Executive 162(m) Bonus Plan of the Registrant


     

    THE
      P&F INDUSTRIES, INC.

    EXECUTIVE
      162(m) BONUS PLAN

     

    
      	1.  	
              PURPOSE

            


    

     

    The
      purpose of this Plan is to attract, retain and motivate key executive employees
      by providing cash performance awards to designated key executive employees
      of
      the Company and its Subsidiaries. This Plan shall be effective upon the approval
      of the Plan by the stockholders of the Company in accordance with the laws
      of
      the State of Delaware.

     

    
      	2.  	
              DEFINITIONS

            


    

     

    Unless
      the context otherwise requires, the follow terms shall have the meanings set
      forth below:

     

    
      	(a)  	
              “Award”
                - shall mean the total Performance Award as determined under the
                Plan.

            


    

     

    
      	(b)  	
              “Board”
                - shall mean the Board of Directors of the
                Company.

            


    

     

    
      	(c)  	
              “Change
                in Control of the Company” - shall have the meaning set forth in Exhibit
                A.

            


    

     

    
      	(d)  	
              “Code”
                - shall mean the Internal Revenue Code of 1986, as amended and any
                successor thereto.

            


    

     

    
      	(e)  	
              “Code
                Section 162(m)” - shall mean the exception for performance-based
                compensation under Section 162(m) of the Code or any successor section
                and
                the Treasury regulations promulgated
                thereunder.

            


    

     

    
      	(f)  	
              “Company”
                - shall mean P&F Industries, Inc. and any successor by merger,
                consolidation or otherwise.

            


    

     

    
      	(g)  	
              “Committee”
                - shall mean the Compensation Committee of the Board or such other
                Committee of the Board that is appointed by the Board all of whose
                members
                shall satisfy the requirements to be “outside directors,” as defined under
                Code Section 162(m).

            


    

     

    
      	(h)  	
              “Exchange
                Act” shall mean the Securities
                Exchange Act of 1934, as amended and
                any successor thereto.

            


    

     

    
      	(i)  	
              “Individual
                Target Award” - shall mean the targeted performance award for a
                Performance Period specified by the Committee as provided in
                Section 5 hereof.

            


    

     

    
      	(j)  	
              “Participant”
                - shall mean an employee of the Company or a Subsidiary selected,
                in
                accordance with Section 4 hereof, to be eligible to receive an Award
                in accordance with this Plan.

            


    

     

    
      	(k)  	
              “Performance
                Award” - shall mean the amount paid or payable under Section 6 hereof.
                

            


    

     

    
      	(l)  	
              “Performance
                Goal” - shall mean the objective performance goals, formulae or standards
                that the Committee shall establish in accordance with Section 6.2
                hereof.

            


    

     

    
      	(m)  	
              “Performance
                Period” - shall mean a period of one (1) year, fiscal or calendar, or
                less, as determined by the Board.

            


    

     

    
      	(n)  	
              “Plan”
                - shall mean this P&F Industries, Inc. Executive 162(m) Bonus
                Plan.

            


    

     

    
      	(o)  	
              “Subsidiary”
                - shall mean, other than the Company, (i) any corporation in an unbroken
                chain of corporations beginning with the Company which owns stock
                possessing fifty percent (50%) or more of the total combined voting
                power
                of all classes of stock in one of the other corporations in such
                chain;
                (ii) any corporation or trade or business (including, without limitation,
                a partnership or limited liability company) which is controlled fifty
                percent (50%) or more (whether by ownership of stock, assets or an
                equivalent ownership interest or voting interest) by the Company
                or one of
                its Subsidiaries; or (iii) any other entity in which the Company
                or any of
                its Subsidiaries has a material equity interest and which is designated
                as
                a “Subsidiary” by resolution of the
                Committee.

            


    

     

    
      	3.  	
              ADMINISTRATION
                AND INTERPRETATION OF THE PLAN

            


    

     

    The
      Plan
      shall be administered by the Committee. The Committee shall have the exclusive
      authority and responsibility to: (i) interpret the Plan; (ii) approve
      the designation of eligible Participants; (iii) set the performance
      criteria for Awards within the Plan guidelines; (iv) certify attainment of
      performance goals and other material terms; (v) reduce Awards as provided
      herein; (vi) authorize the payment of all benefits and expenses of the Plan
      as
      they become payable under the Plan; (vii) adopt, amend and rescind rules
      and regulations relating to the Plan; and (viii) make all other
      determinations and take all other actions necessary or desirable for the Plan’s
      administration including, without limitation, correcting any defect, supplying
      any omission or reconciling any inconsistency in this Plan in the manner and
      to
      the extent it shall deem necessary to carry this Plan into effect, but only
      to
      the extent any such action would be permitted under Code Section
      162(m).

     

    Decisions
      of the Committee shall be made by a majority of its members. All decisions
      of
      the Committee on any question concerning the selection of Participants and
      the
      interpretation and administration of the Plan shall be final, conclusive and
      binding upon all parties. The Committee may rely on information, and consider
      recommendations, provided by the Board or the executive officers of the Company.
      The Plan is intended to comply with Code Section 162(m), and all provisions
      contained herein shall be limited, construed and interpreted in a manner to
      comply therewith.

     

    No
      member
      of the Committee shall be liable for any action, omission, or determination
      relating to the Plan, and the Company shall indemnify and hold harmless each
      member of the Committee and each other director or employee of the Company
      or
      its affiliates to whom any duty or power relating to the administration or
      interpretation of the Plan has been delegated against any cost or expense
      (including counsel fees, which fees shall be paid as incurred) or liability
      (including any sum paid in settlement of a claim with the approval of the
      Committee) arising out of or in connection with any action, omission or
      determination relating to the Plan, unless, in each case, such action, omission
      or determination was taken or made by such member, director or employee in
      bad
      faith and without reasonable belief that it was in the best interests of the
      Company. The foregoing provisions are in addition to and shall not be deemed
      to
      limit or modify, any exculpatory rights or rights to indemnification or the
      advancement of expenses that any such persons may now or hereafter have, whether
      under the Company’s Amended By-laws, the General Corporation Law of the State of
      Delaware or otherwise.

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    
      	4.  	
              ELIGIBILITY
                AND PARTICIPATION

            


    

     

    
      	(a)  	
              For
                each Performance Period, the Committee shall select the employees
                of the
                Company and its Subsidiaries who are to participate in the Plan from
                among
                the executive employees of the Company and its
                Subsidiaries.

            


    

     

    
      	(b)  	
              No
                person shall be entitled to any Award under this Plan for any Performance
                Period unless he or she is so designated as a Participant for that
                Performance Period. The Committee may add to or delete individuals
                from
                the list of designated Participants at any time and from time to
                time, in
                its sole discretion, subject to any limitations required to comply
                with
                Code Section 162(m).

            


    

     

    
      	5.  	
              INDIVIDUAL
                TARGET AWARD

            


    

     

    For
      each
      Participant for each Performance Period, the Committee may specify a targeted
      performance award, which shall be referred to herein as an Individual Target
      Award. The Individual Target Award may be expressed, at the Committee’s
      discretion, as a fixed dollar amount, a percentage of base pay or total pay
      (excluding payments made under this Plan), or an amount determined pursuant
      to
      an objective formula or standard. Establishment of an Individual Target Award
      for an employee for a Performance Period shall not imply or require that the
      same level or any Individual Target Award be set for any subsequent Performance
      Period. At the time the Performance Goals are established (as provided in
      Section 6.2 below), the Committee shall prescribe a formula to determine the
      percentages (which, subject to Section 6.5 hereof, may be greater than
      one-hundred percent (100%)) of the Individual Target Award which may be payable
      based upon the degree of attainment of the Performance Goals during the
      Performance Period. Notwithstanding anything else herein, unless otherwise
      specified by the Committee with respect to an Individual Target Award, the
      Committee may, in its sole discretion, elect to pay a Participant an amount
      that
      is less than the Participant’s Individual Target Award (or attained percentage
      thereof) regardless of the degree of attainment of the Performance Goals;
      provided that no such discretion to reduce an Award earned based on achievement
      of the applicable Performance Goals shall be permitted for the Performance
      Period in which a Change in Control of the Company occurs, or during such
      Performance Period with regard to the prior Performance Period if the Awards
      for
      the prior Performance Period have not been made by the time of the Change in
      Control of the Company, with regard to individuals who were Participants at
      the
      time of the Change in Control of the Company.

     

    
      	6.  	
              PERFORMANCE
                AWARD PROGRAM

            


    

     

    6.1  Performance
      Awards.
      Subject
      to Section 7 herein, each Participant is eligible to receive up to the
      achieved percentage of their Individual Target Award for such Performance Period
      (or, subject to the last sentence of Section 5, such lesser amount as determined
      by the Committee in its sole discretion) based upon the attainment of the
      objective Performance Goals established pursuant to Section 6.2 and the
      formula established pursuant to Section 5. Except as specifically provided
      in
      Section 7, no Performance Award shall be made to a Participant for a Performance
      Period unless the minimum Performance Goals for such Performance Period are
      attained.

     

    6.2  Performance
      Goals.
      The
      Committee shall establish the objective performance goals, formulae or standards
      and the Individual Target Award (if any) applicable to each Participant or
      class
      of Participants for a Performance Period in writing prior to the beginning
      of
      such Performance Period or at such later date as permitted under Code Section
      162(m) and while the outcome of the Performance Goals are substantially
      uncertain. Such Performance Goals may incorporate, if and only to the extent
      permitted under Code Section 162(m), provisions for disregarding (or adjusting
      for) changes in accounting methods, corporate transactions (including, without
      limitation, dispositions and acquisitions) and other similar type events or
      circumstances. To the extent any such provision would create impermissible
      discretion under Code Section 162(m) or otherwise violate Code Section 162(m),
      such provision shall be of no force or effect. These Performance Goals shall
      be
      based on one or more of the following criteria with regard to the Company (or
      a
      Subsidiary, division, other operational unit or administrative department of
      the
      Company): (i) the attainment of certain target levels of, or a specified
      increase in, enterprise value or value creation targets; (ii) the
      attainment of certain target levels of, or a percentage increase in after-tax
      or
      pre-tax profits, including without limitation that attributable to continuing
      and/or other operations; (iii) the attainment of certain target levels of,
      or a specified increase in, operational cash flow; (iv) the attainment of a
      certain level of reduction of, or other specified objectives with regard to
      limiting the level of increase in all or a portion of, the Company’s bank debt
      or other long-term or short-term public or private debt or other similar
      financial obligations of the Company, which may be calculated net of cash
      balances and/or other offsets and adjustments as may be established by the
      Committee; (v) the attainment of certain target levels of, or a specified
      percentage increase in, earnings per share or earnings per share from continuing
      operations; (vi) the attainment of certain target levels of, or a specified
      percentage increase in, net sales, revenues, net income or earnings before
      income tax or other exclusions; (vii) the attainment of certain target
      levels of, or a specified increase in, return on capital employed (including,
      without limitation, return on invested capital or return on committed capital);
      (viii) the attainment of certain target levels of, or a percentage increase
      in, after-tax or pre-tax return on stockholder equity; (ix) the attainment
      of certain target levels of, or a percentage increase in, market share;
      (x) the attainment of certain target levels of, or a percentage increase
      in, the fair market value of the shares of the Company’s common stock;
      (xi) the growth in the value of an investment in the Company’s common stock
      assuming the reinvestment of dividends; (xii) 
      the
      attainment of a certain level of, reduction of, or other specified objectives
      with regard to limiting the level of or increase in, all or a portion of
      controllable expenses or costs or other expenses or costs; or (xiii) the
      attainment of certain target levels of, or a specified increase in, economic
      value added targets based on a cash flow return on investment
      formula.

     

    In
      addition, such Performance Goals may be based upon the attainment of specified
      levels of Company (or Subsidiary, division, other operational unit or
      administrative department of the Company) performance under one or more of
      the
      measures described above relative to the performance of other corporations.
      To
      the extent permitted under Code Section 162(m), but only to the extent
      permitted under Code Section 162(m) (including, without limitation,
      compliance with any requirements for stockholder approval), the Committee may:
      (i) designate additional business criteria on which the Performance Goals
      may be based or (ii) adjust, modify or amend the aforementioned business
      criteria.

     

    6.3  Except
      as
      otherwise provided herein, the measures used in Performance Goals set under
      the
      Plan shall be determined in accordance with generally accepted accounting
      principles (“GAAP”) and in a manner consistent with the methods used in the
      Company’s regular reports on Forms 10-K and 10-Q. 

     

    6.4  To
      the
      extent any objective Performance Goals are expressed using any measures that
      require deviations from GAAP, such deviations shall be at the discretion of
      the
      Committee as exercised at the time the Performance Goals are set.

    
       

    

    6.5   Maximum
      Performance Award.
      The
      maximum Performance Award payable to a Participant for any Performance Period
      is
      $2,750,000.

     

    6.6  Payment
      Date; Committee Certification.
      Performance Awards will be paid as soon as administratively feasible in the
      fiscal year after the fiscal year in which the Performance Period in which
      they
      are earned is completed, but not before the Committee certifies in writing
      that
      the Performance Goals specified pursuant to Section 6.2 (except to the
      extent permitted under Code Section 162(m) and provided in Section 7 with regard
      to death, disability or Change in Control of the Company or certain other
      termination situations) were, in fact, satisfied, except as may otherwise be
      agreed by a Participant and the Company in a written agreement executed prior
      to
      the beginning of the Performance Period to which the Performance Award relates
      in accordance with any deferred compensation program, if any, in effect
      applicable to such Participant. The Committee shall use its best efforts to
      make
      a determination with regard to satisfaction of the Performance Goals within
      two
      and one-half (21⁄2) months after the end of each Performance Period. Any
      Performance Award deferred by a Participant shall not increase (between the
      date
      on which the Performance Award is credited to any deferred compensation program
      applicable to such Participant and the payment date) by an amount that would
      result in such deferral being deemed as an “increase in the amount of
      compensation” under Code Section 162(m). The Participant shall have no right to
      receive payment of any deferred amount until he or she has a right to receive
      such amount under the terms of the applicable deferred compensation program.
      To
      the extent applicable, any deferral under this section is intended to comply
      with the applicable requirements of Code Section 409A (and the regulations
      thereunder) and shall be limited, construed and interpreted in a manner so
      as to
      comply therewith.

     

    
      	7.  	
              EMPLOYMENT
                ON AWARD DATE GENERALLY REQUIRED FOR
                AWARD

            


    

     

    No
      Award
      shall be made to any Participant who is not an active employee of the Company
      or
      one of its Subsidiaries or affiliates on the date Awards for the Performance
      Period are generally paid to Participants; provided,
      however,
      that
      the Committee, in its sole and absolute discretion, may make Awards to
      Participants for a Performance Period in circumstances that the Committee deems
      appropriate including, but not limited to, a Participant’s death, disability,
      retirement or other termination of employment during such Performance Period
      and
      the Committee shall be required to make at least a pro-rata Award through the
      date of a Change in Control of the Company to each Participant who is a
      Participant at the time of such Change in Control of the Company. All such
      Awards shall be based on achievement of the Performance Goals for the
      Performance Period, except that, to the extent permitted under Code Section
      162(m), in the case of death, disability or Change in Control of the Company
      during the Performance Period (or such other termination situations as permitted
      under Code Section 162(m)) an amount equal to or less than the Individual Target
      Awards may be made by the Committee either during or after the Performance
      Period without regard to actual achievement of the Performance Goals.
      Furthermore, upon a Change in Control of the Company the Committee may, in
      its
      sole discretion but only to the extent permitted under Code Section 162(m),
      make
      an award (payable immediately) equal to a pro-rata portion (through the date
      of
      the Change in Control of the Company) of the Individual Target Award payable
      upon achieving, but not surpassing, the Performance Goals for the relevant
      Performance Period. Any such immediate pro-rata payment shall reduce any other
      Award made for such Performance Period under this Plan by the amount of the
      pro-rata payment.

    
      
        2

        
          

        

      

       

    

    
      	8.  	
              NON-ASSIGNABILITY

            


    

     

    No
      Award
      under this Plan nor any right or benefit under this Plan shall be subject to
      anticipation, alienation, sale, assignment, pledge, encumbrance, garnishment,
      execution or levy of any kind or charge, and any attempt to anticipate,
      alienate, sell, assign, pledge, encumber and to the extent permitted by
      applicable law, charge, garnish, execute upon or levy upon the same shall be
      void and shall not be recognized or given effect by the Company.

     

    
      	9.  	
              NO
                RIGHT TO EMPLOYMENT

            


    

     

    Nothing
      in the Plan or in any notice of award pursuant to the Plan shall confer upon
      any
      person the right to continue in the employment of the Company or one of its
      Subsidiaries or affiliates nor affect the right of the Company or any of its
      Subsidiaries or affiliates to terminate the employment of any
      Participant.

     

    
      	10.  	
              AMENDMENT
                OR TERMINATION

            


    

     

    The
      Board
      (or a duly authorized committee thereof) may, in its sole and absolute
      discretion, amend, suspend or terminate the Plan or adopt a new plan in place
      of
      this Plan at any time; provided, that no such amendment shall, without the
      prior
      approval of the stockholders of the Company entitled to vote thereon in
      accordance with the laws of the State of Delaware to the extent required under
      Code Section 162(m): (i) materially alter the Performance Goals as set
      forth in Section 6.2; (ii) increase the maximum amount set forth in Section
      6.5; (iii) change the class of eligible employees set forth in Section
      4(a); or (iv) implement any change to a provision of the Plan requiring
      stockholder approval in order for the Plan to continue to comply with the
      requirements of Code Section 162(m). Furthermore, no amendment, suspension
      or
      termination shall, without the consent of the Participant, alter or impair
      a
      Participant’s right to receive payment of an Award for a Performance Period
      otherwise payable hereunder. In addition, no Award shall be granted based on
      the
      Performance Goals established on or after the first stockholder meeting that
      occurs in the fifth year following the year in which the stockholders previously
      approved the Performance Goals, unless the stockholders reapprove the
      Performance Goals on or before such stockholder meeting. Notwithstanding
      anything herein to the contrary, any provision in this Plan that is inconsistent
      with Code Section 409A shall be deemed to be amended to comply with Code Section
      409A and to the extent such provision cannot be amended to comply therewith,
      such provision shall be null and void. The Board (or a duly authorized committee
      thereof) may at any time and from time to time amend, in whole or in part,
      any
      or all of the provisions of this Plan to comply with Code Section 409A and
      the
      regulations thereunder or any other applicable law without Participant
      consent.

     

    
      	11.  	
              SEVERABILITY

            


    

     

    In
      the
      event that any one or more of the provisions contained in the Plan shall, for
      any reason, be held to be invalid, illegal or unenforceable, in any respect,
      such invalidity, illegality or unenforceability shall not affect any other
      provision of the Plan and the Plan shall be construed as if such invalid,
      illegal or unenforceable provisions had never been contained
      therein.

     

    
      	12.  	
              WITHHOLDING

            


    

     

    The
      Company shall have the right to make such provisions as it deems necessary
      or
      appropriate to satisfy any obligations it may have to withhold federal, state
      or
      local income or other taxes incurred by reason of payments pursuant to the
      Plan.

     

    
      	13.  	
              GOVERNING
                LAW

            


    

     

    This
      Plan
      and any amendments thereto shall be construed, administered, and governed in
      all
      respects in accordance with the laws of the State of Delaware (regardless of
      the
      law that might otherwise govern under applicable principles of conflict of
      laws).

    
      
        
        

      

      
        3

        
          

        

      

      Exhibit
        A

    

     

    A
      Change
      in Control of the Company shall, unless the Board otherwise directs by
      resolution adopted prior thereto or, in the case of a particular Award, the
      applicable award agreement states otherwise, be deemed to occur if:

    


    
      	i.  	
              any
                “person” (as that term is used in Sections 13(d) and 14(d)(2) of the
                Exchange
                Act)
                other than a Founder (as defined below) is or becomes the beneficial
                owner
                (as that term is used in Section 13(d) of the Exchange Act), directly
                or
                indirectly, of 50% or more of either the outstanding shares of the
                Company’s Class A common stock or the combined voting power of the
                Company’s then outstanding voting securities entitled to vote
                generally;

            


    

     

    
      	ii.  	
              during
                any period of two (2) consecutive years, individuals who constitute
                the
                Board at the beginning of such period cease for any reason to constitute
                at least a majority thereof, unless the election or the nomination
                for
                election by the Company’s stockholders of each new director was approved
                by a vote of at least three-quarters of the directors then still
                in office
                who were directors at the beginning of the period;
                or
                

            


    

     

    
      	iii.  	
              the
                Company undergoes a liquidation or dissolution or a sale of all or
                substantially all of its assets. No merger, consolidation or corporate
                reorganization in which the owners of the combined voting power of
                the
                Company’s then outstanding voting securities entitled to vote generally
                prior to said combination, own 50% or more of the resulting entity’s
                outstanding voting securities shall, by itself, be considered a Change
                in
                Control of the Company; 

            


    

     

    As
      used
      herein, “Founder” means Richard A. Horowitz and any of his
      affiliates.

     

     

    4