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UNITED INDUSTRIAL CORPORATION
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(Name of Registrant as Specified in Its Charter)
STEEL PARTNERS II, L.P.
WARREN G. LICHTENSTEIN
GLEN M. KASSAN
JAMES R. HENDERSON
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(Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant)
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STEEL PARTNERS II, L.P.
150 EAST 52ND STREET
21ST FLOOR
NEW YORK, NEW YORK 10022
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TEL (212) 813-1500
FAX (212) 813-2198
September 10, 2002
DEAR FELLOW SHAREHOLDER:
We are the owners of 1,310,250 shares of United Industrial
Corporation ("UIC") common stock, representing approximately 10% of the
outstanding shares. Currently, we have one seat on UIC's six member Board held
by Warren Lichtenstein, Chief Executive Officer of Steel Partners, who was
elected to the Board in 2001. As a director, Mr. Lichtenstein has been an
advocate for good corporate governance and an ongoing supporter of a sale of
UIC.
For the reasons set forth herein, WE BELIEVE THAT THE FULL VALUE OF
OUR INVESTMENT WILL NEVER BE REALIZED UNDER THE EXISTING BOARD. We are committed
to creating a more independent Board with a clear and focused mission to
maximize shareholder value.
We are asking UIC shareholders to elect our director-nominee, Glen
Kassan, under cumulative voting to one of the two seats up for election at UIC's
annual meeting of shareholders scheduled for October 4, 2002.
We are asking you to elect our nominee in order to:
o Send a strong message to the Board to actively pursue the
prompt sale of UIC;
o Elect a representative with strong ownership interests and
orientation, who is committed to maximizing value for all
shareholders;
o Urge the Board to take steps necessary to eliminate the
classified Board and having all directors stand for election
each year;
o Urge the Board to take the steps necessary to pursue all
avenues to enhance shareholder value and reduce unnecessary
expenses.
There can be no assurance that the foregoing actions will be
implemented if our nominee is elected or that the election of our nominee will
maximize or otherwise enhance shareholder value.
WE BELIEVE THAT A PROMPT SALE OF THE COMPANY
IS IN ALL SHAREHOLDERS' BEST INTERESTS
We believe, as stated many times to UIC's Board and management team,
THAT A SALE OF ALL OR A SUBSTANTIAL PORTION OF UIC WOULD LEAD TO THE
MAXIMIZATION OF VALUE FOR ALL UIC'S SHAREHOLDERS. We believe that UIC is an
attractive acquisition candidate for potential purchasers and, with the
assistance of an investment banking firm, can be matched with various aerospace
and defense corporations that would be willing to acquire UIC in whole or in
parts. Toward that end, we also actively recommended the recent divestiture of
UIC's transportation overhaul business. We feel strongly that the sale of the
non-core transportation and overhaul business will facilitate the sale of UIC by
making it a more attractive acquisition candidate for potential purchasers.
IN OUR OPINION, MANAGEMENT HAS WASTED VALUABLE TIME IN IMPLEMENTING
A FORMAL SALES PROCESS. Since prior to Mr. Lichtenstein's appointment to the UIC
Board in May 2001, he has continuously urged UIC to divest all or substantially
all of its business and assets in order to maximize shareholder value. On April
8, 2002, UIC announced that they had been working with Wachovia Securities for
over a year to evaluate alternatives to enhance shareholder value, including a
sale of UIC. To our knowledge, the Board has still not conducted a formal
auction process to solicit buyers. WHAT ADVANCEMENTS HAS THE BOARD MADE IN OVER
A YEAR TOWARDS THE SALES PROCESS? In our opinion, UIC hired a financial advisor
because Mr. Lichtenstein urged them to do so. In our opinion, UIC sold its
non-core transportation overhaul business because Mr. Lichtenstein urged them to
do so. ASK YOURSELF, WHERE WOULD THE COMPANY BE IF MR. LICHTENSTEIN HAD NOT
ADVISED AND URGED THE COMPANY TO TAKE THESE IMPORTANT FIRST STEPS?
Additionally, on August 26, 2002, less than a week after we filed
our preliminary proxy statement with respect to the annual meeting, UIC
announced that it has accelerated the process under which it is seeking a
potential buyer. Based on the timing of UIC's press releases with respect to the
sales process and the extended process under which the UIC Board has purported
to explore a possible sale, we are concerned that the UIC Board may be delaying
the sales process and is not moving quickly enough to enhance shareholder value.
WE BELIEVE THAT THE BOARD SHOULD ACT
RESPONSIBLY TO SHAREHOLDERS
WE FURTHER BELIEVE THAT UIC'S BOARD SHOULD ACT RESPONSIBLY and
respond to the sweeping legislation being enacted by Congress and rules being
adopted by the New York Stock Exchange, which are prompting greater
accountability to shareholders. Specifically, we urge UIC to take action to
cause its Board to be composed of a majority of clearly independent directors -
we believe that Harold Gelb, Richard Erkeneff and Susan Fein Zawel are not
independent directors. The election of our nominee will cause a majority of the
UIC Board to be independent only if he is elected to replace Richard Erkeneff,
an interested director, increasing the total number of independent directors
from three to four. If our nominee is elected to replace Paul Hoeper, who is
already an independent director, the number of independent directors will remain
at three and the UIC Board will not be composed of a majority of independent
directors.
WE STRONGLY BELIEVE THAT THERE IS NO NEED FOR MORE THAN ONE
MANAGEMENT DIRECTOR ON A SIX MEMBER BOARD.
In addition, we recommend that as soon as practicable UIC seek
shareholder approval to REMOVE THE CLASSIFIED BOARD, which will allow
shareholders to vote on all directors at every annual meeting of shareholders.
WE BELIEVE THAT THE BOARD SHOULD
REDUCE UNNECESSARY EXPENSES
WE ALSO BELIEVE THAT THE BOARD SHOULD PURSUE ALL AVENUES TO ENHANCE
SHAREHOLDER VALUE AND REDUCE UNNECESSARY EXPENSES (AND MAXIMIZE UIC'S CASH
POSITION), by, among other things, closing the New York office, which we believe
is a waste of the company's money. Currently, only Harold Gelb, Susan Zawel, a
tax accountant and a skeletal support staff work at the New York office. We
believe that most of UIC's business operations are conducted at the AAI facility
in Huntsville, Maryland where all of UIC's key employees report for work, and
accordingly the New York office is an unnecessary drain on cash and should be
closed and consolidated with the AAI facility.
IT'S TIME FOR A CHANGE AT UIC
As the second largest shareholder of UIC, we believe that our
interests are clearly aligned with yours. We wish to see a prompt sale of the
company. If our nominee is elected, both he and Mr. Lichtenstein will work to
make that happen in the most timely, effective and efficient manner possible.
However, there can be no assurance that the election of our nominee will result
in a sale of the company or otherwise enhance shareholder value.
We are asking you to elect our nominee in opposition to two
incumbent nominees whose terms expire at the annual meeting. Your GOLD proxy
card may only be voted for our nominee and does not confer voting power with
respect to the remaining directorship. We urge you to support our efforts by
signing, dating and returning your GOLD proxy card today. If you have already
voted for the incumbent management slate, you have every right to change your
vote by signing and returning a later dated GOLD proxy.
If you have any questions or require assistance with your vote,
please contact our proxy solicitor MacKenzie Partners, Inc. at (800) 322-2885
(toll free) or (212) 929-5500 (call collect).
Thank you for your support,
/s/ Warren Lichtenstein
WARREN LICHTENSTEIN
On behalf of Steel Partners II, L.P.
MACKENZIE PARTNERS, INC.
105 Madison Avenue
New York, New York 10016
(212) 929-5500 (call collect)
E-mail: proxy@mackenziepartners.com
or
CALL TOLL FREE (800) 322-2885
