Management of Pay-Fone Survives Proxy Fight

The current management at Pay-Fone Systems has won enough votes in a proxy battle to retain majority control of its board of directors, according to a preliminary tally compiled by the company’s attorney.

For Pay-Fone president and founder Lewis Greenwood, it means that he and two of his allies, Edward Zinkow and Bernard Estafen, will hold three of the five seats on the company’s board of directors in the coming year. The Greenwood slate won 55% of the votes cast.

It allows Greenwood, 61, who owns 29% of the company’s stock, to keep his job and, in effect, control of the company.

“The company will go on with its plans,” Greenwood said.

Proxy Fight Begun by Shareholder

Pay-Fone, a $7-million Van Nuys-based payroll and accounting services firm, had been involved in a proxy fight begun by dissident shareholder Dr. Allen Kahn, a psychiatrist and investor from Chicago.

Kahn did win enough votes to be elected to Pay-Fone’s board of directors, as did his supporter, Santa Monica real estate developer Richard Kelton. “I’m essentially pleased, but disappointed we did not get a majority,” Kahn said.

Kahn, who owns 9% of Pay-Fone’s stock, had been unhappy with the company’s financial performance. He complained about Greenwood’s employment contract, which calls for Greenwood to receive a bonus equal to 5% of the company’s pretax profit each year. Kahn objected to Greenwood’s wife, Helen, being paid a $98,634 real estate commission by Pay-Fone for finding the site of the firm’s new headquarters building.

There was also a dispute over the company’s ill-fated push to set up Pay-Fone franchises. And Kahn complained about the expense of having a company-owned plane so that Greenwood could fly himself to meetings.

When Greenwood refused Kahn’s request last year for a seat on the board of directors, Kahn launched a proxy fight.

Although the election is over, it’s unlikely that relations between Greenwood and Kahn will suddenly turn harmonious.

“The board will now have independent directors who will be able to view and observe all details of what is happening in the company,” Kahn said. “And we will have to be listened to, in contrast to the previous situation, when we were a voice in the wilderness.”

But Greenwood has a different view: “They have no expertise and nothing to lend to the betterment of the company. Their role is to be disruptive and unsettle the company.”

Focus: Increase Revenue, Profit

Kahn said he and Kelton would continue to push the board of directors to make Mrs. Greenwood reimburse Pay-Fone for at least some of the real estate commission she received. Kahn also said they hoped to “persuade Mr. Greenwood of the wisdom of dispensing with the airplane business.”

But his primary focus, Kahn said, would be to try and increase the company’s revenue and profits.

For the fiscal year ended June 30, Pay-Fone earned $305,263 on revenue of $7.0 million. For the first six months of the current fiscal year, earnings have improved to $525,343 on revenue of $3.7 million.

Greenwood has previously said that Pay-Fone’s problems are behind it, and cites as evidence the improved profit in the current fiscal year.

Kahn left open the question of whether his group would try to seek control of Pay-Fone by acquiring additional stock in the open market. A Kahn backer, Guy Lundberg, who would have become chief executive of Pay-Fone had the Kahn group won the proxy fight, said, “It continues to be our intent to get control of Pay-Fone.”