0001162893-12-000001.txt : 20120110
0001162893-12-000001.hdr.sgml : 20120110
20120110163354
ACCESSION NUMBER: 0001162893-12-000001
CONFORMED SUBMISSION TYPE: SC 13D/A
PUBLIC DOCUMENT COUNT: 4
FILED AS OF DATE: 20120110
DATE AS OF CHANGE: 20120110
FILED BY:
COMPANY DATA:
COMPANY CONFORMED NAME: STABOSZ TIMOTHY J
CENTRAL INDEX KEY: 0001162893
FILING VALUES:
FORM TYPE: SC 13D/A
MAIL ADDRESS:
STREET 1: 1307 MONROE STREET
CITY: LA PORTE
STATE: IN
ZIP: 46350
SUBJECT COMPANY:
COMPANY DATA:
COMPANY CONFORMED NAME: P&F INDUSTRIES INC
CENTRAL INDEX KEY: 0000075340
STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540]
IRS NUMBER: 221657413
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: SC 13D/A
SEC ACT: 1934 Act
SEC FILE NUMBER: 005-39826
FILM NUMBER: 12520339
BUSINESS ADDRESS:
STREET 1: 445 BROADHOLLOW ROAD
CITY: MELVILLE
STATE: NY
ZIP: 11747
BUSINESS PHONE: (631)694-9800
MAIL ADDRESS:
STREET 1: 445 BROADHOLLOW ROAD
CITY: MELVILLE
STATE: NY
ZIP: 11747
FORMER COMPANY:
FORMER CONFORMED NAME: PLASTICS & FIBERS INC
DATE OF NAME CHANGE: 19671225
SC 13D/A
1
pf13d14.txt
SCHEDULE 13D AMENDMENT NUMBER 7
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(AMENDMENT NO. 7)
Under the Securities Exchange Act of 1934
P&F INDUSTRIES, INC.
-------------------------------------------------------------------------------
(Name of issuer)
COMMON STOCK
-------------------------------------------------------------------------------
(Title of class of securities)
692830508
--------------------------------------------------------
(CUSIP number)
TIMOTHY J. STABOSZ, 1307 MONROE STREET, LAPORTE, IN 46350 (219) 324-5087
-------------------------------------------------------------------------------
(Name, address and telephone number of person authorized to receive notices and
communications)
DECEMBER 28, 2011
--------------------------------------------------------
(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box. [_]
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
CUSIP No. 692830508
--------------------------------------------------------------------------------
1. Name of Reporting Person
TIMOTHY JOHN STABOSZ
--------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group (See Instructions) (a) [_]
NOT APPLICABLE (b) [_]
--------------------------------------------------------------------------------
3. SEC Use Only
--------------------------------------------------------------------------------
4. Source of Funds (See Instructions) PF
--------------------------------------------------------------------------------
5. Check Box If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) [_]
--------------------------------------------------------------------------------
6. Citizenship or Place of Organization UNITED STATES
--------------------------------------------------------------------------------
Number of (7) Sole Voting Power 292,508
Shares ____________________________________________
Beneficially (8) Shared Voting Power 0
Owned by ____________________________________________
Each (9) Sole Dispositive Power 292,508
Reporting ____________________________________________
Person With (10) Shared Dispositive Power 0
--------------------------------------------------------------------------------
11. Aggregate Amount Beneficially Owned 292,508
by each Reporting Person
--------------------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes [_]
Certain Shares
--------------------------------------------------------------------------------
13. Percent of Class Represented by Amount in Row (11) 8.1%
--------------------------------------------------------------------------------
14. Type of Reporting Person (See Instructions) IN
--------------------------------------------------------------------------------
ITEM 3. Source and Amount of Funds or Other Consideration
Item 3 is hereby amended and restated to read as follows:
Personal funds in the aggregate amount of $636,797.05 have been used to
effect the purchases. No part of the purchase price represents borrowed funds.
ITEM 4. Purpose of Transaction
Item 4 is hereby amended to add the following:
The respondent, who continues to hold the shares for investment purposes,
is filing this Amendment #7 to report an increase in his position in the
company's common stock to 8.1%, from the 7.0% previously reported in Amendment
#6, on September 9, 2011.
On December 26, 2011, the respondent sent an e-mail (see Exhibit #1) to
Compensation Committee members Kenneth Scheriff and Jeffrey Franklin, and Lead
Independent Director Marc Utay (for forwarding to the entire board). In the
e-mail, the respondent commented on the company's 8-K, filed on December 12,
2011, announcing that director Dennis Kalick would not stand for reelection at
the next annual meeting. Respondent requested the board fill the expiring
seat with a new "bonafide independent" member, "sourced from, or with the
approval of [the company's] major outside shareholders," or, alternatively, to
permanently reduce the board size to 7, and have one MORE of the legacy
directors, that are closely "tethered" to the CEO, Richard Horowitz, also step
down.
In addition, in the aforementioned e-mail, the respondent 1) repeated his
request that the board separate the roles of chairman and CEO, 2) repeated his
request that the board release the peer group company list utilized by the
Compensation Committee to establish a CEO employment agreement renewal, and 3)
asked the board to consider a "Dutch Tender" offer (assuming the financing
would be obtainable), for the company to buyback up to 500,000 shares of its
common stock, at a price range of $4-5.
On January 4, 2012, the company filed a Form 8-K, announcing a renewal of
CEO Richard Horowitz's employment for another 3 years. As the respondent
believed the $650,000 base pay in the contract to be excessive, and he had not
received, to date, a response from the board or Compensation Commitee on his
e-mail of December 26, 2011...on January 6, 2012, he sent a follow up e-mail
(see Exhibit #2) to the Compensation Committee, and entire board, in which he
1) indicated that the base pay for Mr. Horowitz's employment renewal was
"wholly inappropriate," and 2) formally demanded that the board release the
peer company group utilized in the outside compensation review. The board
responded, in a limited, "boilerplate," defensive, and noncommital fashion, by
e-mail, on January 7, 2012.
Finally, on January 10, 2012, the respondent sent an e-mail to the
Compensation Committee, and the entire board (see Exhibit #3). In the e-mail,
the respondent 1) noted the positive changes the compensation committee had
made in the new employment agreement. More significantly, the respondent
2) made a sweeping, broadbased, and damning case against the compensation
committee, for how the $650,000 base salary renewal for Mr. Horowitz remained
"unseemly," based on, among other things, a) the CEO's lengthy record of value
destruction, and b) peer group comparisons by an outside shareholder, and
respected advisory firm Proxy Governance, that suggested the base pay should
have been set at roughly HALF of what Mr. Horowitz was awarded. Also, the
respondent 3) again, implicitly and explicitly repeated his demand that the
board release the peer group companies utilized in the outside compensation
review.
Despite pernicious and ongoing issues related primarily to corporate
governance, and (of course) executive pay, the respondent believes the board
has been making frustratingly slow, and sporadic, progress, overall. The
respondent intends to continue to communicate, in public forums, press
releases, and amended 13D filings, as necessary and/or required by law, to
educate and inform the P&F shareholder base, and the broader "corporate
governance space," on P&F's corporate governance issues, lack of adequate
board independence, and the continued domination of the board, overall, by
members whose primary interest is advancing Mr. Horowitz's parochial,
pecuniary, and personal interests. Consequentially, respondent continues to
believe that P&F's common stock, while fundamentally undervalued, will
continue to trade at a discount to what "fair value" might otherwise be
perceived as. (The respondent believes that the Company has historically been
viewed by many investors, de facto, as a nominally public Company, being
operated primarily for the private gain of Richard Horowitz.)
ITEM 5. Interest in Securities of the Issuer
Item 5 is hereby amended and restated to read as follows:
At the close of business on January 9, 2012, respondent has sole voting
and dispositive power over 292,508 shares of P&F Industries, Inc.'s common
stock. According to the Company's latest Form 10-Q filing, as of November 11,
2011, there were 3,614,562 common shares outstanding. Respondent is therefore
deemed to own 8.1% of the Company's common stock. Transactions effected by the
respondent in the last 60 days, were performed in ordinary brokerage
transactions, and are indicated as follows:
10/31/11 bought 5478 shares @ $4.09
11/08/11 bought 5000 shares @ $3.87
11/10/11 bought 400 shares @ $3.60
11/11/11 bought 2000 shares @ $3.71
11/15/11 bought 722 shares @ $3.60
11/18/11 bought 100 shares @ $3.61
11/21/11 bought 3930 shares @ $3.62
11/23/11 bought 2500 shares @ $3.56
11/30/11 bought 100 shares @ $3.49
12/01/11 bought 1012 shares @ $3.49
12/05/11 bought 1500 shares @ $3.46
12/06/11 bought 1209 shares @ $3.48
12/07/11 bought 291 shares @ $3.48
12/22/11 bought 1500 shares @ $3.52
12/23/11 bought 1500 shares @ $3.52
12/27/11 bought 716 shares @ $3.43
12/28/11 bought 5591 shares @ $3.42
ITEM 7. Material to be Filed as Exhibits
Exhibit #1: E-mail dated December 26, 2011, from Timothy Stabosz, to the P&F
Compensation Committee, and to the entire board.
Exhibit #2: E-mail dated January 6, 2012, from Timothy Stabosz, to the P&F
Compensation Committee, and to the entire P&F board.
Exhibit #3: E-mail dated January 9, 2012, from Timothy Stabosz, to the P&F
Compensation Committee, and to the entire board.
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Date 01/10/12
Signature Timothy J. Stabosz
Name/Title Timothy J. Stabosz, Private Investor
EX-1
2
pf1.txt
E-MAIL TO P&F COMP. CMTE. AND BOARD DATED 12/26/11
Members of the P&F Compensation Committee
Kenneth Scheriff
Jeffrey Franklin
(and Board of Directors)
-- via e-mail --
December 26, 2011
Gentlemen:
I hope you had a pleasant holiday. While I'm sure our company's recent 8-K
filing was not intended to be a "seasonal present" to the outside shareholder
base, I have to admit I took it as a "beacon of hope," for your leading us
towards the eventual "promised land" of a fully independently governed P&F,
that provides the vigorous level of oversight of Mr. Horowitz that is both
desperately needed, and required. Likewise, on the Nominating Committee's
addition of Mr. Brownstein to its ranks...
....And yet, we are not where we need to be yet. Even with Mr. Kalick's
stepping down (next year) from the board, there will remain 4 of the "Horowitz
4" on the board (Messrs. Horowitz, Goldberg, Solomon, and Dubofsky), as
compared to 4 "bonafide unattached" independent directors in Utay, Scheriff,
Franklin, and Brownstein. With this in mind, it is imperative that the board
be reconstituted in a fashion such that decisions on things like future
acquisitions are not deadlocked between the "Horowitz 4," and you other 4
(with Richard breaking ties?), such that horribly misplaced priorities, for
P&F's broader shareholder base, are not inappropriately pursued, resulting in
poor allocation of capital, or worse, allocation of capital for the
self-serving ends of Mr. Horowitz, as has clearly happened in the past.
It is my hope, therefore, that the independent members of the board will
understand what is at stake, and will seek to fill the Kalick seat with a new
bonafide independent member, who is sourced from, or with the approval of, your
major outside shareholders. Alternatively, the board size could be
permanently reduced to 7, and one more of the "Horowitz 4" could choose to step
down from the board. In such a way, we can arrive at a point where the
Street can finally be assured, PRIMA FACIE, that P&F is being operated as a
bonafide public company, and not primarily for the private gain of Richard
Horowitz. You've taken a number of bold and important steps over the last 18
months, and I applaud you for it. I can assure you that these steps do not go
unnoticed on the Street, and will, over time, allow the company to be
accorded, I am convinced, a higher value, as P&F, and its board, attains a
fundamental CREDIBILITY in the marketplace, as the board builds its reputation
as an overseer. Bravo!
But, again, there's still work to be done. Nothing could more signify the
independence of the board, than the establishment of a contract, for P&F's
next CEO, that is appropriate to the company's level of income, sales, level of
CEO responsibility in a holding company structure, and peer group norms. I
fully expect (and demand!) that, should Mr. Horowitz seek, again, to extract an
amount from our company that is triple the peer group norms, despite his poor
performance, that he will promptly be shown the door, and that other
candidates will be interviewed for the position...or the position will be
considered for "downsizing" or possible elimination. There is nothing that
says that a one-third shareholder, as the son of the founder of the company,
has to remain employed by the company, just because of his family name. Or
worse, because of who he is "connected" to on "his" board. That's outrageous.
Similarly, Mr. Horowitz's penchant for "high living," and the attendant income
requirements, are SIMPLY IRRELEVANT to P&F's shareholder base, and I daresay
that a self-respecting Chairman of the Board of P&F, would damn well be able to
separate his own personal needs and desires....from his responsibilities to
his entire shareholder base. It is quite clear, from history, that Horowitz
has not, and is NOT CAPABLE of engaging the scruples required in this kind of
self-reflection...this to the detriment of P&F's ability to build shareholder
value for all, and, more importantly, from your perspective, to the detriment
of the image of integrity of P&F's board!
The fact of the matter is: Richard's salary, under his current contract, was
restored, and it absolutely SHOULD NOT have been. If Richard had any measure
of self-respect, vis a vis his credibility with the outside shareholder base,
and his self-image as a fiduciary, he would have INSISTED on a permanent
reduction (even if token!), for the remaining life of the contract. The fact
that he did not is morally damning. This is a major strike against Richard,
as it shows that his first loyalty is to himself, and not to the reality of a
shrunken down P&F, which HE should have willingly and readily taken
responsibility for. Should this not be a major consideration of yours, in
discussion of potential renewal of his contract? Does the board want to
"re-hire" someone who, I believe, has clearly evidenced he cannot be trusted
as a fiduciary...and cannot be trusted to separate, in his OWN mind, his role
as Chairman, versus his role as CEO?
With all of this in mind, I soberly remind you that your good names are being
counted on, in the current contract renewal discussions. I was NOT pleased
that the whole impression at the annual meeting that was provided to me was
that it was really "up to Richard" whether he stays or goes. I appreciate
your disabusing me of that notion, in our private phone call in September, but
the very troubling question is: Why was anyone afraid to publicly disabuse
RICHARD of that notion, AT the annual meeting? Why was everyone afraid to
assert the factual reality that it is not "up to Richard," ultimately, whether
he stays or whether he goes? Why was the CEO not, at least gingerly,
"slapped down" at the annual meeting, as he rightly should have been?? And
why has this board, historically, "walked on eggs" around Mr. Horowitz,
cow-towed to him, and ENABLED him, in his grandiosity, and self-absorption?
This is all the more reason why my previous request (and subsequent demand)
that you separate the Chairman and CEO roles remains a CRITICAL imperative at
P&F. Richard needs to be FORCED to think of himself as accountable to
something outside of himself, as it comes to running P&F. Where we got into
trouble, I am fully convinced, is that the two of you, and Marc, despite being
fundamentally decent men, did not have the VOTES to prevent Richard's cronies
from pushing through things that exclusively favored Richard, and were
ultimately INTENDED to favor Richard, without appropriate thought or
consideration to building value for ALL. I am relieved that you have asserted
yourselves, over time...but I remain frustrated that this board has had to be
PUSHED, in a number of cases, to take the actions that need to be taken.
In that regard, besides separating the Chairman and CEO roles, the other thing
that simply MUST be done, for the sake of YOUR credibility, is the immediate
releasing of the list of peer group companies, from the outside compensation
review you are utilizing. I full well understand the GAME that the board has
been playing with this issue, with regard to my demands. If it releases the
peer group list from the previous Nadel review, I expect such information would
be highly damaging to the previous Goldberg/Solomon Compensation Committee's
claim to integrity. Since the "Horowitz board," as a majority, is committed
to protecting Richard's cronies, a majority of the board has voted to not
release Nadel. You have (apparently) further voted to not release the peer
group from the current compensation study because there would be an
implication of silence and secrecy in not releasing the Nadel group. With
malice towards none, and charity for all, let me, therefore, propose, at this
time, a COMPROMISE, that involves looking to a better future for P&F, while
moving on from the recriminations of the past:
I WILL CEASE ALL PUBLIC DEMANDS FOR A RELEASE OF THE PREVIOUS GOLDBERG/SOLOMON
NADEL COMPENSATION REVIEW, IF THE BOARD AGREES TO IMMEDIATELY RELEASE THE PEER
GROUP LIST FROM THE CURRENT REVIEW YOU ARE UTILIZING. It is absolutely
imperative that you do this, as it is the job of the Scheriff/Franklin
Compensation Committee to show transparency, and build confidence, that the
basis for your decision is rooted in what is FAIR and APPROPRIATE. As you
full well know, your outside shareholder base has NO conviction of this, with
regard to the previous compensation committee, and the board has thumbed its
nose at providing any reassurance, in this regard. (The board wouldn't even
disclose to me whether and which of its directors have reviewed the previous
Nadel peer group, which is, frankly, despicable.) The notion that P&F's
small size justifies "running away" from an obligation that you would
otherwise be required to fulfill, as a public company (especially considering
what went on with the previous compensation committee), would only serve to
keep the kind of "dark cloud" over the Scheriff/Franklin Compensation
Committee, that hung over Goldberg/Solomon Compensation Committee. Release
the peer group now, and show your shareholder base that you have pledged to
operate in a context of openness and accountability for the future. Is that
really too much to ask? When, as I expect, you come up with a compensation
arrangement for Mr. Horowitz that is (presumably) lower than the expiring
contract, but still WAY above peer group norms, as indicated by Proxy
Governance, myself, Lawndale Capital, or other observers....but you are not
willing to RELEASE that peer group list, is there any reason you shouldn't
expect to be called on the carpet for that?
Finally, with the recent weakness in P&F stock, I have been increasing my
position, and am now up to 7.9% ownership, which is less than 2000 shares shy
of the 8.0% level that would require my filing a 13D Amendment. (This
represents, I should note, my largest position EVER in P&F.) I fully expect
to "trigger" that requirement this week. It would be nice if I could say that
one of the reasons that I have been increasing my position in P&F stock is
because I think that, besides the asset base, and going concern value of the
company, that the governance of the company is improving at a rate that
justifies, in my mind, a higher public market valuation. Your fulfilling
some of the requests I note above....but most importantly, hiring on P&F's next
CEO for a pay package that is CREDIBLE, would go a long way in this regard.
Let me just suggest, before closing, we need to be buying back stock. A Dutch
Tender for up to 500,000 shares at $4-5 is a wonderful way to increase value
that, in my mind, is likely more accretive than ANY possible acquisition
candidate. I believe we now have the financial strength to be entertaining
this kind of move. It would also be a wonderful expression of confidence, on
the part of management and the board, in the future value of our company.
Please respond to me promptly, and acknowledge my requests, either personally,
in writing, or in an 8-K, as appropriate. Considering the board's spirit of
increased cooperation, of late, I would prefer to return to private
communication, versus public, if at all possible, for these kinds of
discussions. That is the spirit under which this e-mail is sent.
With respectful cordiality....and great hope...
Timothy Stabosz
EX-2
3
pf2.txt
E-MAIL TO P&F COMP. CMTE. AND BOARD DATED 01/06/12
Members of the P&F Compensation Committee
Kenneth Scheriff
Jeffrey Franklin
(and Board of Directors)
-- via e-mail --
January 6, 2012
Gentlemen:
I received no response to my previous e-mail, which is totally unacceptable.
I believe the actions of the compensation committee, regarding the rehiring of
Mr. Horowitz, while reflecting a contract that is improved from the past, are
still wholly inappropriate, specific to the base salary, and do not reconcile
with any of the reasonable peer groups that have been indicated by parties that
are actually arms length from the CEO, including two of your three largest
outside shareholders, as well as the work of independent advisory firm Proxy
Governance.
Based upon an increase in my position in P&F to 8.1%, from the previous 7.0%
reported, I will be filing a 13D amendment on Monday. I would like an answer
IMMEDIATELY on whether or not the board has decided that it intends to release
the peer group companies used in the compensation analysis. Such decision will
be deterministic in how I handle my public response to the compensation
committee's, and board's, action...assuming you respond in time to have an
effect, either way.
I presume you've already made your decision. I'm disappointed...and disgusted
that you do not see fit to show appropriate accountability, clarity, and
openness, that would allow your outside shareholders, and the corporate
governance space, to make their own determination on the legitimacy of the work
that was done....something that is ABSOLUTELY NECESSARY, considering past
"cronyism" on previous P&F compensation committees.
If THIS compensation committee is unwilling to subject its work to reasonable
scrutiny, then it, and the board, will called to task for that specific
betrayal.
I DEMAND YOU STATE YOUR INTENTIONS TO RELEASE THE PEER GROUP UTILIZED IN THE
OUTSIDE COMPENSATION REVIEW.
Please respond promptly.
Timothy Stabosz
EX-3
4
pf3.txt
E-MAIL TO P&F COMP. CMTE. AND BOARD DATED 01/09/12
Members of the P&F Compensation Committee
Mr. Kenneth Scheriff, Chairman
Mr. Jeffrey Franklin, member
(and Board of Directors)
--via e-mail--
January 9, 2012
Dear Messrs. Scheriff and Franklin:
Yes, you made some changes, in the renewal of Richard Horowitz's employment
agreement, that are certainly improvements from the old contract. You reduced
the employment term from 5 years to 3. The "target" bonus percentage was
reduced from 90% to 50%, and a maximum bonus of 150% was added, versus none
before. You've changed the "termination for cause" provision to require
action on just the part of the independent directors, as opposed to the entire
board. Finally, you removed a previous clause that, heretofore, stripped the
board of its self-respect, and put it in a "financial headlock," in allowing
Mr. Horowitz to depart the company for "good reason," and collect an avalanche
of golden parachute payments, merely if the board had the audacity to choose a
different chairman...
But you failed in the most important area...and that is "base pay." Yes, the
reduction from a $975,000 base to a $650,000 base will save approximately 9
cents per share, pre-tax, annually. But if you expect to be congratulated, in
going from the obscene, to the merely unseemly...I'm not going to do that.
I find it interesting that you, the two members of the P&F Compensation
Committee, took it upon yourselves to dramatically err on the side of AGAIN
overpaying Mr. Horowitz. (Why not consider underpaying, for a wholesome
change...or seeking a qualified replacement, willing to work for less, or
explore the possible sale or breakup of the company, sans Horowitz, in order to
maximize value for ALL shareholders? Were any of these things a
consideration??) More ominously, the board has made it clear, through its
silence to my demand that you release the peer company group utilized in your
"analysis," that it intends to continue to stonewall, to decline to provide
transparency, and to defy legitimate efforts by major outside shareholders to
"bear witness," and subject your decision making process to appropriate and
necessary scrutiny. The implication to me is obvious: YOU HAVE SOMETHING TO
HIDE.
One would think both of you would INSIST that the board release the peer group
comparison companies, so that there is no questioning of your
integrity...simply reflecting the fact that the amount of Mr. Horowitz's base
pay, under your new regimen, remains roughly DOUBLE what it should be, based
upon not just my previous peer group work, but the work of the respected proxy
advisory firm, Proxy Governance. Proxy Governance had stated, in 2010, that
Mr. Horowitz's overall pay was more than TRIPLE peer group norms. (Unlike the
P&F board, both I, and Proxy Governance, actually released the peer groups we
used.)
Mr. Horowitz's base salary was reduced by exactly one third, from $975,000, to
$650,000. Yet, P&F's revenues for 2011 are anticipated to be down by nearly
50%, from the $112 million achieved in 2006, the year prior to the signing of
the previous compensation agreement. Furthermore, should P&F's pre-tax
income from continuing operations be somewhere on the order of $2.5 million
for 2011, that would represent an approximate 60% decline from the $6.5 million
achieved in 2006. IF SALES ARE DOWN NEARLY 50%, AND PRE-TAX PROFITS FROM
CONTINUING OPERATIONS ARE LIKELY TO BE DOWN OVER 60%, WHY WAS MR. HOROWITZ'S
BASE PAY ONLY REDUCED BY 33%?
Has Mr. Horowitz shown "exemplary" performance, and creation of shareholder
value, the last 5 years (or last 15 years, for that matter), to justify a
"double peer" compensation arrangement? Do you realize that P&F's common
stock is trading at basically NO HIGHER than it was, 15 years ago, when he
fully took the reins, and that our company's compound annual revenue growth,
over that same time period, averages a meager 2%? If someone has not
outperformed, for a period of 15 years, WHAT BASIS IS THERE to expect that
they will, in the future, such that it is justified in paying them TWICE the
peer group norms? Was this part of your consideration in evaluating Mr.
Horowitz's "worth" to the company?? Did you put MY, and Proxy Governance's,
peer group companies "into the mix"?
The proper number for this company's CEO would have been $500K, "all in" (bonus
and "extras" included), in a typical year (assuming a 10% fully taxed ROE),
and not a penny more. It should be noted that if you set the base too high (as
you sedulously did), you end up giving away the store, in terms of not just
excess base pay, but excessive bonuses, to boot (since the bonus is set as a
percent of the base pay). Is this what you were seeking to accomplish?
It seems clear to me that the reduction in base pay was an arbitrary, one-third
reduction that had little to do with an appropriate "from the ground up"
analysis. More likely, in your negotiations, you were "gunning" for a result
that you "needed" to reach, in order to keep "hizzoner" (grudgingly) happy.
Let me explain to you the considerations that are NOT appropriate or relevant
to determining a pay package for a renewal of Mr. Horowitz, that I have every
reason to fear, suspect, and believe WERE considerations for this compensation
committee:
1) Whether or not Mr. Horowitz can "afford" a reduction of "more than 1/3" to
his base pay.
2) Whether or not a reduction of "more than 1/3" would "offend" or "alienate"
Mr. Horowitz, or cause him duress.
3) Whether or not Mr. Horowitz's "lifestyle needs," or zip code of residence,
"calls for" a higher pay package. IMPORTANT: We're not responsible for
funding, being loyal to, or having explicit sympathy towards Mr. Horowitz's
lifestyle choices.
4) The fact that Mr. Horowitz's family name "founded" the company.
5) The fact that Mr. Horowitz owns approximately one-third of the company's
common stock.
6) Whether or not Mr. Horowitz's "wealth rebuilding needs" (as a result of his
unfortunate losses at the hands of Bernard Madoff) "call for" above peer pay,
out of "sympathy."
7) The belief that, with a certain outside shareholder presenting a peer group
that suggested $300K as an appropriate base pay amount, that "compromising,"
and adding Horowitz's prior $975K base pay, and $300K, and dividing by two, is
the best way to "ride the fence," and neither show excessive favoritism
towards the outside shareholders (and Proxy Governance), nor too much
favoritism towards Mr. Horowitz.
8) Management's "fear" that a full reduction, by 2/3, in Mr. Horowitz's base
pay, to a level truly on par with bonafide peers, would, by implication, make
the board look negligent at best, or fiduciarily breaching, at worst, in its
previous compensation regimes (i.e. "gradualism," in a scaling down of Mr.
Horowitz's pay package, represents "better optics").
9) The belief that since there are very few direct public comparables for
P&F...that the compensation committee can readily err on the high side "with
impunity."
This CEO has NOT been an asset to P&F, historically; on the contrary, he's been
a "ball and chain" on the Street's valuation of our company. While you
choose to ignore it, Mr. Horowitz's value is compellingly EVIDENCED in the fact
that our company, for much of the last 15 years (and currently), has been worth
more as a collection of assets (for its breakup value), than as a going concern
(i.e. the "Horowitz discount"). You full well know that, because you, and
EVERY SINGLE ONE of the other "legacy" directors, abjectly REFUSE to buy
common stock for your own accounts....because, in my view, you evidently see it
as a POOR investment for yourselves, and see limited prospects for long term
value creation. Therefore, your own beliefs about the company's worth, UNDER
MR. HOROWITZ, directly contradict the ultra high value you allege to ascribe to
his services, in your work on the compensation committee. That's RANK
hypocrisy. (Perversely, outside investors, such as myself, who have the
"luxury" of shareholder activism, see more possibility in "unlocking" the
value of P&F, through genuine hard work, than its own legacy board members, who
have historically, until very recently, been either too feckless, too
complacent, too disinterested, or too loyal to Mr. Horowitz, to take on the
role of "righting the ship," and ensuring that the entity is managed with value
creation for ALL in mind.)
Alas, that is what we keep coming back to with the broader P&F board. While it
certainly has improved from the "Dark Ages" (and I can't tell you how much I'd
prefer to be cheering you on, right now, rather than having to criticize you),
I have found this board (with the exception of Mr. Brownstein, who I place no
judgement on, either way) to be distinctly lacking in trustworthiness,
credibility, and integrity, vis a vis its overall dealings with Mr. Horowitz.
Three of the legacy board members (Utay, Franklin, and Scheriff), while
independent, were, in my estimation, simply "board sitters," who, until very
recently, took their measly board pay, and did pretty much nothing, in
exchange, to OVERSEE. Four of the other legacy directors (Solomon, Goldberg,
Dubofsky, and Kalick) were (and are) cronies of Mr. Horowitz, who actively,
and systematically, sought to advance Horowitz's interests, at the expense of
the broader shareholder base, simply for the fact that it "pleased" Mr.
Horowitz. All 7 of the legacy directors, historically, deferred to Mr.
Horowitz, and his desires...as evidenced by 1) bylaws, 2) compensation clauses,
and 3) an appallingly conflicted (former) compensation committee, that, in all
3 cases noted, your outside shareholders had to SHAME you into throwing out.
Why did all of this happen? Because, tragically, for many years, no outside
shareholders (except, perhaps, for one lone, noble "activist" fund) seemed to
care. But why should the board of a company have to be "forced" to fulfill its
job of proper oversight of an executive? Doesn't its job exist, APART from
whether its feet are being held to the fire?
I respectfully submit that YOU ARE NOT CREDIBLE in the outcome you came up
with, for Mr. Horowitz's base pay. While admittedly less egregious than in the
past, said amount continues to represent an excessive, unnecessary, and
inappropriate transfer of wealth from the entire shareholder base, to Mr.
Horowitz. But, with the pitifully low share ownership of MOST board members
(including both of you), you really have no basis to be VESTED in caring about
that, do you? Which is why I asked you to put me on the board a couple years
ago. Because, unlike you, when I tell the outside shareholder base that a
process involving a renewal of an executive's contract was "robust," the
outside shareholder base would have a basis to BELIEVE what I say. Such is NOT
the case with you...since you have NO investment to protect. Considering how
each of you has been on the board for at least 6 years, and NEITHER of you own
ANY common shares outright, and ESPECIALLY considering that you had the chance
to buy shares at "bargain basement" prices, in 2009-2010, I think that is
shameful and reprehensible.
There is simply NO reason why you wouldn't release the peer company comparison
group, in order to REASSURE our company's shareholders...unless you are AFRAID
of the impression it would create. As far as I'm concerned, your reputations
are at stake. Your trustworthiness. Your credibility. Your legitimacy as
fiduciaries. I hope you will give that all due consideration. I should also
point out that I consider your stance on this matter to be a "disqualifier" for
a renewal of your service on the board. Simply put, if you are not willing to
show accountability for your decisions, should you run again, I will not be
able to support you. (Yes, this issue is THAT important.)
The board needs to get past this manifest desire to hide, to dissemble, to
obfuscate....to evade, to duck, to bob, and weave. I've witnessed all of that,
breathtakingly, in the last 2+ years...in person, and in writing. It's
unseemly, it's incriminating, and its odious...especially considering our
company's history as a "poster child" for poor corporate governance, and
licentious executive compensation. Sunlight is the most effective
disinfectant. It's time to open the shutters, as a matter of transparency, and
self-respect.
We probably wouldn't need to be talking this way, if you would have put me on
the board of directors, as I had requested (I would have had a right to
inspect the materials I now seek, and would have been "kept privy" of all the
goings on at P&F), or if, at last year's annual meeting, you simply would have
at least had the decency of adding ONE new independent director, and/or had
even ONE of the "crony" directors step down, to show ongoing progress. But you
didn't do that. You'll understand if my supposition is that Mr. Horowitz, with
an expiring compensation agreement, wanted to do everything he could to
continue to "lord over" this board, maintaining as much influence as possible,
in order to ensure NO CONSIDERATION would be given to replacing him as
CEO...even if he held out for an excessive compensation demand. Is THAT why
nothing further happened, this last proxy cycle, to clean up our company's
board?
I greatly resent the fact that your failure, and the broader board's failure to
act, in a more compelling way, to establish your bonafides as fiduciaries, has
made me feel helpless, and necessitated my bringing these issues back into the
public sphere...most uncomfortable and distasteful for me...considering I
own 8.1% of our company, and want to see it thrive and prosper, without
embarrassment, or public "fights." I TOLD you as such, in private, but
instead of meeting me half way, you (in this case, the entire board) continue
to alternate between "circling the wagons," and taking baby steps. It is,
quite frankly, infernally frustrating.
It's clear that there's more work to be done at P&F, to clean up its
governance, and its reputation. Please DO it...or step aside. Those of us
who actually have material ownership positions in the company are intensely
interested in having value created for us. (It's OUR company.) The foundation
of that is a governance structure that "reeks" of integrity, and transparency.
Please remember, going forward, who you work for. (Hint: It's NOT Richard
Horowitz.)
Respectfully,
Timothy J. Stabosz
P.S.: Just so it's clear, the foregoing are all MY interpretations and
opinions and "take" on the relationship of our company's board members to the
company itself, and to Mr. Horowitz. I'm sure others would have different
opinions...or self-deceptions, for that matter. They are obviously entitled to
them.