<PAGE>
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
[_] Preliminary Information Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14C-5(D)(2))
[X] Definitive Information Statement
MACE SECURITY INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant As Specified In Charter)
Payment of Filing Fee (Check the appropriate box):
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share, of American Wash Services, Inc.
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(2) Aggregate number of securities to which transaction applies:
100 shares of Common Stock of American Wash Services, Inc.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
Book value of each share of AWS Common Stock is $48,500
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(4) Proposed maximum aggregate value of transaction: $4,850,000. Fee is
1/50th of 1% of this value
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(5) Total fee paid: $970
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
160 BENMONT AVENUE
BENNINGTON, VERMONT 05201
NOTICE OF INFORMATION STATEMENT
To the Stockholders of Mace Security International, Inc.:
The Board of Directors of Mace Security International, Inc., a Delaware
corporation (the "Company"), is providing this Information Statement to you to
inform you of:
i. the approval and adoption of a series of agreements that will result
in a change of control of the Company and the issuance of greater than
twenty percent (20%) of the outstanding Common Stock of the Company
by:
(a) the appointment of Louis D. Paolino, Jr. as the Company's
Chairman of the Board of Directors;
(b) the appointment of a new Board of Directors of the Company
to include Jon E. Goodrich, Mr. Paolino, Constantine N.
Papadakis and four individuals designated by Mr. Paolino, at
least one of whom shall be an independent director;
(c) the acquisition by Mr. Paolino and his designees of an
aggregate of 6,885,000 shares of common stock of the Company
(1,300,000 of which are being purchased from current
stockholders of the Company); and
(d) the acquisition by merger, through a wholly-owned subsidiary
of the Company, of American Wash Services, Inc., a company
controlled by Mr. Paolino, in exchange for $4,687,500 in
cash, 628,362 shares of common stock of the Company and
warrants to purchase an aggregate of 1,825,000 shares of
common stock of the Company.
ii. the approval and adoption of an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of Common
Stock from 18,000,000 to 200,000,000 and authorized shares of
Preferred Stock from 2,000,000 to 50,000,000; and
iii. the approval and adoption of the Company's 1999 Stock Option Plan.
The Nasdaq National Market rules and regulations required the Company to
obtain stockholder approval for the change of control transactions, the issuance
of more than twenty percent (20%) of the outstanding common stock of the Company
and the 1999 Stock Option Plan. The Delaware General Corporation Law required
the Company to obtain stockholder approval for the charter amendment. In each
case, stockholder approval was obtained pursuant to Section 228 of the Delaware
General Corporation Law ("Section 228"), subject to the expiration of twenty
(20) days following the mailing of this Information Statement to the Company's
stockholders as required under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). No further corporate or stockholder approvals of these
actions are required. Accordingly, this Information Statement is being furnished
solely for the purpose of informing stockholders of these matters in compliance
with the Exchange Act and subsection (d) of Section 228.
By order of the Board of Directors,
/s/ Eduardo Nieves, Jr.
Bennington, Vermont Eduardo Nieves, Jr.
June 8, 1999 Assistant Secretary
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
160 BENMONT AVENUE
BENNINGTON, VERMONT 05201
INFORMATION STATEMENT
PURSUANT TO RULE 14C-2 OF THE SECURITIES EXCHANGE ACT
This information statement (the "Information Statement") is being furnished to
the holders of the common stock, par value $.01 per share (the "Common Stock"),
of Mace Security International, Inc. (the "Company"), on or about June 8, 1999
to advise them of the approval by written consent on May 25, 1999 (the
"Consent") by the holders of over 4,440,592 shares, or in excess of 50%, of the
Company's issued and outstanding Common Stock (the "Consenting Stockholders"),
of
i. the approval and adoption of a series of agreements that will result
in a change of control of the Company and the issuance of greater than
twenty percent (20%) of the outstanding shares of Common Stock of the
Company (collectively, the "Change of Control Transactions") by:
(a) the appointment of Louis D. Paolino, Jr. as the Company's
Chairman of the Board of Directors;
(b) the appointment of a new Board of Directors of the Company
to include Jon E. Goodrich, Mr. Paolino, Constantine N.
Papadakis and four individuals designated by Mr. Paolino, at
least one of whom shall be an independent director;
(c) the acquisition by Mr. Paolino and his designees of an
aggregate of 6,885,000 shares of common stock of the Company
(1,300,000 of which are being purchased from current
stockholders of the Company); and
(d) the acquisition by merger, through a wholly-owned subsidiary
of the Company, of American Wash Services, Inc., a company
controlled by Mr. Paolino in exchange for $4,687,500, in
cash, 628,362 shares of common stock of the Company and
warrants to purchase an aggregate of 1,825,000 shares of
common stock of the Company.
ii. an amendment to the Company's Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 18,000,000 to
200,000,000 and authorized shares of Preferred Stock from 2,000,000 to
50,000,000 (the "Charter Amendment"); and
iii. the Company's 1999 Stock Option Plan.
<PAGE>
The Nasdaq National Market rules and regulations required the Company to
obtain stockholder approval for the Change of Control Transactions and the 1999
Stock Option Plan. The Delaware General Corporation Law required the Company to
obtain stockholder approval for the Charter Amendment. In each case, stockholder
approval was obtained pursuant to Section 228 of the Delaware General
Corporation Law ("Section 228"), subject to the expiration of twenty (20) days
following the mailing of this Information Statement to the Company's
stockholders as required under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). No further corporate or stockholder approvals of these
actions are required. Accordingly, this Information Statement is being furnished
solely for the purpose of informing stockholders of these matters in compliance
with the Exchange Act and subsection (d) of Section 228.
Only stockholders of record at the close of business on May 21, 1999 (the
"Record Date") will receive this Information Statement. As of the Record Date,
there were outstanding 8,881,183 shares of Common Stock, which constituted the
only outstanding securities of the Company as of such date. Under the Delaware
General Corporation Law, the affirmative vote of the holders of a majority of
the issued and outstanding shares of Common Stock on the Record Date was
required to approve the Change of Control Transactions, the Charter Amendment
and the Company's 1999 Stock Option Plan. As of the Record Date, 4,440,592
shares of Common Stock constituted a majority of the outstanding shares of
Common Stock of the Company.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY
__________________________
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
INFORMATION STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of Change of Control Transactions................ 1
Summary of Charter Amendment............................. 9
Summary of 1999 Stock Option Plan........................ 12
Unavailability of Dissenter's Rights..................... 15
Interest of Certain Persons on Matters to be Acted Upon.. 15
Additional Information................................... 16
Index to Financial Statements............................ FS-1
</TABLE>
Appendices
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<TABLE>
<CAPTION>
Appendix A - Stock Purchase Agreement.......................... A-1
- ----------
<S> <C>
Appendix B - Merger Agreement.................................. B-1
- ----------
Appendix C - Fairness Opinion of Wolff Investment Group, Inc... C-1
- ----------
Appendix D - Employment Agreement for Louis D. Paolino, Jr..... D-1
- ----------
Appendix E - Charter Amendment................................. E-1
- ----------
Appendix F - 1999 Stock Option Plan............................ F-1
- ----------
</TABLE>
<PAGE>
SUMMARY OF CHANGE OF CONTROL TRANSACTIONS
GENERAL
The Company entered into a Stock Purchase Agreement dated March 26, 1999, as
amended, with Louis D. Paolino, Jr. (the "Stock Purchase Agreement") and a
Merger Agreement dated March 26, 1999, as amended, with a company controlled by
Mr. Paolino (the "Merger Agreement"), both of which are described in detail
below. Mr. Paolino, a graduate of Drexel University with a B.S. in Civil
Engineering, was formerly the Chairman, President and Chief Executive Officer of
Eastern Environmental Services, Inc. ("Eastern"), a solid waste management
services company from June 1996 through December 1998. On May 24, 1999, Mr.
Paolino was appointed a director and the President and Chief Executive Officer
of the Company.
The Company obtained the approval of the Consenting Stockholders for the
Change of Control Transactions in order to comply with the rules and regulations
of the Nasdaq National Market. The Delaware General Corporation Law does not
require stockholder approval for such transactions.
The consummation of the Change of Control Transactions are subject to several
independent conditions precedent. Although many of such conditions have been
satisfied, there can be no assurance that all of the conditions will be
satisfied and that the Change of Control Transactions will occur on the terms
set forth in this Information Statement or at all.
THE STOCK PURCHASE AGREEMENT
Mr. Paolino and his designees, pursuant to the terms and conditions of the
Stock Purchase Agreement, shall purchase from the Company 3,735,000 unregistered
shares of Common Stock at a purchase price of $1.375 per share, an aggregate of
$5,135,625. As of the date of this Information Statement, Mr. Paolino has
designated the right to purchase 900,000 shares of Common Stock to Red Mountain
Holdings, Ltd., a British Virgin Island corporation owning shares of common
stock of American Wash Services, Inc. ("RMH"), and 50,000 shares of Common Stock
to Robert M. Kramer, the Company's General Counsel and Executive Vice President.
Mr. Paolino currently anticipates designating the right to purchase an
additional 185,000 shares of Common Stock to other members of his management
team.
The Stock Purchase Agreement also provides for the following changes in the
Company's management to be a condition of the closing under the Stock Purchase
Agreement (the "Stock Closing"):
i. Except for Jon E. Goodrich, Mr. Paolino and Constantine N.
Papadakis, each director of the Company shall resign effective as
of the Stock Closing; and
ii. The Board of Directors shall appoint Mr. Paolino as the Chairman
of the Board of Directors and shall also appoint four individuals
designated by Mr. Paolino, at least one of whom shall qualify as
an independent director, as directors of the Company, in each
case to fill the vacancies on the Board.
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<PAGE>
The Stock Purchase Agreement contains representations, warranties,
covenants, conditions and indemnification provisions customary for a transaction
of this size and nature. The Stock Closing is conditioned upon, among other
things, the simultaneous closing under the Merger Agreement and the continued
listing of shares of Common Stock on the Nasdaq National Market. The Company has
been informed by the Nasdaq National Market that, as a result of the Change of
Control Transactions, the Company will need to meet the initial listing
requirements for the Nasdaq National Market, which are more stringent than the
continuing listing requirements. The Company believes, however, that it will
satisfy the initial listing requirements of the Nasdaq National Market.
Additional conditions precedent to the Stock Closing include (i) Mr.
Paolino's purchase of 1,050,000 shares of Common Stock from Mr. Goodrich for a
purchase price of $1.375 per share, (ii) Mr. Paolino's purchase of 100,000
shares of Common Stock from each of two current stockholders of the Company for
a purchase price of $1.375 per share, (iii) Mr. Kramer's purchase of 50,000
shares of Common Stock from Mr. Goodrich for a purchase price of $1.375 per
shares, and (iv) the consummation of a private placement by the Company (the
"Private Placement") of 1,850,000 shares of Common Stock at a purchase price of
$2.00 per share to five persons designated by Mr. Paolino. The Stock Purchase
Agreement may be terminated by either the Company or Mr. Paolino if the Stock
Closing has not occurred by August 31, 1999.
The aggregate purchases referenced above will result in a total capital
investment in the Company of approximately $8.83 million by Mr. Paolino, members
of Mr. Paolino's management team and investors purchasing shares of Common Stock
in the Private Placement. Following the consummation of such purchases, Mr.
Paolino will become the Company's largest shareholder.
A copy of the Stock Purchase Agreement is attached hereto as Appendix A.
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The descriptions of the material terms and conditions of the Stock Purchase
Agreement set forth above are qualified in their entirety by reference to the
complete text of the Stock Purchase Agreement.
THE MERGER
As a condition to the above-described share purchases, pursuant to a Merger
Agreement among the Company, Mr. Paolino and RMH, the Company is required to
simultaneously acquire by merger (the "Merger") American Wash Services, Inc.
("AWS"), a company presently headed and majority-owned by Mr. Paolino. AWS was
formed to engage in the business of acquiring and operating car wash facilities.
To date, it has acquired seven (7) car wash facilities located in Pennsylvania
and New Jersey and entered into agreements to acquire additional car wash
facilities that are described in " - Business of AWS" below.
Pursuant to the terms of the Merger, AWS will be merged with and into a
wholly-owned subsidiary of the Company ("Merger Sub"). At the closing under the
Merger Agreement (the "Merger Closing"), AWS will be merged with and into Merger
Sub and all of the outstanding shares of common stock of AWS shall be converted
into the right to receive from the Company, as consideration for the Merger, (i)
$4,687,500, in cash, and (ii) 628,362 unregistered shares of Common Stock, of
which Mr. Paolino shall receive 470,000 shares and RMH shall receive 158,362
shares. In addition, the Company shall issue at the Merger Closing (i) to Mr.
Paolino, an assignable warrant to purchase 1,500,000 shares of Common Stock at
an exercise price of $1.375 per share, exercisable at any time 120 days after
the Merger Closing and terminating on the fifth anniversary of the date on which
such warrant is first exercisable, (ii) to Mr. Paolino, an assignable warrant to
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<PAGE>
purchase 250,000 shares of Common Stock at an exercise price of $2.50 per share,
exercisable at any time 120 days after the Merger Closing and terminating on the
fifth anniversary of the date on which such warrant is first exercisable, and
(iii) to Mr. Kramer, an assignable warrant to purchase 75,000 shares of Common
Stock at an exercise price of $1.375 per share, exercisable at any time 120 days
after the Merger Closing and terminating on the fifth anniversary of the date on
which such warrant is first exercisable.
The Merger will be accounted for by the Company under the "purchase" method
of accounting in accordance with generally accepted accounting principles.
Pursuant to this method, a portion of the consideration delivered in connection
with the Merger will be allocated to the assets acquired and liabilities assumed
based on their estimated fair market values on the closing date of the Merger.
The excess of the merger consideration over the fair value of AWS' assets and
liabilities will be recorded as an intangible asset that will be amortized over
15 years.
The Merger Agreement contains representations, warranties, covenants,
conditions and indemnification provisions customary for a transaction of this
size and nature. The closing of the Merger is subject to several conditions
precedent, including the continued listing of shares of Common Stock of the
Company on the Nasdaq National Market. The Company is aware of no federal or
state regulatory requirements that must be complied with or other approvals that
must be obtained prior to consummation of the Merger, other than (i) compliance
with applicable federal and state securities laws, and (ii) the acceptance for
filing of the Certificate of Merger as required under the Delaware General
Corporation Law. The Merger Agreement may be terminated by either the Company or
the shareholders of AWS if the closing of the Merger has not occurred by August
31, 1999.
Pursuant to an Operating Agreement between the Company and AWS, until the
consummation of the Merger, the Company will operate all aspects of the business
of AWS. The Company will retain all revenues from such operations and will
incur all expenses in connection therewith, except that AWS will receive 50% of
the net income from its operations after July 3, 1999.
A copy of the Merger Agreement is attached hereto as Appendix B. The
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descriptions of the material terms and conditions of the Merger Agreement set
forth above are qualified in their entirety by reference to the complete text of
the Merger Agreement.
BUSINESS OF AWS
AWS is a chain of full-service car washes providing the convenience of full
service washing and detailing in a modern, customer-oriented environment. AWS'
principal executive offices are located at 1000 Crawford Place, Suite 400, Mt.
Laurel, New Jersey 08054, and its telephone number is (609) 235-6009.
AWS is a party to an agreement (the "Millennia Agreement") to acquire the
assets of Millennia Car Wash, LLC ("Millennia"), a Delaware limited liability
company which is in the business of operating a multi-location car wash company.
The obligations of AWS to acquire the assets of Millennia will become the
obligations of Merger Sub and the Company after the closing of the Merger.
Pursuant to the terms of the Millennia Agreement, after the Merger, Merger Sub
will purchase the Texas car wash facilities of Millennia for 2,357,143 shares of
Common Stock of the
3
<PAGE>
Company, a warrant to purchase 62,000 shares of Common Stock of the Company and
the assumption of certain debt. At a second closing (the "Second Millennia
Closing"), Merger Sub will purchase the Phoenix, Arizona car wash facilities of
Millennia for 1,730,535 shares of Common Stock of the Company and the assumption
of certain debt. The debt to be assumed is not expected to exceed $15,109,000,
and the majority of the debt will be assumed at the Second Millennia Closing.
The Second Millennia Closing is conditioned upon Millennia's lenders approval of
the assumption of debt by the Company. The first Millennia closing is expected
to occur soon after the closing of the Merger and the Second Millennia Closing
is expected to occur one month thereafter.
AWS is a party to a Stock Purchase Agreement with Stephen N. Bulboff (the
"SBP Agreement"), the sole shareholder of Stephen B. Properties, Inc., a New
Jersey corporation which is in the business of operating a multi-location car
wash company ("SBP"). The obligations of AWS to acquire the capital stock of
SBP will become the obligations of Merger Sub and the Company after the closing
of the Merger. Pursuant to the terms of the SBP Agreement, after the Merger,
Merger Sub will purchase all of the outstanding shares of common stock of SBP in
exchange for 1,060,000 shares of Common Stock of the Company.
The Millennia Agreement and the SBP Agreement contain several independent
conditions that must be fulfilled prior to the closings thereunder, including
obtaining stockholder approval for the issuance of shares of Common Stock of the
Company to Millennia as a result of such issuances being in excess of twenty
percent (20%) of the outstanding shares of Common Stock of the Company. In
addition, the transactions set forth in the Millennia Agreement are subject to
Hart-Scott-Rodino antitrust clearance. Although the Company will use its best
efforts to consummate the transactions set forth in the Millennia Agreement and
the SBP Agreement as soon as possible after the Merger, there can be no
assurance that, following the consummation of the Merger, the transactions set
forth in the Millennia Agreement and the SBP Agreement will be consummated on
the terms set forth in such agreement or at all.
REASONS FOR THE CHANGE OF CONTROL
The Company's Board of Directors pursued the Change of Control Transactions
as a strategic series of transactions designed to increase shareholder value
through the appointment of a new management team and the acquisition of a new
business division that will generate additional revenue for the Company and
provide an additional outlet to sell the Company's existing personal security
product line. In making its determination to approve the Change of Control
Transactions, the Board of Directors reviewed, discussed and analyzed the
business opportunities for the Company and certain other relevant factors. In
evaluating the terms of the Change of Control Transactions, the Board of
Directors consulted with the Company's management and with its financial
advisor, Wolff Investment Group Incorporated ("Wolff"). In reaching its
conclusion to approve the Change of Control Transactions, the Board of Directors
considered several material factors, including, among others:
i. The economic benefits from the net proceeds of the share purchases
under the Stock Purchase Agreement, resulting in increased liquidity
and a stronger balance sheet.
ii. The potential benefits resulting from an increased market value of the
combined enterprise and the possibility of increased research coverage
and investor interest.
4
<PAGE>
iii. The potential benefits from the complementary nature of the
businesses of the Company and AWS, including the ability of the
Company to have additional outlets to sell its personal security
product line.
iv. The extensive business experience and prior success of Mr. Paolino and
his management team.
v. The past and current market price of the Common Stock, operations,
financial condition and prospects of the Company.
v. The receipt of an opinion from Wolff that the terms of the Merger
Agreement and the Stock Purchase Agreement are fair, from a financial
point of view, to the holders of Common Stock of the Company. See " -
Opinion of Financial Advisor."
In view of the wide variety of factors considered by the Board of Directors,
no one of the factors, nor any combination of these factors other than all
factors taken together, was determinative in the Board's recommendation.
Without giving relative weights to the respective factors, favorable and
adverse, the Board of Directors determined that the factors adverse to the
Change of Control Transactions were not sufficiently so to negate the potential
benefits of the Change of Control Transactions.
OPINION OF FINANCIAL ADVISOR
On April 26, 1999, Wolff delivered its written opinion to the Board of
Directors of the Company that, as of such date, the terms of the Stock Purchase
Agreement and the Merger Agreement were fair, from a financial point of view, to
the holders of Common Stock.
The full text of the written opinion of Wolff, dated April 26, 1999, is
attached as Appendix C to this Information Statement and describes the
----------
assumptions made, matters considered and limits on the review undertaken. The
Company's stockholders are urged to read the opinion in its entirety.
EFFECTS OF CHANGE OF CONTROL TRANSACTIONS ON STOCKHOLDERS
After the Change of Control Transactions, the stockholders of the Company
will continue to own the same number of shares of Common Stock as before the
Change of Control Transactions, and such transactions are not expected to alter
the income tax effect of owning or subsequently transferring shares of Common
Stock. In view of the individual nature of each stockholder's income tax
situation, stockholders are urged to consult their own tax advisors with respect
to the specific federal, state and local tax consequences associated with the
Change of Control Transactions.
Although it is not possible to state the precise effect of the Change of
Control Transactions on the stockholders of the Company, the effects will
include (i) a lack of sufficient funds for the forseeable future that could be
used to pay dividends, although the Company has never paid dividends on its
Common Stock and does not anticipate paying dividends in the forseeable future,
(ii) dilution of the voting power of each share of Common Stock, and (iii)
reduction in the book value of each share of Common Stock.
5
<PAGE>
NEW MANAGEMENT
On May 24, 1999, the Company appointed Mr. Paolino, Mr. Kramer and Gregory M.
Krzemien to serve as the Company's President and Chief Executive Officer,
Executive Vice President, Secretary and General Counsel, and Chief Financial
Officer and Treasurer, respectively. Mr. Paolino and Constantine N. Papadakis
also were appointed to the Board of Directors of the Company to fill the
vacancies resulting from the resignations of Lewis Cohen, R. David Garwood and
Neil Campolungo.
The Company has entered into employment agreements with Mr. Kramer and Mr.
Krzemien providing for an annual base salary of $115,000 and $100,000,
respectively. On May 24, 1999, the annual salary for Mr. Kramer and Mr. Krzemien
was increased to $125,000 and $110,000, respectively. Generally, each of the
employment agreements provide for a four year term, contain noncompetition
provisions that expire three months following termination of employment, provide
certain employee benefits and grant Mr. Kramer and Mr. Krzemien 200,000 and
125,000 options to purchase shares of Common Stock of the Company, respectively,
under the 1999 Stock Option Plan that vest over a period of four years, except
in the event of a change of control, in which case such options vest
immediately.
The Company has also entered into an employment agreement with Mr. Paolino on
terms similar to those described in the employment agreements above. Mr.
Paolino's employment agreement, however, provides for an annual base salary of
$350,000, no stock options and a $7,000,000 payment upon termination of Mr.
Paolino's employment for any reason except for death and disability. A copy of
Mr. Paolino's employment agreement is attached hereto as Appendix D.
----------
The Company has also entered into employment agreements with certain other
members of the new management team selected by Mr. Paolino. Generally, each of
the employment agreements provide for a four year term, contain noncompetition
provisions that expire three months following termination of employment, provide
for salary and other benefits and grant each member of the new management team
options to purchase shares of Common Stock of the Company that vest over a
period of four years, except in the event of a change of control, in which case
such options vest immediately. The employment agreements specify that new
management shall be entitled to only nominal compensation until the consummation
of the Merger. In the event that such transaction is not consummated, the
employment agreements terminate and the options will automatically be cancelled.
Set forth below is certain information with respect to Mr. Paolino, Dr.
Papadakis, Mr. Kramer and Mr. Krzemien:
LOUIS D. PAOLINO, JR. will serve as the Chairman of the Board after the
Stock Closing, and is serving as a director and the President and Chief
Executive Officer of the Company. From June 1996 through December 1998, Mr.
Paolino served as Chairman of the Board, President and Chief Executive Officer
of Eastern. Prior thereto, he was President of Soil Remediation of Philadelphia,
Inc., a company engaged in the business of treating contaminated soil which was
sold to USA Waste Services, Inc., a waste management corporation, in September
1993. From September 1993 to June 1996, Mr. Paolino served as a Vice President
of USA Waste Services, Inc. From November 1995 to January 1996, Mr. Paolino
served on the Board of Directors of Metal Management, Inc., formerly known as
General Parametrics Corp., a publicly traded company. Mr. Paolino received a
B.S. in Civil Engineering from Drexel University. Mr. Paolino is 43 years old.
6
<PAGE>
CONSTANTINE N. PAPADAKIS, PHD is serving as a director of the Company. Dr.
Papadakis has served as the President of Drexel University since 1995. Dr.
Papadakis served as a director of Eastern from May 1998 to December 1998. From
1986 to 1995, Dr. Papadakis served as the Dean of the College of Engineering,
Geier Professor of Engineering Education, and Professor of Civil Engineering, at
the University of Cincinnati. Dr. Papadakis is a director of Fidelity Federal
Bank, the Philadelphia Stock Exchange and Corcell, Inc. Dr. Papadakis is 53
years old.
GREGORY M. KRZEMIEN is serving as the Chief Financial Officer and Treasurer
of the Company. From August 1992 through December 1998, he served as Chief
Financial Officer and Treasurer of Eastern Environmental Services, Inc. From
October 1988 to August 1992, Mr. Krzemien was a senior audit manager with Ernst
& Young LLP, and he held other positions with that firm since 1981. Mr.
Krzemien received a B.S. degree in Accounting from Pennsylvania State University
and is a certified public accountant. Mr. Krzemien is 39 years old.
ROBERT M. KRAMER will serve as a director of the Company upon consummation
of the Stock Closing and is serving as the General Counsel, Secretary and
Executive Vice President of the Company. From June 1996 through December 1998,
he served as General Counsel, Executive Vice President and Secretary of Eastern
Environmental Services, Inc. Mr. Kramer is an attorney and has practiced law
since 1979 with various firms, including Blank Rome Comisky & McCauley,
Philadelphia, Pennsylvania and Arent Fox Kitner Plotkin & Kahn, Washington, D.C.
Since 1989, Mr. Kramer has been the sole partner of Robert M. Kramer &
Associates, P.C., a law firm consisting of three lawyers. Although Mr. Kramer
will continue his private practice of law at Robert M. Kramer & Associates,
P.C., he will devote a substantial amount of time to performing his duties for
the Company. From December 1989 to December 1997, Mr. Kramer served on the Board
of Directors of American Capital Corporation, a registered securities broker
dealer. Mr. Kramer received a J.D. degree from Temple University Law School. Mr.
Kramer is 46 years old.
Set forth below is certain information with respect to the individuals that
will be appointed to the Board of Directors of the Company upon consummation of
the transactions described in this Information Statement and the resignations of
Marvin P. Brown and Howard Edelman as directors of the Company.
RODNEY R. PROTO will serve as a director of the Company upon consummation
of the Stock Closing. Mr. Proto has been the President and Chief Operating
Officer of USA Waste Services, Inc. since August 1996. Prior thereto, he was
President, Chief Operating Officer and a director of Sanifill, Inc., which he
joined in February 1992. Before joining Sanifill, he was employed by Browning-
Ferris Industries, Inc. for 12 years where Mr. Proto served, among other
positions, as Chairman of BFI Overseas from 1985 to 1987 and President of
Browning-Ferris Industries Europe, Inc. form 1987 through 1991. Mr. Proto is 48
years old.
MATTHEW PAOLINO will serve as a director and as a Vice President of the
Company upon consummation of the Stock Closing. From 1996 to December 1998, Mr.
Paolino served as Vice President of Risk Management, Asset Management and
Special Waste Divisions of Eastern. From 1993 to 1996, Mr. Paolino served as
Vice President and General Manager - Soil Remediation Division of USA Waste
Services, Inc., which was acquired by Eastern in August 1997. Mr. Paolino
received a BS degree in Civil Engineering from Villanova University in 1986 and
a JD degree from the Widener School of Law in 1994. Mr. Paolino is the brother
of Louis D. Paolino, Jr., the future Chairman, President and Chief Executive
Officer of the Company. Mr. Paolino is 34 years old.
7
<PAGE>
RICHARD B. MUIR will serve as a director of the Company upon consummation
of the acquisition of Millennia. Mr. Muir is currently serving as a director,
Executive Vice President and Secretary of Excel Legacy Corporation. He has
served in such capacity since its formation in 1998. From 1989 to May 1999, Mr.
Muir served as a director, Executive Vice President and Secretary of New Plan
Excel Realty Trust, Inc. In addition, Mr. Muir had served as an officer and
director of various affiliates of Excel Legacy Corporation since 1978, primarily
in administrative and executive capacities, including direct involvement in and
supervision of asset acquisitions, management, financings and dispositions. Mr.
Muir is 44 years old.
MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "MACE." The following table sets forth for the periods indicated the
high and low closing prices for the Company's Common Stock as reported by
Nasdaq.
1997 High Low
---------------- ------ -----
1st Quarter 1 3/4 1 1/8
2nd Quarter 1 3/8 7/8
3rd Quarter 1 5/16 25/32
4th Quarter 1 1/4 7/8
1998
----------------
1st Quarter 1 9/16 7/8
2nd Quarter 1 11/16 1 1/4
3rd Quarter 1 1/2 1 1/8
4th Quarter 1 13/16 1 3/16
1999
----------------
1st Quarter 6 1 9/16
On March 26, 1999, the last full trading day prior to the public announcement
of the execution of the Merger Agreement and the Stock Purchase Agreement, the
high and low trading prices for the Common Stock were a high of $3.563 and a low
of $2.6875. The closing price of the Common Stock on the Record Date was
$12.063. The number of holders of record of the Common Stock on the Record Date
was 166.
The Company has never declared or paid cash dividends on its Common Stock.
The payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, capital
requirements, financial condition and other relevant factors. The Company
presently intends to retain all earnings, if any, for future use in its business
and does not anticipate paying dividends in the forseeable future.
8
<PAGE>
SUMMARY OF CHARTER AMENDMENT
The Board of Directors has authorized and the Consenting Stockholders acting
by written consent have approved an amendment to the Company's Certificate of
Incorporation (the "Charter Amendment") to increase the number of authorized
shares of Common Stock from 18,000,000 shares to 200,000,000 shares, and the
authorized number of shares of Preferred Stock from 2,000,000 shares to
50,000,000 shares.
DESCRIPTION OF CAPITAL STOCK
At May 21, 1999, there were 8,881,183 shares of Common Stock outstanding and
no shares of Preferred Stock outstanding. In addition, at May 21, 1999, there
were outstanding stock options for the purchase of a total of 418,717 shares of
Common Stock and an additional 104,000 shares reserved for issuance pursuant to
future option grants under the Company's 1993 Stock Option Plan. The following
description of the Company's capital stock is a summary, does not purport to be
complete and is subject in all respects to the applicable provisions of the
Company's Certificate of Incorporation, and the information herein is qualified
in its entirety by this reference.
Common Stock
------------
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. Holders of Common Stock are not
entitled to cumulative voting rights.
Subject to the terms of any outstanding series of Preferred Stock, the holders
of record of the Common Stock are entitled to receive dividends in such amounts
and at such times as may be declared by the Board of Directors. Upon the
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, after payment or provision for payment of the debts or liabilities
of the Company, and any amounts required to be paid to the holders of the
Preferred Stock, holders of Common Stock shall be entitled to share ratably in
the remaining assets of the Company. Except as described above, holders of the
Common Stock have no preemptive, subscription, redemption or conversion rights,
nor are they entitled to the benefit of any sinking fund. The outstanding
shares of Common Stock are validly issued, fully paid and nonassessable by the
Company.
Preferred Stock
---------------
The Board of Directors of the Company is empowered, without approval of the
stockholders, to cause the Preferred Stock to be issued in one or more series,
and to determine the numbers of shares of each series and the rights,
preferences and limitations of each series. The specific matters that may be
determined by the Board of Directors include the dividend rights, redemption
rights, liquidation preferences, if any, conversion and exchange rights,
retirement and sinking fund provisions and other rights, qualifications,
limitations and restrictions of any wholly unissued series of Preferred Stock
(or of the entire class of Preferred Stock if none of such shares have been
issued), the number of shares constituting such series and the terms and
conditions of the issue thereof. The rights, preferences and limitations of any
series of Preferred Stock will be set forth in a certificate of designation
adopted by the Board of Directors or a duly authorized committee thereof.
9
<PAGE>
Anti-Takeover Provisions
------------------------
The Company is a Delaware corporation and is subject to Section 203 ("Section
203") of the Delaware General Corporation Law (the "DGCL"). In general, Section
203 prevents an "interested stockholder" (defined generally as a person owning
15% or more of a corporation's outstanding voting stock) from engaging in a
"business combination" (as defined) with a Delaware corporation for three years
following the time such person became an interested stockholder unless: (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (iii) at the time of or
following the time of the transaction in which such person became an interested
stockholder, the business combination was approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of 66-2/3% of the outstanding voting stock of the
corporation not owned by the interested stockholder. Under Section 203, the
restrictions described above also do not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of one of certain extraordinary transactions involving the corporation and a
person who has not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors or during certain prescribed times, if such
extraordinary transaction is approved or not opposed by a majority of the
directors who were directors prior to any such person becoming an interested
stockholder during the previous three years or were recommended for election or
elected to succeed such directors by a majority of such directors.
Section 203 defines a business combination to include: (i) any merger or
consolidation of the corporation with the interested stockholder; (ii) any sale,
transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation.
The Board of Directors of the Company that existed on March 26, 1999 approved
of the Change of Control Transactions, the Charter Amendment and the 1999 Stock
Option Plan.
Limitations on Liability
------------------------
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must exercise
an informed business judgment based on all material information reasonably
available to them. Absent the limitations authorized by Delaware law, directors
are accountable to corporations and their
10
<PAGE>
stockholders for monetary damages for conduct constituting gross negligence in
the exercise of their duty of care. Delaware law enables corporations to limit
available relief to equitable remedies such as injunction or rescission. The
Company's Certificate of Incorporation limits the liability of directors of the
Company to the fullest extent permitted by Delaware law. Specifically, directors
of the Company will not be personally liable for monetary damages for breach of
a director's fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
or (iv) for any transaction from which the director derived an improper personal
benefit.
The inclusion of this provision in the Company's Certificate of Incorporation
may have the effect of reducing the likelihood of derivative litigation against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefited the Company and its stockholders.
The Company's Certificate of Incorporation provides indemnification to its
officers and directors and certain other persons with respect to certain
matters, and the Company has entered into agreements with each of its directors
and executive officers providing for indemnification with respect to certain
matters.
Stock Transfer Agent and Registrar
----------------------------------
The stock transfer agent and registrar for the Common Stock is American
Securities Transfer & Trust, Inc., 938 Quail Street, Suite 101, Lakewood, CO
80215.
PURPOSE OF CHARTER AMENDMENT
The increase in the number of shares of Common Stock and Preferred Stock is
for the following purposes:
i. to reserve 15,000,000 shares of Common Stock for issuance upon the
exercise of options under the 1999 Stock Option Plan; and
ii. to reserve the remaining shares for issuance in the future for
appropriate corporate purposes without the need to amend again its
Certificate of Incorporation.
EFFECTS OF CHARTER AMENDMENT
The rights of the Company's stockholders will not be affected by the increase
in the number of authorized shares of Common Stock and Preferred Stock, although
their ownership percentage of the Company may be diluted upon the issuance of
any of the shares to be issued or reserved for issuance referenced above.
The Charter Amendment is set forth in Appendix E to this Information
-----------
Statement. The Charter Amendment will become effective upon its filing with the
Secretary of State of the State of Delaware on or about June 29, 1999, twenty
(20) days following the date of this Information Statement.
11
<PAGE>
SUMMARY OF 1999 STOCK OPTION PLAN
The Board of Directors believes that a stock option plan enhances the ability
of the Company to attract and retain officers and other employees (collectively,
"Eligible Employees") and directors, and consultants (together with the Eligible
Employees, the "Optionees") and to motivate them to exercise their best efforts
on behalf of the Company or any subsidiary or parent of the Company (a "Related
Corporation").
The text of the 1999 Stock Option Plan is attached as Appendix F to this
----------
Information Statement. The following description of the 1999 Stock Option Plan
is intended merely as a summary of its principal features and is qualified in
its entirety by reference to the full text of the 1999 Stock Option Plan.
1. Number of Shares. The aggregate maximum number of shares of Common Stock
which may be issued pursuant to options granted under the 1999 Stock Option Plan
will be 15,000,000 shares. The foregoing limit is subject to adjustment to
reflect stock dividends, stock splits, share combinations, and similar changes
in the capitalization of the Company. The shares issued under the 1999 Stock
Option Plan may be authorized but unissued shares or reacquired shares, and the
Company may purchase shares required for this purpose, from time to time, if it
deems such purchase to be advisable.
2. Administration. The 1999 Stock Option Plan will be administered by the
Company's Compensation Committee, which consists of not fewer than two directors
of the Company's Board of Directors who are designated by the entire Board of
Directors. Under the 1999 Stock Option Plan, the Compensation Committee will
have the authority to (i) select the Eligible Employees and other Optionees to
be granted "incentive stock options" ("ISOs"), within the meaning of Section 422
of the Code, and non-qualified stock options ("NQSOs"), (ii) grant options on
behalf of the Company, and (iii) set the date of grant and other terms of the
options, including the times at which and the price at which options shall be
granted. The Compensation Committee may, in its discretion, accelerate the date
on which an option may be exercised.
3. Eligibility. Only Eligible Employees of the Company or a Related
Corporation are eligible to receive ISOs under the 1999 Stock Option Plan. Non-
qualified stock options may be granted to all Optionees. As of the date of this
Information Statement, there are approximately 50 Eligible Employees of the
Company and Related Corporations eligible to receive ISOs and approximately 75
Optionees (including Eligible Employees) eligible to receive NQSOs.
4. Term of Plan. No option may be granted under the 1999 Stock Option Plan
after March 26, 2009, although options outstanding on March 26, 2009 may extend
beyond that date.
12
<PAGE>
5. Term of Option. All options terminate on the earlier of: (a) the
expiration of the term specified in the option agreement, which may not exceed
ten years from the date of grant or, in the case of an ISO, five years after the
date of grant if the Optionee on the date of grant owns, directly or by
attribution under the Code, shares possessing more than 10% of the total
combined voting power of all classes of stock of the Company; or (b) an
accelerated expiration date if the Optionee's employment or service as a
director or consultant terminates before the expiration of the term specified in
the option agreement, unless otherwise provided in the stock option agreement
related to the option. However, if the Optionee's employment or service as a
director or consultant terminates for "cause" (as defined in the Stock Option
Plan) prior to the expiration date of the option, such option will terminate
immediately.
6. Option Price. The option price for an option granted under the 1999
Stock Option Plan may not be less than the higher of one hundred percent (100%)
of the fair market value of the shares subject to the option on the date that
the option is granted or the par value thereof. However, if an ISO is granted
to an employee who then owns, directly or by attribution under the Code, shares
possessing more than 10% of the total combined voting power of all classes of
shares of the Company, the option price must be at least 110% of the fair market
value of the shares on the date that the option is granted.
7. Exercisability. Options are exercisable in such installments as the
Compensation Committee may determine.
8. Payment. An Optionee may pay for shares covered by his or her option in
cash or its equivalent or, in the discretion of the Compensation Committee, (i)
in shares of the Company's Common Stock previously acquired by the Optionee
(subject to certain holding period requirements), (ii) by delivering a properly
executed notice of exercise of the option to the Company and a broker, with
irrevocable instructions to the broker promptly to deliver to the Company the
amount of sale or loan proceeds necessary to pay the exercise price of the
option, or (iii) through any combination of cash or its equivalent, (i), or (ii)
above.
9. Option Agreement; Restriction on Transferability. All options will be
evidenced by a written option agreement which will contain provisions that are
consistent with the 1999 Stock Option Plan and such other provisions as the
Compensation Committee deems appropriate. No option granted under the 1999
Stock Option Plan may be assigned or transferred, except by will or the laws of
descent and distribution. If the Optionee is married at the time of exercise
and if the Optionee requests at the time of exercise, the certificate will be
registered in the name of the Optionee and his or her spouse, jointly, with
right of survivorship.
10. Amendments to Options and the 1999 Stock Option Plan; Discontinuance of
the 1999 Stock Option Plan. Subject to the provisions of the 1999 Stock Option
Plan, the Compensation Committee may not amend an option agreement without an
Optionee's consent. The Board of Directors may suspend or discontinue the 1999
Stock Option Plan or, subject to such shareholder approval as may be required
under the terms of the Plan, amend it in any respect whatsoever.
11. Federal Income Tax Aspects of the 1999 Stock Option Plan. Based on the
advice of counsel, the Company believes that, under federal tax laws and
regulations in effect on May 1, 1999, the federal income tax consequences to the
Company and to the Optionees receiving ISOs and NQSOs pursuant to the 1999 Stock
Option Plan will be as follows:
13
<PAGE>
If an option is treated as an ISO, the Optionee will recognize no income upon
grant or exercise of the option unless the alternative minimum tax rules apply.
Upon an Optionee's sale of his or her shares of Common Stock (assuming that the
sale occurs no sooner than two years after grant of the option and one year
after exercise of the option), any gain will be taxed to the Optionee as capital
gain. Currently, the maximum long-term capital gain rate is 20%. If the
Optionee disposes of his or her shares of Common Stock prior to the expiration
of the above holding period, the Optionee generally will recognize ordinary
income in an amount measured as the difference between the exercise price and
the lower of the fair market value of the Common Stock at the exercise date or
the sale price of the Common Stock. Any gain recognized on such a disposition
of the Common Stock in excess of the amount treated as ordinary income will be
characterized as capital gain. The Company will be allowed a business expense
deduction to the extent the Optionee recognizes ordinary income, subject to
Sections 83 and 162(m) of the Code.
An Optionee will not recognize any taxable income at the time the Optionee is
granted an NQSO. However, upon exercise of the option, the Optionee will
recognize ordinary income for federal income tax purposes in an amount generally
measured as the excess of the then fair market value of the Common Stock over
the exercise price, and the Company will be entitled to a corresponding
deduction at the time of exercise, subject to Sections 83 and 162(m) of the
Code. Upon an Optionee's sale of such shares, any difference between the sale
price and fair market value of such shares on the date of exercise will be
treated as capital gain or loss and will qualify for long-term capital gain or
loss treatment if the Common Stock has been held for more than 12 months.
The foregoing does not purport to be a complete summary of the effect of
federal income taxation upon holders of options or upon the Company. It also
does not reflect provisions of the income tax laws of any municipality, state or
foreign country in which an Optionee may reside.
____________________
NEW PLAN BENEFITS UNDER THE 1999 STOCK OPTION PLAN(1)
<TABLE>
<CAPTION>
Name Options Date Exercise Price Dollar Value(2)
- -------------------------- ------- ------- -------------- ---------------
<S> <C> <C> <C> <C>
Robert M. Kramer 200,000 3-26-99 $2.6875 $1,875,100
Gregory M. Krzemien 125,000 3-26-99 $2.6875 $1,171,938
Rodney R. Proto 125,000 3-26-99 $2.6875 $1,171,938
Matthew Paolino 125,000 3-26-99 $2.6875 $1,171,938
Constantine N. Papadakis 20,000 5-24-99 $ 11.00 $ 21,260
- ------------------------
</TABLE>
(1) This table discloses option grants under the 1 999 Stock Option Plan to Mr.
Kramer, the Secretary, Executive Vice Preside nt and General Counsel of the
Company, Mr. Krzemien, the Chief Financial Off icer and Treasurer of the
Company, Mr. Proto, a director-designee, and Mr. Matthew Paolino, a
director-designee and future Vice President of the Company. Such options
have been granted subject to stockholder appro val of the 1999 Stock Option
Plan.
(2) Calculated based on the amount by which the fair market value of the Common
Stock on the Record Date exceeds the exercise price of the option. The
closing price of the Company's Common Stock on the Record Date was $12.063
per share.
14
<PAGE>
In addition to the options granted to Messrs. Kramer, Krzemien, Proto, Paolino
and Papadakis as set forth above, in connection with the Change of Control
Transactions, the Company granted to certain Optionees, including members of the
new management team, under and in accordance with the 1999 Stock Option Plan,
options to purchase 684,000 shares of Common Stock at $2.6875 per share, options
to purchase 420,000 shares of Common Stock at $6.875 per share, options to
purchase 175,000 shares of Common Stock at $4.00 per share and options to
purchase 545,000 shares of Common Stock at $7.00 per share. Such options were
granted subject to approval of the 1999 Stock Option Plan by the Company's
stockholders.
Other than the options mentioned above, it is not presently determinable who
will receive future options under the 1999 Stock Option Plan since stock option
awards are granted by the Compensation Committee in its discretion from time to
time. It is anticipated that most or all of the authorized options will be
granted prior to the expiration of the 1999 Stock Option Plan.
_____________________
UNAVAILABILITY OF DISSENTER'S RIGHTS UNDER DELAWARE LAW
The corporate actions described in this Information Statement will not afford
to stockholders the opportunity to dissent from the actions described herein and
receive an agreed or judicially appraised value for their shares.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
As a condition to the closing under the Stock Purchase Agreement, the
Company's current President and Chief Executive Officer, Jon E. Goodrich, will
sell to Mr. Paolino 1,100,000 shares of Common Stock currently held by Mr.
Goodrich at a purchase price of $1.375 per share, an aggregate of $1,512,500.
At the closing under the Stock Purchase Agreement, Mr. Goodrich will become Vice
President of the Company's existing business, Mace Security Division, which is
expected to continue to operate in Bennington, Vermont.
See "Summary of Change of Control Transactions - Stock Purchase Agreement; -
The Merger; and - New Management" and "Summary of 1999 Stock Option Plan - New
Plan Benefits Under The 1999 Stock Option Plan" for a description of the
interests that Messrs. Paolino, Kramer, Krzemien, Proto, Papadakis and M.
Paolino have in the transactions approved by the Consenting Stockholders.
15
<PAGE>
ADDITIONAL INFORMATION
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, as well as persons beneficially owning more than 10% of the
Company's outstanding shares of Common Stock and certain other holders of such
shares (collectively, "Covered Persons"), to file with the Commission and the
Nasdaq Stock Market, within specified time periods, initial reports of
ownership, and subsequent reports of changes in ownership, of Common Stock and
other equity securities of the Company.
Based solely on a review of Forms 3 and 4 and amendments thereto furnished to
the Company during its fiscal year ended December 31, 1998, no person (other
than R. David Garwood, Eduardo Nieves, Jr. and Eric Crawford) known to be a
Covered Person, 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. All
reports not timely filed by Messrs. Crawford, Garwood and Nieves have since been
filed.
INFORMATION CONCERNING MEETING AND CERTAIN COMMITTEES
The Board of Directors held five formal meetings during 1998. During 1998,
all incumbent directors, except for Virginia de Ganahl Russell, attended in
person or by conference telephone at least 75% of the total number of meetings
of the Board of Directors and committees of the Board of Directors on which they
served during their incumbency. The Company has a standing Audit, Compensation,
Planning and Nominating Committee.
The Audit Committee recommends matters involving the engagement and discharge
of independent auditors, reviews the plans for and results of the Company's
procedures for internal auditing, and reviews the continuing status of the
Company's system of internal accounting controls. During 1998, the Audit
Committee consisted of Messrs. Campolungo, Garwood and Cohen and met 3 times.
The Audit Committee currently consists of Messrs. Papadakis and Brown.
The Compensation Committee makes recommendations regarding management
compensation and administers the Company's Nonqualified Stock Option Plan.
During 1998, the Compensation Committee consisted of Messrs. Cohen, Brown and
Campolungo and met 3 times. The Compensation Committee currently consists of
Messrs. Papadakis and Brown.
The Planning Committee is responsible for recommending long-term strategies
to the Board of Directors. During 1998, the Planning Committee consisted of
Messrs. Garwood, Goodrich, Cohen and Brown and met 5 times. The Planning
Committee currently consists of Messrs. Paolino, Goodrich and Brown.
The Nominating Committee recommends persons to serve as directors of the
Company. During 1998, the Nominating Committee consisted of Messrs. Brown and
Goodrich and met 2 times. The Nominating Committee currently consists of
Messrs. Paolino, Papadakis and Goodrich.
16
<PAGE>
COMPENSATION OF DIRECTORS
The Company currently pays the Chairman of the Board $750 and each
nonemployee director $500 for each Board and committee meeting attended. The
Company also pays for reasonable travel and out-of-pocket expenses incurred by
nonemployee directors in connection with attendance at meetings. Messrs. Brown,
Campolungo, Cohen, Edelman and Garwood have each been granted options to
purchase 10,000 shares of Common Stock in connection with their roles as
directors that are exercisable in the event of a change in a majority of the
Board as constituted on May 1, 1998. Messrs. Cohen, Campolungo and Garwood
have been granted additional options to purchase 10,000 shares of Common Stock
in connection with their roles as directors. Dr. Papadakis has been granted
options to purchase 20,000 shares of Common Stock in connection with his
appointment to the Board on May 24, 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Brown, who serves as Chairman of the Board, and the Company have a verbal
agreement pursuant to which Mr. Brown provides executive services to the Company
on an as needed basis and receives a fee of $500 per day for such services and
reimbursement of business expenses.
In January 1997, the Company retained the law firm of Donovan & O'Connor,
LLP, a firm at which Mr. Goodrich's brother is a principal, to render legal
services in litigation matters and general corporate matters. The Company paid
$31,017 and $54,354 to such firm in the fiscal years ended December 31, 1998 and
1997, respectively.
EXECUTIVE COMPENSATION
The following table sets forth certain information for the Company's last
three fiscal years concerning the annual, long-term and other compensation of
the chief executive officer of the Company. No other executive officer of the
Company received annual compensation (consisting solely of base salary and
bonus, if any) in excess of $100,000 for the year ended December 31, 1998:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
-----------------------------------------
Awards
-----------------------------------------
Annual Compensation Securities
---------------------------------- Restricted Underlying All Other
Name and Principal Position Year Salary Bonus Stock Awards Options Compensation(1)
- ---------------------------------------------- ---------------------------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jon E. Goodrich (1)........................... 1998 $123,714 - - - -
President and Chief 1997 $123,214 - - - -
Executive Officer 1996 $124,023 $25,000 - - -
</TABLE>
- ----------------------------------------
(1) Mr. Goodrich served as President and Chief Executive Officer until January
15, 1996 and, for the remainder of 1996, served as an advisor to the Board
of Directors. Mr. Goodrich was reappointed as President and Chief
Executive Officer on March 14, 1997.
17
<PAGE>
Mr. Goodrich has never been granted options by the Company. Consequently,
tables disclosing information with respect to options granted in 1998 to the
named current and former executive officers of the Company and information with
respect to the year-end value of options held by the named current and former
executive officers of the Company have been excluded.
EMPLOYMENT AGREEMENT
Mr. Goodrich is employed by the Company under an employment agreement that
expires on September 1, 1999. 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
would be entitled to all payments for the term of the agreement.
18
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of May 21, 1999 certain information with
respect to beneficial ownership of the Common Stock of the Company by: (a) each
person or entity known to the Company to own beneficially five percent or more
of the outstanding shares of Common Stock, based upon Company records or
Commission records, (b) each of the Company's directors, (c) Jon E. Goodrich,
and (d) all executive officers and directors of the Company as a group. Except
as otherwise indicated, each person has sole voting power and sole investment
power with respect to all shares beneficially owned by such person. The
information regarding stockholders that are the beneficial owners of 5% or more
of the currently outstanding Common Stock is based on information from the
Company's transfer agent and filings made by the beneficial owners with the
Commission. The Company bears no responsibility for the accuracy of the
information contained in, or the timeliness of, such filings.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership(1) Percent(1)
- ----------------------------------------- -------------------------- ----------
<S> <C> <C>
Jon E. Goodrich(2)(3) 2,063,246 23.2%
160 Benmont Avenue
Bennington, VT 05201
Louis D. Paolino, Jr.(4) 1,646,745 18.1%
1000 Crawford Place, Suite 400
Mt. Laurel, NJ 08054
Gary Higgins(5) 984,529 10.8%
701 West Highlander Blvd.
Arlington, Texas 76015
Ronald I. Heller(6) 681,375 7.7%
M.H. Meyerson & Co., Inc.
525 Washington Blvd.
Jersey City, N.J. 07310
David S. Nagleberg(7) 681,375 7.7%
M.H. Meyerson & Co., Inc.
525 Washington Blvd.
Jersey City, N.J. 07310
Marvin P. Brown(8)(10) 380,388 4.3%
160 Benmont Avenue
Bennington, VT 05201
Neil J. Campolungo(9)(10) 30,000 *
Lewis C. Cohen(9)(10)(11) 63,500 *
Howard Edelman(10) 67,700 *
R. David Garwood(9)(10) 57,500 *
All executive officers and
directors as a group (10 persons)(12) 2,715,834(8) 30.0%
- ---------------------------------------------------------------------------------
</TABLE>
*Indicates beneficial ownership of less than 1%
(footnotes continued on following page)
19
<PAGE>
(footnotes continued from previous page)
(1) Percentage calculation is based upon 8,881,183 outstanding shares of Common
Stock as of May 21, 1999. Shares of Common Stock not outstanding but
deemed beneficially owned by virtue of the right of an individual to
acquire them within 60 days upon the exercise of an option are treated as
outstanding for purposes of determining beneficial ownership and the
percentage beneficially owned by such individual.
(2) Excludes shares of Common Stock held by Mr. Goodrich's wife.
(3) Includes 350,000 shares that are the subject of options granted by Mr.
Goodrich to several individuals in private transactions.
(4) See " - Irrevocable Proxies" below.
(5) Includes 192,857 shares of Common Stock that will not be issued until the
named individual satisfied certain post-closing obligations relating the
acquisition of Colonial Full Service Car Wash, Inc. by the Company. The
named individual has granted an irrevocable proxy to Mr. Paolino to vote
the shares of Common Stock set forth in the table above. See "--Irrevocable
Proxies."
(6) Includes 445,375 shares of Common Stock in the Ronald I. Heller Individual
Retirement Account and 236,000 shares of Common Stock directly owned by Mr.
Heller's wife.
(7) Includes 681,375 shares held by a trust for which Mr. Nagleberg and his
wife are the trustees.
(8) Includes immediately exercisable options to purchase 200,000 shares of
Common Stock, 100,000 of which were granted by the Company in consideration
of his agreement to join the Company, and 100,000 of which were granted by
an individual in a private transaction.
(9) Includes immediately exercisable options to purchase 10,000 shares of
Common Stock granted in recognition for serving as a director.
(10) Includes options to purchase 10,000 shares of Common Stock exercisable in
the event of a change in a majority of the Board as constituted on May 1,
1998.
(11) Includes 37,500 shares of Common Stock owned by a 501(c)(2) organization,
of which Mr. Cohen is Trustee, from which he will derive no personal
benefit.
(12) The total number of shares deemed outstanding for the purpose of this
calculation is 9,061,183, which includes shares issuable to any of the
persons listed above under options exercisable within 60 days, exclusive of
shares underlying options granted by individuals on shares already
outstanding (to avoid duplication).
IRREVOCABLE PROXIES
In connection with the Company's recent acquisition of certain car wash
businesses, the following individuals have granted Mr. Paolino irrevocable
proxies to vote the shares of Common Stock issued to such individuals as
consideration for such acquisitions:
<TABLE>
<CAPTION>
Stockholder Shares Expiration Date
-------------------------------- ------- ---------------
<S> <C> <C>
Rosario Higgins 168,883 5-18-2000
Gary Higgins 984,529 5-18-2000
Genie Car Care Center, Inc. 4,400 11-30-99
Genie Car Service Center, Inc. 184,533 11-30-99
Genie Car Wash, Inc. of Austin 4,400 11-30-99
Cornett Limited Partnership 300,000 11-30-99
</TABLE>
Until the expiration date of such proxies, Mr. Paolino has the sole power to
vote all of the shares of Common Stock set forth above. Mr. Paolino, however,
does not have the power to dispose of such Shares.
20
<PAGE>
Available Information
The Company is subject to the information requirements of the Exchange Act and
in accordance therewith files reports, proxy statements, and other information
with the Commission. Such reports, proxy statements and other information may be
inspected and copied at the offices of the Commission, Route 1024 Judiciary
Plaza, 455 Street, N.W., Washington, D.C. 20549, and the following regional
offices of the Commission: Northwest Atrium Center, 5000 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such materials may be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a website
that contains reports, proxy statements and other information regarding
registrants that are filed electronically with the Commission and the address of
such site is: (http://www.sec.gov).
INCORPORATION BY REFERENCE
The following documents have been previously filed by the Company with the
Commission and are hereby incorporated by reference as of their respective dates
and to the extent required to be included in or incorporated by reference into
this Information Statement by Item 13 of Schedule 14A under the Exchange Act:
(i) the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998; and
(ii) the Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended March 31, 1999.
The Company will furnish to record and beneficial holders of its Common
Stock, upon written or oral request, a copy of any and all of the documents that
have been incorporated by reference into the documents (or portion thereof) that
this Information Statement incorporates. Requests should be made by telephone
to 802-447-1503 or in writing to Mace Security International, Inc., 160 Benmont
Avenue, Bennington, Vermont 05201; Attention: Investor Relations.
By order of the Board of Directors,
/s/ Eduardo Nieves, Jr.
Bennington, Vermont Eduardo Nieves, Jr.
June 8, 1999 Assistant Secretary
21
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Pro Forma Financial Information
Summary Pro Forma Financial Information.................................................................. FS-2
Pro Forma Consolidated Balance Sheet as of December 31, 1998............................................. FS-3
Pro Forma Consolidated Statement of Operations for the year ended December 31, 1998...................... FS-4
Pro Forma Consolidated Statement of Operations for the three months ended March 31, 1999................. FS-5
Notes to Unaudited Pro Forma Consolidated Financial Information.......................................... FS-6
Audited Consolidated Financial Statements -- Mace Security International, Inc.
Report of Independent Accountants........................................................................ FS-8
Consolidated Balance Sheets at December 31, 1998 and 1997................................................ FS-9
Consolidated Statements of Operations for the years ended December 31, 1998 and 1997..................... FS-10
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998 and 1997........... FS-11
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997..................... FS-12
Notes to Consolidated Financial Statements............................................................... FS-13
Unaudited Consolidated Financial Statements -- Mace Security International, Inc.
Consolidated Balance Sheet as of March 31, 1999.......................................................... FS-25
Consolidated Statements of Operations and Accumulated Deficit
for the three months ended March 31, 1999 and 1998.................................................. FS-26
Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998................. FS-27
Notes to Consolidated Financial Statements............................................................... FS-28
Audited Consolidated Financial Statements -- American Wash Services, Inc.
Independent Accountants Report........................................................................... FS-31
Consolidated Balance Sheet at December 31, 1998.......................................................... FS-32
Consolidated Statement of Income for the short fiscal year ended December 31, 1998....................... FS-34
Consolidated Statement of Retained Earnings for the short fiscal year ended December 31, 1998............ FS-35
Consolidated Statement of Cash Flows for the short fiscal year ended December 31, 1998................... FS-36
Notes to Consolidated Financial Statements............................................................... FS-37
Unaudited Consolidated Financial Statements -- American Wash Services, Inc.
Consolidated Balance Sheet as of March 31, 1999.......................................................... FS-44
Consolidated Statement of Income for the three months ended March 31, 1999............................... FS-46
Consolidated Statement of Retained Earnings for the three months ended March 31, 1999.................... FS-47
Consolidated Statement of Cash Flows for the three months ended March 31, 1999........................... FS-48
Notes to Consolidated Financial Statements............................................................... FS-49
</TABLE>
FS-1
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Financial Statements give effect
to the pending acquisition of American Wash Services, Inc. ("American") by Mace
Security International, Inc. (the "Company") pursuant to the terms of a Merger
Agreement dated March 26, 1999; the sale of 3,735,000 unregistered shares of
Company stock to the new management team at a purchase price of $1.375 per share
pursuant to the terms of a Stock Purchase Agreement also dated March 26, 1999;
and a planned private placement by the Company of 1,850,000 unregistered shares
of Company stock to certain individuals at a purchase price of $2.00 per share.
The pending acquisition of American by the Company is anticipated to be
accounted for under the purchase method. Pursuant to the terms of the Merger
Agreement, Mace Security International, Inc. ("Mace") will acquire all the
outstanding shares of American in exchange for the issuance of 628,362
unregistered shares of Mace common stock and cash consideration of $4,688,000.
The pro forma consolidated statements of operations for the year ended December
31, 1998 and the three months ended March 31, 1999 reflect the results of
operations of the Company as if the above pending acquisition of American was
included in the Company's consolidated financial statements since the date of
inception of American, August 28, 1998. The pro forma consolidated balance sheet
as of December 31, 1998 reflects the financial position of the Company as if the
acquisition of American had occurred as of December 31, 1998.
The unaudited pro forma consolidated financial statements are based on
preliminary estimates, available information, and certain assumptions that
management deems appropriate. Management does not expect material changes to the
final transaction adjustments. The unaudited pro forma consolidated financial
information presented herein is not necessarily indicative of the results of
operations or financial position that the Company would have obtained had such
events occurred at the beginning of the period, as assumed, or the future
results of the Company. The pro forma consolidated financial information should
be read in connection with the consolidated financial statements and notes
thereto included in this Information Statement.
FS-2
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of December 31, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Mace Security American Wash Pro Forma Pro Forma
International, Inc. Services, Inc. Adjustments Consolidated
------------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,572 $ (3) $ (4,688) (1) $ 7,717
$ 8,836 (2)
Cash escrow 611 - - 611
Accounts receivable, net 1,271 - - 1,271
Inventories 1,502 24 - 1,526
Prepaid expenses and other 285 314 - 599
Mortgage receivable - 2,040 (2,040) (1) -
------------------- -------------- ----------- ------------
Total current assets 7,241 2,375 2,108 11,724
Net assets of discontinued operations 327 - - 327
Property and equipment, net 1,079 1,392 5,007 (1) 7,478
Intangibles, net 912 - 337 (1) 1,249
Other assets 217 1,453 - 1,670
------------------- -------------- ----------- ------------
Total Assets $ 9,776 $ 5,220 $ 7,452 $ 22,448
=================== ============== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 298 $ 230 $ - $ 528
Accrued expenses 232 136 - 368
Deferred income taxes - 4 - 4
Other Liabilities - - 2,114 (1) 2,114
------------------- -------------- ----------- ------------
Total liabilities 530 370 2,114 3,014
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 13,038,000 68 1 5 (1) 130
56 (2)
Additional paid-in capital 13,333 4,799 (3,453) (1) 23,459
8,780 (2)
Treasury stock at cost (52) - - (52)
(Accumulated deficit) Retained earnings (4,103) 50 (50) (1) (4,103)
------------------- -------------- ----------- ------------
Total Stockholders' equity 9,246 4,850 5,338 19,434
------------------- -------------- ----------- ------------
Total Liabilities and
Stockholders' equity $ 9,776 $ 5,220 $ 7,452 $ 22,448
=================== ============== =========== ============
</TABLE>
FS-3
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Twelve Months Ended December 31, 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Mace Security American Wash Pro Forma Pro Forma
International, Inc. Services, Inc. Adjustments Consolidated
------------------- ------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Net sales $ 2,404 $ 645 $ - $ 3,049
Cost of sales 1,230 453 (32) (a) 1,651
General and administrative 1,191 126 1,317
Selling 528 - 528
------------------- ------------------- ---------------- ------------------
Operating (loss) income (545) 66 32 (447)
Other income (expense):
Interest income 137 - - 137
Interest expense (95) - - (95)
Other income 221 - - 221
------------------- ------------------- ---------------- ------------------
(Loss) income from continuing operations
before income tax expense (282) 66 32 (184)
Income tax expense (4) (16) - (20)
------------------- ------------------- ---------------- ------------------
Net (loss) income from continuing operations $ (286) $ 50 $ 32 $ (204)
=================== =================== ================ ==================
Net loss from continuing operations
per common share: $ (0.04) $ (0.02)
=================== ==================
Weighted average number of
common shares outstanding 6,987,127 9,132,014 (b)
=================== ==================
</TABLE>
FS-4
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1999
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Mace Security American Wash Pro Forma Pro Forma
International, Inc. Services, Inc. Adjustments Consolidated
------------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales $ 704 $ 645 $ - $ 1,349
Cost of sales 364 400 (51) (a) 713
General and administrative 634 126 - 760
Selling 168 - - 168
----------------- -------------- ----------- -------------
Operating (loss) income (462) 119 51 (292)
Other income (expense):
Interest income 47 - 47
Interest expense - - -
Other income (expense) (53) - (53)
----------------- -------------- ----------- -------------
(Loss) income from continuing operations
before income tax expense (468) 119 51 (298)
Income tax expense - - -
----------------- -------------- ----------- -------------
Net (loss) income from continuing operations $ (468) $ 119 $ 51 $ (298)
================= ============== =========== =============
Net loss from continuing operations
per common share $ (0.07) $ (0.04)
================= =============
Weighted average number of
common shares outstanding 6,387,200 7,919,262 (b)
================= =============
</TABLE>
FS-5
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Consolidated Balance Sheet Adjustments
The unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1998 has
been adjusted to reflect the following:
(1) On March 26, 1999, the Company entered into a merger agreement for the
pending acquisitions of all the outstanding stock of American Wash
Services, Inc. for total cash consideration to be paid by Mace Security
International, Inc. of $4,688,000 and the issuance of 628,362 unregistered
shares of Mace common stock. Additionally, Mace will issue to certain
members of new management assignable warrants to purchase 1,570,000 shares
of common stock at a purchase price of $1.375 per share and warrants to
purchase an additional 250,000 shares of common stock at a purchase price
of $2.50 per share. The terms of the warrants are more fully described in
the Merger Agreement. The acquisition is anticipated to be accounted for
under the purchase method. Pursuant to the terms of the merger agreement,
all property, equipment, other assets and working capital will be acquired
and all liabilities will be assumed. The allocation of the purchase price
is preliminary. The actual allocation will be based on management's final
evaluation of such assets and liabilities. The excess of the purchase price
over the historic cost of net assets was allocated to goodwill; however,
this excess may ultimately be allocated to other specific tangible and
intangible assets. The final allocation of the purchase price and the
resulting effect on operations may differ significantly from the pro forma
amounts included herein. The preliminary allocation of the purchase price
is as follows:
<TABLE>
<S> <C>
Property and equipment.................................. $ 6,735,000
Current assets acquired................................. 335,000
Other assets acquired................................... 1,453,000
Liabilities assumed..................................... (370,000)
-----------
$ 8,153,000
===========
</TABLE>
(2) To record the issuance of 3,735,000 unregistered shares of common stock
purchased by the new management team at a purchase price of $1.375 per
share pursuant to the terms of a Stock Purchase Agreement dated March 26,
1999 and the issuance of 1,850,000 unregistered shares pursuant to a
planned private placement to certain individuals at a purchase price of
$2.00 per share.
Unaudited Pro Forma Consolidated Statement of Operations Adjustments
The Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended
December 31, 1998 has been adjusted to reflect the following:
(a) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
American had been completed on American's inception date, August 28, 1998,
net of historical depreciation and amortization expense of American.
FS-6
<PAGE>
(b) For purpose of determining pro forma earnings per share, the issuance of
628,362 unregistered shares of common stock to effect the merger of
American with Mace, the 3,735,000 unregistered shares of common stock sold
to the new management team and the planned issuance of 1,850,000
unregistered shares pursuant to a planned private placement at a purchase
price of $2.00 per share were considered to be outstanding since August 28,
1998, the inception date of American.
The Unaudited Pro Forma Consolidated Statement of Operations for the Three
Months Ended March 31, 1999 has been adjusted to reflect the following:
(a) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
American had been completed on January 1, 1999, net of historical
depreciation and amortization expense of American.
(b) For purpose of determining pro forma earnings per share, the issuance of
628,362 unregistered shares of common stock to effect the merger of
American with Mace, the 3,735,000 unregistered shares of common stock to
the new management team and the planned issuance of 1,850,000 unregistered
shares pursuant to a planned private placement at a purchase price of $2.00
per share were considered to be outstanding since January 1, 1999.
FS-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Mace Security International,
Inc.
We have audited the accompanying consolidated balance sheets of Mace
Security International, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mace
Security International, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ URBACH KAHN & WERLIN PC
Albany, New York
April 2, 1999
FS-8
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents.............. $ 3,572,422 $ 1,146,212
Cash escrow............................ 610,800 -
Accounts receivable, net............... 1,271,031 1,880,565
Inventories:
Finished goods....................... 438,168 539,894
Work in process...................... 126,696 175,699
Raw material and supplies............ 937,308 622,586
Prepaid expenses and other............. 285,208 314,438
---------- ----------
Total current assets................. 7,241,633 4,679,394
Net assets of discontinued operations.... 326,835 5,103,851
Property and equipment, net.............. 1,079,196 1,157,126
Intangibles, net......................... 912,131 1,791,933
Other assets............................. 217,474 136,362
---------- ----------
Total Assets $ 9,777,269 $12,868,666
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.......................... $ - $ 30,728
Current maturities of long-term debt... - 113,210
Accounts payable....................... 297,553 333,735
Accrued expenses....................... 232,942 556,624
...................................... 530,495 1,034,297
Long-term debt, net of current
maturities............................. - 1,660,205
---------- ----------
Total liabilities.................... 530,495 2,694,502
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per
share; authorized 2,000,000 shares;
no shares issued..................... - -
Common stock, par value $.01 per
share; authorized 18,000,000
shares; issued 6,825,000 shares
in 1998, issued and outstanding
7,081,666 in 1997.................... 68,250 70,817
Additional paid-in capital............. 13,333,191 13,333,191
Treasury stock, 256,666 shares......... (52,388) -
Accumulated deficit.................... (4,102,279) (3,229,844)
---------- ----------
Total Stockholders' equity........... 9,246,774 10,174,164
---------- ----------
Total Liabilities and
Stockholders' equity............... $ 9,777,269 $12,868,666
========== ==========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
FS-9
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net sales.............................. $2,404,221 $ 2,657,354
Cost of sales.......................... 1,230,375 1,645,077
--------- ----------
Gross profit....................... 1,173,846 1,012,277
Operating expenses:
General and administrative........... 1,191,611 843,334
Selling.............................. 527,556 647,243
--------- ----------
Operating loss..................... (545,321) (478,300)
Other income (expense):
Interest income...................... 137,486 32,130
Interest expense..................... (94,920) (121,877)
Other income......................... 220,581 98,195
--------- ----------
263,147 8,448
--------- ----------
Loss from continuing operations
before income tax expense............ (282,174) (469,852)
Income tax expense..................... 4,358 7,800
--------- ----------
Loss from continuing operations........ (286,532) (477,652)
Loss from discontinued operations,
including $271,452 gain on sale
of Law Enforcement division in 1998.. (585,903) (1,209,291)
--------- ----------
Net loss........................... $ (872,435) $(1,686,943)
========= ==========
Net loss per common share:
From continuing operations........... $ (0.04) $ (0.07)
From discontinued operations......... (0.08) (0.17)
--------- ----------
Total net loss per common share.... (0.12) (0.24)
========= ==========
Weighted average number of
common shares outstanding............ 6,987,127 6,920,023
========= ==========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
FS-10
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common stock Additional Treasury
Shares Par Paid-in Capital Stock Deficit
------------- -------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 6,825,000 $68,250 $13,080,133 - ($1,542,901)
Shares issued for MSP Retail, Inc. acquisition 176,666 1,767 163,858 - -
Shares issued for MS, Inc. acquisition 80,000 800 89,200 - -
Net loss - - - - (1,686,943)
--------- ------- ----------- -------- -----------
Balance at December 31, 1997 7,081,666 70,817 13,333,191 - (3,229,844)
Shares redeemed in connection with
discontinued operations (256,666) (2,567) - (52,388) -
Net loss - - - - (872,435)
--------- ------- ----------- -------- -----------
Balance at December 31, 1998 6,825,000 $68,250 $13,333,191 ($52,388) ($4,102,279)
========= ======= =========== ======== ===========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
FS-11
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Operating activities:
Net loss $ (872,435) $(1,686,943)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation 341,061 454,247
Amortization 175,653 268,994
Allowance for bad debts 21,140 (47,905)
Gain on sale of assets - (1,996)
Gain on sale of Law Enforcement
division (271,452) -
Changes in:
Accounts receivable 588,394 735,260
Inventories (163,993) 1,334,307
Prepaid expenses 29,230 (115,087)
Discontinued operations 2,492,252 -
Accounts payable (36,182) (679,042)
Accrued expenses (323,682) 145,391
Other assets (81,112) (12,459)
--------- ---------
Net cash provided by
operating activities 1,898,874 394,767
--------- ---------
Investing activities:
Purchases of property and equipment (122,568) (238,726)
Proceeds attributable to noncurrent
portion of Law Enforcement assets 3,117,235 -
Proceeds from sales of property
and equipment - 13,744
Acquisition of subsidiaries - (51,372)
Increase in cash escrow account (610,800) -
--------- ---------
Net cash provided by (used in)
investing activities 2,383,867 (276,354)
Financing activities:
Payment of principal on long-term debt (1,773,415) (525,933)
Proceeds from long-term debt 1,206,250
Payment of notes payable (30,728) (3,272)
Proceeds from notes payable - 34,000
Debt issue costs - (28,800)
Treasury stock (52,388) -
--------- ---------
Net cash provided by (used in)
financing activities (1,856,531) 682,245
--------- ---------
Net increase in cash and cash equivalents 2,426,210 800,658
Cash and cash equivalents:
Beginning of year 1,146,212 345,554
--------- ---------
End of year $ 3,572,422 $ 1,146,212
========= =========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
FS-12
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED STATEMENTS
1. DESCRIPTION OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of organization:
Mace Security International, Inc. (Mace) is incorporated under the laws
of the state of Delaware. Mace and its subsidiary's revenues are generated
primarily through the manufacture, distribution and sale of defense sprays
and personal safety products for the consumer market.
Summary of significant accounting policies:
Principles of consolidation:
The consolidated financial statements include the accounts of Mace and
its wholly-owned subsidiary Mace Security Centers, Inc. (collectively
referred to as the Company). All intercompany accounts and transactions have
been eliminated.
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.
Accounts receivable:
Accounts receivable are presented net of an allowance for doubtful
accounts approximating $32,000 at December 31, 1998 ($54,000 at December 31,
1997).
Inventories:
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
Cost of sales for the year ended December 31, 1998 includes
approximately $30,000 attributable to lower of cost or market write downs.
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.
FS-13
<PAGE>
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 $58,000 in 1998 and $81,000 in 1997.
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.
Advertising:
The Company expenses the production costs of advertising the first time
the advertising takes place. Advertising expense was approximately $133,000
and $249,000 in 1998 and 1997, respectively.
Net loss per common share:
Loss per common share amounts have been computed using the weighted
average number of common shares outstanding for the respective periods.
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 Earnings Per Share (SFAS No. 128). This standard
requires the presentation of basic and diluted earnings, when applicable, per
share. All outstanding options and warrants are anti-dilutive at December 31,
1998 and 1997.
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 and the reported amounts of
revenues and expenses. 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:
FS-14
<PAGE>
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
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company
evaluates the recoverability of its long-lived assets which include
trademarks, other intangibles, and other assets whenever changes in
circumstances indicate that the carrying amount may not be recoverable. If
indications are that the carrying amount of the asset is not recoverable, the
Company will estimate the future cash flows expected to result from use of
the asset and its eventual disposition. If the sum of the expected future
cash flows is less than the carrying amount of the asset, the Company
recognizes an impairment loss. The impairment loss recognized is measured as
the amount by which the carrying amount of the asset exceeds its fair value.
During 1998, the Company's sale of its Law Enforcement division resulted
in an impairment loss attributable to a trademark. This loss, approximating
$550,000, is included with the gain on the sale of the Law Enforcement
division in 1998, classified as discontinued operations (Note 2).
2. DISCONTINUED OPERATIONS
As more fully explained below, during 1998, the Company sold
substantially all the assets of its Law Enforcement division. Accordingly,
the operating results of its Law Enforcement division have been segregated
from continuing operations and reported, on a comparative basis, as a
separate line item on the statement of operations entitled "Loss from
discontinued operations" and entitled "Net assets of discontinued operations"
on the Balance Sheets.
On April 2, 1998, the Company entered into an agreement (the "Purchase
Agreement") with Armor Holdings, Inc. and its wholly-owned subsidiary ("AHI")
for the sale of substantially all of the assets of the Company's Law
Enforcement division to AHI (the "Transaction"). The terms of the Purchase
Agreement required that, in conjunction with the sale of assets, the Company
license to AHI the use of Mace(R) and related trademarks and a patent for use
by AHI in the Law Enforcement Market only. The Transaction closed on July 14,
1998.
Pursuant to the terms of the Purchase Agreement, the Company sold to AHI
all of the fixed assets, intangibles and inventory of the Law Enforcement
division. AHI received a 99-year paid-up license to exploit the Mace(R) brand
and other related trademarks in the Law Enforcement Market only, which is
made up of law enforcement, military, correctional and certain governmental
agencies. The assets of the Law Enforcement division constituted
approximately 40% of the Company's assets at December 31, 1997.
The purchase price for the fixed assets and intangibles, including the
license fee for the 99-year paid-up license was $3,117,235, representing the
book value as of December 31, 1997. The purchase price for inventory was
$1,868,416, representing the book value at July 14, 1998. The Company
FS-15
<PAGE>
retained its cash and accounts receivable from the Law Enforcement division.
In September 1998, the Company disposed of two-wholly owned subsidiaries,
MSP, Inc. (a Colorado distributor) and MSP Retail, Inc. (Colorado retail
stores). The contracts between the Company and the former owners of the
distributorship and retail stores allowed the Company to put back the shares of
MSP, Inc. and MSP Retail, Inc. to the former owners if certain pre-tax earnings
targets were not achieved within one year following the Company's acquisition.
In both cases, the aforementioned subsidiaries failed to achieve their pre-tax
earnings targets.
The Company put back the shares of MSP, Inc. to the former
owner in exchange for 80,000 shares of the Company that were tendered as
consideration in the acquisition of MSP, Inc.
In a modified version of the put, the Company transferred the net assets
of MSP Retail, Inc. to a corporation owned by the former owner in exchange
for 176,666 shares of the Company that were tendered as consideration in the
acquisition of MSP Retail, Inc.
Further, both contracts called for repayment of working capital loaned
by the Company to MSP, Inc. and MSP Retail, Inc. The repayment amount as
defined by the contracts is the money loaned by the Company reduced by
operating losses incurred by the respective subsidiaries during the
twelve-month period each was owned by the Company. The reduction of amounts
owed was necessary to fulfill another contract provision which required the
Company to be responsible for losses incurred by the subsidiaries during
Company ownership. As a result of the disposition of these subsidiaries, the
Company incurred a loss of $67,013 with respect to MSP, Inc. and $47,317 with
respect to MSP Retail, Inc.
3. SUPPLEMENTARY CASH FLOW INFORMATION
In September 1997, the Company obtained long-term debt from the First
National Bank of New England (See Note 8). As part of this refinancing, the
Key Bank long-term debt of $593,750 was paid. This non-cash transaction has
been excluded from proceeds from long-term debt, as well as payment of
principal on long-term debt.
On January 20, 1999, pursuant to the purchase agreement between the
Company and the purchaser of the Law Enforcement division, the Company
collected $480,000 or 80% of the $600,000 of purchase price that was retained
by the purchaser in escrow to secure among other things, the Company's
obligation under the representations and warranties in the purchase
agreement. The remainder will be released on or about July 14, 1999 so long
as no claim is brought against the Company for which the purchaser is
entitled to set off against escrowed funds.
4. PROPERTY AND EQUIPMENT
The components of property and equipment are summarized below:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Office furniture......................... $ 132,621 $ 128,959
Computer equipment....................... 475,194 428,769
Vehicles................................. 46,501 46,501
Leasehold improvements................... 734,421 674,513
Machinery and equipment.................. 813,589 784,344
Total property and equipment........... 2,202,326 2,063,086
</TABLE>
FS-16
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Less: Accumulated depreciation........... (1,123,130) (905,960)
Property and equipment, net............ $ 1,079,196 $1,157,126
</TABLE>
Depreciation expense was $341,061 in 1998 and $454,247 in 1997.
Expenditures for maintenance and repairs are charged to income as incurred
and amounted to $82,428 in 1998 and $113,429 in 1997.
5. INTANGIBLES
The components of intangibles are summarized below:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Trademarks....................... $ 1,712,853 $2,483,846
Trademark protection costs....... 154,088 154,088
Excess purchase price over fair
value assigned to assets
acquired..................... - -
Total intangibles............. 1,866,941 2,637,934
Less: Accumulated amortization... 954,810 846,001
Intangibles, net............ $ 912,131 $1,791,933
</TABLE>
Amortization expense was $175,653 in 1998 and $268,994 in 1997.
6. NOTES PAYABLE
Notes payable at December 31, 1997 consisted of an obligation to a
financing company, payable in monthly installments with interest at 10.2%.
This note was fully paid in 1998.
In September 1997, the Company obtained a $250,000 working capital line
of credit from First National Bank of New England bearing interest at prime
plus 1% (9.5% at December 31, 1997) due May 31, 1998. No amounts were ever
drawn on this line of credit which expired on May 31, 1998.
7. ACCRUED EXPENSES
The components of accrued expenses are summarized below:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Commissions $ 664 $ 130,833
Customer prepayments.......................... 56,473 107,643
Payroll and related expenses.................. 46,172 109,552
Compensated absences.......................... - 8,524
Professional fees............................. 33,349 65,000
Advertising................................... 22,248 64,571
Other......................................... 74,036 70,501
$232,942 $ 556,624
</TABLE>
FS-17
<PAGE>
8. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Notes payable--First National Bank of New
England, bearing interest at prime plus 1.50%
(10.0% at December 31, 1997) payable in monthly
installments of $23,791, including interest,
due October 1, 2007, collateralized by
all assets of the Company................................... - $1,773,415
Less: Current maturities - 113,210
Total long-term debt - $1,660,205
</TABLE>
Interest paid was $94,920 in 1998 and $129,770 in 1997.
In September 1997, the Company refinanced its long-term debt with the
First National Bank of New England (`FNB"). Two term loans totaling
$1,800,000 bearing interest at prime plus 1.50% (10.0% at December 31, 1997)
payable in monthly installments of $23,791, including interest, due October
1, 2007, were obtained. Of the proceeds, $593,750 was used to pay off the
existing long-term debt. Additionally, a $250,000 line of credit bearing
interest at prime plus 1% (9.5% at December 31, 1997) due May 31, 1998 was
obtained. No amounts have been drawn on this line of credit. The Company paid
off the loan to FNB simultaneously with the closing of the sale of its Law
Enforcement division on July 14, 1998 (Note 2).
9. INCOME TAXES
The components of income tax expense are:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Current (principally state taxes) $4,358 $7,800
Deferred - -
Total income tax expense $4,358 $7,800
</TABLE>
The significant components of deferred income tax expense attributed to
loss from continuing operations for the years ended December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Current deferred tax expense $ 58,008 $ 37,336
Loss carry forward (203,600) (615,707)
Valuation allowance for deferred tax assets 145,592 578,371
$ - $ -
</TABLE>
A comparison of the federal statutory rate to the Company's effective
rate is as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
U.S. statutory rate (34%) (34%)
State taxes, net of federal benefit 1% 1%
Valuation allowance for deferred tax assets 34% 34%
Effective tax rate 1% 1%
</TABLE>
The significant components of deferred tax assets and liabilities are as
follows:
FS-18
<PAGE>
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Current assets (liabilities):
Allowance for doubtful accounts $ 12,878 $ 21,587
Inventories 45,147 65,869
Accrued expenses (32,548) 9,128
Other 1,357 12,163
Current deferred assets 26,834 108,747
Valuation allowance (26,834) (108,747)
Net current deferred tax assets $ - $ -
Noncurrent assets (liabilities):
Intangibles - (4,758)
Plant, equipment and depreciation (215,225) (234,372)
Net operating loss carry forwards 1,355,600 1,152,000
Net noncurrent deferred assets 1,140,375 912,870
Valuation allowance (1,140,375) (912,870)
Net noncurrent deferred tax assets $ - $ -
</TABLE>
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.
At December 31, 1998, the Company has net operating loss carry forwards
for federal income tax purposes of approximately $3,389,000. The federal net
operating loss carry forwards, if unused, will begin to expire during the
year ended December 31, 2009.
10. RELATED PARTY TRANSACTIONS
The Company paid legal and management/consulting fees to officers and
directors approximating $31,000 and $57,350 in 1998 and 1997, respectively.
11. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings related 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.
Operating lease expense for equipment, vehicles and real estate amounted
to $181,716 and $170,231 for 1998 and 1997, 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, 1998 are:
1999 104,205
2000 28,857
-------
$133,062
FS-19
<PAGE>
The Company has entered into month to month and long-term sublease
agreements with tenants of their operating facility in Bennington, Vermont,
including a related party. Total sublease rental income was $110,406 and
$93,231 in 1998 and 1997, respectively.
Future minimum rental receipts required under operating subleases that
have initial or remaining noncancelable lease terms in excess of one year as
of December 31, 1998 are:
1999 76,848
2000 44,828
$121,676
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 deferred cost was $13,440 in 1998 and 1997. The term of the lease
expires on January 31, 2000, and requires monthly payments of $6,161, 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 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 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. The Company previously
deposited $75,000 of the total cash portion into an escrow account as
required by the agreement. The Company has elected not to purchase the
building at this time and is leasing the premises for $4,000 per month,
together with taxes, insurance and utilities.
12. 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 1998
and 1997. Had compensation cost and fair value been determined pursuant to
Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
Accounting for Stock-Based Compensation, net loss would increase from
$872,435 to $996,694 in 1998 and from $1,686,943 to $1,886,293 in 1997. Net
loss per share would increase from $.12 to $.14 in 1998 and from $.24 to $.27
in 1997. The weighted average fair value of options granted during 1998 and
1997, for the purpose of SFAS No. 123, is $1.33 and $1.23 per share,
FS-20
<PAGE>
respectively.
In accordance with SFAS No. 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 89.5% and 92.2% in 1998
and 1997, respectively. The weighted-average remaining contractual life of
outstanding options under the plan at December 31, 1998 is 13 years. The risk-
free interest rate ranges from 5.53% to 5.88% in 1998 and from 6.06% to 6.86% in
1997.
Activity with respect to these plans is as follows:
<TABLE>
<CAPTION>
1998 1997
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
<S> <C> <C> <C> <C>
Shares under option, January 1 437,800 $ 1.48 276,400 $ 1.54
Options granted 98,500 1.10 162,500 1.40
Options repurchased (4,800) 5.50 - -
Options canceled (30,500) 1.38 (1,100) 5.50
Shares under option, December 31 501,000 1.37 437,800 1.48
Options exercisable, December 31 501,000 $ 1.37 437,800 $ 1.48
Shares available for granting
of options, December 31 129,000 192,200
</TABLE>
The following is a summary of the status of options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
Weighted
Average Weighted Weighted
Exercise Remaining Average Average
Price Contractual Exercise Exercise
Range Number Life Price Number Price
<S> <C> <C> <C> <C> <C>
$ 1.63 6,000 14.33 $ 1.63 6,000 $ 1.63
1.50 337,500 12.41 1.50 337,500 1.50
1.25 52,500 13.58 1.25 52,500 1.25
1.21 65,000 14.60 1.21 65,000 1.21
1.19 40,000 12.64 1.19 40,000 1.19
</TABLE>
In connection with the initial public offering of the Company's securities
in November 1993, the Company issued a total of 75,000 common stock purchase
warrants to the underwriters of the securities. These warrants expired in
November 1998.
In August 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 a business. The warrants are exercisable
over a ten year period, expiring on August 24, 2004. On July
FS-21
<PAGE>
14, 1998, in connection with the sale of the Law Enforcement division ( Note 2),
the Company issued to the purchaser 300,000 warrants to purchase Common Stock of
the Company at $1.25 per share. These warrants were fully exercised in March
1999.
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.
13. CONCENTRATION OF CREDIT RISK
The Company maintains its cash accounts in high quality financial
institutions. At times, these balances may exceed insured amounts.
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.
14. 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 4% of their wages. The cost of the
plan amounted to $20,521 and $28,354 in 1998 and 1997, respectively.
15. ACQUISITIONS AND SUBSIDIARIES
In July 1997, the Company acquired all of the issued and outstanding common
stock of MSP, Inc. (MSP), an Aurora, Colorado marketer of a diversified line of
consumer safety and security products. This transaction was recorded as a
purchase, and the operations of MSP have been included with the Company's from
the acquisition date. In the event MSP achieves certain financial goals, an
additional 15,000 shares of the Company's common stock is issuable. The purchase
cost of $90,000 was represented by 80,000 shares of the Company's stock valued
at $1.125 per share.
In September 1997, the Company acquired all of the issued and outstanding
common stock of MSP Retail, Inc. (MSPR), an operator of two retail stores in the
Denver, Colorado area, specializing in the sale of security products for
personal and home protection. This transaction was recorded as a purchase, and
the operations of MSPR have been included with the Company's from the
acquisition date. The purchase price of $212,000 was represented by 176,666
shares of the Company's common stock valued at $.9375 per share and cash of
$46,300.
The operations of MSP, Inc. and MSP, Retail, Inc. were discontinued in 1998
(Note 2).
In September 1997, the Company established Mace Security Centers, Inc., a
subsidiary corporation formed for the purpose of offering franchises for the
operation of retail stores which will sell personal protection and security
products. The subsidiary became active during 1998 selling its first two
franchises.
16. SEGMENT INFORMATION
FS-22
<PAGE>
Since the sale of its Law Enforcement division, the Company principally
engages in the manufacture, distribution and sale of Mace(R) brand defense
sprays and personal safety products to the civilian consumer market, "Consumer".
Mace Anti Crime Bureau's operations are not significant enough to report as a
separate business segment and are included in with Consumer. Although the
Company sell its products on a worldwide basis, more than 95% of its sales in
1998 from continuing operations were within the United States.
17. SUBSEQUENT EVENTS
Proposed Sale of Mace Anti Crime Bureau
The Company has entered into a letter of intent for the sale of
substantially all the assets of its MACB division for approximately $1,100,000.
Only certain liabilities of the division will be assumed by the purchaser. The
Company will retain the cash and accounts receivable from this division. There
are no definitive agreements executed and the terms of the letter of intent are
not binding with respect to this proposed transaction. Additionally, the
purchaser's obligation to acquire the MACB division is conditioned on its
obtaining financing sufficient to effect this transaction.
The proposal calls for a downpayment with the remainder of the purchase
price paid pursuant to a nonnegotiable promissory note, payable annually over
three years, with interest at a floating rate per annum equal to the prime rate
quoted by the Wall Street Journal and is payable on the first and second
anniversaries of the closing.
The Company also expects to enter into agreements to receive a 1% royalty
on products sold using the brand names Mace Cash(TM), Mace Anti Crime(TM) and
Mace Anti Crime Bureau(R) and contingent consideration in the form of a 5%
royalty on certain sales made by the purchaser within three years following the
closing date.
Proposed Change of Control, Private Placement and Merger with American Wash
Services, Inc.
The Company has entered into an agreement with Louis D. Paolino, Jr. to
become its Chairman and Chief Executive Officer.
As a condition to his agreement to serve as CEO, the Company's current
Board of Directors, other than Mr. Goodrich, will resign and be replaced by a
new Board selected by Mr. Paolino.
Also, Mr. Paolino has agreed to purchase 3,735,000 shares of the Company's
Common Stock. A portion of such shares are expected to be purchased by members
of Mr. Paolino's management team, by assignment of Mr. Paolino's right to
purchase such shares.
As a condition to Mr. Paolino's agreement to purchase the shares, the
Company has entered into employment agreements with certain members of the new
management team selected by Mr. Paolino. Pursuant to the employment agreements,
each new member of the management was granted options to purchase shares of the
Company's Common Stock. The employment agreements specify that the new
management will be entitled to only nominal compensation until the sale of the
3,735,000 shares is consummated. In the event the sale of the Paolino Shares
does not occur, the employment agreements terminate and the options will
automatically be cancelled.
As an additional condition to Mr. Paolino's agreement to purchase the
FS-23
<PAGE>
shares, substantially simultaneously with such sale, the Company will sell in a
private placement 1,850,000 shares of the Company's Common Stock. The shares
will not be registered under the Securities Act of 1933, and thus, will not be
freely tradable for a period of at least one year from the closing of the sale
of the shares.
The sales of the above-referenced 5,585,000 shares will result in a total
capital investment by Mr. Paolino, members of Mr. Paolino's management team and
others of approximately $8.83 million.
Following the stock sales, Mr. Paolino will become the Company's largest
shareholder and Jon E. Goodrich will become Vice President of the existing
business, Mace(R) Consumer sales, which is expected to continue to operate in
Bennington, Vermont.
As a condition to the referenced stock purchases, MSI will substantially
simultaneously with the stock sales acquire by merger American Wash Services,
Inc., a company headed by Mr. Paolino. The purchase price for American Wash will
be cash of $4,687,500, 628,362 shares of the Company's Common Stock and the
issuance to Mr. Paolino and his designee of assignable warrants to purchase a
total of 1,825,000 shares of the Company's Common Stock. The total consideration
to be paid to the Company upon the exercise of all such warrants is
approximately $2,791,000. The warrants will not be exercisable until the
expiration of 120 days following the closing and will have terms of 64 months.
The shares issued in the merger and issuable under the warrants will not be
registered under the Securities Act of 1933, and thus, will not be freely
tradable for a period of at least one year from the closing of the sale of the
shares.
MSI's obligation to complete the transactions is conditioned on, among
other things, approval by MSI's Board of Directors and shareholders, continued
listing on the NASDAQ National Market System, a due diligence investigation and
receipt of a fairness opinion covering the merger and the sale of shares.
It is anticipated that the transactions will be approved by the Company's
shareholders by written consent. The transactions are expected to close twenty
days following the distribution of an Information Statement regarding the
transactions and related matters.
FS-24
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $3,941,781 $ 3,572,422
Cash escrow 130,800 610,800
Accounts receivable, less allowances for doubtful
accounts ($138,072 in 1999; $64,454 in 1998) 1,657,771 1,271,031
Inventories:
Finished goods 668,928 438,168
Work in process 146,095 126,696
Raw material and supplies 691,914 937,308
Prepaid expenses and other 256,029 285,208
--------- ---------
Total current assets 7,493,318 7,241,633
Net assets of discontinued operations 179,270 326,835
Property and equipment, Net 943,553 1,079,196
Intangibles, Net 890,521 912,131
Other assets 208,846 217,474
--------- ---------
Total Assets $9,715,508 $ 777,269
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 109,636 $ 297,553
Accrued expenses 458,108 232,942
--------- ---------
Total liabilities 567,744 530,495
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
7,200,000 in 1999, issued and
outstanding 6,825,000 in 1998 72,000 68,250
Additional paid in capital 13,812,691 13,333,191
Treasury stock (52,388) (52,388)
Accumulated deficit (4,684,539) (4,102,279)
--------- ---------
Total stockholders' equity 9,147,764 9,246,774
--------- ---------
Total Liabilities and Stockholders'
equity $9,715,508 $ 777,269
========= ==========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
FS-25
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
Three Months Ended March 31,
1999 1998
Net Sales $ 703,881 $ 669,413
Cost of sales 364,032 360,204
---------- ----------
Gross profit 339,849 309,209
Operating expenses:
General and administrative 633,492 335,005
Selling 168,148 210,744
---------- ----------
Operating loss (461,791) (236,540)
Other income (expense):
Interest income 46,132 21,103
Interest expense - (44,796)
Other income (52,546) 21,842
---------- ----------
(6,414) (1,851)
---------- ----------
Loss before income tax expense (468,205) (238,391)
Income tax expense - 1,950
---------- ----------
Loss from continuing operations (468,205) (240,341)
Loss from discontinued operations (114,055) (183,247)
---------- ----------
Net loss $ (582,260) $ (423,588)
========== ==========
Accumulated deficit, beginning of the period (4,102,279) (3,229,844)
Accumulated deficit, end of the period $(4,684,539) $(3,653,432)
========== ==========
Net loss per common share:
From continuing operations $ (0.07) $ (0.03)
From discontinued operations (0.02) (0.03)
---------- ----------
Total net loss per common share $ (0.09) $ (0.06)
========== ==========
Weighted average of common
shares outstanding 6,837,200 6,983,310
========== ==========
The accompanying notes are an integral
part of the financial statements.
FS-26
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
<S> <C> <C>
Operating activities:
Net loss $ (582,260) $ (423,588)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation 62,691 115,973
Amortization 24,814 69,347
Allowance for bad debts 105,877 11,119
Write down of equipment 99,666 -
Changes in:
Accounts receivable (492,617) 387,326
Inventories (4,765) (13,676)
Prepaid expenses 104,874 (32,487)
Discontinued operations 147,565 351,654
Accounts payable (187,917) 101,415
Accrued liabilities 225,767 (149,014)
Corporate income tax payable (600) 4,136
Other assets (34,559) (160,226)
--------- ---------
Net cash provided by (used in)
operating activities (531,464) 261,979
Investing activities:
Purchase of property and equipment (62,427) (255,784)
Decrease in cash escrow account 480,000 -
--------- ---------
Net cash provided by (used in)
investing activities 417,573 (255,784)
Financing activities:
Payment of principal of long-term debt - (26,948)
Payment of notes payable - (9,984)
Proceeds from exercise of stock
options and warrants 483,250 -
--------- ---------
Net cash provided by (used in)
financing activities 483,250 (36,932)
--------- ---------
Net increase (decrease) in cash and
cash equivalents 369,359 (30,737)
Cash and cash equivalents:
Beginning of period 3,572,422 1,146,212
--------- ---------
End of period $3,941,781 $1,115,475
========= =========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
FS-27
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENT
(Unaudited)
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, 1998.
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. The
Company adopted Financial Accounting Standard No. 128 for the year ended
December 31 1997. The loss per common share for the three months ended March 31,
1999 and 1998 have been calculated in accordance with this Standard.
3. COMMITMENTS AND CONTINGENCIES
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. Based on discussion with Company's
counsel and insurance carrier, the Company does not anticipate that this claim
will result in the payment of damages in excess of the Company's insurance
coverage.
On July 27, 1998, the Company was added as a defendant in a suit filed in the
state of West Virginia by Susan H. Jackman, et. al. The litigation concerns an
attack on Mrs. Jackman by two dogs and the alleged failure of a "Muzzle(R)"
product distributed by the Company to repel the dogs. The suit claims product
liability and negligence and seeks one 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.
4. DISCONTINUED OPERATIONS
On July 14, 1998, the Company sold substantially all of the assets of its Law
Enforcement division. The purchase price was $4,985,651, paid in cash. In
conjunction with the sale of assets, the Company licensed to the purchaser the
use of Mace(R) and related trademarks and a patent for use by the purchaser in
the Law Enforcement market only and received a one-time license fee of $650,000.
The Company retained the cash and accounts receivables from the Law Enforcement
division at closing.
The Company applied $1,725,202 of the purchase price received to pay off the
amount due to FNB under its term loans.
FS-28
<PAGE>
A portion of the purchase price ($600,000) was retained by the purchaser in
escrow to secure, among other things, the Company's obligations under the
representations and warranties in the purchase agreement. On January 20, 1999,
$480,000 of the escrow was returned to the Company. The remainder will be
released on or about July 14, 1999 so long as no claim is brought against the
Company for which the purchaser is entitled to set off against the escrow funds.
Notwithstanding the sale of the Law Enforcement division, the Company continues
to fulfill its obligation under a nonassignable Department of Defense contract
which is expected to be completed in August of 1999. Consequently, this contract
is included in discontinued operations.
Sale of Subsidiaries
In the three months ended September 30, 1998, the Company disposed of two
wholly-owned subsidiaries, MSP, Inc. (a Colorado distributor) and MSP Retail,
Inc. (Colorado retail stores which were operated as Mace Security Centers(TM)).
The contracts between the Company and the former owners of the distributorship
and retail stores allowed the Company to put back the shares of MSP, Inc. and
MSP Retail, Inc. to the former owners if certain pre-tax earnings targets were
not met within one year following the Company's acquisition. In both cases, the
aforementioned subsidiaries failed to make their pre-tax earnings targets.
The Company put back the shares of MSP, Inc. to the former owner in exchange
for 80,000 shares of the Company that were tendered as consideration in the
acquisition of MSP, Inc.
In a modified version of the put with respect to MSP Retail, Inc., the Company
transferred the net assets of MSP Retail, Inc. to a corporation owned by the
former owner in exchange for 176,666 shares of the Company that were tendered as
consideration in the acquisition of MSP Retail, Inc.
Further, both contracts called for repayment of working capital loaned by the
Company to MSP, Inc. and MSP Retail, Inc. The repayment amount as defined by the
contracts is the money loaned by the Company reduced by operating losses
incurred by the respective subsidiary during the twelve-month period each was
owned by the Company. As a result of the disposition of these subsidiaries, the
Company incurred a loss of $67,013 with respect to MSP, Inc. and $47,317 with
respect to MSP Retail, Inc.
5. PROPOSED CHANGE OF CONTROL, PRIVATE PLACEMENT AND MERGER WITH AMERICAN
WASH SERVICES, INC.
The Company has entered into an agreement (the "Stock Purchase Agreement") in
which Louis D. Paolino, Jr. has agreed to become the Company's Chairman and
Chief Executive Officer.
As a condition to Mr. Paolino's agreement to serve as CEO, the Stock Purchase
Agreement requires that the Company's current Board of Directors, other than Mr.
Goodrich, resign and be replaced by a new Board selected by Mr. Paolino.
Further, the Stock Purchase Agreement requires that Mr. Paolino purchase
3,735,000 shares of the Company's Common Stock. A portion of such shares are
expected to be purchased by members of Mr. Paolino's management team by
assignment of Mr. Paolino's right to purchase such shares.
The Stock Purchase Agreement also provides that as an additional condition to
Mr. Paolino's agreement to purchase the shares, substantially simultaneously
FS-29
<PAGE>
with such sale, the Company will sell in a private placement 1,850,000 shares of
the Company's Common Stock. The shares will not be registered under the
Securities Act of 1933, and thus, will not be freely tradable for a period of at
least one year from the closing of the sale of the shares.
The sales of the above-referenced 5,585,000 shares will result in a total
capital investment by Mr. Paolino, members of Mr. Paolino's management team and
others of approximately $8.83 million.
Following the stock sales, Mr. Paolino will become the Company's largest
shareholder and Jon E. Goodrich will become Vice President of the existing
business, Mace consumer sales, which is expected to continue to operate in
Bennington, Vermont.
As a condition to the referenced stock purchases, the Company will substantially
simultaneously with the stock sales acquire by merger American Wash Services,
Inc., a company headed by Mr. Paolino. The purchase price for American Wash will
be $4,687,500 in cash, 628,362 unregistered shares of the Company's Common Stock
and the issuance to Mr. Paolino and his designee of assignable warrants to
purchase a total of 1,825,000 shares of the Company's Common Stock. The total
consideration to be paid to the Company upon the exercise of all such warrants
is approximately $2,791,000. The warrants will not be exercisable until the
expiration of 120 days following the closing and will have terms of 64 months.
The shares issued in the merger and issuable under the warrants will not be
registered under the Securities Act of 1933, and thus, will not be freely
tradable for a period of at least one year from the closing of the sale of the
shares.
Mr. Paolino's and American Wash Services, Inc.'s obligation to complete the
transactions are conditioned on, among other things, the completion by the
Company of the private placement of stock, no material adverse change in the
financial condition of the Company, and receipt from NASDAQ of comfort that the
transactions will not effect the continued listing of the Company's stock on the
NASDAQ National Market System. No assurance can be made that these transactions
will be consummated.
In addition, the Company expects to acquire car wash operations independent of
Mr. Paolino and American Wash Services, Inc. The Company expects to start
closing these acquisitions in the second quarter.
FS-30
<PAGE>
[LETTERHEAD OF BURTON SEGAL & CO.]
INDEPENDENT ACCOUNTANTS REPORT
Stockholders and
Board of Directors
American Wash Services, Inc.
Mount Laurel, New Jersey
We have audited the accompanying consolidated balance sheet of American Wash
Services, Inc. and subsidiaries as of December 31, 1998, and the related
consolidated statements of earnings, stockholders' equity and cash flows for the
short fiscal year ended December 31, 1998. These financial statements are the
responsibility of American Wash Services' 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 induces
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 consolidated financial position of American Wash
Services, Inc. and subsidiaries as of December 31, 1998, and their cash flows
for the short fiscal year ended December 31, 9998, in conformity with generally
accepted accounting principles.
/s/ BURTON SEGAL & COMPANY
Burton Segal & Company
Certified Public Accountants
April 15, 1999
FS-31
<PAGE>
AMERICAN WASH SERVICES, INC.
BALANCE SHEET
DECEMBER 31, 1998
-----------------
ASSETS
------
Current Assets
- --------------
Cash and Equivalents $ (2,714)
Exchange 19,972
Mortgage Receivable 2,040,000
Inventory 23,719
Deposits 200,000
Prepaid Expenses 42,539
Deferred Legal Costs 51,666
-----------
Total Current Assets 2,375,182
-----------
Property, Plant & Equipment
- ---------------------------
Leasehold Improvements 495,691
Machinery and Equipment 927,465
-----------
Subtotal: 1,423,156
Less: Accumulated Depreciation (30,889)
-----------
Net Property, Plant & Equipment 1,392,267
-----------
Other Assets
- ------------
Leasehold Interest - (Net of Amortization) 1,453,038
-----------
Total Other Assets 1,453,038
-----------
TOTAL ASSETS $ 5,220,487
- ------------ ===========
See Notes to Financial Statements.
FS-32
<PAGE>
AMERICAN WASH SERVICES, INC.
BALANCE SHEET
DECEMBER 31, 1998
-----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts Payable $ 177,099
Due To Stephen B. Properties, Inc. 53,026
Taxes Payable 38,010
Provision for Corporate Income Taxes 11,924
Accrued Expenses 86,111
----------
Total Current Liabilities 366,170
----------
LONG TERM LIABILITIES
- ---------------------
Deferred Income Taxes 4,537
Total Long Term Liabilities 4,537
----------
TOTAL LIABILITIES 370,707
- ----------------- ----------
STOCKHOLDER'S EQUITY
- --------------------
Capital Stock 1
(0.01 par value; 100,000,000 shares
authorized, 100 shares issued and
outstanding)
Additional Paid-in Capital 4,799,999
Retained Earnings 49,780
----------
Total Stockholder's Equity 4,849,780
----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $5,220,487
- ------------------------------------------ ==========
See Notes to Financial Statements.
FS-33
<PAGE>
AMERICAN WASH SERVICES, INC.
STATEMENT OF INCOME
FOR THE SHORT FISCAL YEAR ENDED DECEMBER 31 , 1998
--------------------------------------------------
<TABLE>
<CAPTION>
% of Sales
----------
<S> <C> <C>
NET SALES $ 645,418 100.00
Cost of Sales 424,093 65.71
Less: Ending inventory (23,719) (3.67)
---------- -------
TOTAL COST OF SALES 400,374 62.03
---------- -------
GROSS PROFIT 245,044 37.97
ADMINISTRATIVE & OPERATING EXPENSES 125,742 19.48
---------- -------
INCOME BEFORE INTEREST, TAXES AND DEPRECIATION 119,302 18.48
---------- -------
Deferred Income Tax Expense 4,537 0.70
Corporate Income Taxes 11,925 1.85
Amortization 21,962 3.40
Depreciation 31,098 4.82
---------- -------
Total Other Expenses 69,522 10.77
---------- -------
NET INCOME $ 49,780 7.71
========== =======
Earnings Per Share $ 497.80
</TABLE>
See Notes to Financial Statements.
FS-34
<PAGE>
AMERICAN WASH SERVICES, INC.
STATEMENT OF RETAINED EARNINGS
December 31, 1998
------------------------------
RETAINED EARNINGS - Beginning $ -0-
ADD: Income for the Short Fiscal Period Ended
December 31, 1998 49,780
--------
RETAINED EARNINGS AT DECEMBER 31, 1998 $ 49,780
========
See Notes to Financial Statements.
FS-35
<PAGE>
AMERICAN WASH SERVICES, INC.
STATEMENT OF CASH FLOWS
December 31, 1998
---------------------------
Cash Flows From Operating Activities
- ------------------------------------
Net Income $ 49,780
-------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 53,060
Increase in taxes payable 38,010
Increase in deferred income taxes 4,537
Increase in provision for corporate income taxes 11,924
Increase in accounts payable 177,099
Increase in accrued liabilities 86,111
(Increase) in prepaid expenses (42,539)
(Increase) in inventories (23,719)
(Increase) in other assets (1,450,000)
(Increase) in deposits (200,000)
(Increase) in other current assets (96,638)
-------------
Total adjustments (1,442,155)
-------------
Net cash (used) by operating activities (1,392,375)
-------------
Cash Flow From Investing Activities:
- ------------------------------------
Cash payments for the purchase of property (1,423,365)
-------------
Net cash (used) by investing activities (1,423,365)
Cash Flow From Financing Activities:
- ------------------------------------
Issuance of common stock 1
Loans payable to Stephen B. Properties Inc. 53,026
Additional paid in capital 4,799,999
Mortgage receivable (2,040,000)
-------------
Net cash provided by financing activities 2,813,026
-------------
Net (decrease) in cash and equivalents (2,714)
Cash and equivalents, beginning of year 0
-------------
Cash and equivalents, end of year $ (2,714)
=============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income tax $ 0
Interest expense $ 0
See Notes to Financial Statements.
FS-36
<PAGE>
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
----------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS
- --------------------------------
American Wash Services, Inc. and its subsidiaries, Car Care Inc. and Care
Investment Inc., were formed in 1998 and they are in the business of
operating car washes at multiple locations within Pennsylvania and New
Jersey. As of the statement date, the Company was operating five (5) car
washes and nearing completion of an additional one.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
PRINCIPLES OF CONSOLIDATION - The financial statements include the accounts
of American Wash Services Inc. and its subsidiaries. Significant
intercompany transactions and balances have been eliminated.
PROPERTY AND IMPROVEMENTS - Property and Improvements are carried at cost.
Depreciation is computed using the straight-line method. When assets are
retired or otherwise disposed of, the cost and related accumulated
depreciation is removed from the accounts and any resulting gain or loss is
recognized in income for the period. The cost of maintenance and repairs is
charged to income as incurred; significant renewals and betterments are
capitalized. Deductions are made for retirements resulting from renewals or
betterments.
INVENTORIES - Ending inventories consists of supplies and are stated at
cost.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
FS-37
<PAGE>
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
----------------------------------------------
CASH - The Company maintains its cash balances at a financial institution.
These balances are insured by the Federal Deposit Insurance Corporation up
to $100,000.
NOTE 3 - DEPOSITS
- -----------------
American Wash Services Inc.'s subsidiaries, Car Care Inc. and Care
Investment Inc. are parties to an Agreement of Sale and Settlement
Agreement dated December 7, 1998, and approved by Order of the Bankruptcy
Court dated December 8, 1998, pursuant to which Care Investment agreed to
pay $200,000 to the Trustee for (i) the transfer by the Trustee to Car Care
of the assets of White Glove, Inc. at the Flourtown and Norristown
locations, and (ii) waiver by the Trustee of any claims for profits under
the Management Agreement, and any claims for Trustee's commissions or
professional fees relating to these locations.
The closing of the Flourtown and Norristown sales had been contemplated to
take place by December 31, 1998. The formal closing has not yet occurred
but is expected to occur shortly, to be effective as of December 31, 1998.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
The Company leases its premises at the Bryn Mawr, Cherry Hill and West
Chester locations. The annual aggregate rental is one hundred ninety two
thousand three hundred ninety-six dollars ($192,396).
These Leases along with the accompanying options expire in 2010, 2016, 2018
respectively.
Future minimum payments by year under the aforementioned leases are as
follows:
1999 $192,384
2000 200,905
2001 209,808
2002 219,111
2003 228,833
FS-38
<PAGE>
AMERICAN WASH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
------------------------------------------
NOTE 5 - MORTGAGE RECEIVABLE
- ----------------------------
The real property at the Flourtown and Norristown locations is presently
owned by White Glove's principal, Anthony Baker. A company subsidiary (Care
Investment) purchased the mortgages of PNC Bank on the real property at
these locations for $2,040,000 on September 30, 1998. A sheriff's sale of
the real property on Care Investment's writ of execution, has been
scheduled on January 20, 1999. Care Investment has agreed to release Baker
from any mortgage deficiency claims upon the consummation of these sales,
in exchange for Baker's agreement not to interfere with the sales.
NOTE 6 - MANAGEMENT AGREEMENT AND PURCHASE TRANSACTIONS
- -------------------------------------------------------
Car Care Inc. and Marvin Krasny, Bankruptcy Trustee for White Glove
Enterprises I, Ltd. are parties to a Management Agreement dated as of
August 24, 1998, and approved by Order of the United States Bankruptcy
Court dated August 28, 1998, under which Car Care began August 29, 1998, to
operate and manage, on the Trustee's behalf, the White Glove facilities at
West Chester, Bryn Mawr, Flourtown, and Norristown, Pennsylvania.
Car Care and the Trustee entered into an Agreement of Sale dated as of
August 24, 1998, and approved by Order of the Bankruptcy Court dated
October 14, 1998, pursuant to which Car Care agreed to pay $2 million to
the Trustee for the assets of White Glove Enterprises I, Ltd. at the West
Chester and Bryn Mawr locations.
Care Investment, Inc. purchased the secured claims and leasehold mortgages
of Sovereign Bank relating to these locations for $1.6 million on September
30, 1998.
Car Care and the Trustee closed on the purchase transactions for the West
Chester and Bryn Mawr locations on October 15, 1998. Pursuant to a prior
agreement with Sovereign Bank, the Trustee credited $1.7 million against
the purchase price for the satisfaction of Sovereign's secured claims,
which had been purchased by Care Investment, Inc. for $1.6 million.
FS-39
<PAGE>
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
----------------------------------------------
NOTE 6 - MANAGEMENT AGREEMENT AND PURCHASE TRANSACTIONS (continued)
- -------------------------------------------------------------------
Car Care, Care Investment, and the Trustee are parties to an Agreement of
Sale and Settlement Agreement dated December 7, 1998, and approved by Order
of the Bankruptcy Court dated December 8, 1998, pursuant to which Care
Investment agreed to pay $200,000 to the Trustee for (i) the transfer by
the Trustee to Car Care of the assets of White Glove, Inc. at the Flourtown
and Norristown locations, and (ii) waiver by the Trustee of any claims for
profits under the Management Agreement, and any claims for Trustee's
commissions or professional fees relating to these locations.
The closing of the Flourtown and Norristown sales had been contemplated to
take place by December 31, 1998. The formal closing has not yet occurred
but is expected to occur shortly, to be effective as of December 31, 1998.
In sum, the assets purchased from the Trustee include all of White Glove's
equipment, furnishings, fixtures, inventory, and supplies at the West
Chester, Bryn Mawr, Flourtown, and Norristown locations. White Glove's
permits and real property leases at these locations, and the non-exclusive
right to use the name "White Glove Car Wash" in connection with the
operation of these facilities.
The real property at the Flourtown and Norristown locations is presently
owned by White Glove's principal Anthony Baker. Care Investment purchased
the mortgage of PNC Bank on the real property at these locations for
$2,040,000 on September 30, 1998. A sheriff's sale of the real property, on
Care Investment's writ of execution, has been scheduled for January 20,
1998. Care Investment has agreed to release Baker from any mortgage
deficiency claims upon the consummation of these sales, in exchange for
Baker's agreement not to interfere with the sales.
FS-40
<PAGE>
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
----------------------------------------------
NOTE 7 - SUBSEQUENT EVENTS
- --------------------------
On March 26, 1999, Mace Security International, Inc., a Delaware
corporation ("MSI"), entered into a Merger Agreement (the "Merger
Agreement") with Louis D. Paolino, Jr. and Red Mountain Holding, Ltd.
(together, the "AWS Shareholders"), the owners of all of the outstanding
shares of common stock of American Wash Services, Inc., a Delaware
corporation ("AWS"), pursuant to which AWS will be merged (the "Merger")
with and into Mace Anti-Crime Bureau, Inc., a Delaware corporation and a
wholly-owned subsidiary of MSI ("Merger Sub"), with Merger Sub being the
surviving corporation of the Merger. The parties intend that the Merger
will qualify as a reorganization within the meaning of Section 368(a)(2)(D)
of the Internal Revenue Code of 1986, as amended (the "Code"). At the
closing under the Merger Agreement (the "Merger Closing"), AWS will be
merged with and into Merger Sub and all of the outstanding shares of common
stock of AWS shall be converted into the right to receive from MSI, as
consideration for the Merger, a combination of cash and unregistered shares
of common stock of MSI.
The Merger Agreement contains representations, warranties, covenants,
conditions and indemnification provisions customary for a transaction of
this size and nature. The Merger Closing is conditioned upon, among other
things, the receipts by MSI of a fairness opinion from a reputable
investment banking firm stating that the Merger is fair to the stockholders
of MSI from a financial perspective, the approval of the Merger by a
majority of the stockholders and directors of MSI, the termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvement Acts of
1986. MSI's completion to its satisfaction of its due diligence
investigation of AWS, the simultaneous closing under the Stock Purchase
Agreement (as defined below), the simultaneous closing of Private Placement
(as defined below) and the continued listing of shares of Common Stock of
MSI on the Nasdaq National Market. The Merger Agreement may be terminated
by either MSI or the AWS Sharehoders if the Merger Closing has not occurred
by July 31, 1999.
On February 4, 1999, AWS entered into a Stock Purchase Agreement (the
"Colonial Agreement") with all of the shareholders (the "Colonial
Shareholders") of Colonial Full Service Car Wash, Inc. ("Colonial"), a
Delaware corporation which is in the business of operating a multi-location
car wash company, the closing under which (the "Colonial Closing") is
contingent upon the prior occurrence of the aforementioned Merger Closing.
In accordance with the terms and conditions of the Colonial Agreement, at
the Colonial Closing, Merger Sub will purchase all of the outstanding
shares of common stock of Colonial for a purchase price paid in Common
Stock of MSI. The parties intend that the transactions contemplated by the
Colonial Agreement will qualify as a "pooling of interests" for accounting
purposes.
On March 26, 1999, AWS entered into a Real Estate and Asset Purchase
Agreement (the
FS-41
<PAGE>
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
----------------------------------------------
"Millennia Agreement") with Millennia Car Wash, LLC ("Millennia"), a
Delaware corporation which is in the business of operating a multi-location
car wash company, and Millennia's members, Excel Legacy Corporation and G
II Ventures, LLC (together, the "Members"), the closing under which(the
"Millennia closing") is contingent upon the prior occurence of the
aforementioned Merger Closing. In accordance with the terms and conditions
of the Millennia Agreement, at the Millennia Closing and at a secondary
closing under the Millennia Agreement (the "Second Millennia closing"),
Merger Sub will purchase substantially all of the assets and real property
of Millennia for shares of Common Stock of MSI.
The Millennia Agreement contains representations, warranties, covenants,
conditions and indemnification provisions customary for a transaction of
this size and nature. The Millennia Closing is conditioned upon, among
other things, the consummation of the Merger, the execution by Millennia
and the Members of mutually satisfactory noncompetition agreements, the
execution by the parties of an operating agreement permitting Merger Sub to
operate certain facilities of Millennia during the period between the
Millennia closing and the Second Millennia Closing, the delivery to
Millennia and the Members of a registration rights agreement covering the
Millennia shares, the appointment of a designee of Millennia and the
Members to the Board of Directors of MSI and the continued listing of
shares of Common Stock of MSI on the Nasdaq National Market. The Second
Millennia Closing is conditioned upon, among other things, lender approval
of the transfer of certain properties of Millennia which are subject to
liens and certain transfer restrictions. The Millennia Agreement may be
terminated by either AWS or Millennia at any time prior to the Millennia
Closing.
NOTE 8 - STOCK PURCHASE AGREEMENT
- ---------------------------------
On December 23, 1998, AWS entered into a Stock Purchase Agreement with
Stephen N. Bulboff (the "SBP Agreement"), the sole shareholder of Stephen
B. Properties, Inc., a New Jersey corporation which is in the business of
operating a multi-location car wash company ("SBP"), pursuant to which AWS
will purchase all of the outstanding stock of SBP for shares of common
stock of MSI. The parties intend that the transactions contemplated by the
SBP Agreement will qualify as a tax-free reorganization within the meaning
of Section 368(a)(1)(B) of the Code.
The SBP Agreement contains representations, warranties, covenants,
conditions and indemnification provisions customary for a transaction of
this size and nature. The SBP closing is conditioned upon, among other
things, the execution by Mr. Bulboff of a mutually satisfactory
noncompetition agreement and the execution and delivery by AWS of a
mutually satisfactory employment agreement with Mr. Bulboff. The SBP
Agreement may be terminated by either AWS or Mr. Bulboff at any time until
the aforementioned Merger Closing. If the SBP closing occurs prior to the
Merger Closing, either AWS or Mr. Bulboff may unwind the transactions
contemplated by the SBP Agreement at any time until the Merger Closing.
FS-42
<PAGE>
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
----------------------------------------------
NOTE 9 - CONCENTRATION OF CREDIT RISK
- -------------------------------------
The company operates in the Philadelphia Metropolitan area. Most of the
sales are on the cash basis, hence, the company's credit risk exposure is
limited.
Financial instruments which potentially subject the company to
concentrations of credit risk consists principally of cash. At various
times, the company may have in excess of the $100,000, the federally
insured deposit limit, on deposit in banks.
NOTE 10 - INCOME TAXES
- ----------------------
The provision for income taxes is based on income recognized for financial
statement purposes and includes the effects of temporary differences
between such income and that recognized for tax return purposes. The
Company and its eligible subsidiaries intend to file a consolidated U.S.
federal income tax return.
As a result of differences in the calculation of depreciation between book
and tax, pre-tax book income was $15,199 more than taxable income. A
deferred income tax account has been set up to account for the tax effect
of these differences.
NOTE 11 - LEASEHOLD INTEREST
- ----------------------------
Leasehold Interests in the amount of $1,475,000 were recorded in connection
with the acquisition of the Bryn Mawr and west Chester car wash sites.
These assets are being amortized over the life of the leases and options
via the straight line method.
FS-43
<PAGE>
AMERICAN WASH SERVICES, INC.
BALANCE SHEET
MARCH 31, 1999
----------------------------
ASSETS
------
Current Assets
- --------------
Cash and Equivalents $ 4,006
Accounts Receivable 2,147
Inventory 24,242
Deposits 1,600
Prepaid Expenses 27,687
Deferred Legal Costs 71,699
----------
Total Current Assets 131,381
----------
Property, Plant & Equipment
- ---------------------------
Land and Buildings 2,414,698
Leasehold Improvements 239,903
Machinery and Equipment 1,154,785
----------
Subtotal: 3,809,386
Less: Accumulated Depreciation (76,292)
----------
Net Property, Plant & Equipment 3,733,094
----------
Other Assets
- ------------
Leasehold Interest - (Net of Amortization) 1,431,076
Organizational Costs - (Net of Amortization) 5,842
----------
Total Other Assets 1,436,918
----------
TOTAL ASSETS $5,301,393
==========
See Notes to Financial Statements.
FS-44
<PAGE>
AMERICAN WASH SERVICES, INC.
BALANCE SHEET
MARCH 31, 1999
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts Payable $ 240,367
Due To Stephen B. Properties Inc. 48,709
Taxes Payable 27,887
Provision for Corporate Income Taxes 14,551
Accrued Expenses 87,207
----------
Total Current Liabilities 418,721
----------
LONG TERM LIABILITIES
- ---------------------
Deferred Income Taxes 9,170
----------
Total Long Term Liabilities 9,170
----------
TOTAL LIABILITIES 427,891
----------
STOCKHOLDER'S EQUITY
- --------------------
Capital Stock 1
(.01 par value; 100,000,000 shares authorized,
100 shares issued and outstanding)
Additional Paid-In Capital 4,799,999
Retained Earnings 73,502
----------
Total Stockholder's Equity 4,873,502
----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $5,301,393
==========
See Notes to Financial Statements.
FS-45
<PAGE>
AMERICAN WASH SERVICES, INC.
STATEMENT OF INCOME
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999
-----------------------------------------------
% of Sales
----------
NET SALES $ 506,161 100.0
---------- ----------
Beginning Inventory 23,719 4.69
Cost of Sales 253,837 50.15
Less: Ending Inventory (24,243) (4.79)
---------- ----------
TOTAL COST OF SALES 253,313 50.05
---------- ----------
GROSS PROFIT 252,848 49.95
ADMINISTRATIVE & OPERATING EXPENSES 154,229 30.47
---------- ----------
INCOME BEFORE INTEREST, TAXES AND DEPRECIATION 98,619 19.48
---------- ----------
Corporate Income Taxes 7,259 1.43
Amortization 22,314 4.41
Depreciation 45,403 8.97
---------- ----------
Total Other Expenses 74,976 14.81
---------- ----------
NET INCOME $ 23,643 4.67
========== ==========
See Notes to Financial Statements.
FS-46
<PAGE>
AMERICAN WASH SERVICES, INC.
STATEMENT OF RETAINED EARNINGS
March 31, 1999
------------------------------
RETAINED EARNINGS - January 1, 1999 $ 49,858
- -----------------------------------
ADD: Income for the Three Month Period Ended March 31, 1999 23,644
----------
RETAINED EARNINGS AT MARCH 31, 1999 $ 73,502
- ----------------------------------- ==========
See Notes to Financial Statements.
FS-47
<PAGE>
AMERICAN WASH SERVICES, INC.
STATEMENT OF CASH FLOWS
March 31, 1999
---------------------------
Cash Flows From Operating Activities
- -----------------------------------
Net Income $ 23,643
----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 67,717
Increase in deferred income taxes 4,633
Increase in provision for corporate income taxes 2,627
Increase in accounts payable 63,268
Increase in accrued liabilities 1,096
Decrease in deposits 198,400
Decrease in prepaid expenses 34,824
Increase in taxes payable (10,123)
(Increase) in inventories (523)
(Increase) in other assets (5,842)
(Increase) in other current assets (20,306)
(Increase) in accountants receivable (2,147)
----------
Total adjustments 333,624
----------
Net cash (used) by investing activities 357,267
----------
Cash Flow From Investing Activities:
- -----------------------------------
Cash payments for the purchase of property (346,230)
----------
Net cash (used) by investing activities (346,230)
Cash Flow From Financing Activities:
- -----------------------------------
Loans payable to Stephen B. Properties Inc. (4,317)
----------
Net cash provided by financing activities (4,317)
----------
Net (decrease) in cash and equivalents 6,720
Cash and equivalents, beginning of year (2,714)
----------
Cash and equivalents, end of year $ 4,006
==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income tax $ 0
Interest expense $ 0
See Notes to Financial Statements.
FS-48
<PAGE>
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
----------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS
- --------------------------------
American Wash Services Inc. and its subsidiaries, Car Care Inc. and Care
Investment Inc., were formed in 1998 and they are in the business of
operating car washes at multiple locations within Pennsylvania and New
Jersey. As of the statement date, the Company was operating five (5) car
washes and nearing completion of an additional one.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
PRINCIPLES OF CONSOLIDATION - The financial statements include the
accounts of American Wash Services Inc. and its subsidiaries. Significant
intercompany transactions and balances have been eliminated.
PROPERTY AND IMPROVEMENTS - Property and Improvements are carried at cost.
Depreciation is computed using the straight-line method. When assets are
retired or otherwise disposed of, the cost and related accumulated
depreciation is removed from the accounts and any resulting gain or loss
is recognized in income for the period. The cost of maintenance and
repairs is charged to income as incurred: significant renewals and
betterments are capitalized. Deductions are made for retirements resulting
from or betterments.
INVENTORIES - Ending inventories consists of supplies and are stated at
cost.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
FS-49
<PAGE>
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
--------------------------------------------
CASH - The Company maintains its cash balances at a financial institution.
These balances are insured by the Federal Deposit Insurance Corporation up
to $100,000.
NOTE 3 - MERGER AGREEMENT AND STOCK AND ASSET PURCHASE AGREEMENTS
- -----------------------------------------------------------------
On March 26, 1999, Mace Security International, Inc., a Delaware
corporation ("MSI"), entered into a Merger Agreement (the "Merger
Agreement") with Louis D. Paolino, Jr. and Red Mountain Holding, Ltd.
(together, the "AWS Shareholders"), the owners of all of the outstanding
shares of common stock of American Wash Services, Inc., a Delaware
corporation ("AWS"), pursuant to which AWS will be merged (the "Merger)
with and into Mace Anti-Crime Bureau, Inc., a Delaware corporation and a
wholly-owned subsidiary of MSI (Merger Sub"), with Merger Sub being the
surviving corporation of the Merger. The parties intend that the Merger
will qualify as a reorganization within the meaning of Section 368(a)(2)(D)
of the Internal Revenue code of 1986, as amended (the "Code"). At the
closing under the Merger Agreement (the Merger Closing"), AWS will be
merged with and into Merger Sub and all the outstanding shares of common
stock of AWS shall be converted into the right to receive from MSI, as
consideration for the Merger, a combination of cash and unregistered shares
of common stock of MSI.
The Merger Agreement contains representations, warranties, covenants,
conditions and indemnification provisions customary for a transaction of
this size and nature. The Merger Closing is conditioned upon, among other
things, the receipts by MSI of a fairness opinion from a reputable
investment banking firm stating that the Merger is fair to the stockholders
of MSI from a financial perspective, the approval of the Merger by a
majority of the stockholders and directors of MSI, the termination of the
waiting period under the Hart-Scott-Rodino. Antitrust Improvement Acts of
1986, MSI's completion to its satisfaction of its due diligence
investigation of AWS, the simultaneous closing under the Stock Purchase
Agreement (as defined below), the simultaneous closing of the Private
Placement (as defined below) and the continued listing of shares of Common
stock of MSI on the Nasdaq National Market. The Merger Agreement may be
terminated by either MSI or the AWS Shareholders if the Merger Closing has
not occurred by July 31, 1999.
FS-50
<PAGE>
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
On March 26, 1999, AWS entered into a Real Estate and Asset Purchase
Agreement (the "Millennia Agreement") with Millennia car Wash, LLC
("Millennia"), a Delaware corporation which is in the business of operating
a multi-location car wash company, and Millennia's members, Excel Legacy
Corporation and G II Ventures, LLC (together, the "Members"), the closing
under which (the "Millennia closing") is contingent upon the prior
occurrence of the aforementioned Merger closing. In accordance with the
terms and conditions of the Millennia Agreement, at the Millennia Closing
and at a secondary closing under the Millennia Agreement (the "Second
Millennia closing"), Merger Sub will purchase substantially all of the
assets and real property of Millennia for shares of Common Stock of MSI.
The Millennia Agreement contains representations, warranties, covenants,
conditions and indemnification provisions customary for a transaction of
this size and nature. The Millennia Closing is conditioned upon, among
other things, the consummation of the Merger, the execution by Millennia
and the Members of mutually satisfactory noncompetition agreements, the
execution by the parties of an operating agreement permitting Merger Sub to
operate certain facilities of Millennia during the period between the
Millennia closing and the Second Millennia Closing, the delivery to
Millennia and the Members of a registration rights agreement covering the
Millennia shares, the appointment of a designee of Millennia and the
Members to the Board of Directors of MSI and the continued listing of
shares of Common Stock of MSI on the Nasdaq National Market. The Second
Millennia Closing is conditioned upon, among other things, lender approval
of the transfer of certain properties of Millennia which are subject to
liens and certain transfer restrictions. The Millennia Agreement may be
terminated by either AWS or Millennia at any time prior to the Millennia
Closing.
On December 23, 1998, AWS entered into a Stock Purchase Agreement with
Stephen N. Bulboff (the "SBP Agreement"), the sole shareholder of Stephen
B. Properties, Inc., a New Jersey corporation which is in the business of
operating a multi-location car wash company ("SBP"), pursuant to which AWS
will purchase all of the outstanding stock of SBP for shares of common
stock of MSI. The parties intend that the transactions contemplated by the
SBP Agreement will qualify as a tax-free reorganization within the meaning
of Section 368(a)(1)(B) of the Code.
FS-51
<PAGE>
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
--------------------------------------------------
The SBP Agreement contains representations, warranties, covenants,
conditions and indemnification provisions customary for a transaction of
this size and nature. The SBP closing is conditioned upon, among other
things, the execution by Mr. Bulboff of a mutually satisfactory
noncompetition agreement and the execution and delivery by AWS of a
mutually satisfactory employment agreement with Mr. Bulboff. The SBP
Agreement may be terminated by either AWS or Mr. Bulboff at any time until
the aforementioned Merger Closing.
If the SBP closing occurs prior to the Merger Closing, either AWS or Mr.
Bulboff may unwind the transaction contemplated by the SBP Agreement at any
time until the Merger Closing.
NOTE 4 - CONCENTRATION OF CREDIT RISK
- -------------------------------------
The company operates in the Philadelphia Metropolitan area. Most of the
sales are on the cash basis, hence, the company's credit risk exposure is
limited.
Financial instruments which potentially subject the company to
concentrations of credit risk consists principally of cash. At various
times, the company may have in excess of the $100,000, the federally
insured deposit limit, on deposit in banks.
NOTE 5 - INCOME TAXES
- ---------------------
The provision for income taxes is based on income recognized for financial
statement purposes and includes the effects of temporary differences
between such income and that recognized for tax return purposes. The
Company and its eligible subsidiaries intend to file a consolidated U.S.
federal income tax return.
As a result of differences in the calculation of depreciation between book
and tax, pre-tax book income was $17,815 more than taxable income. A
deferred income tax account has been set up to account for the tax effect
of these differences.
FS-52
<PAGE>
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 6 - LEASEHOLD INTEREST
- ---------------------------
Leasehold Interests in the amount of $1,475,000 were recorded in connection
with the acquisition of the Bryn Mawr and West Chester car wash sites.
These assets are being amortized over the life of the leases and options
via the straight line method. As of March 31, 1999 the amount net of
amortization was $1,431,076.
FS-53
<PAGE>
APPENDIX A
----------
Stock Purchase Agreement
A-1
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT, dated as of March 26, 1999, between LOUIS
PAOLINO, JR. an individual and the persons designated by Louis Paolino, if any
(collectively referred to as the "Purchasers" or each , singularly as a
"Purchaser") and MACE SECURITY INTERNATIONAL, INC., a Delaware corporation with
offices at 160 Benmont Avenue, Bennington, Vermont 05201 (the "Seller").
W I T N E S E T H :
- - - - - - - - -
WHEREAS, Purchasers desire to acquire, and the Seller desires to sell,
3,675,000 shares of Seller's common stock, par value $.01 per share (the
"Common Stock") upon the terms and subject to the conditions hereinafter set
forth.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, hereby agree as
follows:
ARTICLE I
Definitions
-----------
In addition to terms defined elsewhere in this Agreement, the
following terms when used in this Agreement shall have the meanings indicated
below:
"Affiliate" shall mean, with respect to any Person, any Person that
---------
directly or indirectly controls, is controlled by or is under common control
with the Person in question, and, in the case of an individual, all minor
children of such individual and all other members of such individual's immediate
family living in such individual's residence.
"Agreement" shall mean this Stock Purchase Agreement, together with
---------
all exhibits and schedules referred to herein.
"Commission" shall mean the Securities and Exchange Commission.
----------
"Common Stock" shall have the meaning ascribed thereto in the recitals
------------
section of this Agreement
"CS-1" shall mean a compound consisting of CS (O-
----
chlorobenzalmalononitrile) and a flow agent.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
"Financial Statements" shall mean the audited balance sheets of the
--------------------
Seller as at December 31, 1998, and the related statements of income, cash flows
and retained earnings for the fiscal years then
A-2
<PAGE>
ended, including any related notes, each prepared in accordance with United
States generally accepted accounting principles ("GAAP") consistently applied
with prior periods and the interim unaudited balance sheets, statements of
income, cash flows and retained earnings for each of the fiscal quarters since
December 31, 1998, each of which have been filed with the Commission.
"Knowledge" or Known" shall mean, with respect to the Seller, the
---------------------
actual knowledge of chief executive officer and the chief operating l officer of
the Seller, and with respect to any Purchaser, the actual knowledge of the such
Purchaser.
"Person" shall mean any natural person, corporation, unincorporated
------
organization, limited liability company, partnership, limited liability
partnership, association, joint stock company, joint venture, trust or
government, or any agency or political subdivision of any government, or any
other entity.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
ARTICLE II
Purchase of Stock ; Consideration
---------------------------------
/S/2.1 Terms of the Purchase.
---------------------
On the basis of the representations, warranties, covenants, and
agreements contained in this Agreement and subject to the terms and conditions
of this Agreement:
(a) The Seller shall sell to the Purchasers at the Closing, as
hereinafter defined, 3,675,000 shares of Common Stock (the "Purchased Stock").
(b) The Purchasers shall pay to the Seller the sum of $1.375 per
share, or Five Million Fifty Three Thousand One Hundred Twenty Five and 00/100
Dollars ($5,053,125.00) (the "Purchase Price"), payable at the Closing in
immediately available funds.
/S/2.2 The Closing
-----------
The closing of the transactions contemplated by this Agreement
shall take place at the offices of the Seller at 160 Benmont Ave, Bennington,
VT, at 10:00 A.M., Eastern time on or about May 28, 1999, or such other date,
time or place as the parties may agree (the "Closing Date"). In the alternative,
the Closing may take place by the parties forwarding executed copies of all
documents required to be delivered pursuant to Section 2.3 to be held in escrow
by Germaine Curtin, Esq., with the Purchase Price wired to the Seller. The
Purchased Stock, issued in the name(s) designated by the Purchasers, will be
forwarded to the Purchasers by overnight delivery promptly following receipt of
the Purchase Price. The closing of the transactions contemplated by this
Agreement is herein called the "Closing."
/S/2.3 Transactions at the Closing
---------------------------
The following transactions shall take place at the Closing:
A-3
<PAGE>
(a) Purchasers shall deliver the Purchase Price in immediately
available funds, by certified check or wire transfer.
(b) Seller shall deliver to the Purchasers one or more stock
certificates evidencing an aggregate of 3,675,000 shares of Common Stock,
bearing the following legend "These securities have not been registered under
the Securities Act of 1933 and may be reoffered and sold only if so registered
or if an exemption from registration is available."
(c) Seller and Purchasers shall each deliver such evidences of
consent, and other instruments or documents as are required pursuant to Article
VI.
(d) Seller shall have obtained resignation letters from each of
its current Directors, other than Jon E. Goodrich. The resignation of the
Directors shall be effective as of the Closing. Jon E.. Goodrich shall remain on
the Board.
(e) Jon E. Goodrich, as the remaining director, shall appoint
Louis Paolino, and the persons listed on Exhinit C attached hereto and
incorporated herein by this reference to fill the Board vacancies created by the
resigning Directors.
(f) Louis Paolino, Jr. (regardless of whether he assigns his
rights as a Purchaser under this Agreement) shall have accepted the position of
President and CEO of the Seller, effective as of the Closing and Seller and Mr.
Paolino shall have executed and delivered the employment agreement, the form of
which is attached hereto as Exhibit A.
(g) Seller shall deliver the certificates for the Purchased
Stock described in Section 2.1(a) and all conditions to closing shall have been
satisfied or waived.
(h) Purchasers shall deliver the purchase price described in
Section 2.1(b) and all conditions to closing shall have been satisfied or
waived.
ARTICLE III
Representations and Warranties of the Seller
--------------------------------------------
In order to induce the Purchasers to enter into this Agreement
and the other agreement contemplated herein the Seller makes the
representations, warranties and covenants set forth below to the Purchasers,
which are true and correct as of the date of the Agreement and which will be
true and correct in all material respects as though they had been made at the
date of the Closing.
A-4
<PAGE>
/S/3.1 Organization
------------
The Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Seller is duly
qualified to transact business in all jurisdictions where the ownership or
leasing of it assets or the conduct of its business requires such qualification,
except where the failure to so qualify will not have a material adverse effect
on Seller. The Seller has the requisite corporate power and authority to own or
lease and operate its properties and conduct its business as presently
conducted.
/S/3.2 Capitalization.
--------------
The authorized capital stock of Seller consists of 18,000,000
shares of common stock, $.01 par value, of which 6,825,000 shares are issued and
outstanding and 2,000,000 shares of preferred stock, $.01 par value, none of
which are issued and outstanding. All of such issued and outstanding shares are
validly issued, fully paid and non-assessable and are free of preemptive rights.
/S/3.3 Rights, Warrants, Options
-------------------------
Except as set forth in Schedule 33 hereto, there are no
outstanding (a) securities or instruments convertible into or exercisable for
any of the capital stock or other equity interests of the Seller; (b) options,
warrants, subscriptions or other rights to acquire capital stock or other equity
interests of the Seller; or (c) commitments, agreements or understandings of any
kind, including employee benefit arrangements, relating to the issuance or
repurchase by the Seller of any capital stock or other equity interests of the
Seller.
/S/3.4 Authorization; Enforceability
-----------------------------
The Seller has the corporate power and authority to execute,
deliver and perform this Agreement. This Agreement and all other documents to be
executed and delivered by the Seller pursuant to this Agreement has been or will
be duly authorized, executed and delivered and, when executed and delivered,
will constitute the legal, valid and binding obligations of the Seller
enforceable in accordance with their respective terms, except to the extent that
their enforcement is limited by bankruptcy, insolvency, reorganization or other
laws relating to or affecting the enforcement of creditors' rights generally and
by general principles of equity.
/S/3.5 No Violation or Conflict
------------------------
The execution, delivery and performance of this Agreement and
the other documents contemplated herein to be executed by the Seller, and the
consummation by the Seller of the transactions contemplated hereby and thereby:
(a) do not violate or conflict with any provision of law or regulation (whether
federal, state or local), or any writ, order or decree of any court or
governmental or regulatory authority, or any provision of the Seller's
Certificate of Incorporation or Bylaws; and (b) do not, with or without the
passage of time or the giving of notice, or both, result in the breach of, or
constitute a default, cause the acceleration of performance or require any
consent under, or result in the creation of any lien, charge or encumbrance upon
the Purchased Stock pursuant to, any instrument or agreement to which the Seller
is a party or by which the Seller or its properties may be bound or affected,
other than instruments
A-5
<PAGE>
or agreements as to which consent shall have been obtained or waived at or prior
to the Closing.
/S/3.6 Consents of Governmental Authorities and Others
-----------------------------------------------
Except for shareholder and director approval and the requirement
that the Seller file with the Commission and distribute to its shareholders a
proxy or information statement as may be required by the NASDAQ Stock Market and
the Commission, no material consent, approval or authorization of, or
registration, qualification or filing with, any federal, state or local
governmental or regulatory authority, or any other Person, is required in
connection with the execution, delivery or performance of this Agreement by the
Seller or the consummation by the Seller of the transactions contemplated
hereby.
/S/3.7 Contingent Liabilities
----------------------
Except for the expense of disposing of the stockpile of CS-1
held in the Seller's inventory, which is a hazardous material, Seller has no
knowledge of any contingent liability that could reasonably be expected to have
a material adverse effect on the Seller's financial condition.
/S/3.8 Litigation
----------
Except as disclosed in the Financial Statements and other
documents filed with the Commission, and in Schedule 3.8 hereto, there are no
actions, suits, investigations, claims or proceedings ("Litigation") pending or,
to the knowledge of the Seller, threatened before any court or by or before any
governmental or regulatory authority or arbitrator which could reasonably be
expected to have a material adverse effect on the financial condition of Seller.
/S/3.9 Financial Statements
--------------------
The Financial Statements: (a) have been prepared in accordance
with the books of account and records of the Seller; and (b) fairly present, and
are true and accurate statements in all material respects of the Seller's
financial condition and the results of its operations at the dates and for the
periods specified therein; and (c) with respect to the audited portion of the
Financial Statements only, have been prepared in accordance with GAAP
consistently applied with prior periods.
/S/3.10 Board Approval
--------------
As of the Closing Date, the Board of Directors of the Seller
will have approved this Agreement and the transactions contemplated hereby in
accordance with applicable law.
/S/3.11 Tax Matters
-----------
All material tax returns and tax reports required to be filed by
Seller have been timely filed (or appropriate extensions have been obtained or
the issue has been remedied in accordance with applicable law) with the
appropriate governmental agencies in all jurisdictions in which such returns and
reports are required to be filed, all of the foregoing as filed are true,
correct and complete and, in all material respects, reflect accurately all
liability for taxes of the Seller for the periods to which such returns
A-6
<PAGE>
Page 52 of 78 of
relate, and all amounts shown as owing thereon have been paid. All income,
profits, franchise, sales, use, value added, occupancy, property, excise,
payroll, FICA, FUTA and other taxes (including interest and penalties), if any,
collectible or payable by the Seller or relating to or chargeable against any of
its assets, revenues or income through December 31, 1998, and through the
Closing Date, were fully collected and paid by such date or provided for by
adequate reserves in the December 31, 1998Financial Statements and all similar
items due through the Closing Date will have been fully paid by that date or
provided for by adequate reserves.
/S/3.12 Disclosure
----------
The Seller has filed within required time periods, in compliance
with applicable law, all reports, registration statements and filings, including
any necessary amendments thereto ("Filings"), required to be filed by it with
the Commission pursuant to the Exchange Act and the Securities Act. No
representation or warranty of the Seller contained in this Agreement, and no
Filing or certificate furnished by or on behalf of the Seller pursuant hereto or
in connection with the transactions contemplated hereby, contains any untrue
statement of a material fact (in light of the circumstances under which they
were made) or omits to state a material fact (in light of the circumstances
under which they were made) necessary to make the statements contained therein
not misleading.
/S/3.13 Fully Paid, Non-Assessable
--------------------------
Upon payment in full of the Purchase Price therefor, the Purchased
shares will be duly authorized, validly issued and non-assessable.
/S/3.14 Brokers
-------
Other than Meyerson & Co., which shall receive, warrants to purchase
300,000 shares of the Purchaser common stock (at an exercise price of $1.375, a
term of three years, and exercisable 120 days following the Closing hereunder)
at the Closing of this transaction as a finder's fee, Seller has not employed or
retained the services of any financial advisor, broker, or finder with respect
to which the Seller will incur any broker's, finder's, investment banking or
similar fees, commissions or expenses, in connection with the transactions
contemplated by this Agreement.
/S/3.15 Contracts, Permits and Material Documents.
-----------------------------------------
Schedule 3.15 attached hereto lists all of the following material
agreements: (i) leases and purchase agreements for real property and personal
property, in each case, with a purchase price of $100,000 or more or requiring
monthly lease payments of $5,000 or more, (ii) material licenses and
franchises, the failure to possess which could reasonably be expected to have a
material adverse effect on Seller, (iv) promissory notes, guarantees, bonds,
letters of credit, mortgages, liens, pledges, and security agreements under
which the Seller is bound or under which the Seller is a beneficiary that have
initial principal amounts of, or secure obligations of, $100,000 or more, (v)
all material patents, trademarks, trade names, copyrights, trade secrets,
proprietary rights, symbols, service marks, and logos used or usable by Seller
(all of which are owned by Mace Trademark Corp., a wholly-owned subsidiary of
Seller), (vi) all material permits, licenses, consents and other approvals from
governments, governmental agencies (federal, state and local) and/or third
parties relating to, used in or required for the operation of the Seller
businesses
A-7
<PAGE>
and which the failure to possess could reasonably be expected to have a material
adverse effect on Seller, and (vii) other contracts, agreements and instruments
not listed on another Schedule attached to this Agreement which are binding on
the Seller or any of its property or pursuant to which the Seller derives any
material benefit or has imposed upon it any material detriment. Neither the
Seller nor, to Sellers' knowledge, any person or party to the any of the
documents disclosed on Schedule 3.15 ("Material Documents") or bound thereby is
in material default under any of the Material Documents, and, to Seller's
knowledge, no act or event has occurred which, with notice or lapse of time, or
both, would constitute such a default. The Seller is not a party to, and the
Seller's property is not bound by, any agreement or instrument which is material
to the continued conduct of its business operations as now being conducted and
with respect to which a default might materially and adversely affect its
financial condition, except as listed in Schedule 3.15.
/S/3.16 Title.
-----
(a) The Assets.
Except as disclosed on Schedule 3.16(a), Seller has good and
marketable title to all of its material assets, including, without limitation,
all of the assets reflected on the Financial Statements (other than intellectual
property). All of such assets are owned by the Seller free and clear of any
mortgage, pledge, lien, encumbrance, charge, claim, security agreement,
agreement regarding or restricting transfer or title retention or other security
arrangement, except for liens and encumbrances listed below in subparagraphs (i)
through (iii) ("Permitted Company Assets Encumbrances").
(i) Liens imposed by law and incurred in the ordinary course of
business for indebtedness not yet due to carriers, warehousemen, laborers or
materialmen and the like;
(ii) Liens in respect of pledges or deposits under worker's
compensation laws or similar legislation; and
Liens for property taxes, assessments, or governmental charges not yet
subject to penalties for nonpayment.
(b) Real Property. The Seller does not own any real property.
-------------
/S/3.17 Employees, Pensions and, ERISA.
------------------------------
(a) The Seller does not have any contract of employment with an
officer or other employee that is not terminable without penalty on notice of
two weeks or less, except as listed on Schedule 3.17(a). Jon E. Goodrich and
Mark A. Capone are the only employees that have employment agreements with the
Seller. No such agreement has a "golden parachute".
(b) No employee of the Seller is represented by any union. There is
no pending or threatened dispute between the Seller and any of its employees
which might materially and adversely affect the continuance of any Company's
business operations.
A-8
<PAGE>
The employee benefit plan, fund or program (within the meaning of the
Internal Revenue Code of the United States ("Code") or the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) which is currently maintained
and/or established or sponsored by the Company or to which the Company currently
contributes, or has an obligation to contribute in the future ("Plan") is the
Seller's 401(k) Plan.
The Seller has delivered to the Purchasers (i) a true and complete
copy of its 401(k) Plan, and (ii) a true and complete copy of all annual reports
for such Plan prepared within the past 5 years, and (iii) all filings submitted
to and any correspondence received from any government agency relating to such
Plan within the past 5 years.
(f) Such Plan is administered by Merrill Lynch and, to Seller's
knowledge, such Plan is qualified under Section 401(a) and exempt from tax under
Section 501(a) of the Code. Such Plan is not funded through a trust intended to
be exempt from tax under Section 501(c) of the Code.
(g) The 401(k) Plan is administered by Merrill Lynch. To Seller's
knowledge, no reportable event (as defined in Section 4043 of ERISA or the
regulations thereunder) for which the reporting requirements have not been fully
waived, or accumulated funding deficiency whether or not waived (as defined in
Section 302 of ERISA), or liability to the Pension Benefit Guaranty Corporation
("PBGC") under Section 4062 of ERISA, nor any prohibited transaction (as defined
in Section 406 of ERISA or Section 4975 of the Code), has occurred or exists
with respect to the 401(k) Plan. To Seller's knowledge, such Plan is in
substantial compliance with all applicable provisions of ERISA and the
regulations issued thereunder, as well as with all other law applicable to such
Plan, and, to Seller's knowledge, in all material respects, has been
administered, operated and managed in substantial accordance with the governing
documents of the Plan and the requirements of ERISA. To Seller's knowledge, the
Seller has no unfunded obligations or liabilities with respect to any Plan.
(h) There is no matter, action, audit, suit or claim pending or, to
the best knowledge of Seller, threatened relating to such Plan, fiduciary of
such Plan or assets of such Plan, before any court, tribunal or government
agency.
(i) To Seller's knowledge, the transaction contemplated herein will
not accelerate any liability under such Plan because of an acceleration of any
rights or benefits to which any employee may be entitled thereunder.
(j) The Seller has no obligations with respect to, and makes no
contributions to, any Multi-Employer Pension Plan.
/S/3.18 Legality of Operation.
---------------------
In regard to the Seller:
(a) Except as disclosed in Schedule 3.18(a) to this Agreement, and
except as to Environmental Laws, as hereinafter defined, the Seller is in
material compliance with all Federal, state and
A-9
<PAGE>
local laws, rules and regulations including, without limitation, the following
laws: land use laws; payroll, employment, labor, or safety laws; or federal,
state or local "anti-trust" or "unfair competition" or "racketeering" laws such
as but not limited to the Sherman Act, Clayton Act, Robinson Patman Act, Federal
Trade Commission Act, or Racketeer Influenced and Corrupt Organization Act
("Law") except to the extent the failure to comply could not reasonably be
expected to have a material adverse effect on the Seller's financial condition.
Except as disclosed in Schedule 3.18(a), the Seller is in material compliance
with all permits, franchises, licenses, and orders that have been issued with
respect to the Laws and are or may be applicable to the Seller's property and
operations, except to the extent the failure to so comply could not reasonably
be expected to have a material adverse effect on Seller's financial condition.
Except as set forth on Schedule 3.18(a), with respect to any Law, there are no
claims, actions, suits or proceedings pending, or, to the knowledge of the
Sellers threatened against or affecting the Seller, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, wherever located, which
could reasonably be expected to have a material adverse effect on the Seller's
financial condition or which would invalidate this Agreement. Except as
disclosed in Schedule 3.18(a), the Seller has received no notification of any
past or present failure by the Seller to comply with any Law applicable to it or
its assets that could reasonably be expected to have a material adverse effect
on the Seller's financial condition.
Except as disclosed in Schedule 3.18(b) to this Agreement, the Seller
is in material compliance with all Federal, state and local laws, rules and
regulations relating to environmental issues of any kind and/or the receipt,
transport or disposal of any hazardous or non-hazardous waste materials from any
source ("Environmental Law")except for noncompliance that could not reasonably
be expected to have a material adverse effect on the Seller. Except as disclosed
in Schedule 3.18(b), with respect to any Environmental Law the Seller is in
material compliance with all permits, licenses, and orders related thereto or
issued thereunder with respect to Environmental Laws, as are or may be
applicable to the Seller's property and operations, except for such
noncompliance that could not reasonably be expected to have a material adverse
effect on Seller. Except as set forth on Schedule 3.18(b) there are no
Environmental Law related claims, actions, suits or proceedings pending, or, to
the knowledge of the Sellers, threatened against or affecting the Seller, at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
wherever located, which could reasonably be expected to have a material adverse
effect on the Seller or which would invalidate this Agreement. Except as set
forth on Schedule 3.18(b), the Seller has not transported, stored, treated or
disposed, nor has the Seller allowed any third persons, on its behalf, to
transport, store, treat or dispose waste to or at (i) any location other than a
site lawfully permitted to receive such waste for such purpose or, (ii) any
location currently designated for remedial action pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") or any similar
federal or state statute; nor has the Seller performed, arranged for or allowed
by any method or procedure such transportation or disposal in contravention of
state or federal laws and regulations or in any other manner which could
reasonably be expected to have a material adverse effect on the Seller; and the
Seller has not disposed, nor has the Seller knowingly allowed third parties to
dispose of waste upon property owned or leased by the Seller other than as
permitted by, and in conformity with, applicable Environmental Law except for
such disposal that could not reasonably be expected to have a material adverse
effect on the Seller. Except as disclosed in Schedule 3.18(b), the Seller has
not received notification of any past or present failure by the Seller to comply
with any Environmental Law applicable to it or its operations or its assets,
except for such notification relating to matters that have been remedied or
could not reasonably be expected to have a material adverse effect on Seller.
The Seller has not received hazardous waste as defined in the Resource
Conservation and Recovery
A-10
<PAGE>
Act, 42 USCA Section 6901 et seq., or in any similar federal or state statute.
-- ---
(c) Except as disclosed in Schedule 3.18 (e), to Seller's knowledge,
no employee, contractor or agent of the Seller has, in the course and scope of
employment with the Seller, been harmed by exposure to hazardous materials, as
defined under the Laws. No liens with respect to environmental liability have
been imposed against the Seller under CERCLA, any comparable Vermont statute or
other applicable Law, and, to Seller's knowledge, no facts or circumstances
exist which would give rise to the same.
(d) Attached hereto as Schedule 3.18(d) is a list of all Notice of
Violations issued to the Company in the past ten years by any federal, state or
local regulatory agency. There are no outstanding or unremedied notices of
violation either from a federal, state or local authority.
(e) To Seller's knowledge, it is not under investigation by any
District Attorney or similar state or local official or agency or the Justice
Department of the United States of America for the violation of any Laws,
including, without limitation, racketeering, unfair competition, or anti-trust.
To Seller's knowledge, no facts or circumstances exist which would cause the
Seller to be liable for the violation of any Laws including, without limitation,
racketeering, unfair competition, or anti-trust.
(f) Except as set forth in Schedule 3.18(f), all material licenses,
approvals, permits and certificates ("Government Authorizations") needed or
required for the operation of the Seller's business are set forth on Schedule
3.15. To Seller's knowledge, all such Government Approvals are in full force
and effect, the Seller is in compliance with all such Government Approvals, and
all such Government Approvals have been validly and legally obtained by the
Company.
/S/3.19 Corrupt Practices.
-----------------
To the Sellers' knowledge, the Seller has not made, offered or agreed
to offer anything of value to any employees of any customers of the Seller for
the purpose of attracting business to the Seller or any foreign or domestic
governmental official, political party or candidate for government office or any
of their respective employees or representatives, nor has the Seller otherwise
taken any action which would cause it to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended.
For purposes of this Article III, a material benefit or material
detriment shall be a direct reduction in an assets or an increase of a liability
of $500,000 or more.
ARTICLE IV
Representations, Warranties and Covenants of the Purchasers
-----------------------------------------------------------
In order to induce the Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, each Purchaser, with respect to
himself only, makes the representations, warranties and covenants set forth
below to the Seller, which shall be true and accurate as of Closing in all
material respects.
A-11
<PAGE>
/S/4.1 Organization; Standing and Power
--------------------------------
The Purchaser is an individual. The Purchaser has all requisite
corporate power and authority to execute, deliver and perform this Agreement and
to consummate the transactions contemplated hereby.
/S/4.2 Authorization; Enforceability
-----------------------------
This Agreement and any and all other documents to be executed
and delivered by the Purchaser pursuant to this Agreement have been duly
executed and delivered by the Purchaser, and constitutes the legal, valid and
binding obligation of the Purchaser, enforceable in accordance with their terms,
except to the extent that their enforcement is limited by bankruptcy,
insolvency, reorganization or other laws relating to or affecting the
enforcement of creditors' rights generally and by general principles of equity.
/S/4.3 No Violation or Conflict
------------------------
The execution, delivery and performance by the Purchaser of this
Agreement and the other agreements contemplated hereby: (a) does not violate or
conflict with any provision of law or regulation (whether federal, state or
local), or any writ, order or decree of any court or governmental or regulatory
authority; and (b) do not, with or without the passage of time or the giving of
notice, or both, result in the breach of, or constitute a default, cause the
acceleration of performance or require any consent under, any instrument or
agreement to which the Purchaser or any of its Affiliates is a party or by which
the Purchaser or any of its Affiliates or any of their respective properties may
be bound or affected, other than instruments or agreements as to which consent
shall have been obtained or waived at or prior to the Closing.
/S/4.4 ERISA.
-----
The execution and delivery of this Agreement and the purchase of
the Purchased Stock by the Purchaser will not involve and prohibited transaction
within the meaning of Section 406 of Employee Retirement Income and Security Act
or Section 4975 of the Internal Revenue Code for which an exemption is not
available by statute or regulation.
/S/4.5 Purchase for Investment
-----------------------
The Purchased Stock to be acquired hereunder is being acquired
for Purchaser's own account and with no intention of distributing or reselling
such Purchased Stock or any part thereof in any transaction which would be in
violation of the securities laws of the United States of America or any State,
without prejudice, however, to Purchaser's right at all times to sell or
otherwise dispose of all or any part of such Purchased Stock under a
registration under the Securities Act or under an exemption from such
registration available under the Securities Act, and subject, nevertheless, to
the disposition of Purchaser's property being at all times within its control.
If Purchaser should in the future decide to dispose of any of the Purchased
Stock, such Purchaser understands and agrees that it may do so only in
compliance with the Securities Act, as then in effect.
/S/4.6 Restrictive Legend
------------------
A-12
<PAGE>
Purchaser understands and agrees that, so long as appropriate, the
certificates evidencing the Purchased Stock shall bear the of the following
legend: "These securities have not been registered under the Securities Act of
1933 and may be reoffered and sold only if so registered or if an exemption from
registration is available."
/S/4.7 Accredited Investor
-------------------
Purchaser is familiar with the Securities Act and the definition
of "accredited investor" and represents that he is an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
/S/4.8 Brokers
-------
Other than Meyerson & Co., which shall receive warrants to
purchase 300,000 shares of the Purchaser common stock (at an exercise price of
$1.375, a term of three years and exercisable 120 days following the Closing
hereunder) at the Closing of this transaction as a finder's fee, Seller has not
employed or retained the services of any financial advisor, broker, or finder
with respect to which the Seller will incur any broker's, finder's, investment
banking or similar fees, commissions or expenses, in connection with the
transactions contemplated by this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
---------------------
/S/5.1 Survival
--------
All of the respective representations, warranties and obligations of
the parties to this Agreement shall survive consummation of the transactions
contemplated by this Agreement as follows: (i) all representations and
warranties pertaining to federal, state and local taxes shall survive until the
expiration of the applicable statute of limitations on any claim which can be
brought against the Seller by tax authorities or governmental agencies or
governmental units and (ii) all representations and warranties other than set
forth in (i) above shall expire TWELVE months following the Closing Date.
Notwithstanding the prior sentence which provides that the representations and
warranties expire after certain stated periods of time, if within the stated
period of time, a notice of a claim for indemnification or Indemnification
Demand is given, or a suit or action based upon representation or warranty is
commenced, the Indemnified Party shall not be precluded from pursuing such claim
or action, or from recovering from the Indemnifying Party (whether through the
courts or otherwise) on the claim or action, by reason of the expiration of the
representation or warranty.
/S/5.2 Investigation
-------------
Notwithstanding anything to the contrary contained herein,
neither party shall have a claim hereunder for breach of a representation ,
warranty or covenant to the extent such breach was known prior to the Closing
Date by the party seeking to bring the claim.
A-13
<PAGE>
/S/5.3 Employment
----------
Seller agrees to appoint Louis Paolino as a director, to name
him as Chairman of the Board and to appoint him as Seller's chief executive
officer [on substantially the same terms and conditions as are set forth in the
form of employment agreement attached hereto as Exhibit A, effective upon
Closing of the transactions contemplated by this Agreement.
Seller agrees to employ each of Robert Kramer, Greg Krzmien,
John Poling, David Ehrlich, Stephen Bulboff, Joseph Paolino, Mathew Paolino and
Lisa Paolino and on substantially the terms and conditions set forth in Exhibit
B attached hereto, with such employment to be effective as of the date hereof.
/S/5.4 Board of Directors
------------------
All current directors, other than Jon Goodrich, will resign and
Louis Paolino and the persons named in Exhibit C attached hereto will be
appointed by the remaining Board member.
/S/5.5 Private Placement
-----------------
Seller agrees to use its best efforts to sell, in a private
placement 1,850,000 shares of its common stock at a purchase price of $2.00 per
share to five individuals or entities to be designated by Louis Paolino.
ARTICLE VI
Conditions Precedent; Termination
---------------------------------
/S/6.1 Conditions Precedent to the Obligations of the Purchasers
---------------------------------------------------------
Each and every obligation of the Purchasers to consummate the
transactions described in this Agreement and any and all liability of the
Purchasers to the Seller shall be subject to the fulfillment or waiver by
Purchasers on, before or simultaneous with the Closing of the following
conditions precedent:
(a) Representations and Warranties True. Each of the
-----------------------------------
representations and warranties of the Seller contained herein or in any
certificate or other document delivered pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be true and correct
in all material respects as of the Closing Date with the same force and effect
as though made on and as of such date (except for changes specifically permitted
by this Agreement).
(b) Performance. The Seller shall have performed and complied
-----------
in all material respects with all of the agreements, covenants and obligations
under this Agreement to be
A-14
<PAGE>
performed or complied with by each of them on or prior to the Closing Date.
(c) No Adverse Change. Except as expressly permitted or
-----------------
contemplated by this Agreement, no event or condition shall have occurred which
has materially adversely affected or may materially adversely affect in any
respect the financial condition since the date hereof.
(d) Certificates. The Seller shall have delivered to the
------------
Purchasers a certificate dated the Closing Date, certifying that the conditions
specified in Section 6.1(a), (b) and (c) above have been fulfilled and as to
such other matters as the Purchasers may reasonably request. The Secretary or
Assistant Secretary of the Seller shall have delivered to the Purchasers a
certificate, dated the Closing Date, certifying the names and signatures of the
officers thereof authorized to sign this Agreement and the Exhibits hereto to
which it is a party.
(e) No Litigation. No litigation, arbitration or other legal or
-------------
administrative proceeding shall have been commenced or be pending by or before
any court, arbitration panel or governmental authority or official, and no
statute, rule or regulation of any foreign or domestic, national or local
government or agency thereof shall have been enacted after the date of this
Agreement, and no judicial or administrative decision shall have been rendered,
which in each case enjoins or prohibits, or seeks to enjoin or prohibit, the
consummation of all or any of the transactions contemplated by this Agreement.
(f) Consents. The Seller shall have obtained all
--------
authorizations, consents, waivers and approvals and given all notices as may be
required to consummate the transactions contemplated by this Agreement
including, but not limited to, approval of the Seller's stockholders, delivery
of the Information Statement or notice to the stockholders, as applicable.
(g) Opinion of Counsel. An opinion letter from counsel to the
------------------
Seller addressed to the Purchasers, in form and substance satisfactory to the
Purchasers, to the effect that the Purchased shares are duly authorized, validly
issued and non-assessable, shall have been delivered to Purchasers at the
Closing.
(h) Board/ Shareholder Approval. The Board of Directors of
---------------------------
Seller shall have approved this Agreement and the transactions contemplated
hereby and the holders of a majority of outstanding shares of Seller shall have
approved the transactions contemplated hereby.
(i) Employment Agreements. Employment Agreements containing
---------------------
substantially the terms and conditions set forth in Exhibit B attached hereto
shall have been executed by and between Seller and each of Robert Kramer, Greg
Krzamien, John Poling, David Ehrlich, Stephen Bulboff, Joseph Paolino, Mathew
Paolino and Lisa Paolino as of the date of this Agreement, effective as of the
date of this Agreement.
(j) Board/President and CEO. Louis Paolino shall have been
------------------------
appointed to serve as Seller's President and CEO on substantially the same terms
as are set forth in the employment agreement attached hereto as Exhibit A hereto
and appointed to the Board, effective as of the Closing, and all current
directors, other than Jon Goodrich (the "Resigning Board") shall have submitted
letters of resignation, effective as of the Closing. The remaining director, Mr.
Goodrich , shall have appointed Louis Paolino and the persons named on Exhibit C
to fill the vacancies created by the Resigning Board.
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<PAGE>
(k) Other Stock Purchases. Purchaser shall have purchased:
---------------------
(a)1,100,000 shares of Common Stock from Jon Goodrich at a purchase price of
$1.375 per share or less, and (b) 100,000 shares of Common Stock from each of
two current shareholders at a purchase price of $1.375 per share or less.
(l) NASDAQ. Purchasers shall have received comfort, reasonably
------
acceptable to it, that, upon consummation of the transactions contemplated
hereby, Seller will not lose its listing on the NASDAQ National Market.
(m) No Material Adverse Change. There shall have been no
--------------------------
material adverse change in the financial condition of Seller and the Seller
shall not have suffered any material loss or damage to its assets since the date
of its December 31, 1998 Financial Statements, except as contemplated by
Seller's projections. A material adverse change, for the purposes of this
subsection (m) shall mean a reduction in equity of $1,000,000 or more.
(n) Private Placement. Substantially simultaneously with the
-----------------
Closing hereunder, Seller shall have sold, in a private placement, 1,850,000
shares of its common stock at a purchase price of $2.00 per share to five
individuals or entities designated by Louis Paolino.
/S/6.2 Conditions Precedent to the Obligations of Seller
-------------------------------------------------
Each and every obligation of Seller to consummate the transactions
described in this Agreement and any and all liability of Seller to the
Purchasers shall be subject to the fulfillment or waiver by Seller on or before
the Closing Date of the following conditions precedent:
(a) Representations and Warranties True. Each of the
-----------------------------------
representations and warranties of the Purchasers contained herein or in any
certificate or other document delivered pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be true and correct
in all respects as of the Closing Date with the same force and effect as though
made on and as of such date.
(b) Performance. The Purchasers have performed and complied in
-----------
all respects with all of the agreements, covenants and obligations required
under this Agreement to be performed or complied with by them on or prior to the
Closing Date.
(c) Certificate. Each Purchaser shall have delivered to the
-----------
Seller a certificate addressed to Seller executed by each Purchaser dated the
Closing Date, certifying that the conditions specified in Sections 6.2(a) and
(b) above have been fulfilled.
(d) Board/Shareholder Approval. The Board of Directors of the
--------------------------
Seller shall have approved this Agreement and the transactions contemplated
hereby and the holders of a majority of outstanding shares Seller shall have
approved the transactions contemplated hereby.
(e) Fairness Opinion. Seller shall have received an opinion
----------------
from an independent investment banking firm that the transactions contemplated
hereby are fair, from a financial point of view, to the shareholders of Seller.
A-16
<PAGE>
(f) Board/President and CEO. Louis Paolino shall have been
-----------------------
appointed to serve as Seller's President and CEO on substantially the same terms
as are set forth in Exhibit A hereto and appointed to the Board, effective as of
the Closing, and all current directors, other than Jon Goodrich, (the "Resigning
Board") shall have submitted letters of resignation, effective as of the
Closing. The remaining director, Mr. Goodrich, shall have appointed Mr. Paolino
and the persons named in Exhibit C to fill the vacancies created by the
Resigning Board.
(g) NASDAQ. Seller shall have received comfort, reasonably
------
acceptable to it, that, upon consummation of the transactions contemplated
hereby, Seller will not lose its listing on the NASDAQ National Market.
/S/6.3 Best Efforts
------------
Subject to the terms and conditions provided in this Agreement,
each of the parties shall use their respective best efforts in good faith to
take or cause to be taken as promptly as practicable all reasonable actions that
are within its power to cause to be fulfilled those of the conditions precedent
to its obligations or the obligations of the other parties to consummate the
transactions contemplated by this Agreement that are dependent upon its actions,
including obtaining all necessary consents, authorizations, orders, approvals
and waivers. In furtherance of the foregoing, the Seller shall cooperate fully
with Purchaser and the Purchaser shall cooperate fully with the Seller, in
accordance with the terms hereof.
/S/6.4 Termination
-----------
This Agreement and the transactions contemplated hereby may
be terminated (i) at any time by the mutual consent of the parties hereto; (ii)
by the Purchaser at any time at or prior to Closing if any of the
representations or warranties of the Seller in this Agreement are not in all
material respects true, accurate and complete or if the Seller breaches in any
material respect any covenant contained in this Agreement, provided that such
misrepresentation or breach is not cured within ten (10) days or thirty (30)
days if such breach can be cured within such period of time after written notice
thereof.; (iii) by the Seller at any time at or prior to Closing if any of the
representations or warranties of the Purchaser in this Agreement are not in all
material respects true, accurate and complete or if the Purchaser breaches in
any material respect any covenant contained in this Agreement, provided that
such misrepresentation or breach is not cured within ten (10) days or thirty
(30) days if such breach can be cured within such period of time after notice
thereof, but in any event prior to the Termination Date, and (iv) by either
Purchaser or Seller if the conditions to closing are not satisfied or waived on
or prior to July 1, 1999 and the failure to satisfy any condition is not due to
the actions or omissions of the party attempting to terminate this Agreement. If
this Agreement is terminated pursuant to this Section 6.4, written notice
thereof shall promptly be given by the party electing such termination to the
other party and, subject to the expiration of the cure periods provided in
clauses (ii) and (iii) above, this Agreement shall terminate without further
actions by the parties and no party shall have any further obligations under
this Agreement.
A-17
<PAGE>
ARTICLE VII
Covenants
---------
/S/7.1 Seller's Interim Operation
--------------------------
During the period from the date of this Agreement to the Closing
Date, except with Purchasers' prior specific written consent or as expressly
contemplated by this Agreement the Seller shall not do any of the following
(unless otherwise expressly contemplated by this Agreement or permitted in
writing by Purchasers):
(i) amend its Certificate of Incorporation or By-Laws;
(ii) issue, sell or authorize for issuance or sale (except pursuant
to its non-qualified stock option plan), shares of any class of
its securities (including, but not limited to, by way of stock
split or dividend) or any subscriptions, options, warrants,
rights or convertible securities, or enter into any agreements
or commitments of any character obligating it to issue or sell
any such securities;
(iii) declare or pay any stock dividend or similar distribution with
respect to its capital stock;
(iv) grant or make any mortgage or pledge or subject itself or any
of its properties or assets to any lien, charge or encumbrance
of any kind, except liens for taxes not currently due;
(v) create, incur or assume any liability or indebtedness in excess
of $100,000.00, except for inventory purchases in the ordinary
course of business;
(vi) alter the manner of keeping its books, accounts or records, or
change in any manner the accounting practices therein
reflected;
(vii) enter into any commitment or transaction other than in the
ordinary course of business including, but not limited to, the
making of any loan to any Person;
(viii) do any act, or omit to do any act, or permit to the extent
within the Seller's control, any act or omission to act which
would cause a material violation or breach of any of the
representations, warranties; agree, whether in writing or
otherwise, to do any of the foregoing.
A-18
<PAGE>
/S/7.2 Confidentiality (through Closing Date)
--------------------------------------
Except as otherwise required in the performance of obligations
under this Agreement and except as otherwise required by law, any non-public
information received by a party or its advisors from the other party shall be
kept confidential and shall not be used or disclosed for any purpose other than
in furtherance of the transactions contemplated by this Agreement. The
obligation of confidentiality shall not extend to information (a) which is or
shall become generally available to the public other than as a result of an
unauthorized disclosure by a party to this Agreement or a person to whom a party
has provided such information, (b) which was available to a party to this
Agreement on a nonconfidential basis prior to its disclosure by one party to the
other pursuant to this Agreement or (c) which is disclosed by the Purchasers in
any legal proceeding requiring any such disclosure. Upon termination of this
Agreement, each party shall promptly return any confidential information
received from the other party and, upon request, shall destroy any copies of
such information in its possession. Notwithstanding anything contained herein to
the contrary, the covenants of the parties contained in this Section 7.2 shall
survive any termination of this Agreement until the earlier of (i) three (3)
years from the date hereof, or (ii) the date when such information becomes
generally available to the public.
ARTICLE VIII
Indemnification.
/S/8.1 Indemnification of Purchasers.
------------------------------
In the event the transaction contemplated hereby is consummated,
Seller agrees to defend, indemnify and hold Purchasers and any person claiming
by or through Purchasers and their respective successors and assigns harmless
from and against, and agrees to reimburse them for, any and all demands, claims,
recoveries, obligations, losses, damages, deficiencies and liabilities and all
related costs, expenses (including reasonable attorneys' and accountants' fees
and disbursements), interest and penalties which any of them shall incur or
suffer which arise from, result from or relate to the breach of any of the
representations, warranties, covenants or agreements made by Seller in this
Agreement.
/S/8.2 Indemnification of Seller.
-------------------------
In the event the transaction contemplated hereby is consummated, Purchasers
will defend, indemnify and hold Seller and its officers, directors, employees
and any person claiming by or through Seller and their respective successors and
assigns harmless from and against, and agrees to reimburse them for, any and all
demands, claims, recoveries, obligations, losses, damages, deficiencies and
liabilities and all related costs, expenses (including reasonable attorneys' and
accountants' fees and disbursements), interest and penalties which any of them
shall incur or suffer which arise from, result from or relate to the breach of
any of the representations, warranties, covenants or agreements made by
Purchasers in or under this Agreement.
/S/8.3 Defense and Settlement of Claims.
--------------------------------
A-19
<PAGE>
If any person entitled to indemnification pursuant to any provision of this
Agreement (an "Indemnitee") is threatened in writing with any claim by any
Person who is not a party to this Agreement, or any claim is presented in
writing to, or any action or proceeding by is formally commenced against, an
Indemnitee by any Person who is not a party to this Agreement and such claim,
action or proceeding may give rise to the right of indemnification hereunder or
reimbursement, the Indemnitee shall give written notice thereof as promptly as
reasonably practicable to any indemnifying party, provided that any delay by the
Indemnitee in so notifying an indemnifying party shall not relieve any
Indemnitor of any liability to the Indemnitee hereunder except to the extent
severely prejudiced by such delay.
/S/8.4 Procedure and Payment.
----------------------
If after the Closing either Seller or the Purchasers shall become aware of
a loss, damage or claim or shall receive notice of a third party claim or
alleged third party claim asserting the existence of any matter of the nature as
to which the Indemnitee has been indemnified against under this Article VIII by
the other party hereto ( the "Indemnitor"), Indemnitee shall promptly notify
Indemnitor in writing with respect thereto. In the event of any such third
party claim, Indemnitor shall have the right to defend against any such claim
with counsel reasonably satisfactory to Indemnitee, provided (i) Indemnitor
shall, within ten (10) days after the giving of such notice by Indemnitee,
notify Indemnitee that Indemnitor will, at its own cost and expense, defend the
same, and (ii) such defense is instituted and continuously maintained in good
faith by Indemnitor. In such event the defense may, if necessary, be maintained
in the name of Indemnitee. Indemnitee may, if it so elects and at its expense,
designate its own counsel to participate with the counsel selected by Indemnitor
in the conduct of such defense. Indemnitor shall not permit any lien or
execution to attach to any of the assets of the Indemnitee as a result of such
claim, and the Indemnitor shall provide such bonds or deposits as shall be
necessary to prevent the same. In any event, Indemnitor is obligated to keep
Indemnitee fully advised as to the status of such defense. If Indemnitor shall
be given notice of a claim as aforesaid and shall fail to notify Indemnitee of
its election to defend such claim within the time as prescribed herein, or after
having so elected to defend such claim shall fail to institute and maintain such
defense in accordance with the foregoing, then Indemnitee shall defend such
claim and Indemnitor shall reimburse Indemnitee for the costs of such defense
upon demand therefore, which demand shall include a copy of the legal bills and
other costs. Such reimbursement shall be made within ten (10) days of demand
therefore. If such defense shall be unsuccessful then the Indemnitor shall fully
satisfy and discharge the claim within ten (10) days after notice from
Indemnitee requesting Indemnitor to do so. Indemnitor shall not be entitled to
settle any such claim without the consent of Indemnitee.
ARTICLE IX
Miscellaneous
-------------
A-20
<PAGE>
/S/9.1 Notices
-------
Any notice, demand, claim or other communication under this
Agreement shall be in writing and shall be deemed to have been given upon the
delivery, mailing or transmission thereof, as the case may be, if delivered
personally or sent by certified mail, return receipt requested, postage prepaid,
or sent by facsimile (transmission confirmed) or prepaid overnight courier to
the parties at the addresses set forth herein (or at such other addresses as
shall be specified by the parties by like notice). A copy of any notices
delivered to the Purchasers shall also be sent to Robert M. Kramer, 1150 First
Avenue, Suite 900, King of Prussia, PA 19406, telephone 610-992-4712, fax 610-
992-0723. A copy of any notices delivered to the Seller shall also be sent to
Germaine Curtin, Esq., 19 Hollywood Ave., Albany, NY 12208, telephone and fax
518-437-9276.
/S/9.2 Entire Agreement
----------------
This Agreement contains every obligation and understanding
between the parties relating to the subject matter hereof and merges all prior
discussions, negotiations and agreements, if any, between them, and none of the
parties shall be bound by any conditions, definitions, understandings,
warranties or representations made prior to the date hereof other than as
expressly provided or referred to herein.
/S/9.3 Binding Effect
--------------
This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, heirs, personal
representatives, legal representatives, and permitted assigns. It is agreed that
any Purchaser may assign his rights to purchase the Purchased Stock hereunder to
a Person he Controls.
/S/9.4 Waiver and Amendment
--------------------
Any representation, warranty, covenant, term or condition of
this Agreement which may legally be waived, may be waived, or the time of
performance thereof extended, at any time by the party hereto entitled to the
benefit thereof, and any term, condition or covenant hereof (including, without
limitation, the period during which any condition is to be satisfied or any
obligation performed) may be amended by the parties thereto at any time. Any
such waiver, extension or amendment shall be evidenced by an instrument in
writing executed by Louis Paolino on behalf of Purchasers, or in the case of
Seller, by its President or CFO or other person, who has been authorized by its
Board of Directors to execute waivers, extensions or amendments on its behalf.
No waiver by any party hereto, whether express or implied, of its rights under
any provision of this Agreement shall constitute a waiver of such party's rights
under such provisions at any other time or a waiver of such party's rights under
any other provision of this Agreement
A-21
<PAGE>
/S/9.4 No Third Party Beneficiary
--------------------------
Nothing expressed or implied in this Agreement is intended, or
shall be construed, to confer upon or give any Person other than the parties
hereto and their respective heirs, personal representatives, legal
representatives, successors and permitted assigns, any rights or remedies under
or by reason of this Agreement.
/S/9.5 Severability
------------
In the event that any one or more of the provisions contained in
this Agreement shall be declared invalid, void or unenforceable, the remainder
of the provisions of this Agreement shall remain in full force and effect, and
such invalid, void or unenforceable provision shall be interpreted as closely as
possible to the manner in which it was written.
/S/9.6 Expenses
--------
Each party agrees to pay, without right of reimbursement from
the other party, the costs incurred by it incident to the performance of its
obligations under this Agreement and the consummation of the transactions
contemplated hereby, including, without limitation, costs incident to the
preparation of this Agreement, and the fees and disbursements of counsel,
accountants and consultants employed by such party in connection herewith.
/S/9.7 Headings
--------
The section and other headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of any provisions of this Agreement.
/S/9.8 Counterparts
------------
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
/S/9.9 Governing Law
-------------
A-22
<PAGE>
This Agreement has been entered into and shall be construed and
enforced in accordance with the laws of the State of New York without reference
to the choice of law principles thereof. In any litigation in connection with
or arising out or related to this Agreement, any of the documents referred to
herein or transactions contemplated hereby, the Seller irrevocably consents to
and confer personal jurisdiction on the courts of the State of New York or the
United States located within the City of Albany and expressly waive any
objections as to venue in any such courts.
/S/9.10 Participation of Parties
------------------------
The parties hereto acknowledge that this Agreement and all
matters contemplated herein, have been negotiated among all parties hereto and
their respective legal counsel and that all such parties have participated in
the drafting and preparation of this Agreement from the commencement of
negotiations at all times through the execution hereof. The rules of
construction with the "presumption against the drafter" are not applicable as
all parties participated in drafting.
/S/9.11 Further Assurances
------------------
The parties hereto shall deliver any and all other instruments
or documents required to be delivered pursuant to, or take such other action
required to be taken, or necessary or proper in order to give effect to, all of
the terms and provisions of this Agreement including, without limitation, all
necessary instruments of assignment and transfer and such other documents as may
be necessary or desirable to transfer ownership of the Purchased Stock.
/S/9.12 Arbitration
-----------
Any dispute, controversy or claim arising hereunder between the
parties shall be settled by arbitration in Albany, New York, in accordance with
the commercial rules of the American Arbitration Association, by an arbitration
panel consisting of three members, and judgment upon any such arbitration award
rendered by the arbitrators may be entered in any court of competent
jurisdiction. Such arbitrators shall have knowledge and expertise in the
subject matter of the arbitration proceeding. Each of the parties and the
arbitrators shall use its best efforts to keep confidential the existence of any
dispute and arbitration proceedings and all information relating thereto or
submitted in connection therewith and, in the event of judicial proceedings for
the enforcement of this paragraph or any award pursuant thereto, shall cooperate
to seal the record of any such arbitration or judicial proceeding. Each party
to any arbitration shall bear its own expenses in relation thereto, including
but not limited to such party's attorneys' fees, if any; provided however that
the expenses and fees of the arbitration not capable of being attributed to any
one party shall be borne half by the Seller and half by the Purchasers.
A-23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each executed and
delivered this Agreement as of the day and year first above written.
PURCHASER:
/s/ Louis D. Paolino Jr.
----------------------------------------------
Louis D. Paolino Jr.
SELLER:
Mace Security International, Inc.
By: /s/ Jon E. Goodrich
------------------------------------------
Name: Jon E. Goodrich
Title: President and CEO
A-24
<PAGE>
AMENDMENT NO. 1
TO
STOCK PURCHASE AGREEMENT
------------------------
THIS AMENDMENT NO. 1 dated April 13, 1999 amends that certain STOCK
PURCHASE AGREEMENT, dated as of March 26, 1999 (the "Stock Purchase Agreement"),
between LOUIS PAOLINO, JR. an individual and the persons designated by Louis
Paolino, if any (collectively referred to as the "Purchasers" or each ,
singularly as a "Purchaser") and MACE SECURITY INTERNATIONAL, INC., a Delaware
corporation with offices at 160 Benmont Avenue, Bennington, Vermont 05201 (the
"Seller").
For good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. The Stock Purchase Agreement shall be amended to increase the
number of shares of Seller's Common Stock to be purchased thereunder from
3,675,000 to 3,735,000.
In that regard, the Stock Purchase Agreement is hereby amended by
replacing all references to "3,675,000 shares" with "3,735,000 shares".
2. The Stock Purchase Agreement is hereby further amended to amend
the Purchase Price as stated in Section2.1(b) from Five Million Fifty Three
Thousand One Hundred Twenty Five and 00/100 Dollars ($5,053,125.00) to Five
Million One Hundred Thirty Five Thousand Six Hundred Twenty Five and 00/100
($5,135,625).
3. All other terms of the Stock Purchase Agreement shall remain in
full force and effect.
4. This Amendment may be executed in any number of counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
5. This Amendment has been entered into and shall be construed and
enforced in accordance with the laws of the State of New York without reference
to the choice of law principles thereof. In any litigation in connection with
or arising out or related to this Agreement, any of the documents referred to
herein or transactions contemplated hereby, the Seller irrevocably consents to
and confer personal jurisdiction on the courts of the State of New York or the
United States located within the City of Albany and expressly waive any
objections as to venue in any such courts.
IN WITNESS WHEREOF, the parties hereto have each executed and
delivered this Amendment No. 1 to Stock Purchase Agreement as of the day and
year first above written.
PURCHASER:
/s/ Louis Paolino
-----------------
Louis Paolino
SELLER:
Mace Security International, Inc.
By: /s/ Jon E. Goodrich
-------------------
Name: Jon E. Goodrich
Title: President and CEO
A-25
<PAGE>
AMENDMENT NO. 2
---------------
TO
--
STOCK PURCHASE AGREEMENT
------------------------
THIS AMENDMENT NO. 2 dated May 24, 1999 amends that certain STOCK
PURCHASE AGREEMENT, dated as of March 26, 1999, as amended by Amendment No. 1
dated April 13, 1999 (the "Stock Purchase Agreement"), between LOUIS PAOLINO,
JR. an individual and the persons designated by Louis Paolino, if any
(collectively referred to as the "Purchasers" or each, singularly as a
"Purchaser") and MACE SECURITY INTERNATIONAL, INC., a Delaware corporation with
offices at 160 Benmont Avenue, Bennington, Vermont 05201 (the "Seller").
For good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. The Stock Purchase Agreement must be amended to reflect the change
of the date on or after which, if the conditions to closing are not satisfied or
waived and the failure to satisfy any condition is not due to the actions or
omissions of the party attempting to terminate this Agreement, any party may
terminate the Stock Purchase Agreement and the transactions contemplated
thereby.
In that regard, Section 6.4 of the Stock Purchase Agreement is hereby
amended by replacing all references to "July 1, 1999" with "August 31, 1999"
2. The Merger Agreement must be amended to reflect the increase of the
size of the Board, effective as of the Merger, from five to seven member and
further reflect that Mr. Paolino and Mr. Papadakis have already been appointed
to the Board to fill certain vacancies created upon the resignation of certain
directors .
In that regard:
(a) the text of Section 2.3(d) shall be deleted in its entirety and the
following shall be inserted in lieu thereof:
"(d) Seller shall have obtained resignation letters from each of its
then current Directors, other that Jon Goodrich, Louis Paolino, and
Constantine Papadakis. The resignation of the Directors shall be
effective as of the Closing. Four additional Directors shall be
selected by Louis Paolino and appointed by the then remaining
Directors, Messrs. Goodrich, Paolino, and Papadakis to fill the
remaining four Board seats."
(b) the first paragraph of Section 5.3 shall be amended by deleting therefrom
the phrase:
", effective upon Closing of the transactions contemplated by this
Agreement"
(c) the text of Section 5.4 shall be deleted in its entirety and the following
shall be inserted in lieu thereof:
"All then current Directors, other that Jon Goodrich, Louis Paolino,
and Constantine Papadakis will resign, effective as of the Closing.
Four additional Directors shall be selected by Louis Paolino and
appointed by the then remaining Directors, Messrs. Goodrich, Paolino,
and Papadakis to fill the remaining four Board seats."
(d) the text of Section 6.1(j) and Section 6.2(f) shall be deleted in their
entirety and the following shall be inserted in lieu of each thereof:
Paolino shall have been appointed to serve as Seller's President and
CEO on substantially the terms as are set forth in the employment
agreements attached hereto as Exhibit A. All then current Directors,
other that Jon Goodrich, Louis Paolino, and Constantine Papadakis will
resign, effective as of the Closing. Four additional Directors shall be
selected by Louis Paolinon and appointed by the then remaining
Directors, Messrs. Goodrich, Paolino, and Papadakis to fill the
remaining four Board seats."
3. All other terms of the Stock Purchase Agreement shall remain in
full force and effect.
4. This Amendment may be executed in any number of counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have each executed and
delivered this Amendment No. 2 to Stock Purchase Agreement as of the day and
year first above written.
PURCHASER:
/s/ Louis Paolino
-----------------------
Louis Paolino
SELLER:
Mace Security International, Inc.
By: /s/ Jon E. Goodrich
---------------------
Name: Jon E. Goodrich
Title: President and CEO
A-25
<PAGE>
APPENDIX B
----------
Merger Agreement
B-1
<PAGE>
MERGER AGREEMENT
BETWEEN
MACE SECURITY INTERNATIONAL, INC.
And
The Shareholders of
AMERICAN WASH SERVICES, INC.
B-2
<PAGE>
SECTION OF DISCLOSURE SCHEDULE
ATTACHED TO THIS AGREEMENT
1.3(c) Plan of Merger
1.6(c) Purchaser Opinion Letter
1.6(d) Registration Rights Agreement
1.7(f) Release
1.7(h) Sellers Opinion Letter
ATTACHED AS PART OF DISCLOSURE BINDER
1.3(b) Stock Allocation
2.2 Permitted Exceptions
3.6 Real Property Interests
3.6(a) Exceptions to governmental compliance
3.6(b) Exceptions to lawful use of the Property
3.6(c) Exceptions to conduct in compliance with Applicable laws
3.6(e) Litigation or administrative proceedings for environmental violations
3.6(f) Definition of "Hazardous Materials" and Environmental Conditions
3.6(h) Mechanic's liens
3.6(j) Exceptions to proceedings which would affect use of the Property
3.7(a) List of Company's Leased Personalty and Permitted Encumbrances
3.10 Fiscal Condition of Company
3.11 Tax Deficiencies
3.12 Insurance Policies, etc.
3.13(a) Employment Agreements
3.13(b) Employee Information
3.13(c) Employee Benefit Plans, Funds or Programs
3.14(a) Exceptions to Company's operation in compliance with laws, etc.
3.14(b) Exceptions relating to environmental issues and liability
3.14(c) Notices of Violation
3.16 Exceptions to right of Sellers and Company to enter this Agreement
3.17 Transaction Intermediaries
3.19 Investments in Competing Companies
3.22 List of Litigation and Summaries
B-3
<PAGE>
MERGER AGREEMENT
This Merger Agreement ("Agreement") is made as of March 26, 1999, by
and between Louis D. Paolino, Jr. and Red Mountain Holding, Ltd.
("Shareholders") on the one hand, and Mace Security International, Inc.
("Purchaser") on the other hand. Shareholders may sometimes be referred to as
"Sellers" in this Agreement.
RECITALS
The Shareholders are the owners of all of the outstanding shares of stock
("Company Shares") of American Wash Services, Inc. (the "Company"), which is in
the business of operating a car wash company (the "Business") throughout the
United States. The Company, through a wholly-owned subsidiary, owns and/or
operates certain car wash locations ("Business") and has entered into two
contracts to purchase additional multi-location car wash businesses
("Acquisition Contracts"). Purchaser owns all of the outstanding stock of Mace
Anti Crime Bureau, Inc. ("Subsidiary"). In accordance with the provisions of
this Agreement, the parties desire to merge Company into Subsidiary in exchange
for common stock of Purchaser, all on the terms contained herein. The parties
intend that the transactions contemplated hereby qualify as a reorganization,
within the meaning of Section 368(a)(2)(D) of the Internal Revenue Code of 1986,
as amended.
Throughout this Agreement various Schedules are referenced as being
attached to this Agreement. Notwithstanding the fact that all Schedules are
referred to as being attached to this Agreement, some of the Schedules are not
attached but instead appear in a Disclosure Binder prepared by the Sellers. The
Disclosure Binder is organized under subheadings which correspond to the various
Schedules described in this Agreement. For purposes of identification, the
Disclosure Binder has been identified by the parties by a written statement
executed by the parties and appearing as the first page of the Disclosure
Binder. For purposes of this Agreement, a disclosure by Sellers of any fact on
a Schedule shall be deemed a disclosure on every Schedule of Sellers to the
extent such disclosure properly could have been made thereon but was not made,
provided a cross-reference thereon sets forth the Schedule where disclosure is
made.
ARTICLE I
ACQUISITION; CLOSING
SECTION 1.1 Incorporation of Recitals. The recitals set forth above are
-------------------------
incorporated herein by reference and are a part of this Agreement.
SECTION 1.2 Time and Place for Closing. Closing under this Agreement
--------------------------
shall take place within fifteen days of the conditions set forth in Article VII
and Article VIII being satisfied or waived, time being of the essence, at the
offices of Company, 1000 Crawford Place, Suite 400, Mount Laurel, New Jersey, or
such other place as the parties hereto may agree upon. The date that Closing
occurs is referred to hereinafter as the "Closing Date" and the act of closing
as "Closing." The exact Closing Date shall be established by a written notice
sent by Purchaser to Sellers.
B-4
<PAGE>
SECTION 1.3 Merger; Consideration.
---------------------
(a) At the Closing, pursuant to the provisions of the General Corporation
Law of Delaware, effective on the Closing Date, Company shall be merged with
Subsidiary, with the survivor of the merger being Subsidiary. At the Closing,
(i) the outstanding common stock of Company shall be automatically converted
into the common stock of Subsidiary and delivered to Purchaser, (ii) all of the
Company Shares previously outstanding shall be delivered to Purchaser, and (iii)
Purchaser shall deliver to Sellers (1) immediately available funds in the amount
of Four Million Six Hundred Eighty Seven Thousand Five Hundred and 00/100
Dollars ($4,687,500.), plus (2) Six Hundred Twenty Eight Thousand Three Hundred
Sixty Two (628,362) shares of unregistered shares of Purchaser's common stock,
par value $.01 per share (the " Mace Stock").
(b) The Mace Stock shall be allocated in the same proportions that the
Sellers own shares in the Company, as set forth on Schedule 1.3(b).
(c) At Closing, Subsidiary and Company shall execute the certificate of
merger attached hereto as Schedule 1.3(c) ("Certificate of Merger"), and the
parties shall file the Certificate of Merger with the Secretary of State of
Delaware.
SECTION 1.4 Closing. Following execution of this Agreement, Purchaser and
-------
Sellers shall be obligated to conclude the transaction strictly in accordance
with its terms within fifteen (15) days after the conditions of Closing set
forth in Article VII and Article VIII have been satisfied or waived, time being
of the essence. If the failure to conclude this transaction is due to the
refusal and failure of Sellers to perform their obligations under this
Agreement, Purchaser may seek to enforce this Agreement with an action of
specific performance, in addition to, and not in limitation of, any other rights
and remedies available to the Purchaser under this Agreement, or at law or in
equity, including, without limitation an action to recover their actual damages
resulting from the default of Sellers. If the failure to conclude this
transaction is due to the refusal and failure of Purchaser to perform its
obligations under this Agreement, Sellers may, in addition to and not in
limitation of any other rights and remedies available to the Sellers under this
Agreement, or at law or in equity, bring legal action to recover their actual
damages resulting from the default of Purchaser.
SECTION 1.5 Termination. This Agreement and the transactions contemplated
-----------
hereby may be terminated at any time prior to the Closing Date:
(a) by mutual written agreement of Purchaser and the Sellers;
(b) by the Sellers, or by Purchaser in the event Purchaser or the Sellers,
as applicable, makes a material misrepresentation under this Agreement or
breaches a material covenant or agreement under this Agreement, and fails to
cure such misrepresentation or breach within ten (10) business days from the
date of written notice of the existence of such misrepresentation or breach; or
(c) by the Sellers or Purchaser, if the Closing shall not have occurred by
July 31, 1999, or such other date as may be agreed to by the parties hereto in
writing, due to the non-fulfillment of a condition precedent to such party's
obligation to close as set forth at Article VII or VIII hereof, as applicable
(through no fault or breach by the terminating party).
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All terminations shall be exercised by sending the other parties a written
notice of the termination. In the event this Agreement is terminated as
provided herein, this Agreement shall become void and be of no further force and
effect and no party hereto shall have any further liability to any other party
hereto, except that this Section 1.5, Article IX, Section 10.1, Section 10.2 and
Section 10.17 shall survive and continue in full force and effect,
notwithstanding termination. The termination of this Agreement shall not limit,
waive or prejudice the remedies available to the parties, at law or in equity,
for a breach of this Agreement.
SECTION 1.6 Deliveries by Purchaser. At the Closing, Purchaser shall
-----------------------
deliver, all duly and properly executed (where applicable):
(a) The Mace Stock due on the Closing Date, as provided in Section 1.3
above to be delivered to the Sellers;
(b) Immediately available funds in the amount of Four Million Six Hundred
Eighty Seven Thousand Five Hundred and 00/100 Dollars ($4,687,500.00) as
provided in Section 1.3 above to be delivered to Sellers;
(c) A copy of the resolutions of the Board of Directors of Purchaser
authorizing the execution and delivery of this Agreement and each other
agreement to be executed in connection herewith (collectively, the "Collateral
Documents") and the consummation of the transactions contemplated herein,
certified by the secretary of Purchaser;
(d) A favorable opinion from counsel for Purchaser, dated the day of the
Closing, in form and substance as attached hereto as Schedule 1.6(c);
(e) Two assignable warrants to purchase an aggregate of 1,575,000 shares of
Purchaser's common stock, par value $.01 per share ("Common Stock") with a term
of 64 months, exercisable 120 days following the Closing hereunder, with an
exercise price of $1.375 (the "1,575,000 Warrants"), shall be issued for
1,500,000 shares to Louis Paolino and 75,000 shares to Robert Kramer;
(f) An assignable warrant to purchase 250,000 shares of Common Stock with
a term of 64 months, exercisable 120 days following the Closing hereunder, with
an exercise price of $2.50 (the "250,000 Warrant"), shall be issued to Louis
Paolino.
(g) Evidence that a certificate of name change of Subsidiary has been
filed with the Secretary of State of the State of Delaware, which name shall be
reasonably acceptable to Sellers.
SECTION 1.7 Deliveries by Sellers. At the Closing, each of the Sellers,
---------------------
as applicable, shall deliver to Purchaser, all duly executed, the following:
(a) Duly executed certificates in valid form evidencing all of the Company
Shares owned by each Seller, duly endorsed in blank or accompanied by duly
executed stock powers attached or otherwise executed in the presence of
authorized representatives of Purchaser;
(b) The written resignations of all officers and directors of the Company
as of the time of Closing,
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if required by Purchaser;
(c) A certified copy of resolutions of the directors of the Company and
the Shareholders authorizing the execution and delivery of this Agreement and
each of the Collateral Documents;
(d) The Certificate described at Section 7.1;
(e) A release from each Seller, in a form and substance attached as
Schedule 1.7(e);
(f) A favorable opinion from counsel for Purchaser, dated the day of the
Closing, in form and substance as attached hereto as Schedule 1.7(g);
(g) The books and records of the Company, including, without limitation,
all original financial and operating records, the corporate minute book and
seal, the corporate stock ledger, and all title documents; and
(h) Other documents and instruments required by this Agreement, if any.
ARTICLE II
TITLE INSURANCE
SECTION 2.1 Owners Title Policy. The Company is foreclosing upon the
-------------------
assets and real property utilized in operating car washes at Flourtown and
Norristown, Pennsylvania ("Foreclosure Real Property"). The Company owns the
real property utilized in operating a car wash in Berlin, New Jersey ("Owned
Real Property"). The Company leases the real property utilized in operating car
washes at Bryn Mawr and West Chester, Pennsylvania, and Cherry Hill, New Jersey
("Leased Real Property"). If the Company has completed foreclosure on the
Foreclosure Real Property by Closing, the Company shall own, with respect to the
Foreclosure Real Property, an extended coverage owners policy of title insurance
from a title company selected by Sellers (the "Title Company"), dated as of the
Closing Date, in the amount equal to the fair market value of the Foreclosure
Real Property. At Closing, the Company shall own, with respect to the Owned
Real Property, an extended coverage owners policy of title insurance from the
Title Company for the Owned Real Property. At Closing, the Company shall own,
with respect to the Leased Real Property, an extended coverage tenant's policy.
The title policies shall include access and contiguity endorsements, and shall
insure title to the Foreclosure Real Property to be in fee simple in Company (or
with respect to the Leased Real Property, an unencumbered leasehold interest)
subject only to the Permitted Exceptions permitted by Section 2.2 hereof (the
"Owners Policy"). Seller shall bear the cost of the Owners Policy.
SECTION 2.2 Permitted Exceptions. The Owners Policy shall insure
--------------------
Company's interest in the Owned Real Property and, if applicable, the
Foreclosure Real Property to be free and clear of all encumbrances and
exceptions whatsoever except those listed on Schedule 2.2 attached hereto
("Permitted Exceptions"). Schedule 2.2 sets forth all encumbrances and
exceptions by separate parcel of real estate.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
With knowledge that Purchaser is relying upon the representations,
warranties and covenants herein
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contained, Sellers represent and warrant to Purchaser and make the following
covenants for Purchaser's benefit. When the phrase "to Sellers' knowledge" or
any equivalent phrase is used in this Agreement, the phrase shall mean the
actual knowledge of any Seller.
SECTION 3.1 Organization and Standing. The Company is duly organized,
-------------------------
legally existing and in good standing under the laws of the state of Delaware,
with full power and authority to own its properties and conduct its business as
now being conducted. The Company does not own any stock or interest in any
other corporation, partnership, or other business organization, except as listed
on Schedule 3.1.
SECTION 3.2 Company Stock. All of the authorized, issued, and outstanding
-------------
shares of capital stock and other securities of the Company are owned by the
Shareholders, including without limitation equity securities, debt securities
and options. At Closing, the Shareholders will be the only owners of the
securities of the Company. The Company Shares each Seller owns are legally and
validly authorized and issued, fully paid and nonassessable and free and clear
of all liens, claims and encumbrances of every kind and nature and are not
subject to any agreement or instrument relating to the transfer, disposition or
voting of such securities. At Closing, all of the Company Shares will be
conveyed and assigned to Purchaser free and clear of all liens, claims and
encumbrances of every kind. There are no outstanding rights of any kind to
acquire additional shares of any class from the Company nor has any person
claimed any such rights. All of the outstanding shares of the Company's capital
stock have been duly authorized, issued, and are fully and validly paid and non-
assessable.
SECTION 3.3 Contracts, Permits and Material Documents. The items listed
-----------------------------------------
and included in Schedule 3.3, attached hereto, are all of the following with
respect to the Company ("Material Documents"): (i) leases and purchase
agreements for real property, and leases and purchase agreements for personal
property and businesses, including the Acquisition Contracts, (ii) licenses,
(iii) franchises, (iv) promissory notes, guarantees, bonds, letters of credit,
mortgages, liens, pledges, and security agreements under which the Company is,
or any of its assets are, bound or under which the Company is a beneficiary,
(v) collective bargaining agreements, (vi) patents, trademarks, trade names,
copyrights, trade secrets, proprietary rights, symbols, service marks, and
logos, (vii) all permits, licenses, consents and other approvals from
governments, governmental agencies (federal, state and local) and/or third
parties relating to, used in or required for the operation of the Company's
businesses, and (viii) other contracts, agreements and instruments not listed on
another Schedule attached to this Agreement which are binding on the Company or
any of its property or pursuant to which the Company derives any material
benefit or has imposed upon it any material detriment. For purposes of this
Section 3.3 a material benefit or material detriment shall be anything which
provides a benefit or imposes a detriment having a value of $10,000 or more.
The Material Documents listed and included in Schedule 3.3 are organized under
subheadings for each of the different type of documents provided. Neither the
Company nor, to Sellers' knowledge, any person or party to the any of the
Material Documents or bound thereby is in material or knowing default under any
of the Material Documents, and no act or event has occurred which with notice or
lapse of time, or both, would constitute such a default. The Company is not a
party to, and the Company's property is not bound by any agreement or instrument
which is material to the continued conduct of its business operations as now
being conducted or with respect to which a default might materially and
adversely affect its properties, business operations, or financial condition of
the Company, except as listed in Schedule 3.3. To Seller's knowledge, the
documents listed on Schedule 3.3 confer on the Company all rights necessary to
enable the Company to conduct its operations as now being conducted.
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SECTION 3.4 Personal Property. All of the following items of personal
------------------
property used in the business operations of the Company are owned by the Company
by good and marketable title free of all liens, and are now and at closing will
be in operable condition, normal wear and tear excepted.
(a) All equipment, computers, printers, card readers, vending machines,
appliances, machinery and parts, vehicles, tools, hoses, brushes, heating,
ventilation, air conditioning, plumbing, electrical, drainage, fire alarm,
communications, sprinkler, security and exhaust equipment and their component
parts; auto wash equipment, auto wash conveyor, auto drying equipment and
similar items in Sellers' possession or control, used in connection with,
located in or on, or otherwise pertaining to the Business (collectively, the
"Equipment");
(b) All of the inventory of retail items, operating supplies, parts and
accessories owned by the Company and used or usable in connection with the
Business;
(c) All office or other equipment, furnishings, supplies, brochures, sales
and promotional materials, catalogues and advertising literature, business
files, customer lists, customer records and information, and all pictures and
photographs, computer programs and software (with applicable documentation and
source codes), construction and "as-built" drawings, plans and specifications,
finish plans and other personal property of every nature and description in
Sellers' possession or control;
(d) All intellectual property used in connection with the Business or any
other asset, including, without limitation, know-how, trade secrets, trademarks,
trade names, and the exclusive right to use the names under which any of the
Business' locations are currently operated (collectively, the "Intellectual
Property");
(e) All of the accounts receivable, prepaid deposits, cash, goodwill and
all other tangible and intangible assets of the Company; and
(f) All books, records, original agreements and contracts and title
documents relating to the items set forth in (a) through (e) above.
Sellers represent and warrant that, in the aggregate, the personal property of
the Company is sufficient for the Company to carry on its business as previously
conducted and as presently conducted, and that the personal property is all in
operable condition. .
SECTION 3.5 [This section intentionally omitted.]
SECTION 3.6 Real Property. Each parcel of Foreclosure Real Property,
-------------
Owned Real Property and Leased Real Property is listed on Schedule 3.6 attached
hereto and incorporated herein by reference. Those parcels of Foreclosure Real
Property which have been foreclosed upon by Closing, together with each parcel
of Owned Real Property and Leased Real Property are referred to in this Section
3.6 as the "Real Property." The Company has or will have at Closing good,
marketable and insurable title to all of the Real Property and any of the
Foreclosed Property with respect to which the foreclosure actions have been
completed, free and clear of any mortgages, pledges, liens, encumbrances,
charge, claim, security agreement or title retention or other security
arrangement except for the Permitted Exceptions. The Company has or will have
at Closing good, marketable and insurable leasehold interest pursuant to the
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<PAGE>
terms of the leases covering the Leased Property free and clear of any
mortgages, pledges, liens, encumbrances, charge claims, and all leases covering
the Leased Properly are valid and enforceable. The Company has no interest in
any real property other than the properties listed on Schedule 3.6. The Company
nor any of its predecessors has ever had an ownership interest in any other real
property, except as disclosed in schedule 3.6.
(a) To Sellers' knowledge, in all material respects, and except as set
forth in Schedule 3.6(a) attached hereto and incorporated herein, the Real
Property is, and at all times during operation of the Company's business thereon
has been, licensed, permitted and authorized for the operation of such business
under all applicable federal, state and local statutes, laws, rules,
regulations, orders, permits (including, without limitation, zoning restrictions
and land use requirements) and licenses and all administrative and judicial
judgments, rulings, decisions and orders affecting or otherwise applicable to
the protection of the environment, the Real Property and the conduct of such
business thereon (collectively, the "Applicable Laws").
(b) To Sellers' knowledge, except as set forth in Schedule 3.6(b) attached
hereto and incorporated herein by reference, the Real Property is legally usable
for its current uses, and the Real Property can be used by the Purchaser after
the Closing to operate such business as is currently operated, without violating
any Applicable Law or private restriction, and such uses are legal, conforming
uses.
(c) To Sellers' knowledge, except as set forth in Schedule 3.6(c) attached
hereto and incorporated herein by reference, all activities and operations
conducted on the Real Property, whether by Sellers or by third parties, are now
being conducted and have always been conducted in compliance with all Applicable
Laws.
(d) The Sellers and Company shall make available on Purchaser's reasonable
request all engineering, geologic, environmental and other similar reports,
documentation and maps relating to the Real Property in the possession of the
Shareholders.
(e) To Sellers' knowledge, except as set forth in Schedule 3.6(e) attached
hereto and incorporated herein by reference, neither Sellers nor the Company nor
the Real Property now is or ever has been involved in any litigation or
administrative proceeding seeking to impose fines, penalties or other
liabilities or seeking injunctive relief for violation of any Applicable Laws
relating to the environment.
(f) To Sellers' knowledge, there have been no spills, leaks, deposits or
other releases into the environment or onto or under the Real Property of any
Hazardous Materials as defined for purposes of this Agreement as any material or
substance which, by reason of its composition or characteristics, is (i) toxic
or hazardous waste ("Hazardous Waste") as defined in either (A) the Solid Waste
disposal Act, 42 U.S.C. (S)(S) 6901 et seq., or Section 6(c) of the Toxic
-- ---
Substance Control Act, 15 U.S.C. (S)2605(c), or the Resource Conservation and
Recovery Act, 42 USCA Section 6901 et seq., or any laws of similar purpose or
-- ---
effect, and any rules, regulations or policies promulgated thereunder, or (B)
any Environmental Law as hereinafter defined, or (ii) special nuclear or by-
products materials within the meaning of the Atomic Energy Act of 1954, or other
material environmental conditions in quantities that require remediation, other
than as disclosed on Schedule 3.6(f).
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<PAGE>
(g) To Sellers' knowledge, no party, other than the Company, has a present
or future right to possession of all or any part of the Real Property, except
for any right defined in, under or by any of the Permitted Exceptions.
(h) To Sellers' knowledge, there are no mechanic's liens affecting the Real
Property and no work has been performed on the Real Property within twelve (12)
months of the date hereof for which a mechanic's lien could be filed, except as
set forth in Schedule 3.6(h) attached hereto and incorporated herein by
reference.
(i) To Sellers' knowledge, there are no levied or pending special
assessments affecting all or any part of the Real Property owed to any
governmental entity and none is threatened.
(j) To Sellers' knowledge, there are no proceedings or amendments pending
and brought by or threatened by, any third party which would result in a change
in the allowable uses of the Real Property or which would modify the right of
the Company or the Purchaser to use the Real Property for its present uses after
the Closing Date, except as set forth in Schedule 3.6(j) attached hereto and
incorporated herein by reference.
(k) To Sellers' knowledge, no portion of the Real Property contains any
areas that could be characterized as disturbed, undisturbed or man-made wetlands
or as "waters of the United States" pursuant to any Applicable Laws or the
procedural manuals of the Environmental Protection Agency, U.S. Army Corps of
Engineers or any applicable state agency whether such characterization reflects
current conditions or historic conditions which have been altered without the
necessary permits or approvals, except as listed on Schedule 3.6(k) attached
hereto and incorporated herein by reference.
SECTION 3.7 Title. To Sellers' knowledge, the Company has good and
-----
marketable title to all of its personal property, tangible and intangible,
including, without limitation, all of the assets reflected on the "Most Recent
Balance Sheet" (hereinafter defined), all personal property currently located on
its premises, all cash and accounts receivable, all items of personal property
set forth on the schedules attached hereto, and all trademarks and other
intellectual property used in the Company's business, except in each case, that
personal property which the Company leases. All leases of personal property
having a fair market value of $10,000 or more are listed on Schedule 3.7
attached hereto and incorporated herein by reference. All of such assets are
owned by the Company free and clear of any mortgage, pledge, lien, encumbrance,
charge, claim, security agreement, agreement regarding or restricting transfer
or title retention or other security arrangement, except the items set forth in
subparagraphs (a) through (c) below, and the items listed on Schedule 3.7
("Permitted Company Assets Encumbrances"). Schedule 3.7 identifies all liens by
amount and by the document, instrument or law under which it arises.
(a) Liens imposed by law and incurred in the ordinary course of business
for indebtedness not yet due to carriers, warehousemen, laborers or materialmen
and the like;
(b) Liens in respect of pledges or deposits under worker's compensation
laws or similar legislation; and
(c) Liens for property taxes, assessments, or governmental charges not yet
subject to penalties for nonpayment.
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SECTION 3.8 Financial Statements. Prior to Closing, Sellers will deliver
--------------------
to Purchaser true and correct copies of the following financial statements of
the Company (the "Financial Statements"):
(a) Balance Sheets for the Company as of December 31, 1998, and statements
of income, cash flow and retained earnings for the same period, all prepared on
an accrual basis and reviewed by Company's regular accountants (the "1998
Financial Statements" ).
(b) A balance sheet for the Company as of March 31, 1999 ("Most Recent
Balance Sheet"), and a statements of income, cash flow and retained earnings for
the period ended March 31, 1999 ("Most Recent Income Statement"), all prepared
on an accrual basis by the Company. The Most Recent Balance Sheet and Most
Recent Income Statement are hereafter referred to as the "Most Recent Financial
Statements."
The Financial Statements have been prepared by the regular accountants of
the Company, in accordance with generally accepted accounting principles
("GAAP"). All notes and contingent liabilities required to be stated and
reflected under GAAP are stated and reflected on the Financial Statements.
Each of the Financial Statements (including all footnotes thereto) is true,
complete and correct in all material respects. The balance sheets present fairly
and accurately the financial condition of the Company as of the dates indicated
thereon and the statements of income present fairly and accurately on an accrual
basis the results of the operations of the Company for the periods indicated
thereon. The Company has not (i) made any material change in its accounting
policies or (ii) effected any prior period adjustment to, or other restatement
of, its financial statements for any period. The Financial Statements are
consistent with the books and records of the Company (which books and records
are correct and complete).
SECTION 3.9 Liabilities; Accounts Receivable
--------------------------------
(a) To Sellers' knowledge, the Company does not have any liabilities,
fixed or contingent, other than:
(i) liabilities fully reflected in the Most Recent Balance Sheet; and
(ii) accounts payable arising since the date of the Most Recent Balance
Sheet in the normal course of business consistent with past custom and practice.
(b) To Sellers' knowledge, all accounts receivable of the Company, less a
bad accounts reserve as set forth on the Most Recent Balance Sheet , are valid
accounts receivable, have been generated in the ordinary course of the Company's
business and all services required to be rendered for the accounts receivable to
be due have been rendered. To Sellers' knowledge, there are no defenses or set-
offs to any of the accounts receivable..
SECTION 3.10 Fiscal Condition of Company. Since the date of the 1998
---------------------------
Financial Statements, except as set forth on Schedule 3.10, there has not
(except as otherwise specifically permitted by this Agreement) been:
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(a) Any material change in the financial condition, liabilities, business
organization or personnel of the Company or in the relationships of the Company
with suppliers, customers or others, other than changes occurring in the
ordinary course of business;
(b) Any disposition by the Company of any of its capital stock or any
grant of any option or right to acquire any of its capital stock, or any
acquisition or retirement by the Company of any of its capital stock or any
declaration or payment of any dividend or other distribution of its capital
stock;
(c) Any sale or other disposition of any asset owned by the Company at the
close of business on the date of the Most Recent Balance Sheet, or acquired by
it since that date, other than in the ordinary course of business or which
individually do not exceed $10,000 or in the aggregate, do not exceed $20,000;
(d) Any expenditure or commitment by the Company for the acquisition of
any single asset having an acquisition price of $50,000 or more;
(e) Any damage, destruction or loss (whether or not insured) adversely
affecting the property, business or prospects of the Company, except damage,
destruction or loss which does not exceed $100,000 in the aggregate, and which
is not covered by insurance;
(f) Any bonuses or increases in the compensation payable or to become
payable by the Company to any officer or key employee;
(g) Any loans or advances to the Company other than renewals or extensions
of existing indebtedness; or
(h) Any change in accounting method or practice.
SECTION 3.11 Tax Returns. The Company has filed all Federal and other
-----------
tax returns for all periods on or before the due date of such return (as may
have been extended by any valid extension of time) and has paid all taxes due
for the periods covered by the said returns. The Company has no liability for
taxes incurred by its operations prior to Closing, except for taxes for the
current fiscal year plus any tax reserve reflected on the Most Recent Balance
Sheet. The Company is a Subchapter C corporation under the Internal Revenue
Service Code. The Company has filed, and will file in a timely manner, all
requisite federal, state, local and other tax returns due for all fiscal periods
ended on or before the date hereof and as of the Closing shall have filed in a
timely manner all such returns due for all periods ended on or before the
Closing Date. The Company has duly withheld and collected all taxes which the
Company is required to withhold or collect by law, has paid over to the proper
authorities all such amounts required to be paid, and has in reserve all amounts
so withheld or collected which have not yet been required to be paid. No taxing
authority has asserted any deficiency for any prior tax period of the Company,
and the Sellers are not aware of any facts which would constitute the basis for
the assertion of such a deficiency, except as listed on Schedule 3.11 attached
hereto..
SECTION 3.12 Policies of Insurance. All insurance policies, performance
---------------------
bonds, and letters of credit insuring the Company or which the Company has had
issued and which has not expired are listed on Schedule 3.12 attached hereto.
Schedule 3.12 includes, the names and addresses of the beneficiaries,
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<PAGE>
insurers and sureties, policy and bond numbers, types of coverage or bond, time
periods or projects covered and the names and addresses of all known agents or
agencies, issuing banks, and beneficiaries, with respect to each listed
insurance policy, performance bond and letter of credit. The Company's current
insurance policies, performance bonds and letters of credits are still in force
and effect and the premiums thereon are not delinquent. The Company has not
received notification from any insurance carrier denying or disputing any claim
made by the Company or denying or disputing any coverage for any such claim or
denying or disputing the amount of any claim. The Company does not have any
claim against any of its insurance carriers under any policies insuring it
pending or anticipated and there has been no occurrence of any kind which would
give rise to any such claim.
SECTION 3.13 Employees, Pensions and, ERISA.
------------------------------
(a) The Company does not have any contract of employment with an officer
or other employee that is not terminable without penalty on notice of two weeks
or less, except as listed on Schedule 3.13(a).
(b) No employee of the Company is represented by any union. The name,
social security number and current rate of compensation of each of the Company's
employees and department in which each person is employed is listed on Schedule
3.13(b) attached. There is no pending or threatened dispute between the Company
and any of its employees which might materially and adversely affect the
continuance of any Company's business operations.
(c) Attached hereto, made a part hereof and marked Schedule 3.13(c) lists
all employee benefit plans, funds or programs (within the meaning of the
Internal Revenue Code of the United States ("Code") or the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) which are currently
maintained and/or were established or sponsored by the Company (whether or not
they are now terminated) or to which the Company currently contributes, or has
an obligation to contribute in the future, including, without limitation,
employment agreements and any other agreements containing "golden parachute"
provisions ("Plans"), whether or not the Plans are or are intended to be (i)
covered or qualified under the Code, ERISA or any other applicable law, (ii)
written or oral, (iii) funded or unfunded, or (iv) generally available to all
employees of the Company.
(d) The Company has delivered to the Purchaser (i) true and complete
copies of all Plan documents and other instruments relating thereto, (ii)
accurate and complete detailed summaries of all oral Plans, (iii) true and
complete copies of the most recent financial statements with respect to the
Plans, (iv) true and complete copies of all annual reports for any Plan prepared
within the past 5 years, and (v) all filings submitted to and any correspondence
received from any government agency relating to any Plan within the past 5
years.
(e) Each Plan which is intended to be qualified under Section 401(a) and
exempt from tax under Section 501(a) of the Code has been determined by the IRS
to be so qualified and such determination remains in effect and has not been
revoked. Nothing has occurred since the date of any such determination which
may adversely affect such qualification or exemption, or result in the
imposition of excise taxes or tax on unrelated business income under the Code or
ERISA except as set forth on Schedule 3.13 (e), attached hereto made a part
hereof. No Plan is funded through a trust intended to be exempt from tax under
Section 501(c) of the Code.
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(f) No reportable event (as defined in Section 4043 of ERISA or the
regulations thereunder) for which the reporting requirements have not been fully
waived, or accumulated funding deficiency whether or not waived (as defined in
Section 302 of ERISA), or liability to the Pension Benefit Guaranty Corporation
("PBGC") under Section 4062 of ERISA, nor any prohibited transaction (as defined
in Section 406 of ERISA or Section 4975 of the Code), has occurred or exists
with respect to any Plan. All Plans are in substantial compliance with all
applicable provisions of ERISA and the regulations issued thereunder, as well as
with all other law applicable to such Plans, and, in all material respects, have
been administered, operated and managed in substantial accordance with the
governing documents of the Plan and the requirements of ERISA. The Company has
no unfunded obligations or liabilities with respect to any Plan and the present
value of the benefit liabilities of each Plan which is a Pension Plan is less
than the fair market value of the assets of such Plan.
(g) There is no matter, action, audit, suit or claim pending or, to the
best knowledge of Sellers, after due inquiry of the Company, threatened relating
to any Plan, fiduciary of any Plan or assets of any Plan, before any court,
tribunal or government agency.
(h) Each most recent Plan audit report, actuarial report and annual
report, certified by the Plan's actuaries and auditors, as the case may be,
fairly presents the actuarial status and the financial condition of the Plan as
at the date thereof and the results of operations of the Plan for the plan year
reflected therein and, subject to changes in amounts attributable to investment
performance and normal employee turnover, there has been no material adverse
change in the condition of the Plan since the date of the most recent Form 5500,
audited annual financial statement or actuarial valuation report.
(i) The transaction contemplated herein will not accelerate any liability
under the Plans because of an acceleration of any rights or benefits to which
any employee may be entitled thereunder.
(j) The Company has no obligations with respect to, and makes no
contributions to, any Multi-Employer Pension Plan.
(k) To Sellers knowledge, there are no ERISA, pension plan, profit sharing
plan or compensation claims against the Company by employees.
SECTION 3.14 Legality of Operation. In regard to the Company, and to
---------------------
Sellers' knowledge:
(a) Except as disclosed in Schedule 3.14(a) to this Agreement, and except
as to Environmental Laws, as hereinafter defined, the Company is in material
compliance with all Federal, state and local laws, rules and regulations
including, without limitation, the following laws: land use laws; payroll,
employment, labor, or safety laws; or federal, state or local "anti-trust" or
"unfair competition" or "racketeering" laws such as but not limited to the
Sherman Act, Clayton Act, Robinson Patman Act, Federal Trade Commission Act, or
Racketeer Influenced and Corrupt Organization Act ("Law"). Except as disclosed
in Schedule 3.14(a), the Company is in material compliance with all permits,
franchises, licenses, and orders that have been issued with respect to the Laws
and are or may be applicable to the Company's property and operations,
including, without limitation, any order, decree or directive of any court or
federal, state, municipal, or other governmental department, commission, board,
bureau, agency or instrumentality wherever located, federal, state and local
permits, orders, franchises and consents. Except as disclosed in Schedule
3.14(a), the Company has received no notification of any past or present failure
by the Company
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<PAGE>
to materially comply with any Law applicable to it or its assets.
(b) Except as disclosed in Schedule 3.14(b) to this Agreement, the
Company is in material compliance with all Federal, state and local laws, rules
and regulations relating to environmental issues of any kind ("Environmental
Law").
(c) Attached hereto as Schedule 3.14(c) is a list of all Notice of
Violations relating to Environmental Laws issued to the Company in the past two
years by any federal, state or local regulatory agency. There are no
outstanding or unremedied notices of violation either from a federal, state or
local authority.
(d) To Sellers' knowledge, no employee, contractor or agent of the Company
has, in the course and scope of employment with the Company, been harmed by
exposure to hazardous materials, as defined under the flaws.
(e) To Sellers' knowledge, except as set forth in Schedule 3.14(f), all
licenses, sewer hookups approvals, permits and certificates ("Government
Approvals") needed or required for the operation of the Company's business are
set forth on Schedule 3.3. All such Government Approvals are in full force and
effect, the Company.
SECTION 3.15 Corrupt Practices. To Sellers' knowledge, the Company has not
-----------------
made, offered or agreed to offer anything of value to any employees of any
customers of the Company for the purpose of attracting business to the Company
or any foreign or domestic governmental official, political party or candidate
for government office or any of their respective employees or representatives,
nor has the Company otherwise taken any action which would cause it to be in
violation of the Foreign Corrupt Practices Act of 1977, as amended.
SECTION 3.16 Legal Authority and Compliance. Except as listed in Schedule
------------------------------
3.16 attached hereto and incorporated herein, each Sellers and the Company have
the right, power, legal capacity and authority to enter into, and perform their
respective obligations under this Agreement, and no approvals or consents of any
other persons (including the consent of any mortgagee holding a mortgage on the
Owned Real Property or the Leased Property and any landlord of the Leased
Property) are necessary in connection with the transactions contemplated by this
Agreement. The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action of the directors and shareholders of the
Company. The execution, delivery and performance of this Agreement will not
result in a breach of or constitute a default or result in the loss of any
material right or benefit under:
(a) Any charter, by-law, agreement or other document to which any Seller
or the Company is a party or by which the Company or any of its property is
bound; or
(b) Any decree, order or rule of any court or governmental authority which
is binding on the Sellers, the Company, or the property of the Company.
SECTION 3.17 Transaction Intermediaries. Seller has not employed or
--------------------------
retained the services of any financial advisor, broker, or finder with respect
to which the Seller will incur any broker's, finder's, investment banking or
similar fees, commissions or expenses, in connection with the transactions
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contemplated by this Agreement.
SECTION 3.18 Intellectual Property. To Sellers' knowledge, the Company has
---------------------
not infringed and is not now infringing, on any trade name, trademark, service
mark, copyright, trade secret or patent belonging to any person, firm or
corporation ("Intellectual Property") and no one has or is infringing any
Intellectual Property right of the Company.
SECTION 3.19 Competition. No salaried officer, shareholder or employee
-----------
of the Company, nor any spouse, child or other relative of any of them, has any
direct or indirect interest in any competitor of the Company within the
geographical area in which the Company currently conducts business, or an
interest in any supplier or customer of the Company or in any person from whom
or to whom the Company leases any real or personal property, or in any other
person with whom the Company is doing business which interest adversely or
materially affects the business of the Company, excepting only those investments
of not more than five percent of the capital stock of a business, the stock of
which is traded on a national securities exchange or over-the-counter, where
such investments are set forth on Schedule 3.19 attached hereto and incorporated
herein by reference.
SECTION 3.20 Disclosure. Neither the representations and warranties of
----------
the Sellers contained in this Agreement nor any information contained in any
Exhibit or Schedule or other document delivered by the Sellers or the Company to
Purchaser contains any untrue statement of a material fact, omits to state any
statement of a material fact necessary to make the statements contained therein
or herein not misleading. No investigation conducted by the Purchaser shall be
deemed to limit or vitiate in any way the effect of the representations and
warranties made herein; however, Purchaser shall disclose to Sellers prior to
Closing any representation or warranty that Purchaser shall have found to be
untrue or correct and provide Sellers the opportunity to cure such
misrepresentation.
SECTION 3.21 Continuation of Legal Status. No written agreement between
----------------------------
the Company and any third party shall be impaired or in any way limited by the
transactions contemplated by this Agreement.
SECTION 3.22 Litigation. All pending or, to Sellers' knowledge,
----------
threatened litigation, administrative or judicial proceedings or investigations
by any governmental agency or officials involving the Company or any of its
property (including personal or owned, foreclosed or leased real property) or
assets, liabilities or the Company Shares, together with a description of each
such proceedings, is set forth on Schedule 3.22 attached. There is no pending
or, to Sellers' knowledge, threatened litigation, administrative or judicial
proceedings or investigation involving the Company or its owned, leased or
foreclosed real property, assets, liabilities or the Company Shares, except as
listed on Schedule 3.22.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Sellers that the representations
and warranties contained in this Article IV are true on the date hereof and
shall be true on the Closing Date.
SECTION 4.1 Structure. Purchaser is a corporation duly organized and
---------
legally existing in good standing under the laws of Delaware.
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<PAGE>
SECTION 4.2 Authorization to Proceed with this Agreement. Purchaser has,
--------------------------------------------
by proper corporate proceedings, duly authorized the execution, delivery and
performance of this Agreement and the Collateral Documents.
SECTION 4.3 Absence of Intermediaries. Purchaser has not employed or
-------------------------
retained the services of any financial advisor, broker, or finder with respect
to which the Purchaser will incur any broker's, finder's, investment banking or
similar fees, commissions or expenses, in connection with the transactions
contemplated by this Agreement.
SECTION 4.4 Commission Filings. All Forms 8-K, 10-K, 10-Q and Proxy
------------------
Statements required to be filed by Purchaser have been timely filed with the
Securities and Exchange Commission ("SEC") for fiscal year ending December 31,
1998 (the "Public Reports") under the Electronic Data Gathering, Analysis and
Retrieval system and are available to Sellers. The Public Reports accurately and
completely describe, in all material respects, Purchaser's financial condition
and results of operations as of the date of such filings and as of the date
hereof, and do not omit any material fact(s) necessary to make the information
contained in the filings not misleading, in light of the circumstances under
which they were made.
SECTION 4.5 Issued Common Stock. The Mace Stock to be issued pursuant to
-------------------
this Agreement has been duly authorized and, when issued, will be validly
issued, fully paid and nonassessable.
SECTION 4.6 NASDAQ Listing. Purchaser shall not have received any notice
--------------
from NASDAQ that threatens its continued listing on the NASDAQ National Market
System, and Purchase shall continue to be so listed.
ARTICLE V
ADDITIONAL AGREEMENTS OF SELLERS
The Sellers covenant and agree with Purchaser as follows:
SECTION 5.1 Restrictions on Transfer of Unregistered Stock. The Sellers
----------------------------------------------
understand and agree that the following restrictions and limitations are
applicable to the Sellers' purchase and resale or other transfer of the Mace
Stock, pursuant to the Securities Act of 1933 (the "Act") or otherwise:
(a) Sellers agree that the Mace Stock shall not be sold or otherwise
transferred, unless the Mace Stock is registered under the Act and state
securities laws or such sale or transfer is exempt therefrom.
(b) A legend in substantially the following form will be placed on the
certificates evidencing the Mace Stock to be issued to the Sellers:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933 or any state securities act. These shares
have been acquired for investment and may not be sold, transferred, pledged
or hypothecated unless (i) they shall have been registered under the
Securities Act of 1933 and any applicable states securities act or (ii)
Mace Security International, Inc., shall have been furnished with an
opinion of counsel,
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<PAGE>
reasonably satisfactory to counsel for Mace Security International, Inc.,
that registration is not required under any such acts."
(c) Stop transfer instructions will be delivered to the Purchaser's
transfer agent with respect to the Mace Stock issued to Sellers pursuant to
this Agreement so as to restrict resale or other transfer thereof except in
accordance with the foregoing provisions of this Agreement.
SECTION 5.2 Representations as to Private Offering. The Mace Stock is
--------------------------------------
being delivered to the Sellers in a private placement under Section 4.2 of the
Act and under Regulation D promulgated under the Act. To induce Purchaser to
issue the Mace Stock, each Seller represents and warrants as follows:
(a) Each Seller represents and warrants that he or she is a resident of
New Jersey and is an accredited investor, as that term is defined in Regulation
D under the Act.
(b) Each Seller acknowledges that they have received a copy of the Public
Reports.
(c) The Sellers represent and warrant that the Mace Stock is being
acquired for their own account for investment purposes only without a view to
public distribution or resale and that the Sellers have no contract,
undertaking, agreement or arrangement to sell or otherwise transfer or dispose
of Mace Stock, or any portion thereof, to any other person.
(d) The Sellers represent and warrant that, in determining to acquire the
Mace Stock, they have relied solely upon their independent investigation,
including the advice of their legal counsel and accountants or other financial
advisers or purchaser representatives, and have, during the course of
discussions concerning their acquisition of the Mace Stock, been offered the
opportunity to ask such questions and inspect such documents concerning
Purchaser and its business and affairs as they have requested so as to more
fully understand the nature of the investment and to verify the accuracy of the
information supplied.
(e) THE SELLERS ACKNOWLEDGE THAT THE ACQUISITION OF THE MACE STOCK INVOLVES
A HIGH DEGREE OF RISK, and represents and warrants that they can bear the
economic risk of the acquisition of the Mace Stock, including the total loss of
their investment.
(f) The Sellers represent and warrant that (i) they have adequate means of
providing for their current needs and financial contingencies, (ii) they have no
need for liquidity in this investment, (iii) they have no debts or other
obligations, and cannot reasonably foresee any other circumstances, that are
likely in the future to require them to dispose of the Mace Stock, and (iv) all
their investments in and commitments to non-liquid investments are, and after
their acquisition of the Mace Stock will be, reasonable in relation to their net
worth and current needs.
(g) The Sellers understand that no federal or state agency has approved or
disapproved the Mace Stock or the issuance or sale thereof or made any finding
or determination as to the fairness of the Mace Stock for investment.
(h) The Sellers understand that the Mace Stock is being offered and sold
in reliance on specific exemptions from the registration requirements of federal
and state securities laws and that Purchaser is
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<PAGE>
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings set forth herein in order to
determine the applicability of such exemption and the suitability of Sellers to
acquire the Mace Stock.
SECTION 5.3 Access to Records. The Sellers will cause the Company to give
-----------------
to Purchaser and its representatives, experts and advisors, from and after the
date of execution of this Agreement and up until Closing, full access to all of
the properties, assets, books, contracts, documents, records, contracts and
customer lists of the Company, and to make available to Purchaser and its
representatives, experts and advisors all additional financial statements of and
all information with respect to the business and affairs of the Company that
Purchaser may reasonably request. Purchaser and its representatives shall have
the right to copy any information or documentation the Purchaser is entitled to
inspect under this Section 5.34.
SECTION 5.4 Continuation of Business. The Sellers will operate the Company
------------------------
until the time of Closing, using prudent business judgment so as to preserve its
business organization intact, to assure, to the extent possible, the
availability to Purchaser of the present key employees of the Company, and to
preserve for Purchaser the relationships of the Company with suppliers and
others, all to the end that every bona fide effort be made that the ongoing
---- ----
business of the Company will not be impaired at the time of Closing.
SECTION 5.5 Continuation of Insurance. The Sellers will cause the Company
-------------------------
to keep in existence all policies of insurance insuring the Company against
liability and property damage, fire and other casualty through the time of
Closing.
SECTION 5.6 Standstill Agreement. Unless and until this Agreement is
--------------------
terminated without the Closing having taken place, the Shareholders will not
directly or indirectly solicit offers for the Real Property, the Company Shares
or the assets of the Company or for a merger or consolidation involving the
Company, or respond to inquiries from, share information with, negotiate with or
in any way facilitate inquiries or offers from, third parties who express or who
have heretofore expressed an interest in acquiring the Company by merger,
consolidation or other combination or acquiring any of Company's assets; nor
will the Shareholders permit the Company to do any of the foregoing.
SECTION 5.7 FIRPTA Certificate. Purchaser and Sellers acknowledge that
------------------
the financial provisions of this Agreement are subject to the requirements of
the Foreign Investment in Real Property Tax Act ("FIRPTA"), and that the
Internal Revenue Code ("Code") Sections 1445 and 6039C require Purchaser in
certain circumstances to withhold ten percent (10%) of the amount realized by
the Sellers. Among other circumstances, Purchaser is not required to withhold
said amount if Sellers furnish Purchaser with a certificate stating the Sellers'
U.S. Taxpayer Identification Numbers and that no Seller is a foreign person
within the meaning of the Code. Sellers agree to provide to Purchaser at
Closing such certificate as is reasonably necessary to insure that such
withholding is not required under FIRPTA.
SECTION 5.8 Consents. Sellers and Purchaser shall cooperate with each
--------
other and use their best efforts to obtain all approvals, authorizations and
consents required to be obtained to consummate the transaction set forth in this
Agreement, including, without limitation, (i) the approval of the Federal Trade
Commission pursuant to the provisions of the Hart-Scott-Rodino Antitrust
Improvement Acts of 1986, and (ii) the approval of every regulatory agency of
federal, state, or local government that may be required in the opinion of
either Purchaser or Sellers.
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<PAGE>
SECTION 5.9 Audited Financial Statements. Before and after Closing,
----------------------------
Sellers agree to cooperate with Purchaser to have the Company prepare audited
balance sheets for the Company as of December 31, 1998, and statements of
income, cash flow and retained earnings for the Company for the twelve-month
period ended December 31, 1998 ("Historical Financial Statements"), as rapidly
as possible, but in no event later than one week prior to the date the Form 8-K
covering the transactions contemplated hereby must be filed with the SEC.
Sellers' cooperation shall include, without limitation, the execution of
standard representation letters requested by Purchaser's auditors. Sellers
shall prepare a compiled stub balance sheet and statements of income, cash flow
and retained earnings for the period commencing January 1, 1999, and ending on
the last day of the last calendar quarter ending prior to Closing ("Interim
Financial Statements"). The Historical Financial Statements and the Interim
Financial Statements shall be prepared at Purchaser's cost. Sellers shall cause
the Company's usual accountants to cooperate with Purchaser's accountants.
Purchaser shall pay for the reasonable costs of the Company's usual accountants
in the preparation of the Historical Financial Statements and the Interim
Financial Statements. Notwithstanding the foregoing, Sellers agree to cause the
preparation of audited financial statements for the period ended December 31,
1999 prior the Closing, and as rapidly as possible, in the event the SEC
requires audited financial statements to be included in the information
statement to be delivered to shareholders.
ARTICLE VI
ADDITIONAL AGREEMENTS OF PURCHASER
SECTION 6.1 Payment of Expenses. Purchaser will pay all expenses
-------------------
(including legal fees) incurred by it in connection with the negotiation,
execution and performance of this Agreement. The Sellers and Company will pay
all expenses incurred by the Sellers and Company (including legal fees) in
connection with the negotiation, execution and performance of this Agreement.
SECTION 6.2 Books and Records. From the Closing Date to six years after
-----------------
the Closing Date, the Purchaser shall allow the Sellers and their professional
advisers access to all business records and files of the Company pertaining to
the operation of the Company prior to the Closing Date which were delivered to
the Purchaser in accordance with this Agreement ("Records") where the
Shareholders or Sellers require access to the Records for the purpose of
preparing their tax returns, responding to any audit or informational request
regarding their tax returns or if required by them for use in a judicial
proceeding in which they are a party. Access to the records shall be during
normal working hours at the location where such Records are stored. The Sellers
shall have the right, at their own expense, to make copies of any Records
provided, however, that any such access or copying shall be had or done in such
a manner so as not to interfere unreasonably with the normal conduct of the
Purchaser's business. For a period of six years after the Closing Date, the
Purchaser shall not dispose of or destroy any material Records without first
providing written notice to the Sellers at least 30 days prior to the proposed
date of such disposition or destruction.
SECTION 6.3 Warrants. As additional consideration for the Company Shares
---------
to be acquired pursuant hereto, Purchaser agrees to issue on the Closing Date(a)
to Louis Paolino an assignable warrant to purchase 1,575,000 shares of Common
Stock at an exercise price of $1.375, (b) to Robert Kramer an assignable warrant
to purchase 75,000 shares of Common Stock at an exercise price of $1.375, and
(c) to Louis Paolino an assignable warrant to purchase 250,000 shares of Common
Stock at an exercise price of $2.50 per share (the "250,000 Warrant"). Each
warrant shall have a term of 64 months and shall be exercisable 120 days
following the Closing hereunder.
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<PAGE>
ARTICLE VII
CONDITIONS OF PURCHASER
The obligations of Purchaser to effect the transactions contemplated by
this Agreement shall be subject to the fulfillment at or prior to the time of
Closing of each of the following items which are conditions to the Closing:
SECTION 7.1 Compliance by Sellers and the Company. The Sellers and the
-------------------------------------
Company shall have performed and complied with all of the obligations and
conditions required by this Agreement to be performed or complied with by the
Sellers and Company at or prior to the Closing Date. All representations and
warranties of Sellers contained in this Agreement shall be true and correct at
and as of the date made and the Date of Closing, with the same force and effect
as though made at and as of the Date of Closing, except for changes expressly
permitted by this Agreement, and Purchaser shall have received a Certificate
duly executed by each of the Sellers representing and warranting the foregoing.
SECTION 7.2 Litigation Affecting This Transaction. There shall be no
-------------------------------------
actual or threatened action by or before any court which seeks to restrain,
prohibit or invalidate the transaction contemplated by this Agreement or which
might affect the right of Purchaser to own, operate in its entirety or control
any of the its assets or the Business or which, as a result of the transaction
contemplated by this Agreement, might affect such right as to Purchaser or any
affiliate thereof subsequent to the Date of Closing and which, in the judgment
of the Board of Directors of Purchaser, made in good faith and based upon advice
of its counsel, makes it inadvisable to proceed with the transaction
contemplated by this Agreement.
SECTION 7.3 Fiscal Condition of Business. There shall have been no
----------------------------
material adverse change in the results of operations, financial condition or
business of the Company, and the Company shall have not suffered any material
loss or damage or any of its properties or assets, whether or not covered by
insurance, since the date of the Most Recent Balance Sheet.
SECTION 7.4 Consents. All approvals, authorizations and consents required
--------
to be obtained shall have been obtained, including, without limitation, (i) the
consent of the Federal Trade Commission under the Hart-Scott-Rodino Antitrust
Improvements Act; and (iii) the approval of every regulatory agency of federal,
state, or local government that may be required in the reasonable opinion of
either Purchaser or Sellers. Purchaser shall have been furnished with
appropriate evidence, reasonably satisfactory to Purchaser and its counsel, of
the granting of such approvals, authorizations and consents.
SECTION 7.5 Opinion of Counsel. Sellers shall have delivered to the
------------------
Purchaser the opinion of counsel, dated the Closing Date, in the form and
substance of Schedule 1.7(i).
SECTION 7.6 Title Insurance. Purchaser shall receive comfort,
---------------
acceptable to it, that there has been issued an Owner's Policy on all Owned Real
Property, and that such Owner's Policies are in full force and effect and shall
remain in full force and effect following the Closing and shall inure to the
benefit of Purchaser.
SECTION 7.7 Stock Purchase Agreement. Closing shall have taken place
------------------------
under a stock purchase agreement dated the date hereof executed between Louis D.
Paolino, Jr. and such persons as are designated
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<PAGE>
by Mr. Paolino, if any, pursuant to which the Purchaser shall sell to such
individual(s) 3,675,000 shares of its Common Stock at a price of $1.375(the
"Stock Purchase Agreement").
SECTION 7.8 Due Diligence. As a condition of Closing, the Purchaser shall
-------------
be satisfied in its sole discretion with the results of the due diligence
investigation it has made concerning the Company and the transactions, as set
forth in this Agreement. Sellers acknowledge that the due diligence
investigation will not be complete until the later to occur of April 15 or
twenty business (20) days following receipt of both the 1998 Financial
Statements and the Most Recent Financial Statements; provided that the due
diligence period shall not expire until twenty (20) business days following the
date that Purchaser has received all of the information requested on the due
diligence request list provided to Seller's attorney, unless sooner terminated
by Purchaser, at its sole discretion.
SECTION 7.9 Fairness Opinion. Purchaser shall have received a favorable
----------------
opinion from a reputable investment banking firm selected by Purchaser to the
effect that the transaction is fair to the shareholders of Purchaser, from a
financial point of view.
SECTION 7.10 Shareholder and Board Approval. The shareholders owning at
------------------------------
least a majority of the outstanding shares of the Purchaser and the Board of
Directors of Purchaser shall approve the transactions contemplated hereby.
ARTICLE VIII
CONDITIONS OF SELLERS
The obligations of the Sellers to effect the transactions contemplated by
this Agreement shall be subject to the fulfillment at or prior to the time of
Closing of each of the following conditions:
SECTION 8.1 Compliance by Purchaser. The Purchaser shall have performed
-----------------------
and complied with all of the obligations and conditions required by this
Agreement to be performed or complied with by it at or prior to or at the
Closing Date. All representations and warranties of Purchaser contained in this
Agreement shall be true and correct at and as of the Date of Closing, with the
same force and effect as though made at and as of the Date of Closing, except
for changes expressly permitted by this Agreement.
SECTION 8.2 Litigation Affecting This Transaction. There shall be no
-------------------------------------
actual or threatened action by or before any court which seeks to restrain,
prohibit or invalidate the transaction contemplated by this Agreement or which
might affect the right of Purchaser to own, operate in its entirety or control
any of the Assets *or the Business or which, as a result of the transaction
contemplated by this Agreement, might affect such right as to Purchaser or any
affiliate thereof subsequent to the Date of Closing and which, in the judgment
of the Sellers, made in good faith and based upon advice of their counsel, makes
it inadvisable to proceed with the transaction contemplated by this Agreement.
SECTION 8.4 Consents. All approvals, authorizations and consents required
--------
to be obtained shall have been obtained, including, without limitation, (i) the
consent of the Federal Trade Commission under the Hart-Scott-Rodino Antitrust
Improvements Act; and (iii) the approval of every regulatory agency of federal,
state, or local government that may be required in the reasonable opinion of
either Purchaser or Sellers. Sellers shall have been furnished with appropriate
evidence, reasonably satisfactory to Sellers and
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<PAGE>
their counsel, of the granting of such approvals, authorizations and consents.
SECTION 8.5 Opinion of Counsel. Purchaser shall have delivered to the
------------------
Sellers the opinion of counsel, dated the Closing Date, in the form and
substance of Schedule 1.6(c).
SECTION 8.6 Stock Purchase Agreement. Closing shall have taken place
------------------------
under the Stock Purchase Agreement.
SECTION 8.7 Private Placement. The Purchaser shall have sold,
-----------------
substantially simultaneously with the Closing, 1,850,000 shares of its Common
Stock in a private placement at a purchase price of $2.00 per share to
individuals or entities designated by Louis Paolino.
ARTICLE IX
Indemnification
SECTION 9.1 Indemnification by Sellers. Each Seller agrees that it will
--------------------------
indemnify, defend, protect and hold harmless Purchaser and its officers,
shareholders, directors, divisions, subdivisions, affiliates, subsidiaries,
parent, agents, employees, legal representatives, successors and assigns from
and against all claims, adverse consequences, losses, damages, actions, suits,
proceedings, demands, assessments, adjustments, penalties, costs and expenses
whatsoever (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) whether equitable or legal,
matured or contingent, known or unknown to such Seller, foreseen or unforeseen,
ordinary or extraordinary, patent or latent, whether arising out of occurrences
prior to, at, or after the date of this Agreement, from: (a) any breach of,
misrepresentation in, untruth in or inaccuracy in the representations and
warranties by the Sellers, set forth in this Agreement or in the Schedules
attached to this Agreement or in the Collateral Documents; (b) nonfulfillment or
nonperformance of any agreement, covenant or condition on the part of a Seller
made in this Agreement and to be performed by a Seller before or after the
Closing Date; and (c) any claim by a third party that, if true, would mean that
a condition for indemnification set forth in subsections (a) or (b) of this
Section 9.1 of this Agreement has occurred.
SECTION 9.2 Indemnification by Purchaser. Purchaser agrees that it will
----------------------------
indemnify, defend, protect and hold harmless Sellers and their agents,
employees, heirs, legal representatives, successors and assigns, as applicable,
from and against all claims, adverse consequences, losses, damages, actions,
suits, proceedings, demands, assessments, adjustments, penalties, costs and
expenses whatsoever (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by it, as a result of or
incident to: (a) any breach of, misrepresentation in, untruth in or inaccuracy
in the representations and warranties of Purchaser set forth in this Agreement
or in the Schedules attached to this Agreement or in the Collateral Documents;
(b) nonfulfillment or nonperformance of any agreement, covenant or condition on
the part of Purchaser made in this Agreement and to be performed by Purchaser
before or after the Closing Date; (c) any claim by a third party that, if true,
would mean that a condition for indemnification set forth in subsections (a),
(b), or (c) of this Section 9.2 has occurred.
SECTION 9.3 Procedure for Indemnification with Respect to Third Party
---------------------------------------------------------
Claims.
- ------
(a) If any third party shall notify a party to this Agreement (the
"Indemnified Party") with respect
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<PAGE>
to any matter (a "Third Party Claim") that may give rise to a claim for
indemnification against any other party to this Agreement (the "Indemnifying
Party") under this Article IX, then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing; provided, however, that no delay on
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party is thereby prejudiced. Such notice
shall state the amount of the claim and the relevant details thereof.
(b) Any Indemnifying Party will have the right to defend the Indemnified
Party against the Third Party Claim with counsel of its choice satisfactory to
the Indemnified Party so long as (i) the Indemnifying Party notifies the
Indemnified Party in writing within ten days after the Indemnified Party has
given notice of the Third Party Claim that the Indemnifying Party will indemnify
the Indemnified Party pursuant to the provisions of Article IX, as applicable,
from and against the entirety of any adverse consequences (which will include,
without limitation, all losses, claims, liens, and attorneys' fees and related
expenses) the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim, (ii) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (iii) the Third Party Claim involves only
monetary damages and does not seek an injunction or equitable relief, (iv)
settlement of, or adverse judgment with respect to the Third Party Claim is not,
in the good faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice adverse to the continuing business interests of
the Indemnified Party, and (v) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 9.3(b) above, (i) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in (but not control) the defense of the Third Party Claim, (ii) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (which will not be unreasonably withheld), and
(iii) the Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (which will not be unreasonably
withheld). In the case of (c)(ii) or (c)(iii) above, any such consent to
judgment or settlement shall include, as an unconditional term thereof, the
release of the Indemnifying Party from all liability in connection therewith.
(d) If any condition set forth in Section 9.3(b) above is or becomes
unsatisfied, (i) the Indemnified Party may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to, the Third
Party Claim and any matter it may deem appropriate and the Indemnified Party
need not consult with, or obtain any consent from, any Indemnifying Party in
connection therewith, (ii) the Indemnifying Party will reimburse the Indemnified
Party promptly and periodically for the cost of defending against the Third
Party Claim (including reasonable attorneys' fees and expenses), and (iii) the
Indemnifying Party will remain responsible for any adverse consequences the
Indemnified Party may suffer resulting from, arising out of, relating to, in the
nature of, or caused by the Third Party Claim to the fullest extent provided in
this Article IX.
SECTION 9.4 Procedure for Non-Third Party Claims. If Purchaser or any
------------------------------------
Seller wishes to make a claim for indemnity under Section 9.1 or Section 9.2, as
applicable, and the claim does not arise out of a
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<PAGE>
third party notification which makes the provisions of Section 9.3 applicable,
the party desiring indemnification ("Indemnified Party") shall deliver to the
party from which indemnification is sought ("Indemnifying Party") a written
demand for indemnification ("Indemnification Demand"). The Indemnification
Demand shall state: (a) the amount of losses, damages or expenses to which the
Indemnified Party has incurred or has suffered or is expected to incur or suffer
to which the Indemnified Party is entitled to indemnification pursuant to
Section 9.1 or Section 9.2, as applicable; and (b) the nature of the event or
occurrence which entitles the Indemnified Party to receive payment under Section
9.1 or Section 9.2, as applicable. If the Indemnifying Party wishes to object to
an Indemnification Demand, the Indemnifying Party must send written notice to
the Indemnified Party stating the objections and the grounds for the objections
("Indemnification Objection"). If no Indemnification Objection is sent within
thirty (30) days after the Indemnification Demand is sent, the Indemnifying
Party shall be deemed to have acknowledged the correctness of the claim or
claims specified in the Indemnification Demand and shall pay the full amount
claimed in the Indemnification Demand within forty-five (45) days of the day the
Indemnification Demand is dated. If for any reason the Indemnifying Party does
not pay the amounts claimed in the Indemnification Demand, within thirty days of
the Indemnification Demand's date, the Indemnified Party may institute legal
proceedings to enforce payment of the indemnification claim contained in the
Indemnification Demand and any other claim for indemnification that the
Indemnified Party may have.
SECTION 9.5 Survival of Claim. All of the respective representations,
-----------------
warranties and obligations of the parties to this Agreement shall survive
consummation of the transactions contemplated by this Agreement as follows: (i)
all representations and warranties pertaining to federal, state and local taxes,
including, without limitation, the representations and warranties set forth in
Section 3.11 shall survive until the expiration of the applicable statute of
limitations on any claim which can be brought against the Company by tax
authorities or governmental agencies or governmental units and (ii) all
representations and warranties other than set forth in (i) above shall survive
until one year from the Closing Date. Notwithstanding the prior sentence which
provides that the representations and warranties expire after certain stated
periods of time, if within the stated period of time, a notice of a claim for
indemnification or Indemnification Demand is given, or a suit or action based
upon representation or warranty is commenced, the Indemnified Party shall not be
precluded from pursuing such claim or action, or from recovering from the
Indemnifying Party (whether through the courts or otherwise) on the claim or
action, by reason of the expiration of the representation or warranty.
SECTION 9.6 Prompt Payment. In the event that any party is required to
--------------
make any payment under this Article IX, such party shall promptly pay the
Indemnifying Party the amount so determined. If there should be a dispute as to
the amount or manner of determination of any indemnity obligation owed under
this Article IX, the Indemnifying Party shall, nevertheless, pay when due such
portion, if any, of the obligation as shall not be subject to dispute. The
portion in dispute shall be paid upon a final and non-appealable resolution of
such dispute. Upon the payment in full of any claim, the Indemnifying Party
shall be subrogated to the rights of the Indemnified Party against any person
with respect to the subject matter of such claim.
SECTION 9.7 Limitation of Liability. Notwithstanding anything else to the
-----------------------
contrary contained herein, the obligations of Sellers and Purchaser pursuant to
the indemnifications contained in Section 9.1 and 9. 2, respectively, shall be
limited to Five Million Six Hundred Thousand Dollars ($5,600,000).
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<PAGE>
ARTICLE X
OTHER PROVISIONS
SECTION 10.1 Nondisclosure by Sellers. Sellers recognize and acknowledge
------------------------
that they have in the past, currently have, and in the future will have certain
confidential information of Purchaser such as lists of customers, operational
policies, and pricing and cost policies that are valuable, special and unique
assets of Purchaser. Sellers agree that for a period of twelve (12) months from
the Closing Date or for a period of eighteen (18) months from the date hereof,
if the Closing does not take place they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except to authorized representatives of
Purchaser, unless (i) such information becomes known to the public generally
through no fault of any Seller, or (ii) a Seller is compelled to disclose such
information by a governmental entity or pursuant to a court proceeding. In the
event of a breach or threatened breach by any Seller of the provisions of this
Section, Purchaser shall be entitled to an injunction restraining such Seller
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting Purchaser from pursuing any other
available remedy for such breach or threatened breach, including, without
limitation, the recovery of damages.
SECTION 10.2 Nondisclosure by Purchaser. Purchaser recognize and
--------------------------
acknowledges that it has in the past, currently has, and prior to the Closing
Date, will have access to certain confidential information of the Company, such
as lists of customers, operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company. Purchaser agree that it
will not utilize such information in the business or operation of Purchaser or
any of its affiliates or disclose such confidential information to any person,
firm, corporation, association, or other entity for any purpose or reason
whatsoever, unless (i) such information becomes known to the public generally
through no fault of Purchaser or any of its affiliates, (ii) Purchaser is
compelled to disclose such information by a governmental entity or pursuant to a
court proceeding, or (iii) Closing takes place. In the event of a breach or
threatened breach by Purchaser of the provisions of this Section, Sellers shall
be entitled to an injunction restraining Purchaser from utilizing or disclosing,
in whole or in part, such confidential information. Nothing contained herein
shall be construed as prohibiting Sellers from pursuing any other available
remedy for such breach or threatened breach, including, without limitation, the
recovery of damages.
SECTION 10.3 Assignment; Binding Effect; Amendment. This Agreement and
-------------------------------------
the rights of the parties hereunder may not be assigned (except by operation of
law) and shall be binding upon and shall inure to the benefit of the parties
hereto, and their respective successors, personal representatives and assigns.
This Agreement, upon execution and delivery, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms and may
be modified or amended only by a written instrument executed by all parties
hereto.
SECTION 10.4 Entire Agreement. This Agreement, is the final, complete and
----------------
exclusive statement and expression of the agreement among the parties hereto
with relation to the subject matter of this Agreement, it being understood that
there are no oral representations, understandings or agreements covering the
same subject matter as the Agreement. The Agreement supersedes, and cannot be
varied, contradicted or supplemented by evidence of any prior to contemporaneous
discussions, correspondence, or oral or written agreements of any kind. The
parties to this Agreement have relied on their own advisors for all legal,
accounting, tax or other advice whatsoever with respect to the Agreement and the
transactions contemplated hereby.
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<PAGE>
SECTION 10.5 Counterparts. This Agreement may be executed simultaneously
------------
in two or more counterparts, each of which shall be deemed an original and all
of which together shall constitute but one and the same instrument.
SECTION 10.6 Notices. All notices or other communications required or
-------
permitted hereunder shall be in writing and may be given by depositing the same
in United States mail, addressed to the party to be notified, postage prepaid
and registered or certified with return receipt requested, by reputable,
nationally recognized overnight courier or by delivering the same in person to
such party.
(a) If to Sellers, addressed to them at:
American Wash Services, Inc.
1000 Crawford Place, Suite 400
Mount Laurel, New Jersey 08054
with a copy to:
Robert M. Kramer & Associates, P.C.
1150 First Avenue, Suite 900
King of Prussia, Pennsylvania 19406
(b) If to Purchaser, addressed to it at:
160 Benmont Avenue
Bennington, Vermont 05201
Attn: Jon E Goodrich
With a copy to:
Germaine Curtin
Curtin & Galt, LLP
19 Hollywood Ave.
Albany, NY 12208
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier and three business days after the deposit
in the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received, if earlier. Any
party may change the address for notice by notifying the other parties of such
change in accordance with this Section 10.6.
SECTION 10.7 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of Delaware, without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware.
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<PAGE>
SECTION 10.8 No Waiver. No delay of or omission in the exercise of any
---------
right, power or remedy accruing to any party as a result of any breach or
default by any other party under this Agreement shall impair any such right,
power or remedy, nor shall it be construed as a waiver of or acquiescence in any
such breach or default, or of or in any similar breach or default occurring
later; nor shall any waiver of any single breach or default be deemed a waiver
of any other breach of default occurring before or after that waiver.
SECTION 10.9 Time of the Essence. Time is of the essence of this
-------------------
Agreement as well as all dates referred to herein and extensions thereof.
SECTION 10.10 Captions. The headings of this Agreement are inserted for
--------
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
SECTION 10.11 Severability. In case any provision of this Agreement shall
------------
be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as most
nearly to retain the intent of the parties. If such modification is not
possible, such provision shall be severed from this Agreement, unless severing
such provision would result in an agreement that does not reflect the overall
intent of either of the parties. In either case the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
SECTION 10.12 Construction. The parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute shall be deemed to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" means included, without limitation.
SECTION 10.13 Extension or Waiver of Performance. Either the Sellers or
-----------------------------------
Purchaser may extend the time for or waive the performance of any of the
obligations of the other, waive any inaccuracies in the representations or
warranties by the other, or waive compliance by the other with any of the
covenants or conditions contained in this Agreement, provided that any such
extension or waiver shall be in writing and signed by the Sellers and the
Purchaser.
SECTION 10.14 Liabilities of Third Parties. Nothing in this Agreement,
----------------------------
whether expressed or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the parties to it and
their respective successors, legal representative and assigns, nor is anything
in this Agreement intended to relieve or discharge the obligation or liability
of any third persons to any party to this Agreement, nor shall any provisions
give any third person any rights of subrogation or action over or against any
party to this Agreement.
SECTION 10.15 Agreement Not Binding Until Fully Executed. This Agreement
------------------------------------------
shall not be binding on any party hereto until the Agreement has been fully
executed.
SECTION 10.16 Publicity. Prior to Closing, except as may be required by
---------
law, no party to this
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<PAGE>
Agreement shall issue any press release or otherwise make any statement with
respect to the transactions contemplated by this Agreement without the prior
consent of the other party, which shall not be unreasonably withheld.
SECTION 10.17 Arbitration.
-----------
(a) Each and every controversy or claim arising out of or relating to this
Agreement shall be settled by arbitration in Philadelphia, Pennsylvania in
accordance with the commercial rules (the "Rules") of the American Arbitration
Association then obtaining, and judgment upon the award rendered in such
arbitration shall be final and binding upon the parties and may be confirmed in
any court having jurisdiction thereof. Notwithstanding the foregoing, this
Agreement to arbitrate shall not bar any party from seeking temporary or
provisional remedies in any Court having jurisdiction. Notice of the demand for
arbitration shall be filed in writing with the other party to this Agreement,
and shall set forth in the same degree of particularity as required for
complaints under the Federal Rules of Civil Procedure the claims to be submitted
to arbitration. Additionally, the demand for arbitration shall be stated with
reasonable particularity with respect to such demand with documents attached as
appropriate. In no event shall the demand for arbitration be made after the date
when institution of legal or equitable proceedings based on such claim, dispute
or other matter in question would be barred by the applicable statutes of
limitations.
(b) The arbitrators shall have the authority and jurisdiction to determine
their own jurisdiction and enter any preliminary awards that would aid and
assist the conduct of the arbitration or preserve the parties' rights with
respect to the arbitration as the arbitrators shall deem appropriate in their
discretion. The award of the arbitrators shall be in writing and it shall
specify in detail the issues submitted to arbitration and the award of the
arbitrators with respect to each of the issues so submitted.
(c) Within sixty (60) days after the commencement of any arbitration
proceeding under this Agreement, each party shall file with the arbitrators its
contemplated discovery plan outlining the desired documents to be produced, the
depositions to be taken, if ordered by the arbitrators in accordance with the
Rules, and any other discovery action sought in the arbitration proceeding.
After a preliminary hearing, the arbitrators shall fix the scope and content of
each party's discovery plan as the arbitrators deem appropriate. The
arbitrators shall have the authority to modify, amend or change the discovery
plans of the parties upon application by either party, if good cause appears for
doing so.
(d) The award pursuant to such arbitration will be final, binding and
conclusive.
(e) Counsel to Sellers and Purchaser in connection with the negotiation of
and consummation of the transactions under this Agreement shall be entitled to
represent their respective party in any and all proceedings under this Section
or in any other proceeding (collectively, "Proceedings"). Sellers and
Purchaser, respectively, waive the right and agree they shall not seek to
disqualify any such counsel in any such Proceedings for any reason, including
but not limited to the fact that such counsel or any member thereof may be a
witness in any such Proceedings or possess or have learned of information of a
confidential or financial nature of the party whose interests are adverse to the
party represented by such counsel in any such Proceedings.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on this 26th
day of March, 1999.
SHAREHOLDERS PURCHASER
/s/ Louis D. Paolino, Jr. MACE SECURITY INTERNATIONAL, INC.
- --------------------------------
Louis D. Paolino, Jr.
By: /s/Jon E. Goodrich
-------------------------------------
Red Mountain Holding, Ltd. Jon E. Goodrich
Chief Executive Officer
By:/s/ David Ehrlich
-----------------------------
David Ehrlich, director
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<PAGE>
AMENDMENT NO. 1
---------------
TO
--
MERGER AGREEMENT
----------------
THIS AMENDMENT NO. 1 dated April 13, 1999 amends that certain MERGER
AGREEMENT (the "Merger Agreement") made as of March 26, 1999, by and between
Louis D. Paolino, Jr. and Red Mountain Holding, Ltd. ("Shareholders") on the one
hand, and Mace Security International, Inc. ("Purchaser") on the other hand.
All capitalized terms set forth herein and not defined herein shall have the
meanings ascribed thereto in the Merger Agreement.
For good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. The Merger Agreement must be amended to reflect the increase to
the number of shares of Seller's Common Stock to be sold pursuant to the Stock
Purchase Agreement from 3,675,000 shares to 3,735,000 shares.
In that regard, Section 7.7 of the Merger Agreement is hereby amended
by replacing all references to "3,675,000 shares" with "3,735,000 shares"
and all other provisions, if any, of the Merger Agreement that
reference "3,675,000 shares" shall also be so amended.
2. All other terms of the Merger Agreement shall remain in full force
and effect.
3. This Amendment may be executed in any number of counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
4. This Amendment has been entered into and shall be construed and
enforced in accordance with the laws of the State of New York without reference
to the choice of law principles thereof. In any litigation in connection with
or arising out or related to this Agreement, any of the documents referred to
herein or transactions contemplated hereby, the Seller irrevocably consents to
and confer personal jurisdiction on the courts of the State of New York or the
United States located within the City of Albany and expressly waive any
objections as to venue in any such courts.
IN WITNESS WHEREOF, the parties hereto have each executed and
delivered this Amendment No. 1 to Merger Agreement as of the day and year first
above written.
SHAREHOLDERS PURCHASER
/s/ Louis Paolino, Jr. MACE SECURITY INTERNATIONAL, INC.
- ----------------------
Louis D. Paolino, Jr.
By: /s/ Jon E. Goodrich
--------------------
Red Mountain Holding, Ltd. Jon E. Goodrich
Chief Executive Officer
By: David Ehrlich
-------------
David Ehrlich, director
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<PAGE>
AMENDMENT NO. 2
---------------
TO
--
MERGER AGREEMENT
----------------
THIS AMENDMENT NO. 2 dated May 24, 1999 amends that certain MERGER
AGREEMENT (the "Merger Agreement") made as of March 26, 1999 and as amended by
Amendment 1 dated April 13, 1999, by and between Louis D. Paolino, Jr. and Red
Mountain Holding, Ltd. ("Shareholders") on the one hand, and Mace Security
International, Inc. ("Purchaser") on the other hand. All capitalized terms set
forth herein and not defined herein shall have the meanings ascribed thereto in
the Merger Agreement.
For good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. The Merger Agreement must be amended to reflect the change of the
date on or after which, if the Closing shall not have occurred due to the non-
fulfillment of a condition precedent of a party's obligation to close as set
forth at Article VII and VIII, as applicable (through no fault or breach by the
terminating party), either party may terminate the Merger Agreement and the
transactions contemplated thereby.
In that regard, Section 1.5 of the Merger Agreement is hereby amended
by replacing all references to "July 31, 1999" with "August 31, 1999"
2. The Merger Agreement must be amended to reflect the increase of the
size of the Board, effective as of the Merger, from five to seven member and
further reflect that Mr. Paolino and Mr. Papadakis have already been appointed
to the Board to fill certain vacancies created upon the resignation of certain
directors .
In that regard, Section 1.7(b) is hereby amended by deleting it in its
entirety and inserting the following in lieu thereof:
"(b) The written resignation of such officers and directors as Sellers
shall request."
3. All other terms of the Merger Agreement shall remain in full force
and effect.
4. This Amendment may be executed in any number of counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have each executed and
delivered this Amendment No. 2 to Merger Agreement as of the day and year first
above written.
SHAREHOLDERS PURCHASER
/s/ Louis D. Paolino, Jr. MACE SECURITY INTERNATIONAL, INC.
- --------------------
Louis D. Paolino, Jr.
By: /s/ Jon E. Goodrich
--------------------
Red Mountain Holding, Ltd. Jon E. Goodrich
Chief Executive Officer
By: /s/ David Ehrlich, Director
----------------------------
David Ehrlich, Director
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<PAGE>
APPENDIX C
----------
PERSONAL AND CONFIDENTIAL
- -------------------------
April 26, 1999
Board of Directors
Mace Security International, Inc.
160 Benmont Avenue
Bennington, VT, 05201
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding shares of Common Stock, par value $0.01
per share (the "Shares"), of Mace Security International, Inc. ("Mace" or the
"Company"), of the financial terms of certain proposed Transactions.
In the first instance, we understand that Mace signed a Stock Purchase Agreement
(the "Stock Purchase Agreement") whereby Louis Paolino, Jr. and his designees
("Paolino" or "Purchaser") will purchase 3,735,000 shares of Mace common stock
for $5,135,625 at $1.375 each. Other provisions of this agreement specify that
Mace will (a) effect a private placement of 1,850,000 Mace common stock for
$3,700,000 at $2.00 each to individuals named by Paolino; (b) Jon Goodrich will
sell to Paolino 1,100,000 shares of Mace common stock, and Messrs. Ron Heller
and David Nagelberg will each sell 100,000 shares, all at $1.375 per share; (c)
members of Paolino's management team will have entered into employment
contracts with Mace on the signing of the Stock Purchase Agreement; (d) Paolino
will become Chairman, President, and Chief Executive Officer of Mace; (e) the
current Board of Directors, excluding Goodrich, will resign and be replaced by
nominees designated by Mr. Paolino. The transactions contemplated by the Stock
Purchase Agreement are expected to close simultaneously with the closing of
Mace's acquisition of American Wash Services, Inc. ("AWS") specified in a
Definitive Agreement hereafter described.
We further understand that concurrent with the aforesaid Stock Purchase
Agreement, Mace signed a Definitive Agreement to acquire AWS by merger (the
"Merger Agreement") for (a) $4,687,500 in cash; (b) 628,362 shares of Mace
common stock; (c) assignable warrants to purchase 1,575,000 shares of stock at
$1.375 each; {d) an assignable warrant to purchase 250,000 shares of stock at
$2.50 each. The warrants carry a term of 64 months and are not exercisable for
a period of 120 days following the closing.
All shares warrants stipulated in both agreements are unregistered and
restricted as to transfer pursuant to the Securities Act of 1933 nor do they
carry registration rights.
The closing price of Mace on March 26, 1999, the date of the signed Agreements,
was $3.125.
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<PAGE>
The terms and conditions of the Transactions are fully set forth in the
Agreements herein cited which are subject to completion of mutually acceptable
due diligence reviews and approval by the Company's Board of Directors and by
the holders of a majority of the outstanding shares of the Company. We
understand that the Transactions are conditional upon Paolino having received
comfort that upon consummation of the Transactions, the Company will not lose
its listing of the NASDAQ National Market.
Wolff Investment Group, Inc. ("Wolff") is familiar with Company having acted as
its financial advisor in the past. Among its activities for the Company, Wolff
prepared a business plan utilized for securing the Company's initial public
offering and worked on preparation of the Prospectus with both the managing
underwriter and general counsel; analyzed proposed acquisitions; prepared a
fairness opinion on an uncompleted multiple acquisition in 1996; and issued a
valuation of a 640,000 block transaction in January, 1997. You should be aware
that, in the ordinary course of business, we have traded securities of the
Company for the account of customers on an agency basis, and officers of Wolff
have and may own securities of the Company. An officer of Wolff serves as
Chairman of the Board of the Company and will not receive any compensation for
the fee received in the issuance of our Fairness Opinion.
For purposes of the Opinion set forth herein to determine the valuation of the
common stock and warrants, we have analyzed various factors involved in the
Transactions. Principal among them were the following:
1. Restrictions on transfer of stock or warrants; registration rights, if any.
2. The size of the transaction relative to the total capitalization and other
blocks outstanding.
3. Size of the transaction relative to recent and historic trading.
4. Transaction prices of any major block sales of unregistered stock. (Gould-
Meyerson_
5. Historic price volatility of the security.
6. Terms of any recent financings.
7. Institutional interest in the company.
8. Number of stock brokerage firms who currently or in the past actively
followed the company.
9. Reputation of the company's investment banker.
10. Investment quality of the security: its earnings record, financial
condition, outlook, and credibility.
11. Terms of other participants in the Stock Purchase Agreement.
For purposes of determining the Fairness Opinion of the acquisition of AWS by
merger we have:
1. analyzed certain publicly available financial statements and other
information concerning the Company;
2. analyzed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of the
Company;
3. analyzed certain financial projections regarding the Company and its
constituent businesses prepared by the management of Company;
4. discussed the past and current operations and financial condition and the
prospects of the Company with senior executives of the Company;
5. reviewed a valuation of the Company's major business unit prepared by an
outside professional organization;
C-2
<PAGE>
6. analyzed the past and current operations and discussed certain financial
projections regarding AWS prepared by their management;
7. analyzed certain audited financial statements of AWS;
8. analyzed the pro forma impact of the Transactions on the Company's revenues,
earnings per share, and consolidated capitalization;
9. reviewed the historic and recent reported prices and trading activity for
the Shares including volatility and any block transactions;
10. compared the results of operations of the Company with that of certain
companies which we deemed to be reasonably similar to the Company;
11. discussed with the managements of the Company and AWS the strategic
rational and certain other benefits to the Company of the Transactions;
12. reviewed the Merger Agreement and Stock Purchase Agreement;
13. performed such other analyses as we have deemed appropriate.
14. reviewed with the Company's management other potential transactions in
which the Company considered or was engaged over the recent past.
We have assumed and relied, without independent verification, upon the accuracy
and completeness of the information reviewed by us for the purposes of the
Opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company and
AWS respectively. We have not made any independent valuation or appraisal of
the assets or liabilities of the Company or AWS, but have relied upon the
certified audited statements and the independent appraisal of the Company's
Consumer and Franchise Divisions provided to us. Our Opinion necessarily based
on economic, market and other conditions as in effect on, and the information
made available to us as of the date hereof.
It is understood that this letter is for the information of the Board of
Directors of the Company only and may not be used for any other purpose without
our prior written consent.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Transactions, when taken together, are fair from a financial
point of view to the holders of the Shares of the Company.
Respectfully submitted,
WOLFF INVESTMENT GROUP, INC.
By: /s/ Ludwig J. Cserhat
----------------------------------------------
Ludwig J. Cserhat
Chairman of the Board
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<PAGE>
APPENDIX D
----------
EMPLOYMENT CONTRACT
This Employment Contract ("Agreement") is executed and delivered as of May
24, 1999, by and between Mace Security International, Inc., a Delaware
corporation ("Company"), and Louis D. Paolino, Jr., an individual ("Employee").
RECITALS
The Company conducts diversified businesses, including, without limitation,
personal security device marketing and car wash services operations
("Business"). The Employee is an executive with extensive experience in
corporate management. The Company desires to hire Employee as Chairman and
Chief Executive Officer and the Employee desires to accept the position offered.
The Company has entered into a Stock Purchase Agreement with Employee and
others dated March 26, 1999, pursuant to which Employee will purchase a number
of shares of the common stock of the Company ("Stock Purchase Agreement").
Employee will be employed by Company in a confidential relationship wherein
Employee, in the course of employment with Company, will become familiar with
and aware of information as to the specific manner of doing business and the
customers of Company and its affiliates and the Company's future plans. The
information Employee has and will have knowledge of are trade secrets and
constitute valuable goodwill of Company. Employee recognizes that the business
of Company is dependent upon a number of trade secrets and confidential business
information, including customer lists and customer data. The protection of
these trade secrets is of critical importance to Company. Company will sustain
great loss and damage if, for whatever reason, during the term of this Agreement
or Employee's employment with Company and for a period following the termination
of this Agreement or Employee's employment, Employee should violate the
provisions of paragraph 4 of this Agreement. Further, Employee acknowledges
that any such violation would cause irreparable harm to Company and that Company
would be entitled, without limitation, to injunctive relief to remedy such
violation.
NOW, THEREFORE, in consideration of the mutual promises, terms and
conditions set forth herein and the performance of each, the parties hereby
agree as follows:
1. SERVICES.
(a) Company hereby employs Employee as its Chief Executive Officer, and the
material duties of Employee and Employee's titles and duties may not be changed
without the Employee's consent. Upon consummation of the Merger Agreement
between the Company and American Wash Services, Inc., dated March 26, 1999,
Employee shall be appointed the Chairman of the Company's Board of Directors.
(b) Employee hereby accepts employment upon the terms and conditions
contained in this Agreement. Employee shall faithfully adhere to, execute and
fulfill all directions and policies established by the Board of Directors of the
Company.
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(c) Employee's employment shall be for a full-time position, except for
Employee's provision of consulting services to U.S. Plastic Lumber Corp. and
serving as a director of U.S. Plastic Lumber Corp. throughout the term of this
Agreement, consent to which is hereby given. Employee shall not, without the
prior written consent of Company, be engaged in any other business activity
pursued for gain, profit or other pecuniary advantage, if such activity
interferes with Employee's duties and responsibilities under this Agreement.
Employee may make personal investments in such form or manner as will neither
require Employee's services in the operation or affairs of the companies or
enterprises in which such investments are made nor violate the terms of
Paragraph 4.
2. COMPENSATION.
(a) For all services to be rendered by Employee to Company, Company shall
pay Employee an initial salary computed and earned ratably over twelve months at
the rate of Three Hundred Fifty Thousand Dollars ($350,000) per year, commencing
on the date hereof, payable in accordance with Company's normal payroll
procedures. The rate of Employee's salary may be adjusted from time to time
during the term of this Agreement, upon the consent of Employee and the Board of
Directors of the Company or the compensation committee thereof.
(b) To the extent that Company, from time to time in its sole discretion,
offers or provides any of the following to its employees, then Employee, on an
equal basis with such other employees, shall be entitled to: (i) participation
in all, if any, life, health, medical, hospital, accident and disability
insurance programs of Company in existence for the benefit of its employees and
for which Employee qualifies; (ii) participation in all, if any, pension,
retirement, profit sharing or stock purchase plans for which Employee qualifies;
and (iii) participation in any other employee benefits which Company accords to
its employees and for which Employee qualifies.
(c) During the term of Employee's employment with Company, Employee shall
be entitled to reimbursement for reasonable business expenses, including
gasoline, incurred on behalf of Company. Reimbursement for business expenses
will be provided to Employee on the same basis and under the same guidelines as
are applicable to all of Company's employees. Employee shall be entitled to the
Employee Benefits set forth in Schedule A attached.
3. TERM. The period of Employee's employment with the Company shall
commence on the date of this Agreement and shall continue for four years
thereafter, unless sooner terminated in accordance with the provisions of this
Agreement ("Term"). After expiration of the Term, Employee's employment shall
continue thereafter on an at-will month-to-month basis, until terminated by
either party to the Agreement.
4. NONCOMPETITION COVENANTS.
(a) Employee agrees that the noncompetition covenants contained in this
Paragraph 4 are a material and substantial part of this Agreement.
(b) Employee covenants that during Employee's employment with Company and
for three months following the termination of Employee's employment (regardless
of the reason for the termination) the Employee shall not, directly or
indirectly, without the prior express written consent of Company, do any of the
things set forth in item (i) through (v) below:
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(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, agent, or in a managerial capacity, whether as an employee,
independent contractor, consultant, advisor or sales representative, in the
personal security device industry or in the car wash services industry within
the United States ("the Territory");
(ii) call upon any person who is, at the time of the contact, an
employee of Company or its affiliates, if the purpose and intent of the contact
is to entice such employee away from or out of the employ of Company or its
affiliates;
(iii) call upon any person or entity which is, at the time of the
contact, a customer of the Company or its affiliates for the purpose of
soliciting or selling any of the items or services which are the items or
services offered by the Company or its affiliates;
(iv) disclose the identity of the customers of Company or its
affiliates, whether in existence or proposed, to any person, firm, partnership,
corporation or other entity whatsoever, for any reason or purpose whatsoever;
(v) promote, or assist, financially or otherwise, any person, firm,
partnership, corporation or other entity whatsoever to do any of the above;
For the purposes of this Agreement, the term "affiliates" shall mean one or more
of: (A) each subsidiary of Company, and (B) each other entity under the direct
or indirect control of the Company.
(c) The Company will sustain significant losses and damages, if Employee
breaches the covenants in this Paragraph 4. There is no adequate monetary
remedy for the immediate and irreparable damage that would be caused to Company
by Employee's breach of its non-competition covenants. Employee agrees that, in
the event of a breach by him of the foregoing covenants, such covenants may be
enforced by Company by, without limitation, injunctions and restraining orders.
(d) It is agreed by the parties that the covenants in this Paragraph 4
impose a reasonable restraint on Employee in light of the activities and
business of Company on the date of the execution of this Agreement and the
future plans of Company.
(e) The covenants in this Paragraph 4 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any court of competent jurisdiction shall determine that the
scope, time or territorial restrictions set forth are unreasonable, then it is
the intention of the parties that such restrictions be enforced to the fullest
extent which the court deems reasonable, and the Agreement shall thereby be
reformed.
(f) The covenants in this Paragraph 4 shall be construed as independent of
any other provision of this Agreement and the existence of any claim or cause of
action of Employee against Company whether predicated on this Agreement, or
otherwise, shall not constitute a defense to the enforcement by Company of such
covenants. It is specifically agreed that the duration of the noncompetition
covenants stated above shall be computed by excluding from such computation all
time during which Employee is in violation of any provision of this Paragraph 4
and all time during which there is pending in any court of competent
jurisdiction any action (including any appeal from any judgment) brought by any
person, whether or not a party to this Agreement, in which action Company seeks
to enforce the agreements and covenants of Employee or in which any person
contests the validity of such agreements and covenants or their enforceability
or seeks to avoid their performance or enforcement. Provided that, no such
exclusion shall include the period of time within which Employee has ceased
violating this paragraph, whether or
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not as a result of being in compliance with Court injunction or doing so
voluntarily, and whether or not any action is pending against Employee, and
provided that no such exclusion shall include the time an action is pending, if
the action is finally determined in Employee's favor.
5. CONFIDENTIAL INFORMATION. It is expressly acknowledged by the Employee
that customer lists, orders, current and closed out orders, prospect lists,
documents containing the names or addresses of existing or potential customers,
information regarding the Company's financial condition or business plans, the
methods by which the Company serves its customers or conducts its operations, as
well as other business procedures, are the property of the Company and
constitute confidential information or trade secrets of the Company
("Confidential Information"). Employee agrees to maintain the confidentiality
of the Confidential Information and further agrees that Employee will not,
directly or indirectly, use or disclose Confidential Information to any natural
or legal person, other than authorized employees or agents of the Company,
during the Term or thereafter. All Confidential Information and all
correspondence, reports, charts, products, records, designs, patents, plans,
manuals, "field guides," memoranda, advertising materials, lists and other data
or property collected by or delivered to Employee by or on behalf of Company,
its representatives, customers and government entities (including, without
limitation, customers obtained for Company by Employee), and all other materials
compiled by Employee which pertain to the business of Company shall be and shall
remain the property of Company, shall be subject at all times to its discretion
and control and shall be delivered, together with any and all copies thereof,
promptly to Company upon request at any time and without request upon completion
or other termination of Employee's employment hereunder.
6. INVENTIONS. Employee shall disclose promptly to Company any and all
conceptions and ideas for inventions, improvements, and valuable discoveries,
whether patentable or not, which are conceived or made by Employee solely or
jointly with another during the period of employment or within three months
thereafter and which are related to the business or activities of Company.
Employee hereby assigns and agrees to assign all his interests therein to
Company or its nominee. Whenever requested to do so by Company, Employee shall
execute any and all applications, assignments or other instruments that Company
shall deem necessary to apply for and obtain Letters Patent of the United States
or any foreign country or to otherwise protect Company's interest therein.
These obligations shall continue beyond the termination of employment with
respect to inventions, improvements and valuable discoveries, whether patentable
or not, conceived, made or acquired by Employee during the period of employment,
and shall be binding upon Employee's heirs, assigns, executors, administrators
and other legal representatives.
7. TERMINATION; RIGHTS OF TERMINATION. Employee's employment under this
Agreement may terminated during the term hereof in any one or more of the
following ways:
(a) Automatically upon the death or resignation of Employee, the parties
agreeing that Employee may resign at any time without such resignation
constituting a breach of this Agreement;
(b) By Company upon written notice to Employee upon:
(i) Employee's unsatisfactory performance of his duties or other
obligations under this Agreement, as determined in good faith by the Company
after having given Employee notice of the unsatisfactory performance, including
without limitation, Employee's refusal or inability to competently perform his
obligations under this Agreement, as determined in good faith by the Company,
except where non-performance is caused by disability;
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(ii) Employee's inability to perform his duties under this Agreement
because of illness or physical or mental disability or other incapacity which
continues for a period of 90 days, either consecutive or cumulative during any
one-year period;
(iii) any type of harassment, violence or threat thereof, or other
behavior toward other employees of the Company or toward third parties of a kind
that may tend to result in liability being incurred by the Company toward such
employee or third party;
(iv) alcohol abuse, use of controlled substances during employment
hours, or a positive test for use of controlled substances; or
(v) gross negligence or willful misconduct with respect to the
Company or any of its affiliates or subsidiaries, including without limitation
fraud, embezzlement, theft or proven dishonesty in the course of employment, or
a conviction of a felony or a misdemeanor involving moral turpitude, or a
finding of adjudication withheld, with imposition of a sentence, to either a
felony or a misdemeanor involving moral turpitude, or the entering of a plea of
guilty or nolo contendere to a felony.
---- ----------
The written notice provided for herein shall state the reason for
Employee's termination.
(c) Upon termination of Employee's employment under this Paragraph 7 for
any reason, Employee shall be entitled to receive Employee's salary accrued
through the date of termination, plus any employee benefits which by their
terms and provisions continue after such termination. In addition, upon
termination of Employee's employment under this Paragraph 7 for any reason other
than pursuant to Paragraph 7(a) or Paragraph 7(b)(ii), Employee shall be
entitled to receive and Company shall pay Employee immediately upon such
termination a termination fee in the amount of Seven Million Dollars
($7,000,000). The parties agree that, if Employee voluntarily resigns within
the first ninety (90) days of this Agreement's term without the Company having
breached this Agreement no termination fee shall be due.
(d) In the event of termination of Employee's employment under this
Agreement for any reason provided in this paragraph 7, or if Employee resigns
prior to the expiration of the term of this Agreement, all rights and
obligations of Company and Employee under this Agreement shall cease
immediately, except that Employee's obligations under this subparagraph and
paragraphs 4, 5, and 6, and the Company's obligations under Paragraph 7(c)
herein shall survive such termination. After such termination Employee shall
have no right to receive any compensation hereunder, except as set forth in
paragraph 7(c).
8. COMPLETE AGREEMENT. This Agreement is the final, complete and
exclusive statement and expression of the agreement between Company and
employee, it being understood that there are no oral representations,
understandings or agreements covering the same subject matter as this Agreement.
This Agreement supersedes, and cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous discussions, correspondence, or oral or
written agreements of any kind. This Agreement may be modified, altered or
otherwise amended only by a written instrument executed by both Company and
Employee.
9. NO WAIVER; REMEDIES CUMULATIVE. No waiver by the parties hereto of any
default or breach of any term, condition or covenant of this Agreement shall be
deemed to be a waiver of any subsequent default or breach of the same or any
other term, condition or covenant contained herein. No right, remedy or
election given by any term of this Agreement shall be deemed exclusive but each
shall be cumulative with all other rights, remedies and elections available at
law or in equity.
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10. ASSIGNMENT; BINDING EFFECT. Employee understands that Employee has
been selected by Company on the basis of Employee's personal qualifications,
experience and skills. Employee agrees, therefore, that he cannot assign all
or any portion of this Agreement. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and Company's successors and assigns.
It is further understood and agreed that Company may be merged or consolidated
with another entity and that any such entity shall automatically succeed to the
rights, powers and duties of Company hereunder.
11. NOTICE. All notices or other communications required or permitted
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, by overnight courier or
by delivering the same in person to such party.
To Company: Chief Executive Officer
1000 Crawford Place
Mount Laurel, New Jersey 08054
To Employee: Louis D. Paolino, Jr.
500 East Mantua Ave.
Wenonah, New Jersey 08090
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier and three days after the deposit in the U.
S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or when actually received, if earlier. Either party
may change the address for notice by notifying the other party of such change in
accordance with this paragraph 11.
12. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in nay way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
13. GENDER. The use of the masculine pronoun in this Agreement has been
used for convenience and shall apply to the Employee even where the Employee is
a female.
14. GOVERNING LAW. This Agreement shall in all respects be construed in
accordance with the laws of the State of New Jersey.
15. INSURANCE AND INDEMNIFICATION.
(a) Subject to applicable law, for a period of six (6) years following
completion of the Term, the Company will: (i) indemnify Employee and his heirs
and representatives to the extent provided in the Company's Certificate of
Incorporation in effect on the date of this Agreement and will not amend, reduce
or limit rights of indemnity afforded to them or the ability of the Company to
indemnify them, not hinder, delay or make more difficult the exercise of such
rights of indemnity and (ii) maintain director and officer liability insurance
coverage providing Employee with coverage (1) at least as favorable as the
policies in effect immediately prior to the date hereof covering the Company's
directors and officers or
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(2) as favorable as is available at a cost to the Company of up to 125% of the
premiums currently being paid by the Company.
(b) If any claim is (or claims are) made against Employee and his heirs
and representatives, including legal counsel, arising from Employee's services
as a director, officer and employee of the Company, within six (6) years from
the expiration of the Term, the provisions of this Paragraph 15 respecting the
Company's Certificate of Incorporation shall continue in effect until the final
disposition of all such claims.
(c) The Company agrees to provide written notice to Employee immediately
upon learning of any claim or threatened claim against Employee by any third
party relating to or arising out of the business of the Company or Employee's
prior service as a director, officer, employee or controlling shareholder of the
Company. The Company further agrees to provide to Employee any complaints and
other relevant documentation related to such claims immediately upon receipt of
such documentation.
(d) Employee agrees that he will cooperate with and assist the Company, as
is reasonably requested by the Company, in its defense of any action or
proceeding against the Company, its directors, officers, employees or affiliates
arising out of or in any way related to any transactions, events or other
matters which occurred during the period of his employment with the Company, to
the extent that such cooperation and assistance will not impair Employee's legal
rights or remedies or increase the likelihood that Employee will incur any
liabilities as a result thereof. This Agreement shall not preclude Employee from
testifying in such action or proceeding. In the event that Employee does
cooperate with and assist the Company in its defenses of such an action or
proceeding, the Company agrees to reimburse Employee for all reasonable expenses
incurred by Employee in providing such assistance.
16. ARBITRATION.
(a) Each and every controversy or claim arising out of or relating to this
Agreement shall be settled by arbitration in Philadelphia, Pennsylvania, in
accordance with the commercial rules (the "Rules") of the American Arbitration
Association then obtaining, and judgment upon the award rendered in such
arbitration shall be final and binding upon the parties and may be confirmed in
any court having jurisdiction thereof. Notwithstanding the foregoing, this
Agreement to arbitrate shall not bar any party from seeking temporary or
provisional remedies in any Court having jurisdiction. Notice of the demand for
arbitration shall be filed in writing with the other party to this Agreement,
which such demand shall set forth in the same degree of particularity as
required for complaints under the Federal Rules of Civil Procedure the claims to
be submitted to arbitration. Additionally, the demand for arbitration shall be
stated with reasonable particularity with respect to such demand with documents
attached as appropriate. In no event shall the demand for arbitration be made
after the date when institution of legal or equitable proceedings based on such
claim, dispute or other matter in question would be barred by the applicable
statutes of limitations.
(b) The arbitrators shall have the authority and jurisdiction to determine
their own jurisdiction and enter any preliminary awards that would aid and
assist the conduct of the arbitration or preserve the parties' rights with
respect to the arbitration as the arbitrators shall deem appropriate in their
discretion. The award of the arbitrators shall be in writing and it shall
specify in detail the issues submitted to arbitration and the award of the
arbitrators with respect to each of the issues so submitted.
(c) Within sixty (60) days after the commencement of any arbitration
proceeding under this Agreement, each party shall file with the arbitrators its
contemplated discovery plan outlining the desired documents to be produced, the
depositions to be take, if ordered by the arbitrators in accordance with the
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Rules, and any other discovery action sought in the arbitration proceeding.
After a preliminary hearing, the arbitrators shall fix the scope and content of
each party's discovery plan as the arbitrators deem appropriate. The arbitrators
shall have the authority to modify, amend or change the discovery plans of the
parties upon application by either party, if good cause appears for doing so.
(d) The award pursuant to such arbitration will be final, binding and
conclusive.
(e) Counsel to Company and Employee in connection with the negotiation of
and consummation of this Agreement shall be entitled to represent their
respective party in any and all proceedings under this Paragraph or in any other
proceeding (collectively, "Proceedings"). Company and Employee, respectively,
waive the right and agree they shall not seek to disqualify any such counsel in
any such Proceedings for any reason, including but not limited to the fact that
such counsel or any member thereof may be a witness in any such Proceedings or
possess or have learned of information of a confidential or financial nature of
the party whose interests are adverse to the party represented by such counsel
in any such Proceedings.
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement on
the year and day above written.
MACE SECURITY INTERNATIONAL, INC.
By:/s/ Jon E. Goodrich, Jr.
------------------------------
By: Jon E. Goodrich
Its: President
/s/ Louis D. Paolino, Jr.
---------------------------------
Louis D. Paolino, Jr.
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APPENDIX E
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MACE SECURITY INTERNATIONAL, INC.
MACE SECURITY INTERNATIONAL, INC., a corporation organized and existing under
and by virtue of the Delaware General Corporation Law (the "Corporation"), DOES
HEREBY CERTIFY THAT:
FIRST: The Board of Directors of the Corporation has adopted a resolution
proposing and declaring advisable and in the best interests of the Corporation
the following amendment to Article FOURTH of the Certificate of Incorporation of
the Corporation, to read in its entirety as follows (the "Charter Amendment"):
"FOURTH: The aggregate number of shares of stock which the Corporation
shall have authority to issue is 250,000,000, divided into two classes, one
class consisting of 200,000,000 shares of common stock , par value $.01 per
share, and the other class consisting of 50,000,000 shares of preferred
stock, par value $.01 per share."
SECOND: The stockholders of the Corporation, by partial written consent of
stockholders in accordance with Section 228 of the Delaware General Corporation
Law, have adopted and approved the Charter Amendment in accordance with the
provisions of Section 212 of the Delaware General Corporation Law.
THIRD: The Corporation has notified the nonconsenting stockholders of the
Corporation of the approval of the Charter Amendment by partial written consent
in accordance with Section 228 of the Delaware General Corporation Law.
FOURTH: The Charter Amendment has been duly adopted and approved in accordance
with the provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, said Mace Security International, Inc. has caused this
Certificate of Amendment of Certificate of Incorporation to be executed by a
duly authorized officer of the Corporation this __th day of June, 1999.
MACE SECURITY INTERNATIONAL, INC.
By:___________________________________
Louis D. Paolino, Jr.
President and Chief Executive Officer
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APPENDIX F
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MACE SECURITY INTERNATIONAL, INC.
1999 STOCK OPTION PLAN
----------------------
Effective Date: March 26, 1999
Approved by Stockholders: May 25, 1999
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MACE SECURITYINTERNATIONAL,INC.
1999 STOCK OPTION PLAN
ARTICLE I
PURPOSE AND EFFECTIVE DATE
/S/ 1.1 Purpose. The purpose of the Plan is to provide incentives, through
the grant of stock options, for selected employees, directors, and consultants
of the Company and Related Corporations to promote the long-term growth and
financial success of the Company and Related Corporations.
/S/ 1.2 Effective Date and Expiration of Plan. The Plan shall be effective
on the date on which it is adopted by the Board. Unless earlier terminated by
the Board pursuant to Section 6.3, the Plan shall terminate on the tenth
anniversary of its Effective Date. No Option shall be granted pursuant to the
plan after its termination date, but Options granted prior to the termination
date may extend beyond that date.
ARTICLE II
DEFINITIONS
The following words and phrases, as used in the Plan, shall have these
meanings:
/S/ 2.1 "Board" means the Board of Directors of the Company.
/S/ 2.2 "Cause" means a good faith determination by the Board that an
Optionee has (i) breached any material term or provision of the Optionee's
employment agreement; (ii) engaged in any type of disloyalty to the Company or a
Related Corporation, including without limitation fraud, embezzlement, theft, or
dishonesty in the course of his employment or service to the Company and Related
Corporations; (iii) been convicted of a felony; (iv) disclosed any proprietary
information of the Company or a Related Corporation without the consent of the
Company or the Related Corporation; or (v) breached the terms of any written
confidentiality agreement or any non-competition agreement with the Company or a
Related Corporation in any material respect.
/S/ 2.3 "Code" means the Internal Revenue Code of 1986, as amended.
/S/ 2.4 "Committee" means the Compensation Committee of the Board which shall
consist of not less than two directors of the Company who shall be appointed by,
and shall serve at the pleasure of, the Board. Each member of the Committee,
while serving as such, shall be deemed to be acting in his or her capacity as a
director of the Company. It is intended that each member of the Committee shall
be an "outside director" within the meaning of Treas. Reg. 1.162-27(e)(3) or any
successor thereto, and shall be a Non-Employee Director. Notwithstanding the
foregoing, if the Committee does not consist solely of two (2) or more Non-
Employee Directors, each Option must be approved by the full Board.
/S/ 2.5 "Company" means Mace Security International, Inc. and its successors
and assigns.
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/S/ 2.6 "Company Stock" means the common stock of the Company, par value
$0.01 per share.
/S/ 2.7 "Effective Date" means March 26, 1999, the date the Plan is adopted
by the Board.
/S/ 2.8 "Eligible Individual" means an employee, director (who may, but need
not, be an employee), or consultant of the Company or a Related Corporation.
/S/ 2.9 "Fair Market Value" means, as of any specified date, an amount
arrived at by a good faith determination of the Committee and shall be the value
determined under such other method of determining fair market value as shall be
authorized by the Code, or the rules or regulations thereunder, and adopted by
the Committee.
/S/ 2.10 "Incentive Stock Option" means an option within the meaning of
section 422 of the Code.
/S/ 2.11 "Non-Employee Director" means a director who:
(1) Is not currently an officer (as defined in 17 CFR (S)240.16a-1(f))
of, or otherwise currently employed by, the Company or a parent or subsidiary of
the Company within the meaning of 17 CFR (S)240.16b-3(b)(3);
(2) Does not receive compensation, either directly or indirectly, from
the Company or a parent or subsidiary of the Company within the meaning of 17
CFR (S)240.16b-3(b)(3) for services rendered as a consultant or in any other
capacity other than as a director, except for an amount that does not exceed the
dollar amount for which disclosure would be required under 17 CFR (S)229.404(a);
(3) Does not possess an interest in any other transaction for which
disclosure would be required pursuant to 17 CFR (S)229.404(a); and
(4) Is not engaged in a business relationship for which disclosure
would be required pursuant to 17 CFR (S)229.404(b).
/S/ 2.12 "Nonqualified Stock Option" means an option other than an Incentive
Stock Option.
/S/ 2.13 "Option" means either a Nonqualified Stock Option or an Incentive
Stock Option to purchase Company Stock which is granted under the Plan.
/S/ 2.14 "Option Price" means the price at which Company Stock may be
purchased under an Option as provided in Section 5.4.
/S/ 2.15 "Optionee" means an Eligible Individual who receives an Option.
/S/ 2.16 "Personal Representative" means the person or persons who, upon the
death, disability, or incompetency of an Optionee, shall have acquired, by will
or by the laws of descent and distribution or by other legal proceedings, the
right to exercise an Option theretofore granted to such Optionee.
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/S/ 2.17 "Plan" means the Mace Security International, Inc. 1999 Stock Option
Plan.
/S/ 2.18 "Related Corporation" means either a corporate subsidiary of the
Company, as defined in section 424(f) of the Code, or the corporate parent of
the Company, as defined in section 424(e) of the Code.
/S/ 2.19 "Stock Option Agreement" means an agreement entered into between an
Optionee and the Company under Section 5.3.
ARTICLE III
ADMINISTRATION
/S/ 3.1 Committee to Administer. The Plan shall be administered by the
Committee. The Committee shall have full power and authority to interpret and
administer the Plan, to establish and amend rules and regulations for its
administration, and to make such determinations and interpretations under, or in
connection with, the Plan as it deems necessary or advisable. The Committee's
decisions shall be final and conclusive with respect to the interpretation of
the Plan and any Option made under it. No member of the Board or the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option granted under it.
The Committee shall select one of its members as chairman, and shall hold
meetings at such time and places as it may determine. The acts of a majority of
the Committee at a meeting at which a quorum is present, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be
valid acts of the Committee.
/S/ 3.2 Powers of Committee.
(a) Subject to the provisions of the Plan, the Committee shall have
authority, in its discretion, to determine those Eligible Individuals who shall
receive Options, the time or times when such Options shall be granted, whether
an Incentive Stock Option or a Nonqualified Stock Option shall be granted, and
the number of shares to be subject to each Option.
(b) The Committee shall determine the terms, restrictions, and
provisions of the agreement relating to each Option, including the period over
which the Option shall vest and such terms, restrictions, and provisions as
shall be necessary to cause certain options to qualify as Incentive Stock
Options. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any Stock Option Agreement, in
such manner and to the extent the Committee shall determine in order to carry
out the purposes of the Plan.
ARTICLE IV
OPTIONS
/S/ 4.1 Eligibility for Options. An Option may be granted to any Eligible
Individual selected by the Committee. In making this selection and in
determining the form of Option and the number of shares of Company Stock subject
to the Option, the Committee may give consideration to the
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functions and responsibilities of the respective Eligible Individual, his or her
present and potential contributions to the success of the Company and Related
Corporations, the value of his or her services to the Company and Related
Corporations, and such other factors deemed relevant by the Committee; provided,
however, that Incentive Stock Options shall not be granted to any Eligible
Individual who is not an employee of the Company or a Related Corporation. The
Committee may provide in an Option that said Option may be exercised only if
certain conditions, as determined by the Committee, are fulfilled.
/S/ 4.2 Shares Available Under the Plan. The Company Stock to be offered
under the Plan pursuant to Options may be authorized but unissued shares or
reacquired shares, and the Company may purchase shares required for this
purpose, from time to time, if it deems such purchase to be advisable. Subject
to adjustment under Section 6.2, no more than 15,000,000 shares of Company Stock
shall be issuable upon exercise of Options. Any shares of Company Stock subject
to an Option which for any reason is cancelled or terminated without having been
exercised shall again be available for the granting of Options; provided,
however, that (i) if an Option is cancelled, the cancelled Option is counted
against the maximum number of shares for which Options may be granted to an
employee, and (ii) if the Option Price is reduced after the date of grant, the
transaction is treated as a cancellation of an Option and the grant of a new
Option for purposes of counting the maximum number of shares for which Options
may be granted to an employee.
ARTICLE V
TERMS OF OPTIONS
/S/ 5.1 Grant of Stock Options. The Committee may, from time to time,
subject to the provisions of the Plan and such terms and conditions as the
Committee may prescribe, grant Options to any Eligible Individual, provided that
Incentive Stock Options shall not be awarded to any Eligible Individual who is
not an employee of the Company or a Related Corporation. Grants of Incentive
Stock Options and Nonqualified Stock Options shall be separate and not in
tandem. The granting of an Option shall not be deemed either to entitle the
Eligible Individual to, or to disqualify the Eligible Individual from, any
participation in any other grant of Options under the Plan.
/S/ 5.2 Period of Option. Options shall be vested and exercisable in such
installments and on such dates as the Committee may specify, provided that the
Committee may accelerate the vesting and/or exercise date of any outstanding
Options, in its discretion, if it deems such acceleration to be desirable, and
provided further that no Option shall be exercisable within the first six months
from the date of grant. Any Option shares, the right to the purchase of which
has accrued, may be purchased at any time up to the expiration or termination of
the Option. Subject to Section 5.5(b) (relating to the grant of Incentive Stock
Options to more-than-10% shareholders), the duration of each Option shall not be
more than ten years from the date of grant.
/S/ 5.3 Stock Option Agreement. Each Option shall be evidenced by a Stock
Option Agreement, in such form and containing such provisions not inconsistent
with the provisions of the Plan as the Committee from time to time shall
approve. Each Stock Option Agreement shall specify whether the Option is an
Incentive Stock Option or Nonqualified Stock Option; provided, however, if the
Option is not designated in the Stock Option Agreement as an Incentive Stock
Option or Nonqualified Stock Option, the Option shall constitute an Incentive
Stock Option if it complies with the terms of section 422 of the Code, and
otherwise, it shall constitute a Nonqualified Stock Option.
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/S/ 5.4 Option Price, Exercise and Payment.
(a) The Option Price of Company Stock under each Option shall be
determined and fixed by the Committee at the time the Option is granted, but,
subject to Section 5.5(b) (relating to the grant of Incentive Stock Options to
more-than-10% shareholders), shall be a price not less than the greater of 100
percent of the Fair Market Value of Company Stock or the par value thereof at
the date such Option is granted.
(b) Options may be exercised from time to time by giving written notice
to the Company, specifying the number of shares to be purchased. No Option may
be exercised for less than 100 shares unless the issue of a lesser number is
enough to exhaust the Option. The notice of exercise shall be accompanied by
payment in full of the Option Price for the shares being purchased.
(c) The Option Price shall be payable in cash or its equivalent, or if
the Committee, in its discretion, so provides in the related Stock Option
Agreement or, in the case of Options which are not Incentive Stock Options, so
determines at or prior to the time of exercise, in whole or in part:
(i) through the transfer to the Company of shares of Company
Stock previously acquired by the Optionee, provided that, unless
otherwise provided in the related Stock Option Agreement, if such
shares of Company Stock were acquired through the exercise of an
Incentive Stock Option and are used to pay the Option Price of an
Incentive Stock Option, such shares have been held by the Optionee for
a period of not less than the holding period described in section
422(a)(1) of the Code on the date of exercise, or if such shares of
Company Stock were acquired through exercise of a Nonqualified Stock
Option or through exercise of an Incentive Stock Option and are used
to pay the Option Price of a Nonqualified Stock Option, such shares
have been held by the Optionee for a period of more than one year on
the date of exercise;
(ii) by delivering a properly executed notice of exercise of
the Option to the Company and a broker, with irrevocable instructions
to the broker promptly to deliver to the Company the amount of sale or
loan proceeds necessary to pay the exercise price of the Option; or
(iii) through the transfer to the Company of any combination of
cash, or its equivalent, and (i) and/or (ii) above.
However, in no event may the Option Price of an Option be paid through the
transfer to the Company of shares of Company Stock newly acquired by the
Optionee upon exercise of such Option.
In the event such Option Price is paid in whole, or in part, with
previously acquired shares of Company Stock, the portion of the Option Price so
paid shall be equal to the value, as of the date of exercise of the Option, of
such shares. The value of such shares shall be equal to the number of such
shares multiplied by the Fair Market Value of such shares on the date of
exercise (or the immediately preceding trading day if the date of exercise is
not a trading day). The Company shall not issue or transfer Company Stock upon
exercise of an Option until the Option Price is fully paid. If the related Stock
Option Agreement so provides, the Optionee may satisfy any amount
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required to be withheld by the Company under applicable federal, state and/or
local tax laws in effect from time to time, by electing to have the Company
withhold a portion of the shares of Company Stock to be delivered for the
payment of such taxes on such terms and conditions as the Stock Option Agreement
specifies.
/S/ 5.5 Limitations on Incentive Stock Options.
(a) The aggregate Fair Market Value (determined as of the date the
Incentive Stock Option is granted) of the Company Stock with respect to which
Incentive Stock Options are exercisable for the first time by an Optionee during
any calendar year (under this Plan and any other plan of the Company) may not
exceed one hundred thousand dollars ($100,000).
(b) If the Optionee owns more than ten percent (10%) of the total
combined voting power of all shares of stock of the Company or of a Related
Corporation at the time an Incentive Stock Option is granted to him or her, the
Option price for the Incentive Stock Option shall be not less than the greater
of (i) one hundred ten percent (110%) of the Fair Market Value of the optioned
shares of Company Stock on the date the Incentive Stock Option is granted, or
(ii) the par value thereof, and such Incentive Stock Option, by its terms, shall
not be exercisable after the expiration of five (5) years from the date the
Incentive Stock Option is granted.
(c) The conditions set forth in this Section 5.5 shall not apply to
Nonqualified Stock Options granted under the Plan.
(d) If an Option intended to be an Incentive Stock Option is granted to
an Eligible Individual and such Option may not be treated in whole or in part as
an Incentive Stock Option pursuant to the limitation in (a) above, such Option
shall be treated as an Incentive Stock Option to the extent it may be so treated
under such limitation, and as a Nonqualified Stock Option as to the remainder.
For purposes of determining whether an Incentive Stock Option would cause such
limitation to be exceeded, Incentive Stock Options shall be taken into account
in the order granted.
/S/ 5.6 Termination of Employment or Service.
(a) If the employment or service as a director or consultant of an
Optionee with the Company and Related Corporations terminates for a reason other
than (i) Cause, (ii) retirement (in the case of an Optionee who is an employee
of the Company or a Related Corporation), (iii) disability (as defined in
section 22(e)(3) of the Code), or (iv) death prior to the expiration date fixed
for his or her Option, such Option may be exercised at any time within three
months after such termination, unless otherwise provided in the related Stock
Option Agreement, to the extent of the number of shares covered by such Option
which were vested and purchasable at the date of such termination, or to any
greater extent permitted by the Committee; provided, however, that an Option
shall not be so exercisable on any date beyond the expiration date of such
Option.
(b) If the employment or service as a director or consultant of an
Optionee with the Company and Related Corporations is terminated by the Company
or a Related Corporation for Cause prior to the expiration date fixed for his or
her Option, such Option shall terminate immediately.
(c) If the employment of an Optionee with the Company and Related
Corporations terminates due to the Optionee's retirement prior to the expiration
date fixed for his or her Option,
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such Option may be exercised at any time within one year following such
retirement, unless otherwise provided in the related Stock Option Agreement, to
the extent of the number of shares covered by such Option which were vested and
purchasable at the date of such retirement, or to any greater extent permitted
by the Committee; provided, however, that an Option shall not be so exercisable
on any date beyond the expiration date of such Option.
(d) If the employment or service as a director or consultant of an
Optionee with the Company and Related Corporations terminates due to the
Optionee's disability (as defined in section 22(e)(3) of the Code) prior to the
expiration date fixed for his or her Option, such Option may be exercised at any
time within one year after such termination, unless otherwise provided in the
related Stock Option Agreement, to the extent of the number of shares covered by
such Option which were vested and purchasable at the date of such termination,
or to any greater extent permitted by the Committee; provided, however, that an
Option shall not be so exercisable on any date beyond the expiration date of
such Option. In the event of the Optionee's legal disability, such Option may be
so exercised by the Optionee's Personal Representative.
(e) Should an Optionee die either while in the employ or while serving
as a director or consultant of the Company and Related Corporations, or after
termination of such employment or service (other than for Cause), the Option
rights of such deceased Optionee may be exercised by his or her Personal
Representative at any time within one year after the Optionee's death, unless
otherwise provided in the related Stock Option Agreement, to the extent of the
number of shares covered by such Option which were vested and purchasable at the
date of such death, or to any greater extent permitted by the Committee;
provided, however, that an Option shall not be so exercisable on any date beyond
the expiration date of such Option.
/S/ 5.7 Shareholder Rights and Privileges. An Optionee shall have no rights
as a shareholder with respect to any shares of Company Stock covered by an
Option until the issuance of a stock certificate to the Optionee representing
such shares.
ARTICLE VI
MISCELLANEOUS PROVISIONS
/S/ 6.1 Nontransferability. No Option shall be transferable otherwise than
by will or, if the Optionee dies intestate, by the laws of descent and
distribution. All Options shall be exercisable during the Optionee's lifetime
only by such Optionee or his or her Personal Representative. Any transfer
contrary to this Section 6.1 shall nullify the Option. If the Optionee is
married at the time of exercise and if the Optionee so requests at the time of
exercise, the certificate or certificates shall be registered in the name of the
Optionee and the Optionee's spouse, jointly, with right of survivorship.
/S/ 6.2 Adjustments Upon Changes in Stock.
(a) The number of shares of Company Stock which may be issued under the
Plan and the maximum number of shares of Company Stock with respect to which
Options may be granted to any Eligible Individual who is an employee of the
Company or a Related Corporation, as stated in Section 4.2 hereof, and the
number of shares issuable upon exercise of outstanding Options under the Plan(as
well as the Option Price per share under such outstanding Options) shall,
subject to the provisions of section 424(a) of the Code, be adjusted, as maybe
deemed appropriate by the
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Committee, to reflect any stock dividend, stock split, share combination, or
similar change in the capitalization of the Company.
(b) In the event of a corporate transaction (as that term is described
in section 424(a) of the Code and the Treasury Regulations issued thereunder as,
for example, a merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation), each outstanding Option shall be
assumed by the surviving or successor corporation or by a parent or subsidiary
of such corporation; provided, however, that, in the event of a proposed
corporate transaction, the Committee may terminate all or a portion of the
outstanding Options if it determines that such termination is in the best
interests of the Company. If the Committee decides to terminate outstanding
Options, the Committee shall give each Optionee holding an Option to be
terminated not less than seven (7) days' notice prior to any such termination by
reason of such a corporate transaction, and any such Option which is to be so
terminated may be exercised (if and only to the extent that it is then
exercisable) up to, and including the date immediately preceding such
termination. Further, as provided in Section 3.2(c) hereof the Committee, in its
discretion, may accelerate, in whole or in part, the date on which any or all
Options become exercisable.
(c) The Committee also may, in its discretion, change the terms of any
outstanding Option to reflect any such corporate transaction; provided, however,
that the Committee may not change the terms of an outstanding Incentive Stock
Option in a manner that would constitute a "modification" under section 424(h)
of the Code without the consent of the Optionee affected thereby.
/S/ 6.3 Amendment, Suspension, and Termination of Plan.
(a) The Board may suspend or terminate the Plan or any portion thereof
at any time, and may amend the Plan from time to time in any respect whatsoever,
except that the following amendments shall require shareholder approval (given
in the manner set forth in (b) below):
(i) With respect to Options which are Incentive Stock Options,
any amendment which would: (A) increase the number of shares of
Company Stock with respect to which Incentive Stock Options may be
granted under the Plan, except as provided in Section 6.2; (B) change
the class of employees eligible to receive Incentive Stock Options
under the Plan; or (C) extend the termination date of the Plan with
respect to any Incentive Stock Options granted hereunder;
(ii) Any amendment which would require shareholder approval
pursuant to Treas. Reg. (S) 1.162-27(e)(4)(vi) or any successor
thereto, if compliance with Treas. Reg. (S) 1.162-27(e) or any
successor thereto is intended; and
(iii) Any amendment for which shareholder approval is required
under the rules of the exchange or market on which the Common Stock is
listed.
Notwithstanding the foregoing, no such amendment, suspension, or termination
shall alter or impair any outstanding Option without the consent of the Optionee
affected thereby.
(b) The approval of shareholders must comply with all applicable
provisions of the corporate charter, bylaws, and applicable state law
prescribing the method and degree of
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shareholder approval required for the issuance of corporate stock or options. If
the applicable state law does not prescribe a method and degree of shareholder
approval in such case, the approval of shareholders must be effected - -
(i) By a method and in a degree that would be treated as
adequate under applicable state law in the case of an action
requiring shareholder approval (i.e., an action on which
shareholders would be entitled to vote if the action were taken
at a duly held shareholders' meeting); or
(ii) By a majority of the votes cast (including abstentions, to
the extent abstentions are counted as voting under applicable
state law) in a separate vote at a duly held shareholders'
meeting at which a quorum representing a majority of all
outstanding voting stock is, either in person or by proxy,
present and voting on the plan.
(c) With the consent of the Optionee affected thereby, the Committee may
amend or modify any outstanding Option in any manner to the extent that the
Committee would have had the authority under the Plan initially to grant such
Option as so modified or amended, including without limitation, to change the
date or dates as of which such Option may be exercised.
/S/ 6.4 Nonuniform Determinations. The Committee's determinations under the
Plan, including without limitation, (i) the determination of the Eligible
Individuals to receive Options, (ii) the form, amount, and timing of such
Options, (iii) the terms and provisions of such Options, and (iv) the agreements
evidencing the same, need not be uniform and may be made by it selectively among
Eligible Individuals who receive, or who are eligible to receive, Options under
the Plan, whether or not such Optionees are similarly situated.
/S/ 6.5 General Restriction. Each Option under the Plan shall be subject to
the condition that, if at any time the Committee shall determine that (i) the
listing, registration, or qualification of the shares of Company Stock subject
thereto upon any securities exchange or under any state or federal law, (ii)the
consent or approval of any government or regulatory body, or (iii) an agreement
by the Optionee with respect thereto, is necessary or desirable, then such
Option shall not become exercisable in whole or in part unless such listing,
registration, qualification, consent, approval, or agreement shall have been
effected or obtained free of any conditions not acceptable to the Committee.
Without limiting the generality of the foregoing, each Optionee or his legal
representative or beneficiary may also be required to give satisfactory
assurance that shares purchased upon exercise of an Option are being purchased
for investment and not with a view to distribution, and certificates
representing such shares may be legended accordingly.
/S/ 6.6 No Right To Employment. Neither the action of the Company in
establishing the Plan, nor any action taken by it or by the Board or the
Committee under the Plan, nor any provision of the Plan, shall be construed as
giving to any person the right to be retained in the employ of the Company or
any Related Corporation.
/S/ 6.7 Governing Law. With respect to any Incentive Stock Options granted
pursuant to the Plan and the related Stock Option Agreements, the Plan, such
Incentive Stock Options, and such related Stock Option Agreements shall be
governed by the applicable Code provisions to the maximum extent possible.
Otherwise, the laws of the State of Delaware shall govern the operation
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of, and the rights of Optionees under, the Plan, Options granted hereunder, and
the related Stock Option Agreements.
/S/ 6.8 Application of Funds. The proceeds received by the Company from the
sale of Company Stock pursuant to Options granted under the Plan shall be used
for general corporate purposes. Any cash received in payment for shares upon
exercise of an Option to purchase Company Stock shall be added to the general
funds of the Company and shall be used for its corporate purposes. Any Company
Stock received in payment for shares upon exercise of an Option to purchase
Company Stock shall become treasury stock.
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