Denounces "Outrageous" Compensation in CEO's Employment Renewal
Cites Board's Unwillingness to Release the Peer Company Comparables Used in the Review
Files Form 13D With the SEC; Seeks Additional Governance Reforms
LAPORTE, Ind., Jan. 20, 2012 (GLOBE NEWSWIRE) -- Timothy Stabosz, the largest unaffiliated individual shareholder of P&F Industries (Nasdaq:PFIN), today announced his filing of an SEC Form 13D Amendment, on January 10th, reporting an increase in his ownership to 8.1%, from the 7.0% previously reported. The increase in ownership reflects Stabosz's view that the company remains undervalued, relative to a number of "Graham & Dodd" (value investing) metrics. Importantly, in the filing, Stabosz also criticizes the Compensation Committee, consisting of members Jeffrey Franklin and Kenneth Scheriff, for an employment renewal of CEO Richard Horowitz, with base pay ($650,000) that continues to exceed (by roughly DOUBLE) the amount that both Stabosz, and independent advisory firm Proxy Governance, have calculated P&F's peer comparables pay.
Stabosz commented, "The Compensation Committee of P&F has gone from the obscene (with Richard Horowitz's previous $975,000 base pay per the 2007 agreement) to the merely outrageous, in its $650,000 renewal of Mr. Horowitz. I fully believe that this pay arrangement, considering the significantly shrunken size of our company from 5 years ago (revenues down nearly 50%, and operating profit down 60%), continues to reek of inappropriate favoritism, as indicated in sobering detail in my SEC filing, a filing that I believe P&F shareholders will find disturbing and disheartening. There's simply no excuse for paying Mr. Horowitz twice the peer group norms, considering how, in Horowitz's 16 years as Chairman and CEO, the company has realized compound annual revenue growth of a pitiful 2%, and compound annual growth in shareholders' equity of a mere 3.5%. Meanwhile, Horowitz has taken out a staggering $20+ million in total compensation over that same time period, despite the fact that the company's shareholders' equity has only grown by $12.5 million! How can such poor long term performance warrant such unconscionable pay? With great solemnness, I regret to inform the outside shareholders that this monumentally egregious compensation, over the last 16 years, did not happen by accident."
Links to the four parts of Stabosz's SEC filing (main filing, and 3 letters to the board) can be found here:
http://www.sec.gov/Archives/edgar/data/75340/000116289312000001/pf13d14.txt
http://www.sec.gov/Archives/edgar/data/75340/000116289312000001/pf1.txt
http://www.sec.gov/Archives/edgar/data/75340/000116289312000001/pf2.txt
http://www.sec.gov/Archives/edgar/data/75340/000116289312000001/pf3.txt
"What is most troubling about this board," Stabosz continued, "is that, despite my formal demand that they immediately release the peer group companies purportedly used by the Compensation Committee, to determine a fair salary for Mr. Horowitz's renewal, they have refused to do so. They have refused to let the light of day shine on their decision-making process, and let shareholders make their own evaluation. Considering that the prior Compensation Committee, which approved Horowitz's 2007 compensation agreement, consisted of Horowitz's cronies, it is important that the board, THIS TIME, do its job in substantiating to the P&F shareholders that a desire to pay Mr. Horowitz 'as high as plausibly possible' was NOT the primary consideration for this Compensation Committee, as I'm convinced the case has been, during Horowitz's entire previous tenure."
On a more personal note, speaking directly to P&F's outside shareholder base, Stabosz opined, "Let me just say that while I believe that Mr. Horowitz is intensely passionate in wanting to see our company succeed, and I respect him for that... his other key focus, historically, has been less than noble. His single minded goal had been to make sure that a MAJORITY of the board is as loyal, and close, and 'tethered' to him as possible... and structuring the various arrangements so that 'he gets his,' first and foremost, and, in fact, MORE than his. The share of total income that has gone to Mr. Horowitz, over the last 16 years, is morally reprehensible. That happened for a reason, and that reason has to do, overall, with a feckless and denuded board, dominated by cronies and yes-men of Horowitz, whose first loyalty was (and is) to please him, and give him what he wants. Meanwhile, the bonafide independent directors (of which there are a few) were, prior to 2 years ago, 'board sitters,' who merely looked the other way, and did little or nothing, in light of the pittance they were being paid. (They just didn't care.) In practice, the board was kept functionally 'subjugated' by Horowitz, negating it in fulfilling its all important role as a check and as an overseer. The outcome was that Horowitz was inappropriately emboldened, inappropriately enabled... and excessively compensated. Simply put, knowing the composition of 'his' board... Horowitz brazenly knew no one was going to do anything to stop it.
"While, due primarily to the 'activism' of two major shareholders (Lawndale Capital and myself), there have been SOME changes for the better, the last couple years... movement has been glacial, the steps taken have been baby steps, they have been given grudgingly, and I am convinced that Mr. Horowitz has resented every single one of them. He also continues to 'lord over' this board, in an unseemly fashion. (There has only been one new outside board member added, the last 2 years, and NONE of the 'legacy' directors has stepped down, to date...although one has announced he will.) Worse, I personally believe, from the evidence at my disposal, that no honest consideration was given to replacing Mr. Horowitz, with the recent expiration of his employment agreement. If he knew that he was sticking around 'no matter what' (because he knew who on the board he 'controlled'), is it any wonder why we have another situation where excessive compensation demands were AGAIN made (and yet AGAIN approved)?
"With the exception of the most recent appointee, the P&F board remains, it is evident to me, under a dark cloud, from a governance perspective, and it needs to be brought out of that darkness. More specifically, the items listed below are what I have said, in my public filings, need to be done if we want to clean up our company's image in the investment community, and increase shareholder value:
- We MUST separate the roles of chairman and CEO... simply because Mr. Horowitz has no moral authority, as a fiduciary, and cannot be trusted.
- We MUST get more of those 'tethered' to Horowitz, those who are primarily on the board as a 'favor' to him, and those whose primary loyalty is to him personally (i.e. the cronies) off the board, and in their stead, put on directors whose primary loyalty is to the broader shareholder base.
- We should eliminate the staggered board.
- We should eliminate the 'poison pill.'
- The board MUST release the compensation peer group, to prevent the Compensation Committee's integrity from being called into question.
- We must NOT allow Mr. Horowitz to hold the company's pursuit of strategic alternatives hostage, to his own desire to maintain his entrenchment as CEO, oblivious to his lengthy record as a failed builder of shareholder value.
- With the stock currently trading at less than half of book value, the board should consider a 'Dutch Tender' buyback, as the best possible use of shareholder capital, versus more acquisitions. (Mr. Horowitz has shown a desultory record, with regard to acquisitions.)
- Board members who, despite having served for many years on the board, own no stock or only token amounts (Messrs. Scheriff, Franklin, Goldberg, Solomon), need to show that they THINK of the company, from the perspective of an investor. If they are unwilling to buy stock in the open market, or have their director pay made in common stock, they should step down, as a matter of self-respect."
Stabosz continued, "I've owned stock in our company dating back to 1996. As a 'student' of P&F, it's crystal clear to me what's been going on here, and it's not pretty. Traditionally, P&F has been viewed by many on Wall Street as a public company being operated primarily for the private gain of its Chairman and CEO. Over 2 years ago, I decided that needed to stop. When I began my campaign by discreetly asking to be put on the board of directors (something Richard Horowitz would never tolerate), it was my conviction that the rightness of my cause was unassailable... and it was my hope that the necessary changes could be effected, without public embarrassment, or chagrin. Unfortunately, the board's intransigence has made that impossible. The board has acted with petulance, and the truly independent directors have not had enough power, or backbone, to force certain issues that need to be forced.
"It is my hope that by telling the truth, and shining the light of day on these matters, the unshackling and liberating of P&F, as a bonafide public entity, will be brought about, and the pace of change will pick up. We need to reach a point in which the PERCEPTIONS that make P&F stock trade for significantly below its likely breakup value (i.e. 'the Horowitz Discount') are eliminated, so that we can finally achieve the glorious day when the word 'corporate governance', as applied to P&F, no longer evokes an oxymoron, a farce, or a joke. We can start, symbolically, and powerfully, by separating the office of Chairman and CEO, so that Mr. Horowitz can be taught that in a public company, you really do need to be accountable to something outside of yourself," Stabosz concluded.