UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant / /
Filed by a Party other than the Registrant /X/
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/ / Preliminary Proxy Statement
/ / Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/x/ Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
BKF CAPITAL GROUP, INC.
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(Name of Registrant as Specified in Its Charter)
STEEL PARTNERS II, L.P.
STEEL PARTNERS, L.L.C.
WARREN G. LICHTENSTEIN
RONALD LABOW
KURT SCHACHT
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-2-
Steel Partners II, L.P. ("Steel") is filing materials contained in
this Schedule 14A with the Securities and Exchange Commission in connection with
the solicitation of proxies in support of the election of the nominees of Steel
to the Board of Directors of BKF Capital Group, Inc. (the "Company") and other
business proposals at the 2005 annual meeting of the stockholders of the Company
scheduled to be held on June 9, 2005, or any other meeting of stockholders held
in lieu thereof, and any adjournments, postponements, reschedulings or
continuations thereof (the "Annual Meeting").
Item 1: Steel delivered the following letter to the stockholders of
the Company on May 16, 2005.
3
AN IMPORTANT MESSAGE
TO
BKF CAPITAL GROUP, INC. STOCKHOLDERS
FROM
STEEL PARTNERS II, L.P.
May 16, 2005
Dear Fellow Stockholders:
We seek your support on our enclosed GOLD proxy card to elect at BKF's 2005
Annual Meeting three highly qualified, independent director nominees who are
committed to bringing much needed improvement to the bottom line and corporate
governance policies of BKF Capital Group, Inc.
Steel Partners II, L.P. is the owner of 727,200 shares of common stock of BKF,
or approximately 9.5% of the Company's outstanding common stock. As a
significant stockholder, our interests are aligned with yours.
REAL CHANGE IS NEEDED AT BKF CAPITAL GROUP, INC.
For years, BKF stockholders have suffered as a result of the miserable operating
performance and corporate governance practices of BKF's Board and management
team. As pointed out in another stockholder's proposal, the Company's ratio of
market capitalization to assets under management is less than 2%, well below
most of its competitors. We believe this valuation disparity is caused by the
Company's poor bottom line performance, as well as its corporate governance
issues. Notwithstanding this and three straight years of losses, BKF's Board has
rewarded CEO John Levin and his son Henry Levin with total compensation in
excess of $20 million over that same time period. We believe compensation and
excessive administrative expenses are two key issues that the Company must
address and correct now to become profitable.
Unfortunately, BKF's Board and management have long sat well-entrenched behind a
slew of anti-takeover measures that have served to insulate the directors and
executive officers, making them less accountable to their stockholders. These
include:
o Poison Pill
o Staggered Board
o Supermajority voting provision that requires an extremely high vote
(approval by 80% of the outstanding shares entitled to vote) for
certain fundamental transactions
o Stockholders are not permitted to call a special meeting or act by
written consent
o Advance notice provisions for nominations of independent directors
and other proposals
We believe these measures have all contributed to an environment of low
accountability, where the interest of the Board and management may not be
aligned with those of BKF's stockholders.
TAKE ADVANTAGE OF THIS OPPORTUNITY TO IMPROVE THE GOVERNANCE OF BKF
AND ENHANCE VALUE FOR ALL BKF STOCKHOLDERS
We began investing in BKF in December 2003 and made our first public filing in
April 2004. We've attempted to engage various Board members in discussions about
how to achieve consistent profitability and develop more stockholder-friendly
governance policies. AFTER THESE DISCUSSIONS, IT BECAME CLEAR THAT NO
SIGNIFICANT REFORMS WOULD BE IMPLEMENTED AT BKF WITHOUT PRESSURE FROM PUBLIC
STOCKHOLDERS.
We are devoting considerable time and effort to this proxy contest because we
believe it is the only way we can protect and enhance the value of BKF shares.
We believe that our efforts to hold the Board accountable to stockholders have
increased investor interest in the Company and have contributed to the increase
in its stock price. Stockholders should not let this opportunity pass. WE
BELIEVE THE ELECTION OF OUR NOMINEES TO THE BOARD IS THE BEST WAY OF ACHIEVING
REAL, LONG-TERM IMPROVEMENTS FOR ALL STOCKHOLDERS.
KEEPING THE PRESSURE ON THE BOARD IS CRITICAL
The Board's recent actions prove our point. Consider the following: for three
consecutive annual meetings from 2002 through 2004, approximately 66%, 77% and
66%, respectively, of the votes cast supported a stockholder proposal to redeem
the Company's poison pill. Despite the overwhelming support for the proposal,
the Board took no action during that entire time span. Only now, in the face of
our director challenge did the Board modify the poison pill so that it does not
apply to tender offers for 100% of the outstanding shares to the extent that a
majority of the Company's shares are acquired in such tender offer. As discussed
below, we believe this is too little, too late. WE NEED A BOARD THAT IS MORE
ACCOUNTABLE, NOT ONE THAT ONLY REACTS WHEN STOCKHOLDERS APPLY PRESSURE.
In our preliminary proxy statement filed on March 23, 2005, we urged the Company
to use its excess cash to increase the dividend and/or repurchase stock
aggressively. Two weeks later, the Company announced a special dividend of
$0.925 per share and a new policy to commit approximately 70% of annual free
cash flow generated by BKF to the payment of dividends. While we believe this is
a step in the right direction, we believe a substantial portion of the Company's
cash, cash equivalents and U.S. Treasury bills, which totaled approximately $41
million at March 31, 2005, and more free cash flow - up to 100% - should be
distributed to the stockholders.
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THE BKF BOARD NEEDS NEW INDEPENDENT DIRECTORS
THE THREE DIRECTORS THAT BKF IS ASKING YOU TO RE-ELECT HAVE BEEN ON THE BOARD
FOR APPROXIMATELY EIGHTEEN (18), NINE (9) AND TWENTY-THREE YEARS (23). In our
opinion, they are part of BKF's entrenched past. We see the Board's current
attempt to present itself as an advocate of progressive corporate governance
policies as a weak and transparent attempt to placate long-suffering
stockholders. This is an illusion and any newfound commitment to taking the
necessary steps towards consistent profitability lacks credibility. A closer
look at the Company's recent record supports this conclusion.
LACK OF PROFITABILITY
BKF sustained an annual loss of $1.8 million in 2004. This is BKF's third
straight year of reporting losses, having lost $8.4 million in 2003 and $2.4
million in 2002. THESE RESULTS ARE UNACCEPTABLE IN AN INDUSTRY IN WHICH
SIMILARLY SITUATED COMPETITORS ARE EXTREMELY PROFITABLE (See our proxy statement
dated May 11, 2005, page 8).
We believe that one of the primary reasons why BKF has consistently lost money
is the excessive compensation paid by the Company. Despite several years of
losses, the Company has not aligned compensation with bottom line performance.
In 2004, for example - another year in which there were no profits - the
Compensation Committee awarded INCREASED BONUSES to executive officers BASED ON
REVENUES, NOT PROFITS!
We believe that until the Company modifies its compensation arrangements to
focus on performance and profitability, there is little incentive for senior
management to focus on the bottom line. Notwithstanding the fact that John A.
Levin & Co., the Company's money management subsidiary, has served its clients
well, BKF stockholders have not been rewarded because the Company has not been
profitable. OUR GOAL IS TO IMPLEMENT A PROGRAM WHERE BOTH BOTTOM LINE AND
CLIENT-RELATED PERFORMANCE ARE SIGNIFICANT FACTORS IN DETERMINING EXECUTIVE
COMPENSATION.
LACK OF ACCOUNTABILITY
BKF's corporate practices make us question whether BKF is being run for the
benefit of its stockholders. Consider the following relationships that existed
before we began to accumulate our position and express our concerns to the
Board:
In 2003, a year in which BKF lost $8.4 million, Henry Levin, John
Levin's son and a BKF portfolio manager, was paid approximately $7.7
million in compensation. In 2004, a year in which BKF lost $1.8
million, Henry Levin was paid approximately $8.7 million in
compensation.
In 2003, Jennifer Levin Carter, John Levin's daughter, was paid
approximately $150,000 by BKF for "consulting services rendered to
various alternative investment strategies of the Company." In 2004,
Ms. Carter received approximately $175,000 for these services. No
further explanation was given.
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In 2003, BKF paid Peter J. Solomon Company, of which BKF director
Peter J. Solomon is chairman, $100,000 for its "services as a
financial advisor." No further explanation was given. We believe
this arrangement raised questions about Mr. Solomon's independence.
Also in 2003, Traxis Partners, of which BKF director Barton Biggs is
a managing partner, paid BKF $136,000 in rent for space in the
Company's offices in New York City. We believe this arrangement
raised questions about conflicts of interest and Mr. Biggs'
independence.
LACK OF CREDIBILITY
In light of the Board's failure to implement any meaningful reforms prior to the
submission of our Board nominees, we question the Board's willingness to embrace
and commit to best practices in corporate governance. The Board's corporate
governance proposals included in the Company's proxy statement (discussed below)
will only be approved if they receive the affirmative vote of 80% of the
outstanding shares entitled to vote, an extremely difficult threshold to
achieve. GIVEN THAT THE COMPANY FILED ITS PROXY MATERIALS ONLY 30 DAYS PRIOR TO
THE MEETING DATE, WE DO NOT BELIEVE THAT THE COMPANY HAS GIVEN ITSELF SUFFICIENT
TIME TO MAKE A SERIOUS, CONCERTED EFFORT TO SOLICIT VOTES IN FAVOR OF THESE
PROPOSALS. We also note that the Company's proxy statement does not indicate
that the directors will vote the shares they own in favor of these proposals.
Stockholders should ask themselves whether the Board's self-styled governance
initiatives will really bring about meaningful change or are simply a gesture to
sway your vote for its director nominees.
PROPOSAL TO DECLASSIFY THE BOARD
BKF's charter amendment to declassify the Board was introduced almost four
months AFTER we had presented a similar stockholder proposal to be included in
the Company's proxy statement pursuant to Rule 14a-8. We believe the Board's
lukewarm endorsement of the proposal raises further concern about the directors'
willingness to see it through. Stockholders need our nominees elected to the
Board to make sure that they are represented by directors who are fully
committed to making meaningful governance changes.
The proposal has been structured so that the entire Board is not elected at one
annual meeting until 2008. We believe that if the Board had been wholeheartedly
behind this proposal, they would have proposed to declassify the Board as early
as 2007 as we recommend in our stockholder proposal to declassify the Board. WHY
SHOULD THE DIRECTORS ELECTED THIS YEAR SERVE FOR A THREE-YEAR TERM IF THE
DECLASSIFICATION PROPOSAL IS APPROVED AT THE VERY SAME MEETING?
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We have put the Board's proposal on our enclosed GOLD proxy card and urge all
stockholders to support it so that we may obtain the 80% threshold required.
However, we also urge you to support our stockholder proposal to declassify the
Board - even though it is advisory - as it can be approved by a majority of the
votes present and entitled to vote at the 2005 Annual Meeting.
PROPOSAL TO ELIMINATE THE SUPERMAJORITY PROVISION
BKF's other proposal, to eliminate the supermajority provision for certain
fundamental transactions, was disclosed for the first time in its recently filed
proxy statement. It too requires the same extraordinarily high 80% approval
threshold. Considering the level of difficulty in achieving this vote in only 30
days, we are uncertain whether this proposal will be approved. This is yet
another reason it is important you elect our nominees to the Board. It is
essential that stockholders elect Board nominees who will pursue
stockholder-friendly initiatives.
POISON PILL
As noted above, the Board has disregarded a stockholder mandate to eliminate the
poison pill for the past three years. NOW, WHEN CONFRONTED WITH OUR SLATE OF
NOMINEES, BKF IS ATTEMPTING TO APPEASE STOCKHOLDERS WITH THE HALF-MEASURE OF
PROVIDING A MODIFIED VERSION OF THE POISON PILL that exempts tender offers for
100% of the outstanding shares to the extent that a majority of the Company's
shares are acquired in such tender offer.
Even though this is a small step in the right direction, it is important that
you support our nominees and the stockholder proposal to eliminate the poison
pill. Do not forget that the Board unilaterally modified the poison pill and has
the power to unilaterally modify it again - for better or for worse. We favor
elimination of the poison pill now. We believe that the Board at a minimum
should have put retention of the poison pill to a binding stockholder vote this
year. ONCE AGAIN, THE ELECTION OF OUR NOMINEES TO YOUR BOARD IS YOUR BEST
ASSURANCE THAT FURTHER STEPS WILL BE TAKEN TO MAKE BKF MORE ACCOUNTABLE TO
STOCKHOLDERS.
QUESTIONABLE COMPENSATORY PRACTICES
BKF only recently disclosed certain of its compensatory arrangements with Henry
Levin and Frank Rango, two senior portfolio managers. This disclosure warrants
serious inquiry into the Company's compensatory practices for its senior
executives. In December 2004, we requested that the Company provide us with
materials regarding compensation paid to its investment professionals. The
Company did not respond to our request. Only after it became clear that the
re-election of the incumbent directors would be challenged at this year's Annual
Meeting did the Company divulge certain limited information.
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In its attempt to justify the compensation arrangements with Henry Levin and
Frank Rango, the Company stated that "the economic interest of the Senior
Portfolio Managers in the investment strategies is designed to provide them with
incentives comparable to those available to business owners." Moreover, the
Company claimed that these compensation arrangements were "consistent with past
practice." The fact that these compensatory arrangements were consistent with
BKF's "past practice" provides very little reassurance to stockholders that
these arrangements are aligned with the interests of the stockholders. UNDER
THESE ARRANGEMENTS, WE BELIEVE THAT IT IS POSSIBLE FOR MESSRS. LEVIN AND RANGO
AND THE OTHER EMPLOYEES OF THE EVENT-DRIVEN GROUP TO EARN SUBSTANTIAL BONUSES,
IRRESPECTIVE OF THE COMPANY'S PROFITABILITY.
We also question in whose interests certain of the provisions of these
agreements were drafted. For example, if Mr. Levin or Mr. Rango is fired after
being convicted of a felony, but the felony is not related to the Company, he
would still be entitled to his total compensation for 2005 and an additional
payment of between $2 million and $4 million. ONCE AND FOR ALL, BKF NEEDS TO
UNDERSTAND THAT THE TRUE "BUSINESS OWNERS" OF THE COMPANY ARE ITS STOCKHOLDERS,
NOT ITS PORTFOLIO MANAGERS.
Furthermore, Frank Rango has made clear his intention to resign from the Company
at the end of 2005. How did BKF respond? By rewarding Mr. Rango with a
compensation arrangement that may obligate the Company to pay him millions but
lacks any post-employment restrictions. If Mr. Rango were to start a competing
venture, there are no restrictions on his ability to solicit BKF's clients and
employees. We strongly question whether this is sound business practice.
QUESTIONABLE DISCLOSURE OF EXECUTIVE COMPENSATION
Despite the purported importance of Henry Levin and Frank Rango to the Company
over the years, the Company only three weeks ago deemed these individuals as
executive officers under SEC disclosure rules. Had Messrs. Levin and Rango been
deemed executive officers prior to now, the Company would have been required to
disclose their total compensation in the Company's prior annual reports.
Curiously, the Company stated in its most recent proxy statement that Messrs.
Levin and Rango became executive officers of the Company for purposes of the SEC
regulations on April 19, 2005 and therefore were not executive officers of the
Company during fiscal 2004. WHAT CHANGED IN MR. LEVIN'S AND MR. RANGO'S DUTIES
SINCE DECEMBER 31, 2004 THAT RESULTED IN THEM BEING DEEMED EXECUTIVE OFFICERS ON
APRIL 19, 2005? WHY DID THE COMPANY NEGLECT TO DEEM MESSRS. LEVIN AND RANGO
EXECUTIVE OFFICERS UP UNTIL NOW? If nothing changed, we believe Mr. Levin's and
Mr. Rango's full compensation for the last three years should have been
disclosed in the Company's proxy statement.
WHO WILL REPRESENT YOUR INTERESTS?
There are many necessary corporate reform proposals being presented at this
year's Annual Meeting. However, as previously mentioned, some may be difficult
to approve and others are only advisory in nature, leaving it up to the Board to
act in its discretion.
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We have learned from past experience about the Board's unwillingness to
implement measures approved by its stockholders. That is why we have taken this
fight to the stockholders. BKF's best opportunity to bring about meaningful
change is to elect our slate of independent nominees.
We pledge to continue our fight for better bottom line results, more
stockholder-friendly policies and greater Board and management accountability.
Your support on the enclosed GOLD proxy will send a clear message to the other
directors that they WILL be held accountable.
Thank you for your support,
/s/ Warren Lichtenstein
Warren Lichtenstein
7
IMPORTANT
PLEASE SIGN, DATE AND RETURN THE ENCLOSED GOLD PROXY CARD TODAY
IN THE POSTAGE-PAID ENVELOPE PROVIDED.
DO NOT SIGN ANY WHITE PROXY CARD THAT YOU
MAY RECEIVE FROM THE COMPANY.
If your shares are held on your behalf by a broker or bank,
please sign, date and return the GOLD proxy in the
envelope provided and contact the person responsible for
your account and ask them to ensure that your shares are
voted on the GOLD card.
IF YOU HAVE ANY QUESTIONS, OR NEED ASSISTANCE IN VOTING YOUR SHARES, PLEASE
CONTACT THE FIRM ASSISTING US IN THE SOLICITATION OF PROXIES:
MORROW & CO., INC.
445 Park Avenue, 5th Floor
New York, New York 10022
(212) 754-8000
BANKS AND BROKERAGE FIRMS, PLEASE CALL: (800) 654-2468
STOCKHOLDERS CALL TOLL FREE: (800) 607-0088
E-MAIL: STEEL.INFO@MORROWCO.COM
