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As filed with the Securities and Exchange Commission on April 11, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MACE SECURITY INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware 03-0311630
(State or other jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
Louis D. Paolino, Jr.
Chief Executive Officer
Mace Security International, Inc.
1000 Crawford Place, Suite 400 1000 Crawford Place, Suite 400
Mt. Laurel, New Jersey 08054 Mt. Laurel, New Jersey 08054
(856) 778-2300 (856) 778-2300
(Address, Including Zip Code, and Telephone Number, (Name, Address, Including Zip Code, and Telephone
Including Area Code, of Registrant's Principal Executive Offices) Number, Including Area Code, of Agent for Service)
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_______________________
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this registration statement, as
determined by market conditions and other factors.
If the only securities being registered on this form are being offered
under dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis under Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering under Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed under Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made under Rule
434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Amount Proposed Maximum Proposed Maximum Amount of
Title of Shares to be Offering Price Aggregate Registration
to be Registered Registered Per Share(1) Offering Price(1) Fee
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Common Stock, $.01 par value 3,285,405 $4.00 $13,141,620 $3,470.00
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(1) Calculated pursuant to Rule 457(c)
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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To be completed, dated April 11, 2000
Prospectus
MACE SECURITY INTERNATIONAL, INC.
UP TO 3,285,405 SHARES OF COMMON STOCK
We have entered into a master facility agreement with Fusion Capital Fund II,
LLC under which Fusion Capital has agreed to enter into up to two identical
equity purchase agreements. Each equity purchase requires that Fusion Capital
purchase up to $12 million worth of our shares of common stock at a price based
upon the future performance of our common stock. At our sole option, we can
require Fusion Capital to enter into one or both equity purchase agreements and
purchase up to $24 million in the aggregate of our common stock.
We estimate that the maximum number of shares we will sell to Fusion Capital
under the first equity purchase agreement is 3,000,000. If more than 3,000,000
shares are issuable to Fusion Capital under this equity purchase agreement, we
have the right and presently intend to terminate the equity purchase agreement
without any payment or liability to Fusion Capital. We have also agreed to
issue an estimated 285,405 additional shares to Fusion Capital as a commitment
fee for entering into the master facility agreement. This prospectus relates to
the offer and sale from time to time by Fusion Capital of up to 3,285,405 of
such shares. Fusion Capital is sometimes referred to in this prospectus as the
selling shareholder. We will not receive any of the proceeds from the sale of
the shares being offered by this prospectus.
We have the right to terminate the equity purchase agreement without any
payment or liability to Fusion Capital. Fusion Capital has agreed not to engage
in any direct or indirect short-selling or hedging of our common stock.
Our common stock is currently traded on The Nasdaq National Market under the
symbol "MACE." The closing price of our common stock on The Nasdaq National
Market on April 6, 2000 was $3.875 per share. We will apply to have the shares
of common stock offered pursuant to this prospectus approved for trading on The
Nasdaq National Market.
These securities involve a high degree of risk. See "Risk Factors" beginning
on page 3 of this prospectus.
The selling shareholder is an "underwriters" within the meaning of the
Securities Act of 1933.
Our principal executive office is located at 1000 Crawford Place, Suite 400,
Mt. Laurel, New Jersey 08054, and our telephone number is (856) 778-2300.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
This prospectus is dated April __, 2000.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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TABLE OF CONTENTS
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Page
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RISK FACTORS................................................... 3
THE COMPANY.................................................... 8
THE FINANCING TRANSACTION...................................... 9
USE OF PROCEEDS................................................ 12
SELLING SHAREHOLDER............................................ 12
CAUTIONARY STATEMENT........................................... 14
PLAN OF DISTRIBUTION........................................... 14
LEGAL OPINION.................................................. 16
EXPERTS........................................................ 16
WHERE YOU CAN FIND MORE INFORMATION............................ 17
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RISK FACTORS
Before you decide to invest, you should consider carefully the risks
described below, together with the information provided in the other parts of
this prospectus. Any or all of these factors or others not mentioned below
could affect our prospects as a whole.
General Risks
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We need to raise additional capital
At December 31, 1999, we had negative working capital of approximately $1.4
million. Our business plan will require significant additional capital to fund
acquisitions and internal development and growth. The aggregate of $24 million
made available by the selling shareholder under the two equity purchase
agreements may be inadequate to our needs.
Under the terms of each equity purchase agreement with Fusion Capital, we
have the right to sell at least $1.5 million per month of our common stock to
Fusion Capital. We have the option to require Fusion Capital to purchase
additional amounts of the common stock each month up to $12 million in the
aggregate. If we receive all $24 million under the two equity purchase
agreements with Fusion Capital, our immediate and near term needs for working
capital would be satisfied. We could in the future need working capital beyond
the $24 million as we continue to fully implement our business, operating and
development plans, to fund acquisitions and internal development and growth.
Our capital requirements also include working capital for daily operations and
significant capital for equipment purchases. To the extent that we lack cash to
meet our further capital needs, we will be required to raise additional funds
through bank borrowings and significant additional equity and/or debt
financings, which may result in significant increases in leverage and interest
expense and/or substantial dilution. We cannot assure you that we will obtain
the necessary financing. If we are unable to raise additional capital, we will
need to substantially reduce the scale of our operations and curtail our
business plan.
We have a history of losses, we have working capital deficits and we may incur
continuing charges
We have reported net losses and working capital deficits in prior fiscal
years and we have recently expended substantial funds for acquisitions and
equipment. In connection with financing acquisitions and business growth, we
anticipate that we will continue to incur significant debt and interest charges.
In addition, we will recognize goodwill amortization charges in connection with
our acquisitions that are accounted for under the "purchase" method of
accounting. The amount of goodwill recognized is the amount by which the
purchase price of a business exceeds the fair market value of the assets
acquired. Goodwill is amortized over a period not to exceed 25 years depending
on the business acquired, resulting in an annual non-cash charge to our earnings
during that period. As we continue to acquire additional businesses, our
financial position and results of operations may fluctuate significantly from
period to period.
Our business plan poses risks for us
Our business objective is to develop and grow a full service, integrated
car care business through acquisitions of car washes and through the internal
development of our car wash facilities by adding gasoline pumps, oil change
facilities and convenience stores to our locations. We have repositioned our
company from a company involved primarily in the production of consumer defense
products to a company that also offers car wash and car care services. This
strategy involves a number of risks, including:
. Risks associated with growth;
. Risks associated with acquisitions;
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. Risks associated with the recruitment and development of management
and operating personnel; and
. Risks associated with lack of experience in the car service
industries.
If we are unable to manage one or more of these associated risks
effectively, we may not realize our business plan.
We have a limited operating history regarding our car wash and car service
businesses
Since July 1999, our main business has been the acquisition and operation
of car wash and car service facilities, which now account for more than half of
our revenues. Because of our relatively limited operating history with respect
to these businesses, we cannot assure you that we will be able to operate them
successfully.
We may not be able to manage growth
If we succeed in growing, growth will place significant burdens on our
management and on our operational and other resources. We will need to attract,
train, motivate, retain and supervise our senior managers and other employees
and develop a managerial infrastructure. If we are unable to do this, we will
not be able to realize our business objectives.
Risks of Acquisitions
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In General. Our strategy to grow in part through acquisitions depends upon
our ability to identify suitable acquisition candidates, and to consummate
acquisitions on financially favorable terms. This strategy involves risks
inherent in assessing acquisition candidates' values, strengths, weaknesses,
risks and profitability and risks related to the financing, integration and
operation of acquired businesses, including:
. adverse short-term effects on our reported operating results;
. diversion of management's attention;
. dependence on hiring, training and retaining key personnel; and
. risks associated with unanticipated problems or latent liabilities.
We cannot assure you that acquisition opportunities will be available, that
we will have access to the capital required to finance potential acquisitions,
that we will continue to acquire businesses, or that any acquired business will
be profitable.
We may not be able to integrate businesses we acquire and achieve operating
efficiencies
We are in the process of combining the businesses and assets that we have
acquired recently into an integrated operating structure. Our future growth and
profitability depend substantially on our ability to operate and integrate
acquired businesses. Our strategy is to achieve economies of scale and brand-
name recognition in part through acquisitions that increase our size. We cannot
assure you that our efforts to integrate acquired operations will be effective
or that we will realize expected results. Our failure to achieve any of these
results could have a material adverse effect on our business and results of
operations.
We face potential liabilities associated with acquisitions of businesses
The businesses we acquire may have liabilities that we do not discover or
may be unable to discover during our preacquisition investigations, including
liabilities arising from environmental contamination or prior owners' non-
compliance with environmental laws or other regulatory requirements, and for
which we, as a successor owner or operator, may be responsible.
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Risks of this Offering
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Our stock price is volatile
Our common stock's market price has been and is likely to continue to be
highly volatile. Factors like fluctuations in our quarterly revenues and
operating results, our ongoing acquisition program, market conditions and
economic conditions generally may impact significantly our common stock's market
price. In addition, as we continue to acquire additional car wash businesses,
we may agree to issue common stock that will become available generally for
resale and may have an impact on our common stock's market price.
The sale of the shares registered in this offering could cause our stock price
to decline
All shares registered in this offering are freely tradable. It is
anticipated that shares registered in this offering will be sold over a period
of up to eight months from the date of this prospectus. We may require the
selling shareholder to purchase a significant number of shares of common stock
under the equity purchase agreement at one time. The sale of a significant
amount of shares registered in this offering at any given time could cause the
trading price of our common stock to decline. Even if our stock price
decreases, we may elect to sell more shares under the equity purchase agreement,
causing more shares to be outstanding and resulting in substantial dilution.
The purchase price under the equity purchase agreement will fluctuate based
on the price of our common stock. See "The Financing Transaction - Conversion
of the Equity Purchase Agreement into Common Stock" for a detailed description
of the purchase price.
If the equity purchase agreement had been fully performed on April 7, 2000,
the purchase price would have been $3.9375 per share and Fusion Capital would
have received 3,000,000 shares of our common stock representing 12.51% of our
outstanding common stock as of April 7, 2000. Therefore, the sale of shares
under the equity purchase agreement may result in substantial dilution to the
interests of other holders of our common stock. Although we have the right to
block sales under the equity purchase agreement if our stock price is below
$7.00, we may still elect to sell shares under the equity purchase agreement.
This would result in more shares being outstanding and could cause substantial
dilution.
Many of our shares are eligible for future sale and are subject to registration
rights which could adversely affect the market price of our Common Stock
Up to 3,285,405 shares offered in this prospectus will be eligible for
resale as described in this prospectus. The market price of our stock could
decline significantly if the holders of these shares sell them or are perceived
by the market as intending to sell them.
Risks of Particular Business Lines
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We face risks associated with our consumer safety products
We face claims of injury allegedly resulting from our defense sprays. We
cannot assure you that our insurance coverage will be sufficient to cover any
judgments won against us in these lawsuits. If our insurance coverage is
exceeded, we will have to pay the excess liability directly. We are also aware
of several claims that defense sprays used by law enforcement personnel resulted
in deaths of prisoners and of suspects in custody. While we no longer sell
defense sprays to law enforcement agencies, it is possible that
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the increasing use of defense sprays by the public could, in the future, lead to
additional product liability claims.
Our car wash business may suffer under certain weather conditions
Seasonal trends in some periods may affect our car wash business. In
particular, long periods of rain can affect adversely our car wash business as
people typically do not wash their cars during such periods. Conversely,
extended periods of warm, dry weather may encourage customers to wash their own
cars which can affect adversely our car wash business.
Consumer demand for our car wash services is unpredictable
Our financial condition and results of operations will depend substantially
on consumer demand for car wash services. Our business depends on consumers
choosing to employ professional services to wash their cars rather than washing
their cars themselves or not washing their cars at all. We cannot assure you
that consumer demand for car wash services will increase as our business
expands. Nor can we assure you that consumer demand will maintain its current
level.
We must maintain our car wash equipment
Although we undertake to keep our car washing equipment in proper operating
condition, the operating environment found in car washes results in frequent
mechanical problems. If we fail to properly maintain the equipment, the car
wash could become inoperable resulting in a loss of revenue to us from the
inoperable location.
Our car wash and car services and consumer safety product businesses face
governmental regulation
Car Wash and Car Service Businesses. We are governed by federal, state and
-----------------------------------
local laws and regulations, including environmental regulations, that regulate
the operation of our car wash centers and other car services businesses. Car
wash centers utilize cleaning agents and waxes in the washing process that are
then discharged in waste water along with oils and fluids washed off of
vehicles. Other car services, such as gasoline and lubrication, use a number of
oil derivatives and other regulated hazardous substances. As a result, we are
governed by environmental laws and regulations dealing with, among other things:
. transportation, storage, presence, use, disposal and handling of
hazardous materials and hazardous wastes;
. discharge of stormwater; and
. underground storage tanks.
If any of the previously mentioned substances were found on our property,
however, including leased properties, or if we were found to be in violation of
applicable laws and regulations, we could be responsible for clean-up costs,
property damage and fines or other penalties, any one of which could have a
material adverse effect on our financial condition and results of operations.
Consumer Safety Products. The distribution, sale, ownership and use of
------------------------
consumer defense sprays are legal in some form in all 50 states and the District
of Columbia. We cannot assure you, however, that restrictions on the
manufacture or use of consumer defense sprays will not be enacted that would
have an adverse impact on our financial condition.
Some of our consumer defense spray manufacturing operations currently
incorporate hazardous materials, the use and emission of which are regulated by
various state and federal environmental protection agencies, including the
Environmental Protection Agency. We believe that we are in compliance currently
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with all state and local statutes governing our disposal of these hazardous
materials, but if there are any changes in environmental permit or regulatory
requirements, or if we fail to comply with any environmental requirements, these
changes or failures may have a material adverse effect on our business and
financial condition.
Additional Risks
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We face significant competition
The extent and kind of competition that we face varies. The car wash
industry is highly competitive. Competition is based primarily on location,
facilities, customer service, available services and rates. Because barriers to
entry into the car wash industry are relatively low, competition may be expected
to continually arise from new sources not currently competing with us. In this
sector of our business we also face competition from outside the car wash
industry, such as gas stations and convenience stores, that offer automated car
wash services. In some cases, these competitors may have significantly greater
financial and operating resources than we do. In our car service businesses, we
face competition from a number of sources, including regional and national
chains, gasoline stations and companies and automotive companies and specialty
stores, both regional and national.
Our operations are dependent substantially on the services of our executive
officers, particularly Louis D. Paolino, Jr.
Our operations are dependent substantially on the services of our executive
officers, particularly Louis D. Paolino, Jr., our Chairman of the Board, Chief
Executive Officer and President. If we lose Mr. Paolino's services or that of
one or more of our other executive officers, the loss could have a material
adverse effect on our business and results of operations. We do not maintain
key-man life insurance policies on our executive officers.
We are controlled by Louis D. Paolino, Jr., giving him a great deal of influence
over our affairs.
Louis D. Paolino, Jr., our President, Chief Executive Officer and Chairman
of our Board of Directors, owns or has the right to vote approximately 32
percent of our outstanding stock, giving him a great deal of influence over our
affairs. Mr. Paolino's influence could affect important functions, including
the election of our Board members and our ability to enter into transactions
with affiliates and related parties and the approval or prevention of any
proposed merger, sale of assets or other business combination. Mr. Paolino's
influence, thus, could prevent us from doing things that would increase our
common stock's price, or force us to do things that could lower our common
stock's price.
Our Preferred Stock may effect the rights of the holders of our common stock and
it may also discourage another person to acquire control of Mace
Our Certificate of Incorporation authorizes the issuance of up to
50,000,000 shares of Preferred Stock. No shares of Preferred Stock are
currently outstanding. It is not possible to state the precise effect of
Preferred Stock upon the rights of the holders of our common stock until the
Board of Directors determines the respective preferences, limitations and
relative rights of the holders of one or more series or classes of the Preferred
Stock. However, such effect might include: (i) reduction of the amount
otherwise available for payment of dividends on Common Stock, to the extent
dividends are payable on any issued shares of Preferred Stock, and restrictions
on dividends on Common Stock if dividends on the Preferred Stock are in arrears,
(ii) dilution of the voting power of the Common Stock to the extent that the
Preferred Stock has voting rights, and (iii) the holders of Common Stock not
being entitled to share in the Company's assets upon liquidation until
satisfaction of any liquidation preference granted to the Preferred Stock.
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The Preferred Stock may be viewed as having the effect of discouraging an
unsolicited attempt by another person to acquire control of Mace and may
therefore have an anti-takeover effect. Issuances of authorized preferred
shares can be implemented, and have been implemented by some companies in recent
years with voting or conversion privileges intended to make an acquisition of
the company more difficult or costly. Such an issuance could discourage or
limit the stockholders' participation in certain types of transactions that
might be proposed (such as a tender offer), whether or not such transactions
were favored by the majority of the stockholders, and could enhance the ability
of officers and directors to retain their positions.
Some provisions of Delaware law may prevent us from being acquired
We are governed by Section 203 of the Delaware General Corporation Law,
which prohibits a publicly held Delaware corporation from engaging in a
"business combination" with a person who is an "interested stockholder" for a
period of three (3) years, unless approved in a prescribed manner. This
provision of Delaware law may affect our ability to merge with, or to engage in
other similar activities with, some other companies. This means that we may be
a less attractive target to a potential acquirer who otherwise may be willing to
pay a price for our common stock above its market price.
We face Year 2000 risks
The Company has completed its Year 2000 remediation plan. Although we
believe our Year 2000 remediation plan was adequate to address the Year 2000
issue and we expect to have no material exposure with respect to information
technology-related systems, the Company is continually acquiring new businesses
and locations, which may require an on-going process to convert, assess and, if
necessary, remediate newly acquired systems. With respect to non-information
technology areas, it is uncertain what risks are associated with the Year 2000
issue and any risks that may be identified could have a material, adverse effect
on the Company's business, financial condition, and results of operations and
cash flows. There can be no assurances that the systems of customers and
vendors on which the Company relies will be converted in a timely manner and
will not have an adverse effect on the Company's systems or operations.
Additionally, the Company's Computer Products and Services operations
develop specialty point of sale and control software for principally the car
care industry. Based on our current assessment, we believe the current versions
of our software products are Year 2000 compliant - that is, they are capable of
adequately distinguishing 21st century dates from 20th century dates. However,
our products are generally integrated into other third party company systems
involving hardware and software products that we cannot adequately evaluate for
Year 2000 compliance. Although we have not been a party to any claims involving
our products or services related to Year 2000 compliance issues, we may in the
future be required to defend our products or services in such claims
proceedings, or to negotiate resolutions of claims based on Year 2000 issues.
We do not expect to pay cash dividends on our common stock
We do not expect to pay any cash dividends on our common stock in the
foreseeable future. We will reinvest any cash otherwise available for dividends
in our business.
THE COMPANY
We were incorporated in Delaware on September 1, 1993, and before July,
1999, our main business was the production and sale of less-than-lethal defense
sprays and other consumer safety and security products. On July 1, 1999, we
merged American Wash Services Inc., a company that was engaged in the business
of acquiring and operating car wash facilities, into a wholly-owned subsidiary
of Mace. On July 9,
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1999, we acquired all the outstanding common stock of Innovative Control
Systems, Inc., a developer of point of sale systems for the car wash and oil
lubrication industries.
Since July 1999, our main business has been the ownership and operation of
full service car wash facilities. Through a separate division, we continue to
produce and sell, both in our car wash facilities and elsewhere, our consumer
safety and personal security products. Through our wholly owned subsidiary,
Innovative Control Systems, Inc., we continue to develop and sell car wash and
oil lubrication point of sale systems.
THE FINANCING TRANSACTION
General
On April 5, 2000 Mace executed a master facility agreement with Fusion
Capital Fund II, LLC pursuant to which Fusion Capital agreed to enter into up to
two equity purchase agreements, each with an aggregate principal amount of
$12,000,000. Each equity purchase agreement grants Fusion Capital the right to
purchase from us shares of common stock up to $12,000,000 at a price equal to
the lesser of (1) 140% of the average of the closing bid prices for our common
stock during the 10 trading days prior to the date of the applicable equity
purchase agreement or $7.00, whichever is greater or (2) a price based upon the
future performance of the common stock, in each case without any fixed discount
to the market price. The equity purchase agreement requires that at the
beginning of each month, Fusion Capital will pay $1 million to Mace as partial
prepayment of the common stock. Once the $1 million has been applied to
purchase shares of our common stock, Fusion Capital will pay the remaining
principal amount upon receipt of our common stock.
The first equity purchase agreement will be executed by Fusion Capital
within five business days after the date of this prospectus. This date is
referred to as the "closing date." The second equity purchase agreement will be
executed after delivery of an irrevocable written notice by us to Fusion Capital
stating that we elect to enter into such purchase agreement with Fusion Capital.
The second equity purchase agreement may be entered into only after the
principal amount under the first equity purchase agreement is fully converted
into Mace's common stock. The obligation of Fusion Capital to enter into both
equity purchase agreements is subject only to customary closing conditions, all
of which are outside the control of Fusion Capital.
Conversion of the Equity Purchase Agreement into Common Stock
Conversions at Fusion Capital's Discretion. Under the equity purchase
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agreement Fusion Capital will purchase shares of our common stock by
"converting" a specified dollar amount of the outstanding principal balance into
common stock. Subject to the limits on conversion and the termination rights
described below, each month during the eight-month term of the equity purchase
agreement Fusion Capital will have the right to convert up to $1.5 million of
the principal amount of the equity purchase agreement, plus any amounts for any
prior month that have not yet been converted, into shares of our common stock at
the applicable conversion price. The conversion price per share is equal to the
lesser of:
- the lowest sale price of our common stock on the day of submission
of a conversion notice by Fusion Capital; or
- the average of the two lowest closing bid prices of our common stock
during the 12 trading days prior to the submission of a conversion notice
by Fusion Capital; or
- the greater of (1) $7.00 or (2) 140% of the average of the closing
bid prices of our common stock for the 10 trading days immediately
preceding the date of the applicable equity
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purchase agreement. This is referred to throughout this prospectus as the
"Fixed Conversion Price." If the equity purchase agreement had been entered
into on April 7, 2000, the Fixed Conversion Price would have been $7.00.
Mace's Right to Prevent Conversions. If the closing sale price of our
-----------------------------------
common stock is below the Fixed Conversion Price for any three consecutive
trading days, we will have the unconditional right to suspend conversions until
the earlier of (1) our revocation of such suspension and (2) when the sale price
of our common stock is above the Fixed Conversion Price.
Mace's Mandatory Conversion Rights. We will have the right to require that
----------------------------------
Fusion Capital convert all or a portion of the principal amount of the equity
purchase agreement during any month. We may revoke, in our sole discretion, our
written request with respect to any conversions in excess of the amount that
Fusion Capital is otherwise permitted to convert.
Limitation on Fusion Capital's Beneficial Ownership. Notwithstanding the
---------------------------------------------------
foregoing, no conversion of the equity purchase agreement will be permitted if
it would result in Fusion Capital or its affiliates beneficially owning more
than 4.99% of our then aggregate outstanding common stock immediately after the
proposed conversion.
Termination rights of Mace
If the closing price of our common stock is below the Fixed Conversion
Price for any 10 consecutive trading days, then we may elect to terminate the
equity purchase agreement without any liability or payment to Fusion Capital.
If more than 3,000,000 shares are issuable to Fusion Capital under the equity
purchase agreement, we presently intend to terminate the equity purchase
agreement without any payment or liability to Fusion Capital.
Change in Control
Upon a change in control of Mace, we may require mandatory conversion of
the equity purchase agreement or, if the market price is below the Fixed
Conversion Price, we may exercise our termination right.
No Short-Selling or Hedging by Fusion Capital
Fusion Capital has agreed that neither it nor its affiliates will engage in
any direct or indirect short-selling or hedging of our common stock during any
time prior to the termination of the master facility agreement.
Events of Default
Generally, Fusion Capital may terminate the equity purchase agreement
without any liability or payment to Mace upon the occurrence of any of the
following events of default:
- if for any reason the shares offered by this prospectus cannot be
sold pursuant to this prospectus for a period of five consecutive trading
days or for more than an aggregate of 10 trading days in any 365-day
period;
- suspension by The Nasdaq National Market of our common stock from
trading for a period of five consecutive trading days or for more than an
aggregate of 10 trading days in any 365-day period;
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- our failure to satisfy any listing criteria of our principal
securities exchange or market for a period of five consecutive trading days
or for more than an aggregate of 45 trading days in any 365-day period;
- (1) notice from us or our transfer agent to the effect that either
of us intends not to comply with a proper request for conversion of the
equity purchase agreement into shares of common stock or (2) our failure to
confirm to the transfer agent Fusion Capital's conversion notice or (3) the
failure of the transfer agent to issue shares of our common stock upon
delivery of a conversion notice;
- if at any time more than 4,845,773 shares of our common stock
(representing 19.99% of our outstanding common stock as of the date of the
master facility agreement) are issuable to Fusion Capital upon conversion
of the equity purchase agreement;
- any material breach of the representations or warranties or
covenants contained in the master facility agreement or any related
agreements which has or which could have a material adverse affect on Mace
or the value of the equity purchase agreement, subject to a cure period of
five trading days;
- a default of any payment obligation of Mace in excess of $1 million;
or
- our participation in insolvency or bankruptcy proceedings by or
against Mace.
Additional Shares Issued to Fusion Capital
Under the terms of the master facility agreement, in connection with the
execution of the first equity purchase agreement, Fusion Capital will receive
additional shares of our common stock as a commitment fee. The shares to be
issued to Fusion Capital will be equal to:
- 8% of $12,000,000, or $960,000, divided by the lower of (1) the
average of the closing price of our common stock for the five consecutive
trading days immediately preceding the trading day that is two trading days
prior to the closing date for the first equity purchase agreement and (2)
$4.2625, the average of the closing price of our common stock for the five
consecutive trading days immediately preceding the date of the master
facility agreement, plus
- 3% of $12,000,000, or $360,000, divided by the lower of (1) the
average of the closing price of our common stock for the five consecutive
trading days immediately preceding the trading day that is two trading days
prior to the closing date for the first equity purchase agreement and (2)
$4.2625, the average of the closing price of our common stock for the five
consecutive trading days immediately preceding the date of the master
facility agreement.
If the closing date for the first equity purchase agreement had been April
7, 2000, Fusion Capital would have received an aggregate of 309,677 shares of
our common stock as a commitment fee. Unless an event of default occurs, these
shares must be held by Fusion Capital until the first equity purchase agreement
has been fully performed.
On the date of the execution of the second equity purchase agreement,
Fusion Capital will be entitled to receive a commitment fee, payable in shares
of common stock, equal to 5% of $12,000,000, or $600,000, divided by the lower
of (1) the average of the closing price of our common stock for the five
consecutive trading days immediately preceding the trading day which is two
trading days prior to the closing date for the second equity purchase agreement
and (2) the average of the closing price of our common stock for the five
consecutive trading days immediately preceding the date we deliver notice of our
election to enter into the second equity purchase agreement.
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No Variable Priced Financings by Mace
So long as any equity purchase agreement is in effect, Mace has agreed not
to issue, or enter into any agreement with respect to the issuance of, any
variable priced equity or variable priced equity-like securities unless it has
obtained Fusion Capital's prior written consent.
USE OF PROCEEDS
We will not receive any of the proceeds from the shares sold by the
selling shareholders nor will any of the proceeds be available for our use or
otherwise for our benefit. We are registering the shares for sale to provide
the selling shareholder with freely tradable securities, but the registration of
these shares does not necessarily mean that any of these shares will be offered
or sold by the selling shareholder.
SELLING SHAREHOLDER
The selling shareholder is Fusion Capital Fund II, LLC. Prior to the date
of this prospectus, Fusion Capital did not own or have any interest in any
shares of our common stock. Within five business days after the date of this
prospectus, pursuant to the master facility agreement dated April 5, 2000,
Fusion Capital will enter into an equity purchase agreement for $12,000,000.
Mechanics of Conversion of Equity Purchase Agreement
Each month a portion of the equity purchase agreement may be converted into
shares of our common stock. The conversion price of the equity purchase
agreement is described in detail under the heading "The Financing Transaction--
Conversion of the Equity Purchase Agreement into Common Stock."
The following table sets forth the number of shares of our common stock
that would be issuable to Fusion Capital upon conversion of the equity purchase
agreement at varying conversion prices:
<TABLE>
<CAPTION>
Number of Shares to be Issued
Upon a Full Conversion of the Percent of our Common Stock
Assumed Conversion Price First Equity Purchase Agreement Outstanding as of April 7, 2000/1/
- ---------------------------- ------------------------------- ----------------------------------
<S> <C> <C>
$ 3.00 3,000,000/2/ 12.51%
$3.9375, the conversion on April 7, 2000 3,000,000/2/ 12.51%
$ 4.00 3,000,000 12.51%
$ 5.00 2,400,000 10.01%
$7.00, the lowest fixed conversion price 1,714,286 7.15%
$ 10.00 1,200,000 5.00%
</TABLE>
_____________________________
/1/ As of the date of this prospectus, there were 23,984,318 shares of our
common stock outstanding.
/2/ We originally estimated that we would issue no more than 3,000,000 shares to
Fusion Capital upon conversion of the equity purchase agreement, all of which
are included in this offering. If more than 3,000,000 shares are issuable to
Fusion Capital under the equity purchase agreement, we have the right to, and
presently intend to, terminate the equity purchase agreement without any payment
or liability to Fusion Capital.
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Effect of Performance of Equity Purchase Agreement on Mace and Our Shareholders
If the first equity purchase agreement were fully performed on April 7,
2000, the conversion price would have been $3.9375 per share and Fusion Capital
would have received an aggregate of 3,000,000 shares of our common stock,
representing 12.51% of our outstanding common stock.
All shares registered in this offering are freely tradable. It is
anticipated that shares registered in this offering will be sold over a period
of up to eight months from the date of this prospectus. The sale of a
significant amount of shares registered in this offering at any given time could
cause the trading price of our common stock to decline and to be highly
volatile. Fusion Capital may ultimately convert the entire equity purchase
agreement into common stock, and it may sell all of the shares of common stock
it acquires upon conversion. Therefore, the conversion of the equity purchase
agreement may result in substantial dilution to the interests of other holders
of our common stock. However, we have the right to block conversions of the
equity purchase agreement and to require termination of the equity purchase
agreement. We currently intend to exercise these rights to protect our
shareholders from substantial dilution. See "The Financing Transaction."
Mace's Ability to Restrict Conversion
The equity purchase agreement provides that we may restrict conversion of
the equity purchase agreement if the closing sale price of our common stock is
below the Fixed Conversion Price for any three consecutive trading days. We
currently intend to so restrict conversion to the extent practicable, so that
our shareholders would be protected from substantial dilution. Investors should
be aware, however, that to the extent Mace needs to use the cash proceeds of the
equity purchase agreement for working capital or other business purposes, we
will not restrict conversion of the equity purchase agreement.
Adjustment to Conversion Price
The conversion price of the equity purchase agreement will be adjusted for
any reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction occurring during the ten trading days in which the closing
bid price is used to compute the conversion price.
Additional Shares to be Issued to Fusion Capital
Under the terms of the master facility agreement, in connection with the
execution of the first equity purchase agreement, Fusion Capital will receive
additional shares of our common stock as a commitment fee. The shares to be
issued to Fusion Capital will be equal to:
- 8% of $12,000,000, or $960,000, divided by the lower of (1) the
average of the closing price of our common stock for the five consecutive
trading days immediately preceding the trading day that is two trading days
prior to the closing date for the first equity purchase agreement and (2)
$4.2625, the average of the closing price of our common stock for the five
consecutive trading days immediately preceding the date of the master
facility agreement, plus
- 3% of $12,000,000, or $360,000, divided by the lower of (1) the
average of the closing price of our common stock for the five consecutive
trading days immediately preceding the trading day that is two trading days
prior to the closing date for the first equity purchase agreement and (2)
$4.2625, the average of the closing price of our common stock for the five
consecutive trading days immediately preceding the date of the master
facility agreement.
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<PAGE>
If the closing date for the first equity purchase agreement had been April
7, 2000, Fusion Capital would have received an aggregate of 309,677 shares of
our common stock as a commitment fee. Unless an event of default occurs, these
shares must be held by Fusion Capital until the first equity purchase agreement
has been fully performed.
On the date of the execution of the second equity purchase agreement,
Fusion Capital will be entitled to receive a commitment fee, payable in shares
of common stock, equal to 5% of $12,000,000, or $600,000, divided by the lower
of (1) the average of the closing price of our common stock for the five
consecutive trading days immediately preceding the trading day which is two
trading days prior to the closing date for the second equity purchase agreement
and (2) the average of the closing price of our common stock for the five
consecutive trading days immediately preceding the date we deliver notice of our
election to enter into the second equity purchase agreement.
The number of additional shares issued to Fusion Capital will be adjusted
for any reorganization, recapitalization, non-cash dividend, stock split or
other similar transaction occurring during the five trading days prior to the
day Fusion Capital receives the commitment fee shares.
Relationship Between Mace and Fusion Capital
Fusion Capital has had no business or financial relationship with Mace
prior to entering into the master facility agreement on April 5, 2000. Under
the master facility agreement, Mace agreed to issue to Fusion Capital, and
Fusion Capital agreed to enter into with Mace, up to two equity purchase
agreements in the aggregate principal amount of $12 million each.
Notwithstanding the limitations on ownership set forth in the equity purchase
agreement, if the entire first equity purchase agreement was converted into
shares of common stock at a conversion price equal to $3.9375 per share,
representing an assumed conversion price computed as if the equity purchase
agreement were fully converted on April 7, 2000, Fusion Capital would
beneficially own 12.51% of our outstanding common stock as of April 7, 2000.
Holdings of Fusion Capital Upon Termination of This Offering
Because the selling shareholder may sell all, some or none of the common
stock offered by this prospectus, no estimate can be given as to the amount of
common stock that will be held by the selling shareholder upon termination of
the offering.
CAUTIONARY STATEMENT
In this prospectus and in reports we incorporate in this prospectus, we
use forward-looking terminology such as "may," "will," "should," "expect,"
"anticipate," "estimate," "plan," or "continue," or the negative of the terms or
other variations on the terms, or comparable terminology, which are referred to
under the securities laws as "forward-looking statements."
Our forward-looking statements are affected by known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to differ materially from the results, performance and
achievements that our forward-looking statements express or imply. We discuss
some, but not all, of these risks, uncertainties and factors in this prospectus.
We disclaim any obligation to update this discussion or to announce publicly the
result of any revisions to any of the forward-looking statements contained in
this prospectus, however, to reflect future events or developments.
PLAN OF DISTRIBUTION
The common stock offered by this prospectus is being offered by the selling
shareholder, Fusion Capital Fund II, LLC. The common stock may be sold or
distributed from time to time by the selling
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shareholder, or by donees or transferees of, or other successors in interests
to, the selling shareholder, directly to one or more purchasers or through
brokers, dealers or underwriters who may act solely as agents or may acquire
such common stock as principals, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at negotiated prices,
or at fixed prices, which may be changed. The sale of the common stock offered
by this prospectus may be effected in one or more of the following methods:
- ordinary brokers' transactions;
- transactions involving cross or block trades or otherwise on the
Nasdaq National Market;
- purchases by brokers, dealers or underwriters as principal and
resale by such purchasers for their own accounts pursuant to this
prospectus;
- "at the market" to or through market makers or into an existing
market for the common stock;
- in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through
agents;
- in privately negotiated transactions; or
- any combination of the foregoing.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed brokers
or dealers. In addition, in certain states, the shares may not be sold unless
they have been registered or qualified for sale in such state or an exemption
from such registration or qualification requirement is available and complied
with.
Brokers, dealers, underwriters or agents participating in the
distribution of the shares as agents may receive compensation in the form of
commissions, discounts or concessions from the selling shareholder and/or
purchasers of the common stock for whom such broker-dealers may act as agent, or
to whom they may sell as principal, or both. The compensation paid to a
particular broker-dealer may be less than or in excess of customary commissions.
The selling shareholder is an "underwriter" within the meaning of the
Securities Act of 1933. Any broker-dealers who act in connection with the sale
of the shares hereunder may be deemed to be "underwriters" within the meaning of
the Securities Act, and any commissions they receive and proceeds of any sale of
the shares may be deemed to be underwriting discounts and commissions under the
Securities Act.
Neither Mace nor the selling shareholder can presently estimate the amount
of compensation that any agent will receive. Mace knows of no existing
arrangements between any selling shareholder, any other shareholder, broker,
dealer, underwriter or agent relating to the sale or distribution of the shares.
At a time particular offer of shares is made, a prospectus supplement, if
required, will be distributed that will set forth the names of any agents,
underwriters or dealers and any compensation from the selling shareholder and
any other required information.
Mace will pay all of the expenses incident to the registration, offering
and sale of the shares to the public other than commissions or discounts of
underwriters, broker-dealers or agents. Mace has also agreed to indemnify the
selling shareholder and related persons against specified liabilities, including
liabilities under the Securities Act.
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<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Mace, Mace
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore,
unenforceable.
FUSION CAPITAL AND ITS AFFILIATES HAVE AGREED NOT TO ENGAGE IN ANY DIRECT
OR INDIRECT SHORT SELLING OR HEDGING OF MACE'S COMMON STOCK DURING THE TERM OF
THE EQUITY PURCHASE AGREEMENT.
Mace has advised the selling shareholder that while they are engaged in a
distribution of the shares included in this prospectus they are required to
comply with Regulation M promulgated under the Securities Exchange Act of 1934,
as amended. With certain exceptions, Regulation M precludes the selling
shareholder, any affiliated purchasers, and any broker-dealer or other person
who participates in such distribution from bidding for or purchasing, or
attempting to induce any person to bid for or purchase any security which is the
subject of the distribution until the entire distribution is complete.
Regulation M also prohibits any bids or purchases made in order to stabilize the
price of a security in connection with the distribution of that security. All of
the foregoing may affect the marketability of the shares offered hereby this
prospectus.
This offering will terminate on the earlier of (1) the date on which the
shares are eligible for resale without restrictions pursuant to Rule 144(k)
under the Securities Act or (2) the date on which all shares offered by this
prospectus have been sold by the selling shareholder.
LEGAL OPINION
Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania, will issue for us
an opinion on the validity of the shares being offered by this prospectus.
EXPERTS
The consolidated financial statements of Mace Security International,
Inc. as of December 31, 1999, and for the year then ended appearing in Mace's
annual report on Form 10-KSB, which is incorporated by reference herein, have
been audited by Grant Thornton LLP, independent auditors, as set forth in their
report thereon included therein and incorporated by reference herein. Such
financial statements are incorporated by reference herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Mace Security International,
Inc. as of December 31, 1998, and for the year then ended appearing in Mace's
annual report on Form 10-KSB, which is incorporated by reference herein, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated by reference herein which, as
for the year in the period ended December 31, 1998, is based in part on the
reports of D. Williams & Co., P.C., Daniel P. Irwin and Associates, P.C. and
Urbach Kahn & Werlin PC, independent auditors. The financial statements
referred to above are incorporated by reference in reliance upon such reports
given on the authority of such firms as experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
The Securities Exchange Act of 1934 requires us to file reports, proxy
statements and other information with the Securities and Exchange Commission.
Our reports, proxy statements and other information may be copied and inspected
at the Securities and Exchange Commission's Public Reference Facilities, which
are in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Securities and Exchange Commission's following regional offices: 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of the material can be
obtained from the Securities and Exchange Commission's Public Reference Section,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, by calling
1-800-SEC-0300. The Securities and Exchange Commission also maintains an
Internet web site at http://www.sec.gov that contains reports, proxy statements
and other information.
We filed with the Securities and Exchange Commission a registration
statement on Form S-3 under the Securities Act which registered the shares
covered by this prospectus for resale by the Registered Stockholders. This
prospectus is a part of the registration statement. This prospectus does not
contain all of the information shown in the registration statement because we
have omitted some portions of the prospectus as permitted by the Securities and
Exchange Commission's rules and regulations. Statements contained in this
prospectus as to any contract or other documents' contents are not necessarily
complete. In each instance, if the contract or document is filed as an exhibit
to the registration statement, the affected statement is qualified, in all
respects, by reference to the applicable exhibit to the registration statement.
For further information about us and our shares, we refer you to the
registration statement and the exhibits and schedules that you may obtain from
the Securities and Exchange Commission at its principal office in Washington,
D.C. after you pay the Securities and Exchange Commission's prescribed fees.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to these documents. The
information we have incorporated by reference is an important part of this
prospectus, and information that we file later with the Securities and Exchange
Commission will update and supersede automatically this information. We
incorporate by reference the following documents, which we have filed already
with the Securities and Exchange Commission, and any future filings we make with
the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act until the Registered Stockholders sell all of the shares:
1. Our Annual Report on Form 10-KSB for the year ended December 31,
1999.
2. Our following Current Reports on Form 8-K:
(a) Form 8-K dated December 29, 1999, as amended on March 9,
2000;
(b) Form 8-K dated January 10, 2000, as amended on February 11,
2000; and
(c) Form 8-K dated March 24, 2000.
3. The description of Mace's common stock contained in the Registration
Statement on Form 8-A (File No. 0-22810) filed by Mace to register such
securities under the Securities Exchange Act of 1934, including all amendments
and reports filed to update such description.
You should rely only on the information we include or incorporate by
reference in this prospectus and any applicable prospectus supplement. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. The information contained in this prospectus or
the applicable prospectus supplement is accurate only as of the date on the
front of those documents, regardless
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<PAGE>
of the time of delivery of this prospectus or the applicable prospectus
supplement or of any sale of our securities.
Any statement contained in this prospectus or in a document incorporated
or deemed to be incorporated by reference in this prospectus is deemed to be
modified or superseded for purposes of this prospectus to the extent that any of
the following modifies or supersedes a statement in this prospectus or
incorporated by reference in this prospectus:
. in the case of a statement in a previously filed document incorporated
or deemed to be incorporated by reference in this prospectus, a statement
contained in this prospectus;
. a statement contained in any accompanying prospectus supplement
relating to a specific offering of shares; or
. a statement contained in any other subsequently filed document that is
also incorporated or deemed to be incorporated by reference in this
prospectus.
Any modified or superseded statement will not be deemed to constitute a
part of this prospectus or any accompanying prospectus supplement, except as
modified or superseded. Except as provided by the above mentioned exceptions,
all information appearing in this prospectus and each accompanying prospectus
supplement is qualified in its entirety by the information appearing in the
documents incorporated by reference.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, after their written or oral request, a copy of any or
all of the documents incorporated in this prospectus by reference, other than
exhibits to the documents, unless the exhibits are incorporated specifically by
reference in the documents. Written requests for copies should be addressed to
Louis D. Paolino, Jr., Chief Executive Officer, Mace Security International,
Inc., 1000 Crawford Place, Suite 400, Mt. Laurel, New Jersey 08054.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses payable by us in
connection with this registration statement:
Securities and Exchange Commission Registration Fee...... $ 3,470
Accounting Fees and Expenses............................. $ 10,000
Legal Fees and Expenses.................................. $ 25,000
Miscellaneous Expenses................................... $ 10,000
Total.................................................... $ 48,470
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
We are organized under the laws of the State of Delaware. Section 145 of
the Delaware General Corporation Law permits a Delaware corporation to indemnify
any person who is a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative, other than an action by or in the
right of the corporation, by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise. A corporation may similarly indemnify the
person in the case of actions or suits brought by or in the right of the
corporation, except, unless otherwise ordered by the court, that no
indemnification will be made in respect of any claim, issue or matter as to
which the person will have been adjudged to be liable to the corporation.
A corporation may indemnify the person against expenses including
attorneys' fees, and judgments, fines and amounts paid in settlement actually
and reasonably incurred by the person in connection with the action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Any indemnification will be made by the corporation only
as authorized in the specific case upon a determination that indemnification is
proper in the circumstances because the person has met the aforesaid standard of
conduct. The determination will be made:
(1) by a majority vote of the directors who were not parties to the
action, suit, or proceeding, whether or not a quorum;
(2) if no directors were parties, or if the directors so direct, by
independent legal counsel in a written opinion; or
(3) by the stockholders.
To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits, or otherwise, in defense of any claim, issue
or matter therein, the person will be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred in connection with the
defense. The statute also provides that it is not exclusive of any other rights
to which those seeking indemnification may be entitled under any bylaws,
agreement, vote of stockholders or disinterested
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directors, or otherwise. Our By-Laws provide for the indemnification of our
directors and officers to the fullest extent permitted by law and requires
advancement of expenses.
Section 102(b)(7) of the Delaware General Corporation Law allows a Delaware
corporation to limit or eliminate the personal liability of directors to the
corporation and its stockholders for monetary damages for breach of fiduciary
duty as a director. However, this provision excludes any limitation on
liability:
(1) for any breach of the director's duty of loyalty to the corporation or
its stockholders;
(2) for acts or omissions not in good faith or which involved intentional
misconduct or a knowing violation of law;
(3) for intentional or negligent payment of unlawful dividends or stock
purchases or redemptions; or
(4) for any transaction from which the director derived an improper
benefit.
Moreover, while this provision provides directors with protection against
awards for monetary damages for breach of their duty of care, it does not
eliminate the duty. Accordingly, this provision will have no effect on the
availability of equitable remedies such as an injunction or rescission based on
a director's breach of his or her duty of care. Finally, this provision applies
to an officer of a corporation only if he or she is a director of the
corporation and is acting in his or her capacity as director, and does not apply
to officers of the corporation who are not directors.
Our Certificate of Incorporation does not provide for the limitation on
liability permitted by Section 102(b)(7). We maintain directors and officers'
liability insurance.
To the extent indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, or persons controlling us under the
above mentioned provisions, we have been informed that in the Securities and
Exchange Commission's opinion the indemnification is against public policy as
expressed in that Act and is therefore unenforceable.
ITEM 16. EXHIBITS.
The following Exhibits are filed as part of this registration statement:
Exhibit Number Document
- -------------- --------
4.1 Form of Equity Purchase Agreement to be issued by Mace
to Fusion Capital (included as Exhibit A to Master
Facility Agreement in Exhibit 10.1)
5.1 Opinion of Drinker Biddle & Reath LLP
10.1 Master Facility Agreement, dated as of April 5, 2000,
between Mace and Fusion Capital
23.1 Consent of Grant Thornton LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Urbach Kahn & Werlin PC
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23.4 Consent of D. Williams & Co., P.C.
23.5 Consent of Daniel P. Irwin and Associates, P.C.
23.6 Consent of Drinker Biddle & Reath LLP (included in
Exhibit 5)
24 Power of Attorney (included in signature page)
ITEM 17. UNDERTAKINGS.
(a) The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any additional or changed material information
on the plan of distribution;
provided, however that the undertakings set forth in paragraphs
-------- -------
(1)(i) and (1)(ii) do not apply if the information required to be
included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions permitted under Item 15
above or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as
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expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such director, officer or
controlling person in connection with the securities being registered hereby,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Form S-3
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Mt. Laurel, New Jersey on April 11 2000.
MACE SECURITY INTERNATIONAL, INC.
By: /s/ Louis D. Paolino, Jr.
-------------------------
Louis D. Paolino, Jr.
Chairman of the Board, Chief Executive Officer and
President
Date: April 11, 2000
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below hereby constitutes and appoints Gregory M. Krzemien his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto such attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary in connection with such matters and hereby ratifying and
confirming all that such attorney-in-fact and agent or his substitutes may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Louis D. Paolino, Jr. April 11, 2000
- -------------------------
Louis D. Paolino, Jr. Chief Executive Officer,
Chairman of the Board and President
/s/ Gregory M. Krzemien April 11, 2000
- -----------------------
Gregory M. Krzemien Chief Financial Officer
and Treasurer
/s/ Ronald R. Pirollo April 11, 2000
- ---------------------
Ronald R. Pirollo Chief Accounting Officer
And Controller
/s/ Jon E. Goodrich April 11, 2000
- -------------------
Jon E. Goodrich Director
/s/ Robert M. Kramer April 11, 2000
- --------------------
Robert M. Kramer Director
/s/ Matthew J. Paolino April 11, 2000
- ----------------------
Matthew J. Paolino Director
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Constantine N. Papadakis April 11, 2000
- ----------------------------
Constantine N. Papadakis Director
/s/ Richard B. Muir April 11, 2000
- -------------------
Richard B. Muir Director
/s/ Mark S. Alsentzer April 11, 2000
- ---------------------
Mark S. Alsentzer Director
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
Exhibit Number Document
- -------------- --------
4.1 Form of Equity Purchase Agreement to be issued by Mace
to Fusion Capital (included as Exhibit A to Master Facility
Agreement in Exhibit 10.1)
5.1 Opinion of Drinker Biddle & Reath LLP
10.1 Master Facility Agreement, dated as of April 5, 2000,
between Mace and Fusion Capital
23.1 Consent of Grant Thornton LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Urbach Kahn & Werlin PC
23.4 Consent of D. Williams & Co., P.C.
23.5 Consent of Daniel P. Irwin and Associates, P.C.
23.6 Consent of Drinker Biddle & Reath LLP
(included in Exhibit 5)
24 Power of Attorney (included in signature page)
II-7
<PAGE>
Exhibit 5.1
OPINION OF DRINKER BIDDLE & REATH LLP
April 11, 2000
Mace Security International, Inc.
1000 Crawford Place, Suite 400
Mt. Laurel, New Jersey 08054
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Mace Security International, Inc., a
Delaware corporation (the "Company"), in connection with the preparation and
filing of a registration statement on Form S-3 (Registration No. 333-_____) (the
"Registration Statement"), under the Securities Act of 1933, as amended (the
"Securities Act"), registering up to 3,285,405 shares of the Company's Common
Stock, par value $.01 per share (the "Outstanding Shares"), for resale by the
selling stockholder (as defined in the Registration Statement).
For purposes of this opinion, we have examined the originals or
copies, certified or otherwise identified to our satisfaction, of the Company's
Certificate of Incorporation and Bylaws, each as amended to date, resolutions
adopted by the Company's Board of Directors and the other agreements,
instruments, documents and records relating to the Company and the issuance of
the Outstanding Shares as we have deemed appropriate. In all examinations, we
have assumed the legal capacity of each natural person signing any of the
documents and corporate records relating to the Company, the genuineness of
signatures, the authenticity of documents submitted to us as originals, the
conformity to authentic original documents of documents submitted to us as
copies and the accuracy and completeness of all records and other information
made available to us by the Company. As to various questions of fact material
to our opinion, we have relied on representations of officers of the Company.
We express no opinion concerning the laws of any jurisdiction other
than the General Corporation Law of the State of Delaware.
On the basis of the foregoing, we are of the opinion that the
Outstanding Shares have been validly issued and are fully paid and non-
assessable by the Company.
We hereby consent to the reference to our firm under the caption
"Legal Opinion" in the Prospectus and to the filing of this opinion as an
exhibit to the Registration Statement. In giving this consent, we do not admit
that we come within the categories of persons whose consent is required under
Section 7 of the Securities Act.
Very truly yours,
/s/ Drinker Biddle & Reath LLP
------------------------------
DRINKER BIDDLE & REATH LLP
<PAGE>
Exhibit 10.1
EXECUTION COPY
--------------
MASTER FACILITY AGREEMENT
MASTER FACILITY AGREEMENT (the "Agreement"), dated as of April 5,
2000, by and between MACE SECURITY INTERNATIONAL, INC., a Delaware corporation
(the "Company"), and FUSION CAPITAL FUND II, LLC (together with its assigns, the
"Buyer").
WHEREAS:
Subject to the terms and conditions set forth herein, the Company has
authorized entering into with the Buyer of up to two Equity Purchase Agreements
(each an "Equity Purchase Agreement" and collectively the "Equity Purchase
Agreements"), substantially in the form attached hereto as Exhibit A, with each
---------
Equity Purchase Agreement having an aggregate principal amount of Twelve Million
Dollars ($12,000,000). The principal amount of each Equity Purchase Agreement
shall be convertible into shares of the Company's common stock, par value $.01
per share (the "Common Stock") (as converted, the "Conversion Shares"), in
accordance with the terms of each Equity Purchase Agreement.
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. ENTRY INTO EQUITY PURCHASE AGREEMENTS.
-------------------------------------
a. Execution and Delivery of the Equity Purchase Agreements. Subject
--------------------------------------------------------
to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, the Company and the Buyer agree as follows: (i) the execution and
delivery of the first Equity Purchase Agreement to be entered into under this
Agreement (the "First Equity Purchase Agreement") shall take place within five
(5) Trading Days (as defined in the last sentence of this Section 1(a)) of the
date that the Registration Statement on Form S-3 referred to in the first
sentence of Section 4(a) hereof is declared effective under the Securities Act
of 1933 (the "1933 Act") by the United States Securities and Exchange Commission
(the "SEC") (the "First Closing"); and (ii) the execution and delivery of the
second Equity Purchase Agreement to be entered into under this Agreement (the
"Second Equity Purchase Agreement") shall take place within five (5) Trading
Days of the date that the Registration Statement on Form S-3 referred to in the
second sentence of Section 4(a) hereof is declared effective under the 1933 Act
by the SEC (the "Second Closing") (each such execution and delivery of a Equity
Purchase Agreement, a "Closing"). It is agreed and acknowledged by the parties
hereto that entering into the Second Equity Purchase Agreement shall be at the
option of the Company in its sole discretion until such time as the Company
shall have delivered an irrevocable written notice (a "Second Closing Notice")
to the Buyer stating that the Company elects to enter into the Second Equity
Purchase Agreement under the terms and conditions provided herein. The Second
Equity Purchase Agreement may not be entered into until the aggregate principal
amount of the First Equity Purchase Agreement is fully converted into Common
Stock. The Buyer is not obligated to enter into the Second Equity Purchase
Agreement unless the Company has delivered the Second Closing Notice prior to
the date that is ten (10) Trading Days following the date on which the aggregate
principal amount of the First Equity Purchase Agreement is fully converted into
Common Stock. Upon delivery of the Second Closing Notice to the Buyer, subject
to the satisfaction
<PAGE>
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall be obligated to enter into, and the Buyer shall be obligated to enter into
the Second Equity Purchase Agreement. For purposes of this Agreement, "Trading
Day" shall mean any day on which the Principal Market (as defined in Section
4(d) hereof) is open for customary trading.
b. Closing Dates. The date of each Closing (each a "Closing Date")
-------------
shall be within five (5) Trading Days following the date of satisfaction (or
waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or
such later date as is mutually agreed to by the Company and the Buyer) with
respect to the Closing of each Equity Purchase Agreement.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
--------------------------------------
The Buyer represents and warrants to the Company that:
a. Investment Purpose. The Buyer (i) is entering into the Equity
------------------
Purchase Agreements and acquiring the Commitment Shares (as defined in Section
7(b)) (collectively referred to herein as the "Securities"), for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof; provided however, by making the
representations herein, the Buyer does not agree to hold any of the Securities
for any minimum or other specific term.
b. Accredited Investor Status. The Buyer is an "accredited investor"
--------------------------
as that term is defined in Rule 501(a)(3) of Regulation D.
c. Reliance on Exemptions. The Buyer understands that the Commitment
----------------------
Shares are being offered and sold to it in reliance on specific exemptions from
the registration requirements of United States federal and state securities laws
and that the Company is relying in part upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Commitment Shares.
d. Information. The Buyer has been furnished with all materials
-----------
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities which have been requested by
the Buyer. The Buyer understands that its investment in the Securities involves
a high degree of risk. The Buyer (i) is able to bear the economic risk of an
investment in the Securities including a total loss, (ii) has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the proposed investment in the Securities and (iii) has
had an opportunity to ask questions of and receive answers from the officers of
the Company concerning the financial condition and business of the Company and
others matters related to an investment in the Securities. Neither such
inquiries nor any other due diligence investigations conducted by the Buyer or
its representatives shall modify, amend or affect the Buyer's right to rely on
the Company's representations and warranties contained in Section 3 below. The
Buyer has sought such accounting, legal and tax advice as it has considered
necessary to make an informed investment decision with respect to its
acquisition of the Securities.
2
<PAGE>
e. No Governmental Review. The Buyer understands that no United
----------------------
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. The Buyer understands that except as provided
------------------
in the Registration Rights Agreement (as defined in Section 6(a) hereof): (i)
the Securities have not been and are not being registered under the 1933 Act or
any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder or (B) an exemption
exists permitting such Securities to be sold, assigned or transferred without
such registration; (ii) any sale of the Securities made in reliance on Rule 144
may be made only in accordance with the terms of Rule 144 and further, if Rule
144 is not applicable, any resale of the Securities under circumstances in
which the seller (or the person through whom the sale is made) may be deemed to
be an underwriter (as that term is defined in the 1933 Act) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder.
g. Validity; Enforcement. This Agreement has been duly and validly
---------------------
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable against the Buyer in accordance with
its terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
h. Residency. The Buyer is a resident of the State of Illinois.
---------
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to the Buyer that:
a. Organization and Qualification. The Company and its
------------------------------
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns 50% or more of the voting stock or
capital stock or other similar equity interests) are corporations duly organized
and validly existing in good standing under the laws of the jurisdiction in
which they are incorporated, and have the requisite corporate power and
authority to own their properties and to carry on their business as now being
conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing could not reasonably be expected to have a
Material Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on any of: (i) the
3
<PAGE>
business, properties, assets, operations, results of operations or financial
condition of the Company and its Subsidiaries, if any, taken as a whole, (ii)
the value of the Common Stock or the value of, or security for, any Equity
Purchase Agreement, (iii) on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith or (iv) on
the authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined in Section 2(b) hereof).
b. Authorization; Enforcement; Validity. (i) The Company has the
------------------------------------
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Equity Purchase Agreements and the
Registration Rights Agreements (as defined in Section 6(a) hereof) and each of
the other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof and
thereof, (ii) the execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation, the issuance of the Commitment Shares and
the reservation for issuance and the issuance of the Conversion Shares issuable
upon conversion of the Equity Purchase Agreements, have been duly authorized by
the Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors or its shareholders, (iii) this
Agreement has been, and each other Transaction Document shall be at its
respective Closing, duly executed and delivered by the Company and (iv) this
Agreement constitutes, and each other Transaction Document shall constitute as
of its respective Closing, the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.
c. Capitalization. As of the date hereof, the authorized capital
--------------
stock of the Company consists of (i) 200,000,000 shares of Common Stock, of
which as of the date hereof, 24,240,984 shares are issued and outstanding,
256,666 are held as treasury shares, 15,175,290 shares are reserved for issuance
pursuant to the Company's stock option plan and 2,170,464 shares are issuable
and reserved for issuance pursuant to securities (other than the Equity Purchase
Agreements or stock options issued pursuant to the Company's stock option plan)
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(ii) 50,000,000 shares of preferred stock of which as of the date hereof no
shares are issued and outstanding. All of such outstanding shares have been, or
upon issuance will be, validly issued and are fully paid and nonassessable.
Except as disclosed in Schedule 3(c), (i) no shares of the Company's capital
-------------
stock are subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company, (ii) there are no
outstanding debt securities, (iii) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, (iv) there are no agreements or
4
<PAGE>
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement), (v) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries, (vi) there are no securities or instruments containing anti-
dilution or similar provisions that will be triggered by the issuance of the
Securities as described in this Agreement and (vii) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's By-laws, as amended and as in effect on the date hereof (the "By-
laws"), and the terms of all securities convertible into or exercisable for
Common Stock, if any, and the material rights of the holders thereof in respect
thereto.
d. Issuance of Securities. The Commitment Shares have been duly
----------------------
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable and (ii) free from all taxes,
liens and charges with respect to the issue thereof. 3,000,000 shares of Common
Stock have been duly authorized and reserved for issuance upon conversion of
each Equity Purchase Agreement. Upon conversion in accordance with the terms
and conditions of the Equity Purchase Agreements, the Conversion Shares will be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
------------ -------------
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the reservation for issuance and
issuance of the Conversion Shares) will not (i) result in a violation of the
Certificate of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock of the Company or the By-
laws or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the Principal Market applicable to
the Company or any of its Subsidiaries) or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e), neither the Company nor its Subsidiaries is in violation of any
- -------------
term of or in default under its Certificate of Incorporation, any Certificate of
Designation, Preferences and Rights of any outstanding series of preferred stock
of the Company or By-laws or their organizational charter or by-laws,
respectively. Except as disclosed in Schedule 3(e), neither the Company nor any
-------------
of its Subsidiaries is in violation of any term of or in default under any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries, except for possible conflicts, defaults,
terminations or amendments which could not reasonably be expected to have a
Material Adverse
5
<PAGE>
Effect. The business of the Company and its Subsidiaries is not being conducted,
and shall not be conducted, in violation of any law, ordinance, regulation of
any governmental entity, except for possible violations, the sanctions for which
either individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents in accordance with the terms hereof or
thereof. Except as disclosed in Schedule 3(e), all consents, authorizations,
-------------
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company is not and has not been since January 1, 1998, in
violation of the listing requirements of the Principal Market.
f. SEC Documents; Financial Statements. Since January 1, 1998, the
-----------------------------------
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
g. Absence of Certain Changes. Since December 31, 1999, there has
--------------------------
been no material adverse change in the business, properties, operations,
financial condition or results of operations of the Company or its Subsidiaries.
The Company has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Company or
any of its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit, proceeding,
---------------------
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against
6
<PAGE>
or affecting the Company, the Common Stock or any of the Company's Subsidiaries
or any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, which could reasonably be expected to have a Material
Adverse Effect. A description of each action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency, self-
regulatory organization or body which, as of the date of this Agreement, is
pending or threatened in writing against or affecting the Company, the Common
Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such, is
set forth in Schedule 3(h).
-------------
i. Acknowledgment Regarding Buyer's Purchase of the Securities. The
-----------------------------------------------------------
Company acknowledges and agrees that the Buyer is acting solely in the capacity
of arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Buyer is not acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and any advice given by the Buyer
or any of its representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to the Buyer's purchase of the Securities. The Company further
represents to the Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives and advisors.
j. No General Solicitation. Neither the Company, nor any of its
-----------------------
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
k. No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated, nor will
the Company or any of its Subsidiaries take any action or steps that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
l. Dilutive Effect. The Company understands and acknowledges that
---------------
the number of Conversion Shares issuable upon conversion of the Equity Purchase
Agreements will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Equity Purchase Agreements in accordance with this Agreement and the Equity
Purchase Agreements is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
shareholders of the Company.
7
<PAGE>
m. Intellectual Property Rights. The Company and its Subsidiaries
----------------------------
own or possess adequate rights or licenses to use all material trademarks, trade
names, service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its Subsidiaries do not have any
knowledge of any infringement by the Company or its Subsidiaries of any material
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade secret
or other similar rights of others, or of any such development of similar or
identical trade secrets or technical information by others and, except as set
forth on Schedule 3(m), there is no material claim, action or proceeding being
-------------
made or brought against, or to the Company's knowledge, being threatened
against, the Company or its Subsidiaries regarding trademark, trade name,
patents, patent rights, invention, copyright, license, service names, service
marks, service mark registrations, trade secret or other infringement.
n. Environmental Laws. The Company and its Subsidiaries (i) are in
------------------
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where, in each of the
three foregoing clauses, the failure to so comply could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
o. Title. The Company and its Subsidiaries have good and marketable
-----
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
p. Insurance. The Company and each of its Subsidiaries are insured
---------
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Since January 1, 1999, neither the Company nor any such Subsidiary has
been refused any insurance coverage sought or applied for and neither the
Company nor any such Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely affect
the condition, financial or otherwise, or the earnings, business or operations
of the Company and its Subsidiaries, taken as a whole.
q. Regulatory Permits. The Company and its Subsidiaries possess all
------------------
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such
8
<PAGE>
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
r. Tax Status. The Company and each of its Subsidiaries has made or
----------
filed all federal and state income and all other material tax returns, reports
and declarations required by any jurisdiction to which it is subject and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
s. Transactions With Affiliates. Except as set forth on Schedule
---------------------------- --------
3(s) and other than the grant or exercise of stock options issued pursuant to
- ----
the Company's existing stock option plan, none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has an interest or is an officer, director, trustee or
partner.
t. Application of Takeover Protections. The Company and its board of
-----------------------------------
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar anti-
takeover provision under the Certificate of Incorporation or the laws of the
state of its incorporation which is or could become applicable to the Buyer as a
result of the transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Securities and the Buyer's ownership
of the Securities.
u. Rights Agreement. The Company has not adopted a shareholder
----------------
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.
v. Foreign Corrupt Practices. Neither the Company, nor any of its
-------------------------
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
9
<PAGE>
4. COVENANTS.
---------
a. Filing Registration Statement. The Company shall within five (5)
-----------------------------
Trading Days from the date hereof file a Registration Statement on Form S-3
covering only the resale of at least 3,000,000 Conversion Shares underlying the
First Equity Purchase Agreement and the resale of 264,000 First Closing
Commitment Shares (as defined in Section 7(b)). The Company shall within ten
(10) Trading Days from the date of the delivery to the Buyer of the Second
Closing Notice file a Registration Statement on Form S-3 covering only the
resale of a reasonable estimate of the number of Conversion Shares underlying
the Second Equity Purchase Agreement and the Second Closing Commitment Shares
(as defined in Section 7(b)). For each such Registration Statement, the Company
shall also include an indeterminate number of registrable securities pursuant to
Rule 416 under the 1933 Act so as to cover any and all securities which may
become issuable to prevent dilution resulting from stock splits, stock dividends
or similar transactions. The Buyer and its counsel shall have a reasonable
opportunity to review and comment upon each such registration statement and any
related prospectus prior to its filing with the SEC. The Company shall use its
reasonable best efforts to have such registration statements declared effective
by the SEC at the earliest possible date.
b. Blue Sky. The Company shall, on or before each Closing Date, take
--------
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for or to qualify the Commitment Shares and the Conversion
Shares for sale to the Buyer at each Closing pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyer on or prior to
each Closing Date. The Company shall make all filings and reports relating the
offer and sale of the Commitment Shares and the Conversion Shares required under
applicable securities or "Blue Sky" laws of the states of the United States
following each Closing Date.
c. No Variable Priced Financing. Other than pursuant to this
----------------------------
Agreement, the Company agrees that beginning on the date of this Agreement and
ending on the date of termination of this Agreement (as provided in Section 9(k)
hereof), and so long as any Equity Purchase Agreement is executory, neither the
Company nor any of its Subsidiaries shall, without the prior written consent of
the Buyer, contract for any equity financing (including any debt financing with
an equity component) or issue any equity securities of the Company or any
Subsidiary or securities convertible or exchangeable into or for equity
securities of the Company or any Subsidiary (including debt securities with an
equity component) which (i) are convertible into or exchangeable for an
indeterminate number of shares of common stock, (ii) are convertible into or
exchangeable for Common Stock at a price which varies with the market price of
the Common Stock, (iii) directly or indirectly provide for any "re-set" or
adjustment of the purchase price, conversion rate or exercise price or (iv)
contain any "make-whole" provision based upon, directly or indirectly, the
market price of the Common Stock, in each case, other than reasonable and
customary anti-dilution adjustments for issuance of shares of Common Stock at a
price which is below the market price of the Common Stock.
d. Listing. The Company shall promptly secure the listing of all of
-------
the Conversion Shares and Commitment Shares upon each national securities
exchange and automated
10
<PAGE>
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all such
securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock's authorization for
quotation on the Nasdaq National Market (the "Principal Market"). Neither the
Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common Stock
on the Principal Market. The Company shall promptly, and in no event later than
the following Trading Day, provide to the Buyer copies of any notices it
receives from the Principal Market regarding the continued eligibility of the
Common Stock for listing on such automated quotation system or securities
exchange. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section.
e. Limitation on Short Sales and Hedging Transactions. The Buyer
--------------------------------------------------
agrees that beginning on the date of this Agreement and ending on the date of
termination of this Agreement as provided in Section 9(k), the Buyer and its
affiliates shall not in any manner whatsoever enter into or effect, directly or
indirectly, any (i) "short sale" (as such term is defined in Rule 3b-3 of the
1934 Act) of the Common Stock or (ii) hedging transaction, which establishes a
net short position with respect to the Common Stock; provided, however, that
such restrictions shall not apply with respect to the restrictions on short
sales, if the Buyer submits within five (5) Trading Days of a sale a Conversion
Notice (as defined in the Equity Purchase Agreement) entitling the Buyer to
receive a number of shares of Common Stock at least equal to the number of
shares so sold.
f. Limitation on Sales of Commitment Shares. The Buyer agrees that
----------------------------------------
beginning on the date of this Agreement and ending on the date of termination of
this Agreement as provided in Section 9(k), the Buyer shall not transfer or sell
(i) the First Closing Commitment Shares (as defined in Section 7(b) hereof)
until such date as the First Equity Purchase Agreement is fully performed and
(ii) the Second Closing Commitment Shares (as defined in Section 7(b) hereof)
until such date as the Second Equity Purchase Agreement is fully performed;
provided, however, that such restrictions shall not apply: (A) to any transfers
to or among affiliates, (B) to any pledge in connection with a bona fide loan or
margin account, (C) if an Event of Default has occurred, or any event which,
after notice and/or lapse of time, would become an Event of Default, under any
Equity Purchase Agreement including any failure by the Company to timely effect
any conversion properly submitted pursuant to a Equity Purchase Agreement or (D)
if Louis D. Paolino, Jr. ceases for any reason to be Chief Executive Officer of
the Company engaged on a full-time basis as his principal business activity.
g. Due Diligence. The Buyer shall have the right, from time to time
-------------
as the Buyer may deem appropriate, to perform reasonable due diligence on the
Company during normal business hours.
5. TRANSFER AGENT INSTRUCTIONS.
---------------------------
The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of the Buyer or its respective nominee(s), for the Conversion Shares
from time to time upon conversion of a Equity Purchase
11
<PAGE>
Agreement (the "Irrevocable Transfer Agent Instructions"). The Company warrants
to the Buyer that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, will be given by the Company to its
transfer agent with respect to the Securities and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement
subject to the provisions of Section 4(f) in the case of the Commitment Shares.
Nothing in this Section 5 shall affect in any way the Buyer's obligations to
comply with all applicable prospectus delivery requirements, if any, upon resale
of the Securities. If the Buyer provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act
or the Buyer provides the Company with reasonable assurances that the Securities
can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in
the case of the Conversion Shares, promptly instruct its transfer agent to issue
one or more certificates in such name and in such denominations as specified by
the Buyer and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Buyer by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section 5, that the Buyer shall be entitled, in addition to all other
available remedies, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO ENTER INTO EQUITY PURCHASE
--------------------------------------------------------------------
AGREEMENTS.
----------
The obligation of the Company hereunder to enter into each Equity
Purchase Agreement with the Buyer at each Closing is subject to the
satisfaction, at or before the respective Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
the Buyer with prior written notice thereof:
a. The Buyer shall have executed each of the Transaction Documents to
which it is a party and delivered the same to the Company applicable to the
respective Closing including for each Closing a Registration Rights Agreement
substantially in the form of Exhibit B hereto (individually, a "Registration
---------
Rights Agreement" and collectively, the "Registration Rights Agreements").
b. Subject to the Company's compliance with Section 4(a), a
Registration Statement on Form S-3 covering the resale of the respective
Commitment Shares and the Conversion Shares underlying the Equity Purchase
Agreement to be sold at such Closing shall have been declared effective under
the 1933 Act by the SEC and no stop order with respect to the Registration
Statement shall be pending or threatened by the SEC.
c. The representations and warranties of the Buyer shall be true and
correct in all material respects as of the date when made and as of such Closing
Date as though made at that
12
<PAGE>
time (except for representations and warranties that speak as of a specific
date), and the Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Buyer at or prior
to the Closing Date.
d. In connection with entering into each Equity Purchase Agreement,
the Buyer shall have, on each Closing Date delivered to the Company immediately
available funds in the amount of $1,000,000 (which shall be the Prepayment
Amount (as defined in the Equity Purchase Agreement) for the first Monthly
Period (as defined in the Equity Purchase Agreement)).
It is agreed and acknowledged by the parties hereto, that until such time has
the Company shall have delivered the Second Closing Notice to the Buyer with
respect to the Closing of the Second Equity Purchase Agreement, the Company
shall not be obligated to enter into the Second Equity Purchase Agreement.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO ENTER INTO EQUITY PURCHASE
------------------------------------------------------------------
AGREEMENTS.
----------
The obligation of the Buyer hereunder to enter into each Equity
Purchase Agreement at the respective Closing is subject to the satisfaction, at
or before the respective Closing Date, of each of the following conditions,
provided that these conditions are for the Buyer's sole benefit and may be
waived by the Buyer at any time in its sole discretion by providing the Company
with prior written notice thereof:
a. The Company shall have executed each of the Transaction Documents
and delivered the same to the Buyer applicable to the respective Closing
including for each Closing: (i) the respective Equity Purchase Agreement and
(ii) a Registration Rights Agreement substantially in the form of Exhibit B
---------
hereto.
b. On the Closing Date for the First Closing the Company shall have
delivered to the Buyer a number of shares of Common Stock (the "First Closing
Commitment Shares") equal to: (i) 8% of $12,000,000 divided by the lower of (A)
the arithmetic average of the Closing Bid Prices (as defined in the Equity
Purchase Agreements) of the Common Stock for the five (5) consecutive Trading
Days immediately preceding the Trading Day which is two (2) Trading Days prior
to the Closing Date for the First Closing and (B) the arithmetic average of the
Closing Bid Prices of the Common Stock for the five (5) consecutive Trading Days
immediately preceding the date hereof, plus (ii) 3% of $12,000,000 divided by
----
the lower of (A) the arithmetic average of the Closing Bid Prices of the Common
Stock for the five (5) consecutive Trading Days immediately preceding the
Trading Day which is two (2) Trading Days prior to the Closing Date for the
First Closing and (B) the arithmetic average of the Closing Bid Prices of the
Common Stock for the five (5) consecutive Trading Days immediately preceding the
date hereof. On the Closing Date for the Second Closing the Company shall have
delivered to the Buyer a number of shares of Common Stock (the "Second Closing
Commitment Shares") equal to 5% of $12,000,000 divided by the lower of (A) the
arithmetic average of the Closing Bid Prices of the Common Stock for the five
(5) consecutive Trading Days immediately preceding the Trading Day which is two
(2) Trading Days
13
<PAGE>
prior to the Closing Date for the Second Closing and (B) the arithmetic average
of the Closing Bid Prices of the Common Stock for the five (5) consecutive
Trading Days immediately preceding the date the Second Closing Notice is
delivered. (The First Closing Commitment Shares and the Second Closing
Commitment Shares, are collectively referred to herein as the "Commitment
Shares") The number of Commitment Shares shall be appropriately adjusted for any
reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction during such five (5) Trading Day period.
c. The Common Stock shall be authorized for quotation on the
Principal Market, trading in the Common Stock shall not have been within the
last 365 days suspended by the SEC or the Principal Market and the Conversion
Shares and the Commitment Shares shall be listed upon the Principal Market.
d. The Buyer shall have received the opinion of the Company's legal
counsel dated as of the respective Closing Date, in the form of Exhibit C
---------
attached hereto.
e. The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
respective Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the respective Closing Date. The Buyer shall
have received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the respective Closing Date, to the foregoing effect in the
form attached hereto as Exhibit D.
---------
f. The Board of Directors of the Company shall have adopted
resolutions in the form attached hereto as Exhibit E which shall be in full
---------
force and effect without any amendment or supplement thereto as of the
respective Closing Date.
g. As of the respective Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the respective Equity Purchase Agreement, at least
1,500,000 shares of Common Stock.
h. The Irrevocable Transfer Agent Instructions, in the form of
Exhibit F attached hereto, shall have been delivered to and acknowledged in
- ---------
writing by the Company's transfer agent.
i. The Company shall have delivered to the Buyer a certificate
evidencing the incorporation and good standing of the Company in the State of
Delaware issued by the Secretary of State of the State of Delaware as of a date
within ten (10) Trading Days of the respective Closing Date.
14
<PAGE>
j. The Company shall have delivered to the Buyer a certified copy of
the Certificate of Incorporation as certified by the Secretary of State of the
State of Delaware within ten (10) Trading Days of the respective Closing Date.
k. The Company shall have delivered to the Buyer a secretary's
certificate executed by the Secretary of the Company, dated as of the respective
Closing Date, in the form attached hereto as Exhibit G.
---------
l. A Registration Statement on Form S-3 covering the resale of all of
the respective Commitment Shares and the Conversion Shares (assuming the Closing
Date is the Conversion Date) underlying the Equity Purchase Agreement to be sold
at such Closing shall have been declared effective under the 1933 Act by the SEC
and no stop order with respect to the Registration Statement shall be pending or
threatened by the SEC. The Company shall have made all filings under all
applicable federal and state securities laws necessary to consummate the
issuance of the Securities pursuant to this Agreement in compliance with such
laws.
m. No Event of Default (as defined in the Equity Purchase Agreement)
exists, or any event which, after notice and/or lapse of time, would become an
Event of Default under the Equity Purchase Agreement has occurred.
8. INDEMNIFICATION.
---------------
In consideration of the Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to
all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless the Buyer and each
other holder of the Securities and all of their shareholders, officers,
directors, employees and direct or indirect investors and any of the foregoing
person's agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of the Transaction Documents or
any other certificate, instrument or document contemplated hereby or; provided
however, the Company shall not be required to indemnify an Indemnitee under this
Section 8 to the extent that such Indemnified Liability primarily and directly
resulted from the Indemnitee's material breach of this agreement or willful
misconduct. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the
15
<PAGE>
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
----------------------------
a. Governing Law; Jurisdiction; Jury Trial. The corporate laws of
---------------------------------------
the State of Delaware shall govern all issues concerning the relative rights of
the Company and its shareholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
other Transaction Documents shall be governed by the internal laws of the State
of Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois. Each party hereby irrevocably submits to the exclusive
jurisdiction of the federal courts sitting in the Northern District of Illinois,
for the adjudication of any dispute hereunder or under the other Transaction
Documents or in connection herewith or therewith, or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
------------
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid
------------
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all other
----------------------------
prior oral or prior written agreements between the Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement, the other Transaction Documents and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant
16
<PAGE>
or undertaking with respect to such matters. No provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and the
Buyer, and no provision hereof may be waived other than by an instrument in
writing signed by the party against whom enforcement is sought.
f. Notices. Any notices, consents, waivers or other communications
-------
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Trading Day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Mace Security International, Inc.
1000 Crawford Place, Suite 400
Mt. Laural, New Jersey 06054
Telephone: 856-778-2300
Facsimile: 856-439-1723
Attention: Robert M. Kramer
With a copy to:
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103
Telephone: 215-988-2700
Facsimile: 215-988-2757
Attention: H. John Michel, Jr.
If to the Buyer:
Fusion Capital Fund II, LLC
216 West Jackson Boulevard, Suite 400
Chicago, Illinois 60606
Telephone: (312) 795-7900
Facsimile: (312) 795-7901
Attention: Steven G. Martin
17
<PAGE>
with a copy to:
Ungaretti & Harris
3500 Three First National Plaza
Chicago, Illinois 60602
Telephone: (312) 977-4400
Facsimile: (312) 977-4405
Attention: James T. Easterling
If to the Transfer Agent:
American Stock Transfer
6201 15th Avenue, Third Floor
Brooklyn, NY 11219
Telephone: (718) 921-8149
Facsimile: (718) 921-8356
Attention: Wallace Chun
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) Trading Days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Equity Purchase Agreements. The Company shall
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of the Buyer, including by merger or consolidation. The
Buyer may assign some or all of its rights hereunder without the consent of the
Company, provided, however, that any such assignment shall not release the Buyer
from its obligations hereunder unless such obligations are assumed by such
assignee and the Company has consented in writing to such assignment and
assumption. Notwithstanding anything to the contrary contained in the
Transaction Documents, the Buyer shall be entitled to pledge the Securities in
connection with a bona fide loan or margin account.
h. No Third Party Beneficiaries. This Agreement is intended for the
----------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
18
<PAGE>
i. Publicity. The Company and the Buyer shall have the right to
---------
approve before issuance any press releases, SEC filing or any other public
disclosure with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of any
Buyer, to make any press release, SEC filing or other public disclosure with
respect to such transactions as is required by applicable law and regulations
(although the Buyer shall be consulted by the Company in connection with any
such press release or other public disclosure prior to its release and shall be
provided with a copy thereof).
j. Further Assurances. Each party shall do and perform, or cause
------------------
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
k. Termination; Survival. This Agreement may be terminated only as
---------------------
follows:
(i) By the Buyer any time after an Event of Default (as defined in
the Equity Purchase Agreements) has occurred.
(ii) In the event that the First Closing shall not have occurred, the
Company shall have the option to terminate this Agreement for any reason or
for no reason without liability of any party to any other party. If this
Agreement is terminated pursuant to this Section 9(k)(ii), the Company
shall issue to the Buyer the First Closing Commitment Shares immediately
prior to the termination hereof. In the such case, the number of First
Closing Commitment Shares shall be equal to: (A) 8% of $12,000,000 divided
by the lower of (1) the arithmetic average of the Closing Bid Prices of the
Common Stock for the five (5) consecutive Trading Days immediately
preceding the Trading Day which is two (2) Trading Days prior to the date
of termination of this Agreement and (2) the arithmetic average of the
Closing Bid Prices of the Common Stock for the five (5) consecutive Trading
Days immediately preceding the date hereof, plus (B) 3% of $12,000,000
divided by the lower of (1) the arithmetic average of the Closing Bid
Prices of the Common Stock for the five (5) consecutive Trading Days
immediately preceding the Trading Day which is two (2) Trading Days prior
to the date of termination of this Agreement and (2) the arithmetic average
of the Closing Bid Prices of the Common Stock for the five (5) consecutive
Trading Days immediately preceding the date hereof.
(iii) In the event that the First Closing shall not have occurred on
or before August 31, 2000, due to the failure to satisfy the conditions set
forth in Sections 6 and 7 above with respect to the First Closing (and the
nonbreaching party's failure to waive such unsatisfied condition(s)), the
nonbreaching party shall have the option to terminate this Agreement at the
close of business on such date without liability of any party to any other
party; provided, however, that any such termination shall not release any
breaching party from liability under this Agreement and the nonbreaching
party shall have the right to pursue all available remedies under
applicable law.
19
<PAGE>
(1) If this Agreement is terminated by the Company pursuant to this
Section 9(k)(iii) prior to the First Closing other than solely as a
result of any material breach of the Buyer's obligation under this
Agreement (it being expressly understood that if all of the closing
conditions set forth in Section 7 have been fully satisfied with respect
to the First Closing, the Buyer's failure to pay any amounts then due and
payable under the Equity Purchase Agreement shall constitute a material
breach of the Buyer's obligation under this Agreement) or the willful
failure of the Buyer to satisfy a closing condition in Section 6
exclusively within the control of the Buyer, the Company shall issue to
the Buyer the First Closing Commitment Shares immediately upon the
termination hereof. In such case, the number of First Closing Commitment
Shares shall be equal to 200,000.
(2) If this Agreement is terminated by the Buyer pursuant to this
Section 9(k)(iii) prior to the First Closing other than solely as a
result of any material breach of the Buyer's obligation hereunder or the
willful failure of the Buyer to satisfy a closing condition in Section 6
exclusively within the control of the Buyer, the Company shall issue to
the Buyer the First Closing Commitment Shares immediately upon the
termination hereof. In such case, the number of First Closing Commitment
Shares shall be equal to 200,000. If on the termination date such shares
are issued to the Buyer without any transfer restrictions including under
the Securities Act and the rules of the Principal Market, then the number
of shares that the Buyer shall be entitled to under this Section (k)
(iii)(2) shall be 100,000.
(iv) If the First Equity Purchase Agreement has been entered into as
provided herein, by the Company any time after the date on which the
aggregate principal amount of the First Equity Purchase Agreement has been
fully converted to Common Stock, but prior to the delivery to the Buyer of
the Second Closing Notice.
(v) If the First Equity Purchase Agreement has been entered into as
provided herein, by either the Company or the Buyer if (A) the aggregate
principal amount of the First Equity Purchase Agreement has been fully
converted into Common Stock and (B) the Company has not delivered a Second
Closing Notice to the Buyer on or prior to the tenth (10th) Trading Day
after the date on which the aggregate principal amount of the First Equity
Purchase Agreement has been fully converted to Common Stock.
(vi) If (A) the First Equity Purchase Agreement has been entered
into as provided herein, (B) the aggregate principal amount of the First
Equity Purchase Agreement has been fully converted to Common Stock and (C)
the Company has delivered a Second Closing Notice to the Buyer, in the
event that the Second Closing shall not have occurred on or before forty-
five (45) Trading Days from the date of the Second Closing Notice due to
the failure to satisfy the conditions set forth in Sections 6 and 7 above
with respect to the Second Closing (and the nonbreaching party's failure to
waive such unsatisfied condition(s)), the nonbreaching party shall have the
option to terminate this Agreement at the close of business on such date
without liability of any party to any other party; provided, however, that
any such termination shall not release any breaching party from liability
under this Agreement and the nonbreaching party shall have the right to
pursue all available remedies under
20
<PAGE>
applicable law. If this Agreement is terminated pursuant to this Section
9(k)(vi) prior to the Second Closing other than solely as a result of any
material breach of the Buyer's obligation under this Agreement (it being
expressly understood that if all of the closing conditions set forth in
Section 7 have been fully satisfied with respect to the Second Closing, the
Buyer's failure to pay any amounts then due and payable under the Equity
Purchase Agreement shall constitute a material breach of the Buyer's
obligation under this Agreement) or the willful failure of the Buyer to
satisfy a closing condition in Section 6 exclusively within the control of
the Buyer, the Company shall issue to the Buyer the Second Closing
Commitment Shares immediately upon the termination hereof. In the such
case, the number of Second Closing Commitment Shares shall be equal to 5%
of $12,000,000 divided by the lesser of (A) the arithmetic average of the
Closing Bid Prices of the Common Stock for the five (5) consecutive Trading
Days immediately preceding the Trading Day which is two (2) Trading Days
prior to the date of termination of this Agreement and (B) the arithmetic
average of the Closing Bid Prices of the Common Stock for the five (5)
consecutive Trading Days immediately preceding the date of the Second
Closing Notice.
(vii) If the First Equity Purchase Agreement or the Second Equity
Purchase Agreement is terminated by either party pursuant to its terms
without full conversion into Common Stock or if the Second Equity Purchase
Agreement has been fully converted to Common Stock, this Agreement shall
automatically terminate at such time.
Except for termination of this Agreement under Section 9(k)(vii), any
termination of this Agreement pursuant to this Section 9(k) shall be effected by
written notice from the Company to the Buyer, or the Buyer to the Company, as
the case may be, setting forth the basis for the termination hereof. A
termination of this Agreement under Section 9(k)(vii) shall automatically occur
on such date as the First Equity Purchase Agreement or the Second Equity
Purchase Agreement has been terminated by either party pursuant to its terms
without full conversion into Common Stock or on such date as the aggregate
principal amount of the Second Equity Purchase Agreement has been fully
converted to Common Stock, in each case, without any action or notice on the
part of any party. Except as expressly set forth in this Agreement, the
representations and warranties of the Company and the Buyer contained in
Sections 2 and 3 hereof, the indemnification provisions set forth in Section 8
hereof and the agreements and covenants set forth in Section 9, shall survive
each Closing and any termination hereof. Notwithstanding anything in this
Section 9(k) to the contrary, in the event that this Agreement is terminated by
either party for any reason, upon delivery of the Commitment Shares to the Buyer
from the Company, if any, as provided in this Section 9(k), the Company shall
have no further liability to the Buyer for termination of this Agreement.
l. Placement Agent. The Company acknowledges that it has engaged
---------------
Allied Capital International, Inc., as placement agent in connection with the
sale of the Securities, which placement agent may have formally or informally
engaged other agents on its behalf. The Company shall be responsible for the
payment of any placement agent's fees or broker's commissions relating to or
arising out of the transactions contemplated hereby. The Company shall pay, and
hold the Buyer harmless against, any liability, loss or expense (including,
without limitation, attorneys' fees and out of pocket expenses) arising in
connection with any such claim.
21
<PAGE>
m. No Strict Construction. The language used in this Agreement will
----------------------
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
n. Remedies. The Buyer and each holder of the Securities shall have
--------
all rights and remedies set forth in the Transaction Documents and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any person having any rights under any provision of the Transaction
Documents shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of the Transaction Documents and to exercise all other rights granted
by law.
o. Payment Set Aside. To the extent that the Buyer receives a
-----------------
payment or payments hereunder or pursuant to the other Transaction Documents or
the Buyer enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other Person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
* * * * * *
22
<PAGE>
IN WITNESS WHEREOF, the Buyer and the Company have caused this Master
Facility Agreement to be duly executed as of the date first written above.
COMPANY:
--------
MACE SECURITY INTERNATIONAL, INC.
By: /s/ Louis D. Paolino, Jr.
-------------------------
Name: Louis D. Paolino, Jr.
Title: Chief Executive Officer
BUYER:
------
FUSION CAPITAL FUND II, LLC
BY: FUSION CAPITAL PARTNERS II, LLC
BY: SGM HOLDINGS CORP.
By: /s/ Steven G. Martin
_______________________
Name: Steven G. Martin
Title: President
23
<PAGE>
SCHEDULES
---------
Schedule 3(c) Capitalization
Schedule 3(e) Conflicts
Schedule 3(h) Litigation
Schedule 3(m) Intellectual Property
Schedule 3(s) Certain Transactions
EXHIBITS
--------
Exhibit A Form of Equity Purchase Agreement
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Company Counsel Opinion
Exhibit D Form of Officer's Certificate
Exhibit E Form of Resolutions of Board of Directors of the Company
Exhibit F Form of Irrevocable Transfer Agent Instructions
Exhibit G Form of Secretary's Certificate
24
<PAGE>
EXHIBIT A
---------
FORM OF EQUITY PURCHASE AGREEMENT
THE SECURITY REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITY HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND REGISTRATION IS
THEREFORE NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. ANY
TRANSFEREE OF THIS EQUITY PURCHASE AGREEMENT SHOULD CAREFULLY REVIEW THE TERMS
OF THIS EQUITY PURCHASE AGREEMENT, INCLUDING SECTION 2(e)(vi) HEREOF. THE
PRINCIPAL AMOUNT REPRESENTED BY THIS EQUITY PURCHASE AGREEMENT MAY BE LESS THAN
THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(e)(vi) OF THIS
EQUITY PURCHASE AGREEMENT.
EQUITY PURCHASE AGREEMENT
-------------------------
MACE SECURITY INTERNATIONAL, INC. Equity Purchase Agreement No. ___
[ISSUANCE DATE] $12,000,000
MACE SECURITY INTERNATIONAL, INC., a Delaware corporation (the "Company"),
hereby grants FUSION CAPITAL FUND II, LLC or its assigns ("Holder") conversion
rights with respect to the principal amount of Twelve Million Dollars
($12,000,000), in accordance with the terms hereof.
1. Payments. All payments made under this Equity Purchase Agreement shall
--------
be made in lawful money of the United States of America by wire transfer of
immediately available funds to such account as the Company may from time to time
designate by written notice in accordance with the provisions of this Equity
Purchase Agreement. Whenever any amount expressed to be due by the terms of
this Equity Purchase Agreement is due on any day which is not a Trading Day (as
defined below), the same shall instead be due on the next succeeding day which
is a Trading Day. For purposes of this Equity Purchase Agreement, "Trading Day"
shall mean any day on which the Principal Market (as defined below) is open for
customary trading. Capitalized terms used herein, and not otherwise defined
herein, shall have the meaning ascribed thereto in the Master Facility
Agreement, dated April __, 2000, pursuant to which this Equity Purchase
Agreement was originally issued (as amended, restated, supplemented or otherwise
modified from time to time, the "Master Facility Agreement"). This Equity
Purchase Agreement is entered into by the Company and the Holder on the date
hereof (the "Issuance Date") pursuant to the Master Facility Agreement.
-1-
<PAGE>
2. Conversion of Principal Amount. The $12,000,000 of principal amount
------------------------------
under this Equity Purchase Agreement shall be convertible into shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), on the
terms and conditions set forth in this Section 2.
(a) Certain Defined Terms. For purposes of this Equity Purchase
---------------------
Agreement, the following terms shall have the following meanings:
(i) "Closing Bid Price" means, for any security as of any date,
the last closing bid price for such security on the Principal Market
as reported by Bloomberg Financial Markets ("Bloomberg"), or, if the
Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price of such security
on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg.
(ii) "Closing Sale Price" means, for any security as of any
date, the last closing trade price for such security on the Principal
Market as reported by Bloomberg, or, if the Principal Market is not
the principal securities exchange or trading market for such security,
the last closing trade price of such security on the principal
securities exchange or trading market where such security is listed or
traded as reported by Bloomberg.
(iii) "Conversion Amount" means the portion of the principal
amount of this Equity Purchase Agreement submitted for conversion into
Common Stock.
(iv) "Conversion Date" means the actual date that the Holder
submits a Conversion Notice to the Company to convert any outstanding
principal amount of this Equity Purchase Agreement into shares of
Common Stock so long as the Holder shall transmit by facsimile (or
otherwise deliver) to the Company on or prior to 11:59 p.m., Central
Time on such date.
(v) "Conversion Price" means, as of any Conversion Date or
other date of determination, the lower of the (A) Fixed Conversion
Price and the (B) Variable Conversion Price, each in effect as of such
date.
(vi) "Fixed Conversion Price" means the greater of (A) $7.00 or
---------------------------
(B) 140% of the arithmetic average of the Closing Bid Prices of the
---
Common Stock for the ten (10) consecutive Trading Days immediately
preceding the Issuance Date (to be appropriately adjusted for any
reorganization, recapitalization, non-cash dividend, stock split or
other similar transaction occurring during such ten (10) Trading
Days).
(vii) "Major Transaction" means any of the following: (A) the
consolidation, merger or other business combination of the Company
with or into
-2-
<PAGE>
another Person (other than pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation
of the Company and any transaction with Wash Depot Holdings, Inc.);
(B) any transaction involving the Company, including the license, sale
or acquisition by the Company of securities, assets or property, which
involves or which could involve a fair value of $15,000,000 or more in
a single transaction or series of related transactions; (C) the
issuance of debt or equity securities in a transaction or a series of
related transactions involving the receipt by the Company of aggregate
proceeds of $15,000,000 (including fees and expenses paid with respect
to the issuance thereof) or more; or (D) a purchase, tender or
exchange offer made to the holders of more than 50% of the outstanding
shares of Common Stock.
(viii) "Mandatory Conversion Rights" means the Mandatory
Conversion Rights of the Company pursuant to Section 2(d)(iii).
(ix) "Monthly Base Amount" means One Million Five Hundred
Thousand Dollars ($1,500,000) per Monthly Period.
(x) "Monthly Conversion Amount" means the Monthly Base Amount
for such Monthly Period plus the Monthly Base Amount for any prior
Monthly Periods which has not been previously converted into Common
Stock pursuant to Section 2 hereof; provided, however, that to the
-------- -------
extent that the Company exercises its Mandatory Conversion Rights, the
Monthly Conversion Amount for any remaining Monthly Periods shall be
reduced by any amount subject to the Mandatory Conversion Rights in
reverse chronological order (i.e., the Monthly Conversion Amount for
the last remaining Monthly Period shall be reduced first); provided
--------
further, on or after __________________ [insert date 8 months after
-------
Closing Date] or the announcement or consummation of a Major
Transaction, the Monthly Conversion Amount shall thereafter be the
entire outstanding principal amount of the Equity Purchase Agreement.
(xi) "Monthly Period" means each of the following periods of
time:
Issuance Date to __________;
_____________ to __________;
_____________ to __________;
_____________ to __________;
_____________ to __________;
_____________ to __________;
_____________ to __________; and
_____________ to __________.
[Eight periods each having approximately 30
calendar days. Specific dates to be entered at
closing.]
-3-
<PAGE>
(xii) "Person" means an individual or entity including any
limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.
(xiii) "Principal Market" means the NASDAQ National Market.
(xiv) "Sale Price" means, for any security as of any date, the
trade price for such security on the Principal Market as reported by
Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the trade price of such
security on the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg.
(xv) "Variable Conversion Price" means, as of any Conversion
Date or other date of determination, the lower of: (A) the lowest Sale
Price of the Common Stock on the Conversion Date or such other date of
determination and (B) the arithmetic average of the two (2) lowest
Closing Bid Prices for the Common Stock during the twelve (12)
consecutive Trading Days ending on the Trading Day immediately
preceding such Conversion Date or other date of determination (to be
appropriately adjusted for any reorganization, recapitalization, non-
cash dividend, stock split or other similar transaction occurring
during such twelve (12) Trading Days).
(b) Holder's Conversion Rights and Obligations. Subject to the provisions
------------------------------------------
of Section 2(d) below, during each Monthly Period, the Holder shall have the
right and the obligation, if no Event of Default exists, to convert the
outstanding principal amount of this Equity Purchase Agreement up to the Monthly
Conversion Amount for such Monthly Period into fully paid and nonassessable
shares of Common Stock in accordance with Section 2(e), at the Conversion Rate
(as defined below). Subject to the provisions of Section 2(d) below, at any
time on or after ________________ [insert date 8 months after Closing Date], the
Holder shall have the right to convert the outstanding principal amount of this
Equity Purchase Agreement into fully paid and nonassessable shares of Common
Stock in accordance with Section 2(e), at the Conversion Rate. On the first
Trading Day of each Monthly Period, if no Event of Default has occurred the
Holder shall wire transfer immediately available funds to the Company in an
amount equal to $1,000,000 as a prepayment for Conversion Shares (the
"Prepayment Amount") to be purchased hereunder. At such time as the balance of
all Prepayment Amounts has been fully applied to the purchase of Conversion
Shares hereunder, the Holder shall within three (3) Trading Days of receipt of
Conversion Shares pay to the Company an amount equal to the unpaid Conversion
Amount with respect to such Conversion Shares as full payment for the purchase
of such Conversion Shares. It is expressly understood that the conversion of
the principal amount of the Equity Purchase Agreement into shares of Common
Stock reduces the outstanding principal balance of the Equity Purchase
Agreement. The Company shall not issue any fraction of a share of Common Stock
upon any conversion. All shares of Common Stock (including fractions thereof)
issuable upon conversion of this Equity Purchase Agreement by the Holder thereof
shall be aggregated for purposes of
-4-
<PAGE>
determining whether the conversion would result in the issuance of a fraction of
a share of Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up or down to the
nearest whole share.
(c) Conversion Rate. The number of shares of Common Stock issuable
---------------
upon conversion of a Conversion Amount of this Equity Purchase Agreement
pursuant to Section 2(b) shall be determined according to the following
formula (the "Conversion Rate"):
Conversion Amount
-----------------
Conversion Price
(d) Limitations on Conversion.
-------------------------
(i) Limitation on Beneficial Ownership. The Company shall not
----------------------------------
effect any conversion of this Equity Purchase Agreement and no Holder
shall have the right to convert any portion of this Equity Purchase
Agreement pursuant to Section 2(b) to the extent that after giving
effect to such conversion such Person (together with such Person's
affiliates) would beneficially own in excess of 4.99% of the
outstanding shares of the Common Stock following such conversion. For
purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by a Person and its affiliates or acquired by
a Person and its affiliates, as the case may be, shall include the
number of shares of Common Stock issuable upon conversion of this
Equity Purchase Agreement with respect to which the determination is
being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (i) conversion of the remaining,
nonconverted portion of this Equity Purchase Agreement beneficially
owned by such Person and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other
securities of the Company (including, without limitation, any
warrants) subject to a limitation on conversion or exercise analogous
to the limitation contained herein beneficially owned by such Person
and its affiliates. For purposes of this Section, in determining the
number of outstanding shares of Common Stock the Holder may rely on
the number of outstanding shares of Common Stock as reflected in (1)
the Company's most recent Form 10-Q or Form 10-K, as the case may be,
(2) a more recent public announcement by the Company or (3) any other
written communication by the Company or its transfer agent setting
forth the number of shares of Common Stock outstanding. Upon the
reasonable written or oral request of the Holder, the Company shall
promptly confirm orally and in writing to the Holder the number of
shares Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving
effect to conversions of the Equity Purchase Agreement by the Holder
since the date as of which such number of outstanding shares of Common
Stock was reported. Except as otherwise set forth herein, for purposes
of this Section 2(d)(i), beneficial
-5-
<PAGE>
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended.
(ii) Company's Right to Block Conversions. The right of the
------------------------------------
Holder to convert this Equity Purchase Agreement pursuant to this
Section 2 shall be limited as set forth below. If during any three (3)
consecutive Trading Days the Closing Sale Price of the Common Stock is
below the Fixed Conversion Price for each of such three (3) Trading
Days, the Company shall have three (3) Trading Days to give written
notice (a "Conversion Suspension Notice") to the Holder suspending any
and all conversions. The Conversion Suspension Notice shall be
effective only (a) after the Holder has received the amount of the
Prepayment Amount which has not yet been applied to conversions as
provided in the last sentence of this Section 2(d)(ii) and (b) in any
event, for conversions which have a Conversion Date later than three
(3) Trading Days after receipt of the Conversion Suspension Notice by
the Holder. Any conversions submitted by the Holder with respect to
Common Stock which has been sold by the Holder, which have a
Conversion Date not later than three (3) Trading Days after receipt by
the Holder of the Company's Conversion Suspension Notice must be
honored by the Company as otherwise provided herein and no other
conversion notices are required to be honored by the Company. Such
conversion suspension shall continue in effect until the earlier of:
(A) revocation in writing by the Company, at its sole discretion; or
(B) such time as the Sale Price of the Common Stock is above the Fixed
Conversion Price. For any Monthly Period, if the Company delivers a
Conversion Suspension Notice before the Prepayment Amount for that
Monthly Period has been fully applied to conversions, the Company
shall wire transfer immediately available funds to the Holder in an
amount equal to the Prepayment Amount which has not been applied to
conversions.
(iii) Company's Mandatory Conversion Rights. If (A) the Closing
-------------------------------------
Sale Price of the Common Stock on each of the five (5) Trading Days
immediately prior to the first Trading Day of any Monthly Period is at
least sixty percent (60%) of the Fixed Conversion Price and (B) no
Event of Default exists, then the Company shall have the right by
delivering written notice (a "Mandatory Conversion Notice") to the
Holder on or prior to the first Trading Day of such Monthly Period to
require that, so long as and for so long as no Event of Default exists
and so long as the Sale Price of the Common Stock is at least sixty
percent (60%) of the Fixed Conversion Price, the Holder shall convert
at the Conversion Rate such principal amount of this Equity Purchase
Agreement as specified by the Company in the Mandatory Conversion
Notice during such Monthly Period and the following Monthly Period on
such Trading Days during such Monthly Periods as the Holder shall
determine. The Company acknowledges and agrees that the Company's
Mandatory Conversion Rights represent an agreement by the Holder to
extend financial accommodations to the Company. Accordingly, it shall
be a condition to the exercise of the Company's Mandatory Conversion
Rights that no Event of Default shall exist, and the Company's
delivery of a Mandatory Conversion Notice shall be deemed a
-6-
<PAGE>
representation to the Holder that no Event of Default exists. The
Company may revoke a Mandatory Conversion Notice, in whole or in part,
by delivering written notice thereof to the Holder (a "Revocation of
Mandatory Conversion Notice"). A Revocation of Mandatory Conversion
Notice shall be effective only as to conversions which are in excess
of the Monthly Conversion Amount and which have a Conversion Date
later than three (3) Trading Days after receipt by the Holder of the
Revocation of Mandatory Conversion Notice. Any conversions submitted
by the Holder which have a Conversion Date not later than three (3)
Trading Days after receipt by the Holder of the Revocation of
Mandatory Conversion Notice must be honored by the Company as
otherwise provided herein.
(e) Mechanics of Conversion. The conversion of this Equity Purchase
-----------------------
Agreement shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert this Equity
------------------------------
Purchase Agreement into shares of Common Stock on any date, the Holder
hereof shall (A) transmit by facsimile (or otherwise deliver) on or
prior to 11:59 p.m., Central Time on such date, a copy of a fully
executed notice of conversion in the form attached hereto as Exhibit I
(the "Conversion Notice") to the Company with a copy thereof to the
Company's designated transfer agent (the "Transfer Agent") and (B),
subject to Section 2(e)(vi) surrender to a common carrier for delivery
to the Company as soon as practicable following such date the original
Equity Purchase Agreement being converted (or an indemnification
undertaking with respect to such Equity Purchase Agreement in the case
of its loss, theft or destruction).
(ii) Company's Response. Upon receipt by the Company of a copy
------------------
of a Conversion Notice, the Company shall as soon as practicable, but
in no event later than one (1) Trading Day after receipt of such
Conversion Notice, send, via facsimile, a confirmation of receipt of
such Conversion Notice in the form attached hereto as Exhibit II (a
"Company Confirmation of Conversion Notice") to the Holder and the
Transfer Agent, which confirmation shall constitute an irrevocable
instruction to the Transfer Agent to process such Conversion Notice in
accordance with the terms herein. Upon receipt by the Transfer Agent
of a copy of the executed Conversion Notice and a copy of the
applicable Company Confirmation of Conversion Notice, the Transfer
Agent shall, on the first (1st) Trading Day following the date of
receipt of the Company Confirmation of Conversion Notice, (A) issue
and surrender to a common carrier for overnight delivery to the
address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number
of shares of Common Stock to which the Holder shall be entitled or (B)
provided the Transfer Agent is participating in The Depository Trust
Company ("DTC") Fast Automated Securities Transfer Program, upon the
request of the Holder, credit such aggregate number of shares of
Common Stock to which the Holder shall be entitled to the Holder's or
its designee's balance account with DTC through its Deposit Withdrawal
Agent Commission system. Subject to Section
-7-
<PAGE>
2(e)(vi), if less than the principal amount of this Equity Purchase
Agreement is submitted for conversion, then the Company shall, as soon
as practicable and in no event later than three (3) Trading Days after
receipt of the Equity Purchase Agreement and at its own expense, issue
and deliver to the Holder a new Equity Purchase Agreement representing
the outstanding principal amount not converted.
(iii) Dispute Resolution. In the case of a dispute as to the
------------------
determination of the Conversion Price or the arithmetic calculation of
the Conversion Rate, the Company shall instruct the Transfer Agent to
issue to the Holder the number of shares of Common Stock that is not
disputed and shall submit the disputed determinations or arithmetic
calculations to the Holder via facsimile within one (1) Trading Day of
receipt of the Holder's Conversion Notice. If the Holder and the
Company are unable to agree upon the determination of the Conversion
Price or arithmetic calculation of the Conversion Rate within one (1)
Trading Day of such disputed determination or arithmetic calculation
being submitted to the Holder, then the Company shall within one (1)
Trading Day submit via facsimile (A) the disputed determination of the
Conversion Price to an independent, reputable investment bank selected
by the Company and approved by the Holder or (B) the disputed
arithmetic calculation of the Conversion Rate to the Company's
independent, outside accountant. The Company shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder
of the results no later than the fifth (5th) day after the date it
receives the disputed determinations or calculations. Such investment
bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to receive
-------------
the shares of Common Stock issuable upon a conversion of this Equity
Purchase Agreement shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on the Conversion
Date.
(v) Company's Failure to Timely Convert. If within five (5)
-----------------------------------
Trading Days after the Transfer Agent's receipt of a copy of the
Conversion Notice (subject to extension in accordance with Section
2(e)(iii) for a good faith dispute made in accordance with the terms
of Section 2(e)(iii)) (the "Share Delivery Period") the Transfer Agent
shall fail to issue a certificate to the Holder or credit the Holder's
balance account with The Depository Trust Company for the number of
shares of Common Stock to which such Holder is entitled upon such
Holder's conversion of this Equity Purchase Agreement (a "Conversion
Failure"), in addition to all other available remedies which such
Holder may pursue hereunder and under the Master Facility Agreement
(including indemnification obligations of the Company therein), the
Company shall pay additional damages to the Holder on each day after
such fifth (5th) Trading Day such conversion is not timely effected
in an amount equal to 1.0% of the product of (I) the number of shares
of Common Stock not issued to the Holder
-8-
<PAGE>
on a timely basis pursuant to Section 2(e)(ii) and to which such
Holder is entitled and (II) the Closing Sale Price of the Common Stock
on the last possible date which the Company could have issued such
Common Stock to the Holder without violating Section 2(e)(ii).
(vi) Book-Entry. Notwithstanding anything to the contrary set
----------
forth herein, upon conversion of any portion of this Equity Purchase
Agreement in accordance with the terms hereof, the Holder shall not be
required to physically surrender this Equity Purchase Agreement to the
Company unless the full outstanding principal amount represented by
this Equity Purchase Agreement is being converted. The Holder and the
Company shall each maintain records showing the aggregate principal
amount outstanding and aggregate principal amount converted and the
dates and Conversion Amounts for each conversion or shall use such
other method, reasonably satisfactory to the Holder and the Company,
so as not to require physical surrender of this Equity Purchase
Agreement upon each conversion. The Holder and any assignee, by
acceptance of this Equity Purchase Agreement, acknowledge and agree
that, by reason of the provisions of this paragraph, following
conversion of any portion of this Equity Purchase Agreement, the
outstanding principal amount represented by this Equity Purchase
Agreement may be less than the principal amount set forth on the face
hereof.
(f) Taxes. The Company shall pay any and all transfer taxes that may
-----
be payable with respect to the issuance and delivery of Common Stock upon
the conversion of this Equity Purchase Agreement.
3. Company's Termination Rights. Subject to the terms and conditions of
----------------------------
this Section, at any time after the Issuance Date, and so long as the Company
has provided appropriate notice as described below, if during any ten (10)
consecutive Trading Days the Closing Sale Price of the Common Stock is below the
Fixed Conversion Price for each of such ten (10) Trading Days, the Company shall
have three (3) Trading Days to give written notice (a "Company Termination
Notice") to the Holder electing to terminate this Agreement without any
liability or payment to the Holder (a "Company Termination") other than the
Company must refund to the Holder any unused Prepayment Amount before the
Company Termination Notice shall be deemed effective. No termination of this
Agreement shall effect the Company's or the Holder's obligations under this
Agreement with respect to pending conversions. Any conversions submitted by the
Holder which have a Conversion Date which is not later than three (3) Trading
Days after the later of: (1) receipt by the Holder of the Company Termination
Notice or (2) full repayment to the Holder of any unused Prepayment Amount, must
be honored by the Company as otherwise provided herein. The Company may not
deliver a Company Termination Notice or otherwise effect a Company Termination
in anticipation of or in connection with a Major Transaction until such Major
Transaction has been publicly disclosed for a period of at least sixty (60)
Trading Days. In the event that the Company publicly discloses a Major
Transaction within sixty (60) Trading Days following a Company Termination, the
Holder shall be entitled to the following payment equal to the Conversion Rate
(determined as of the date of the Company Termination Notice) multiplied by the
amount, if any that
-9-
<PAGE>
(A) the arithmetic average of the Closing Sale Price for the Common Stock for
the ten (10) Trading Days following the consummation of the Major Transaction
exceeds (B) the Conversion Price determined as of the date the Company
Termination is effected. Any payments under the previous sentence shall be made
either in the form of cash or registered shares of Common Stock, eleven (11)
Trading Days following the consummation of the Major Transaction. To the extent
that such amounts are not paid on the eleventh (11th) Trading Day following the
consummation of the Major Transaction, the Holder shall be entitled to interest
in an amount equal to one percent (1.0%) of the unpaid amount per day, payable
on demand.
4. Defaults and Remedies.
---------------------
(a) Events of Default. An "Event of Default" shall be deemed to
-----------------
exist at such time as any of the following shall have occurred:
(i) while any Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights
Agreement entered into by the Company and the Holder as of the
Issuance Date (the "Registration Rights Agreement"), the effectiveness
of such Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to
the Holder for resale of all of the Registrable Securities (as defined
in the Registration Rights Agreement) in accordance with the terms of
the Registration Rights Agreement, and such lapse or unavailability
continues for a period of five (5) consecutive Trading Days or for
more than an aggregate of ten (10) Trading Days in any 365-day period;
(ii) the suspension from trading or failure of the Common Stock
to be listed on the Principal Market for a period of five (5)
consecutive Trading Days or for more than an aggregate of ten (10)
Trading Days in any 365-day period;
(iii) the failure of the Company or the Common Stock to fully
meet the requirements (without regard to any grace period provided
therein) for continued listing on the Principal Market for a period
of five (5) consecutive Trading Days or for more than an aggregate of
forty-five (45) Trading Days in any 365-day period;
(iv) the Company's or the Transfer Agent's notice to the Holder,
including by way of public announcement, at any time, of its intention
not to comply with a proper request for conversion of the Equity
Purchase Agreement into shares of Common Stock that is tendered in
accordance with the provisions of this Equity Purchase Agreement, the
failure of the Company to deliver a Company Confirmation of Conversion
Notice to the Holder and to the Transfer Agent in accordance with the
provisions of this Equity Purchase Agreement within two (2) Trading
Days after the receipt by the Company of a Conversion Notice (subject
to extension in accordance with Section 2(e)(iii) for a good faith
dispute made in accordance with the terms of Section 2(e)(iii)); or
the failure of the Transfer Agent to comply with a Company
-10-
<PAGE>
Confirmation of Conversion Notice tendered in accordance with the
provisions of this Equity Purchase Agreement within five (5) Trading
Days after the receipt by the Transfer Agent of the Conversion Notice;
(v) if at any time after the Issuance Date, the Exchange Cap
(as defined in Section 8) is reached;
(vi) the Company breaches any representation, warranty,
covenant or other term or condition of the Master Facility Agreement,
the Registration Rights Agreement, this Equity Purchase Agreement or
any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated thereby and
hereby if such breach has or could reasonably be expected to have a
Material Adverse Effect (as defined in the Master Facility Agreement)
and except, in the case of a breach of a covenant which is reasonably
curable, only if such breach continues for a period of at least five
(5) Trading Days after written notice from the Buyer to the Company;
(vii) any payment default or defaults which individually or in
the aggregate exceed $1,000,000 under any agreement note, mortgage,
indenture or instrument under which there may be issued or by which
there may be secured or evidenced any indebtedness by the Company or
any of its Subsidiaries or the repayment of which is guaranteed by
the Company or any of its Subsidiaries;
(viii) if any Person credibly threatens by way of any public
announcement to commence a proceeding against the Company pursuant to
or within the meaning of any Bankruptcy Law (as defined below);
(ix) if the Company pursuant to or within the meaning of any
Bankruptcy Law; (A) commences a voluntary case, (B) consents to the
entry of an order for relief against it in an involuntary case, (C)
consents to the appointment of a Custodian of it or for all or
substantially all of its property, (D) makes a general assignment for
the benefit of its creditors, (E) becomes insolvent, or (F) is
generally unable to pay its debts as the same become due; or
(x) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that; (A) is for relief against the
Company in an involuntary case, (B) appoints a Custodian of the
Company or for all or substantially all of its property, or (C) orders
the liquidation of the Company or any subsidiary.
The term "Bankruptcy Law" means Title 11, U.S. Code, or any similar
federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official
under any Bankruptcy Law.
-11-
<PAGE>
(b) Remedies. If an Event of Default occurs from events described in
--------
clauses (i) through and (ix) of Section 4(a), the Holder may terminate this
Agreement without any liability or payment to the Company. In the case of an
Event of Default arising from events described in clauses (ix) and (x) of
Section 4(a), this Equity Purchase Agreement shall automatically terminate with
out any liability or payment to the any party without further action or notice.
However notwithstanding the forgoing, in case of any such termination: (1) the
Company shall immediately refund to the Holder any unused Prepayment Amount and
(2) no such termination of this Agreement shall effect the Company's or the
Holder's obligations under this Agreement with respect to pending conversions
and the Company and the Holder shall complete their respective obligations with
respect to any pending conversions under this Agreement.
5. Holder Default and Remedies. A Holder default shall be deemed to exist
---------------------------
at such time as the Holder fails to pay to the Company the amounts due for any
Conversion Shares within five (5) Trading Days after the Holder receives such
Conversion Shares. To the extent that such amounts are not paid to the Company
by the Holder within five (5) Trading Days after the Holder receives such
Conversion Shares, the Company shall be entitled to interest in an amount equal
to one percent (1.0%) of the unpaid amount per day for every day after the fifth
(5th) Trading Days after the Holder receives such Conversion Shares, payable
upon demand. In addition, if the Company prevails, the Company shall be
entitled to its reasonable out-of-pocket costs and expenses including reasonable
attorney's fees of outside counsel. If the Holder fails to pay the Company for
Conversion Shares the Holder has received from the Company under this Agreement
for more than twenty (20) Trading Days, in addition to all other available
remedies under applicable law, the Company shall have the right to terminate
this Agreement and shall be entitled to receive from the Holder, and the Holder
shall promptly remit to the Company, shares of Common Stock equal to [in the
case of the First Equity Purchase Agreement: the number of shares of Common
Stock received by the Holder under Section 7(b)(ii) of the Master Facility
Agreement plus a number of shares of Common stock equal to the product of (X)
------------------------------------------------
the First Closing Commitment Shares less the First Closing Commitment Shares
referred to in Section 7(b)(ii) of the Master Facility Agreement and (Y) the
then outstanding principal balance of this Equity Purchase Agreement divided by
$12,000,000.] [in the case of the Second Equity Purchase Agreement: the product
of (X) the Second Closing Commitment Shares and (Y) the then outstanding
principal balance of this Equity Purchase Agreement divided by $12,000,000.]
Any such termination by the Company shall not release the Holder from any
liability for the Holder's breach of this Agreement.
6. Holder's Right to Terminate Agreement. If by ___________ [insert date
-------------------------------------
10 months after Closing Date], for any reason or for no reason the full
principal amount of this Agreement has not been converted into Common Stock as
provided for in Section 2 of this Agreement, the Holder shall have the right to
terminate this Agreement without any liability or payment to the Company. No
such termination of this Agreement shall effect the Company's or the Holder's
obligations under this Agreement with respect to pending conversions and the
Company and the Holder shall complete their respective obligations with respect
to any pending conversions under this Agreement. However notwithstanding the
forgoing, in case of any such termination, the Company shall immediately refund
to the Holder any unused Prepayment Amount.
-12-
<PAGE>
7. Reservation of Shares. The Company shall, so long as any principal
---------------------
amount of the Equity Purchase Agreement is outstanding, reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Equity Purchase Agreement, such
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of the entire outstanding principal amount of the Equity
Purchase Agreement without regard to any restrictions or limitations on
conversions.
8. Exchange Cap; Limitation on Number of Conversion Shares. The "Exchange
-------------------------------------------------------
Cap" shall be deemed to be reached at such time as: (a) upon any conversion of
this Equity Purchase Agreement if the issuance of such shares of Common Stock
would exceed that number of shares of Common Stock which the Company may issue
upon conversion of this Equity Purchase Agreement without breaching the
Company's obligations under the rules or regulations of the Principal Market, or
the market or exchange where the Common Stock is then traded, in which case, the
Company shall not be obligated to issue any such shares of Common Stock, or (b)
if at any time after the Issuance Date, more than __________ shares of Common
Stock (19.99% of the Company's outstanding Common Stock determined as of the
signing date of the Master Facility Agreement) would be issuable to the Holder
assuming a full conversion of the entire original principal balance of the
Equity Purchase Agreement without regard to any restrictions or limitations on
conversions contained in this Equity Purchase Agreement.
9. Reissuance of Equity Purchase Agreement. Subject to Section 2(e)(vi)
---------------------------------------
hereof, in the event of a conversion or redemption pursuant to this Equity
Purchase Agreement of less than all of the outstanding principal amount
represented by this Equity Purchase Agreement, the Company shall promptly cause
to be issued and delivered to the Holder, upon tender by the Holder of the
Equity Purchase Agreement converted or redeemed, a new equity purchase agreement
of like tenor representing the remaining principal amount of this Equity
Purchase Agreement which has not been so converted or redeemed.
10. Changes to the Terms of this Equity Purchase Agreement. This Equity
------------------------------------------------------
Purchase Agreement and any provision hereof may only be amended by an instrument
in writing signed by the Company and the Holder. The term "Equity Purchase
Agreement" and all reference thereto, as used throughout this instrument, shall
mean this instrument as originally executed, or if later amended or
supplemented, then as so amended or supplemented.
11. Lost or Stolen Equity Purchase Agreement. Upon receipt by the Company
----------------------------------------
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any Equity Purchase Agreement, and, in the case of
loss, theft or destruction, of an indemnification undertaking by the Holder to
the Company in a form reasonably acceptable to the Company and, in the case of
mutilation, upon surrender and cancellation of the Equity Purchase Agreement,
the Company shall execute and deliver new Equity Purchase Agreement of like
tenor and date; provided, however, the Company shall not be obligated to re-
issue a Equity Purchase Agreement if the Holder contemporaneously requests the
Company to convert such remaining principal amount into Common Stock.
-13-
<PAGE>
12. Payment of Collection, Enforcement and Other Costs. If: (i) this
--------------------------------------------------
Equity Purchase Agreement is placed in the hands of an attorney for collection
or enforcement or is collected or enforced through any legal proceeding; or (ii)
an attorney is retained to represent the Holder in any bankruptcy,
reorganization, receivership or other proceedings affecting creditors' rights
and involving a claim under this Equity Purchase Agreement; or (iii) an attorney
is retained to represent the Holder in any other proceedings whatsoever in
connection with this Equity Purchase Agreement, then the Company shall pay to
the Holder all reasonable cost and expenses including attorneys' fees incurred
in connection therewith, in addition to all other amounts due hereunder.
13. Cancellation and Surrender of Equity Purchase Agreement. After the
-------------------------------------------------------
entire outstanding principal amount of this Equity Purchase Agreement has been
converted into Common Stock or paid in full, this Equity Purchase Agreement
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
14. Equity Purchase Agreement Exchangeable for Different Denominations.
------------------------------------------------------------------
This Equity Purchase Agreement is exchangeable, upon the surrender hereof by the
Holder at the principal office of the Company, for a new Equity Purchase
Agreement or Equity Purchase Agreements (in principal amounts of at least
$100,000) containing the same terms and conditions and representing in the
aggregate the principal amount of this Equity Purchase Agreement, and each such
new Equity Purchase Agreement will represent such portion of such principal
amount as is designated by the Holder at the time of such surrender. The date
the Company initially issues this Equity Purchase Agreement will be deemed to be
the "Issuance Date" hereof regardless of the number of times a new Equity
Purchase Agreement shall be issued.
15. Waiver of Notice. To the extent permitted by law, the Company hereby
----------------
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this
Equity Purchase Agreement and the Master Facility Agreement.
16. Governing Law; Jurisdiction; Jury Trial. All questions concerning the
---------------------------------------
construction, validity, enforcement and interpretation of this Equity Purchase
Agreement and the Other Transaction Documents shall be governed by the internal
laws of the State of Illinois, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Illinois or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of Illinois. Each party hereby irrevocably submits to the
exclusive jurisdiction of the federal courts sitting in the Northern District of
Illinois, for the adjudication of any dispute hereunder or under the other
Transaction Documents or in connection herewith or therewith, or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE,
AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
-14-
<PAGE>
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS EQUITY
PURCHASE AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
17. Remedies and Characterizations. The remedies provided in this Equity
------------------------------
Purchase Agreement shall be cumulative and in addition to all other remedies
available under this Equity Purchase Agreement, at law or in equity (including a
decree of specific performance and/or other injunctive relief), no remedy
contained herein shall be deemed a waiver of compliance with the provisions
giving rise to such remedy and nothing herein shall limit a parties right to
pursue actual damages for any failure by the other party to comply with the
terms of this Equity Purchase Agreement. Each party covenants to the other
party that there shall be no characterization concerning this instrument other
than as expressly provided herein.
18. Construction. This Equity Purchase Agreement shall be deemed to be
------------
jointly drafted by the Company and the Holder and shall not be construed against
any person as the drafter hereof.
19. Failure or Indulgence Not Waiver. No failure or delay on the part of
--------------------------------
this Equity Purchase Agreement in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
* * * *
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Equity Purchase
Agreement as of the date first written above.
MACE SECURITY INTERNATIONAL, INC.
By:_______________________________________
Name:
Its:
HOLDER:
-------
FUSION CAPITAL FUND II, LLC
BY: FUSION CAPITAL PARTNERS II, LLC
BY:
By:_______________________
Name:
Title:
-16-
<PAGE>
EXHIBIT I
MACE SECURITY INTERNATIONAL, INC.
FORM OF CONVERSION NOTICE
Reference is made to the Equity Purchase Agreement (the "Equity Purchase
Agreement") between Mace Security International, Inc. (the "Company") and Fusion
Capital Fund II, LLC dated __________. In accordance with and pursuant to the
Equity Purchase Agreement, the undersigned hereby elects to convert the
principal amount of the Equity Purchase Agreement, indicated below into shares
of Common Stock, par value $.01 per share (the "Common Stock"), of the Company,
by tendering the Equity Purchase Agreement as of the date specified below.
Conversion Date: _______________________________
Aggregate outstanding principal amount of
Equity Purchase Agreement prior to this
--------
conversion: _______________________________
Aggregate principal amount to be converted:_______________________________
Aggregate outstanding principal amount of
Equity Purchase Agreement after this
-----
conversion: _______________________________
Please confirm the following information:
Conversion Price per share: _______________________________
If Fixed Conversion Priced not used, describe how the Variable Conversion
Price was determined:_____________________________________________________
__________________________________________________________________________
__________________________________________________________________________
Number of shares of Common Stock to be issued:____________________________
Please issue the Common Stock into which the Equity Purchase Agreement is being
converted in the following name and to the following address:
Issue to: ___________________________________
___________________________________
___________________________________
Authorized Signature: ___________________________________
Name:______________________________
Title:_____________________________
Phone #:___________________________
Fax #:_____________________________
Account Number:
(if electronic book entry transfer): ___________________________________
Transaction Code Number
<PAGE>
(if electronic book entry transfer): ___________________________________
<PAGE>
EXHIBIT II
MACE SECURITY INTERNATIONAL, INC.
FORM OF COMPANY CONFIRMATION OF CONVERSION NOTICE
Reference is made to the Equity Purchase Agreement (the "Equity Purchase
Agreement") between Mace Security International, Inc. (the "Company") and Fusion
Capital Fund II, LLC dated __________. In accordance with and pursuant to the
Equity Purchase Agreement, the undersigned hereby confirms and authorizes the
issuance of shares of Common Stock, par value $.01 per share (the "Common
Stock") of the Company, in connection with the Conversion Notice (as defined in
the Equity Purchase Agreement) attached hereto. Specifically, the Company
hereby confirms the following information:
Conversion Date: ________________________________
Aggregate outstanding principal amount of
Equity Purchase Agreement prior to this
--------
conversion: ________________________________
Aggregate principal amount to be converted:________________________________
Aggregate outstanding principal amount of
Equity Purchase Agreement after this
-----
conversion: ________________________________
Conversion Price per share: ________________________________
Number of shares of Common Stock to be issued:_____________________________
The shares of Common Stock into which the Equity Purchase Agreement is being
converted shall be issued in the name and to the address as set forth in the
applicable Conversion Notice.
Authorized Signature ____________________________________________
Name:_______________________________________
Title:______________________________________
Phone #:____________________________________
Fax #:______________________________________
-19-
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated March 17, 2000, accompanying the consolidated
financial statements of Mace Security International, Inc. and subsidiaries
included in the 1999 Annual Report on Form 10-KSB for the year ended December
31, 1999 which is incorporated by reference in this Registration Statement. We
consent to the incorporation by reference in the Registration Statement of the
aforementioned report and to the use of our name as it appears under the caption
"Experts."
/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
April 7, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-_____) and related Prospectus of Mace
Security International, Inc. for the registration of up to 3,285,405 shares of
its common stock and to the incorporation by reference therein of our report
dated December 16, 1999 with respect to the consolidated financial statements of
Mace Security International, Inc. as of December 31, 1998 and for the year then
ended included in Mace Security International, Inc.'s Form 10-KSB for the year
ended December 31, 1999 filed with the Securities and Exchange Commission
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
April 7, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement of
Mace Security International, Inc. on Form S-3 to be filed on or about April 10,
2000 of our report dated April 2, 1999 on the consolidated financial statement
(before restatement) of Mace Security International, Inc. (the "Company"),
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999, and to all references to our firm included in this
registration statement.
/s/ URBACH KAHN & WERLIN PC
Albany, New York
April 10, 2000
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement of
Mace Security International, Inc. on Form S-3 to be filed on or about April 10,
2000 and to the use of our name as it appears under the caption "Experts" of our
report dated September 14, 1999, with respect to the combined financial
statements of 50's Classic Car Wash of Lubbock, Inc. and CRCD, Inc. included in
Mace Security International, Inc.'s Annual Report on Form 10-KSB for the year
ended December 31, 1999, all filed with the Securities and Exchange Commission.
/s/ D. WILLIAMS & CO., P.C.
Lubbock, TX
April 10, 2000
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement of
Mace Security International, Inc. on Form S-3 to be filed on or about April 10,
2000 and to the use of our name as it appears under the caption "Experts" of our
report dated September 18, 1999, with respect to the financial statements of
Innovative Control Systems, Inc. included in Mace Security International, Inc.'s
Annual Report on Form 10-KSB for the year ended December 31, 1999 and our report
dated February 10, 2000, with respect to the financial statements of Cherry Hill
Car Wash, Inc. and 1505 Associates included in Mace Security International,
Inc.'s Current Report on Form 8-K dated December 29, 1999 (as amended March 9,
2000 on Form 8-K/A), both filed with the Securities and Exchange Commission.
/s/ DANIEL P. IRWIN AND ASSOCIATES P.C.
Strafford-Wayne, Pennsylvania
April 10, 2000
