SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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UNITED INDUSTRIAL CORPORATION
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(Name of Registrant as Specified In Its Charter)
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[UNITED INDUSTRIAL LETTERHEAD]
September 18, 2002
Dear United Industrial Shareholder:
Your vote at the October 4, 2002 Annual Meeting of Shareholders is especially
important this year. As we have previously written you, your Board's efforts to
sell the Company may be jeopardized by a dissident shareholder's proxy fight.
Steel Partners II, L.P., a hedge fund that owns approximately 10% of United
Industrial's stock, is seeking to elect a second Steel Partners employee (in
addition to Warren Lichtenstein, head of Steel Partners and a current director)
to your Board.
Your Board has nominated Dick Erkeneff, United Industrial's President and CEO,
and Paul J. ("Page") Hoeper, a former Assistant Secretary of the Army and Deputy
Under Secretary of Defense, as its candidates. As President and CEO, Dick
Erkeneff has presided over the Company's growth over the last seven years,
including a 225% increase in its stock price from $5.87 on October 20, 1995 to
$19.10 on September 18, 2002. Dick and Page both have extensive experience in
the defense industry, and are actively engaged in the process now well underway
of selling the Company.
Steel Partners would have you replace your CEO, Dick Erkeneff, on the Board with
one of its employees.1 We strongly believe this would be harmful to shareholder
interests because:
o It would enable a candidate with no apparent defense industry experience to
replace your CEO as a director. In addition to stripping the Board of Dick
Erkeneff's valuable perspective and expertise, the failure to reelect Dick, we
believe, could undermine his credibility when he is actively involved in
discussions and due diligence sessions with potential acquirers.
o It could disrupt and potentially derail the sales process now underway. As
noted above, Dick Erkeneff is currently engaged in discussions with potential
acquirers, while Page Hoeper, based on his 20 years in the defense industry, has
been instrumental in initiating contacts with certain potential buyers. Although
there can be no assurance, we believe that the best price for the Company can be
obtained by leveraging their experience and contacts in the defense industry and
maintaining continuity in the sales process.
o It would allow a 10% minority stockholder to gain a disproportionate one-third
representation on the Company's Board.
We urge you to vote FOR the Board's nominees, Dick Erkeneff and Page Hoeper, by
signing, dating and returning the enclosed WHITE proxy card in the postage-paid
envelope today.
WE BELIEVE STEEL PARTNERS' PROXY FIGHT IS MISGUIDED
AND HARMFUL TO SHAREHOLDER INTERESTS
In his letter dated September 10, 2002, Mr. Lichtenstein, asks you to elect his
nominee in order to "[s]end a strong message to the Board to actively pursue the
prompt sale of UIC." But, this is exactly the path that United Industrial's
Board is already pursuing. As you know, we have engaged Wachovia Securities to
assist in selling the Company. On July 26, 2002, we concluded the divestiture of
our transportation overhaul contracts, which we believe will allow us to realize
the best sales price for our ongoing business.
Steel Partners criticizes our sale process. Based on the experience of our
directors in the defense industry and the advice of our financial advisor, we
believe that our ongoing sales process is the appropriate method for the sale of
United Industrial. In fact, we are currently holding due diligence sessions and
discussions with potential purchasers.
Unfortunately, we believe that Steel Partners' actions may actually hurt the
sales process. Our nominees are playing important roles in that process and a
failure to elect either one of them could, in our view, adversely affect that
process. In addition, Steel Partners' proxy contest has itself required valuable
Board and management time that could otherwise have been spent on the sales
effort.
In our opinion, Mr. Lichtenstein should stand back and allow the Board to
continue advancing the sales process without the harmful distraction of a proxy
contest.
DON'T LET STEEL PARTNERS REPLACE YOUR CEO
WITH ONE OF ITS EMPLOYEES
As noted above, Mr. Lichtenstein would have you replace your CEO, Dick Erkeneff,
on the Board with a Steel Partners employee.
Dick Erkeneff has 44 years of experience in the defense industry and is directly
responsible for United Industrial's success in this sector, including the 225%
appreciation in the Company's stock price since he became CEO in 1995. Dick, a
significant shareholder in his own right, has extensive contacts in the defense
industry and is currently playing an integral role in the Company's sales
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process, by marketing the Company to prospective purchasers and engaging in due
diligence and other meetings with these parties.
By contrast, Steel Partners' nominee, Glen Kassan is a Steel Partners employee
with no apparent defense industry experience. He has been a director or on the
management teams of several public companies in which Steel Partners has
invested, including U.S. Diagnostic Inc., Tandycrafts, Inc., WebFinancial
Corporation, Gateway Industries, Inc., SL Industries, Inc. and Puroflow,
Incorporated. As noted in our last letter, we believe that the performance and
value of certain of these companies have deteriorated since Mr. Kassan and Steel
Partners have become involved. For example, U.S. Diagnostic Inc., where Mr.
Kassan has served as Chairman of the Board since March 27, 2001, is currently
negotiating to sell all of its operating assets through a transaction that would
require a voluntary Chapter 11 filing,2 while Tandycrafts, Inc., where Mr.
Kassan has been a Director since November 2000, filed for Chapter 11 bankruptcy
on May 15, 2001.
LETS SET THE RECORD STRAIGHT ON OUR
CORPORATE GOVERNANCE
While Steel Partners has argued that UIC's Board should be more independent,
four of six of our directors, we believe, are independent as defined under both
the recently enacted Sarbanes-Oxley Act of 2002 and the recently proposed New
York Stock Exchange listing standards.3 Four of our directors receive no
compensation from the Company except for their services as directors and have no
other material relationships with the Company. Harold Gelb, Chairman of the
Board, receives an additional payment for his service as the non-executive
Chairman of your Board who does not report to the CEO. In keeping with "best
practices" in the corporate governance area, your Board long ago separated the
roles of Chairman and CEO because we believe this separation creates greater
management accountability by having the Board led by an independent chair.
IN OUR OPINION, STEEL PARTNERS HAS RAISED PERIPHERAL ISSUES THAT DISTRACT FROM
THE REAL ISSUE--WHO WILL PRODUCE THE BEST VALUE FOR SHAREHOLDERS
In his letter, Mr. Lichtenstein takes issue with the Company's classified board
of directors and advocates closing the New York office. Each of these issues is
a distraction from the real issue: who is best qualified to lead the sales
process forward and achieve the best price for the Company for all shareholders?
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The fact is that the classification of the Company's Board, so that only
one-third of the directors stand for election each year, was originally approved
by our shareholders, and resolutions proposed by shareholders at our annual
meetings in 1995, 1996 and 1997 to declassify the Board were rejected by our
shareholders.
With respect to the New York office, the closing of this location would require
near-term costs and management time to restructure operations, while any cost
benefits would be achieved only over the long term. In the present context, we
think a decision as to the future of the New York office can best be made by a
potential buyer of our business.
VOTE THE WHITE PROXY CARD TODAY
We urge you to vote the WHITE proxy card for Dick Erkeneff and Page Hoeper
today. Based on their experience, we are confident that Messrs. Erkeneff and
Hoeper, together with the other members of the Board, are best qualified to lead
the Company forward and conduct the sales process.
If you wish to change an earlier vote, you can do so by simply signing, dating
and mailing the enclosed WHITE proxy card. If you have any questions, please do
not hesitate to contact our proxy solicitors, Innisfree M&A Incorporated at
877-266-1890.
Thank you for your support.
/s/ Harold S. Gelb /s/ Susan Fein Zawel /s/ Joseph S. Schneider
Harold S. Gelb Susan Fein Zawel Joseph S. Schneider
/s/ Richard R. Erkeneff /s/ Paul J. Hoeper
Richard R. Erkeneff Paul J. Hoeper
IMPORTANT
If your shares are held in your own name, please sign, date and return the
enclosed WHITE proxy card today.
If your shares are held in "Street-Name," only your broker or your bank can vote
your shares.
Please direct the person responsible for your account to execute on your behalf
a WHITE proxy card with a vote FOR Proposals 1, 2 and 3.
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If you have any questions or need assistance in voting your shares, please call:
Innisfree M&A Incorporated
501 Madison Avenue 20th Floor
New York, New York 10022
Call Toll-Free (877) 266-1890
Banks and Brokers call collect (212) 750-5833
1. In his letter to United Industrial shareholders dated September 10, 2002, Mr.
Lichtenstein urges "UIC to take action to cause its Board to be composed of a
majority of clearly independent directors." He states that he believes that
"Harold Gelb, Richard Erkeneff and Susan Fein Zawel are not independent
directors" and that "the election of [his] nominee will cause a majority of the
UIC Board to be independent only if he is elected to replace Richard Erkeneff."
Mr. Lichtenstein further states that he believes that "there is no need for more
than one management director on a six member Board." We see this as a call to
replace our CEO on the Board based on an assertion that more independent
directors are needed. However, as discussed on page 3 of this letter, four of
our six directors are already independent, receiving no compensation from the
Company except for their service as directors.
2. Aug. 19, 2002 U.S. Diagnostic Inc. Press Release
3. The Sarbanes-Oxley Act defines "independent" directors for audit committee
purposes as persons who do not receive compensatory fees (other than directors'
compensation) and who are not affiliated persons. Similarly, the NYSE proposals
define "independent" directors generally to be those who the board of directors
has determined have no material relationship other than as directors and, for
audit committee purposes, to require that they receive no compensation from the
Company other than for service as directors.
Except for the historical information contained herein, information set forth in
this letter may contain forward-looking statements subject to risks and
uncertainties which could cause the Company's actual results or performance to
differ materially from those expressed or implied in such statements. The
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Company makes no commitment to update any forward-looking statement or to
disclose any facts, events or circumstances after the date hereof that may
affect the accuracy of any forward-looking statement. For additional information
about the Company and its various risk factors, reference is made to the
Company's most recent Annual Report on Form 10-K as filed with the Securities
and Exchange Commission.
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