day is not a Business Day then the next succeeding Business Day), an
inventory report and certification on form prescribed by the Bank dated as of
the last day of each month.
(4) No later than the fifteenth (15th) day after each month-end (or if
such day is not a Business Day then the next succeeding Business Day), an
accounts receivable aging report and an accounts payable aging report, on form
prescribed by the Bank dated as of the last day of each month.
(5) Such other reports and information as the Bank may reasonably
request.
(i) Other Affirmative Covenants Relating to the Facilities. Until
termination of the Facilities and the payment in full of all indebtedness of the
Borrower relating to the Facilities, the Borrower agrees as follows:
(1) On demand, to make available to the Bank shipping and delivery
receipts evidencing the shipment of goods and/or the delivery of services that
gave rise to an Eligible Account Receivable, completion certificates or other
proof of the satisfactory performance of services that gave rise to an Eligible
Account Receivable, a copy of the invoice for all accounts, and copies of any
written contract or order form from which any account rose. The Borrower shall
retain all such supporting documents for at least one (1) year.
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(2) To immediately notify the Bank if any Eligible Account Receivable
arises out of contracts with the United States or any state or local government
or any department, agency, or instrumentally thereof, and to execute any
instruments and take any steps required by the Bank so that all monies due or to
become due under such contracts will be assigned to the Bank and notice thereof
given to the government under the Federal Assignment of Claims Act or other
applicable law.
(3) If requested by the Bank, immediately mark its records concerning
all Pledged Accounts (hereinbelow defined) in a manner satisfactory to the Bank
to show its security interest therein.
(4) To promptly apply all credits and discounts allowed to account
debtors and to immediately reflect same on all reports submitted to the Bank,
and
(5) To promptly advise the Bank whenever an account debtor refuses to
retain or returns any material quantity of goods from the sale out of which an
Eligible Account Receivable arose, and to comply with any instructions that the
Bank may give regarding the sale or other disposition of such returns.
(6) The Bank may examine the Borrower's books and records with respect
to the Collateral and this Agreement at all reasonable times to insure
compliance with the terms of the Loan Documents and shall do so a minimum of
three (3) times per year (for the purposes hereof, a "year" shall mean the
period commencing each October 1 and terminating each September 30 during the
term of the Facilities). Additionally, the Borrower hereby agrees to allow the
Bank, its personnel and representatives access to the Borrower's books and
records for the purpose of conducting periodic audits. Such audits shall be done
at the Bank's discretion and Borrower will pay $500.00 per day per audit plus
expenses.
(j) Collection of Pledged Accounts. The Bank shall have the sole right to
receive payments under all accounts in which the Bank has a security interest
(herein collectively referred to as "Pledged Accounts"), and all account debtors
shall immediately be directed to forward all accounts to a lock box (the "Lock
Box") to be maintained by the Bank and after receipt at the Lock Box, such
payments shall be deposited in the form received in an account to be maintained
at the Bank in its name and under its control and to be entitled "Key Bank of
New York Cash Collateral Account for Mace Security International, Inc." (the
"Cash Collateral
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Account"). The Bank shall provide the Borrower with same day credit for the
amount of deposits so made into the Cash Collateral Account said credit to be
applied to Facility 1 and to the extent, if any, credit remains after the
outstanding balance under Facility 1 has been reduced to zero, to Facility 2. As
an inducement to the Bank doing this, the Bank shall be entitled to charge and
the Borrower will pay the Bank a clearance day fee calculated by multiplying the
amount of each deposit into the Cash Collateral Account by the Interest Rate
applicable under the Note evidencing Facility 1 and then dividing that result by
360 to determine a per deposit clearance day fee and multiplying the per deposit
clearance day fee by 2. Any and all deposits credited against the Cash
Collateral Account which are returned for whatever reason shall, together with
any return service fee, be immediately charged back against the Cash Collateral
Account and added to the balance due under the appropriate Note. Further, the
Pledged Account to which the charge-back relates shall be eliminated as an
"Eligible Account Receivable". The agreement of the Bank to provide same day
credit for deposits shall not apply to checks drawn against banks in foreign
countries.
As deposits are made into the Cash Collateral Account, the Borrower
shall identify the source of sums so deposited by use of a remittance form, or
other method, acceptable to the Bank. Until the occurrence of an Event of
Default the Bank will apply, and is hereby authorized to do so, all deposits
received to the payment of late fees, accrued and unpaid interest, other charges
and principal due on the Facilities and under the Loan Documents, all as
provided for in the Notes. The Borrower hereby authorizes and directs the Bank
to debit the General Account and the Cash Collateral Account, as provided for
herein and in the Notes, and to further debit those accounts from time to time,
to pay all late fees, accrued and unpaid interest, principal and other charges
due the Bank in connection with the Facilities. This authorization shall be
considered irrevocable, absolute and unconditional and shall remain in effect
until the Facilities have been canceled and all amounts due the Bank in
connection therewith paid in full.
(k) Bank's Right to Receive Direct Payment of Pledged Accounts. The Bank
shall have the right without notice to the Borrower to notify the account debtor
obligated on any Pledged Account to make payments thereon directly to the Bank
and to have control of all proceeds of any Pledged Accounts upon the occurrence
of an Event of Default, or event
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which with the passage of time or otherwise would constitute an Event of Default
has occurred and is continuing.
(l) Appointment of Bank as Attorney-In-Fact. Each of the officers of the
Bank are hereby irrevocably appointed the true and lawful attorney-in-fact for
the Borrower (without requiring any of them to act as such) with full power of
substitution to do the following:
(1) endorse the name of the Borrower upon any and all checks, drafts,
money orders, and other instruments for the payment of monies that are payable
to the Borrower and constitute proceeds of the Pledged Accounts, and
(2) do such other and further acts in the name of the Borrower that
the Bank may deem necessary or desirable to enforce any Pledged Account and/or
any of its rights and remedies hereunder and under all other Loan Documents.
The Bank agrees not to exercise its authority hereunder except upon
the occurrence of an Event of Default or an event which but for the passage of
time, the giving of notice or both would constitute and Event of Default.
8. AFFIRMATIVE COVENANTS. During the life of this Agreement and so long as
any part of the Facilities or any other sums due under the Loan Documents shall
remain unpaid, the Borrower agrees as follows:
(a) Monthly Financial Reports. To furnish the Bank within twenty (20)
days after the end of each month, internally prepared financial reports
including, at a minimum, a balance sheet and income statement.
(b) Quarterly Financial Reports. To furnish the Bank within ten (10)
days after preparation and filing, copies of its l0-Q Reports.
(c) Annual Statements. To furnish the Bank: (i) within one hundred
twenty (120) days after Borrower's fiscal year end a balance sheet,
reconciliation of surplus, and operating statement for said fiscal year prepared
on an audited basis, in accordance with GAAP, by an independent certified public
accountant satisfactory to the Bank and certified by the Borrower's chief
financial officer and (ii) within ten (10) days after preparation and filing,
copies of its 10-K Report.
(d) Management. To maintain management satisfactory to the Bank.
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(e) Taxes. To pay promptly when due all taxes, assessments and other
governmental charges, provided, however, that nothing herein contained shall be
interpreted to require the payment of any taxes, assessments and other
governmental charges so long as their validity are being contested in good faith
in appropriate proceedings and such contest does not impair the Bank's rights.
(f) Insurance. To maintain insurance with responsible companies, in
such amounts and against such risks as are usually carried by owners of
businesses similar to the Borrower, or as the Bank may reasonably require,
including, without limitation, property loss insurance on the Collateral, naming
the Bank as the loss payee and additional insured thereon.
(g) Maintenance of Property. To maintain and keep its real and
personal property in good order and condition and in compliance with all
applicable Federal, State and local laws, rules and regulations.
(h) Litigation. To notify the Bank of any material litigation
instituted against the Borrower or of any judgments entered against it by any
court or other body involving more than $50,000.00 in the aggregate at any one
time.
(i) Corporate Existence. To maintain the Borrower's corporate
existence in good standing.
(j) Current Ratio. To maintain at the end of each calendar quarter a
"Current Ratio" of "Current Assets" to "Current Liabilities" of not less than 4
to 1. "Current Assets", " Current Liabilities" and "Current Ratio" shall be
calculated in accordance with GAAP.
(k) Earnings Before Interest And Taxes Ratio. To maintain a ratio of
earnings before interest and taxes to interest on a rolling four quarter basis
of at least 3 to 1.
(l) Liability to Tangible Net Worth Ratio. To maintain a ratio of
"Liabilities" to "Tangible Net Worth" on an annual basis not in excess of .25 to
1. "Liabilities" and "Tangible Net Worth" shall each be computed in accordance
with GAAP.
(m) Income to Debt. To maintain a ratio of income plus interest plus
depreciation and amortization to the current portion of long term debt plus
interest expense plus distributions and dividends plus unfunded capital
expenditures measured on a rolling four quarters basis shall be at least 1.25 to
1 at all times.
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(n) Other Information. To furnish within ten (10) days of request such
other information and documentation as the Bank may reasonably request.
(o) Environmental Matters. To comply in all material respects with all
applicable environmental laws, rules and regulations, and to promptly correct
any violation thereof.
9. NEGATIVE COVENANTS. During the life of this Agreement and so long as
any part of the indebtedness created pursuant hereto shall remain unpaid, the
Borrower will not, without the prior written consent of the Bank:
(a) Purchase Other Business. Purchase or acquire, whether by merger,
acquisition or otherwise, an interest in, or all or substantially all of the
assets of, any business entity.
(b) Contingent Debt. Assume, guarantee, endorse, contingently agree to
purchase, or otherwise become liable upon the obligation of any person, firm, or
corporation, except by reason of endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of business
or guarantees of any obligations owed to the Bank.
(c) Purchase Stock, Merge or Consolidate. Enter into any merger or
consolidation, or purchase or acquire the obligations or stock of, or any other
interest in, any person, firm, corporation, or other enterprise whatsoever,
except the purchase for investment purposes of direct obligations of the United
States of America or of any state, county, or municipality. Nothing in this
subparagraph (c) shall prohibit the purchase of a certificate of deposit or a
deposit into a money market account.
(d) Accounts Receivable. Sell, assign, transfer, or otherwise dispose
of any of its accounts receivable, except to the Bank.
(e) Loans. Make loans or advances to any person, firm, or corporation.
Required progress payments, security deposits, and prepaid rent made in the
ordinary course of business and in normal amounts shall not be deemed loans or
advances for purposes of this subparagraph.
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(f) Prepay Debt. Make any prepayment or unauthorized payment in regard
to any indebtedness that is subordinated to indebtedness owing to the Bank by
the Borrower.
(g) ERISA Compliance.
(1) Engage in any "prohibited transaction" as such term is defined
in Section 406 or Section 2003(a) of the Employee Retirement Income Security Act
of 1974 and the regulations thereunder, as now or hereafter in effect,
("ERISA");
(2) Incur any "accumulated funding deficiency", as such term is
defined in Section 302 of ERISA, whether or not waived; or
(3) Terminate any such retirement plan in a manner which could
result in the imposition of a lien on any property of the Borrower or any
affiliate pursuant to Section 4068 of ERISA.
(h) Liens on Collateral. Permit any liens or encumbrances, other than
those held by the Bank, to be placed against the assets of the Borrower.
(i) Capital Expenditures. Make any capital expenditures in total in
excess of $500,000.00 during any fiscal year.
(j) Dividends. Declare or pay dividends or other distributions in cash
or kind.
(k) Incur Debt. Create, incur or suffer to exist any indebtedness
(including lease obligations) other than the sums due the Bank.
10. ADDITIONAL CONDITIONS TO CLOSING. In addition to any other conditions
set forth in the Loan Documents, the following shall be conditions to closing
the Facilities and receiving and Advances:
(a) Field Audit. Make the facilities, books and records of the
Borrower available to the Bank to allow the Bank to conduct field audits.
(b) Waivers. Obtain appropriate waivers from mortgagees, warehousemen
and landlords to the extent required by the Bank.
(c) Commitment. Comply with all of the provisions of a letter from the
Bank to Borrower dated October 3, 1996 including without limitation, the
requirement that a commitment fee for the Facilities be paid upon execution of
this Agreement.
13
<PAGE>
11. REPRESENTATIONS AND WARRANTIES. As an inducement to the Bank to
entering into this Agreement, the Borrower hereby represents and warrants to the
Bank that:
(a) All financial statements of the Borrower heretofore delivered to
Bank are complete and correct and fairly present the financial condition of
Borrower, that there are no liabilities, direct or indirect, fixed or
contingent, as of the date of such financial statements which are not reflected
therein and that there has been no material adverse change in the financial
condition of the Borrower since the date of such financial statements.
(b) The Borrower is a corporation duly organized and validly existing,
in good standing under the laws of the jurisdiction of its incorporation and has
the corporate power and all necessary licenses and other governmental
authorizations and approvals to own its property and to carry on its business as
now being conducted and as presently contemplated and is duly qualified to do
business, and is in good standing, in each jurisdiction where such qualification
is necessary.
(c) This Agreement and other Loan Documents constitute legal, valid,
and binding obligations of the Borrower, enforceable in accordance with their
terms, except as enforcement of the same may be limited by (i) applicable
bankruptcy, insolvency, moratorium and similar laws affecting creditors rights
generally, or (ii) generally applicable principals of equity.
(d) The Borrower has taken all requisite corporate action and has full
power and authority to enter into this Agreement, to make the borrowings
pursuant hereto, to execute and deliver the Notes and all other Loan Documents,
to grant the security interests in the manner required hereby, and to incur the
obligations provided for herein.
(e) All necessary consents or approvals of the Borrower's stockholders
or of any public authority required as a condition of the validity of this
Agreement and the performance of any of the requirements and obligations
provided for herein have been obtained and are in full force and effect.
(f) There are no proceedings pending or, so far as the officers of the
Borrower know, threatened before any court or administrative agency which, in
their opinion, would materially and adversely affect the financial condition or
operations of the Borrower.
14
<PAGE>
(g) There is no charter, by-law, or preference stock provision of
Borrower, and no provision of any existing mortgage, indenture, contract, or
agreement binding on the Borrower or affecting its property which would conflict
with, or in any way, prevent the execution, delivery, or carrying out of the
terms of this Agreement and the other Loan Documents.
12. EVENTS OF DEFAULT. The Borrower shall be in default hereunder and
under all other Loan Documents, upon the happening of one or more of the
following events, which events shall constitute "Events of Default" hereunder:
(a) The occurrence of an "Event of Default" as defined in the Notes or
any other Loan Document.
(b) The failure of any warranty, representation or statement made or
furnished to the Bank by or on behalf of the Borrower to be true and accurate
when made or furnished.
(c) The dissolution, termination of existence or discontinuance of
business for any reason by the Borrower.
(d) If the Borrower should (i) make a general assignment for the
benefit of creditors, (ii) apply for or consent to the appointment of a
receiver, trustee or liquidator of any part of their assets, (iii) be
adjudicated bankrupt or insolvent, (iv) file a voluntary petition in bankruptcy,
or file a petition or answer seeking any arrangement with creditors or seeking
to take advantage of any law (Federal or State) relating to relief for debtors
or admit by answer or default, material allegations of any petition filed
against the Borrower, of any bankruptcy, insolvency or other proceeding (whether
Federal or State) relating to the relief for debtors, or (v) suffer or permit to
continue unstayed in effect for a period of thirty (30) days after judgement
against the Borrower entered by any court or governmental agency for damages in
an amount in excess of $50,000.00.
(e) If the Borrower should fail to make any payment or otherwise
default under any other note or obligation or agreement with any other lender.
Upon the occurrence of any one or more Events of Default, the Bank, at
its option may refuse to make any further Advances or issue any additional
Letters of Credit under the Facilities, and may declare the Notes and all other
obligations then due the Bank by the Borrower to be immediately due and payable
without notice, demand or protest, all of which are
15
<PAGE>
hereby waived and, may (but shall not be any obligation to do so) exercise any
one or more of the following remedies: (a) all rights and remedies available to
the Bank hereunder, under the Security Agreement and all other Loan Documents,
and (b) all rights and remedies available to the Bank at law, in equity or
otherwise. In addition, upon the occurrence of an event which but for the
passage of time, the giving of notice or both would constitute an Event of
Default, the Bank may refuse to make further Advances or issue any additional
Letters of Credit.
13. FEES. Borrower shall be responsible for the following fees (the
"Fees"):
(a) Commitment Fees. A Commitment Fee of $9,375.00 for Facility 1 and
$7,500.00 for Facility 2.
(b) Letter of Credit Fees. Issuance fees upon the issuance of: each
standby Letter of Credit in the amount of one and one-half (1.5%) percent of the
amount of each standby Letter of Credit and each commercial Letter of Credit in
the amount of one-quarter of one (.25%) percent of the amount of each commercial
Letter of Credit. Letter of Credit Fees shall be charged on an annual basis on
the anniversary date of the issuance of each Letter of Credit.
(c) Termination Fee. A Termination Fee of $37,500.00 shall be paid if
Facility 1 is terminated prior to its Expiration Date (as defined in the Note
for Facility 1).
14. DEPOSITS WITH BANK. Any deposit or other sums at any time credited by
or due from the Bank to the Borrower and any securities or other property of the
Borrower which at any time are in the possession of the Bank shall at all times
be held and treated as collateral security for the payment of the liabilities of
the Borrower to the Bank. The Bank may set off and apply such deposits or other
sums against all liabilities due it hereunder and under the other Loan Documents
in such manner as the Bank may elect.
15. FAILURE OF BANK TO EXERCISE RIGHTS. Failure of the Bank to exercise
any right hereunder or under the other Loan Documents or to declare immediately
due and payable the balance remaining unpaid on the Notes by reason of any
breach of any of the terms, provisions, agreements, warranties, or conditions
herein or in any other Loan Document, or by reason of the happening of any one
of the events of default as set forth herein shall not constitute a waiver
thereof by the Bank or preclude the Bank from exercising such right at any time
by reason of any such breach or happening of such event or any subsequent breach
or happening of such event.
16
<PAGE>
16. WAIVERS. The Bank shall not be deemed to have waived any of the terms,
agreements, conditions, and covenants hereof, except by a writing signed by an
officer of the Bank and delivered to the Borrower.
17. AMENDMENTS. This Agreement may be amended, changed or altered only by
a supplemental written agreement setting forth such amendment, change or
alteration properly executed by all the parties to this Agreement.
18. EXPENSES. The Borrower agrees to pay all expenses of the Bank
(including the reasonable fees and expenses of its counsel) in connection with
the preparation of this Agreement and all documents and instruments related
thereto, the completion of the requirements provided for herein, and incidental
to the enforcement of any provision of this Agreement and the other Loan
Documents. All such enforcement expenses shall be payable whether or not an
action or proceeding is commenced and shall include those incurred in any
bankruptcy or insolvency proceeding.
19. INVALIDITY OR UNENFORCEABILITY. If any provision of this Agreement or
portion of such provision or the application thereof to any person or
circumstance shall to any extent be held invalid or unenforceable, the remainder
of this Agreement (or the remainder of such provision) and the application
thereof to other persons or circumstances shall not be affected thereby and
shall remain in full force and effect.
20. GOVERNING LAW. This Agreement and all rights hereunder shall be
governed by and enforced in accordance with the laws of the State of New York.
21. BINDING EFFECT. This Agreement shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Bank, its
successors and assigns.
22. TERM OF AGREEMENT. The obligations and conditions of this Agreement
shall continue until all indebtedness and liability of the Borrower to the Bank
hereunder and under the other Loan Documents has been paid and satisfied in
full.
23. PARAGRAPH HEADINGS. The paragraph headings contained herein are for
convenience in reference only and shall not be deemed to control or affect the
meaning or interpretations of any paragraph or provisions of this Agreement.
17
<PAGE>
24. CONFLICTS. In the event that there is a conflict between the
provisions of this Agreement and the provisions of the Notes, the provisions of
this Agreement will control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed as of the day and year first above written.
KEY BANK OF NEW YORK
/s/ Michael D. Carroll
----------------------
Michael D. Carroll
Vice President
MACE SECURITY INTERNATIONAL, INC.
/s/ Robert D. Norman
--------------------
Robert D. Norman
President
l8
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this 31st day of October, 1996, before me the subscriber personally
appeared Robert D Norman, who being by me duly sworn, did depose and say; that
he resides at 160 Benmont Ave., Bennington, Vermont that he is President of Mace
Security International, Inc., the corporation described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
Board of Directors of said corporation.
/s/ Edward J. Trombly
---------------------
NOTARY PUBLIC
EDWARD J TROMBLY
Notary Public, State of
New York
Qualified in Albany County
Commission Expires 10/31/96
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this 31st day of October, 1996, before me the subscriber personally
appeared Michael D. Carroll, who being by me duly sworn, did depose and say;
that he resides at Glenmont, New York, that he is Vice President of KEY BANK OF
NEW YORK, the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
/s/ Edward J. Trombly
---------------------
NOTARY PUBLIC
EDWARD J TROMBLY
Notary Public, State of
New York
Qualified in Albany County
Commission Expires 10/31/96
<PAGE>
LINE-OF-CREDIT NOTE
October 31, 1996
$1,250,000.00 Albany, New York
FOR VALUE RECEIVED, MACE SECURITY INTERNATIONAL, INC., a Vermont
corporation with an office for the transaction of business at 160 Benmont
Avenue, Bennington, Vermont 05201 (the "Borrower"), promises to pay to the order
of KEY BANK OF NEW YORK, a state banking corporation organized and existing
under the laws of the State of New York, with an office and place of business at
66 South Pearl Street, Albany, New York 12207 (the "Lender") the principal sum
of One Million Two Hundred Fifty Thousand and 00/100th ($1,250,000.00) Dollars,
or so much thereof as may be advanced or readvanced from time to time (the
"Loan") pursuant to the terms of this Note and that certain Loan Agreement
between the Borrower and Lender, dated even date herewith (the "Agreement"),
with interest on the unpaid principal balance of such amounts as are advanced or
readvanced, as the case may be, at the "Interest Rate" (hereinafter defined).
This Note represents Facility 1 as described in the Agreement.
This Note is secured by (a) first priority security interest in certain
present and future personal property owned by the Borrower (the "Personal
Property") created under and pursuant to certain security agreements from the
Borrower to Lender dated on even date herewith (the "Security Agreements") and
financing statements executed in conjunction therewith (the "Financing
Statements"); and (b) such other collateral as may now or hereafter be given,
pledged or assigned to the Lender by Borrower as security for the payment and
performance of the Loan (the Agreement, the Security Agreements, the Financing
Statements, this Note and all other documents and instruments given to the
Lender in connection with the Loan, are hereinafter collectively referred to as
the "Loan Documents").
<PAGE>
I
DEFINITIONS
As used herein:
(a) "Advance or Advances" shall mean an advance or advances of proceeds of
the Loan.
(b) "Advance Request" shall mean a written or telephonic request from an
Authorized Officer (hereinbelow defined) for an Advance.
(c) "Authorized Officer" shall mean one of the individuals on the annexed
Schedule Of Authorized Officers (or, if there are no individuals listed on the
Schedule Of Authorized Officers, any person holding the title listed on the
Schedule).
(d) "Base Rate" shall mean the rate of interest set, determined and
announced by Key Bank of New York from time to time as its "Base Rate", it being
understood that the "Base Rate" is not necessarily the lowest rate of interest
charged by Key Bank of New York on loans and other credits and that loans and
credits may be extended by Key Bank of New York at rates of interest both above
and below the "Base Rate".
(e) "Default Interest Rate" shall mean the applicable Interest Rate plus
four (4%) percent.
(f) "Expiration Date" shall mean October 1, 1998.
(g) "Interest Rate" shall mean either the Base Rate plus one (1%) percent.
Capitalized terms used herein not defined in this Article or otherwise
defined herein or defined by their context or usage herein shall have those
definitions set forth in the Agreement.
II
INTEREST
(a) COMPUTATION OF INTEREST. Interest on the outstanding principal balance
of this Note shall be computed on the basis of "a 360-day year for the actual
number of days elapsed" (such phrase, as used throughout this Note, shall mean
that in computing
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<PAGE>
interest for the subject period, the interest rate shall be multiplied by a
fraction, the denominator of which is 360 and the numerator of which is the
actual number of days elapsed from the date of the first Advance of Loan
proceeds or the date of the preceding interest and/or principal due date, as the
case may be, to the date of the next interest and/or principal due date).
Interest shall accrue until the date of receipt of payment.
(b) INTEREST RATE CHANGE PROCEDURES. Each change in the Base Rate shall
effect a corresponding and simultaneous change in the Interest Rate.
(c) IMPLEMENTATION OF DEFAULT INTEREST RATE. Upon the occurrence of an
Event of Default (hereinbelow defined), the Interest Rate shall automatically
and without notice to Borrower change to the Default Interest Rate.
III
ADVANCES AND READVANCES OF LOAN PROCEEDS
(a) ADVANCES AND READVANCES. Provided that no Event of Default
(hereinbelow defined) or event which but for the passage of time, the giving of
notice, or both, would constitute an Event of Default, has occurred, and
provided further, that the Borrower is otherwise eligible to receive Advances
pursuant to the Agreement, Borrower may request Advances aggregating not more
than the Maximum Credit.
(b) PROCEDURE FOR ADVANCES. Borrower shall obtain Advances in accordance
with the provisions set forth herein and in the Agreement upon submission of an
Advance Request. Any Advance Request shall be accompanied by such certificates
which may be required pursuant to the terms of the Agreement (if an Advance
request is made by telephone, the certificates may be submitted by facsimile).
All Advances shall be deposited by Lender in the General Account. The deposit of
any Advance in the General Account by Lender shall be conclusive proof as to the
receipt of an Advance by the Borrower and Borrower will be responsible for
repaying any Advance so deposited.
(c) ADVANCE BY LENDER. Lender may make Advances pursuant to the terms
hereof for the purpose of paying any sums which have become due and payable
hereunder or under any other Loan Document.
3
<PAGE>
(d) LETTERS OF CREDIT. To the extent Lender has issued Letters of Credit
for the benefit of Borrower, the amount available for Advances will be reduced
on a dollar for dollar basis by the amount of the Letters of Credit.
IV
PAYMENT OF PRINCIPAL AND INTEREST
(a) PERIODIC PAYMENTS OF INTEREST. Borrower shall pay accrued interest at
the Interest Rate on the unpaid principal balance of this Note on the first
(1st) day of each and every calendar month commencing on the first (1st) day of
the first (1st) calendar month following the date of this Note and continuing
until the Loan matures as herein provided.
(b) MATURITY OF LOAN. The Loan shall mature and be due and payable in full
on the Expiration Date.
(c) RIGHT OF LENDER TO DEBIT GENERAL ACCOUNT AND CASH COLLATERAL ACCOUNT
The Borrower hereby authorizes and directs the Lender to debit the General
Account and the Cash Collateral Account as provided herein and in the Agreement,
and to further debit those accounts from time to time to pay all late fees,
accrued and unpaid interest, principal and other charges due the Lender in
connection with the Loan. This authorization shall be considered irrevocable,
absolute and unconditional and shall remain in effect until the Loan and all
other sums due under the Loan Documents have been paid in full.
V
GENERAL CONDITIONS
(a) METHOD OF PAYMENT. All payments due under this Note and the other Loan
Documents are payable at 66 South Pearl Street, Albany, New York 12207, Attn:
Structured Finance Division, or at such other place as Lender shall notify
Borrower in writing. Lender reserves the right to require that any payment under
this Note, whether such payment is of a regular installment or represents a
prepayment, be by wired federal funds or
4
<PAGE>
other immediately available fund or to be paid at a place other than the above
address. It is expressly understood that the final payment of principal shall be
made by wired federal funds or other immediately available funds.
(b) APPLICATION OF PAYMENTS RECEIVED. Provided no Event of Default has
occurred, all payments received by Lender on this Note shall be applied by the
Lender as follows:
FIRST, to any unpaid Late Payment Charges (hereinafter defined) and
other charges due hereunder and under the other Loan Documents;
SECOND, to accrued and unpaid interest then due and owing;
THIRD, to the reduction of principal due under this Note.
If an Event of Default has occurred, Lender may, in its discretion, apply
all sums then or thereafter in the General Account and/or other payments
received, or deposits made to the General Account to any sums due it by the
Borrower hereunder, or otherwise, in such manner as Lender deems appropriate.
(c) LATE PAYMENT CHARGES. If Borrower fails to pay any amount of principal
and/or interest due under this Note for fifteen (15) days after such payment
becomes due, whether by acceleration, demand or otherwise, Lender may, at its
option, whether immediately or at the time of final payment of the amounts
evidenced by this Note, impose a late payment charge (the "Late Payment Charge")
computed by multiplying the amount of each past due payment by four (4%)
percent. Until any and all Late Payment Charges are paid in full, the amount
thereof shall be added to the indebtedness evidenced by the Loan Documents. The
Late Payment Charge is not a penalty but rather liquidated damages designed to
compensate the Lender for all expenses incurred by the Lender as a result of
processing late payments made by the Borrower.
(d) EVENTS OF DEFAULT. If:
(i) Borrower, or anyone else responsible, fails to pay any sum due
under this Note, or any other Loan Document, when the same is due;
5
<PAGE>
(ii) Borrower, or anyone else responsible, fails to timely perform any
other obligation required to be performed by them under this Note or any other
Loan Document; or
(iii) An "Event of Default", as said term is defined in any other Loan
Document shall have occurred.
(iv) Borrower fails to comply with the terms of or an "event of
default" occurs under any other loan transaction or credit arrangement of any
kind with Lender, including without limitation, "Facility 2" as that term is
defined the Agreement;
Then, and in any such event (an "Event of Default"), Lender may in its
discretion: (a) refuse to make any further Advances, and/or (b) declare the
entire unpaid principal balance of this Note together with interest accrued
thereon and all other sums due under the Loan Documents, to be immediately due
and payable, and/or (c) proceed to exercise any or all rights or remedies that
it may have hereunder, under the other Loan Documents, or as may be available to
the Lender at law, in equity or otherwise.
In addition to the above remedies, if an event has occurred which but for
the passage of time, the giving of notice or both would constitute an Event of
Default, Lender may refuse to make further Advances.
(e) COSTS AND EXPENSES PAYABLE BY BORROWER. The Borrower shall be
responsible for and shall pay all costs, including, but not limited to,
reasonable attorneys' fees, incurred in connection with the protection or
realization of any collateral pledged to the Lender as security for the Loan or
in connection with the enforcement of any of Lender's rights hereunder or under
the Loan Documents, whether or not suit or proceeding its commenced including
those incurred in any bankruptcy or insolvency proceeding. All such costs and
expenses shall be payable on demand and until paid shall be secured by the Loan
Documents and by all collateral held by Lender as security for the payment and
performance of Borrower's obligations to the Lender.
(f) NO WAIVER BY LENDER. No failure on the part of the Lender or other
holder hereof to exercise any right or remedy hereunder or under any other Loan
Document,
6
<PAGE>
whether before or after the happening of an Event of Default, shall constitute a
waiver thereof, and no waiver of any past Event of Default shall constitute a
waiver of any future Event of Default or of any other default. No failure to
accelerate the Loan evidenced hereby by reason of the occurrence of an Event of
Default hereunder or acceptance of a past due payment, or indulgence granted
from time to time shall be construed to be a waiver of the right to insist upon
prompt payment thereafter, or shall be deemed to be a novation of this Note or a
reinstatement of the Loan evidenced hereby or a waiver of the Lender's right of
acceleration or any other right, or be construed so as to preclude the exercise
of any right which Lender may have, whether by the laws of the state governing
this Note, by agreement or otherwise, and Borrower hereby expressly waives the
benefit of any statue or rule of law or equity which would produce a result
contrary to or in conflict with the foregoing.
(g) WAIVER BY BORROWER. Borrower hereby waives presentment, protest,
demand, diligence, notice of dishonor and of nonpayment, and waive and renounce
all rights to the benefits of any statute of limitations and any moratorium,
appraisement, and exemption now provided or which may hereafter be provided by
any Federal or State statute, including, but not limited to, exemptions provided
by or allowed under the Bankruptcy Code of 1978, both as to itself or himself
personally and as to all of its or their property, whether real or personal,
against the enforcement and collection of the obligations evidenced by this Note
and any and all extensions, renewal and modifications hereof.
(h) USURY LAWS. It is the intention of the parties to conform strictly to
the usury laws, whether state or Federal, that are applicable to this Note. All
agreements between the Borrower and the Lender, whether now existing or
hereafter arising and whether oral or written, are hereby expressly limited so
that in no contingency or event whatsoever, whether by acceleration of maturity
hereof or otherwise, shall the amount paid or agreed to be paid to the Lender or
the holder hereof, or collected by Lender or such holder, for the use,
forbearance or detention of the money to be loaned hereunder or otherwise, or
for the payment or performance of any covenant or obligation contained herein,
or in any of the Loan Documents, exceed the maximum amount permissible under
applicable Federal or State
7
<PAGE>
usury laws. If under any circumstances whatsoever fulfillment of any provision
hereof or of the Loan Documents, at the time performance of such provision shall
be due, shall involve exceeding the limit of validity prescribed by law, then
the obligation to be fulfilled shall be reduced to the limit of such validity;
and if under any circumstances the Lender or other holder hereof shall ever
receive an amount deemed interest by applicable law, which would exceed the
highest lawful rate, such amount that would be excessive interest under
applicable usury laws shall be applied to the reduction of the principal amount
owing hereunder or to other indebtedness secured by the Loan Documents and not
to the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal and such other indebtedness, the excess shall be deemed to
have been a payment made by mistake and shall be refunded to Borrower or to any
other person making such payment on Borrower's behalf. All sums paid or agreed
to be paid to the holder hereof for the use, forbearance or detention of the
indebtedness of Borrower evidenced hereby, outstanding from time to time, shall
to the extent permitted by applicable law, and to the extent necessary to
preclude exceeding the limit of validity prescribed by law, be amortized,
pro-rated, allocated and spread from the date of disbursement of the proceeds of
this Note until payment in full of the Loan evidenced hereby, and thereby, so
that the actual rate of interest on account of such indebtedness is uniform
throughout the term hereof and thereof. The terms and provisions of this
paragraph shall control and supersede every other provision of all agreements
between Borrower, the Guarantor and the Lender.
(i) GOVERNING LAW SUBMISSION TO JURISDICTION. This Note shall be governed
by, construed and enforced in accordance with the laws of the State of New York.
Borrower hereby submits to personal jurisdiction in said State for the
enforcement of Borrower's obligations hereunder or under the other Loan
Documents.
(j) WAIVER OF JURY TRIAL. Borrower and Lender hereby waive trial by jury
in any litigation in any court with respect to, in connection with, or arising
out of this Note, any other Loan Document or the Loan, or any instrument or
document delivered in connection with the Loan, or the validity, protection,
interpretation, collection or
8
<PAGE>
enforcement thereof, or any other claim or dispute howsoever arising between the
Borrower and the Lender.
(k) NOTICES. Any notices required or permitted to be given hereunder shall
be: (i) personally delivered; or (ii) given by registered or certified mail,
postage prepaid, return receipt requested, or (iii) forwarded by overnight
courier service, in each instance addressed to the addresses as set forth at the
head of this Note, or such other addresses as the parties may for themselves
designate in writing as provided herein for the purpose of receiving notices
hereunder. All notices shall be in writing and shall be deemed given, in the
case of notice by personal delivery, upon actual delivery, and in the case of
appropriate mail or courier service, upon deposit with the U.S. Postal Service
or delivery to the courier service. Notice to one of the Borrower shall be
deemed notice to all Borrower.
(l) ENTIRE AGREEMENT. This Note, the Agreement, the Security Agreements,
all other Loan Documents and any exhibits or other documents referred herein or
therein, constitute the complete understanding of the parties with respect to
the Loan and shall supersede all prior or contemporaneous negotiations,
promises, covenants, agreements or representations of every nature whatsoever
with respect thereto, all of which have become merged and finally integrated
into this Note and the other Loan Documents. Each of the parties understands
that in the event of any subsequent litigation, controversy or dispute
concerning any of the terms, conditions or provisions of this Note, neither
shall be permitted to offer or introduce any oral evidence concerning any oral
promises or oral agreements between the parties relating to the subject matter
of this Note not included or referred to herein and not reflected by a writing
signed by the Lender.
(m) BINDING EFFECT. This Note shall be binding upon the Borrower and its
successors and assigns and inure to the benefit of the Lender and its successors
and assigns.
(n) AMENDMENT. This Note may only be amended, modified or changed by a
written agreement signed by the Lender and the Borrower.
9
<PAGE>
IN WITNESS WHEREOF, the Borrower has executed this instrument the day,
month and year first above written.
MACE SECURITY INTERNATIONAL, INC.
By /s/ Robert D. Norman
-----------------------
Robert D. Norman
President
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this 31st day of October, 1996, before me the subscriber personally
appeared Robert D. Norman, who being by me duly sworn, did depose and say; that
he resides at 160 Benmont Ave., Bennington, Vt., that he is President of Mace
Security International, Inc., the corporation described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
Board of Directors of said corporation.
/s/ Edward J. Trombly
---------------------
NOTARY PUBLIC
EDWARD J. TROMBLY
Notary Public, State of
New York
Qualified in Albany County
Commission Expires 10/31/96
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SCHEDULE OF AUTHORIZED OFFICERS
Name Title
---- -----
Robert D. Norman President
Brian Kelley Chief Financial
Officer
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SECURITY AGREEMENT AND ASSIGNMENT (PATENT COLLATERAL)
AGREEMENT dated as of October 31, 1996 made by MACE SECURITY
INTERNATIONAL, INC., a Vermont corporation with an office for the transaction of
business at 160 Benmont Avenue, Bennington, Vermont 05201 ("Debtor"), in favor
of KEY BANK OF NEW YORK, a New York State banking corporation with a place of
business at 66 South Pearl Street, Albany, New York 12207, and its successors,
assigns, and other legal representatives ("Secured Party").
W I T N E S S E T H:
WHEREAS, Debtor and Secured Party are parties to a Loan Agreement dated on
even date herewith (the "Agreement"), a Security Agreement dated on even date
herewith (the "Security Agreement"), a Trademark Collateral, Assignment And
Security Agreement dated on even date herewith (the "Trademark Security
Agreement"), a Line-Of-Credit Note in the amount of $1,250,000 (the "Facility 1
Note") dated on even date herewith and a Promissory Note in the amount of
$750,000 (the "Term Note") and other documents dated as of the date hereof, and
certain supplements, agreements, documents and instruments entered into pursuant
thereto, or in connection therewith, as may be amended, supplemented or modified
from time to time (collectively, the "Financing Agreements"), pursuant to which
Secured Party and Debtor have agreed to certain financial arrangements; and
WHEREAS, Secured Party's willingness to enter into the Financing
Agreements is subject to the condition, among others, that Debtor execute and
deliver this Agreement;
NOW, THEREFORE, in consideration of the premises and for one dollar
($1.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and in addition to, and not in limitation of,
any rights of the Secured Party under the Financing Agreements, Debtor hereby
agrees for the benefit of Secured Party as follows:
1
DEFINITIONS; RULES OF INTERPRETATION
1.1 All capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided therefore in the Financing
Agreements. In addition, the following terms shall have the meanings set forth
in this Section I or elsewhere in this Agreement referred to below:
"Collateral" shall have the meaning ascribed to that term in the Financing
Agreements.
"Obligations" shall mean the indebtedness set forth in the Facility 1 Note
and the Term Note and in the Financing Agreements or in any modifications,
renewals or replacements for any of the foregoing.
<PAGE>
"PTO" shall mean the United State Patent and Trademark Office.
"Patents" shall mean all of the following now or hereafter owned or used
by Debtor:
(a) all letters patent of the United States or any other country, and
all applications for letters patent of the United States or any other country;
(b) all re-issues, continuations, divisions, continuations-in-part,
renewals or extensions thereof;
(c) the inventions disclosed or claimed therein, including the right
to make, use practice and/or sell (or license or otherwise transfer or dispose
of) the inventions disclosed or claimed therein; and
(d) the right (but not the obligation) to make and prosecute
applications for such Patents.
Patents shall include but not be limited to those set forth on Schedule A
attached hereto.
"Patent Collateral" shall mean all of the Debtor's right, title and
interest in and to all of the Patents, the Patent License Rights, and the Patent
Rights, and all additions, improvements, and accessions to, all substitutions
for and replacements of, and all products and Proceeds (including insurance
proceeds) of any and all of the foregoing, and all books and records and
technical information and data describing or used in connection with any and all
such rights, interests, assets or property.
"Patent License Rights" shall mean any and all past, present or future
rights and interests of the Debtor pursuant to any and all past, present and
future licensing agreements in favor of the Debtor, or to which the Debtor is a
party, pertaining to any Patents (whether Patents or Licensed Patents), or
Patent Rights, owned or used by third parties in the past, present or future,
including the right in the name of the Debtor or Secured Party to enforce, sue
and recover for, any past, present or future breach or violation of any such
agreements.
"Patent Rights" shall mean any and all past, present or future rights in,
to and associated with the patents throughout the world, whether arising under
federal law, state law, common law, foreign law, or otherwise, including but not
limited to the following: all such rights arising out of or associated with the
Patents; the right (but not the obligation) to register claims under any
federal, state or foreign patent law or regulation; the right (but not the
obligation) to sue or bring opposition or bring cancellation proceedings in the
name of the Debtor or Secured Party for any and all past, present and future
infringements of or any other damages or injury to the Patents or the Patent
Rights, and the rights to damages or profits due or accrued arising out of or in
connection with any such past, present or future infringement, damage or injury;
and the Patent License Rights.
2
<PAGE>
"Proceeds" shall mean any consideration received from the sale, exchange,
license, lease or other disposition or transfer of any right, interest, asset or
property which constitutes Patent Collateral, any value received as a
consequence of the ownership, possession, use or practice of any Patent
Collateral, any payment received from any insurer or other person or entity as a
result of the destruction or the loss, theft or other involuntary conversion, of
whatever nature, or any right, interest, asset or property which constitutes
Patent Collateral.
"Patent Security Agreement" shall mean this Security Agreement and
Assignment (Patent Collateral), as it may be amended or supplemented from time
to time.
1.2 UCC TERMS. Unless otherwise defined herein, or in the other Financing
Agreements, terms used in Article 9 of the Uniform Commercial Code of the State
of New York are used herein as therein defined.
1.3 RULES OF INTERPRETATION. All definitions (whether set forth herein or
by reference) shall apply equally to both the singular and plural forms of the
terms defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation" or the phrase "but not limited to". All references herein to
Sections, Exhibits and Schedules shall be deemed references to Sections of and
Exhibits and Schedules to this Agreement unless the context otherwise requires.
2
GRANT OF SECURITY; COLLATERAL ASSIGNMENT
2.1 GRANT OF SECURITY INTEREST. As collateral security for the complete
and timely performance and satisfaction of all Obligations, the Debtor hereby
unconditionally grants to Secured Party, a continuing security interest in and
first priority lien on the Patent Collateral, and pledges, mortgages and
hypothecates the Patent Collateral to Secured Party.
2.2 COLLATERAL ASSIGNMENT.
(a) In addition, and not by way of limitation of, the grant, pledge,
mortgage and hypothecation of the Patent Collateral provided for in Section 2.1,
to secure the complete and timely payment, performance and satisfaction of all
Obligations, the Debtor hereby grants, assigns, transfers and conveys to Secured
Party, BY WAY OF COLLATERAL SECURITY, the Debtor's entire right, title and
interest in and to the Patent Collateral. The foregoing grant, assignment,
transfer and conveyance shall be referred to from time to time herein as the
"Section 2.2 Assignment". SECURED PARTY ASSUMES NO LIABILITY OR RESPONSIBILITY
ARISING IN ANY WAY BY REASON OF ITS HOLDING SUCH COLLATERAL SECURITY.
3
<PAGE>
(b) Unless and until there shall have occurred and be continuing an
Event of Default and Secured Party has notified the Debtor that the license
granted hereunder is terminated, Secured Party hereby grants to the Debtor the
sole and exclusive, non-transferable, royalty-free, worldwide right and license
under the Patent Collateral to make, have made for it, use sell and otherwise
practice the Patents for the Debtor's own benefit and account and for none
other, with the right to prosecute and maintain Patents in the United States
Patent and Trademark Office and in foreign countries; provided, however, that
the foregoing right and license shall be no greater in scope than, and limited
by, the rights assigned to Secured Party by the Debtor hereby. The Debtor agrees
not to sell, assign, transfer, or sub-license any of its rights or interests in
the license granted to the Debtor in this Section 2.2(b), without the prior
written consent of Secured Party.
2.3 LICENSE. In addition to, and not by way of limitation of, all other
rights of Secured Party and obligations of the Debtor pursuant to this Agreement
and the other Financing Agreements, upon the effectuation of a Section 2.2
Assignment, the Secured Party shall, hold a fully-paid-up, worldwide right and
license to make, use, practice and sell (or license or otherwise transfer) the
Patent Collateral, for the exclusive purpose of, and to the extent necessary and
sufficient for, the full and complete enjoyment and exercise of any realization
upon the rights, remedies and interests of Secured Party pursuant to this
Agreement and the other Financing Agreements.
2.4 ASSIGNMENT. The Secured Party may in its discretion, file and record
at Borrower's expense with the PTO, the Patent Assignment attached hereto as
Exhibit A.
2.5 SUPPLEMENTS TO FINANCING AGREEMENTS. The parties expressly acknowledge
and agree that they have previously executed and delivered the Financing
Agreements pursuant to which the Debtor unconditionally granted to Secured
Party, a continuing security interest in and first priority line on the
Collateral (including the Patent Collateral). Such Financing Agreements, and all
rights and interests of Secured Party in and to the Collateral (including the
Patent collateral) thereunder, are hereby ratified, confirmed, adopted and
approved. In no event shall this Agreement, the Section 2.2 Assignment of the
Patent Collateral hereunder or the recordation of this Patent Security Agreement
(or any document hereunder) with the PTO, adversely affect or impair, in any way
or to any extent, the other Financing Agreements, the security interest of
Secured Party in the Collateral (including the Patent Collateral) pursuant to
the other Financing Agreements, the attachment and perfection of such security
interest under the Uniform Commercial Code, or the present or future rights and
interests of Secured Party in and to the collateral under or in connection with
this Patent Security Agreement, the other Financing Agreements, and/or the
Uniform Commercial Code. Any and all rights and interests of Secured Party in
and to the Patent Collateral (and any and all obligations of the Debtor with
resect to the Patent Collateral) provided herein, or arising hereunder or in
connection herewith, shall only supplement and be cumulative and in addition to
the rights and interests of Secured Party (and the obligations of the Debtor)
in, to or with respect to the Collateral (including the Patent Collateral)
provided in or arising under or in connection with the other Financing
Agreements.
4
<PAGE>
3
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEBTOR
The Debtor represents and warrants to, and covenants and agrees with,
Secured Party, as follows:
Ownership and Rights in Patent Collateral
3.1 POWER AND AUTHORITY; NON-CONTRAVENING; The Debtor has the full power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder, and to subject the Patent Collateral to the terms hereof. The parties
agree that the execution, delivery and performance of this Agreement shall not
conflict with or contravene any contractual provision binding on the Debtor with
respect to the Patent Collateral (including but not limited to any license
agreement relating to the Patent Collateral or any part thereof).
3.2 PATENTS, LICENSES; Set forth on Schedule A hereto is a true and
complete list of all Patents. All license and other agreements applicable to the
Patents are the valid and binding obligations of all of the parties thereto,
enforceable against each of such parties in accordance with their respective
terms (provided, that, with respect to any such parties other than the Debtor
and its affiliates, such representation and warranty is made to the best of the
Debtor's knowledge and belief).
3.3 TITLE. Except as set forth herein, the Debtor is and will continue to
be the sole and exclusive owner of the entire legal and beneficial right, title
and interest in and to the Patents and the Patent Collateral free and clear of
any lien, charge, security interest, claim, or other encumbrance, except for the
security interest and collateral assignment created by this Agreement and the
other Financing Agreements, and except for liens and encumbrances explicitly
permitted pursuant to the Financing Agreements. To the extent commercially
reasonable, the Debtor will defend its right, title and interests in and to the
Patents and the Patent Collateral against any and all claims of any third
parties.
3.4 VALIDITY AND ENFORCEABILITY. The Patents and Patent Rights related
thereto are subsisting, and have not been adjudged invalid or unenforceable; to
the best of the Debtor's knowledge and belief, all of the Patents and Patent
Rights related thereto are valid and enforceable; and the Debtor has not
received written notice of any claim by any third party that any of the Patents
and Patent Rights related thereto are invalid or unenforceable.
3.5 EXCLUSIVE RIGHT TO USE. To the best of the Debtor's knowledge and
belief, the Debtor has, and shall continue to have, the exclusive right to
practice, make, sell, practice and use all the Patents, throughout the countries
of issue, free and clear of any liens, charges, encumbrances, claims or rights
of any third party, or restrictions on the rights of the Debtor to protect or
enforce any of its Patent Rights against any third party.
5
<PAGE>
3.6 NO FINANCING STATEMENTS, ETC. There is not on file in any governmental
or regulatory authority, agency or recording office any effective financing
statement, security agreement, assignment, license or transfer or notice of any
of the foregoing other than those that have been filed in favor of Secured Party
covering any of the Patent Collateral (provided that, except with respect to the
United States, the foregoing representation and warranty is made to the best of
the Debtor's knowledge and belief), and the Debtor is not aware of any such
filing, other than those for which duly executed assignment statements have been
delivered to Secured Party. So long as this Agreement shall be in effect, the
borrower shall not execute and shall not knowingly permit to be on file in any
such office or agency any such financing statement or other document or
instrument (except financing statements or other documents or instruments filed
or to be filed in favor of Secured Party).
3.7 NO CLAIMS OR PROCEEDINGS. No written claim has been received that the
Patents or the Debtor's use of or practice thereof does or may violate the
rights of any third party. There has been no decision adverse to the Debtor's
claim of ownership rights in or exclusive rights to use and practice the Patents
or the Patent Collateral associated therewith in any jurisdiction or to keep and
maintain such Patents in full force and effect, and there is no proceeding
involving said rights threatened or pending in the PTO or any similar office or
agency of the United States, any state or foreign country or in any court.
3.8 NOTICE OF ADVERSE DEVELOPMENTS. The Debtor shall promptly notify
Secured Party of the institution of any final (after exhausting all reasonable
appeals) adverse decision in any proceeding in the PTO or any similar office or
agency of the United States or any state or any foreign country (except for
adverse decisions during prosecution of patent applications), or the institution
of or any judgement in any proceeding in any court, regarding the Debtor's claim
of exclusive ownership or rights in any of the Patents or related Patent
Collateral, its right to patent any of the same, or to keep and maintain any
such Patent.
3.9 AFTER-ACQUIRED PATENT COLLATERAL. The Debtor agrees that, upon its
commencement of use of or acquisition of any right, title or interest in or to
any Patent or Patent Right (including any reissues, continuations, divisions,
continuations-in-part, renewals or extensions thereof, or any variations or new
versions of any such scheduled Patents or Patent Rights), the provisions of this
Agreement shall automatically apply thereto (and for this purpose Secured Party
agrees that the Debtor may satisfy such notification obligation by providing to
Secured Party, no less frequently than once each calendar year of upon the
reasonable request of the Secured Party, an up-to-date, amended and/or
supplemented Schedule A). Secured Party shall be authorized to amend such
Schedule A, as appropriate, to include such additional Patents and Patent
Rights, without the necessity for the Debtor's approval of or signature to such
amendment, and the Debtor shall do all such other acts (at its own expense)
deemed necessary or appropriate by Secured Party to implement or reserve Secured
Party's interest therein (including but not limited to executing and delivering,
and recording in all places where this Agreement or notice hereof is recorded,
an appropriate counterpart of or other instrument pursuant to this Agreement).
Such additional Patents and Patent Rights shall be automatically included in the
"Patents" and "Patent Rights" as defined herein, and all representations and
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warranties of the Debtor set forth herein shall be deemed to be restated by the
Debtor as of the date of any such amendment of or supplement to Schedule A with
the full force and effect as though mae on such date.
3.10 MAINTENANCE OF PATENT COLLATERAL. The Debtor shall take any and all
such actions (including but not limited to institution and maintenance of suits,
proceedings or actions) as in the Debtors' reasonable business judgment are
necessary or appropriate to maintain, protect, preserve, care for and enforce
the Patent Collateral. Without limiting the generality of the foregoing, the
Debtor shall pay when due such fees, taxes and other expenses which shall be
incurred or which shall accrue with respect to any of the Patent Collateral and
which in the Debtor's reasonable business judgment are necessary or appropriate
to satisfy the foregoing obligation.
3.11 NO CONFLICTING AGREEMENTS. The Debtor shall not take any actions or
enter into any agreements, including but not limited to any agreements for the
assignment, sale, transfer, license, disposition, grant of any interest in or
encumbrance of any of the Patent Collateral, which are inconsistent with or
would or might impair in any way the Debtor's representations, warranties and
covenants herein, without the prior written consent of Secured Party (which
consent shall not be unreasonably withheld or delayed); provided, however, that
so long as no Event of Default shall have occurred and be continuing, the Debtor
may license the Patent Collateral in any lawful manner that is in the ordinary
course of its business and is otherwise not inconsistent with the provisions of
this Patent Security Agreement or the Financing Agreements. Without limiting the
generality of the foregoing, the Debtor shall not permit the inclusion in any
agreement to which it becomes a party of any provision which could or might in
any way impair or prevent the creation of a security interest in or the
collateral assignment of the Debtor's rights any interest in any property of
material value acquired under such agreement which is included within the
definition of Patent Collateral.
3.12 NO ABANDONMENT. The Debtor shall not abandon or dedicate to the
public any of the Patents or related Patent Rights, nor do any act nor omit to
do any act if such act or omission is of a character that tends to cause or
contribute to the abandonment or dedication to the public of any Patent or
related Patent Right or loss of or adverse effect on any rights in any Patent or
related Patent Right. Notwithstanding the foregoing provisions of this Section
or any other provision of this Patent Security Agreement, the Debtor shall have
the right to abandon or dedicate to the public, in whole or in part, any Patent
where such abandonment or dedication is deemed necessary or desirable by the
Debtor in the exercise of its reasonable business judgement.
3.13 ENFORCEMENT OF LICENSES. The Debtor shall do all things which in the
Debtor's reasonable business judgement are necessary or appropriate to insure
that each licensee of any Patent, in its use of any or all of the Patent
Collateral in its business, shall (a) comply fully with all applicable license
agreements and (b) satisfy and perform all the same obligations set forth herein
(with respect to the Debtor's use of the Patent Collateral) as fully as though
such obligations were set forth with respect to such licensee's use of the
licensed Patent Collateral.
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3.14 NO INFRINGEMENTS. To the best of the Debtor's knowledge and belief,
there is at present no material infringement or unauthorized or improper use of
the Patents or related Patent Rights. The Debtor shall use efforts consistent
with past practices to detect any such infringement or unauthorized or improper
use. In the event any such infringement or unauthorized or improper use by any
third party has been reasonably established by the Debtor, the Debtor shall
promptly notify Secured Party and shall have the right to sue and recover
therefor and to retain, any and all damages so recovered or obtained. In the
event the Debtor fails so to sue or bring legal action, the Debtor shall notify
Secured Party of such decision within sixty (60) days after the date of original
notice to Secured Party.
3.15 APPLICATIONS FOR PATENTS. To the extent commercially reasonable, the
Debtor, with counsel of its own choosing, and at its own expense, shall apply to
patent patentable but unpatented inventions or discoveries with the PTO (and in
such other jurisdictions as are commercially appropriate) as may be material to
the Debtor's business in such jurisdiction, shall diligently prosecute its
patent applications and use commercially reasonable efforts to obtain such
patents. Secured Party hereby appoints and designates the Debtor as the agent of
Secured Party for such purposes.
3.16 MAINTENANCE OF PATENTS. To the extent commercially reasonable, the
Debtor, with counsel of its own choosing and at its expense, shall take the
necessary and appropriate actions to preserve and maintain in full force and
effect the Patents and Patent Rights, including but not limited to filing and
diligently prosecuting necessary or appropriate patent applications and
appropriate applications for re-issues, continuations, continuations-in-part,
divisions, renewals and extensions, and paying when due maintenance fees.
Secured Party hereby appoints and designates the Debtor as the agent for Secured
Party for such purposes.
3.17 CERTIFICATES OF ISSUED PATENTS. Upon demand by Secured Party at any
time, the Debtor shall deliver to Secured Party the original or a true copy of
all current official certificates of issued Patents (for any jurisdiction) and
forthwith upon receipt thereof the original or a true copy of all such official
certificates for any Patents for which applications are then pending or
thereafter filed.
General
3.18 RECORDS. The Debtor has kept and will diligently keep complete and
accurate records respecting the Patent Collateral (including accounting records
with respect to the Patent Collateral, and including a record of all payments
and Proceeds received), and will at all times keep at least one set of such
records at its principal executive office or principal place of business as set
forth above. The Debtor shall, upon reasonable prior notice by Secured Party and
at reasonable times, permit Secured Party (or Secured Party's designee) from
time to time to review, inspect and examine (and make extracts and copies of)
such records. In connection with any such review, inspection or examination by
Secured Party, Secured Party shall, upon the request of Debtor, enter into a
mutually agreeable nondisclosure agreement with respect to the Debtor's
technical data and information included in any patent applications which are
trade
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secrets for purposes of New York law, provided that such agreement shall include
provisions expressly permitting Secured Party (a) upon and during the
continuance of an Event of Default, to use or disclose such trade secrets in any
way Secured Party deems necessary or appropriate in the exercise and enjoyment
of its rights and remedies pursuant to this Patent Security Agreement and the
Financing Agreements; and (b) to disclose such trade secrets as may be required
by any law or regulation to which Secured Party is subject.
3.19 PERFECTION OF INTEREST. This Patent Security Agreement, and the other
Financing Agreements shall create in favor of Secured Party a valid and
perfected first priority security interest in the Patent Collateral.
3.20 FILING FOR PERFECTION OF INTEREST. Except for the filings of
financing statements with the Secretary of State of State of New York under the
Uniform Commercial Code with respect to the Financing Agreements necessary to
perfect and record Secured Party's security interest in the Patent Collateral,
no authorization, approval or other action by, and no notice to or filing with,
any governmental or regulatory authority, agency or office is required either
(a) for the grant by the Debtor or the effectiveness of the security interest
and collateral assignment granted by the Financing Agreements and supplemented
hereby or for the execution, delivery and performance of this Agreement by the
Debtor, or (b) for the perfection of or the exercise by Secured Party of its
rights and remedies under the Financing Agreements or hereunder; provided,
however, that the foregoing representation and warranty shall not apply to
foreign Patents or foreign Patent Rights. The Debtor also acknowledges and
agrees that a copy of this Agreement (or instruments executed and delivered
pursuant hereto) will be filed and recorded with the PTO with respect to the
Debtor's Patents issued at present or in the future by the PTO (or with respect
to which patent applications are at present or in the future pending or filed
with the PTO).
3.21 DISCLOSURE COMPLETE AND ACCURATE. All information with respect to the
Patent Collateral set forth herein, in the Financing Agreements, or in any
schedule, certificate or other writing at any time heretofore or hereafter
furnished by the Debtor to Secured Party, is and will be true, correct and
complete in all material respect as of the date furnished.
3.22 FINANCING AGREEMENTS REPRESENTATIONS. Each representation and
warranty of the Debtor set forth in the Financing Agreements is true and correct
and all such representations and warranties are hereby incorporated herein by
reference with the same effect as though set forth herein in their entirety.
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4
CONSEQUENCES OF AND REMEDIES UPON DEFAULT
4.1 COLLECTIONS.
(a) Except as otherwise provided in the Financing Agreements, the
Debtor shall continue to collect, at its own expense, all amounts due or to
become due to the Debtor in respect of the Patent Collateral or any part
thereof.
(b) If any Event of Default shall have occurred and be continuing,
then Secured Party shall have the right, as the true and lawful agent of the
Debtor, with power of substitution for the Debtor and in the Debtor's name,
Secured Party's name or otherwise, for the use and benefit of Secured Party, (i)
to notify any and all obligors with respect to the Patent Collateral or any part
thereof; (ii) upon notice from Secured Party, to receive, endorse, assign and/or
deliver any and all notes, acceptances, checks, drafts, money orders or other
evidences of payment relating to the Patent Collateral or any part thereof;
(iii) to demand, collect, sue for and receive payment of, for its own use and
account, and give receipt for and give discharges and releases of, all or any of
the Patent Collateral and all amounts due or to become due in respect of the
Patent Collateral; (iv) to sign the name of the Debtor on any invoice relating
to any of the Patent Collateral; (v) to commence and prosecute any and all
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect or otherwise realize on all or any of the Patent
Collateral or to enforce any rights or remedies in respect of any Patent
Collateral; (vi) to settle, compromise, compound, adjust or defend any actions,
suits or proceedings relating to or pertaining to all or any of the Patent
Collateral; (vii) to license, or to the extent permitted by any applicable law,
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis any of the Patent Collateral throughout the world, for
such term or terms, on such conditions, and in such manner, as Secured Party
shall determine (other than in violation of any then existing licensing
arrangements to the extent that waivers or other adequate provision cannot be
secured therefor); and (viii) generally to make, sue, practice, sell, assign,
transfer, pledge, make any agreement with respect to or otherwise deal with all
or any of the Patent Collateral, and to do all other acts and things necessary
to carry out the purposes of this Patent Security Agreement and the Financing
Agreements, as fully and completely as though Secured Party were the absolute
owner of the Patent Collateral for all purposes; provided, however, that except
as provided for by law or the Uniform Commercial Code as in effect in the State
of New York or its equivalent in other jurisdictions, nothing herein contained
shall be construed as requiring or obligating Secured Party to make any
commitment or to make any inquiry as to the nature or sufficiency of any payment
received by Secured Party, or to present or file any claim or notice, or to take
any action with respect to the Patent Collateral or any part thereof, or the
moneys due or to become due in respect thereof, or any property covered thereby,
and no action taken by Secured Party or omitted to be taken with respect to the
Patent Collateral or any part thereof shall give rise to defense, counterclaim
or offset in favor of the Debtor's claim or action against Secured Party.
Whether or not Secured Party shall have so notified any obligors, the Debtor
shall at its expense cooperate with Secured Party and render all reasonable
assistance to Secured Party in enforcing claims against such
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obligors. It is understood and agreed that the appointment of Secured Party as
the agent of the Debtor for the purposes set forth above in this Section is
coupled with an interest and is irrevocable. The provisions of this Section
shall in no event relieve the Debtor of any of its obligations hereunder or
under the Financing Agreements with respect to the Patent Collateral or any part
thereof or impose any obligation on Secured Party to proceed in any
reimbursement of Secured Party for any liabilities, obligations, costs, expenses
or disbursements imposed on, incurred or suffered by or asserted against Secured
Party in the exercise of its rights under this Section. In the event Secured
Party shall elect not to bring any such suit, proceeding or action to protect,
maintain or enforce any such rights or measures, whether by action, suit,
proceeding or otherwise, to protect, maintain, and enforce such rights and
interests, and for that purpose shall diligently maintain any such action, suit
or proceeding necessary or appropriate for such protection, maintenance or
enforcement.
4.2 OTHER REMEDIES UPON DEFAULT. Upon the occurrence and during the
continuation of an Event of Default, then, forthwith upon notice by Secured
Party to the Debtor, in addition to all other rights and remedies of Secured
Party, whether under law, the other Financing Agreements, or otherwise (all such
rights and remedies being cumulative, not exclusive, and enforceable
alternatively, successively or concurrently, without notice to or consent by the
Debtor except as expressly provided otherwise herein), Secured Party's rights
and remedies with respect to the Patent Collateral, shall include but not be
limited to the following, without payment of royalty or compensation of any kind
to the Debtor except as expressly provided otherwise herein:
(a) The Debtor's license with respect to the Patents as set forth
herein shall terminate, and the Debtor shall immediately cease and desist from
the practice, manufacture, use and sale (or license or other transfer) of the
Patents.
(b) Secured Party may, to the same extent that the Debtor had the
right to do so immediately prior to such notice, license or sublicense, whether
general, special or otherwise, and whether on an exclusive or non-exclusive
basis, any of the Patent Collateral, throughout the world, for such term or
terms, on such conditions, and in such manner, as Secured Party shall in its
sole discretion determine.
(c) Secured Party may (without assuming any obligations or liability
thereunder), at any time, enforce (and shall have the exclusive right but not
the obligation to enforce) against any licensor, licensee or sublicensee all
Patent License Rights of the Debtor, and take or refrain from taking any such
action.
(d) Secured Party may, on one or more occasions at any time, with or
without legal process and with or without previous notice or demand for
performance, take possession of all tangible manifestations or embodiments of
the Patent Collateral and documentation relating thereto and all business
records, documents and files with respect to the Patent Collateral, and without
liability for trespass to enter any premises where such tangible manifestations
or embodiments, business records, documents and files with respect to the Patent
Collateral may
11
<PAGE>
be located for the purpose of taking possession of or removing such tangible
manifestations or embodiments, business records, documents and files.
(e) The Debtor shall, upon written demand of Secured Party, deliver to
Secured Party (or Secured Party's designee) all unused, unsold or undelivered
goods incorporating, including or using any of the Patents.
(f) In general, Secured Party may exercise, in respect of the Patent
collateral, all of the rights and remedies of a secured party on default under
the Uniform Commercial Code (whether or not such Code applies to the affected
Patent Collateral).
(g) (1) Without limiting the generality of the foregoing, Secured
Party may, with or without demand for performance, all of which are hereby
expressly waived, subject to the mandatory requirements of current law or as
specified below, assign, sell, license, sublicense, or otherwise transfer or
dispose of the Patent Collateral or any part thereof, either with or without
special or other conditions or stipulations, with power to purchase the Patent
Collateral or any part of it, in one or more portions at public or private sale,
at any of Secured Party's offices or elsewhere, at such time or times, for cash,
or credit, or for future delivery, and at such price or prices and upon such
other terms as Secured Party may deem commercially reasonable, irrespective of
the impact of any such sales on the market price of any of the Patent
Collateral. Each such purchaser at any such sale shall hold the property sold
absolutely, free from any claim or right on the part of the Debtor or any party
claiming by or through the Debtor, and the Debtor hereby waives (to the extent
permitted by law) all rights of redemption, stay and/or appraisal which it now
has or may have at any time in the future under any rule of law or statute now
existing or hereafter enacted. The Debtor agrees that, to the extent notice of
sale shall be required by law, at least ten (10) days notice to the Debtor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. At any sale of the
Patent Collateral, if permitted by law, Secured Party may bid (which bid may be,
in whole or in part, in the form of cancellation of indebtedness) for and
purchase the Patent Collateral or any portion thereof for the account of Secured
Party. Secured Party shall not be obligated to make any sale of the Patent
Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was adjourned. The Debtor recognizes that Secured
Party may elect in its sole discretion to sell all or part of the Patent
Collateral to one or more purchasers in privately negotiated transactions. The
Debtor hereby waives any claims against Secured Party arising by reason of the
fact that the price at which any Patent Collateral may have been sold at such a
private sale was less than the price which might have been obtained at a public
sale, even if Secured Party accepts the first offer received and does not offer
such Patent Collateral to more than one offeree. Secured Party shall also have
the power to execute assurances, and do all other acts and things for completing
the assignment, sale, license, sublicense, transfer or disposition which Secured
Party, in its sole discretion, deems appropriate or proper.
12
<PAGE>
(2) In case any sale of all or any part of the Patent Collateral
is made on credit or for future delivery, the Patent Collateral so sold may be
retained by Secured Party until the sale price is paid by the purchaser or
purchasers thereof, but Secured Party shall not incur any liability in case any
such purchaser or purchasers shall fail to take up and pay for the Patent
Collateral so sold and, in case of any such failure, such Patent Collateral may
be sold again upon like notice to the Debtor. At any public sale made pursuant
to this Section, Secured Party may bid for or purchase, free from any right of
redemption, stay, valuation or appraisal on the part of the Debtor (all said
rights being also hereby waived and released to the extent permitted by law),
the Patent Collateral or any part thereof offered for sale and may make payment
on account thereof by using any claim then due and payable to Secured Party from
the Debtor as a credit against the purchase price, and Secured Party may, upon
compliance with the terms of sale, hold, retain and dispose of such property
without further accountability to the Debtor therefor. For purposes hereof, a
written agreement to purchase any Patent Collateral, or any portion thereof,
shall be treated as a sale thereof; Secured Party shall be free to carry out
such sale pursuant to such agreement, and the Debtor shall not be entitled to
the return of the Patent Collateral or any portion thereof subject thereto,
notwithstanding the fact that after Secured Party shall have entered into such
an agreement all Events of Default shall have been remedied and the Obligations
paid in full. As an alternative to exercising the power of sale herein conferred
upon it, Secured Party may proceed by a suit or suits at law or in equity to
foreclose this Agreement and to sell the Patent Collateral or any portion
thereof pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver.
(3) In addition to the foregoing, in order to implement the
assignment, sale, license, sublicense, transfer or other disposition of any of
the Patent Collateral pursuant to this Section, Secured Party may, pursuant to
the authority granted in the power of attorney provided herein, execute and
deliver on behalf of the Debtor one or more instruments of assignment or other
transfer of the Patent Collateral, in form suitable for filing, recording or
registration in any jurisdiction or country.
4.3 OBLIGATION TO PROVIDE KNOW-HOW. In the event of any such license,
assignment, sale, transfer or other disposition of the Patent Collateral, or any
of it, whether to or by Secured Party, the Debtor shall supply to Secured Party
(or Secured Party's designee) the Debtor's know-how and expertise relating to
the products and services sold and provided which use or practice or incorporate
any of the Patents, and other records relating to the Patent Collateral and to
the production, marketing, delivery, sale and transfer of said products and
services. Without limiting the generality of the foregoing, within five (5)
Business Days of written notice thereof from Secured Party, the Debtor shall
make available to Secured Party, to the extent within the Debtor's power and
authority, such personnel in the Debtor's employ on the date of the Event of
Default as Secured Party may reasonably designate by name, title or job
responsibility, to permit the Debtor (or if Secured Party so elects, Secured
Party or Secured Party's designee) to continue, directly or indirectly, to
manufacture, produce, supply, advertise, provide, license, sell and deliver such
products or services, such persons to be available to perform their prior
functions on Secured Party's behalf and, if Secured Party so elects to utilize
13
<PAGE>
their services, to be compensated by Secured Party on a per diem, pro rata
basis, consistent with the wage and salary structure applicable to each as of
the date of such Event of Default.
4.4 NO OBLIGATION OF SECURED PARTY. Nothing herein shall be construed as
obligating Secured Party to take any of the foregoing actions at any time.
4.5 COSTS AND APPLICATION OF PROCEEDS. (a) The Debtor agrees to pay when
due all reasonable costs incurred in any license, assignment, sale, transfer or
other disposition of all or any portion of the Patent Collateral to or by
Secured Party, including any taxes, fees and reasonable attorneys' fees, and all
such costs shall be added to the Obligations. Secured Party may apply the
proceeds actually received from any such license, assignment, sale, transfer,
other disposition or other collection or realization, to the reasonable
out-of-pocket costs and expense thereof, including without limitation reasonable
attorneys' fees and all reasonable legal, travel and other expenses which may be
incurred or paid by Secured Party in protecting or enforcing its rights upon or
under this Agreement, the Patent Collateral, the Collateral or the Obligations,
and any proceeds remaining shall be held by Secured Party as collateral for,
and/or then or at any time thereafter applied (after payment of any amounts
payable to Secured Party pursuant to the provisions herein) to the Obligations;
and the Debtor shall remain liable and will pay Secured Party on demand any
deficiency remaining, together with interest thereon at a rate equal to the
highest rate then payable on the Obligations and the balance of any expenses
unpaid. Any surplus of such cash or cash proceeds held by Secured Party and
remaining after payment in full of all of the Obligations shall be paid over to
the Debtor or to whomsoever may be lawfully entitled too receive such surplus.
(b) Secured Party shall have absolute discretion as to the time of
application of any such Proceeds, moneys or balances in accordance with this
Agreement. Upon any license, assignment, sale, transfer or other disposition of
all or any portion of the Patent Collateral by Secured Party (including without
limitation a sale pursuant to a power of sale granted by statute or under a
judicial proceeding), the receipt of Secured Party or the officer making the
sale shall be a sufficient discharge to the purchaser or purchasers of the
Patent Collateral so sold and such purchaser or purchasers shall not be
obligated to see to the application of any part of the purchase money paid over
to Secured Party or such officer or be answerable in any way for the
misapplication thereof.
5
FURTHER ASSURANCES
5.1 NOTICES OF ADVERSE DEVELOPMENTS. Upon obtaining knowledge thereof, the
Debtor will promptly notify Secured Party in writing of any event which does or
reasonably could materially adversely affect the value of any material portion
of the Patent Collateral, the ability of the Debtor or Secured Party to dispose
of any material portion of the Patent Collateral, or the rights and remedies of
Secured Party in relation to any material portion of the Patent
14
<PAGE>
Collateral, including but not limited to the institution or levy of any legal
process against any material portion of the Patents or Patent Rights.
5.2 CONSENTS OF THIRD PARTIES. Upon the request of Secured Party, the
Debtor will use its commercially reasonable efforts to obtain any necessary
consents of third parties to the grant and perfection of the security interest
in the Patent Collateral, and/or to the grant or effectiveness of the Section
2.2 Assignment of the Patent Collateral, provided for herein.
5.3 FURTHER INSTRUMENTS AND ACTS. In general, the Debtor shall, at any
time and from time to time, and at its expense, make, execute, acknowledge and
deliver, and file and record as necessary or appropriate with governmental or
regulatory authorities, agencies or offices, such agreements, assignments,
documents and instruments, and do such other and further acts and things, as
Secured Party may request or as may be necessary or appropriate in order to
implement and effect fully the intentions, purposes and provisions of this
Agreement, or to assure and confirm to Secured Party the grant and perfection of
a security interest in the Patent Collateral and the right to the complete
enjoyment and exercise of Secured Party's rights hereunder.
5.4 SECURED PARTY'S RIGHT TO PERFORM DEBTOR'S OBLIGATIONS. If the Debtor
shall fail to do any act which it has covenanted to do hereunder, or if any
representation or warranty of the Debtor shall be breached, Secured Party, in
its own name or that of the Debtor (in the sole discretion of Secured Party),
may (but shall not be obligated to) do such act or remedy such breach (or cause
such act to be done or such breach to be remedied), and any cost or expense
incurred by Secured Party in so doing shall be added to the principal amount of
the Obligations and shall bear interest at the rate applicable to overdue
principal under the Financing Agreements. The Debtor shall cooperate with
Secured Party in any such act or remedy.
6
LIABILITIES, INDEMNITY AND COSTS
6.1 LIABILITY FOR USES OF PATENT COLLATERAL. The Debtor shall be liable
for any and all uses or misuses of and the practice, manufacture, sales (or
other transfers or dispositions) of any of the Patent Collateral by the Debtor
and its affiliates and for any failure to take reasonable measures to avoid and
prevent the improper use, practice or sale (or other transfer or disposition) of
the Patent Collateral by any other party (including but not limited to any
licensee of the Patents), any failure to use or practice the Patents in
accordance with this Agreement, or any other claim, suit, loss, damage, expense
or liability of any kind or nature (except those resulting from any gross
negligence or willful misconduct of Secured Party) arising out of or in
connection with the Patent Collateral or the production, marketing, delivery,
sale, license or other transfer or disposition of the goods and services
provided under or in connection with or which use, practice or incorporate any
of the Patents or the Patent Collateral prior to the termination of the Debtor's
license pursuant hereto. The Debtor shall be liable also for any claim, suit,
loss, damage, expense or liability arising out of or in connection with the acts
or
15
<PAGE>
omissions of the Debtor (regardless of whether such fault, negligence, acts or
omissions occurred or occur prior to or after such license termination). This
Section is for the purpose of establishing and allocating, as between the Debtor
and Secured Party, certain liabilities; it is not intended to create any
affirmative obligations of the Debtor to Secured Party other than those set
forth elsewhere in this Patent Security Agreement, and the other Financing
Agreements.
6.2 LICENSE AGREEMENT OBLIGATIONS. Nothing in this Patent Security
Agreement shall relieve the Debtor from any performance of any covenant,
agreement or obligation of the Debtor under any license agreement now or
hereafter in effect licensing any part of the Patent Collateral, or from any
liability to any licensee or licensor under any such license agreement or to any
other party, or shall impose any liability on Secured Party for any act or
omission of the Debtor in connection with any such license agreement.
6.3 INDEMNIFICATION. The Debtor shall indemnify and hold harmless Secured
Party from and against, and shall pay to Secured Party on demand, any and all
claims, actions, suits, judgments, penalties, losses, damages, costs,
disbursements, expenses, obligations or liabilities of any kind or nature
(except those resulting from Secured Party's gross negligence or willful
misconduct) arising in any way out of or in connection with this Agreement, the
Patent Collateral, custody, preservation, use, practice, operation, sale,
license (or other transfer or disposition) of the Patent Collateral, any alleged
infringement of the intellectual property rights of any third party, the
production, marketing, provisions, delivery and sale of the goods and services
provided under or in connection with or using or practicing any of the Patents
or the Patent Collateral, the sale of, collection from or other realization upon
any of the Patent collateral, the failure of the Debtor to perform or observe
any of the provisions hereof, or matters relating to any of the foregoing, prior
to the termination of the Debtor's license pursuant hereto. The Debtor shall
also indemnify and hold harmless Secured Party from and against any and all
claims, actions, suits, judgments, penalties, losses, damages, costs,
disbursements, expenses, obligations or liabilities arising out of or in
connection with any fault, negligence, act or omission of the Debtor (regardless
of whether such fault, negligence, act or omission occurred or occurs prior to
or after such license termination). The Debtor shall make no claim against
Secured Party for or in connection with the exercise or enforcement by Secured
Party of any right or remedy granted to it hereunder, or any action taken or
omitted to be taken by Secured Party hereunder (except for the gross negligence
or willful misconduct of Secured Party).
6.4 EXPENSES. Any and all fees, costs and expenses, of whatever kind or
nature, including but not limited to reasonable fees and disbursements of
counsel and of any experts and agents, incurred by Secured Party in connection
with the preparation of this Agreement and all other documents relating hereto
and the consummation of the transactions contemplated hereby, the filing or
recording of any documents (including all taxes in connection therewith) in
public offices, the payment or discharge of any taxes, counsel fees, maintenance
fees or encumbrances, or otherwise protecting, maintaining or preserving the
Patent Collateral, or in defending or prosecuting any actions or proceedings
arising out of or related to the Patent Collateral, or in exercising or
enforcing any right or remedy granted to Secured Party hereunder, shall be borne
16
<PAGE>
and paid by the Debtor on demand by Secured Party, and until so paid shall be
added to the principal amount of the obligations and shall bear interest at the
rate applicable to overdue principal pursuant to the Financing Agreements.
7
POWER OF ATTORNEY
7.1 GRANT. The Debtor hereby grants to Secured Party, and any officer or
agent of Secured Party as Secured Party may designate in its sole discretion, a
power of attorney, thereby constituting and appointing Secured Party (and
Secured Party's designee) its true and lawful attorney-in-law and
attorney-in-fact, (a) upon any failure by the Debtor to meet its obligations
hereunder or any exercise by Secured Party of its rights hereunder, to execute
and deliver any and all agreements, documents, instruments of assignment,
licenses or transfers of the Patent Collateral, and do all other acts which the
Debtor is obligated to execute or do under any provision of this Agreement, and
to execute any and all documents, statements, certificates or other documents
necessary or advisable to effect any of the purposes set forth herein as Secured
Party (or Secured Party's designee) may in its sole discretion determine and (b)
effective upon the occurrence and during the continuation of an Event of
Default, for the purpose of assigning, selling, licensing or otherwise
transferring or disposing of all right, title and interest of the Debtor in and
to any of the Patent Collateral. The Debtor hereby ratifies all that such
attorney shall lawfully do or cause to be done by virtue hereof.
7.2 IRREVOCABLE. The foregoing power of attorney is coupled with an
interest and is irrevocable until this Patent Security Agreement shall
terminate.
7.3 RELEASE. The Debtor hereby releases Secured Party from any claims,
causes of action and demands at any time arising out of or in connection with
any actions taken or omitted to be taken by Secured Party under the power of
attorney granted herein (except for the gross negligence or willful misconduct
of Secured Party).
8
SPECIFIC ENFORCEMENT
Due to the unique nature of the Patent Collateral, and in order to
preserve its value, the Borrower agrees that the Borrower's agreements, duties
and obligations under this Patent Security Agreement shall be subject to
specific enforcement and other appropriate equitable orders and remedies.
17
<PAGE>
9
TERMINATION
This Patent Security Agreement shall create a continuing security interest
in and collateral assignment of the Patent Collateral. Upon payment in cash and
satisfaction in full of the Obligations, this Agreement shall automatically
terminate and shall be of no further force and effect, and the security interest
granted hereby shall terminate. Upon any such termination, Secured Party shall
execute and deliver to the Borrower such deeds, assignments and other documents,
and shall take such other actions, all at the expense of the Borrower, as may
reasonably be requested by the Borrower to evidence or record such termination,
and to reassign and reconvey to and re-vest in the Borrower the entire right,
title and interest in and to the Patent Collateral previously granted, assigned,
transferred and conveyed to Secured Party by the Borrower pursuant to this
Patent Security Agreement, as fully as if this Patent Security Agreement had not
been made, subject to any disposition of all or any part thereof which may have
been made by Secured Party pursuant hereto or the other Financing Agreements.
10
PROVISIONS OF GENERAL APPLICATION
10.1 SEVERABILITY. In the event any term or provision of this Patent
Security Agreement shall for any reason be held to be invalid, illegal or
unenforceable to any extent or in any respect, or otherwise determined to be of
no effect, in any jurisdiction, such invalidity, illegality, unenforceability or
determination shall affect only such term or provision, or part thereof, in only
such jurisdiction. The parties agree they will negotiate in good faith to
replace any provision so held invalid, illegal or unenforceable, or so
determined, with a valid, enforceable and effective provision which is as
similar as possible in substance and effect to the provision which is invalid,
illegal, unenforceable or of no effect.
10.2 AMENDMENTS, ETC. Except as provided herein, neither this Patent
Security Agreement nor any term hereof may be amended, changed, waived,
discharged or terminated except by a written instrument expressly referring to
this Patent Security Agreement and to the provisions so amended, modified,
waived or terminated, and executed by the party to be charged.
10.3 NO WAIVERS. No course of dealing between the Borrower and Secured
Party, nor any failure to exercise, nor any delay in exercising, on the part of
Secured Party, any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
10.4 ASSIGNMENTS. The Borrower shall not assign this Patent Security
Agreement or any rights, duties or obligations hereunder without the prior
written consent of Secured Party. This Patent Security Agreement and all
obligations of the Borrower shall be binding upon the
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<PAGE>
successors and permitted assigns of the Borrower and shall, together with the
rights and remedies of Secured Party hereunder, inure to the benefit of Secured
Party and their respective successors and assigns.
10.5 COUNTERPARTS. This Patent Security Agreement, and any amendments,
waivers, consents, or supplements hereto or hereunder, may be executed in any
number of counterparts and by each party on a separate counterpart, each of
which when so executed and delivered shall be an original but all or which
together shall constitute one instrument. In proving this Patent Security
Agreement, or any such amendment, waiver, consent or supplement, it shall not be
necessary to produce or account for more than one such counterpart executed by
the party against which enforcement is sought.
10.6 EXECUTION BY SECURED PARTY. Debtor hereby grants Secured Party the
authority to execute and file at any time and from time to time one or more
financing statements or copies of thereof with respect to the Patent Collateral
signed only by the Secured Party.
10.7 HEADINGS. The captions in this Patent Security Agreement are for
convenience of reference only and shall not define, limit or affect the
provisions hereof.
10.8 GOVERNING LAW. EXCEPT AS OTHERWISE REQUIRED BY THE LAWS OF ANY
JURISDICTION IN WHICH ANY OF THE PATENT COLLATERAL IS LOCATED, THIS AGREEMENT
AND ALL RIGHTS AND OBLIGATIONS HEREUNDER, INCLUDING MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO ITS CHOICE OR
CONFLICTS OF LAWS OR RULES OR PRINCIPLES).
10.9 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY
IN ANY ACTION OR PROCEEDING OF ANY KIND WITH RESPECT TO, IN CONNECTION WITH, OR
ARISING OUT OF THIS AGREEMENT AND THE OTHER FINANCING AGREEMENTS, OR AS TO THE
VALIDITY, PROTECTION, INTERPRETATION, ADMINISTRATION, COLLECTION OR ENFORCEMENT
HEREOF OR THEREOF OR PURSUANT TO THE OTHER FINANCING AGREEMENTS, OR ANY OTHER
CLAIM OR DISPUTE HOWSOEVER ARISING BETWEEN BORROWER AND SECURED PARTY.
19
<PAGE>
IN WITNESS WHEREOF, the Debtor and Secured Party, each by its duly
authorized officer, have duly executed this Patent Security Agreement, as an
instrument under seal, as of the date first set forth above.
MACE SECURITY INTERNATIONAL, INC.
By /s/ Robert D. Norman
-------------------------------
Robert D. Norman
President
KEY BANK OF NEW YORK
By: /s/ Michael D. Carroll
------------------------------
Michael D. Carroll
Vice President
20
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this 31st of October, 1996, before me the subscriber personally
appeared Robert D. Norman, who being by me duly sworn, did depose and say; that
he resides at 160 Benmont Ave., Bennington, Vermont, that he is President of
Mace Security International, Inc., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the Board of Directors of said corporation.
/s/ Edward J. Trombly
-------------------------------
NOTARY PUBLIC
EDWARD J. TROMBLY
Notary Public, State of New York
Qualified in Albany County
Commission Expires 10/31/96
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this 31st day of October, 1996, before me the subscriber personally
appeared Michael D. Carroll, who being by me duly sworn, did depose and say;
that he resides at Glenmont, New York, that he is a Vice President of Key Bank
of New York, the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
/s/ Edward J. Trombly
-------------------------------
NOTARY PUBLIC
EDWARD J. TROMBLY
Notary Public, State of New York
Qualified in Albany County
Commission Expires 10/31/96
21
<PAGE>
Schedule "A"
MACE SECURITY INTERNATIONAL
PATENT STATUS REPORT
MARCH 25, 1996
<TABLE>
<CAPTION>
====================================================================================================================================
H&R FILE TITLE COUNTRY APP. NO. FILING PAT. NO. REG STATUS NEXT
NO. DATE DATE AND/OR ACTION
NEXT ACTION DUE DATE
====================================================================================================================================
<C> <C> <C> <C> <C> <C> <C> <C> <C>
0715.003 Door Brace USA 07/909,493 07/06/92 Abandoned
- ------------------------------------------------------------------------------------------------------------------------------------
0715.012 Holder for Aerosol Can USA 08/069,551 05/28/93 5,348,193 09/20/94 Pay 4th Maint. 03/20/1998
Fee
- ------------------------------------------------------------------------------------------------------------------------------------
0715.017 Irritant Aerosol Spray USA 634,288 07/25/84 4,582,288 04/15/86 Pay 12th Maint. 10/15/1997
Fee
- ------------------------------------------------------------------------------------------------------------------------------------
0715.040 Home Security Protection Kit USA 318,632 03/03/89 4,971,374 11/20/90 Pay 8th Main. 05/20/1998
Fee
- ------------------------------------------------------------------------------------------------------------------------------------
0715.044 Foaming Oleoresin Capsicum USA 08/388,681 02/15/95 Pending; 04/22/1996
Defense Spray Respond to
Office Action
====================================================================================================================================
</TABLE>
<PAGE>
TRADEMARK COLLATERAL ASSIGNMENT
AND SECURITY AGREEMENT
THIS TRADEMARK COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT dated as of
October 31, 1996 made by MACE SECURITY INTERNATIONAL, INC., a Vermont
corporation with an office for the transaction of business at 160 Benmont
Avenue, Bennington, Vermont 02501 ("Borrower"), in favor of KEY BANK OF NEW
YORK, a New York State banking corporation with an office for the transaction of
business at 66 South Pearl Street, Albany, New York 12207 ("Secured Party").
W I T N E S S E T H:
WHEREAS, Borrower and Secured Party are parties to a Loan Agreement dated
on even date herewith (the "Agreement"), a Security Agreement dated on even date
herewith (the "Security Agreement"), a Security Agreement And Assignment (Patent
Collateral) dated on even date herewith (the "Patent Security Agreement"), a
Line-Of-Credit Note in the amount of $1,250,000.00 (the "Facility 1 Note") dated
on even date herewith and a Promissory Note in the amount of $750,000.00 dated
on even date herewith (the "Term Note") and other documents dated as of the date
hereof, and certain supplements, agreements and instruments entered into
pursuant thereto (collectively, the "Financing Agreements"), pursuant to which
Secured Party may, in its discretion, make certain loans and credit
accommodations to Borrower; and
WHEREAS, Secured Party's willingness to enter into the Financing
Agreements and make the loans and credit accommodations available thereunder is
subject to the condition, among others, that Borrower execute and deliver this
Trademark Collateral Assignment and Security Agreement;
NOW, THEREFORE, in consideration of the premises and for one dollar
($1.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and in addition to, and not in limitation of,
any rights of the Secured Party under the Agreement, Borrower hereby agrees for
the benefit of Secured Party as follows:
1. DEFINITIONS; RULES OF INTERPRETATION.
1.1. All capitalized terms used herein shall have the respective meanings
provided therefor in the Financing Agreements. In addition, the following terms
shall have the meanings set forth in this Section 1 or elsewhere in this
Agreement referred to below:
"Associated Goodwill" shall mean all goodwill of the Borrower or its
business, products and services appurtenant to, associated with or symbolized by
the Trademarks and/or the use thereof.
"Collateral" shall have the meanings ascribed to that term in the
Financing Agreements.
<PAGE>
"Event of Default" shall have the meaning ascribed to such term in the
Financing Agreements.
"Obligations" shall mean the indebtedness set forth in the Facility 1 Note
and the Term Note and in the Financing Agreements or in any modifications,
renewals or replacements for any of the foregoing.
"Proceeds" shall mean any consideration received from the sale, exchange,
license, lease or other transfer or disposition of any right, interest, asset or
property which constitutes Trademark Collateral, any value received as a
consequence of the ownership, possession, or use of any Trademark Collateral,
and any payment received from any insurer or other person or entity as a result
of the destruction, loss, theft or other involuntary conversion of whatever
nature of any right, interest, asset or property which constitutes Trademark
Collateral.
"PTO" shall mean the United States Patent and Trademark Office.
"Related Assets" shall mean all assets, rights and interests of the
Borrower which uniquely reflect or embody the Associated Goodwill, including but
not limited to the following: all patents, inventions, copyrights, trade
secrets, confidential information, formulae, algorithms, methods, processes,
compounds, know-how, operating systems, drawings, descriptions, formulations,
manufacturing and production and delivery procedures, quality control
procedures, product and service specifications, catalogs, price lists, and
advertising materials, relating to the manufacture, production, delivery,
provision, licensing and sale of goods or services under or in association with
any of the Trademarks, and all books and records describing or used in
connection with any or all of the foregoing; and the following documents and
things in the possession or under the control of the Borrower, or subject to its
demand for possession or control, related to the production, delivery,
provision, licensing and sale by the Borrower, or any affiliate, licensee or
contractor, of products or services sold by or under the authority of the
Borrower in connection with the Trademarks or Trademark Rights, whether prior
to, on or subsequent to the date hereof:
(i) All lists, contracts, ancillary documents and other. information
which identify, describe or provide information with respect to any
customers, dealers or distributors of the Borrower, its affiliates or
licensees or contractors, for products or services sold under or in
connection with the Trademarks or Trademark Rights, including but not
limited to all lists and documents containing information regarding each
customer's, dealer's or distributor's name and address, credit, payment,
discount, delivery and other sale terms, and history, pattern and total of
purchases by brand, product, style, size and quantity;
(ii) all agreements, product and service specification documents,
technical specifications and information, and operating, production and
quality control manuals relating to or used in the design, manufacture,
production, delivery, provision, licensing,
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and sale of products or services under or in connection with the
Trademarks or Trademark Rights;
(iii) all documents and agreements relating to the identity and
locations of all sources of supply, all terms of purchase and delivery,
for all materials, components, raw materials and other supplies and
services used in the manufacture, production, provision, delivery,
licensing and sale of products or services under or in connection with the
Trademarks or Trademark Rights;
(iv) all agreements and documents constituting or concerning the
present or future current or proposed advertising and promotion by the
Borrower (or any of its affiliates, licensees or contractors) of products
or services provided, licensed or sold under or in connection with the
Trademarks or Trademark Rights.
"Trademark Security Agreement" shall mean this Trademark Collateral
Assignment and Security Agreement, as it may be amended or supplemented from
time to time.
"Trademarks" shall mean all of the trademarks, service marks, designs,
logos, indicia, trade names, corporate names, company names, business names,
fictitious business names, trade styles, elements of package or trade dress,
and/or other source and/or product or service identifiers, and general
intangibles of like nature, used or associated with or appurtenant to the
products, services and business or the Borrower, which (i) are set forth on
Schedule A attached hereto, or (ii) have been adopted, acquired, owned, held or
used by the Borrower and are now owned, held or used by the Borrower, in the
Borrower's business, or with the Borrower's products and services, or in which
the Borrower has any right, title or interest, or (iii) are in the future
adopted, acquired, owned, held and/or used by the Borrower in the Borrower's
business or with the Borrower's products and services, or in which the Borrower
in the future acquires any right, title or interest.
"Trademark Collateral" shall mean all of the Borrower's right, title and
interest (to the extent Borrower has any such right, title or interest) in and
to all of the Trademarks, the Trademark Registrations, the Trademark Rights, the
Associated Goodwill, the Related Assets, and all additions, improvements and
accessions to, substitutions for, replacements of, and all products and Proceeds
(including insurance proceeds) of any and all of the foregoing.
"Trademark Registrations" shall mean all past, present or future federal,
state, local and foreign registrations of the Trademarks (and all renewals and
extensions of such registrations), all past, present and future applications for
any such registrations of the Trademarks (and any such registrations thereof
upon approval of such applications), together with the right (but not the
obligation) to apply for such registrations (and prosecute such applications) in
the name of the Borrower or the Secured Party, and to take any and all actions
necessary or appropriate to maintain such registrations in effect and/or renew
and extend such registrations.
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"Trademark Rights" shall mean any and all past, present or future rights
in, to and associated with the Trademarks throughout the world, whether arising
under federal law, state law, common law, foreign law or otherwise, including
but not limited to the following: all such rights arising out of or associated
with the Trademark Registrations; the right (but not the obligation) to register
claims under any state, federal or foreign trademark law or regulation; the
right (but not the obligation) to sue or bring opposition or cancellation
proceedings in the name of the Borrower or the Secured Party for any and all
past, present and future infringements or dilution of or any other damages or
injury to the Trademarks, the Trademark Rights, or the Associated Goodwill, and
the rights to damages or profits due or accrued arising out of or in connection
with any such past, present or future infringement, dilution, damage or injury.
"Use" of any Trademark shall include all uses of such Trademark by, for or
in connection with the Borrower or its business or for the direct or indirect
benefit of the Borrower or its business, including but not limited to all such
uses by the Borrower itself, by any of the affiliates of the Borrower, or by any
licensee or contractor of the Borrower.
1.2. UCC Terms. Unless otherwise defined herein or in the terms used in
Article 9 of the uniform Commercial Code of the State of New York are used
herein as therein defined.
2. GRANT OF SECURITY; COLLATERAL ASSIGNMENT.
2.1. Grant of Security Interest. As collateral security for the complete
and timely payment, performance and satisfaction of all Obligations, the
Borrower hereby unconditionally grants to the Secured Party, a continuing
security interest in and first priority lien on the Trademark Collateral, and
pledges, mortgages and hypothecates (but does not transfer title to) the
Trademark Collateral to the Secured Party.
2.2. Collateral Assignment.
(a) In addition to, and not by way of limitation of, the grant,
pledge, mortgage and hypothecation of the Trademark Collateral provided in
Section 2.1, the Borrower hereby grants, assigns, transfers, conveys and sets
over to the Secured Party, its entire right, title and interest in and to the
Trademark Collateral; provided, however, that such grant, assignment, transfer
and conveyance shall be and become of force and effect only upon the sale or
other disposition of or foreclosure upon the Collateral pursuant to the
Financing Agreements and Article 9 of the Uniform Commercial Code (including the
transfer or other disposition of the Collateral by the Borrower to the Secured
Party in lieu of foreclosure). The foregoing grant, assignment, transfer and
conveyance shall be referred to from time to time herein as the "Section 2.2
Assignment."
(b) The Borrower acknowledges and agrees that, upon the
effectiveness of the Section 2.2 Assignment, the Secured Party shall have the
cumulative rights in and to the Trademark Collateral as are provided in this
Agreement and in the other Financing Agreements,
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and shall have the rights in and to the Collateral (other than the Trademark
Collateral) as are provided in the other Financing Agreements.
(c) The parties expressly acknowledge to the Secured Party and agree
that on the date of this Agreement the Borrower delivered the Financing
Agreements pursuant to which the Borrower unconditionally granted to the Secured
Party, a continuing security interest in and first priority lien on the
Collateral (including the Trademark Collateral). The Financing Agreements and
all rights and interests of the Secured Party in and to the Collateral
(including the Trademark Collateral) thereunder, are hereby ratified, confirmed,
adopted and approved. In no event shall this Agreement, the Section 2.2
Assignment of the Trademark Collateral hereunder, or the recordation of this
Agreement (or any document hereunder) with the PTO, adversely affect or impair,
in any way or to any extent, the Financing Agreements, the security interest of
the Secured Party in the Collateral (including the Trademark Collateral)
pursuant to the Financing Agreements, the attachment and perfection of such
security interest under the uniform Commercial Code, or the present or future
rights and interests of the Secured Party in and to the Collateral under or in
connection with the Financing Agreements, this Agreement and/or the Uniform
Commercial Code. Any and all rights and interests of the Secured Party in and to
the Trademark Collateral (and any and all obligations of the Borrower with
respect to the Trademark Collateral) provided herein, or arising hereunder or in
connection herewith, shall only supplement and be cumulative and in addition to
the rights and interests of the Secured Party (and the obligations of the
Borrower) in, to or with respect to the Collateral (including the Trademark
Collateral) provided in or arising under or in connection with the other
Financing Agreements.
2.3. Effect of Section 2.2 Assignment. Upon the effectiveness of the
Section 2.2 Assignment, the Secured Party shall own the entire right, title and
interest in and to the Trademark Collateral, free and clear of any lien, charge,
encumbrance or claim of the Borrower or any other party (other than ownership
and other rights reserved by owners of Licensed Trademarks or other Trademark
Collateral licensed to the Borrower). Upon such effectiveness, in addition to
all other rights and remedies of the Secured Party, whether under law, the
Financing Agreements or otherwise (all such rights and remedies being
cumulative, not exclusive, and enforceable alternatively, successively or
concurrently, without notice to or consent by the Borrower except as expressly
provided otherwise herein), the Secured Party's rights and remedies with respect
to the Trademark Collateral, shall include but not be limited to the following,
without payment of royalty or compensation of any kind to the Borrower except as
expressly provided otherwise herein:
(a) The Secured Party may exercise, in respect of the Trademark
Collateral, all the rights and remedies of a secured party upon default under
the uniform Commercial Code (whether or not such Code applies to the affected
Trademark Collateral).
(b) The Secured Party may operate the business of the Borrower using
the Trademark Collateral.
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(c) The Secured Party may, to the same extent that the Borrower has
the right to do so immediately prior to the effectiveness of the Section 2.2
Assignment, license or sublicense, whether general, special or otherwise and
whether on an exclusive or nonexclusive basis, any of the Trademark Collateral,
throughout the world for such term or terms, on such conditions, and in such
manner, as the Secured Party shall in its sole discretion determine.
(d) The Secured Party may, in its discretion, file and record at
Borrower's expense with the PTO, the Trademark Assignment attached hereto as
Exhibit A.
(e) The Secured Party may, to the extent permitted by law, in its
sole discretion, without notice except as specified below, assign, sell or
otherwise transfer or dispose of the Trademark Collateral or any part thereof,
either with or without special or other conditions or stipulations, with power
to buy the Trademark Collateral or any part of it in one or more portions at
public or private sale, at any of the Secured Party's offices or elsewhere, at
such time or times, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as the Secured Party may deem
commercially reasonable, irrespective of the impact of any such sales on the
market price of any of the Trademark Collateral. Each such purchaser at any such
sale shall hold the property sold absolutely, free from any claim or right on
the part of the Borrower or any party claiming through the Borrower, and the
Borrower hereby waives (to the extent permitted by law) all rights of
redemption, stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
The Borrower agrees that, to the extent notice of sale shall be required by law,
at least five days' notice to the Borrower of the time and place of any public
sale or the time after which any private sale is to be made shall constitute
reasonable notification. At any sale of the Trademark Collateral, if permitted
by law, the Secured Party may bid (which bid may be, in whole or in part, in the
form of cancellation of indebtedness) for and purchase the Trademark Collateral
or any portion thereof for the account of the Secured Party. The Secured Party
shall not be obligated to make any sale of the Trademark Collateral regardless
of notice of sale having been given. The Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was adjourned. The Borrower recognizes that the Secured Party
may elect in its sole discretion to sell all or part of the Trademark Collateral
to one or more purchasers in privately negotiated transactions. The Borrower
hereby waives any claims against the Secured Party arising by reason of the fact
that the price at which any Trademark Collateral may have been sold at such a
private sale was less than the price which might have been obtained at a public
sale, even if the Secured Party accepts the first offer received and does not
offer such Trademark Collateral to more than one offeree. The Secured Party
shall also have the power to execute assurances, and do all other acts and
things for completing the assignment, sale, transfer or disposition which the
Secured Party, in its sole discretion, deems appropriate or proper.
(f) In addition to the foregoing, in order to implement the
assignment, sale, transfer or other disposition of any of the Trademark
Collateral pursuant to Section 2.3 (e) hereof, the Secured Party may, pursuant
to the authority granted in the power of attorney
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provided in Section 6 hereof (such authority becoming effective upon the
occurrence and during the continuation of an Event of Default), execute and
deliver on behalf of the Borrower one or more instruments of assignment of the
Trademark Collateral, in form suitable for filing, recording or registration in
any jurisdiction or country.
2.4. Effect of Section 2.2 Assignment - Borrower's Obligations.
(a) Upon the effectiveness of the Section 2.2 Assignment, the
Borrower shall have no right, title or interest. in or to any of the Trademark
Collateral, and the Borrower shall immediately cease and desist in the use of
the Trademarks or any colorable imitation thereof, and shall, upon written
demand of the Secured Party, deliver to the Secured Party (or the Secured
Party's designee) all unused or unsold goods bearing the Trademarks.
(b) In addition, upon the effectiveness of the Section 2.2
Assignment, upon the written demand of the Secured Party, the Borrower shall
execute and deliver to the Secured Party an assignment or assignments of the
Trademark Collateral and such other documents in addition to the Assignment
attached hereto as Exhibit A, as are necessary or appropriate to carry out the
intent and purposes of this Agreement; provided that the failure of the Borrower
to comply with such demand will not impair or affect the validity of the Section
2.2 Assignment. The Borrower agrees that any such assignment (including a
Section 2.2 Assignment) and/or any recording thereof shall be applied to reduce
the obligations outstanding only to the extent that the Secured Party actually
receives cash proceeds in respect of the assignment, sale or disposition of, or
other realization upon, the Trademark Collateral.
(c) In the event of any such license, assignment, sale, transfer or
other disposition of the Trademark Collateral, or any of it, after the
occurrence and during the continuation of an Event of Default, whether to or by
the Secured Party, the Borrower shall supply to the Secured Party (or the
Secured Party's designee) the Borrower's know-how and expertise relating to the
products and services sold and provided under the Trademarks, and other records
relating to the Trademark Collateral and to the production, marketing, delivery
and sale of said products and services. Without limiting the generality of the
foregoing, within five Business Days of written notice thereof from the Secured
Party, the Borrower shall make available to the Secured Party, such personnel in
the Borrower's employ on the date of the Event of Default as the Secured Party
may reasonably designate, by name, title or job responsibility, to permit the
Borrower (or if the Secured Party so elects, the Secured Party or the Secured
Party's designee) to continue, directly or indirectly, to manufacture, produce,
supply, advertise, provide, license, sell and deliver the products or services
sold by the Borrower under the Trademarks, such persons to be available to
perform their prior functions on the Secured Party's behalf and, if the Secured
Party so elects to utilize their services, to be compensated by the Secured
Party on a per diem, pro rata basis consistent with the wages and salary
structure applicable to each as of the date of such Event of Default.
2.5. No Obligations of Secured Party. Nothing herein contained shall be
construed as obligating the Secured Party to take any of the foregoing actions
at any time.
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2.6. Costs and Application of Proceeds. The Borrower agrees to pay when
due all reasonable costs incurred in any license, assignment, sale, transfer or
other disposition of all or any portion of the Trademark Collateral to or by the
Secured Party, including any taxes, fees and reasonable attorneys fees, and all
such costs shall be added to the Obligations. The Secured Party may apply the
Proceeds actually received from any such license, assignment, sale, transfer,
other disposition or other collection or realization, to the reasonable
out-of-pocket costs and expenses thereof, including, without limitation,
reasonable attorneys fees and all reasonable legal, travel and other expenses
which may be incurred or paid by the Secured Party in protecting or enforcing
its rights upon or under this Agreement, the Trademark Collateral, the
Collateral or the Obligations, and any proceeds remaining shall be held by the
Secured Party as collateral for, and/or then or at any time thereafter applied
to the Obligations, in accordance with the Financing Agreements; and the
Borrower shall remain liable and will pay the Secured Party on demand any
deficiency remaining, together with interest thereon at a rate equal to the
highest rate then payable on the obligations and the balance of any expenses
unpaid. Any surplus of such cash or cash proceeds held by the Secured Party and
remaining after payment in full of all the obligations shall be paid over to the
Borrower or to whomsoever may be lawfully entitled to receive such surplus.
2.7. License. In addition to, and not by way of limitation of, all other
rights of the Secured Party and obligations of the Borrower pursuant to this
Agreement and the other Financing Agreements, upon the effectuation of a Section
2.2 Assignment, the Secured Party shall hold an exclusive fully paid-up,
irrevocable and perpetual, worldwide right and license to make use, practice and
sell (or license or otherwise transfer to third persons) the Trademark
Collateral, for the exclusive purpose of (and to the extent necessary and
sufficient for) the full and complete enjoyment and exercise of and realization
upon the rights, remedies and interests of the Secured Party pursuant to this
Agreement and the other Financing Agreements.
3. REPRESENTATIONS AND WARRANTIES.
3.1. Schedules of Trademarks. Set forth on Schedule A hereto is a true and
complete list of all present Trademarks and Trademark Registrations of the
Borrower. All licenses and other agreements applicable to the Trademarks are the
valid and binding obligations of all of the parties thereto, enforceable against
each of such parties in accordance with their respective terms (provided that,
with respect to any such parties other than the Borrower and its affiliates,
such representation and warranty is made to the best of the Borrower's knowledge
and belief).
3.2. Title. The Borrower is and will continue to be the sole and exclusive
owner of the entire legal and beneficial right, title and interest in and to the
Trademarks (except for licenses and rights granted in the ordinary course of
business) and sufficient Trademark Collateral to preserve the Borrower's rights
in its Trademarks, free and clear of any lien, charge, security interest or
other encumbrance, except for the security interest and conditional assignment
created by this Agreement and the other Financing Agreements, and except for
liens and encumbrances explicitly permitted pursuant to the Financing
Agreements. To the extent deemed necessary or appropriate by the Borrower in its
reasonable business judgment, the
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Borrower will defend its right, title and interests in and to the Trademarks and
the Trademark Collateral against any and all claims of any third parties.
3.3. Validity and Enforceability. The Trademarks and the Trademark
Registrations and Trademark Rights related thereto are subsisting, and have not
been adjudged invalid or unenforceable; to the best of the Borrower's knowledge
and belief, all of the Trademarks and the Trademark Registrations and Trademark
Rights related thereto are valid and enforceable; the Borrower has not received
any written claim by any third party that any of the Trademarks and the
Trademark Registrations and Trademark Rights related thereto are invalid or
unenforceable.
3.4. Exclusive Right to Use. To the best of the Borrower's knowledge and
belief, the Borrower has, and shall continue to have, the exclusive right to use
all the Trademarks in the manner in which they are now used, with the goods and
services with which they are now used (and, in the case of registered
Trademarks, for which they are registered), and throughout the geographic areas
in which they are now used (and, in the case of registered Trademarks,
throughout the jurisdictions in which they are registered), free and clear of
any liens, charges, encumbrances, claims or rights of any third party, or
restrictions on the rights of the Borrower to protect or enforce any of its
Trademark Rights against any third party.
3.5. No Financing Statements Etc. There is not on file in any governmental
or regulatory authority, agency or recording office, in the United States or to
the Borrower's knowledge in any foreign country, any effective financing
statement, security agreement, assignment, license or transfer or notice of any
of the foregoing (other than those that have been filed in favor of the Secured
Party) covering any of the Trademark Collateral, and the Borrower is not aware
of any such filing, other than those for which duly executed termination
statements have been delivered to the Secured Party. So long as this Agreement
shall be in effect, the Borrower shall not execute and shall not knowingly
permit to be on file in any such office or agency any such financing statement
or other document or instrument (except financing statements or other documents
or instruments filed or to be filed in favor of the Secured Party).
3.6. No Claims or Proceedings. No claim has been made that the Borrower's
use of any of the Trademarks does or may violate the rights of any third party.
There has been no decision adverse to the Borrower's claim of ownership rights
in or exclusive rights to use the Trademarks or any material part of the
Trademark Collateral associated therewith, or to its right to use and register
the Trademarks in any jurisdiction or to keep and maintain such registrations in
full force and effect, and there is no proceeding involving said rights
threatened or pending in the PTO or any similar office or agency of the United
States, any state or foreign country or in any court.
3.7. Notice of Adverse Developments. The Borrower shall promptly notify
the Secured Party of the institution of and any final adverse decision (after
exhausting all appeals) in any proceeding in the PTO or any similar office or
agency of the United States or any state or any foreign country, or the
institution of or any adverse judgment in any proceeding in any court, regarding
the Borrower's claim of ownership in any of the Trademarks, or any material
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part of the related Trademark Collateral, its right to register any of the same,
or to keep and maintain any such registration. Notwithstanding the foregoing,
the Borrower shall not be obligated to notify the Secured Party of adverse
decisions during the course of prosecuting trademark registration applications.
3.8. After-Acquired Trademark Collateral. The Borrower agrees that, upon
its commencement of use of or acquisition of any right, title or interest in or
to any Trademark, Trademark Registration or Trademark Right other than the
Trademarks, Trademark Registrations and Trademark Rights set forth on Schedule A
hereto (including any variations or new versions of such scheduled Trademarks,
Trademark Registrations and Trademark Rights), or upon commencement of use of
any Trademark with (or the addition to any Trademark Registration of) any new
class of goods or services, the provisions of this Agreement shall automatically
apply thereto. The Secured Party shall be authorized to amend Schedule A, as
appropriate, to include such additional Trademarks, Trademark Registrations and
Trademark Rights, without the necessity for the Borrower's approval of or
signature to such amendment, and the Borrower shall do all such other acts (at
its own expense) deemed necessary or appropriate by the Secured Party to
implement, preserve the Secured Party's interest therein (including but not
limited to executing and delivering, and recording in all places where this
Agreement or notice hereof is recorded, an appropriate counterpart of this
Agreement). Such additional Trademarks, Trademark Registrations and Trademark
Rights shall be automatically included in the "Trademarks," "Trademark
Registrations" and "Trademark Rights" as defined herein. No less frequently than
once each calendar year or upon the request of the Secured Party, the Borrower
shall' provide to the Secured Party a new Schedule A which shall amend,
supplement or otherwise modify and update the prior Schedule to the then current
date, and such updated Schedule A shall automatically be deemed to be a part of
this Agreement.
3.9. Maintenance of Trademark Collateral. The Borrower shall take any and
all such actions (including but not limited to institution and maintenance of
suits, proceedings or actions) as may be deemed necessary or appropriate by the
Borrower in its reasonable business judgment to properly maintain, protect,
preserve, care for and enforce the Trademarks and the Trademark Registrations,
Trademark Rights and Associated Goodwill relating thereto and sufficient Related
Assets to preserve the Borrower's rights in the Trademarks. Without limiting the
generality of the foregoing, the Borrower shall pay when due all fees, taxes and
other expenses which shall be incurred or which shall accrue with respect to any
of such Trademark Collateral as may be deemed necessary or appropriate by the
Borrower in its reasonable business judgment to preserve the Trademarks.
3.10. Manner of Use of Trademarks. The Borrower shall continue to use the
Trademarks in its business in the same or similar manner as it has in the past,
for registered Trademarks shall continue to use each Trademark in each
jurisdiction of registration (and in interstate commerce for federally
registered Trademarks in each and every class of goods or services for which it
is registered), and in general shall continue to use the Trademarks in each and
every class of goods and services applicable to the Borrower's current use of
the Trademarks in its business as reflected in its current catalogs, brochures,
advertising and price
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lists, all in order to maintain the Trademarks in full force, free from any
claim or risk of abandonment for non-use. Notwithstanding the foregoing
provisions of this Section or any other provision of this Agreement, the
Borrower shall have the right to discontinue use or prosecution of any
registration application, in whole or in part of any Trademark, Trademark
Registration, or Trademark Right where such discontinuance is deemed necessary
or desirable by the Borrower in the exercise of its reasonable business
judgment.
3.11. Consistent Quality Standards. In order to protect and maintain the
Trademark Collateral, and to prevent any deception of the public, the Borrower
shall operate its business and use the Trademarks in accordance with the same
requirements and quality standards as in the past have been and now are
applicable to its goods and services, and shall maintain the quality of all such
goods and services, sold or provided under or in connection with the Trademarks
commensurate with the quality of the business, goods and services now and
previously associated with the Trademarks.
3.12. Trademark Symbols and Notices. The Borrower has in the past used,
and shall in the future use, the Trademarks with the statutory and other
appropriate symbols, notices or legends of the registrations and ownership
thereof consistent with past practice or as deemed necessary or appropriate by
the Borrower in its reasonable judgment.
3.13. No Conflicting Agreements. The Borrower shall not take any actions
or enter into any agreements, including but not limited to any agreements for
the assignment, sale, transfer, license, disposition, grant of any interest in
or encumbrance of any of the Trademark Collateral, which are inconsistent with
or would or might impair in any way the Borrower's representations, warranties
and covenants herein, without the prior written consent of the Secured Party
(which consent shall not be unreasonably withheld or delayed); provided,
however, that, notwithstanding any other provision of this Agreement, so long as
no Event of Default shall have occurred and be continuing, the Borrower may
license or dispose of the Trademark Collateral in any lawful manner that is in
the ordinary course of its business and is not inconsistent with the provisions
of this Agreement, or the other Financing Agreements. Without limiting the
generality of the foregoing, the Borrower shall not permit the inclusion in any
agreement to which it becomes a party of any provision which could or might in
any way impair or prevent the creation of a security interest in or the
conditional assignment of the Borrower's rights and interests in any property of
material value acquired under such agreement which is included within the
definition of Trademark Collateral.
3.14. No Abandonment. The Borrower shall not abandon any of the
Trademarks, Trademark Registrations or Trademark Rights, nor do any act nor omit
to do any act if such act or omission is of a character that tends to cause or
contribute to the abandonment of any Trademark, Trademark Registration or
Trademark Right or loss of or adverse effect on any rights in any Trademark,
Trademark Registration or Trademark Right. Prohibited acts of the Borrower shall
include but not be limited to "assignments in gross" of any Trademark or the
license of any Trademark without both appropriate contractual use and quality
control provisions
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and proper monitoring, supervision and enforcement by the Borrower of the
quality of the licensed goods or services.
3.15. Protection of Distinctiveness. The Borrower shall take all
necessary and appropriate actions to insure that none of the Trademarks shall
become generic or merely descriptive.
3.16. Enforcement of Licenses. The Borrower shall do all things as may be
deemed necessary or appropriate by the Borrower in its reasonable business
judgment to insure that each licensee of any Trademark, in its use of the
Trademarks in its business, shall (i) comply fully with all applicable license
agreements and (ii) satisfy and perform all the same standards and obligations
set forth herein (with respect to the Borrower's use of the Trademarks) as fully
as though such standards and obligations were set forth with respect to such
Licensee' a use of the Trademarks.
3.17. No Infringements. To the best of the Borrower's' knowledge and
belief, there is at present no material infringement or unauthorized or improper
use of the Trademarks or the Trademark Registrations or the Trademark Rights
related thereto. The Borrower shall use commercially reasonable efforts to
detect any such infringement or unauthorized or improper use. In the event any
such infringement or unauthorized or improper use by any third party has been
reasonably established by the Borrower, the Borrower shall promptly notify the
Secured Party and shall have the right to sue and recover therefor and to retain
any and all damage so recovered or obtained. In the event the Borrower fails so
to sue or bring legal action, the Borrower shall notify the Secured Party within
sixty (60) days after the date of original notice to the Secured Party.
4. RIGHTS OF AND LIMITATIONS ON SECURED PARTY. It is expressly agreed by
Borrower that Borrower shall remain liable to observe and perform all the
conditions and obligations to be observed and performed by it relating to the
Trademark. Secured Party shall not have any collateral obligation or liability
under or in relation to the Trademark Collateral by reason of, or arising out
of, this Trademark Security Agreement and Secured Party's rights hereunder, or
the assignment by Borrower to Secured Party of, or the receipt by Secured Party
of, any payment relating to any Trademarks, nor shall Secured Party be required
or obligated in any manner to perform or fulfill any of the obligations of
Borrower relating to the Trademark Collateral or be collateral liable to any
party on account of Borrower a use of the Trademark Collateral, and Borrower
will save, indemnify and keep Secured Party harmless from and against all
expense, loss or damage (including reasonable attorneys fees and expenses)
suffered in connection with such obligations or use or suffered in connection
with any suit, proceeding or action brought by Secured Party in connection with
any Trademark Collateral.
5. PRESERVATION OF TRADEMARK COLLATERAL; COOPERATION OF BORROWER. Without
limiting the obligations of Borrower under the Agreement, Borrower shall take
such actions as are necessary to preserve and maintain its rights in and to the
Trademark Collateral. Upon the request of Secured Party, Borrower shall execute,
acknowledge and deliver all
12
<PAGE>
documents and instruments and take such other actions, including without
limitation testifying in any legal or administrative proceedings, as may be
necessary or desirable to preserve or enforce Borrower's rights in and to the
Trademark Collateral or to accomplish the purposes of this Trademark Security
Agreement or the Financing Agreements.
6. SECURED PARTY'S APPOINTMENT AS ATTORNEY-IN-FACT.
6.1. Appointment of Secured Party. Borrower hereby irrevocably constitutes
and appoints Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Borrower and in the name of
Borrower or in its own name, from time to time in Secured Party's discretion,
for the purpose of carrying out the terms of this Trademark Security Agreement,
to take any and all appropriate action and to execute any and all documents and
instruments that may be necessary or desirable to accomplish the purposes of
this Trademark Security Agreement and, without limiting the generality of the
foregoing, hereby gives Secured Party the power and right, on behalf of Borrower
upon and during the continuance of an Event of Default, without notice to or
assent by Borrower to do the following:
(a) to apply for and prosecute any applications for recording or
registrations of any Trademark Collateral, and to file any affidavits or other
documents necessary or desirable to preserve, maintain or renew any such
registrations;
(b) to assign, sell or otherwise dispose of all or any part of
Borrower's right, title and interest in and to the Trademark Collateral,
including without limitation the Trademarks listed on Schedule A, and all
registrations and recordings thereof and pending applications therefor;
(c) to commence and prosecute any suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to enforce any right in
respect of any Trademark; to defend any suit, action or proceeding brought
against Borrower with respect to any Trademark Collateral; to settle, compromise
or adjust any suit, action or proceeding described above and, in connection
therewith, to give such discharges or releases as Secured Party may deem
appropriate;
(d) to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Trademarks as fully and completely as though
Secured Party were the absolute owner thereof for all purposes;
(e) to do, at Secured Party's option and Borrower's expense, at any
time or from time to time, all acts and things that Secured Party deems
necessary to protect, preserve or realize upon the Trademark Collateral and
Secured Party's security interests therein, in order to effect the intent of
this Trademark Security Agreement; and
13
<PAGE>
(f) to execute any and all documents, statements, certificates or
other writings necessary or advisable in order to effect the purposes described
above as Secured Party may in its sole discretion determine.
Borrower hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.
6.2. No Duty or Obligation. The powers conferred on Secured Party
hereunder are solely to protect the interests of Secured Party in the Trademark
Collateral and shall not impose any duty upon Secured Party to exercise any such
powers. Secured Party shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers, and neither it nor any of
its officers, directors, employees or agents shall be responsible to Borrower
for any act or failure to act, except for its own willful misconduct taken or
omitted in bad faith.
7. PERFORMANCE BY SECURED PARTY OF BORROWER'S OBLIGATIONS,
INDEMNIFICATION.
7.1. Secured Party's Actions. If Borrower fails to perform or comply with
any of its agreements contained herein and Secured Party, as provided for by the
terms of this Trademark Security Agreement, shall itself perform or comply, or
otherwise cause performance or compliance, with such agreement, the expenses of
Secured Party incurred in connection with such performance or compliance shall
be paid by Borrower on demand and until so paid shall be added to the principal
amount of the Obligations and shall bear interest at the same rate as the
Obligations under the Financing Agreements.
7.2. Indemnification. The Borrower shall indemnify and hold harmless the
Secured Party from and against, and shall pay to the Secured Party on demand,
any and all claims, actions, suits, judgments, penalties, losses, damages,
costs, disbursements, expenses, obligations or liabilities of any kind or nature
(except those resulting from the Secured Party's gross negligence or willful
misconduct) arising in any way out of or in connection with this Trademark
Security Agreement, the Trademark Collateral, custody, preservation, use,
operation, sale, license (or other transfer or disposition) of the Trademark
Collateral, any alleged infringement of the intellectual property rights of any
third party, the production, marketing, delivery and sale of the goods and
services provided under or in connection with any of the Trademarks or the
Trademark Collateral, the sale of, collection from or other realization upon any
of the Trademark Collateral, the failure of the Borrower to perform or observe
any of the provisions hereof, or matters relating to any of the foregoing. The
Borrower shall also indemnify and hold harmless the Secured Party from and
against any and all claims, actions, suits, judgments, penalties, losses,
damages, costs, disbursements, expenses, obligations or liabilities arising out
of or in connection with any fault, negligence, act or omission of the Borrower
(regardless of whether such fault, negligence, act or omission occurred or
occurs prior to or after such effectiveness). The Borrower shall make no claim
against the Secured Party for or in connection with the exercise or enforcement
by the Secured Party of any right or remedy granted to it
14
<PAGE>
hereunder, or any action taken or omitted to be taken by the Secured Party
hereunder (except for the gross negligence or willful misconduct of the Secured
Party).
8. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default:
(a) Borrower's failure to pay any amount on the date or in the
manner required hereunder;
(b) Borrower's default in the due performance or observance of any
other covenant, condition or provision to be performed or observed by it
hereunder;
(c) The occurrence of an Event of Default under any of the Financing
Agreements.
9. REMEDIES, RIGHTS UPON DEFAULT. If an Event of Default occurs and is
continuing:
(a) Secured Party may exercise for the benefit of Secured Party, in
addition to all other rights and remedies granted in the Agreement, in this
Trademark Security Agreement, and in any other Financing Agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the UCC.
(b) To the extent that it may lawfully do so, Borrower agrees that
it will not at any time insist upon, plead or in any manner whatsoever claim or
take the benefit or advantage of any appraisement, valuation, stay, extension or
redemption laws, or any law permitting it to direct the order in which the
Trademarks or any part thereof shall be sold, now or at any time hereafter in
force, which may delay, prevent or otherwise affect the performance or
enforcement of this Trademark Security Agreement or the Obligations and hereby
expressly waives all benefit or advantage of any such laws and covenants that it
will not hinder, delay or impede the execution of any power granted or delegated
to Secured Party in this Trademark Security Agreement, but will suffer and
permit the execution of every such power as though no such laws were in force.
(c) Borrower shall be responsible for any and all expenses,
including reasonable attorneys' fees and expenses, incurred or paid by Secured
Party in protecting or enforcing any rights of Secured Party hereunder. Secured
Party shall also have the right to pay all other sums deemed necessary or
desirable by it for the preservation and protection of the Trademarks, or for
the realization thereupon, including taxes, insurance, application and renewal
fees, and any other fees or costs. All such sums so paid by Secured Party shall
be "Obligations" within the meaning of this Trademark Security Agreement, due
upon demand.
15
<PAGE>
10. NOTICES. Except as otherwise specified herein, all notices, requests,
demands or other communications to or on Borrower or Secured Party shall be in
writing (including teletransmissions), and shall be given or made, as provided
in the Financing Agreements.
11. SEVERABILITY. Any provision herein that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
12. No WAIVER OF RIGHTS. No failure to exercise nor any delay in
exercising, on the part of Secured Party, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power, or privilege operate as a waiver of any
further or complete exercise thereof. No waiver shall be effective unless in
writing. No waiver or condonation of any breach on one occasion shall be deemed
a waiver or condonation on any other occasion.
13. CUMULATIVE REMEDIES. This Trademark Security Agreement and the
obligations of Borrower hereunder are in addition to and not in substitution for
any other obligations or security interests now or hereafter held by Secured
Party and shall not operate as a merger of any contract or debt or suspend the
fulfillment of or affect the rights, remedies, powers, or privileges of Secured
Party in respect of any obligation or other security interest held by it for the
fulfillment thereof. The rights and remedies provided hereunder are cumulative
and not exclusive of any other rights or remedies provided by law or under the
Agreement.
14. SPECIFIC ENFORCEMENT. Due to the unique nature of the Trademark
Collateral, and in order to preserve its value, the Borrower agrees that the
Borrower's agreements, duties and obligations under this Trademark Security
Agreement shall be subject to specific enforcement and other appropriate
equitable orders and remedies.
15. SUCCESSORS. This Trademark Security Agreement shall be binding upon
and inure to the benefit of Borrower, Secured Party and their respective
successors and assigns, except that Borrower may not assign or transfer its
rights or obligations hereunder without the prior written consent of Secured
Party. Secured Party may from time to time assign its rights and delegate its
obligations, in which event Borrower shall only have recourse to the assignee
for the performance of Secured Party's obligations that have been so delegated.
16. GOVERNING LAW. This Trademark Security Agreement shall be governed by,
and construed and interpreted in accordance with, the laws of the State of New
York.
17. COUNTERPARTS. This Trademark Security Agreement may be executed by one
or more of the parties on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
16
<PAGE>
18. DESCRIPTIVE HEADINGS. The captions in this Trademark Security
Agreement are for convenience of reference only and shall not define or limit
the provisions hereof.
IN WITNESS WHEREOF, Borrower has caused this Trademark Security Agreement
to be executed by its duly authorized officer as of the date first written
above.
MACE SECURITY INTERNATIONAL, INC.
By /s/ Robert D. Norman
---------------------------------
Robert D. Norman
President
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this 31 day of October, 1996, before me the subscriber personally
appeared Robert D. Norman who being by me duly sworn, did depose and say; that
he resides at 160 Benmont Avenue, Bennington, VT., that he is President of Mace
Security International, Inc., the corporation described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
Board of Directors of said corporation.
/s/ Edward J. Trombly
-------------------------------
NOTARY PUBLIC
EDWARD J. TROMBLY
Notary Public, State of New York
Qualified in Albany County
Commission Expires 10/31/96
17
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
H&R FILE TRADEMARK COUNTRY CL GOODS
====================================================================================================================================
<S> <C> <C> <C> <C>
0715.001 SCREECHER USA 9 Sonic horn used for personal protection
- ------------------------------------------------------------------------------------------------------------------------------------
0715.004 SLAM USA 13 Chemical Aerosol Irritant
- ------------------------------------------------------------------------------------------------------------------------------------
0715.005 PEST AWAY USA 5 Animal Repellant Sprays
- ------------------------------------------------------------------------------------------------------------------------------------
0715.006 VIPER USA 13 Chemical Aerosol Irritant
- ------------------------------------------------------------------------------------------------------------------------------------
0715.008 MUZZLE USA 13 Chemical Aerosol Irritant
- ------------------------------------------------------------------------------------------------------------------------------------
0715.010 PEPPERGARD USA 13 Chemical Aerosol Irritant
- ------------------------------------------------------------------------------------------------------------------------------------
0715.014 SLAM (Intent to Use) USA 1 Chemical Aerosol Irritant
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
H&R FILE SERIAL NO. FILING REG. NO. REG. STATUS AND/OR
DATE DATE NEXT ACTION
====================================================================================================================================
<C> <C> <C> <C> <C> <C>
0715.001 74/175,968 06/14/91 1,756,068 03/02/93 File Section 8 & 15
- ------------------------------------------------------------------------------------------------------------------------------------
0715.004 74/155,863 Abandoned
- ------------------------------------------------------------------------------------------------------------------------------------
0715.005 74/234,868 01/03/92 Abandoned
- ------------------------------------------------------------------------------------------------------------------------------------
0715.006 74/155,864 04/10/91 1,816,395 01/11/94 File Section 8 & 15
- ------------------------------------------------------------------------------------------------------------------------------------
0715.008 74/155,862 04/10/91 1,728,582 10/27/92 File Section 8 & 15
- ------------------------------------------------------------------------------------------------------------------------------------
0715.010 74/148,810 03/18/91 1,734,010 11/17/92 File Section 8 & 15
- ------------------------------------------------------------------------------------------------------------------------------------
0715.014 74/400,271 06/11/93 Pending; Received Examiner's Amendment on 01/19/96 to
reclassify the goods
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
=================================================
H&R FILE NEXT ACTION DUE DATE
=================================================
0715.001 Between 03/02/1998 and 03/02/1999
- -------------------------------------------------
0715.004
- -------------------------------------------------
0715.005
- -------------------------------------------------
0715.006 Between 01/11/1999 and 01/11/2000
- -------------------------------------------------
0715.008 Between 10/27/1997 and 10/27/1998
- -------------------------------------------------
0715.010 Between 11/17/1997 and 11/17/1998
- -------------------------------------------------
0715.014
- -------------------------------------------------
1
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
H&R FILE TRADEMARK COUNTRY CL GOODS
====================================================================================================================================
<S> <C> <C> <C> <C>
0715.024 MACE (Intent to Use) USA 18 Holsters
- ------------------------------------------------------------------------------------------------------------------------------------
0715.025 MACE USA 6 Locking Devices
- ------------------------------------------------------------------------------------------------------------------------------------
0715.026 MACE (Intent to Use) USA 9 Sonic Alarms
- ------------------------------------------------------------------------------------------------------------------------------------
0715.027 MACE USA 13 Defense Spray
- ------------------------------------------------------------------------------------------------------------------------------------
0715.031 MACE USA 13 Volatile Liquid Preparations for Temporarily Incapacitating Persons
- ------------------------------------------------------------------------------------------------------------------------------------
0715.032 PEPPER MACE USA 13 Non-explosive Defensive Weapons...
- ------------------------------------------------------------------------------------------------------------------------------------
0715.033 CHEMICAL MACE USA 13 Non-explosive Defensive Weapons...
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
H&R FILE SERIAL NO. FILING REG. NO. REG. STATUS AND/OR
DATE DATE NEXT ACTION
====================================================================================================================================
<C> <C> <C> <C> <C> <C>
0715.024 74/535,088 06/07/94 File Statement of Use
- ------------------------------------------------------------------------------------------------------------------------------------
0715.025 74/535,089 06/07/94 1,967,364 04/09/96 Pending; Statement of Use accepted on 02/29/96; Registration to
issue in due course
- ------------------------------------------------------------------------------------------------------------------------------------
0715.026 74/534,476 06/07/94 File Statement of Use
- ------------------------------------------------------------------------------------------------------------------------------------
0715.027 74/541,060 06/22/94 1,909,927 08/08/95 File Section 8 & 15
- ------------------------------------------------------------------------------------------------------------------------------------
0715.031 72/291,549 02/21/68 888,911 04/07/70 File Renewal
- ------------------------------------------------------------------------------------------------------------------------------------
0715.032 74/093,929 08/31/90 1,656,201 09/10/91 File Section 8 & 15
- ------------------------------------------------------------------------------------------------------------------------------------
0715.033 73/732,824 06/06/88 1,609,015 08/07/90 File Section 8 & 15; To be abandoned
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
=================================================
H&R FILE NEXT ACTION DUE DATE
=================================================
0715.024 06/12/1996
- -------------------------------------------------
0715.025 Between 4/9/01 and 4/9/02
- -------------------------------------------------
0715.026 06/12/1996
- -------------------------------------------------
0715.027 Between 08/08/2000 and 08/08/2001
- -------------------------------------------------
0715.031 04/07/2000
- -------------------------------------------------
0715.032 Between 09/10/1996 and 09/10/1997
- -------------------------------------------------
0715.033 Between 08/07/1995 and 08/07/1996
- -------------------------------------------------
2
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
H&R FILE TRADEMARK COUNTRY CL GOODS
====================================================================================================================================
<S> <C> <C> <C> <C>
0715.034 MACE...JUST IN CASE USA 13 Irritant Spray
- ------------------------------------------------------------------------------------------------------------------------------------
0715.035 ...JUST IN CASE USA 13 Irritant Spray
- ------------------------------------------------------------------------------------------------------------------------------------
0715.037 MACE MEXICO 13 Protection Weapons for Self-Defense
- ------------------------------------------------------------------------------------------------------------------------------------
0715.038 THE BIG JAMMER USA 6 Portable Door Security Braces
- ------------------------------------------------------------------------------------------------------------------------------------
0715.039 COMMON SENSE SECURITY USA 6 Security Devices
- ------------------------------------------------------------------------------------------------------------------------------------
0715.042 MSI & (DESIGN) USA 6 Door & Window Locking Devices; Sonic Alarms; Irritant Spray
9
13
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
H&R FILE SERIAL NO. FILING REG. NO. REG. STATUS AND/OR
DATE DATE NEXT ACTION
====================================================================================================================================
<C> <C> <C> <C> <C> <C>
0715.034 74/278,438 05/26/92 1,747,030 01/19/93 File Section 8 & 15
- ------------------------------------------------------------------------------------------------------------------------------------
0715.035 74/278,437 05/26/92 1,747,029 01/19/93 File Section 8 & 15
- ------------------------------------------------------------------------------------------------------------------------------------
0715.037 220813 01/02/95 Pending; Mexican associate filed Response on 10/06/95
- ------------------------------------------------------------------------------------------------------------------------------------
0715.038 73/838,031 11/09/89 1,623,265 11/20/90 File Section 8 & 15; Currently preparing Section 8 & 15
- ------------------------------------------------------------------------------------------------------------------------------------
0715.039 72/780,230 02/13/89 1,583,311 02/20/90 Abandoned on 02/20/96 for failure to file Section 8 & 15
- ------------------------------------------------------------------------------------------------------------------------------------
0715.042 74/273,735 05/11/92 1,778,643 06/29/93 File Section 8 & 15
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
=================================================
H&R FILE NEXT ACTION DUE DATE
=================================================
0715.034 Between 01/19/1998 and 01/19/1999
- -------------------------------------------------
0715.035 Between 01/19/1998 and 01/19/1999
- -------------------------------------------------
0715.037
- -------------------------------------------------
0715.038 Between 11/20/1995 and 11/20/1996
- -------------------------------------------------
0715.039
- -------------------------------------------------
0715.042 Between 06/29/1998 and 06/29/1999
- -------------------------------------------------
3
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
H&R FILE TRADEMARK COUNTRY CL GOODS
====================================================================================================================================
<S> <C> <C> <C> <C>
0715.046 PEPPER FOAM USA 1 Irritant Spray
- ------------------------------------------------------------------------------------------------------------------------------------
0715.047 PEST AWAY USA 5 Animal Repellant Spray
- ------------------------------------------------------------------------------------------------------------------------------------
0715.048 MUZZLE CANADA 13 Chemical Aerosol Irritant
- ------------------------------------------------------------------------------------------------------------------------------------
0715.049 KINDERGARD JAPAN 13 Safety Latches for Cabinets and Drawers
- ------------------------------------------------------------------------------------------------------------------------------------
0715.050 KINDERGARD GERMANY Safety Latches for Cabinets and Drawers
- ------------------------------------------------------------------------------------------------------------------------------------
0715.051 KINDERGARD AUSTRALIA 6 Safety Latches for Cabinets and Drawers
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
H&R FILE SERIAL NO. FILING REG. NO. REG. STATUS AND/OR
DATE DATE NEXT ACTION
====================================================================================================================================
<C> <C> <C> <C> <C> <C>
0715.046 74/598,701 11/14/94 Pending; Filed Request for Reconsideration and Notice of Appeal
on 03/05/96
- ------------------------------------------------------------------------------------------------------------------------------------
0715.047 74/598,518 11/14/94 Abandoned
- ------------------------------------------------------------------------------------------------------------------------------------
0715.048 776,747 03/01/95 Pending; Application approved and to be published in Canadian
Trade Marks Journal
- ------------------------------------------------------------------------------------------------------------------------------------
0715.049 2,076,145 09/30/88 File Renewal Letter dated 05/22/95 from R. Galt indicates
intent to abandon
- ------------------------------------------------------------------------------------------------------------------------------------
0715.050 950,548 10/25/76 Abandoned
- ------------------------------------------------------------------------------------------------------------------------------------
0715.051 287,421 05/20/75 B287,421 05/20/75 File Renewal; Letter dated 05/22/95 from R. Galt indicates
intent to abandon
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
=================================================
H&R FILE NEXT ACTION DUE DATE
=================================================
0715.046
- -------------------------------------------------
0715.047
- -------------------------------------------------
0715.048
- -------------------------------------------------
0715.049 06/30/1998
- -------------------------------------------------
0715.050
- -------------------------------------------------
0715.051 05/20/1996
- -------------------------------------------------
4
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
H&R FILE TRADEMARK COUNTRY CL GOODS
====================================================================================================================================
<S> <C> <C> <C> <C>
0715.052 KINDERGARD USA 6 Safety Latches for Cabinets and Drawers
9
20
- ------------------------------------------------------------------------------------------------------------------------------------
0715.053 KINDERGARD BENELUX 6 Safety Latches for Cabinets and Drawers
- ------------------------------------------------------------------------------------------------------------------------------------
0715.054 KINDERGARD UNITED 6 Safety Latches for Cabinets and Drawers
KINGDON
- ------------------------------------------------------------------------------------------------------------------------------------
0715.056 CHEMICAL MACE MEXICO 6 (No description)
- ------------------------------------------------------------------------------------------------------------------------------------
0175.057 MPG USA 13 Personal Control Devices
- ------------------------------------------------------------------------------------------------------------------------------------
0715.058 FERRET USA 13 Barricade Penetrating Cartridges Containing Liquid Irritant
- ------------------------------------------------------------------------------------------------------------------------------------
0715.059 FERRET (LOGO) USA 13 Barricade Penetrating Cartridges Containing Liquid Irritant
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
H&R FILE SERIAL NO. FILING REG. NO. REG. STATUS AND/OR
DATE DATE NEXT ACTION
====================================================================================================================================
<C> <C> <C> <C> <C> <C>
0715.052 73/693,983 11/02/87 1,537,901 05/09/89 File Renewal
- ------------------------------------------------------------------------------------------------------------------------------------
0715.053 608,749 05/23/75 333,441 05/23/75 Abandoned
- ------------------------------------------------------------------------------------------------------------------------------------
0715.054 104960 B1047860 01/11/75 File Renewal; Letter dated 05/22/95 from R. Galt indicates
intent to abandon
- ------------------------------------------------------------------------------------------------------------------------------------
0715.056 243,411 Abandoned
- ------------------------------------------------------------------------------------------------------------------------------------
0175.057 72,450,931 03/09/73 1,007,534 03/25/75 Expired for failure to renew
- ------------------------------------------------------------------------------------------------------------------------------------
0715.058 74/734,622 09/26/95 Pending; application replaces earlier registration not renewed
- ------------------------------------------------------------------------------------------------------------------------------------
0715.059 74/734,506 09/26/95 Pending; application replaces earlier registration not renewed
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
=================================================
H&R FILE NEXT ACTION DUE DATE
=================================================
0715.052 05/09/2009
- -------------------------------------------------
0715.053
- -------------------------------------------------
0715.054 06/11/96
- -------------------------------------------------
0715.056
- -------------------------------------------------
0175.057
- -------------------------------------------------
0715.058
- -------------------------------------------------
0715.059
- -------------------------------------------------
5
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
H&R FILE TRADEMARK COUNTRY CL GOODS
====================================================================================================================================
<S> <C> <C> <C> <C>
0715.060 FERRET (DESIGN) USA 13 Barricade Penetrating Cartridges Containing Liquid Irritant
- ------------------------------------------------------------------------------------------------------------------------------------
0715.061 FERRET (DESIGN & LOGO) USA 13 Barricade Penetrating Cartridges Containing Liquid Irritant
- ------------------------------------------------------------------------------------------------------------------------------------
0715.062 GUARD USA 9 Property Protection System
- ------------------------------------------------------------------------------------------------------------------------------------
0715.063 TG GUARD USA 9 Property Protection System
- ------------------------------------------------------------------------------------------------------------------------------------
0715.064 TRIPLE-CHASER USA 13 Tear Gas Grenades
- ------------------------------------------------------------------------------------------------------------------------------------
0715.065 MINI STREAMER USA 13 Liquid Tear Gas Repeaters
- ------------------------------------------------------------------------------------------------------------------------------------
0715.066 LOGO (SHIELD) USA 13 Law Enforcement Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
0715.067 SKAT SHELL USA 13 Tear Gas Dispersing
- ------------------------------------------------------------------------------------------------------------------------------------
0715.068 FEDERAL LABORATORIES USA 13 Riot Control Products
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
H&R FILE SERIAL NO. FILING REG. NO. REG. STATUS AND/OR
DATE DATE NEXT ACTION
====================================================================================================================================
<C> <C> <C> <C> <C> <C>
0715.060 74/734,604 09/26/95 Pending; application replaces earlier registration not renewed
- ------------------------------------------------------------------------------------------------------------------------------------
0715.061 74/734,507 09/26/95 Pending; application replaces earlier registration not renewed
- ------------------------------------------------------------------------------------------------------------------------------------
0715.062 72/450,802 03/08/73 1,008,128 04/01/75 Expired for failure to renew
- ------------------------------------------------------------------------------------------------------------------------------------
0715.063 72/450,801 03/08/73 1,008,127 04/01/75 Expired for failure to renew
- ------------------------------------------------------------------------------------------------------------------------------------
0715.064 72/302,397 07/10/68 864,805 02/18/69 File Renewal
- ------------------------------------------------------------------------------------------------------------------------------------
0715.065 72/302,396 07/10/68 877,271 09/23/69 File Renewal
- ------------------------------------------------------------------------------------------------------------------------------------
0715.066 72/302,402 07/10/68 904,554 12/22/70 File Renewal
- ------------------------------------------------------------------------------------------------------------------------------------
0715.067 72/415,970 02/18/72 957,550 04/24/73 File Renewal
- ------------------------------------------------------------------------------------------------------------------------------------
0715.068 74/210,230 10/04/91 1,725,445 10/20/92 File Section 8 & 15
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
=================================================
H&R FILE NEXT ACTION DUE DATE
=================================================
0715.060
- -------------------------------------------------
0715.061
- -------------------------------------------------
0715.062
- -------------------------------------------------
0715.063
- -------------------------------------------------
0715.064 02/18/2009
- -------------------------------------------------
0715.065 09/23/2009
- -------------------------------------------------
0715.066 12/22/2000
- -------------------------------------------------
0715.067 04/24/2003
- -------------------------------------------------
0715.068 Between 10/20/1997 and 10/20/1998
- -------------------------------------------------
6
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
H&R FILE TRADEMARK COUNTRY CL GOODS
====================================================================================================================================
<S> <C> <C> <C> <C>
0715.069 PEST AWAY (Intent to Use) USA 5 Animal Repellant Spray
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
H&R FILE SERIAL NO. FILING REG. NO. REG. STATUS AND/OR
DATE DATE NEXT ACTION
================================================================================
0715.069 75/015,820 11/07/95 Pending
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H&R FILE NEXT ACTION DUE DATE
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0715.069
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Exhibit "A"
ASSIGNMENT OF TRADEMARKS
For one dollar ($1.00) and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, MACE SECURITY
INTERNATIONAL, INC., a Vermont corporation, having its principal place of
business located at 160 Benmont Avenue, Bennington, Vermont 05201 (the
"Seller"), hereby transfers, conveys and assigns to KEY BANK OF NEW YORK, a New
York State banking corporation with an office for the transaction of business at
66 South Pearl Street, Albany, New York 12207; all of the Seller's rights, title
and interest in and to the trademarks and service marks listed on Schedule "A"
attached hereto (the "Trademarks"), together with the goodwill of the business
symbolized by the Trademarks and the registrations therefor and including all
rights to sue and recover for past infringements of said Trademarks and the
registration therefor.
MACE SECURITY INTERNATIONAL,
INC.
By /s/ Robert D. Norman
----------------------------------
Robert D. Norman
President
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this _____ day of October, 1996, before me the subscriber personally
appeared Robert D. Norman, who being by me duly sworn, did depose and say; that
he resides at _______________________, that he is President of Mace Security
International, Inc., the corporation described in and which executed the
foregoing instrument; and that he signed his name thereto by order of the Board
of Directors of said corporation.
___________________________________
NOTARY PUBLIC
<PAGE>
PROMISSORY NOTE
(VARIABLE RATE; SECURED)
$750,000.00 Albany, New York
Dated: October 31, 1996
FOR VALUE RECEIVED, MACE SECURITY INTERNATIONAL, INC., a Vermont
corporation with an office for the transaction of business located at 160
Benmont Avenue, Bennington, Vermont 05201(the "Borrower") promises to pay to the
order of KEY BANK OF NEW YORK, a New York State banking corporation, with its
principal office and place of business at 66 South Pearl, Albany, New York,
12207 ("Key Bank") the principal sum of Seven Hundred Fifty Thousand and no/100
($750,000.00) Dollars or so much thereof as may be advanced from time to time in
accordance with the terms of a loan agreement dated on even date herewith (the
"Agreement") and this Note, with interest on the unpaid principal balance of
such amount from the date of this Note or such advance, as the case may be, at
the Interest Rate (hereinafter defined) . This Note evidences a loan (the
"Loan") made, or so much thereof as may be made, by Key Bank to Borrower, in the
principal amount hereof, and is secured by (a) a security agreement dated on
even date herewith from Borrower to Key Bank (the "Security Agreement") which,
together with financing statements executed in conjunction therewith (the
"Financing Statements") , creates a first lien security interest in certain
personal property (the "Personal Property") more particularly described in the
Security Agreement; and (b) such other security as may now or hereafter be given
to Key Bank by Borrower as collateral for the Loan (the Agreement, the Security
Agreement, the Financing Statements, this Note and such other documents
evidencing such other security which may hereafter be given as further security
for, or in connection with, the Loan being hereinafter collectively referred to
as the "Loan Documents").
I
DEFINITIONS
(a) "BASE RATE" shall mean the rate of interest set, determined or
announced on a periodic basis by Key Bank of New York as its "Base Rate" which
rate of interest is not necessarily the lowest rate charged by Key Bank of New
York on loans and other credits which may be extended by Key Bank of New York at
rates both above and below the Base Rate.
(b) "DEFAULT INTEREST RATE" shall mean the Interest Rate (hereinbelow
defined) plus four (4%) percent per annum.
(c) "INTEREST RATE" shall mean the rate of interest to be paid by Borrower
on any outstanding principal due under this Note
<PAGE>
and shall be equal to the Base Rate plus one and one quarter (1.25%) percent per
annum.
(d) "MATURITY DATE" shall mean October 1, 2000.
II
INTEREST
(a) COMPUTATION OF INTEREST. Interest on the outstanding principal balance
of this Note shall be computed on the basis of a 360-day year. Interest shall
accrue until the Loan is repaid.
(b) IMPLEMENTATION OF DEFAULT INTEREST RATE. Upon the occurrence of an
Event of Default (hereinbelow defined), the computation of interest under this
Note shall immediately and without further action by Key Bank be based upon the
Default Interest Rate.
(c) INTEREST CHANGE PROCEDURES. Any change in the Base Rate shall
automatically and simultaneously effect a corresponding change in the Interest
Rate without notice to the Borrower.
III
PAYMENT OF PRINCIPAL AND INTEREST
PERIODIC PAYMENTS. Borrower shall pay interest at the Interest Rate on the
unpaid principal balance of this Note beginning on the first day of November,
1996 and continuing on the first day of each month thereafter until the Maturity
Date (or such earlier date in the event Key Bank accelerates Borrower's
obligations hereunder), at which time, any accrued and unpaid interest must be
paid. Principal repayment shall begin on December 1, 1996 when Borrower shall
begin making monthly principal payments in the amount of Fifteen Thousand Six
Hundred Twenty Five and no/100 ($15,625.00) Dollars and said monthly payments
shall continue on the first day of each month thereafter until the Maturity Date
(or such earlier date in the event Key Bank accelerates Borrower's obligations
hereunder) when the balance of principal remaining unpaid plus interest shall be
fully due and payable.
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IV
GENERAL CONDITIONS
(a) METHOD OF PAYMENT. All payments under this Note are payable at 66
South Pearl Street, Albany, New York 12207, or at such other place as Key Bank
shall notify Borrower in writing. Key Bank reserves the right to require any
payment on this Note, whether such payment is of a regular installment or
represents a prepayment, to be by wired federal funds or other immediately
available funds or to be paid at a place other than the above address.
(b) APPLICATION OF PAYMENTS RECEIVED. Except as may otherwise be provided
in this Note, all payments received by Key Bank on this Note shall be applied by
Key Bank to any unpaid Late Payment Charges (hereinbelow defined), accrued and
unpaid interest then due and owing and the reduction of principal of this Note,
in such order and in such amounts as Key Bank may determine from time to time.
(c) LATE PAYMENT CHARGES. If Borrower fails to pay any amount of principal
and/or interest on this Note for ten (10) days after such payment becomes due,
whether by acceleration or otherwise, Key Bank may, at its option, whether
immediately or at the time of final payment of the amounts evidenced by this
Note, impose a late payment charge (the "Late Payment Charge") computed by
multiplying the amount of each past due payment by four (4%) percent. Until any
and all Late Payment Charges are paid in full, the amount thereof shall be added
to the indebtedness secured by any of the Loan Documents. The Late Payment
Charge is not a penalty and is deemed to be liquidated damages for the purpose
of compensating Key Bank for the difficulty in computing the actual amount of
damages incurred by Key Bank as a result of the late payment by Borrower.
(d) PREPAYMENT. The principal balance may be prepaid in whole or in part
at any time without premium or penalty.
(e) REFUSAL TO MAKE FURTHER ADVANCES, ACCELERATION AND DEFAULT. If:
(1) Borrower fails to pay any sum due on this Note or any other Loan
Document when the same is due; or
(2) Borrower, or anyone else responsible, fails to timely perform
any other obligation required to be performed by them under this Note or
any other Loan Document; or
(3) An "Event of Default", as said term is defined in any other Loan
Documents, shall have occurred; or
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(4) Borrower fails to comply with the terms of or an "event of
default" occurs under any other loan transaction or credit arrangement of
any kind with Key Bank, including without limitation, "Facility 1" as that
term is defined in the Agreement;
then, and in any such event (an "Event of Default") , Key Bank may, at its
option, refuse to make any further advances of Loan proceeds and declare the
entire unpaid balance of this Note together with interest accrued thereon and
any other sums due hereunder or under the Loan Documents, to be immediately due
and payable and Key Bank may proceed to exercise any rights or remedies that it
may have under this Note or any other Loan Documents, or such other rights and
remedies which Key Bank may have at law, equity or otherwise. In the event of
such acceleration, Borrower may discharge its obligations to Key Bank by paying:
(i) the unpaid principal balance hereof as at the date of such
payment, plus
(ii) accrued interest computed in the manner set forth above, plus
(iii) any Late Payment Charge computed in the manner set forth
above, plus
(iv) any other sum due and owing Key Bank under this Note or any
other Loan Document.
(f) COSTS AND EXPENSES ON DEFAULT. After the occurrence of an Event of
Default, in addition to principal, interest and any Late Payment Charge, Key
Bank shall be entitled to collect all costs of collection, including, but not
limited to, reasonable attorneys' fees, incurred in connection with the
protection or realization of collateral or in connection with any of Key Bank's
collection efforts, whether or not suit on this Note or any foreclosure
proceeding is filed, and all such costs and expenses shall be payable on demand
and until paid shall also be secured by the Loan Documents and by all other
collateral held by Key Bank as security for Borrower's obligations to Key Bank.
(g) NO WAIVER BY KEY BANK. No failure by any Guarantor of the Loan to make
any payments shall be deemed a waiver or release of Borrower's obligations
hereunder. No failure on the part of Key Bank or other holder hereof to exercise
any right or remedy hereunder, whether before or after the happening of a
default, shall constitute a waiver thereof, and no waiver of any past default
shall constitute waiver of any future default or of any other default. No
failure to accelerate the Loan evidenced hereby by reason of default hereunder,
or acceptance of a past due installment, or indulgence granted from time to time
shall be construed to be a waiver of the right to insist upon prompt payment
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thereafter, or shall be deemed to be a novation of this Note or as a
reinstatement of the Loan evidenced hereby or as a waiver of such right of
acceleration or any other right, or be construed so as to preclude the exercise
of any right which Key Bank may have, whether by the laws of the state governing
this Note, by agreement or otherwise; and Borrower and each endorser or
Guarantor hereby expressly waive the benefit of any statute or rule of law or
equity which would produce a result contrary to or in conflict with the
foregoing. This Note may not be changed orally, but only by an agreement in
writing signed by the party against whom such agreement is sought to be
enforced.
(h) WAIVER BY BORROWER. Borrower and each endorser or Guarantor of this
Note hereby waives presentment, protest, demand, diligence, notice of dishonor
and of nonpayment, and waives and renounces all rights to the benefits of any
statute of limitations and any moratorium, appraisement, exemption and homestead
now provided or which may hereafter be provided by any federal or state statute,
including but not limited to exemptions provided by or allowed under the
Bankruptcy Code of 1978, both as to itself personally and as to all of its or
their property, whether real or personal, against the enforcement and collection
of the obligations evidenced by this Note and any and all extensions, renewals
and modifications hereof.
(i) COMPLIANCE WITH USURY LAWS. It is the intention of the parties to
conform strictly to the usury laws, whether state or federal, that are
applicable to this Note. All agreements between Borrower and Key Bank, whether
now existing or hereafter arising and whether oral or written, are hereby
expressly limited so that in no contingency or event whatsoever, whether by
acceleration of maturity hereof or otherwise, shall the amount paid or agreed to
be paid to Key Bank or the holder hereof, or collected by Key Bank or such
holder, for the use, forbearance or detention of the money to be loaned
hereunder or otherwise, or for the payment or performance of any covenant or
obligation contained herein, or in any of the Loan Documents, exceed the maximum
amount permissible under applicable federal or state usury laws. If under any
circumstances whatsoever fulfillment of any provision hereof or of the Loan
Documents, at the time performance of such provision shall be due, shall involve
exceeding the limit of validity prescribed by law, then the obligation to be
fulfilled shall be reduced to the limit of such validity; and if under any
circumstances Key Bank or other holder hereof shall ever receive an amount
deemed interest by applicable law, which would exceed the highest lawful rate,
such amount that would be excessive interest under applicable usury laws shall
be applied to the reduction of the principal amount owing hereunder or to other
indebtedness secured by the Loan Documents and not to the payment of interest,
or if such excessive interest exceeds the unpaid balance of principal and such
other indebtedness, the excess shall be deemed to have been a payment made by
mistake and shall be refunded to Borrower or to any other
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<PAGE>
person making such payment on Borrower's behalf. All sums paid or agreed to be
paid to the holder hereof for the use, forbearance or detention of the
indebtedness of Borrower evidenced hereby, outstanding from time to time shall,
to the extent permitted by applicable law, and to the extent necessary to
preclude exceeding the limit of validity prescribed by law, be amortized,
pro-rated, allocated and spread from the date of disbursement of the proceeds of
this Note until payment in full of the Loan evidenced hereby and thereby so that
the actual rate of interest on account of such indebtedness is uniform
throughout the term hereof and thereof. The terms and provisions of this
paragraph shall control and supersede every other provision of all agreements
between Borrower, any endorser or Guarantor and Key Bank.
(j) GOVERNING LAW, SUBMISSION TO JURISDICTION. This Note shall be governed
by and construed under the laws of the State of New York. Borrower and each
endorser or Guarantor hereby submits to personal jurisdiction in said state for
the enforcement of Borrower's obligations hereunder or under any other Loan
Document and waives any and all personal rights under the law of any other state
to object to jurisdiction within such state for the purposes of litigation to
enforce such obligations of Borrower.
(k) WAIVER OF JURY TRIAL. Key Bank and the Borrower hereby waive trial by
jury in any litigation in any court with respect to, in connection with, or
arising out of this Note, any other Loan Document or the Loan, or any instrument
or document delivered in connection with the Loan, or the validity, protection,
interpretation, collection or enforcement thereof, or any other claim or dispute
howsoever arising between the Borrower and Key Bank.
(1) AUTHORITY OF KEY BANK. Borrower authorizes Key Bank to date this Note
as of the day when the Loan is made and to complete or correct this Note as to
any terms of the Loan not set forth herein at the time of delivery hereof.
(m) NOTICES. Any notices required or permitted to be given hereunder shall
be: (i) personally delivered or (ii) given by registered or certified mail,
postage prepaid, return receipt requested, or (iii) forwarded by overnight
courier service, in each instance addressed to the addresses set forth at the
head of this Note, or such other addresses as the parties may for themselves
designate in writing as provided herein for the purpose of receiving notices
hereunder. All notices shall be in writing and shall be deemed given, in the
case of notice by personal delivery, upon actual delivery, and in the case of
appropriate mail or courier service, upon deposit with the U.S. Postal Service
or delivery to the courier service.
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(n) LIABILITY IF MORE THAN ONE BORROWER. If more than one person or entity
executes this Note as a Borrower, all of said persons or entities are jointly
and severally liable hereunder.
(o) ENTIRE AGREEMENT. This Note and the other Loan Documents constitute
the entire understanding between Borrower, the Guarantors, if any, and Key Bank
and to the extent that any writings not signed by Key Bank or oral statements or
conversations at any time made or had shall be inconsistent with the provisions
of this Note and the other Loan Documents, the same shall be null and void.
IN WITNESS WHEREOF, Borrower has executed this instrument the date first
above written.
MACE SECURITY INTERNATIONAL, INC.
By: /s/ Robert D. Norman
--------------------------------
Robert D. Norman
President
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this 31st day of October, 1996, before me the subscriber personally
appeared Robert D. Norman, who being by me duly sworn, did depose and say; that
he resides at 160 Benmont Ave., Bennington, Vt., that he is President of Mace
Security International, Inc., the corporation described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
Board of Directors of said corporation.
/s/ Edward J. Trombly
-------------------------------
NOTARY PUBLIC
EDWARD J. TROMBLY
Notary Public, State of New York
Qualified in Albany County
Commission Expires 10/31/96
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SECURITY AGREEMENT
Date: October 31, 1996
The undersigned, MACE SECURITY INTERNATIONAL, INC., a Vermont corporation
with an office for the transaction of business at 160 Benmont Avenue,
Bennington, Vermont 05201 (herein referred to as "Debtor"), hereby agrees in
favor of KEY BANK OF NEW YORK, a New York State banking corporation with an
office for the transaction of business at 66 South Pearl Street, Albany, New
York 12207 (herein referred to as "Secured Party"), as follows:
1. THE INDEBTEDNESS. In consideration of one or more loans, advances, or
other financial accommodations at any time before, at or after the date hereof
made or extended by the Secured Party to or for the account of Debtor, directly
or indirectly, as principal, guarantor or otherwise (the "Indebtedness") Debtor
hereby grants to Secured Party a continuing security interest in and a right of
set-off against, and Debtor hereby assigns to Secured Party, the Collateral
described in Paragraph 2, to secure the payment, performance and observance of
(i) all indebtedness, obligations, liabilities and agreements of any kind of
Debtor to the Secured Party, now existing or hereafter arising, direct or
indirect, absolute or contingent, secured or unsecured, due or not, arising out
of or relating to the Indebtedness and (ii) all agreements, documents and
instruments evidencing any of the foregoing or under which any of the foregoing
may have been issued, created, assumed or guaranteed (all of the foregoing being
herein referred to as the "Obligations").
2. THE COLLATERAL. The Collateral is described on Schedule "A" annexed
hereto as part hereof and also includes all attachments, accessions and
equipment now or hereafter affixed to the Collateral or used in connection
therewith, substitutions and replacements therefor (unless the description of
Collateral expressly excludes after-acquired Collateral), all items of
Collateral now owned or existing and hereafter acquired, created or arising, and
all proceeds thereof (including, without limitation, claims of Debtor against
third parties for loss or damage to or destruction of any Collateral).
3. WARRANTIES, REPRESENTATIONS AND COVENANTS. Debtor warrants, represents
and covenants that:
(a) The chief executive office and other places of business of
Debtor, the Collateral and the books and records relating to the
Collateral and the Collateral are, and have been during the four month
period prior to the date hereof (or in the case of a new business, from
the date of commencement of said business), located at the address(es) set
forth below and Debtor will not change the same, or merge or consolidate
with any person or change its name, without prior written notice to and
consent of the Secured Party:
<PAGE>
Addresses: 160 Benmont Avenue, Bennington, Vermont 05201;
125 Whipple Road, Guild, New Hampshire
(b) Debtor will use the Collateral for lawful and business purposes
only, with all reasonable care and caution and in conformity with all
applicable laws, ordinances and regulations;
(c) Debtor will keep the Collateral in first-class order, repair,
running and marketable condition, at Debtor's sole cost and expense;
(d) The Secured Party shall at all times have free access to and
right of inspection of the Collateral and any records pertaining thereto
(and the right to make extracts from and to receive from Debtor originals
or true copies of such records and any papers and instruments relating to
any Collateral upon request therefor) and Debtor hereby grants to the
Secured Party a security interest in all such records, papers and
instruments to secure the payment, performance and observance of the
Obligations;
(e) The Collateral is now and shall remain personal property, is not
now a fixture and Debtor will not permit any Collateral which is not now a
fixture to become a fixture without prior written notice to and consent of
the Secured Party and without first making all arrangements, and
delivering, or causing to be delivered, to the Secured Party all
instruments and documents, including, without limitation, waivers and
subordination agreements by any landlords or mortgagees, requested by and
satisfactory to the Secured Party to preserve and protect the primary
security interest granted herein against all persons;
(f) Debtor, at its sole cost and expense, will insure the Collateral
in the name of and with loss or damage payable solely to the Secured
Party, as its interest may appear, against such risks, with such companies
and in such amounts, as may be required by the Secured Party from time to
time (all such policies providing ten (10) days minimum written notice of
cancellation to the Secured Party) and Debtor will deliver to the Secured
Party the original or duplicate policies, or certificates or other
evidence satisfactory to the Secured Party attesting thereto, and Debtor
will promptly notify the Secured Party of any loss or damage to any
Collateral or arising from its use;
(g) Debtor will, at its sole cost and expense, and at all times, pay
and discharge all taxes and assessments and keep the Collateral free and
clear of any and all liens, security interests or encumbrances (other than
in favor of the Secured Party), perform all acts and execute all documents
requested by the Secured Party from time to time to evidence, perfect,
maintain or enforce the Secured Party's primary security interest granted
herein or otherwise in furtherance of the provisions of this Security
Agreement;
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(h) At any time and from time to time, Debtor shall, at its sole
cost and expense, execute and deliver to the Secured Party such financing
statements pursuant to the Uniform Commercial Code ("UCC"), applications
for certificate of title and other papers, documents or instruments as may
be requested by the Secured Party in connection with this Security
Agreement, and Debtor hereby authorizes the Secured Party to execute and
file at any time and from time to time one or more financing statements or
copies thereof or of this Security Agreement with respect to the
Collateral signed only by the Secured Party;
(i) In its discretion, the Secured Party may, at any time and from
time to time, after a Default (as hereinafter defined) has occurred and is
continuing, in its name or Debtor's or otherwise, notify any account
debtor or obligor of any account, contract, document, instrument, chattel
paper or general intangible included in the Collateral to make payment to
the Secured Party;
j) In its discretion, Secured Party may, at any time and from time
to time, after a Default has occurred and is continuing, demand, sue for,
collect or receive any money or property at any time payable or receivable
on account of or in exchange for, or make any compromise or settlement
deemed desirable by Secured Party with respect to, any Collateral, and/or
extend the time of payment, arrange for payment in installments, or
otherwise modify the terms of, or release, any Collateral or Obligations,
all without notice to or consent by Debtor and without otherwise
discharging or affecting the Obligations, the Collateral or the security
interest granted herein;
(k) In its discretion, Secured Party may, at any time and from time
to time, for the account of Debtor, pay any amount or do any act required
of Debtor hereunder and which Debtor fails to do or pay, and any such
payment shall be deemed an advance by Secured Party to Debtor payable on
demand together with interest at the highest rate then payable on any of
the Obligations;
(1) Debtor will pay Secured Party for any sums, costs, and expenses
which Secured Party may pay or incur pursuant to the provisions of this
Security Agreement or in negotiating, executing, perfecting, defending, or
protecting the security interest granted herein or in enforcing payment of
the Obligations or otherwise in connection with the provisions hereof,
including but not limited to court costs, collection charges, travel
expenses, and reasonable attorneys' fees, all of which, together with
interest at the highest rate then payable on any of the Obligations, shall
be part of the Obligations and be payable on demand;
(m) All proceeds of any other Collateral received by Debtor after
the occurrence of a Default shall not be commingled with other property of
Debtor, but shall be segregated, held by Debtor in trust for Secured
Party, and immediately delivered to Secured Party in the form received,
duly endorsed in blank where appropriate to effectuate the provisions
hereof, the same to be held by Secured Party as additional
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Collateral hereunder or, at Secured Party's option, to be applied to
payment of the Obligations, whether or not due and in any order; and
(n) In its sole discretion, Secured Party may, at any time and from
time to time, assign, transfer or deliver to any transferee of any
Obligations, any Collateral, whereupon Secured Party shall be fully
discharged from all responsibility and the transferee shall be vested with
all powers and rights of Secured Party hereunder with respect thereto, but
Secured Party shall retain all rights and powers with respect to any
Collateral not assigned, transferred or delivered.
4. DEFAULT. It shall constitute an event of default ("Default") under this
Security Agreement if an Event of Default shall have occurred under any of the
Loan Documents (as that term is defined in the Line Of Credit Note in the amount
of $1,250,000.00 and the Promissory Note in the amount of $750,000.00 each
executed on even date herewith from Debtor to Secured Party) or if any one or
more of the following shall occur:
(a) Debtor shall fail to perform any covenant, agreement or
obligation contained in this Security Agreement; or
(b) the Collateral shall be subjected to waste, sale, transfer or
other disposition or any lien, encumbrance or other imposition is placed
upon said Collateral; or
(c) any levy, seizure, attachment, condemnation, forfeiture or other
proceeding shall be brought against or with respect to the Collateral; or
(d) the occurrence of a material and adverse change in the condition
or affairs (financial or otherwise) of the Debtor which, in the sole
opinion of the Secured Party, substantially impairs its security or
substantially increases the risk of failure of payment or performance
under any of the Loan Documents.
5. REMEDIES. Upon the occurrence of any Default and at any time
thereafter, Secured Party shall have the following rights and remedies (to the
extent permitted by applicable law) in addition to all rights and remedies of a
secured party under the UCC or of Secured Party under the Obligations, all such
rights and remedies being cumulative, not exclusive and enforceable
alternatively, successively or concurrently:
(a) Secured Party may at any time and from time to time, with or
without judicial process or the aid and assistance of others, enter upon
any premises in which any Collateral may be located and, without
resistance or interference by Debtor, take possession of the Collateral;
and/or dispose of any Collateral on any such premises; and/or require
Debtor to assemble and make available to Secured Party at the expense of
Debtor any Collateral at any place and time designated by Secured Party
which is reasonably convenient to both parties; and/or remove any
Collateral from any such premises for the purpose of effecting sale or
other disposition thereof (and if any of the
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Collateral consists of motor vehicles, Secured Party may use Debtor's
license plates); and/or sell, resell, lease, assign and deliver, grant
options for or otherwise dispose of any Collateral in its then condition
or following any commercially reasonable preparation or processing, at
public or private sale or proceedings or otherwise, by one or more
contracts, in one or more parcels, at the same or different times, with or
without having the Collateral at the place of sale or other disposition,
for cash and/or credit, and upon any terms, at such place(s) and time(s)
and to such person(s) as Secured Party deems best, all without demand,
notice or advertisement whatsoever except that where an applicable statute
requires reasonable notice of sale or other disposition Debtor hereby
agrees that the sending of five days' notice by ordinary mail, postage
prepaid, to any address of Debtor set forth in this Security Agreement
shall be deemed reasonable notice thereof. If any Collateral is sold by
Secured Party upon credit or for future delivery, Secured Party shall not
be liable for the failure of the purchaser to pay for same and in such
event Secured Party may resell such Collateral. Secured Party may buy any
Collateral at any public sale and, if any Collateral is of a type
customarily sold in a recognized market or is of the type which is the
subject of widely distributed standard price quotations, Secured Party may
buy such Collateral at private sale and in each case may make payment
therefor by any means. Secured Party may apply the sale proceeds actually
received from any sale or other disposition to the reasonable expenses of
retaking, holding, preparing for sale, selling, leasing and the like, to
reasonable attorneys' fees and all legal, travel and other expenses which
may be incurred by Secured Party in attempting to collect the Obligations
or enforce this Security Agreement or in the prosecution or defense of any
action or proceeding related to the subject matter of this Security
Agreement; and then to the Obligations in such order and as to principal
or interest as Secured Party may desire; and Debtor shall remain liable
and will pay Secured Party on demand any deficiency remaining, together
with interest thereon at the highest rate then payable on the Obligations
and the balance of any expenses unpaid, with any surplus to be paid to
Debtor, subject to any duty of Secured Party imposed by law to the holder
of any subordinate security interest in the Collateral known to Secured
Party;
(b) Secured Party may appropriate, set off and apply to the payment
of the Obligations, any Collateral in or coming into the possession of
Secured Party or its agents, without notice to Debtor and in such manner
as Secured Party may in its discretion determine.
6. DESIGNATION AND AUTHORIZATION. To effectuate the terms and provisions
hereof, Debtor hereby designates and appoints Secured Party and each of its
designees or agents as attorney-in-fact of Debtor, irrevocably and with power of
substitution, with authority, after the occurrence of a Default, to: receive,
open and dispose of all mail addressed to Debtor and notify the Post Office
authorities to change the address for delivery of mail addressed to Debtor to
such address as Secured Party may designate; endorse the name of Debtor on any
notes, acceptances, checks, drafts, money orders, instruments or other evidences
of Collateral that may come into Secured Party's possession; sign the name of
Debtor on any invoices, documents, drafts against and notices to account debtors
or obligors of Debtor,
5
<PAGE>
assignments and requests for verification of accounts; execute proofs of claim
and loss; execute endorsements, assignments of other instruments of conveyance
or transfer; adjust and compromise any claims under insurance policies or
otherwise; execute releases; and do all other acts and things necessary or
advisable in the sole discretion of Secured Party to carry out and enforce this
Security Agreement or the Obligations. All acts done under the foregoing
authorization are hereby ratified and approved and neither Secured Party nor any
designee or agent thereof shall be liable for any acts of commission or
omission, for any error of judgment or for any mistake of fact or law. This
power of attorney being coupled with an interest is irrevocable while any
Obligations shall remain unpaid.
7. PRESERVATION AND DISPOSITION OF COLLATERAL; MISCELLANEOUS. Secured
Party shall have the duty to exercise reasonable care in the custody and
preservation of any Collateral in its possession, which duty shall be fully
satisfied if Secured Party maintains safe custody of such Collateral. Except as
hereinabove specifically set forth, Secured Party shall not be deemed to assume
any other responsibility for, or obligation or duty with respect to, any
Collateral, or its use, of any nature or kind, or any matter or proceedings
arising out of or relating thereto, including, without limitation, any
obligation or duty to take any action to collect, preserve or protect its or
Debtor's rights in the Collateral or against any prior parties thereto, but the
same shall be at Debtor's sole risk and responsibility at all times. Debtor
hereby releases Secured Party from any claims, causes of action and demands at
any time arising out of or with respect to this Security Agreement, the
Obligations, the Collateral and its use and/or any actions taken or omitted to
be taken by Secured Party with respect thereto, and Debtor hereby agrees to hold
Secured Party harmless from and with respect to any and all such claims, causes
of action and demands. Secured Party's prior recourse to any Collateral shall
not constitute a condition of any demand, suit or proceeding for payment or
collection of the Obligations. No act, omission or delay by Secured Party shall
constitute a waiver of its rights and remedies hereunder or otherwise. No single
or partial waiver by Secured Party of any Default or right or remedy which it
may have shall operate as a waiver of any other Default, right or remedy or of
the same Default, right or remedy on a future occasion. Debtor hereby waives
presentment, notice of dishonor and protest of all instruments included in or
evidencing any Obligations or Collateral, and all other notices and demands
whatsoever (except as expressly provided herein). In the event of any litigation
with respect to any matter connected with this Security Agreement, the
Obligations or the Collateral, Debtor hereby waives the right to a trial by jury
and all defenses, rights of set-off and rights to interpose counterclaims of any
nature. Debtor hereby irrevocably consents to the jurisdiction of the Courts of
the State of New York and of any Federal Court located in such State in
connection with any action or proceeding arising out of or relating to the
Obligations, this Security Agreement or the Collateral, or any document or
instrument delivered with respect to any of the Obligations. Debtor hereby
waives personal service of any process in connection with any such action or
proceeding and agrees that the service thereof may be made by certified or
registered mail directed to Debtor at any address of Debtor set forth in this
Security Agreement. Debtor so served shall appear or answer to such process
within thirty (30) days after the mailing thereof. Should Debtor so served fail
to appear or answer within said thirty (30) day period, Debtor shall be deemed
in default and judgment may be entered by Secured Party against Debtor for the
6
<PAGE>
amount or such other relief as may be demanded in any process so served. In the
alternative, in its discretion, Secured Party may effect service upon Debtor in
any other form or manner permitted by law. All capitalized terms used and not
otherwise defined shall have the meanings set forth in the Note and other terms
herein shall have the meanings as defined in the UCC, unless the context
otherwise requires. No provision hereof shall be modified, altered or limited
except by a written instrument expressly referring to this Security Agreement
and to such provision, and executed by the party to be charged. This Security
Agreement and all Obligations shall be binding upon the successors, or assigns
of Debtor and shall, together with the rights and remedies of Secured Party
hereunder, inure to the benefit of Secured Party and its successors, endorsees
and assigns. This Security Agreement and the Obligations shall be governed in
all respects by the laws of the State of New York applicable to contracts
executed and to be performed in such State. If any term of this Security
Agreement shall be held to be invalid, illegal or unenforceable, the validity of
all other terms hereof shall in no way be affected thereby. Secured Party is
authorized to annex hereto any schedules referred to herein. Debtor acknowledges
receipt of a copy of this Security Agreement.
7
<PAGE>
SCHEDULE "A"
All present and future machinery and equipment, fixtures, furniture,
inventory, goods, accounts receivable, chattel paper, contract rights,
documents, instruments, bills of lading and general intangibles (including
without limitation all trademarks, trade names, patents, patents pending,
goodwill, customer lists, copyrights and the corporate name) and the proceeds of
any of the foregoing.
9
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed or caused this Security
Agreement to be executed in the State of New York as of the date first above set
forth.
MACE SECURITY INTERNATIONAL, INC.
By /s/ Robert D. Norman
---------------------------------
Robert D. Norman
President
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this 31st day of October, 1996, before me the subscriber personally
appeared Robert D. Norman who being by me duly sworn, did depose and say; that
he resides at 160 Benmont Ave., Bennington, Vt, that he is President of Mace
Security International, Inc., the corporation described in and which executed
the foregoing instrument and that he signed his name thereto by order of the
Board of Directors of said corporation.
/s/ Edward J. Trombly
-------------------------------
NOTARY PUBLIC
EDWARD J. TROMBLY
Notary Public, State of New York
Qualified in Albany County
Commission Expires 10/31/96
8
MODIFICATION OF LOAN AGREEMENT
This Modification of Loan Agreement (the "Modification") is made as of
this 11th day of April, 1997 by and among MACE SECURITY INTERNATIONAL, INC., a
Vermont corporation with its principal office and place of business at 160
Benmont Avenue, Bennington, Vermont 05201 ("Borrower") and KEYBANK NATIONAL
ASSOCIATION (formerly known as Key Bank of New York), a national banking
association with an office for the transaction of business at 66 South Pearl
Street, Albany, New York 12207 ("Bank").
WHEREAS, the Borrower and the Bank entered into a Loan Agreement dated
October 31, 1996 (the "Loan Agreement"); and
WHEREAS, the terms of the Loan Agreement required the Borrower to meet
certain financial performance criteria; and
WHEREAS, Borrower has requested that the Bank waive the requirement that
Borrower comply with the financial performance criteria for the fiscal quarters
which ended December 31 1996 and March 31, 1997; and
WHEREAS, the Bank has agreed to said waivers in consideration of Borrower
modifying the calculation of the "Borrowing Base" (as the quoted term is defined
in the Loan Agreement) and paying the Waiver Fee (hereinbelow defined);
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS. All capitalized terms used herein not otherwise defined
herein or defined by the context of their usage, shall have those definitions
set forth in the Loan Agreement.
2. MODIFICATIONS OF 7(e) AND (f).
(a) The definition of Borrowing Base set forth in the Loan Agreement
is modified to the following:
"The "Borrowing Base" shall be fifty (50%) percent of Eligible Accounts
Receivable."
(b) The definition of Eligible Inventory and the concept of using
Eligible Inventory in calculating the Borrowing Base are deleted.
(c) "Eligible Accounts Receivable" and "Eligible Accounts" shall now
mean all accounts receivable in excess of $3,000,000.00 recorded on the
Borrower's books in accordance with generally accepted accounting principals
("GAAP") consistently applied, aged not more than sixty (60) days from the due
date which meet the criteria in subparagraph (f) of covenant 7 of the Loan
Agreement but shall not include any such account which is evidenced by an
"instrument" or which constitutes "chattel paper".
<PAGE>
(d) At 7(f), subitem (16) is deleted and replaced with the
following:
"(16) If the account debtor does not have a substantial business operation
in the United States or if the account arose from a sale of goods which
were shipped outside the United States unless the account is supported by
an irrevocable letter of credit or guaranteed by a party, in either
instance fully acceptable to the Bank;"
3. FINANCIAL PERFORMANCE COVENANT WAIVERS. The Bank hereby waives any
failure of the Borrower to comply with the provisions of Covenants 8(d), 8(j),
8(k). 8(l) and 8(m) for the year ended December 31, 1996 and the rolling four
quarter periods ended December 31, 1996 and March 3l, 1997.
4. WAIVER FEE. Borrower shall pay the Bank a fee of $7,500.00 (the "Waiver
Fee") as compensation for the Waiver as set forth in covenant 3 herein. The
parties acknowledge that it is difficult to calculate the value of said waiver
to Borrower but the Waiver Fee is a reasonable compensation for the waiver of
rights by the Bank and the increased risk to the Bank evidenced by Borrower's
failure to meet the financial performance criteria set forth in the Loan
Agreement.
5. NO FURTHER MODIFICATIONS. Except as modified herein, the Loan Agreement
is hereby ratified and confirmed. To the extent necessary, if any, any other
Loan Documents executed in conjunction with the Loan Agreement are hereby
modified to reflect the terms of this Modification.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Modification as of the day and year first above written.
Mace Security International, Inc.
By: /s/ Jon E. Goodrich, President
-------------------------------------
Name:
Title:
KeyBank National Association
By: /s/ Michael D. Carroll
-------------------------------------
Michael D. Carroll
Vice President
2
April 14, 1997
Mace Security International, Inc.
160 Benmont Avenue
Bennington, Vermont 05201
The undersigned hereby agrees to loan to Mace Security International, Inc. (the
Company) in the form of a line of credit an amount of up to $375,000 which
borrowing will be evidenced by a promissory note containing standard terms and
conditions including the following:
A) The note will bear interest at a rate equal to 1.25% percentage point(s) in
excess of the Prime Rate as in effect from time to time.
B) The term of the note will be one year from the date hereof, at which time all
accrued interest and unpaid principal will be due and payable; provided that the
note will be payable at such earlier time as the Company secures a bank line of
credit or similar financing in an amount of at least $750,000.
Borrowings under the line of credit will be documented through the issuance of a
formal note and can be drawn upon the request of management. Any such requests
for borrowings made by the Company shall be made equally to Jon E. Goodrich and
the undersigned as lender and each shall loan one-half of the amount requested.
However, should Mr. Goodrich be unable to or fail to make the loan requested,
the undersigned shall provide all of the funds requested, up to $375,000.
/s/ Marvin P. Brown /s/ Jon E. Goodrich
- --------------------------------- ---------------------------------
Marvin P. Brown Jon E. Goodrich, President
as Lender
April 14, 1997
Mace Security International, Inc.
160 Benmont Avenue
Bennington, Vermont 05201
The undersigned hereby agrees to loan to Mace Security International, Inc. (the
Company) in the form of a line of credit an amount of up to $375,000 which
borrowing will be evidenced by a promissory note containing standard terms and
conditions including the following:
A) The note will bear interest at a rate equal to 1.25% percentage point(s) in
excess of the Prime Rate as in effect from time to time.
B) The term of the note will be one year from the date hereof, at which time all
accrued interest and unpaid principal will be due and payable; provided that the
note will be payable at such earlier time as the Company secures a bank line of
credit or similar financing in an amount of at least $750,000.
Borrowings under the line of credit will be documented through the issuance of a
formal note and can be drawn upon the request of the Board of Directors of the
Company. Any such requests for borrowings made by the Board of Directors of the
Company shall be made equally to Marvin P. Brown and the undersigned as lender
and each shall loan one-half of the amount requested. However, should Mr. Brown
be unable to or fail to make the loan requested, the undersigned shall provide
all of the funds requested, up to $375,000.
/s/ Jon E. Goodrich /s/ Marvin P. Brown
- --------------------------------- ---------------------------------
Jone E. Goodrch Marvin P. Brown, Chairman of the Board
as Lender
MACE SECURITY INTERNATIONAL, INC.
Exhibit 11
Schedule of Computation of Primary Net Income
Per Share
For the twelve months ended December 31,
1996 1995
----------- -----------
Common stock outstanding at
end of period 6,825,000 6,805,000
Adjustments to ending shares to arrive
at weighted average for the year:
Shares issued to former President and CEO (1)
5,082
----------- -----------
6,819,918 6,805,000
=========== ===========
Net loss $ (252,348) $ (584,353)
=========== ===========
Net loss per share $ (.04) $ (.09)
=========== ===========
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.
(1) Shares offered for the twelve months:
April 3, 1996 20,000*(93/366) 5,082
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 345,554
<SECURITIES> 0
<RECEIVABLES> 2,669,523
<ALLOWANCES> 101,603
<INVENTORY> 5,225,879
<CURRENT-ASSETS> 8,310,624
<PP&E> 4,221,315
<DEPRECIATION> 1,302,085
<TOTAL-ASSETS> 14,122,590
<CURRENT-LIABILITIES> 2,373,837
<BONDS> 143,271
0
0
<COMMON> 68,250
<OTHER-SE> 11,537,232
<TOTAL-LIABILITY-AND-EQUITY> 14,122,590
<SALES> 10,824,203
<TOTAL-REVENUES> 10,824,203
<CGS> 6,596,992
<TOTAL-COSTS> 11,076,921
<OTHER-EXPENSES> (7,175)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,998
<INCOME-PRETAX> (245,543)
<INCOME-TAX> 6,805
<INCOME-CONTINUING> (252,348)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (252,348)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
