Mace fails to acquire three law enforcement-related firms

Mace Security International, Inc stockholders have had reason to stay alert the past two years. Change has been the name of the game at this Bennington-based manufacturer of defense sprays and safety and security products for the consumer and law enforcement markets.

Now, the proposed acquisition of three companies is off, sales are down, and profits are up.

The date to watch was May 1, when a purchase of three businesses by MSI was expected to take place, and, pursuant to the agreement, a new company president and CEO was to take office.

The proposed acquisitions of Gould and Goodrich Leather Inc, Howard Uniform Company and Balco Uniform Corp, which all supply the law enforcement sector, was to turn the company around financially. The deal would have increased distribution channels overseas and encouraged "one stop shopping" for police departments buying defense sprays, uniforms and leather holsters, according to Kelly Donahue, corporate communications director.

Within days after making that statement, the deal was dropped. Mace said in a press release dated May 9 that, "Howard Uniform Company and Balco Uniform Cap Corp terminated their letters of intent with the company due to, among other things, unsatisfactory results of their due diligence review of Gould & Goodrich Leather, Inc, the third of the Company's (MSI's) three acquisition candidates. The purchase by the Company of Howard Uniform Company and Balco Uniform Cap Corp was contingent upon the simultaneous purchase of Gould & Goodrich Leather Inc. Consequently, the Company has terminated its Letter of Intent to purchase Gould & Goodrich Leather Inc."

Commenting on those events in the press release, MSI president and CEO Robert D Norman said, "In light of the first quarter results, we believe that the Company is well positioned to be profitable for fiscal 1996, notwithstanding that the three potential acquisitions will not take place. We will continue to focus on strengthening current operations while continuing to explore potential growth opportunities."

Mace announced in the same release that its first quarter 1996 sales were $3 million, compared to $3.9 million in the first quarter of 1995. Also that net income was $88,694 for the first quarter, or 1 cent per share, compared to a net income of $19,838, or 0.0 cents per share last year.

On those numbers, Norman said, in part, "We are extremely pleased with the first quarter results... We plan to continue with the cost-cutting program, including a streamlining of operations and the elimination of nonessential expenses and personnel."

On March 22, MSI signed binding letters of intent for the acquisition of all of the outstanding capital stock of the three companies, which would become wholly owned subsidiaries.

Jon E Goodrich and Robert P Gould -- the partners who founded MSI -- own the leather business, which manufactures and markets holsters and other leather products. Gould and Goodrich are directors and stockholders of the company, and Goodrich is chairman of the board and company vice president.

As part of the deal, Leather was to have repaid $650,000 in indebtedness to Gould and Goodrich. The company reported net sales of $6.2 million in 1995. Howard Uniform is owned by 321 Investments Inc, and Balco is owned by Rajan A Shamdasani, a significant stockholder of 321 Investments and president of Howard and Balco. Howard and Balco make and market uniforms. Howard reported net sales of $6.3 million and Balco net sales of $221,452 in 1995.

Under the acquisition agreement, Shamdasani would have become MSI president and CEO at an annual salary of $125,000 plus a bonus equal to 5 percent of the company's earnings before interest, taxes, depreciation and amortization (EBITDA).

Gould would have served as president of Gould and Goodrich Leather with the same salary deal as that of Shamdasani and would continue as consultant to MSI. Shamdasani and his brother, Ashok A Shamdasani, would become directors of the company. Goodrich, Gould and Norman would remain on the board of directors.

GOODRICH RELEASES REINS

Since the initial public stock offering of 1.5 million shares in November, 1993, MSI has expanded at its headquarters in the former Holden-Leonard mill on Benmont Avenue, acquired two businesses in 1994 -- Federal Laboratories, a division of TransTechnology Corp that manufactures tear gas grenades and projectiles, and Kindergard Corp, which designs and markets children's safety and security products -- introduced a host of new products, increased exports into global markets, and saw sales revenues climb to over $12 million annually, company assets reach $14 million and employment increase to about 135 workers.

But the company sustained a $700,000 operating loss in 1995, and the stock price fell from a high of $7.50 per share in March 1994 to $1.50 on April 3. Employment as of April 3 was down to 113 workers.

The creative force behind MSI's success, on Jon E Goodrich, has relinquished the top job. In June, 1995, he stepped down as chairman of the board of directors in favor of Middlebury lawyer Ralph A Foote. In the fall of 1995, a troika comprised of Goodrich, Gould and Norman, a CPA and member of the board of directors, replaced Goodrich as company president and CEO.

Reportedly unhappy with the arrangement, Goodrich resigned January 15, resuming the post of chairman of the board and accepting employment in an advisory capacity. Goodrich's annual salary dropped from $564,000 in 1993 to $125,00 as of January. The troika was abolished, and Norman became president and CEO at an annual salary of $110,000 plus bonuses and 20,000 shares of stock.

Goodrich's forte was development an marketing, and Norman's financial expertise was needed to restructure and recost both production and administration, Donahue said. The government shutdown in late 1995, when the company couldn't license and ship tear gas grenades and projectiles made by Federal Laboratories contributed to MSI losses in the fourth quarter. Intense competition in the consumer market and a shift in self-defense sprays to smaller, lower-priced units were factors in a 37 percent decline in sales revenues in that sector in 1995.

"We needed to figure out what direction to go. Internal costs of manufacturing the product were cut, inventory was cut to a more efficient level, and five to 10 employees in Bennington were laid off," Donahue said. Legalization of Mace defense sprays in California has created in a boom in the consumer market, she said.

Mary Day Bell of Pownal is a writer an editor for the Advocate of Williamstown MA, and a freelance writer. Timothy McQuiston contributed to this report.

Copyright Lake Iroquois Publishing, Inc. d/b/a Vermont Business Magazine Jun 01, 1996
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