Lawndale Capital files 13D/A in P&F Inds - calls for board actions; increases position to 9.7%

Lawndale Capital Mgmt files amended 13D in P&F Industries. (O-PFIN);
Letter calls for improved board independence and reduced CEO compensation; Increases position to 9.7%

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 more than 17 years.  

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In February 2010, Lawndale submitted the names and backgrounds of five highly qualified and independent individuals for possible addition to P&F’s Board. Around May 4, 2010, PFIN mailed proxies for its 2010 Annual Meeting containing only its current board members as nominees for election to new 3-year terms.  On May 25, 2010, Lawndale sent PFIN’s Board a letter (the “May 2010 Letter”, a copy of which is attached as Exhibit 1 hereto, and incorporated by reference to this filing) informing them of Lawndale’s intent to vote its shares, then equal to 7.5% of PFIN, to “Withhold” on the re-election of PFIN’s nominees.  The May 2010 Letter to PFIN’s Board set forth Lawndale’s rationale for its concerns and vote, the major points of which were that: 

• Horowitz’ compensation is wholly inappropriate for P&F’s small size and holding company structure

• The only shareowner to benefit from the Horowitz era has been Horowitz

• P&F’s board requires increased independence by means of new directors from outside “the club”

Leading independent proxy advisory services Proxy Governance and RiskMetrics both criticized P&F’s corporate governance (and in the case of Proxy Governance, its excessive CEO compensation as well) and recommended Withhold votes for its clients. Voting results from the June 3, 2010, Annual Meeting disclosed roughly 30% of the votes cast for each of the nominees were voted Withhold.

In the September 17th Letter, Lawndale requested that PFIN’s Board:

• Improve its independent composition and reduce its size by removing or replacing conflicted directors, particularly Director Dennis Kalick, one of Mr. Horowitz’ personal tax advisors

• Consider strategic alternatives, including the sale of the company for a control premium to a synergistic buyer, prior to renewing Mr. Horowitz’ contract 

• Reduce or eliminate the egregious compensation terms such that any new contract with Mr. Horowitz contains lower “guaranteed” base compensation, greatly reduced supplemental profit sharing payments, and no “Golden Parachute” severance terms 

Lawndale has offered to source additional director candidates to PFIN’s Board as needed, and requested a meeting or conference call with PFIN’s Board to discuss constructive actions to further improve corporate governance and maximize value for all P&F shareowners. 

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.