Lawndale Capital Mgmt files amended 13D in P&F Industries (O-PFIN) requesting governance improvements

Letters to P&F Lead Independent Director calls for improvements to Board composition, corporate governance and executive compensation

In a filing with the SEC on January 18, 2013, Mill Valley, CA-based Lawndale Capital Management, LLC and its affiliates (“Lawndale”) filed SEC form 13D/A #4 in P&F Industries (“PFIN”) triggered by a January 8, 2013 letter to PFIN’s Lead Independent Director

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that requested PFIN take additional steps to improve PFIN’s Board composition and other corporate governance and executive compensation practices. In particular, Lawndale requested that PFIN not re-nominate two legacy directors with close social ties to PFIN’s Chairman/CEO, and that, should PFIN re-nominate these directors, Lawndale was prepared to nominate an alternative slate of directors to replace them.

Following this 8-K filing disclosure, Lawndale sent a letter on January 16, 2013 to PFIN’s Lead Independent Director

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commending PFIN for the positive and timely steps taken to further improve its Board composition. The expected composition of PFIN’s Board as presently proposed in its 8-K disclosure is acceptable to Lawndale and Lawndale no longer is considering nominating an alternative slate of directors at the 2013 Annual Meeting.

The January 16th letter reiterated Lawndale’s January 8th request for PFIN to implement additional corporate governance improvements towards Best Practices and to improve compensation policy/practices and the transparency of these improvements.  Lawndale has offered to assist and advise the Company in achieving these improvements as well as to to help PFIN source additional director candidates, should the Company seek to add additional Independent skills and experience onto its Board.

The Item 4 language of Lawndale’s filing is set forth, below, and the actual P&F 13D filing and January 8 and 16, 2013 letter exhibits can be found in SEC EDGAR filings for PFIN at: http://www.sec.gov/Archives/edgar/data/75340/000093583613000067/sched13damd4.htm

PFIN’s January 8-K filing disclosing the impending retirement of two of its legacy directors and changes to its Governance and Nominating Committee can be found at http://www.sec.gov/Archives/edgar/data/75340/000114420413002593/v332266_8k.htm.

P&F Industries, Inc., manufactures and/or imports air-powered tools sold principally to the industrial, retail and automotive markets, and also manufactures and/or imports various residential hardware such as kitchen and bath hardware, fencing hardware and door and window hardware, primarily to the housing industry. P&F’s products are sold under their own trademarks, as well as under the private labels of major manufacturers and retailers. Further information on P&F can be found at its corporate website: http://www.pfina.com/

Lawndale Capital Management, LLC is Mill Valley, CA-based investment advisor that manages activist hedge funds focusing on creating and unlocking shareholder value in small- and micro-cap companies for almost 20 years.  

For Further Information Contact:

Andrew Shapiro
President
Lawndale Capital Management, LLC
591 Redwood Highway #2345
Mill Valley, CA 94941
phone- 415-389-VALU (8258)
fax- 415-389-0180
e-mail- [email protected]

BLOG: http://seekingalpha.com/author/andrew-shapiro
Twitter: http://www.twitter.com/Lawndale1

Item 4.            Purpose of Transaction

As disclosed in prior filings, the Filers (“Lawndale”) have been in contact with P&F Industries (“PFIN” or the “Company”) management and members of PFIN’s Board of Directors (the “Board”) regarding concerns relating to P&F’s Board composition and corporate governance practices as well as the company’s senior executive compensation programs and policies.

At PFIN’s 2010 and 2011 Annual meetings, Lawndale voted against reelection of certain legacy directors and the Company’s Executive Bonus Plan and explained its rationale to PFIN’s Board via letters dated May 25, 2010, September 17, 2010 and May 24, 2011 (copies of which were attached at Exhibit B of its Schedules 13D, Amendments No. 1, 2 & 3, respectively, and incorporated by reference to this filing.)

Lawndale has noted that the PFIN Board has taken some constructive steps towards addressing its concerns, including but not limited to:
 

• Adding two Independent directors, including Howard Brownstein, who was recommended by Lawndale;

• “Retiring” two legacy directors, including one of Chairman/CEO Richard Horowitz’ personal tax advisors;

• Entering into a somewhat reduced, reconfigured and shorter duration Employment Agreement with Chairman/CEO Horowitz;

Following these incremental steps, Lawndale continued to have dialogue with PFIN’s Lead Independent Director, Mitch Solomon, to address Lawndale’s continuing concerns with respect to PFIN’s Board composition, corporate governance practices, and the Company’s executive compensation programs/policies, which Lawndale believes require further improvement.

On January 8, 2013, Lawndale sent a letter (the “January 8th letter”) to Lead Independent Director Solomon (a copy of which is attached at Exhibit B hereto, and incorporated by reference to this filing) informing him of Lawndale’s further increased ownership in PFIN to become the Company’s largest independent shareowner. The letter also set forth Lawndale’s request that the Company:
 

1)   further improve its Board composition via the retirement of certain conflicted and very long-term legacy directors;
 
2)   further implement best governance practices [e.g. Declassify staggered board terms; establish director stockownership requirements, consider term limits; eliminate the Shareholder Rights Plan/”Poison Pill”; separate Board Chairmanship from the CEO position, etc.]; and
 
3)   further improve Compensation Policy practices [e.g. shorten duration of options grants; establish true “reach” performance thresholds for restricted stock grants and other incentive bonus compensation- taking into account cyclical nature of the Company’s targeted market, etc.]  

The January 8th Letter further communicated that Lawndale was prepared to nominate alternative directors to replace two long-term legacy directors with close social ties to Chairman/CEO Horowitz, who were likely candidates for re-election to 3-year terms at the coming 2013 Annual Meeting.

While Lawndale acquired the Stock solely for investment purposes, Lawndale has been and may continue to be in contact with PFIN management, members of PFIN’s Board, other significant shareholders and others regarding alternatives that PFIN could employ to maximize shareholder value. Lawndale may from time to time take such actions, as it deems necessary or appropriate to maximize its investment in the Company’s shares. Such action(s) may include, but is not limited to, buying or selling the Company’s Stock at its discretion, communicating with the Company’s shareholders and/or others about actions which may be taken to improve the Company’s financial situation or governance policies or practices, as well as such other actions as Lawndale, in its sole discretion, may find appropriate.

Andrew Shapiro 
President 
 
January 8, 2013 
By e-mail 
 
Mitch Solomon 
Lead Independent Director  
P&F Industries 
 
Dear Mitch: 
 
I hope you had an enjoyable holiday. 
 
Lawndale Capital Management, LLC, through the funds it manages, has added to its investment in P&F 
Industries, Inc. (“P&F” or the “Company”), increasing its ownership to 9.99% of the Company, making 
Lawndale and its affiliates (“Lawndale”) P&F’s largest independent shareowner.   This letter is to follow up and 
move forward upon our September 2012 dialogue with respect to Lawndale’s continuing concerns with respect 
to P&F’s Board composition and corporate governance practices as well as the company’s senior executive 
compensation programs and policies.   
 
We acknowledge that P&F’s stock price has increased meaningfully over the past year, stemming from an 
economic rebound in markets the Company serves.  However, P&F’s share price and Enterprise Value remain at 
sizable discounted valuation multiples to Revenues, EBITDA, Earnings as well as Book Value.  This “discount” 
should communicate to you and the Board that the investment community continues to penalize P&F’s valuation 
for corporate governance structures and executive compensation practices still too weak to appropriately protect 
shareholders from de-facto Horowitz family-control. 
 
Like the market’s, our concerns about P&F’s corporate governance and compensation practices remain high. In 
particular, we remain resolute that P&F needs to:  
 
• Further improve its Board composition via the retirement of certain conflicted and very long-term legacy 
directors; 
 
• Further implement best governance practices [e.g. Declassifying staggered board terms; establishing 
director stockownership requirements, consider term limits; eliminate the Shareholder Rights 
Plan/”Poison Pill”; Separate Board Chairmanship from CEO position, etc.] 
 
• Further improve Compensation Policy practices [e.g. shorten duration of options grants; establish true 
“reach” performance thresholds for restricted stock grants and other incentive bonus compensation taking 
into account cyclical nature of P&F’s targeted market, etc.];  
 
Our previous communications to this Board (found at <<http://www.issgovernance.com/files/Comment-2011-
13.pdf>>) exposed the inordinate amount of Board members personally connected to P&F Chairman/CEO 
Richard Horowitz via membership and Board/Committee roles at the Glen Oaks Country Club.  As you should 
know, the class of P&F directors whose 3-year term is maturing at this upcoming May 2013 Annual Meeting 
includes both Mr. Robert Dubofsky and Mr. Alan Goldberg, who have served on P&F’s Board since 1990 and 
P&F Lead Independent Director 
January, 8 2013 
 
—————————————D———————————— 
591 Redwood Highway, Suite 2345, Mill Valley, California 94941 
(415) 389-8258 Fax (415) 389-0180 • E-mail: [email protected] 
1998, respectively.  These gentlemen are both Horowitz’ “pals” from the Glen Oaks Country Club, who, until a 
few years ago, served on the P&F’s Compensation Committee.   
 
Perhaps it is due to this Compensation Committee work over the years that, despite Mr. Dubofsky’s 23 years on 
P&F’s board during long periods of undervaluation, he last purchased PFIN shares over 5 years ago.  
Remarkably, after Mr. Goldberg’s 15 years on the board, he only owns 966 shares, including 666 restricted 
shares recently granted to directors.  
 
We note that both Directors Dubofsky and Goldberg received a huge 30% “withhold” vote at their last re-
election in 2010.  30% voting “Withhold” is a remarkable tally when considering Mr. Horowitz, Board 
members, other affiliated entities and insider family members held upwards of 35% of all of P&F’s shares and 
Lawndale did not solicit other shareholder proxies in 2010.  
 
It is imperative for P&F to elect highly qualified and engaged directors whose interests and actions are aligned 
with shareholders and who are free of conflicts under both the letter and spirit of listing regulations.  In the past, 
Lawndale has provided your Governance/Nominating Committee with the names and background information of 
highly qualified independent director candidates that P&F would be lucky to have serve on its board.   In our 
opinion, the individuals we have nominated for your Board in the past, and are prepared to directly nominate for 
this May 2013 election, are far superior candidates for P&F’s Board than Directors Dubofsky and Goldberg.  
Should you choose to re-nominate these legacy directors for another 3-year term, we feel P&F’s other 
shareholders would see the obvious advantage of electing our nominees over your legacy directors 
 
It is not Lawndale’s goal or purpose to mount a distracting and costly proxy fight, forcing alternative directors 
onto your Board.  Such a campaign can be avoided with the Board’s formal commitment to a roadmap with 
measurable milestones showing continued progress toward further improved board composition and 
implementation of additional best practices in corporate governance and executive compensation.  
 
However, P&F’s special advance notice by-law deadline for shareholders to submit alternative director 
nominations is rapidly approaching.  This nomination deadline causes the need for our concerns to be formally 
addressed by the P&F Board sooner, rather than later.  Unless, P&F is prepared to formally waive its advance 
notice requirements for board nominations, Lawndale needs to know what actions will be taken toward 
addressing our concerns before the nomination deadline is upon us.  While it is our goal to dialogue over these 
issues privately, in light of the possibility of our nominating an alternative slate of directors and mounting a 
proxy contest, as a 13D filer, we are compelled to disclose this communication in an amendment to our 13D 
filing in the coming days. 
 
We believe it is in the best interests of P&F’s shareowners for you to work together with us to expeditiously 
improve the Board’s composition and the Company’s corporate governance and executive compensation 
practices.  I would appreciate you and/or Governance Committee Chair, Howard Brownstein, contact me at the 
earliest opportunity to move forward addressing the concerns we have previously discussed and outlined, above.  
 
Sincerely, 
 
 
 
Andrew Shapiro 
President

Andrew Shapiro 
President 
 
January 16, 2013 
By e-mail 
 
Mitch Solomon 
Lead Independent Director  
P&F Industries 
 
Dear Mitch: 
 
We just saw P&F Industries’ (“P&F” or the “Company”) 8-K filing, announcing that both Directors Dubofsky 
and Goldberg will complete their long-standing membership on P&F’s Board at this coming May 2013 Annual 
Meeting.  We thank both Bob and Alan for their past service and wish them well in the future.  
 
We appreciate the pace at which P&F’s Board addressed some of our lingering corporate governance concerns, 
most recently communicated in our January 8, 2013 letter to you.   
 
Has the Board determined whether it might seek one or more replacements to strengthen any perceived 
weaknesses in Board composition?  While we don’t know what the Board feels is needed, we have successfully 
found and nominated highly qualified and proven board members for both P&F [e.g. Howard Brownstein] and 
other Lawndale portfolio companies and could assist you with finding top quality new directors who are 
qualified, independent and engaged. 
 
While we appreciate the continued steps P&F has taken to move toward a “Best Practices” board composition, 
we hope the Board does not stop there, but will have further dialogue with Lawndale: 
 
• to implement additional corporate governance  improvements [e.g. Declassifying staggered board terms; 
establishing director stockownership requirements, consider term limits; eliminate the Shareholder 
Rights Plan/”Poison Pill”; Separate Board Chairmanship from CEO position, etc.] towards Best 
Practices; and 
 
• to improve Compensation Policy practices or transparency of improved practices [e.g. shorten duration 
of options grants; establish true “reach” performance thresholds for restricted stock grants and other 
incentive bonus compensation taking into account cyclical nature of P&F’s targeted market, etc.] 
 
While these remaining needed reforms do not carry the time sensitivity that Director nominations did, we hope 
that the Board would work with us toward implementing additional improvements prior to and as part of this 
May’s 2013 Annual Meeting.  We look forward to hearing from you.  
 
Best Regards, 
 
 
 
Andrew Shapiro 
President