PhillyInc

"For the second year in a row, Mace has experienced weakness in its internal controls and errors in financial reporting that have not only delayed its SEC filings to the point of a threatened delisting of its stock but have also forced Mace to incur substantial (but) undisclosed costs. ... We believe that the company has incurred millions of dollars in investigative and legal expense as the result of these matters and that these costs do not include the disruption to the company's business and harm to its brand and reputation. There is simply no excuse for such poor board oversight at a public company in today's governance environment."

PhillyInc put in a call today to Mace, but no answer yet. Lawndale hit a chord on Wall Street: News of its demands today sent Mace's shares up more than 5 percent, to $2.57 from $2.44.

In January, Kelly Capital, another investor, offered $45.8 million for the company. That bid, which equaled $3 per share, was rejected as too low. Mace then asked Kelly if it would consider raising its bid, but it declined. Kelly Capital's senior vice president, Joe Altman, told PhillyInc he is still prohibited by a confidentiality agreement from discussing details of his company's discussions with Mace. His company no longer owns Mace shares.

Mace's shares have rebounded slightly this year, up about 2 percent, as the company continued selling off a national car-wash chain which Paolino tried to build up. But Shapiro insists the stock price doesn't adequately reflect the value of the company. As if putting his money where his mouth is, Shapiro has now increased Lawndale's stake in Mace to 9.3 percent from 7.5 percent in December.

Shapiro isn't alone in his criticism of Mace's management. Proxy advisers Glass Lewis & Co. L.L.C. and Institutional Shareholder Services criticized the company's compensation committee for negotiating a three-year deal with Paolino that gave him stock options that vested immediately instead of over several years, which is more typical. Paolino also can receive bonuses for both buying and selling businesses, which shareholders argued encouraged him to do deals that were not in the best interest of shareholders, a criticism rejected by Mace.

At the company's shareholder meeting in December, Lawndale and No. 2 shareholder Ancora Capital withheld their votes from the incumbent directors, including Drexel University President Constantine Papadakis. The directors were approved by 71 percent of the shareholders. Directors typically receive more than 90 percent in these types of votes.

Lawndale's candidates for its proposed three new board seats are: Eugene I. Davis, chief executive of Pirinate Consulting Group, L.L.C., which among other things specializes in restructuring companies (Davis also happens to sit on the board of Foamex L.P. in Linwood, Pa.); JL Development Co.'s chief executive Gerald T. LaFlamme, who oversees a real estate development and consulting firm; and Donald R. Raefied of Edge Integration Systems Inc., who Lawndale says has more than 25 years experience in the security industry. As for Shapiro's own ties with his candidates, he told PhillyInc in an interview that he serves on a board with LaFlamme but has no business connections with Davis or Raefield. Lawndale is based in Mill Valley, Calif.

- Jonathan Berr

In May, the company had disclosed what it called its own discovery in April of an internal embezzlement scheme by a former employee. In an SEC filing late yesterday, it blamed the former "divisional controller" of its Florida Security division, whom it didn't name. The company said it had undertaken an internal company probe. It also underwent an independent forensic investigation, which it said found that during fiscal 2006, the individual allegedly took about $240,000 and another $99,000 during the first fiscal quarter of 2007. Its filing says this:

"The embezzlement occurred from a local petty cash checking account and from diversion of customer cash payments at the Florida Security division. ... Additionally, the investigation uncovered an unexplained inventory shortage in 2006 in the Florida Security division of approximately $350,000."

It's unclear whether Mace is pressing criminal charges. Its civil lawsuit comes at a tense moment. Last month, Lawndale Capital Management head Andrew Shapiro, Mace's largest shareholder and a vocal critic of the company, publicly demanded that Paolino's brother Matthew step down from the board (he is also a vice president) and to increase the size of the board to five seven members from three five. Shapiro also acquired more shares in Mace to further pressure the company to change. In an email to phillyinc, Shapiro said he was disturbed by the theft. He also noted the "ongoing deterioration in operating business lines with both car wash and security divisions suffering revenue and profitability erosion."

Mace spokesman Eduardo Nieves declined to say anything beyond the company's statements.

Shares of Mace are down about 2 percent for the year and fell 13 cents, or 5 percent, to $2.50 today in light pre-holiday trading. The company faces possible delisting from the Nasdaq for failing to file its paperwork with the SEC on time. The filing yesterday of fourth-quarter results showed Mace's net loss narrowed to $1.67 million, or 11 cents, compared with $4.34 million, or 28 cents a year earlier. Revenue fell 6.8 percent to $49.2 million amid a decline in the company's security business and the continued sell off a national car wash chain which is funding acquisitions of other companies. Though the company had positive working capital of $26.6 million as of December 31, Mace noted in the filing that it has a history of operating losses and may "substantially reduce the scale of our operations and curtail our business plan" if it can't raise additional money.

- Jonathan Berr

Contrary to our previous post on Bancroft family member Jane C. MacElree, her hometown of Newtown Square is in Delaware County, not Bucks. Sorry.

Also, it's worth pointing out this line from the company's SEC filing on what prompted her resignation as a co-trustee:

"Such resignations were in anticipation of, and prior to, the execution by the trustees of those trusts of a voting and support agreement by and among those trustees, certain members of the Bancroft family and News Corporation, a Delaware corporation (“News Corp.”), relating to an offer by News Corp. to acquire the Issuer."

Also note her resignation came amid the last-minute rumors on July 30. That was a day before investors panicked that the sale was off, and two days before news came out that the deal was "back" on.

- Thomas Ginsberg

Mace Security International Inc. (NASDAQ: MACE) Chief Executive Louis D. Paolino Jr., who trumpeted his company's plans to buyback $2 million in shares earlier this week, was blasted by his company's largest shareholder Andrew Shapiro and others over its stock buyback plans and its disclosure that it never actually bought any shares back under a $3 million repurchase plan announced in 2004.

Paolino discussed the stock-buyback-that-never-happened during his company's quarterly earnings conference call yesterday. And it led him to trade barbs with Shapiro, the head of Lawndale Capital Management LLC., who has been railing about Paolino and his management of Mace for many months.

During the call today, Shapiro said: "I've been astounded by what I have been hearing in the call." He said the 2004 buyback had been mentioned in filings since 2004, including one issued a few weeks ago, as fully authorized and ongoing.

Paolino snapped back that Mace was advised by its legal counsel that it needed a new board authorization for the new buyback, even though it never purchased any shares from its old plan. He said to Shapiro on the phone, for all to hear: "Hey, what is your issue with this. The rules are the rules."

When Shapiro asked Paolino why this year's buyback is smaller than the one (promised) in 2004, Paolino replied that there was a different "decision-making process." That's probably code for the stock is much cheaper. In 2004, it hit more than $7 and today trades under $2.

In an interview after the call, Shapiro said he wished Paolino had bought Mace stock instead of investing in other companies that turned out to be money-losers. This time, Shapiro said he hopes Paolino really does buy shares, but he said he isn't optimistic."After three years of a much larger buyback and the stock price collapsing providing innumerable downtick purchasing opportunities and with the company not acquiring a single solitary share, I see no reason to date that any shares under the current buyback will be acquired either."

Both Paolino and Shapiro agree that Mace's stock is cheap. Shares of the Mount Laurel company are down about 24 percent this year and are trading under the company's book value (total assets minus liabilities). Said Paolino: "Where the stock is right now – we're very excited to be buying it back. In fact, they're (the board) very open to discussing bigger buybacks."

- Jonathan Berr

Nicholas S. Schorsch, who was ousted last year from the REIT he founded, American Financial Realty Trust, doesn't see the $1.5 billion initial public offering of his new REIT called American Realty Capital Trust Inc. as a comeback or a return from the dead.

"The last time I checked, I hadn't died yet," Schorsch told PhillyInc in an interview from his office in New York City.

Whether Wall Street finds his spunk inspiring remains to be seen. Shares of Real Estate Investment Trusts, or REITS, have gotten pounded this year amid worries about the meltdown in the subprime mortgage market. The concerns have also have reached the commercial area. CB Richard Elis Group Inc., the largest commercial real estate broker, was downgraded yesterday by Goldman Sachs Group Inc. because of worries about a slowdown.

But Schorsch told us he is convinced that the time is "ideal" for his new REIT based in Jenkintown to go public.

"We have long-term leases with 100 percent occupancy," he said, adding that his company will focus on mid-range properties. "The market is good for the investor because it gives really stable returns."

His new American Capital Reality is focusing on single-tenant retail properties net-leased to investment grade or other credit worthy clients. These properties are a better investment than malls or office buildings because, his filing yesterday said, they "generally require less management and operating capital and have less recurring tenant turnover. ... In addition, since we intend to acquire properties that are geographically diverse, we expect to minimize the potential adverse impact of economic downturns in local markets."

As MarketWatch notes, analysts questioned Schorsch's strategy at his old firm of focusing on smaller commercial space instead of large marquee properties. Former American Financial Realty board member William Kahane has also joined American Capital Realty. Harold W. Pote, who succeeded Schorsch at American Financial Realty, died in June while vacationing in Turkey. The Jenkintown company is conducting a search for a successor.

- Jonathan Berr

The saga continues: The No. 2 shareholder in Mace Security International Inc. (NASDAQ: MACE), the beleaguered security products company in Mount Laurel, says in an SEC filing that Mace had asked Richard Barone, who heads its No. 2 shareholder Ancora Capital Inc. of Ohio, to join the board of directors in place of Matthew Paolino - brother of Chief Executive Louis D. Paolino Jr. - as Mace looks to avoid a showdown with the top shareholder Lawndale Capital Management L.L.C.

Barone told PhillyInc he was surprised by the offer. He tells us that hadn't sought the job. And that's not all. "I've never talked to a single person over there. They don't know me," he told PhillyInc.

Either way, Barone is not getting a seat and Paolino isn't getting his support. According to the Ancora filing, Barone was offered the seat during a Sept. 7 telephone call from Mark Alsentzer, who chairs Mace's nominating committee. In exchange for the seat, Barone was expected to back the company's slate to the board of directors at the annual meeting this coming December. But not only did Barone turn down the offer. He also gave his backing to Lawndale Capital's board nominees. Like Lawndale, Ancora has grown frustrated with Mace's poor performance, including the 20 percent decline this year in its stock price.

Says the Ancora filing: "Mr. Barone noted the consistent operating losses over the past five years, a program of failed acquisitions, the inability to achieve operating efficiencies, the incident of fraud at the middle management level, the extraordinary high legal expenses associated with the hiring of alleged illegal aliens, and a compensation structure which rewards failure instead of success."

Lawndale, which has a 9.6 percent stake in Mace, called for Matthew Paolino's ouster from the five-person board in June. The investor also called for the board to be expanded to seven and proposed three people to fill those vacancies. None of the nominees have been contacted by Mace's independent directors, Shapiro said.

"It was actually a very hostile act toward our proposal," Shapiro said, adding that Lawndale was "very gratified" that Barone turned down Mace's offer.

Since Paolino is balking at expanding the board, Shapiro said he would consider a "less desirable alternative" of keeping the board at five instead of expanding it to seven. That's provided that a sufficient number of independent directors are new.

"Under this scenario, four of the five Mace board members would be independent, and three of the five would be new to Mace's Board," Lawndale said in a separate filing. "Lawndale believes, given the operating history and oversight experience of the nominees it submitted, either proposal it has made to Mace's Board would result in an improved board."

- Jonathan Berr

For leaders in the Latino community such as Will Gonzalez, these are challenging times. Not only is the public demanding immigration reform, but economic problems such as the meltdown in the subprime mortgage market threaten to eat away at the economic gains Latinos have made in recent years. Gonzalez runs Ceiba, a coalition of five Latino community groups founded in 1991. Gonzalez, 45, has been the leader since 2001. The group is named after a tree native to Caribbean noted for its resilience. In an interview with PhillyInc, Gonzalez, who also is an attorney, spoke about his background, the gains made by Latinos and the work that still lies ahead.

PhillyInc: Why did you become a community activist?
Gonzalez: Knowing that but for others that I would not have been in a better position. I know there are the traditional heroes that they have holidays for, but there are a lot of people at the grassroots level .... Today, there are so may people challenging the system.

December was a fortuitous month for eight Cephalon Inc. executives to make their annual stock sales or exercise their options worth millions of dollars, with the stock trading at a higher-than-usual level. The sales on Monday were posted by Robert P. Roche Jr., executive v.p. of worldwide pharmaceuticals; Carl A. Savini, executive v.p. and chief administrative officer; Lesley Russell, executive v.p. of worldwide medical and regulatory affairs; Kevin J. Buchi, chief financial officer; Jeffry L. Vaught, executive v.p. and president of research and development; John E. Osborn, general counsel and executive v.p.; Peter E. Grebow, executive v.p. of worldwide technical operations; Chairman and CEO Frank Baldino Jr.; and director Martyn D. Greenacre.

Spokeswoman Sheryl Williams noted that the eight officials were "taking advantage" of a five-week window to sell after the company announced its quarterly earnings. "It’s not tied to an event. It’s all about opportunity in the trading window to divest some of their options." Each still has significant holdings in the company.

- Linda Loyd

Robert Isom, the recently appointed operations chief at US Airways Group Inc., said in a Wall Street Journal article yesterday that one of the biggest reasons for the airline's troubled operations since its merger with America West was that officials from each company lacked "a common focus as to what's important to fix." But Isom says he is trying. He has centralized control over decisions by US Airways' individual airport managers whether to delay a flight. He told the WSJ he hoped to have operations "back on track" in 2008. We'll be watching.

Entrepreneur Linda Rosanio learned her earliest lessons about business from her parents, Anthony and Nancy Catelli. In 1946 her late father founded what’s now known as Catelli Brothers Inc., the Collingswood-based provider of lamb and veal products, her mother, who is now 80, kept order in a house with seven children.

The training has served her well. Rosanio, 52, heads the Star Group of Cherry Hill, one of the largest advertising and public relations agencies in the Delaware Valley, where business is soaring so much that it hired 100 people last year alone. In addition, she also owns Catelli Ristorante in Voorhees, which Zagat readers call one of the top in the region for Northern Italian cuisine. Rosanio also is active in civic causes, serving on the boards of the Pennsylvania Ballet, The American Red Cross Southeastern Pennsylvania Chapter and the Garden State Discovery Museum.

In an interview with PhillyInc, Rosanio discussed her family, her business interests and her take on the local and national economy.

Q: What did you learn about business by growing up in such a large family?
A: We had to learn how to work together. I have numerous partners. I am able to let them do their thing. You have to be able to have other people have the limelight and do what they do. I learned that from being able to share with my siblings.