Mace forced to pay $4m to former CEO
HORSHAM, Pa.—Mace Security International picked up steam on its current course of action, an attempt to become a pure-play security operation, with the termination of former CEO Louis Paolino in May of 2008. Now, nearly two years later, an arbitration panel has found the company must, indeed, pay Paolino a $4 million severance package and restore nearly $1.8 million in stock options as a result of his firing.
The panel found that Paolino did not engage in willful misconduct, as the Mace board claimed, and that Paolino was therefore entitled to the severance payment that was part of his employment agreement.
Mace has more than $9 million in cash on hand, and can afford the pay-out, but the settlement is a discouraging blow for a company that has lost more than $10 million in each of the last two fiscal years and has been struggling to attain profitability under new CEO Dennis Raefield.
Paolino “had a $3.8 million severance package for termination for any reason except cause,” Raefield told Security Systems News. “I cannot comment on how the arbitrators reached their decisions, since the facts seemed very clear from our side ... He was terminated by a unanimous vote of all board members except him. The board consisted of three new board members and two existing board members who were on the board for many years, and all the independent board members voted to terminate him for cause.”
But isn’t a $4 million severance package large for a company that had roughly $30 million in revenue at the time? “The approximately $4 million amount owed as severance is as ridiculous an amount today,” said Andrew Shapiro, president of large shareholder Lawndale Capital in an email, “as it was when Mr. Paolino’s egregious employment agreement was entered into that contained the excessive provisions calculating both severance amount and the definition of ‘cause’ determining when severance would be owed. As our prior 13D filings in 2006 and 2007 clearly pointed out, this 2006 agreement, entered into by Mace’s former directors, all hand picked by Mr. Paolino, was one of the main reasons we launched our proxy fight to oust the Paolino directors.”
Raefield said, “Mace is examining all our options, but we have not decided what course of action we will take, if any.” Rather, Raefield continues to work toward the future: “Mace has significant assets and a positive balance sheet and is making good progress toward profitability.”