To the P&F Industries Compensation Committee:

Kenneth Scheriff
Jeffrey Franklin

September 3, 2011

Via E-mail

Gentlemen:

     Your soliciting my interest in a phone conference to draw me out on the
subject of executive compensation, while long overdue, was a most welcome
event. I'm somewhat heartened to see the Compensation Committee (and
presumably board as a whole) act demonstrably independently, and in a way
that might begin to suggest that the 2/3 of the shareholders that are not
the CEO, might actually be just as important as the CEO.  Many a time, the
"vibes" I got in private meetings (in particular, the 2 annual meetings I
have attended, and my meeting with Richard and Marc 18 months ago), betrayed
a marked undertow of hostility, contempt, and repressed rage emanating from
Richard, and the board members' general unwillingness to show any sympathy
or empathy or understanding or validation towards what I, and other
shareholders, have tried to communicate.  This gave me a feeling that
Richard was, de facto, in full control of the P&F board, and was exercising
a staggering array of self-assumed perogatives, as he saw fit.  That was
alarming, to say the least.  And it needed...and needs to...stop.  But it
is not going to, in the way it needs to, with 5 of 9 board members loyal to
Richard (Kalick, Dubofsky, Goldberg, Solomon).  That is why I again took the
time to bring the subject up to you of the need for one more new board
member at P&F, and the stepping down of one of the "legacy directors," so
that we can create, once and for all, a P&F  board that is bonafide
"arms-length" from the CEO.

     By way of following up on the items we discussed specific to executive
compensation, I remind you of (and ask you to re-review) the research I
submitted to the board, early last year, indicating a typical base salary
range for P&F's peer companies (similar revenue  size, industry, and/or
located on Long Island) in the rough ballpark of $200,000-400,000. I also
want to emphasize that the zip code Richard chooses to live in, his
"lifestyle needs," and the expenses of high-living, are not a concern or
responsibility of P&F's shareholders.  We have absolutely no obligation to
"do him a favor" or be generous in an outsized fashion (as the previous
Compensation Committee was), to ensure that he can meet his fellow
(previous) Comp. Cmte. chums, "in style," and in good financial steed, at
the local country club.

     The fact of the matter is, the higher Richard's salary requirements
are, the more it is in the interest of the rest of the shareholders to put
the company up for sale, letting Richard, or anyone else who is interested,
make a bid on the assets. (This was my point to you about P&F's long history
of trading at or below the book and/or market value of its assets.  That's
something the board should be unwilling to tolerate!  If our company is
ascribed no "going concern premium" by the marketplace, and longtime board
members are not interested in buying stock in the open market, that might
suggest that the Street has historically perceived that board members take
their measly $10,000 a year in board fees, and "give the CEO what he wants"
in exchange.)

     I would ask you to please make a calculation of the expected future
returns of the company.  If Richard's compensation requirements are likely
to prevent the company from earning a decent long run ROE for ALL of its
shareholders, then we have, fundamentally, a STRUCTURAL problem with
executive compensation, PERIOD.  And it's the board's responsibility to
confront such a reality...even if the Chairman and CEO may not be happy
with such a confrontation on the board's part.

     P&F is not the same company it was 5 years ago. It is much smaller, and
it is uncertain where the company is going to go, growth-wise, over the term
of the next CEO's employment agreement.  Therefore, extra care is required in
structuring that arrangement.  (This is especially true, considering the
ultra-wide standard deviation in the level of success Richard has been able
to attain with the hodge-podge of acquisitions over the years.)

     If Richard intends to "shoot for broke," or "shoot for the moon" on
acquisitions (piling on goodwill, which is later written down), when the
interest of the rest of the shareholders might very well to be to set P&F up
as a "cash cow" (buying back stock and/or paying dividends), kick Richard
upstairs to a low-paying "emeritus" position, and let the operating subs "run
themselves," then this SHOULD be a consideration.  There are a whole HOST of
things that should be a consideration...but my sense is that the board has
essentially been letting Richard direct the affairs of P&F, manifestly, in
almost every way...and that is because Horowitz, Kalick, Goldberg, Dubofsky,
and Solomon want it that way.

     Richard's record as a consolidator and aggregator of businesses leaves
a lot to be desired.  It is a spotty and mixed record, at best. Therefore,
since Richard has stated in recent conference calls that the company intends
to remain in an acquisition mode, it is IMPERATIVE that the board set up the
lion's share of his compensation as incentive pay for successfully growing
the company's revenues and profitability.  As I told you on the phone, I
believe something on the order of a $250,000 base salary, and a bonus that
represents 20% of any pre-tax income from operations the company achieves,
that is over $5 million, is a good place to start.  (This is just a rough
idea of what might be appropriate. Perhaps the "bonus threshold" could
start at $4 million for 2012, and climb by $500,000 increments each year.)

     There is an appropriate level of the company's long run profitability
that should be allocated to the CEO.  Reasonable people can differ on the
exact amount...but that level needs to at least pass the "smell test"!  And
that level needs to be LOWER than it otherwise would be, for a company,
such as P&F, that is a holding company, where the CEO's activities are
mainly strategic and planning, in nature.  This is all the more reason why
the previous compensation arrangements for Mr. Horowitz were egregious...and
why the board's unwillingness to "shine the light of day," and otherwise
spiritedly, and openly, defend the peer group that was used in the outside
compensation study, REFLECTS POORLY ON THE INTEGRITY OF THE BOARD.  It also
clearly tells me, again, that 5 of 9 board members are firmly in control of
the flow of information from P&F's boardroom.  That's unfortunate, not only
because it makes outside shareholders such as myself suspicious...but it also
looks, prima facie, like "Stonewalling," and damages trust in the board as a
whole.  It also continues to make, in my view, people on Wall Street see P&F
as, primarily, a public company being operated for private gain.  I HOPE YOU
WILL FIRMLY DISABUSE THEM OF THAT NOTION, WITH THE STRUCTURE OF THE NEXT
CEO'S PAY PACKAGE.

     It is my distinct hope that myself, and other shareholders who have
spoken up on the travesty of the previous compensation arrangement that Mr.
Horowitz has received, and his unwillingness to restructure that agreement
(as a sign of GOOD FAITH and loyalty to the other shareholders), will have
served a purpose, and that the Compensation Committee will seek to offer to
Mr. Horowitz a renewal (if any) that is at or near (or below, in order for
Mr. Horowitz to "pay penance") the current level that is being paid at P&F's
peers.

     Finally, I again ask you, for the sake of building trust and
credibility with your shareholder base, to release the list of peer
companies in the current outside compensation review.

     I hope you will welcome my continued attempts to communicate my
thoughts directly with you, as you continue your work over the coming
months, on this very important matter...and this very important chance to,
in one fell swoop, dramatically improve P&F's reputation on the Street, and
with its own shareholder base.

                                        Sincerely yours,


                                        Timothy Stabosz