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/ Check the appropriate box: / / 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. - -------------------------------------------------------------------------------- (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 - -------------------------------------------------------------------------------- (Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): /X/ No fee required. / / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - --------------------------------------------------------------------------------(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- / / Fee paid previously with preliminary materials: - -------------------------------------------------------------------------------- / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount previously paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: -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. 2 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. 3 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? 4 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. 5 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. 6 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
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DFAN14A Filing
Steel Partners Ii Inactive DFAN14AAdditional proxy materials by non-management
Filed: 16 May 05, 12:00am