FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|x| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended: June 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number: 69270-NY
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MACE SECURITY INTERNATIONAL, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 030311630
- ------------------------------------ ------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
160 Benmont Avenue, Bennington, Vermont 05201
- ------------------------------------ ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 802-447-1503
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
INDEX
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Page No.
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PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Statements of Operations and Retained Earnings-
Three Months and Six Months Ended June 30, 1997 and 1996 1
Balance Sheets - June 30, 1997 and December 31, 1996 2
Statements of Cash Flows - Six Months Ended
June 30, 1997 and June 30, 1996 3
Notes to Financial Statements 4
Item 2 - Management's Discussion and Analysis of Financial 5
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 7
Item 6 - Exhibits and Reports on Form 8-K 7
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
<CAPTION>
MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
$ 2,926,616 $ 2,709,142 Net Sales $ 5,265,174 $ 5,712,227
1,862,690 1,671,021 Cost of Sales 3,322,922 3,293,754
- ----------- ----------- ----------- -----------
1,063,926 1,038,121 Gross Profit 1,942,252 2,418,473
Operating expenses:
569,038 596,353 General and Administrative 1,360,140 1,236,151
482,975 417,874 Selling 841,925 1,054,580
- ----------- ----------- ----------- -----------
11,913 23,894 Operating income (loss) (259,813) 127,742
Other (income) expense:
(4,652) (10,431) Interest income (7,408) (13,617)
23,517 22,626 Interest expense 47,280 46,517
(29,137) (11,717) Other income (46,800) (28,230)
- ----------- ----------- ----------- -----------
(10,272) 478 (6,928) 4,670
- ----------- ----------- ----------- -----------
22,185 23,416 Income (loss) before income (252,885) 123,072
tax expense
3,481 2,576 Income tax expense 5,437 13,538
- ----------- ----------- ----------- -----------
18,704 20,840 Net income (loss) (258,322) 109,534
$(1,819,927) $(1,201,859) Deficit, beginning of period $(1,542,901) $(1,290,553)
- ----------- ----------- ----------- -----------
$(1,801,223) $(1,181,019) Deficit, end of period $(1,801,223) $(1,181,019)
=========== =========== =========== ===========
Income (loss) per share
$ 0.00 $ 0.00 of common stock $ (0.04) $ 0.02
=========== =========== =========== ===========
Weighted average number
of common shares
6,825,000 6,824,560 outstanding 6,825,000 6,814,780
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
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MACE SECURITY INTERNATIONAL, INC.
BALANCE SHEETS
(Unaudited)
-----------
June 30, December 31,
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 604,415 $ 345,554
Accounts receivable, less allowance for
doubtful accounts
($101,005, 1997; $101,603, 1996) ............. 2,206,718 2,567,920
Inventories:
Finished goods ............................... 1,721,171 1,729,882
Work in process .............................. 912,061 1,184,590
Raw material and supplies .................... 2,204,919 2,311,407
Prepaid expenses ............................... 170,916 171,271
------------ ------------
Total current assets ......................... 7,820,200 8,310,624
Property and equipment, net ...................... 2,745,500 2,919,230
Intangibles, net ................................. 2,636,421 2,761,193
Other assets ..................................... 123,540 131,543
------------ ------------
Total Assets ................................. $ 13,325,661 $ 14,122,590
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ........... 782,507 949,827
Accounts payable ............................... 382,107 1,012,777
Accrued liabilities ............................ 622,978 411,233
Corporate income taxes payable ................. 8,024 --
------------ ------------
Total current liabilities .................... 1,795,616 2,373,837
Long-term debt ................................... 182,885 143,277
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Total liabilities ............................ 1,978,501 2,517,108
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Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized 2,000,000 shares; no shares issued
Common stock, par value $.01 per share;
authorized 18,000,000 shares; issued and
outstanding 6,825,000 in 1997 and 6,825,000 in
1996 ......................................... 68,250 68,250
Additional paid in capital ..................... 13,080,133 13,080,133
Deficit ........................................ (1,801,223) (1,542,901)
------------ ------------
Total Stockholders' equity ................... 11,347,160 11,605,482
------------ ------------
Total Liabilities and Stockholders' equity ... $ 13,325,661 $ 14,122,590
============ ============
The accompanying notes are an integral part
of the financial statements.
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MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
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<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net (loss) income $(258,322) $ 109,534
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation 222,385 223,365
Amortization 131,492 132,617
Allowance for bad debts (598) (1,936)
Loss on sale of assets -- 2,571
Changes in operating assets and liabilities:
Accounts receivable 361,800 (435,804)
Inventories 387,728 435,920
Prepaid expenses 355 148,929
Accounts payable (630,670) (250,256)
Accrued liabilities 211,745 (71,069)
Corporate income tax payable 8,024 --
Other assets 1,283 (2,192)
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Net cash provided by operating activities 435,222 291,679
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Investing activities:
Purchase of property and equipment (48,655) (149,597)
Proceeds from sale of property and equipment -- 11,550
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Net cash used in investing activities (48,655) (138,047)
--------- ---------
Financing activities:
Payment of principal of long-term debt (127,706) (196,339)
Payment of notes payable -- (89,187)
--------- ---------
Net cash used in financing activities (127,706) (285,526)
--------- ---------
Net increase (decrease) in cash 258,861 (131,894)
Cash:
Beginning of period 345,554 505,638
--------- ---------
End of period $ 604,415 $ 373,744
========= =========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
3
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
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1. MANAGEMENT OPINION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting of only normal, recurring
adjustments, necessary to present fairly the financial position, results
of operations and cash flows for the periods presented. The results of any
interim period are not necessarily indicative of results for the full
year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The financial
statements should be read in conjunction with the financial statements and
notes thereto for the year ended December 31, 1996.
2. EARNINGS PER SHARE
Earnings per share on common stock are computed using the weighted average
number of shares of common stock outstanding during each period presented.
Effective December 15, 1997, the Company is required to adopt Financial
Accounting Standard No. 128, "Earnings per Share". This Standard requires
both basic and diluted earnings per share to be reported for all periods
presented. When income/(loss) per common share is calculated in accordance
with this Standard, for the six months ended June 30, 1997 and 1996, basic
and diluted income/(loss) per common share do not significantly differ
from reported amounts.
3. LONG TERM DEBT
As previously disclosed on the Company's 1996 annual report on Form 10-KSB
(the "1996 Form 10-KSB"), the Company was in violation of various
covenants on the KeyBank National Association term loan. The Company has
obtained a waiver of these covenants through October 31, 1997. The Company
has received a letter of intent from the First National Bank of New
England for a $1,500,000 ten-year Commercial Term Loan, bearing interest
at prime + 1.5% and a $250,000 one-year annually renewable commercial
revolving line of credit bearing interest at prime + 1.00%. The letter of
intent is not and should not be construed as a commitment to lend. The
Company intends to pay off KeyBank National Association in full and,
accordingly, this debt has been classified as current.
4. INCOME TAXES
The Company's income tax expense for the three and six months ended June
30, 1997 represents corporate franchise taxes.
5. SUBSEQUENT EVENTS
On July 1, 1997, the Company purchased all of the issued and outstanding
Common Stock of MSP, Inc., an Aurora, Colorado marketer of a diversified
line of consumer safety and security products. The company will treat MSP,
Inc. as a subsidiary and will consolidate its results of operations with
Mace Security International, Inc. and elminate any intercompany
transactions. All of the issued and outstanding common stock of MSP, Inc.
were transferred to MSI in consideration for 95,000 shares of MSI common
stock. MSI's and MSP's stock was placed in escrow and will remain in
escrow over a one-year period. Eighty thousand shares of MSI's Common
Stock will be delivered to the former
4
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shareholders of MSP if certain financial performance criteria is met. An
additional fifteen thousand shares of MSI's Common Stock will also be
delivered to the former shareholders of MSP if certain additional
financial performance criteria is met. The assets purchased consist mainly
of intangibles.
Item 2. 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, 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.
For the three and six months ended June 30, 1997
The following discussion should be read in conjunction with the accompanying
financial statements and notes thereto.
RESULTS OF OPERATIONS:
Net sales for the three month period ended June 30, 1997 increased 8%, in
comparison to the same period in 1996. Net sales for the six month period ended
June 30, 1997 decreased 7.8% in comparison to the same period in 1996. The
increase in second quarter sales is principally due to a 40.6% increase, or
$644,136, in Law Enforcement division revenues partially offset by a 40.0%
decrease, or $426,662, in Consumer division revenues. For the six months ended
June 30, 1997, Law Enforcement division sales increased by 30%, or $897,978,
over the prior year comparable period while Consumer Division sales decreased by
49.4%, or $1,345,031, for the same comparable period.
The primary reasons for the Law Enforcement division second quarter sales
increase are shipments of several large international orders during the second
quarter of 1997 as well as the continued increase of Law Enforcement division
defense sprays both internationally and domestically.
The primary reasons for the Consumer Division sales decrease is the continued
cyclical decline of the consumer market.
Gross profit was 36.4% and 36.9% of net sales respectively for the three and six
month periods ended June 30, 1997 as compared to 38.3% and 42.3% for the
identical periods in 1996. The principal reason for the decrease in gross profit
margin for both the second quarter and the six months ended June 30, 1997 as
compared to the like periods in 1996 is due to the Company's sales mix; a higher
proportion of total sales consists of lower margin products. For the second
quarter of 1997 the higher margin Consumer division product line represented
23.8% of total Company net sales compared to 41.4% for the second quarter of
1996. For the six months ended June 30, 1997 the Consumer division product line
represented 26.2% of total Company net sales compared with 47.6% for the same
1996 period. Consumer Division gross margin was 49.6% for six months ended June
30, 1997 compared to 49.4% for the same period in 1996. Law Enforcement division
gross margin was 32.4% for the six months ended June 30, 1997 compared to 35.7%
for the same period in 1996. A primary reason for the Law Enforcement division
decline in 1997 is sales of large orders to several international law
enforcement agencies that yielded lower gross margins as a result of
manufacturing rework incurred during the fourth quarter of 1996 and early 1997.
5
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Operating expenses for the three and six month periods ended June 30, 1997 were
35.9% and 41.8% of net sales as compared to 37.4% and 40.1% for the
corresponding periods in 1996.
General and administrative expenses for the three month period ended June 30,
1997 were $569,038 representing 19.4% of net sales as compared to $596,353
representing 22% of net sales in the same quarter in 1996. General and
administrative expenses for the six month period ended June 30, 1997 were
$1,360,140 representing 25.8% of net sales compared to $1,236,151 representing
21.6% of net sales for the corresponding period in 1996. The second quarter
decrease, from 1996 to 1997, is the result of Management's continued
cost-cutting program initiated in 1996. The increase for the six months ended
June 30, 1997 is principally due to severence and bonus payments and related
costs made in the first quarter to the Company's former President/CEO and former
Executive Vice President and General Counsel.
Selling expenses for the three and six month periods ended June 30, 1997 were
16.5% and 16% of net sales as compared to 15.4% and 18.5% of net sales for the
same periods in 1996. The increase in second quarter selling expenses, from 1996
to 1997, is principally due to commissions on several large international
shipments during the second quarter of 1997. The commission rate varies
considerably among countries. The decrease from the six months ended June 30,
1996 to 1997 is principally due to a reduction in advertising expenses as
Management continues its effort to match selling expenses with sales.
Other (income) expense, net for the three and six month periods ended June 30,
1997, was ($10,272) and ($6,928) as compared to $478 and $4,670 for the
identical periods in 1996. The primary reason for the increase in other (income)
is the additional rental income from new tenants in the retail portion of the
Holden-Leonard Mill facility, in which the Company has its headquarters,
partially offset by a decrease in interest income.
LIQUIDITY AND CAPITAL RESOURCES:
Cash increased by $258,861 during the six months ended June 30, 1997 as a result
of accounts receivable collections, reduction of inventories, and an increase in
accrued liabilities, partially offset by a decrease in accounts payable.
Inventories decreased $387,728 during the six months ended June 30, 1997. This
reduction reflects the sale of Federal Laboratories(R) finished goods produced
in 1996 and during the first quarter of 1997 to fill orders placed in late 1996
and shipped in 1997.
Accounts payable and accrued liabilities, when netted together, decreased by
$418,925 principally due to the application of accounts receivable collections
and inventory liquidations to those liabilities.
As previously disclosed in the Company's 1996 Form 10-KSB, the Company was in
violation of various covenants on the KeyBank National Association term loan.
The Company has obtained a waiver of these covenants through October 31, 1997.
The Company has received a letter of intent from the First National Bank of New
England for a $1,500,000 ten-year Commercial Term Loan, bearing interest at
prime + 1.5% and a $250,000 one-year annually renewable commercial revolving
line of credit bearing interest at prime + 1.00%. The letter of intent is not
and should not be construed as a commitment to lend. The Company intends to pay
off KeyBank National Association in full and, accordingly, this debt has been
classified as current.
The Company anticipates relocating its aerosol filling operation from the South
wing to the Center wing of its operating facility before the end of 1997. The
capital expenditure for this relocation is expected to be $75,000.
6
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Although the Company is not aware of any substantiated claim of permanent
personal injury from its products, the Company is aware of recent incidents in
which, for example, defense spray products have been mischievously or improperly
used, in some cases by minors, have not been instantly effective or have been
ineffective against enraged or intoxicated individuals. Incidents of this type,
or others, could give rise to product liability or other claims; or to claims
that past or future advertising, packaging or other practices should be, or
should have been, modified, or that regulation of products of this nature should
be extended or changed.
As disclosed in the Company's Form 10-KSB for the year ended December 31, 1996,
a suit was filed by B. P. Apparel, Inc., Easley, South Carolina, in the Court of
Common Pleas, County of Lexington, South Carolina on August 10, 1995. 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 sought damages in the amount of
$200,000 as well as punitive damages and attorneys' fees. This matter came on
for trial in the above-referenced court on May 26 and 27, 1997. Hon. William P.
Keesley signed a Statement of Judgment stating that at the conclusion of the
plaintiff's case, the court found the evidence insufficient, as a matter of law,
to give rise to recovery for breach of contract, fraud or negligent
misrepresentation. The alleged agreement in question was also held to be
unenforceable because of the Statute of Frauds. Plaintiffs had until July 7,
1997 to appeal this decision which, to the Company's knowledge, has not
occurred.
In June, 1997, a suit in Circuit Court of the 9th Judicial Circuit in and for
Orange County, Florida (Docket No. CI 97-3805) was filed by Kerry Scola who
alleges injury as a result of being sprayed with a "tear gas" product at a
Grateful Dead concert in April of 1994 due to an incident involving the City of
Orlando Police. The Company is one of several "tear gas manufacturer defendants"
in this matter. 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.
Other than the foregoing, the Company is not aware of any new claim filed or
threatened against it during the quarter ended June 30, 1997.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(10.56) Waiver and Second Modification of Loan
Agreement between the Company and KeyBank
National Association dated June 30, 1997
(10.57) Stock Purchase Agreement between the Company
and Howard S. Edelman dated July 1, 1997.
(11) Schedule of Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K None
7
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MACE SECURITY INTERNATIONAL, INC.
Date: August 15, 1997 /s/ Jon E. Goodrich
---------------------------------
Jon E. Goodrich
President and Chief Executive Officer
Date: August 15, 1997 /s/ Timothy D. Smith
---------------------------------
Timothy D. Smith, Treasurer
Principal Financial Officer
SECOND
MODIFICATION OF LOAN AGREEMENT
This Modification of Loan Agreement (the "Second Modification") is made as
of this 30th day of June, 1997 by and among MACE SECURITY INTERNATIONAL, INC., a
Delaware 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, the Borrower previously requested that the Bank waive the
requirement that the Borrower comply with the financial performance criteria for
prior fiscal quarters to which request the Bank consented as set forth in a
Modification Of Loan Agreement made as of April 14, 1997 (the "First
Modification"); and
WHEREAS, Borrower has now requested that the Bank waive the requirement
that Borrower comply with the financial performance criteria for the fiscal
quarters (ending June 30, 1997 and October 31, 1997; and
WHEREAS, the Bank has agreed to said waivers in consideration of a
continuation of the modification set forth in the First Modification and the
payment of a 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. 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 rolling four quarter periods ending June 30, 1997
and October 31, 1997.
3. WAIVER FEE. Borrower shall pay the Bank a fee of $4,600.00 (the "Waiver
Fee") as compensation for the Waiver as set forth in covenant 2 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.
<PAGE>
4. NO FURTHER MODIFICATIONS. Except as modified pursuant to the First
Modification and 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 Second
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
-------------------------------------
Name: Jon E. Goodrich
Title: President
KeyBank National Association
By: /s/ Michael F. Lapham
-------------------------------------
Michael F. Lapham
Vice President
2
STOCK PURCHASE AGREEMENT
AGREEMENT dated this 1st day of July 1997, among MACE SECURITY
INTERNATIONAL, INCORPORATED, a Delaware corporation with a principal place of
business in Bennington, Vermont ("MSI"), MSP, INC., a Colorado corporation with
a principal place of business in Aurora, Colorado ("MSP") and HOWARD S. EDELMAN
of Aurora, Colorado ("Edelman").
PRELIMINARY STATEMENT
WHEREAS, MSI is engaged in the manufacture, distribution, marketing and
sales of personal security devices and services; and
WHEREAS, Edelman owns or controls all the outstanding stock of certain
four Colorado corporations, each of which corporations is engaged in the
manufacture, distribution, marketing and sales of personal security devices and
services; and
WHEREAS, these certain four corporations are Safetynet International,
Ltd.; Help Fight Crime, Ltd.; DTV Marketing, Inc.; and Global International
Security, Ltd. (hereinafter collectively, the "four Colorado corporations"); and
WHEREAS, MSP will acquire certain assets of the said four Colorado
corporations; and
WHEREAS, these four said Colorado corporations will be dissolved; and
WHEREAS, MSP will enter into employment contracts with certain key
personnel; and
WHEREAS, MSI desires to acquire ownership of MSP; and
WHEREAS, Edelman desires to be an employee of MSI to develop a franchise
program for MSI; and
<PAGE>
WHEREAS, 26,000 shares of MSP common stock shall be issued, transferred or
assigned to MSI in consideration for 80,000 shares of MSI common stock, which
MSI shall transfer to Edelman; and
WHEREAS, it is desired that the transfer of stock and MSI's attendant
acquisition of MSP be contingent upon MSP's performance over a one-year period
commencing July 1, 1997 and certain other conditions as set forth herein; and
WHEREAS, MSI will issue, transfer or assign 15,000 shares of MSI common
stock to Edelman if MSP's performance over a one-year period commencing July 1,
1997 meets certain criteria as set forth herein;
IT IS THEREFORE AGREED AS FOLLOWS:
1. Simultaneously with the signing of this Agreement, the parties shall
execute an Escrow Agreement in form attached hereto as Exhibit A and there shall
be delivered to the Escrow Agent stock certificates issued to Howard Edelman, to
which Edelman shall have attached stock powers endorsed in blank for: (1) 80,000
shares of MSI common stock, and (2) 15,000 shares of MSI common stock. Edelman
shall have all the privileges and restrictions of ownership, including the right
to vote such shares and to collect dividends thereon.
2. Simultaneously with the signing of this Agreement, 26,000 shares of MSP
common stock shall be issued, transferred or assigned to MSI. MSI shall deliver
to the Escrow Agent, the certificate for said MSP stock, with a stock power
endorsed in blank
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attached to the certificate. MSI shall have all the privileges and restrictions
of ownership, including the right to vote such shares and to collect dividends
thereon.
3. All the certificates are to be held in escrow with the Escrow Agent
pending a determination of MSP's pre-tax net profit ("the determination") for
the one-year period commencing July 1, 1997 ("one-year period"). The
determination shall be by audit if MSI so elects. The determination shall be
performed by MSI's then auditor in accordance with MSI's standard accounting
practices and shall commence at the end of the one-year period.
(a) For purposes of this Agreement the term "pre-tax net profit"
shall mean: Pre-tax income determined in accordance with GAAP; excluding salary
paid or payable to Edelman, if any, and sales of assets other than in the
ordinary course of operations.
4. Provided all the terms and conditions of this Agreement are met and if
MSP's pre-tax net profit for the one-year period is more than $25,000, the
Escrow Agent, in accordance with the escrow agreement, shall deliver the
certificate and stock power for the MSP stock to MSI and deliver the
certificate, with stock power endorsed in blank attached, for 80,000 shares of
MSI common stock, to Edelman.
5. Edelman, as the sole shareholder of MSP, hereby grants to MSI the
option to sell to Edelman all shares of MSP common stock purchased by MSI under
this Agreement (the "Put"). The Put shall be exercisable if, and only if, the
pre-tax net profit of MSP for the one-year period is $25,000 or less. The Put
shall be exercised within thirty (30) days of receipt by MSI of the calculation
of pre-tax net profit as provided herein, by written notice to Edelman and the
Escrow Agent. The Put consideration shall equal 80,000 shares of MSI
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common stock. The Escrow Agent shall administer the Put exercise by delivering
to MSI the Put consideration and by delivering to Edelman the shares of common
stock of MSP purchased by MSI hereunder.
6. {Reserved}
7. Provided all the terms and conditions of this Agreement are met and if
the auditor's report states that MSP's pre-tax net profit for the one-year
period exceeds $100,000, the Escrow Agent, in accordance with the escrow
agreement, shall deliver to Edelman the certificate, with stock power endorsed
in blank attached, for the 15,000 shares of MSI common stock. If all the terms
and conditions of this Agreement are met, but MSP's net pre-tax profit is
$100,000 or less, the Escrow Agent shall, in accordance with the escrow
agreement deliver said certificate, with stock power endorsed in blank attached,
for the 15,000 shares to MSI.
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8. (a) Funds loaned by MSI to MSP shall be repaid upon the terms and
conditions set forth in such loans and, in addition, if MSI exercises the Put
provided in Paragraph 5 hereof, MSP shall pay the amount of any pre-tax net
profit earned by MSP during the one-year period to MSI within six months of the
exercise of the Put, or if MSP sustains a pre-tax net loss, MSI shall pay the
same to MSP within six months.
(b) If MSI provides funds to MSP, other than by loan, during the
period of combined operations, and if MSI exercises the Put provided in
Paragraph 5 hereof, all tangible assets of MSP then in existence (for example,
and not limitation, cash, accounts receivable and equipment, except for the
recorded value of those assets owned by MSP at the time of execution of this
Agreement, as set forth in schedule D, shall be conveyed, transferred and paid
to MSI within six months of the exercise of said Put provided in Paragraph 5
hereof. In lieu of all tangible assets, MSI, in its sole discretion, may elect
to accept the cash value of said tangible assets.
9. Notwithstanding any term, condition, representation or warranty
contained herein to the contrary, all stocks shall be issued, transferred and
assigned in accordance with all federal and state laws, regulations, and
restrictions.
10. If MSI exercises the Put provided in Paragraph 5, the Escrow Agent, in
accordance with the escrow agreement, shall deliver the certificate and stock
power for the MSP stock to Edelman and all the certificates, with stock power
endorsed in blank attached, for MSI stock to MSI.
11. The current officers and directors of MSP shall resign upon the
transfer of MSP's stock to MSI. A special stockholders meeting shall thereupon
be held at which meeting MSI agrees to cause the election of Jon Goodrich, as
Chairman and Director of MSP
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<PAGE>
and such other the members of the Board of Directors as required by law or as
the stockholder deems appropriate. The Board of Directors shall elect Edelman
President of MSP; Sherri Kononov Secretary/Treasurer of MSP and such other
officers as the Board deems appropriate. Edelman will receive no compensation
for his services as President or for any other position with or office of MSP to
which he may be elected or appointed.
12. MSI and Edelman will enter into an employment agreement in the form of
Exhibit B. Edelman's primary responsibility as an employee of MSI will be to
develop a franchise program for MSI. Said franchise program and all related
materials, whether tangible or intellectual property, developed by Edelman
during the term of his employment by MSI shall be the sole and exclusive
property of MSI.
13. Edelman will execute non-disclosure, non-compete and confidentiality
in the form of Exhibit C, attached hereto.
14. Representations and Warranties by MSP and Edelman. MSP and Edelman
jointly and severally represent and warrant to MSI, from the date hereof as
follows:
(a) MSP and each of the said four Colorado corporations is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Colorado and is qualified to conduct business as it is presently
conducted. MSP has the corporate power and is duly authorized to carry on its
business where and as now conducted and to own, lease, use and operate its
properties as it now does.
(b) Each of MSP and Edelman has full authority and capacity to enter
into and to perform this Agreement in accordance with its terms and is not bound
by or subject to any contractual or other obligation that would be violated by
the execution or performance of this
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<PAGE>
Agreement, and this Agreement is valid and binding upon MSP and Edelman in
accordance with its terms.
(c) MSP and each of the said four Colorado corporations has filed
all federal, state and local income, employment and other tax returns required
to be filed by it on or before the dates on which such returns were due to be
filed. MSP and each of the said four Colorado corporations has paid all taxes of
any nature for which each is responsible, except for taxes which are not yet due
and payable as of the date hereof. There are no claims pending or threatened
against MSP or any of the said four Colorado corporations for unpaid taxes,
there are no outstanding waivers or agreements by MSP or any of the said four
Colorado corporations for the extension of time for the assessment of any tax.
Neither the Internal Revenue Service nor any state agency has conducted a tax
audit or examination of MSP or any of the said four Colorado corporations for
any past year and no deficiencies in taxes or any other governmental charges
have been claimed, proposed or assessed against MSP or any of the said four
Colorado corporations and no facts exist or have existed which would constitute
a basis for assessment of liability for any tax or any other governmental
charges against MSP or any of the said four Colorado corporations.
(d) MSP is authorized to issue only common stock and to issue no
more than 50,000 shares of common stock. 26,000 shares of MSP stock have been
issued or are outstanding. Simultaneously with the execution of this Agreement,
26,000 shares of MSP common stock shall be issued, transferred or assigned to
MSI for $1. Said stock is free and clear of all claims, liens or other
encumbrances at the time said stock is issued, transferred or assigned to MSI.
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<PAGE>
(e) There are no outstanding: (a) securities or instruments
convertible into or exercisable for any of the capital stock or other equity
interests of MSP; (b) options, warrants, subscriptions or other rights to
acquire stock or other equity interests of MSP; or (c) commitments, agreements
or understandings of any kind, including employee benefit arrangements, relating
to the issuance or repurchase by MSP of any stock or other equity interests of
MSP.
(f) Within 30 days of the date hereof or such additional time as is
agreeable to MSI, Edelman will cause to have the said four Colorado corporations
to transfer to MSP all right, title and interest to the assets listed in
Schedule D of each of the said four Colorado corporations, free and clear of
claims, liens or other encumbrances for $1 to each corporation.
(g) MSP will acquire all right, title and interest to the assets
listed on Schedule D of the said four Colorado corporations, free and clear of
claims, liens or other encumbrances in forms and upon terms and conditions
acceptable to MSI.
(h) Prior to the end of the one year period, Edelman will cause to
have the said four Colorado corporations dissolved in accordance with all
federal and state laws, regulations and rules.
(i) MSP will enter into employment contracts and confidentiality and
non-compete agreements with certain key personnel of the said four Colorado
corporations, in forms and upon terms and conditions acceptable to MSI. Said key
personnel are identified in Schedule E.
8
<PAGE>
(j) There is no litigation, proceeding or governmental investigation
pending or threatened and there is no order, injunction or decree outstanding
against or relating to MSP, any of the said four Colorado corporations or
Edelman, or the property, assets or businesses of MSP, any of the said four
Colorado corporations or Edelman which could have an adverse affect on the
transactions contemplated by this agreement or which seeks to enjoin or prohibit
the consummation of all or any of the transactions contemplated by the
agreement. Neither MSP, any of the said four Colorado corporations nor Edelman,
knows or has reasonable grounds to know of any basis for any such litigation,
proceeding or governmental investigation. Neither MSP, any of the said four
Colorado corporations, nor Edelman is in violation of any applicable law,
regulation, ordinance, order, injunction or decree, or any other requirement of
any governmental body or court relating to the property or business of MSP, any
of the said four Colorado corporations or Edelman. Neither MSP, any of the said
four Colorado corporations, nor Edelman knows or has reasonable grounds to know
of any factors or the occurrence of any event which might form the basis for any
claim against MSP, any of the said four Colorado corporations or Edelman not
fully covered by insurance.
(k) All statements contained in any exhibit, schedule, certificate
or other document delivered by or on behalf of MSP, any and all of the said four
Colorado corporations or Edelman pursuant to this Agreement or in connection
with the transaction contemplated hereby shall be deemed representations and
warranties hereunder by MSP and Edelman. No representation or warranty by MSP or
Edelman in this Agreement or in any schedule, exhibit, certificate or other
document, in whatever form, delivered or to be delivered by MSP, any of the said
four Colorado corporations or Edelman pursuant to this Agreement, or in
connection with the transaction contemplated hereby contains or will contain any
untrue
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<PAGE>
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained therein not misleading.
(l) Neither Edelman nor MSP has employed any financial advisor,
broker or finder, and none of them has incurred or will incur any broker's,
finder's, investment banking or similar fees, commissions or expenses in
connection with the transactions contemplated by this Agreement.
15. Representations and Warranties by MSI. MSI represents and warrants to
MSP and Edelman as follows:
(a) MSI is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and is qualified to
conduct its business as it is presently conducted. MSI has the corporate power
and is duly authorized to carry on its business where and as now conducted and
to own, lease, use and operate its properties as it now does.
(b) MSI has full authority and capacity to enter into and to perform
this Agreement in accordance with its terms and is not bound by or subject to
any contractual or other obligation that would be violated by the execution or
performance of this Agreement, and this Agreement is valid and binding upon MSI
in accordance with its terms.
(c) All statements contained in any exhibit, schedule, certificate
or other document delivered by or on behalf of MSI pursuant to this Agreement or
in connection with the transactions contemplated hereby shall be deemed to
representations and warranties hereunder by MSI. No representation or warranty
by MSI and this Agreement or any exhibit, schedule, certificate or other
document to be delivered by MSI pursuant to this Agreement or in connection with
the transactions contemplated hereby contains or will contain any untrue
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<PAGE>
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained therein not misleading.
16. Conditions to Delivery of the Escrowed Certificates.
(I) The delivery of the certificates held in escrow and all obligations of
MSI pursuant to this Agreement shall be conditioned upon the following:
Unless waived by MSI in writing, all representations and warranties
of MSP, the said four Colorado corporations and Edelman in Paragraph 14 as
stated above, shall be true in all material respects as of the end of the one
year period and MSI shall have received a confirmation from Edelman as President
of MSP in form acceptable to MSI and its counsel to that affect.
(II) The delivery of the certificates held in escrow and all obligations
of MSP and Edelman pursuant to this Agreement shall be conditioned upon the
following:
Unless waived by MSP in writing, all representations and warranties
of MSI set forth herein shall be true as of the end of the one year period.
17. Deliveries to be Made By the Parties. MSI and MSP shall deliver to
each other documents, certificates and other instructions set forth in this
section:
(a) MSI's Deliveries. MSI shall deliver to MSP the following:
(i) Simultaneously with the execution of this Agreement, a
copy of the resolutions of the directors of MSI certified by its corporate
secretary or assistant secretary as having been duly and validly adopted and as
being in full force and effect as of the date of this Agreement authorizing the
execution and delivery by MSI of this Agreement and other agreements and
instruments to be executed and delivered by MSI as provided herein and the
performance by MSI of the transactions contemplated hereby. MSI shall
11
<PAGE>
deliver to the Escrow Agent stock certificates issued to Howard S. Edelman
transferring: (1) 80,000 shares of MSI common stock, and (2) 15,000 shares of
MSI common stock. MSI shall deliver to the Escrow Agent, a certificate for
26,000 shares of MSP common stock, with a stock power endorsed in blank attached
to the certificate.
(b) MSP's Deliveries.
MSP shall deliver to MSI the following documents:
(i) Simultaneously with the execution of this agreement, a
copy of the resolutions of the incorporator and directors of MSP certified by
its corporate clerk or assistant clerk as having been duly and validly adopted
and as being in full force and effect and authorizing the execution and delivery
by MSP of this Agreement and such other agreements and instruments to be
executed and delivered by MSP as provided herein and the performance by MSP of
the transactions contemplated hereby.
(ii) In form satisfactory to MSI, copies of the votes and
resolutions of the stockholders and directors of each of the said four Colorado
corporations certified by its corporate clerk or assistant clerk as having been
duly and validly adopted and as authorizing the sale, transfer and delivery of
the assets listed in Schedule D to MSP and such other agreements and such other
instruments to be executed and delivered by each of the said four Colorado
corporations as provided herein and the performance by each of the said four
Colorado corporations of the transactions contemplated hereby.
12
<PAGE>
(iii) In form satisfactory to MSI, a copy of each employment
agreement and confidentiality and non-compete agreement for each of the key
personnel identified in Schedule E.
(iv) No later than the end of the one year period, in form
satisfactory to MSI, copies of the votes and resolutions of the stockholders and
directors of each of the said four Colorado corporations certified by its
corporate clerk or assistant clerk as having been duly and validly adopted and
as authorizing the dissolution of each of the said four Colorado Corporations
and documentation that the said four Colorado corporations have been dissolved
in full compliance with Colorado law and such other laws as may apply.
(v) In form satisfactory to MSI, documentation that all laws,
including, but not limited to the bulk sales laws of the state of Colorado, have
been complied with in respect to the sales of assets of the said four Colorado
corporations listed in Schedule D to MSP.
(vi) Unless MSI otherwise agrees in writing, if a vote of the
shareholders or directors of any of the said four Colorado corporations,
contemplated or required by this Agreement, is other than unanimous, no later
than the end of the one year period, in forms satisfactory to MSI, releases
executed by each shareholder or director, as the case may be, of the corporation
which produced the other than unanimous vote, releasing MSI and MSP from any all
liability in connection with or arising out of the subject matter of the vote
and transactions contemplated by this Agreement.
(c) Edelman's Deliveries.
Simultaneously with the signing of this Agreement, Edelman shall deliver
to the Escrow Agent certificate transferring, assigning or issuing said MSP
stock to MSI; Edelman
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<PAGE>
shall deliver to the Escrow Agent stock powers endorsed in blank to be attached
to the certificates: (1) 80,000 shares of MSI common stock, and (2) 15,000
shares of MSI common stock; Edelman shall execute and deliver the aforementioned
Employment Agreement and Confidentiality and Non-Compete Agreement.
18. Indemnification by MSP and Edelman. Each of MSP and Edelman shall
jointly and severally Indemnify, defend and hold MSI and its officers,
directors, stockholders, agents, employees, representatives, successors and
assigns (collectively the "MSI Indemnified Parties") harmless from any and all
damages, losses, costs, obligations, claims, demands, assessments, judgments or
liabilities (whether based on contract, tort product liability, strict liability
or otherwise) including taxes and all expenses, including without limitation,
interest, penalties and reasonable attorneys' and accountants' fees and
disbursements (collectively "Damages") incurred by any of the MSI Indemnified
Parties resulting from or in connection with any or more of the following:
(a) Any misrepresentation, breach of warranty or failure to perform
any covenant or agreement made or undertaken by MSP, any of the said four
Colorado corporations or Edelman in this Agreement or in any other document
delivered to MSI pursuant to this Agreement.
(b) Any and all commitments, agreements, debts, liabilities and
other obligations of MSP, the said four Colorado corporations or Edelman,
whether accrued, absolute, contingent or otherwise, whether known or unknown,
and whether or not disclosed in this Agreement.
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<PAGE>
(c) Any transaction, event, act or omission which occurred on or
prior to the execution of this Agreement which relates to the operation and
conduct of business of MSP or any of the said four Colorado corporations.
(d) Termination of any one or more of MSP's employees.
(e) Any one or more benefit or retirement plans maintained by MSP,
any of the said four Colorado corporations and any claims under any such benefit
or retirement plans.
(f) Any failure of MSP, any of the said four Colorado corporations
or Edelman to pay all of its liabilities or other failure of MSP to take
appropriate action which would make the transfers contemplated herein effective
as against creditors of MSP, each of the said four Colorado corporations or
Edelman and any claim by any creditor of MSP, any of the said four Colorado
corporations or Edelman challenging the effectiveness of the transfers
contemplated herein.
(g) Any and all claims, actions, suits or proceedings brought or
commenced by any former employee, contractor, consultant or principal of MSP or
any of the said four Colorado corporations or any actions, suits, proceedings or
claim incident to any of the foregoing.
(h) Any action, suit, proceeding or claim incident to any of the
matters referred to in this section.
19. Indemnification by MSI. MSI shall indemnify, defend and hold harmless
MSP and its officers, directors, shareholders, agents, employees,
representatives, successors and assigns (collectively the "MSP Indemnified
Parties") harmless from and against any and all
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<PAGE>
damages incurred by any of the MSP Indemnified Parties resulting from or in
connection with any one or more of the following:
(a) Any misrepresentation, breach of warranty or failure to
perform any covenant or agreement made or taken by MSI in this Agreement or in
any other agreement delivered to MSP pursuant to this Agreement.
20. Severability. If any provision of this Agreement shall be deemed by
any court having jurisdiction thereon to be invalid or unenforceable, the
balance of this Agreement shall remain in effect. If any provision of this
Agreement shall be deemed by any such court to be unenforceable because such
provision shall be too broad in scope, such provision shall be construed to be
limited in scope to the extent such court shall deem necessary to make it
enforceable. If any provision shall be deemed inapplicable by any such court to
any person or circumstances, it shall nevertheless be construed to apply to all
other persons and circumstances.
21. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns.
22. Entire Agreement. This Agreement contains a complete statement of the
undertakings between the parties with respect to its subject matter, cannot be
changed or terminated orally, and supersedes all prior agreements and
undertakings. There is no representation not set forth in this Agreement,
including the schedules and exhibits hereto, which has been relied upon by the
parties.
23. Notice. Any notice, approval, consent or other communications under
this Agreement shall be in writing and shall be considered given when (1)
delivered personally, or
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<PAGE>
(2) mailed by registered or certified mail, return receipt requested, or (3)
transmitted by telecopy with a confirming copy sent by overnight mail or courier
service, return receipt requested, the parties at the addresses indicated below,
or at such other address as a party may specify by notice to the others pursuant
hereto. Notice given by a party's counsel shall be considered notice given by
that party.
If to MSI, to it at:
Mace Security International, Incorporated
160 Benmont Avenue
Bennington, VT 05201
If to MSP, any of the said four Colorado corporations or Edelman, to it or
him at:
10255 East 25th Avenue, Unit 9
Aurora, CO 80010
24. Modifications. This Agreement may not be modified except by a writing
signed by all of the parties hereto.
25. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original.
26. Governing Law. This Agreement shall be governed and construed in
accordance with the substantive law of the State of Vermont without giving
effect to the conflicts or choice of law provisions of Vermont or any other
jurisdiction and shall have the effect of a sealed instrument.
27. No Waiver. Each party may, by written notice to the other parties
hereto, (a) extend the time for performance of any obligation or other actions
of such other party under this Agreement, (b) waive any inaccuracies in the
representations and warranties, conditions or covenants of any such party
contained in this Agreement, or (c) waive or modify a performance of any of the
obligations of such other party under this Agreement.
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Except as provided in the foregoing sentence, no waiver of performance or breach
of or default under any condition or obligation here shall be deemed to be made
a waiver of any performance or breach of or default under the same or any
condition or obligation of this Agreement.
Executed as of the date set forth above.
MACE SECURITY INTERNATIONAL
/s/ Bonnie L. Sennett /s/ Jon Goodrich
- ------------------------------- -------------------------------------
Witness By, Jon Goodrich
President
MSP, INC.
/s/ Norma Edelman /s/ Howard Edelman
- ------------------------------- -------------------------------------
Witness By, Howard Edelman
President
/s/ Norma Edelman /s/ Howard Edelman
- ------------------------------- -------------------------------------
Witness Howard Edelman, Individually
18
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EXHIBIT A
ESCROW AGREEMENT
AGREEMENT made this 1st day of July, 1997, by and between MACE SECURITY
INTERNATIONAL, a Delaware corporation ("MSI"), MSP, INC., a Colorado corporation
("MSP"), and HOWARD S. EDELMAN, a natural person and resident of Aurora,
Colorado ("Edelman") (all three, collectively, "the Parties").
WHEREAS, the Parties entered into an Stock Purchase Agreement and an
Employment Agreement dated July 1, 1997, pursuant to which MSI will acquire
26,000 of the shares MSP is authorized to issue and Edelman will receive a
certain number of MSI shares and warrants; and
WHEREAS, Mark S. Butterfield, Esq. of Rutland, Vermont, has agreed to
serve as the Escrow Agent; and
WHEREAS, MSI has agreed to deposit with the Escrow Agent a certain number
of shares in MSP and MSI (as described below) upon the terms and conditions set
forth herein.
IT IS THEREFORE AGREED:
1. Escrowed Documents
(a) Simultaneously with the execution of this Escrow Agreement, MSI
and Edelman have delivered to the Escrow Agent:
(i) A certificate for 80,000 shares of MSI common stock,
issued to Howard Edelman, with stock power endorsed in blank attached;
(ii) A certificate for 15,000 shares of MSI common stock,
issued to Howard Edelman, with stock power endorsed in blank attached;
<PAGE>
(iii) A certificate for warrants to purchase 20,000 shares of
MSI common stock, issued to Howard Edelman, with stock power endorsed in blank
attached; and
(iv) A certificate for 26,000 shares of MSP common stock,
issued to MSI, with stock power endorsed in blank attached.
2. Terms of Escrow. The Escrow Agent shall hold all the documents
mentioned in Paragraph 1 above until such time as it receives from MSI written
notification and directions for delivery. Each such notice shall contain a sworn
statement by MSI that the delivery is in accordance with the terms and
conditions of the aforementioned Stock Purchase Agreement and each and every
condition precedent to the delivery specified in said notification has been met
or has been otherwise agreed to by the parties.
Within ten days of receipt of any such notice, the Escrow Agent shall
endorse the stock powers and deliver the certificates as directed in the
notification.
In the event that the Escrow Agent does not receive a notification from
MSI as provided herein within two years of the date hereof, the Escrow Agent
shall deliver all of the documents to MSI, unless at that time there is an order
from a court of competent jurisdiction enjoining such delivery, or upon written
instructions by all the parties.
In discharging its duties hereunder, the Escrow Agent may rely upon and
shall be protected in acting upon any written notice, certificate, waiver,
consent or other instrument or document which it believes to be genuine; it
shall not be required to verify any statement or information contained therein
and all such statements and information shall, as to it, be conclusively
presumed to be complete and accurate in all respects. The Escrow Agent shall not
be liable for any error of judgment or for any act done or omitted in good
faith, except
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that it shall be liable for its own willful misconduct. The Escrow Agent may
consult with and obtain legal advice from legal counsel in the event of any
dispute or question as to the construction of any of the provisions hereof or
its duties hereunder, and it shall incur no liability and shall be protected in
acting in accordance with the opinion of such counsel. The Escrow Agent shall
have the right to seek instructions from a court of competent jurisdiction if it
deems such course to be appropriate. The Escrow Agent shall be entitled to
reasonable compensation for its services hereunder and reimbursement for any
out-of-pocket expenses incurred in connection with its duties hereunder, such
compensation and reimbursement to be paid equally by MSP and MSI.
3. Designation of Escrow Agent. The parties hereto agree that Mark
Butterfield, Esq. shall serve as the Escrow Agent under this Agreement. In the
event of his inability or unwillingness to serve, MSI shall select an attorney
licensed to practice in the State of Vermont who does not at the time represent
MSI, MSP, Edelman or Jon Goodrich to serve as his successor.
4. Notices. Any notice, approval, consent or other communication under
this Agreement shall be in writing and shall be considered given when (a)
delivered personally, or (b) mailed by registered or certified mail, return
receipt requested, or (c) transmitted by telecopy with a confirming copy sent by
overnight mail or a courier service or registered or certified mail, return
receipt requested, to the parties at the addresses indicated below or at such
other address as a party may specify by notice to the others pursuant hereto.
Notice given by a party's counsel shall be considered notice given by that
party.
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If to MSI, to it at:
Mace Security International Incorporated
160 Benmont Avenue
Bennington, VT 05201
If to MSP, to it at:
10255 East 25th Avenue, Unit 9
Aurora, CO 80010
If to Howard S. Edelman, to him at:
10255 East 25th Avenue, Unit 9
Aurora, CO 80010
If to the Escrow Agent, to him at:
P.O. Box 882
Rutland, Vermont 05702
5. Amendments. This Agreement may not be amended or modified in any
respect whatsoever except by instrument in writing signed by the parties hereto
and without written notice to the Escrow Agent. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior negotiations, discussions, writings and
agreements between them.
6. Successors. All the terms of this Agreement shall be binding upon and
inure to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
7. Captions. Captions and headings of this Agreement are for the
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Vermont, without giving effect to the
conflicts or choice of law provisions of Vermont or any other jurisdiction.
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<PAGE>
9. Severability. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof and
this Agreement shall be construed in all respects as if the invalid or
unenforceable provisions were omitted.
10. Scope. If this Agreement or any portion thereof shall be held by any
court having jurisdiction thereof to be unenforceable because it is too broad in
scope or for any other reason then this Agreement or the respective provision
thereof shall be deemed limited in scope to the extent that such court deems
necessary to make it enforceable.
11. Arbitration. Any controversy or claim arising out of or relating to
this Agreement or the breach thereof shall be settled by arbitration in
Bennington, Vermont, or such other location as the parties may agree, in
accordance with the commercial rules then obtaining of the American Arbitration
Association and judgment upon the award rendered may be entered in any court
having jurisdiction thereof. Each party shall pay his or its own costs in
connection with the arbitration. The expenses of the arbitration itself shall be
borne equally by the parties.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of this date first written above.
MACE SECURITY INTERNATIONAL, INC.
/s/ [ILLEGIBLE] /s/ Jon Goodrich
- ------------------------------- -------------------------------------
Witness Jon Goodrich, President
MSP, INC.
/s/ Norma Edelman /s/ Howard Edelman
- ------------------------------- -------------------------------------
Witness Howard Edelman, President
/s/ Norma Edelman /s/ Howard Edelman
- ------------------------------- -------------------------------------
Witness Howard S. Edelman, Individually
5
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EXHIBIT B
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT made this 1st day of July, 1997, by and between
MACE SECURITY INTERNATIONAL, INC. (hereinafter "MSI") and HOWARD S. EDELMAN
(hereinafter "the Employee").
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and of other good and valuable consideration, the receipt of which is hereby
acknowledge, the parties agree as follows:
1. Term and Job Description. MSI will employ the Employee for a one year
period beginning on the date hereof to manage and develop for MSI a franchise
program and perform such other tasks as MSI deems in the best interest of the
company. The Employee shall also sell and market certain products of MSI and
develop marketing and franchising segments that are compatible with MSI
operations as determined by MSI. Any franchise program and all related
materials, whether tangible or intellectual property, developed by the Employee
during the term of the employment are solely for the benefit of MSI and shall be
the sole exclusive property of MSI.
2. Conditions The Employee agrees to adhere to the policies of MSI as
established from time to time by the Board of Directors and to devote his time,
attention, energy during normal business hours to the business of MSI. He shall
not, during the term of this Agreement, be engaged in any other business
activity, whether or not such business activity is pursued for gain, profit or
other pecuniary advantages, without prior written consent of MSI: provided,
however, that this paragraph shall not be construed to prevent the Employee from
personally and for his own account from trading in stocks, bonds, securities,
<PAGE>
real estate, commodities or other form of investment for his own account and
for his own benefit.
3. Compensation For all services rendered by the Employee under this
Agreement, MSI shall pay and the Employee agrees to accept the following:
(a) The Employee shall be paid at a rate as agreed upon by the
parties, otherwise at the rate of $1,500 per week, payable in such installments
as shall from time to time be agreeable to the parties: otherwise, in equal
weekly installments. Such salary shall be subject to withholding and deductions
for all applicable state and federal taxes.
(b) The Employee shall be entitled to receive any benefits which may
accrue or be paid to or with respect to the Employee under any employment
benefit plan; any group medical, hospitalization or insurance plan or other plan
for all employees of MSI; including, but not limited to, any employee retirement
plan sponsored by MSI pursuant to Section 401 of the Internal Revenue Code of
1986, as currently enacted and as amended in the future; provided, however, that
participation and the extent and manner of the Employee's participation in any
and all such benefit plans shall be subject to the Board of Directors' sole
discretion and the Employee's qualification therefor.
(c) MSI shall pay all reasonable out-of-pocket expenses incurred by
the Employee while on business for the corporation provided that same be
approved in writing in advance by MSI.
(d) MSI may, but need not, offer the Employee shares or options to
purchase shares in MSI on such terms and conditions and at such times as MSI's
Board of Directors shall in its sole discretion deem appropriate.
2
<PAGE>
(e) Simultaneously with the signing of this Agreement, or promptly
thereafter, the parties shall execute an escrow agreement and there shall be
delivered to the escrow agent options to purchase 20,000 shares of MSI common
stock at an exercise price of $1.25 per share granted to Howard S. Edelman, to
which Edelman shall have attached stock powers endorsed in blank for options.
The options shall be exercisable within five (5) years of the end of the one (1)
year period beginning July 1, 1997, provided MSP's "pre-tax net profit" (as
defined in paragraph (a) of Section 3 of the Stock Purchase Agreement) for the
one (1) year period is more than $25,000.
If MSP's "pre-tax net profit" for the one (1) year period is $25,000 or
less and MSI exercises the Put provided in Section 5 of the Stock Purchase
Agreement, the options shall terminate and the escrow agent, in accordance with
the escrow agreement, shall deliver the stock powers attached for MSI options to
MSI.
Furthermore, provided all the terms and conditions of this Employment
Agreement and the Stock Purchase Agreement are met, MSI shall grant to Edelman
an option to purchase such number of shares of its common stock as is calculated
by dividing (a) the amount by which "pre-tax net profit" exceed $25,000 by (b)
the Average Closing Price of MSI's common stock (the "Earned Option"). The
exercise for each share covered by the Earned Option shall equal the Average
Closing Price of MSI's common stock. The Average Closing Price of MSI's common
stock shall equal the mean average closing price (as reported by NASDAQ Stock
Market or any other market on which MSI's common stock is then traded) for the
thirty (30) trading days immediately preceding the end of the one (1) year
period. The foregoing Earned Option shall be rounded down to and exercisable for
whole shares only. Said option shall be exercisable within five (5) years of the
end of the one (1) year period beginning on the date hereof.
All options shall be issued, transferred and assigned in accordance with
all federal and state laws, regulations and restrictions
2(a)
<PAGE>
4. Franchise If five franchises are established pursuant to such franchise
program as the Employee shall develop and MSI shall implement, during the
Employee's employment under this Employment Agreement, then within thirty (30)
days of the establishment of the fifth such franchise, the terms and conditions
of this Employment Agreement shall be revised and amended as the parties may
agree. If within said thirty (30) day period the parties do not agree to amend
or revise this Employment Agreement, the Employment Agreement will continue
until its natural expiration, in force and effect as it existed on the day prior
to the establishment of said fifth franchise.
5. Termination
(a) The employment may be terminated upon the mutual agreement of
MSI and the Employee or by MSI if MSP does breach any of its warranties to MSI
set forth in that agreement whereby MSI has acquired all of the issued and
outstanding stock of MSP.
(b) The employment shall automatically terminate without notice:
(i) Upon the death of the Employee;
(ii) The Employee fails or refuses to faithfully and
diligently perform the duties of his employment and provisions of this Agreement
for whatever reason;
(iii) Upon the commission of gross misconduct by the Employee.
6. Notices Any notice or other communication to be given by any party
hereunder shall be in writing and shall be deemed to have been given when sent
by express, registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
A. If to MSI, to it at:
160 Benmont Avenue
Bennington, VT 05201
3
<PAGE>
B. If to the Employee, to him at:
Howard Edelman
10255 E. 25th Ave.
Unit 9
Aurora, Colorado 80010
7. Miscellaneous
(a) This Agreement may not be amended or modified in any respect
whatsoever except by instrument in writing signed by the parties hereto. This
Agreement constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all prior negotiations,
discussions, writings and agreements between them.
(b) Failure of MSI to act upon any breach of any of the provisions
of this Agreement shall not constitute a waiver of the rights of the corporation
to act upon any other or future breach. Any and all rights and remedies created
for the corporation shall be cumulative and the resort to one remedy shall not
be taken to exclude the right to use any other.
(c) This Agreement may be executed in any number of counterparts,
each of which shall be an original but such counterparts shall together
constitute but one and the same instrument.
(d) This Agreement shall be governed and construed in accordance
with the laws of the State of Vermont, without giving effect to the conflicts or
choice of laws provisions of Vermont or any other jurisdiction.
(e) All of the terms of this Agreement shall be binding upon and
inure to the benefit of and be enforceable by the heirs, successors, assigns and
legal representatives of the parties hereto.
4
<PAGE>
(f) The invalidity or unenforceability of any particular provisions
of this Agreement shall not affect the other provisions hereof and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.
(g) Any controversy or claim arising out of or relating to this
Agreement or the breach thereof shall be settled by arbitration in Bennington,
Vermont, or such other location as the parties may agree, in accordance with the
rules then obtaining of the American Arbitration Association and judgment upon
the award rendered may be entered in any court having jurisdiction thereof. Each
party shall pay his or its own costs in connection with the arbitration. The
expenses of the arbitration itself shall be borne equally by the parties.
MACE SECURITY INTERNATIONAL, INC.
By /s/ Jon Goodrich
--------------------------------------
Jon Goodrich
President
/s/ Howard Edelman
--------------------------------------
Howard Edelman
5
<PAGE>
EXHIBIT C
CONFIDENTIALITY AND NON-COMPETE AGREEMENT
AGREEMENT made this 1st day July, 1997, between MACE SECURITY
INTERNATIONAL, INC., a Delaware corporation with a principal place of business
in Bennington, Vermont (hereinafter "MSI") and HOWARD S. EDELMAN (hereinafter
"Edelman").
WHEREAS, MSI is engaged in the business of manufacturing, developing,
marketing and selling products in the personal security industry and police
security industry; and
WHEREAS, Edelman is the President and sole incorporator of MSP, Inc., a
Colorado corporation ("MSP"); and
WHEREAS, MSP, Inc has issued 26,000 shares of which represent all the
issued shares of its authorized stock to MSI as set forth in a purchase
agreement dated July 1, 1997; and
WHEREAS, Edelman, in addition to his duties and obligations as president
of MSP, is to be an employee of MSI; and
WHEREAS, MSI's transaction of business involves the collection and usage
of confidential data as hereinafter defined, the unauthorized disclosure of
which may result in harm to MSI.
NOW, THEREFORE, in consideration of Edelman's employment and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Edelman and MSI hereby agree as follows:
1. "Confidential Data" is any and all trade secrets and information (a)
not generally known by persons who are not employed by MSI, or (b) which give
MSI an advantage over competitors who do not know or use it, or (c) disclosed to
Edelman in confidence by MSI, its agents or employees, or by MSI's customers or
suppliers. Confidential Data shall mean all information relating to MSI's
business that is provided either
<PAGE>
in writing or orally to Edelman, or otherwise communicated to or obtained by
Edelman, including, without limitation, financial, marketing, technical
information, all information pertaining to MSI's proprietary mailing lists, all
information concerning services provided to customers, information concerning
contracts with customers, vendors and suppliers, all information concerning the
pricing and marketing strategies of MSI and any and all information of
whatsoever nature and in whatsoever form which does or may give MSI an advantage
over its competitors who do not then have such information. Excluded from the
foregoing definition of Confidential Data is:
(a) Information in the public domain at the time of disclosure as
evidenced by printed publication, or which becomes part of the public domain by
a publication or otherwise through no fault of the recipient;
(b) Information which the recipient can demonstrate was in his
possession at the time of disclosure; and
(c) Information properly disclosed on a non-confidential basis by a
third party after the disclosure covered hereby.
2. During the term of Edelman's employment with MSI, Edelman shall not
directly or indirectly disclose to any person, firm, corporation or any other
entity without written authorization from the Board of Directors of MSI any
confidential data unless such disclosure is in furtherance of MSI's business or
is required by law.
3. Upon termination of Edelman's employment with MSI for any reason,
Edelman will immediately surrender to MSI all books, records, documents and
other writings and all computer disks and other recordings which may contain
confidential data.
4. During the term of Edelman's employment with MSI and after termination
of employment for any reason, Edelman shall not directly or indirectly use
without written
2
<PAGE>
authorization from the Board of Directors of MSI any confidential data unless
such use is in furtherance of MSI's business or is required by law.
5. (a) For a period of five years from the date of the purchase agreement
referenced above, or for a period of three years from the date of Edelman's
termination of employment at MSI for any reason, whichever is later in time,
Edelman shall not directly or indirectly, individually or in combination with
others as employee, partner, agent, corporate officer, corporate shareholder or
otherwise in any manner be engaged or personally interested in developing or
carrying out a business substantially similar to, or which competes with the
business activities conducted by MSI, any of its subsidiaries, or franchisees,
particularly such business activities which involve:
(i) MSP, Inc., and past customers and suppliers of MSP, Inc.,
or its subsidiaries, which are engaged in activities identical, similar to or
which compete with the business activities conducted by MSI.
(ii) Past and present customers and suppliers of MSI, its
franchisees or its subsidiaries.
(iii) Prospective customers to whom MSI, or its subsidiaries,
has directly marketed or is presently marketing its services or products.
(b) If all of the MSP, Inc. stock is transferred, issued or assigned
to Edelman in accordance with the aforementioned purchase agreement, Edelman may
directly or indirectly, individually or in combination with others as employee,
partner, agent, corporate officer, corporate shareholder or otherwise in any
manner be engaged or personally interested in those operations of MSP, Inc.
conducted on the day prior to the end of the one year period set forth in said
purchase agreement, without regard to the provisions of
3
<PAGE>
Paragraph 5(a)(i). Each and every provision of Paragraph 5(a) shall otherwise
continue to apply Edelman.
6. In the event of any breach of this Agreement by Edelman, MSI shall be
entitled to injunctive relief in addition to all other legal remedies to enforce
the provisions hereof.
7. This Agreement may not be amended or modified in any respect whatsoever
except by instrument in writing signed by the parties hereto. This Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior negotiations, discussions,
writings and agreements between them.
8. Failure of MSI to act upon any breach of any of the provisions of this
Agreement shall not constitute a waiver of the rights of the corporation to act
upon any other or future breach. Any and all rights and remedies created for the
corporation shall be cumulative and the resort to one remedy shall not be taken
to exclude the right to use any other.
9. This Agreement may be executed in any number of counterparts, each of
which shall be an original but such counterparts shall together constitute but
one and the same instrument.
10. This Agreement shall be governed and construed in accordance with the
laws of the State of Vermont, without giving effect to the conflicts or choice
of laws provisions of Vermont or any other jurisdiction.
11. All of the terms of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the heirs, successors, assigns and legal
representatives of the parties hereto.
4
<PAGE>
12. The invalidity or unenforceability of any particular provisions of
this Agreement shall not affect the other provisions hereof and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.
13. If this Agreement or any portion thereof shall be held by any court
having jurisdiction thereof to be unenforceable because it is too broad in scope
or for any other reason, then this Agreement or the respective provision thereof
shall be deemed to be limited in scope to the extent that such court deem
necessary to make it enforceable.
14. Any controversy or claim arising out of or relating to this Agreement
or the breach thereof shall be settled by arbitration in Bennington, Vermont, or
such other location as the parties may agree, in accordance with the rules then
obtaining of the American Arbitration Association and judgment upon the award
rendered may be entered in any court having jurisdiction thereof. Each party
shall pay his or its own costs in connection with the arbitration. The expenses
of the arbitration itself shall be borne equally by the parties.
15. The Employee acknowledges receipt of a copy of this Agreement and
agrees to deliver a copy to each employer for whom the Employee may work at any
time within three years after the termination of his employment with MSI or
within five years of the aforementioned agreement dated July 1, 1997, whichever
is later in time and hereby consents to MSI corresponding with such employer
concerning the existence and terms of this Agreement.
IN WITNESS WHEREOF, the parties have set their hands and seals as of the
date first written above.
MACE SECURITY INTERNATIONAL, INC.
By /s/ Jon Goodrich
--------------------------------------
Jon Goodrich
President
/s/ Howard Edelman
--------------------------------------
Howard Edelman
5
<PAGE>
SCHEDULE D
Note: the following is an outline of the total assets to be conveyed and
transferred by the said four Colorado corporations to MSP pursuant to this
Agreement. The assets listed below may be added to or reduced as circumstances
and facts warrant. No more than 14 days prior to said conveyance and transfer, a
complete and detailed written list of the assets shall be delivered to MSI and
MSP, in forms acceptable to MSI.
Assets
Safteynet International, Ltd. Inventory
Global International Security, Ltd. Inventory
Property and Equipment of each of the four Colorado corporations
Television Infomercial of DTV Marketing, Inc.
Seminar Rights of Help Fight Crime, Ltd.
Goodwill of each of the four Colorado corporations
<PAGE>
SCHEDULE E
Leon Cwengel Denver, Colorado
Elaine Forberg Colorado Springs, Colorado
Schedule of Computation of Primary Net Income
Per Share
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
- --------------------------- -------------------------
1997 1996 1997 1996
- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
6,825,000 6,825,000 Common stock outstanding at 6,825,000 6,825,000
end of period
Adjustment to ending shares to
arrive at weighted average for
the period: Shares issued to
Robert D. Norman in accordance
--- 440 with Employment Agreement(1) -- 10,220
- ---------- ---------- ---------- ----------
6,825,000 6,824,560 6,825,000 6,814,780
========== ========== ========== ==========
$ 18,704 $ 20,840 Net income (loss) $ (258,322) $ 109,534
========== ========== ========== ==========
$ 0.00 $ 0.00 Net income (loss) per share $ (0.04) $ 0.02
========== ========== ========== ==========
</TABLE>
(1) Calculated as follows: Number of shares outstanding multiplied by the
reciprocal of the number of days outstanding divided by the number of days
in the period.
Shares offered for the six months:
June 30, 1996 20,000 x (93/182) 10,220
Shares offered for the three months: 20,000 x (2/91) 440
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 604,415
<SECURITIES> 0
<RECEIVABLES> 2,307,723
<ALLOWANCES> 101,005
<INVENTORY> 4,838,151
<CURRENT-ASSETS> 7,820,200
<PP&E> 4,269,970
<DEPRECIATION> 1,524,470
<TOTAL-ASSETS> 13,325,661
<CURRENT-LIABILITIES> 1,795,616
<BONDS> 182,885
0
0
<COMMON> 68,250
<OTHER-SE> 11,278,910
<TOTAL-LIABILITY-AND-EQUITY> 13,325,661
<SALES> 5,265,174
<TOTAL-REVENUES> 5,265,174
<CGS> 3,322,922
<TOTAL-COSTS> 5,524,987
<OTHER-EXPENSES> (6,928)
<LOSS-PROVISION> 30,034
<INTEREST-EXPENSE> 47,280
<INCOME-PRETAX> (252,885)
<INCOME-TAX> 5,437
<INCOME-CONTINUING> (258,322)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (258,322)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
