Lawndale Capital Mgmt files amended 13D in P&F Industries. (O-PFIN); Letter to PFIN Board re: vote intent

Lawndale Capital Mgmt files amended 13D in P&F Industries. (O-PFIN); Letter to PFIN Board re: vote intent

Lawndale Capital Mgmt files amended 13D in P&F Industries. (O-PFIN); Letter to PFIN Board re: vote intent

In a filing with the SEC on May 2, 2013, Mill Valley, CA-based Lawndale Capital Management, LLC and its affiliates (“Lawndale”) filed SEC form 13D/A #5 in P&F Industries (“PFIN”) triggered by a April 29, 2013 letter to PFIN’s Lead Independent Director and Board (attached)  announcing Lawndale’s intent and rationale to vote its 10% of PFIN shares at the Company’s May 22, 2013 Annual Meeting as follows:

• “AGAINST” approval of executive compensation resolution (“Say-On-Pay”) [ Proposal #3];

• “WITHHOLD” on re-election of Richard Horowitz as Director [Proposal #1:]

The item 4 language of Lawndale’s filing is set forth below.  Lawndale’s 13D/A filing, which further explains Lawndale’s voting rationale, can be found on SEC Edgar at: http://www.sec.gov/Archives/edgar/data/75340/000093583613000307/sched13damd5.htm

Other Links

P&F Industries Proxy for its 2013 Annual Meeting to be held on May 22, 2013:
http://www.sec.gov/Archives/edgar/data/75340/000114420413024131/v341400_def14a.htm

Lawndale’s most recent 13D/A #4 filing(January 18, 2013) including letter exhibits to P&F Board:
http://www.sec.gov/Archives/edgar/data/75340/000093583613000067/sched13damd4.htm

Lawndale’s 13D/A #3 filing (May 25, 2011) including letter exhibit to P&F Board:
http://www.sec.gov/Archives/edgar/data/75340/000093583611000074/pf13da.htm

For a discussion of improvements and remaining weaknesses in Mr. Horowitz’ employment agreement, see Andrew Shapiro’s SeekingAlpha.com article, “Activism Adds to the Bottom Line at P&F Industries”
http://seekingalpha.com/article/320524-activism-adds-to-the-bottom-line-at-p-f-industries

Lawndale is not seeking to act as a proxy for any shareholder. We will not accept proxy cards, and any proxy cards received will be returned.

Melville, New York-based P&F Industries, Inc., through its two wholly-owned subsidiaries, Continental Tool Group Inc. and Countrywide Hardware, Inc., manufactures and/or imports air-powered tools and housing hardware. Its 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/

About Lawndale Capital Management, LLC
Lawndale Capital Management, a San Francisco Bay Area-based investment advisor, has managed activist hedge funds focused on creating and unlocking shareholder value in small- and micro-cap companies for over 19 years.  Lawndale applies a private equity approach through active and relational ownership of public company securities.  In most investments, Lawndale plays a constructive relational role by actively working with boards and management teams to help them achieve their strategic and operating goals. In other instances, Lawndale is a direct value-unlocking catalyst, utilizing a range of tools that include aggressively promoting improvements in a company’s governance and operational structures, proxy actions, asserting shareowner’s legal rights and taking active roles in restructuring and buyout proposal negotiations.
 
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]

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 executive compensation policies and the Board’s composition and corporate governance practices.  Over several years, Lawndale has requested implementation of constructive changes that would further improve corporate governance, better align management and directors with shareowners’ interests, and maximize value for all PFIN shareowners.

On April 26, 2013, PFIN filed its Proxy for the 2013 Annual Meeting of Stockholders (the “Proxy”), setting a meeting date of May 22, 2013, providing disclosure on both corporate governance and compensation, and soliciting support for several proposals, including, but not limited to, (Proposal #3) P&F’s first-ever “Say-On-Pay” advisory vote on executive compensation, which P&F’s Board requests shareholders approve.

After careful review of the disclosures and discussion in the Proxy, Lawndale intends to vote its shares:
 
1)   “AGAINST” approval of the executive compensation resolution (“Say-On-Pay”.) [Proposal #3];
 
2)   “WITHHOLD” on re-election of Richard Horowitz as Director [Proposal #1]

On April 29, 2013, Lawndale sent a letter to Lead Independent Director Mitchell Solomon and the rest of PFIN’s Board of Directors (a copy of which is attached at Exhibit B hereto, and incorporated by reference to this filing) informing them of Lawndale’s voting intent and rationale for its vote.  As disclosed in greater detail in the April 29th letter, among the reasons for its vote “AGAINST” approval of the compensation resolution, Lawndale cited its belief that:

• For a $32 million market cap holding company as small as P&F, with autonomous divisions generating only $60 million in Revenue and $3.9 million in Operating Income, $2.3 million in total compensation for simply the company’s Chairman/CEO and COO/CFO, whether classified as base salary or performance bonus, is excessive and egregious.

• Both the “reduced” $650K/year base salary in Chairman/CEO Richard Horowitz’ new 2012 employment agreement and COO/CFO Joseph Molino’s 2012 base compensation of $350K remain too high for a company of P&F’s very small size.

• The jump in Mr. Horowitz’ performance bonus from 2011 to a huge $823K bonus in 2012 illustrates how P&F’s Compensation Committee has mis-applied its new annual discretion to set performance targets by ignoring the fact that P&F serves cyclical sectors, rebounding off their troughs.  Lawndale believes P&F’s performance bonus “target” and thresholds have not been set at appropriately high enough goals, requiring sufficient organic growth above its customer’s cyclical rebound.  P&F’s Proxy has not provided sufficient disclosure regarding performance targets and thresholds to dispute Lawndale’s belief.

• The COO/CFO’s total 2012 compensation of $723K for a company of P&F’s size is excessive. With Mr. Molino not subject to an employment agreement that prevents the Board from immediately restructuring his compensation, the Board’s failure to “right-size” this excessive pay is fiduciarily questionable.

• The Compensation Committee continues the archaic practice of granting options with excessively long and overly costly 10-year duration and no post-exercise holding requirements.  After over 15 years as the Company’s CFO, and receiving thousands of option grants, Mr. Molino only owns a paltry 500 PFIN shares, worth less than $5000.

As also disclosed in greater detail in the April 29th letter, among the reasons for Lawndale’s vote “WITHHOLD” on re-election of Richard Horowitz as Director, Lawndale cited its belief that:

• Several bad governance structures (e.g. Classified (“staggered”) 3-year board terms, no majority vote requirement for director election, almost non-existent rights for shareholders to call a Special Meeting or remove a director, etc.) continue to insulate P&F directors from making further necessary improvements in P&F’s compensation practices.

• The pace of reforming these bad structures is directly influenced and opposed by Chairman/CEO Horowitz, who is standing for reelection.  Lawndale believes voting “WITHHOLD” on Mr. Horowitz, while not interfering with his re-election, sends a further message to P&F’s Independent directors that shareholders desire adoption of governance Best Practices and repeal of the Company’s archaic barriers for director accountability.

The April 29th letter highlighted for the Board that, despite the Horowitz family and other insiders owning over 40% of P&F’s shares, around 60% of PFIN shares are owned by investors who require and look to P&F’s Independent directors to appropriately represent and protect independent investor interests. Lawndale believes that Independent directors should properly view any “AGAINST” or “WITHHOLD” vote at levels near or greater than 50% of the non-insider shares that vote (e.g. between 20-30% of total outstanding shares) as a resounding message that the board has not gone far enough to reform P&F’s compensation and corporate governance policies and structures.
 
Lawndale believes the public market value of PFIN is undervalued by not adequately reflecting the value of PFIN’s business segments and other assets, including certain long-held real estate.

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.