UNITED INDUSTRIAL CORPORATION
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS MAY 8, 2001
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TO THE SHAREHOLDERS OF
UNITED INDUSTRIAL CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of United
Industrial Corporation will be held at the Park Lane Hotel (Ballroom Suite, 2nd
floor) located at 36 Central Park South, New York, New York on the 8th day of
May, 2001, at 10:00 A.M., for the following purposes:
1. To elect two (2) directors to serve until the Annual Meeting of
Shareholders in 2004.
2. To consider and act upon a proposal to ratify the appointment of
Ernst & Young LLP as independent auditors of the Company for 2001.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record on the books of the Company at the close of
business on March 22, 2001 will be entitled to notice of, and to vote at, the
meeting. The stock transfer books will not be closed. See the "Miscellaneous"
section of the accompanying Proxy Statement as to the place where the list of
shareholders may be examined.
Shareholders are cordially invited to attend the meeting in person. Whether
or not you plan to be present at the Annual Meeting, please sign, date and
return the enclosed Proxy to ensure that your shares are voted. A return
envelope which requires no postage if mailed in the United States, is enclosed
for your convenience.
By Order of the Board of Directors
Susan Fein Zawel
SECRETARY
March 30, 2001
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PLEASE MAIL YOUR PROXY . . . NOW!
IMPORTANT
WE HOPE THAT YOU CAN ATTEND THIS MEETING
IN PERSON, BUT IF YOU CANNOT DO SO PLEASE
MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY.
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UNITED INDUSTRIAL CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 8, 2001
This statement is furnished to shareholders of United Industrial
Corporation (the "Company") in connection with the solicitation of proxies by
the Board of Directors of the Company to be voted at the Annual Meeting of
Shareholders of the Company to be held at the Park Lane Hotel (Ballroom Suite,
2nd floor) located at 36 Central Park South, New York, New York on May 8, 2001,
at 10:00 A.M. Shareholders of record at the close of business on March 22, 2001
will be entitled to notice of and to vote at such meeting and at all
adjournments thereof.
Shareholders who execute proxies may revoke them at any time before they
are voted by giving written notice of such revocation to the Secretary of the
Company. When a proxy is received, properly executed, prior to the meeting, the
shares represented thereby will be voted at the meeting in accordance with the
terms thereof.
The complete mailing address of the Company's principal executive offices
is 570 Lexington Avenue, New York, New York 10022. The approximate date on which
this Proxy Statement and the form of Proxy were first sent or given to the
shareholders of the Company was March 30, 2001. The Annual Report of the Company
for the year ended December 31, 2000, including audited financial statements,
has been sent to each shareholder.
VOTING RIGHTS
On March 22, 2001, there were outstanding and entitled to vote 12,484,238
shares of Common Stock. Shareholders are entitled to one vote, exercisable in
person or by proxy, for each share of Common Stock held on the record date of
March 22, 2001. The holders of a majority of the outstanding shares of Common
Stock entitled to vote at the meeting shall constitute a quorum.
At the record date, more than 5% of the Company's outstanding voting
securities was beneficially owned by each of the persons named in the following
table, except that the information as to Kennedy Capital Management, Inc. and
Dimensional Fund Advisors Inc. is as of December 31, 2000 and is based upon
information furnished to the Company by such entities in Schedules 13G.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------ ------------------------------- -------------------- ----------
Common Stock Steel Partners II, L.P. 1,310,250 10.50%
150 East 52 Street
New York, New York 10022
Common Stock Bernard Fein 1,209,647(1) 9.69%
570 Lexington Avenue
New York, New York 10022
Common Stock Kennedy Capital Management, Inc. 1,055,600(2) 8.50%
10829 Olive Boulevard
St. Louis, Missouri 63141
Common Stock Dimensional Fund Advisors Inc. 978,340(3) 7.88%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
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(1) Includes 1,108,451 shares of Common Stock owned directly and 101,196 shares
owned by The Fein Foundation, of which Mr. Fein's spouse is a trustee.
1
(2) As of December 31, 2000, Kennedy Capital Management, Inc., a registered
investment advisor, has sole voting power as to 978,400 shares of Common
Stock and sole dispositive power as to 1,055,600 shares.
(3) Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940, is
deemed to have beneficial ownership of 978,340 shares of Common Stock as of
December 31, 2000. Dimensional furnishes investment advice to four
investment companies registered under the Investment Company Act of 1940,
and serves as investment manager to certain other commingled group trusts
and separate accounts (collectively, the "Funds"). In its role as
investment advisor or manager, Dimensional possesses voting and/or
investment power over the securities of the Company that are owned by the
Funds. Dimensional disclaims beneficial ownership of such securities.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 1, 2001, the number of shares
of Common Stock of the Company beneficially owned by each director of the
Company, each nominee for director, each executive officer named in the Summary
Compensation Table below, and by all directors and executive officers of the
Company as a group. Except as otherwise indicated all shares are owned directly.
AMOUNT AND
NATURE OF BENEFICIAL PERCENT
NAME OR GROUP OWNERSHIP(1)(2) OF CLASS
------------- --------------------- ---------
Edward C. Aldridge, Jr ........................................ 30,000 (3)
Richard R. Erkeneff ........................................... 555,051 4.32%
Harold S. Gelb ................................................ 30,000 (3)
Warren G. Lichtenstein ........................................ 1,258,250(4) 10.11%
James H. Perry ................................................ 61,805 (3)
Joseph S. Schneider ........................................... 20,000 (3)
E. Donald Shapiro ............................................. 40,000 (3)
Robert W. Worthing ............................................ 61,379(5) (3)
Susan Fein Zawel .............................................. 375,384(6) 3.01%
All directors and executive officers as a group
consisting of 8 persons ..................................... 1,173,619 8.96%
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(1) The information as to securities owned by directors, nominees and executive
officers was furnished to the Company by such directors, nominees and
executive officers. Includes units in the Company's 401(k) plan, which
consist of shares of Common Stock and cash.
(2) Includes shares which the following persons have the right to acquire
within 60 days through the exercise of stock options: Mr. Aldridge, 25,000
shares; Mr. Erkeneff, 410,000 shares; Mr. Gelb, 25,000 shares; Mr. Perry,
56,000 shares; Mr. Schneider, 15,000 shares; Mr. Shapiro, 25,000 shares;
Mr. Worthing, 52,000 shares; Ms. Fein Zawel, 44,000 shares; and all
directors and executive officers as a group, 652,000 shares.
(3) Less than 1%.
(4) All of such shares are owned by Steel Partners II, L.P. ("Steel"). Mr.
Lichtenstein is the Chairman of the Board, Secretary and Managing Member of
the general partner of Steel. Mr. Lichtenstein disclaims beneficial
ownership of the shares owned by Steel, except to the extent of his
pecuniary interest therein.
(5) Does not include 500 shares of Common Stock owned by Mr. Worthing's spouse,
as to which he disclaims beneficial ownership.
(6) Includes 11,440 shares of Common Stock owned by Ms. Fein Zawel's spouse,
4,772 shares of Common Stock owned by Ms. Fein Zawel jointly with her
spouse, and 32,634 shares of Common Stock held in trust for her minor
children.
2
I. ELECTION OF DIRECTORS
Two directors are to be elected at the Annual Meeting to hold office until
the Annual Meeting in 2004 and until their successors are elected and qualified.
The nominees recommended by the Board of Directors of the Company are Warren G.
Lichtenstein and Joseph S. Schneider. Should the nominees become unable to serve
or otherwise be unavailable for election, it is intended that persons named in
the Proxy will vote for the election of such persons as the Board of Directors
may recommend in the place of such nominee. The Board of Directors knows of no
reason why the nominees might be unable to serve or otherwise be unavailable for
election. Mr. Schneider is presently a member of the Board of Directors.
Directors are elected by a plurality of the shares present in person or
represented by proxy at the Annual Meeting. Shareholders have cumulative voting
rights with respect to the election of directors. Under cumulative voting, each
shareholder is entitled to the same number of votes per share as the number of
directors to be elected (or, for purposes of this election, two votes per
share). A shareholder may cast all of such votes for a single nominee or
distribute them between the nominees, as he or she wishes, either by so marking
the ballot at the meeting or by specific voting instructions sent to the Company
with a signed Proxy. Unless authority to vote for the nominees for director is
withheld, it is the intention of the persons named in the accompanying Proxy to
vote the Proxies in such manner as will elect as directors the persons who have
been nominated by the Board of Directors.
The following table sets forth certain information with respect to the
nominees and each director whose term does not expire in 2001. Except as
otherwise indicated, each nominee and director has held his or her present
principal occupation for the past five years.
AGE (AT BECAME
NAME DECEMBER 31, 2000) PRINCIPAL OCCUPATION DIRECTOR
--------- ------------------ -------------------- --------
NOMINEES FOR ELECTION TO SERVE UNTIL THE ANNUAL MEETING OF SHAREHOLDERS IN 2004
Warren G. Lichtenstein .......... 35 Chairman of the Board, Secretary and
the Managing Member of Steel Partners,
L.L.C. ("Steel LLC"), the general
partner of Steel Partners II, L.P.
("Steel") (since January 1, 1996);
Chairman and a director of Steel
Partners, Ltd., the general partner of
Steel Partners Associates, L.P., which
was the general partner of Steel (1993
to January 1996); acquisition/risk
arbitrage analyst at Ballantrae
Partners, L.P., a private investment
partnership formed to invest in risk
arbitrage, special situations and
undervalued companies (1988 to 1990).
Mr. Lichtenstein is a director of
Tandycrafts, Inc., Gateway Industries,
Inc., WebFinancial Corporation,
Puroflow Incorporated, ECC
International Corp. and CPX Corp.
Joseph S. Schneider ............. 50 President of JSA Partners, Inc., a 1998
consulting firm in the aerospace
and defense industry (since September
1997); Consultant with A.T. Kearney, a
subsidiary of Electronic Data Systems
Corporation (September 1995 to March
1997); President of EDS/JSA
International, Inc., a management
consulting firm (August 1994 to
September 1995) and successor company
to JSA International, Inc. of which he
was President (1981-1994); Chairman
and Co-founder of JSA Research, Inc.,
an independent aerospace and defense
research firm serving institutional
investors (since 1993). Mr. Schneider
is a director of Signal Technology
Corporation.
3
AGE (AT BECAME
NAME DECEMBER 31, 2000) PRINCIPAL OCCUPATION DIRECTOR
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INCUMBENT DIRECTORS WHOSE TERM OF OFFICE EXPIRES IN 2002
Richard R. Erkeneff ............. 65 President of the Company (since 1995
October 1995) and AAI Corporation,
a subsidiary of the Company ("AAI")
(since November 1993); Senior Vice
President of the Aerospace Group at
McDonnell Douglas Corporation, an
aerospace firm (January to November
1993); and President (March 1992 to
October 1992) and Executive Vice
President (1988 to 1992) of
McDonnell Douglas Electronics
Systems Company.
E. Donald Shapiro ............... 69 The Joseph Solomon Distinguished 1996
Professor of Law (since 1983) and
Dean/Professor of Law (1973-1983) of
New York Law School. Mr. Shapiro is a
director of Loral Space and
Communications, Ltd., Vasomedical,
Inc., Kranzco Realty Trust and
Frequency Electronics, Inc.
INCUMBENT DIRECTORS WHOSE TERM OF OFFICE EXPIRES IN 2003
Harold S. Gelb .................. 80 Chairman of the Board of the Company 1995
(since November 1995); private
investor (since 1985); and retired
senior partner of Ernst & Young LLP,
an accounting firm.
Susan Fein Zawel ................ 46 Vice President Corporate 1995
Communications and Associate
General Counsel (since June 1995),
Secretary (since May 1994) and Counsel
(1992 to 1995) of the Company.
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None of the directors or nominees is a director of any other company with a
class of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934 or subject to the requirements of Section 15(d) of such Act or any
company registered as an investment company under the Investment Company Act of
1940, except as set forth above.
4
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual
compensation for services in all capacities to the Company for the fiscal years
ended December 31, 2000, 1999 and 1998 of the chief executive officer and each
of the other executive officers of the Company whose annual compensation
exceeded $100,000.
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)(1) OPTIONS COMPENSATION ($)(2)
--------------------------- ----- ---------- --------- ------------------- ----------- -------------------
Richard R. Erkeneff ........... 2000 440,000 -- -- 21,238
President and Chief 1999 440,000 -- 100,000 18,432
Executive Officer of the 1998 440,000 220,000 57,181 -- 73,035
Company and AAI
James H. Perry ................ 2000 200,720 -- 21,000 14,652
Vice President, Chief 1999 168,480 -- 24,000 13,014
Financial Officer and 1998 155,938 45,238 18,000 12,862
Treasurer of the Company
and AAI
Robert W. Worthing ............ 2000 220,043 -- 21,000 20,821
Vice President and General 1999 192,483 -- 24,000 17,992
Counsel of the Company 1998 192,483 63,422 12,000 17,696
and AAI
Susan Fein Zawel .............. 2000 170,512 -- 9,000 15,063
Vice President Corporate 1999 155,952 -- 12,000 13,272
Communications, Secretary 1998 151,410 42,991 12,000 13,233
and Associate General
Counsel of the Company
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(1) The aggregate amount of other compensation represents perquisites that
exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for such executive officer, including $57,181 for Mr. Erkeneff in 1998.
(2) All amounts under this heading represent employer match contributions made
to the Company's 401(k) plan, contributions to the Company's Retirement Plan and
reimbursement of $57,181 of relocation expenses for Mr. Erkeneff in 1998.
5
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth certain information concerning options
granted during 2000 to the named executives.
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE ------------------
NAME GRANTED FISCAL YEAR ($/SHARE) EXPIRATION DATE 5% ($) 10% ($)
- ---- -------- ----------- -------- --------------- ----- -------
James H. Perry ............... 24,000 7.49 8.5625 February 28, 2010(1) 129,260 327,567
Robert W. Worthing ........... 24,000 7.49 8.5625 February 28, 2010(1) 129,260 327,567
Susan Fein Zawel ............. 12,000 3.75 8.5625 February 28, 2010(1) 64,630 163,784
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(1) One-third of the options are exercisable upon the first anniversary of the
date of grant, which was February 29, 2000, an additional one-third of the
options are exercisable upon the second anniversary of the date of grant
and the balance of the options are exercisable upon the third anniversary
of the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES AT FISCAL YEAR-END FISCAL YEAR-END ($)
ACQUIRED ON VALUE EXERCISABLE (E)/ EXERCISABLE (E)/
NAME EXERCISE # REALIZED ($) UNEXERCISABLE (U) UNEXERCISABLE (U)
- ------ ----------- ------------ ------------------- --------------------
Richard R. Erkeneff ..................... 0 0 385,000(E) 1,021,800(E)
125,000(U) 131,750(U)
James H. Perry .......................... 0 0 37,000(E) 110,010(E)
41,000(U) 87,180(U)
Robert W. Worthing ...................... 0 0 36,000(E) 130,140(E)
36,000(U) 78,660(U)
Susan Fein Zawel ........................ 0 0 32,000(E) 106,870(E)
24,000(U) 47,850(U)
EMPLOYMENT AGREEMENTS AND RELATED TRANSACTIONS
Mr. Erkeneff is employed as President and Chief Executive Officer of the
Company and AAI pursuant to an employment agreement dated December 8, 1998 that
provides he be paid a salary at the annual rate of $440,000 and participate in
all life insurance, medical, retirement, pension or profit sharing, disability
or other employee benefit plans generally made available to other executive
officers of the Company or AAI. The employment agreement terminates on June 30,
2001, unless Mr. Erkeneff's employment is terminated prior thereto by the
Company for cause. Pursuant to the employment agreement, Mr. Erkeneff is
eligible to receive annual cash bonuses pursuant to the Company's Performance
Sharing Plan ("PSP"), plus a discretionary amount of up to forty percent (40%)
of the PSP formula as may be granted by the Company's Board of Directors, not to
exceed three hundred thirty thousand dollars ($330,000) per annum. On January 4,
1999, in accordance with his employment agreement, Mr. Erkeneff also received an
option to acquire 100,000 shares of the Company's common stock pursuant to the
terms of the Company's 1994 Stock Option Plan, at $913/16 per share, an exercise
price equal to the fair market value of the common stock as of the grant date,
terminating on June 30, 2003. Of the total 100,000 shares subject to this
option, 50,000 shares may be purchased when the fair market value of Common
Stock is, for a period of not less than sixty (60) consecutive days, not less
than $16.00; and an additional 50,000 shares may be purchased when the fair
market value of Common Stock is, for a period of not less than sixty (60)
consecutive days, not less than $18.00. The employment agreement also provides
for Mr. Erkeneff to designate a beneficiary for $200,000 of a key man life
insurance policy.
6
Mr. Perry is employed by the Company pursuant to an employment agreement
that provides he be paid a salary at the annual rate of $200,720, adjusted as of
January 1, 2001 to $250,120, and participate in all life insurance, medical,
retirement, pension or profit sharing, disability or other employee benefit
plans generally made available to other executive officers of the Company. The
employment agreement terminates on February 28, 2003, unless Mr. Perry's
employment is terminated prior thereto by the Company for cause. Pursuant to the
employment agreement, Mr. Perry is eligible to receive annual discretionary
salary increases and cash bonuses as may be granted by the Company's Board of
Directors. In the event that the Company terminates the employment of Mr. Perry
without cause (as such term is defined in the employment agreement), or if Mr.
Perry terminates his employment for Good Reason (as such term is defined in the
employment agreement), Mr. Perry will be entitled to (a) 150% of his annualized
base salary, plus (b) an incentive compensation award equal to 35% of the amount
specified in (a) above, payable over a period of 18 months following cessation
of employment.
Mr. Worthing is employed by the Company pursuant to an employment agreement
that provides he be paid a salary at the annual rate of $220,043, adjusted as of
January 1, 2001 to $265,158, and participate in all life insurance, medical,
retirement, pension or profit sharing, disability or other employee benefit
plans generally made available to other executive officers of the Company. The
employment agreement terminates on February 28, 2003 unless Mr. Worthing's
employment is terminated prior thereto by the Company for cause. Pursuant to the
employment agreement, Mr. Worthing is eligible to receive annual discretionary
salary increases and cash bonuses as may be granted by the Company's Board of
Directors. In the event that the Company terminates the employment of Mr.
Worthing without cause (as such term is defined in the employment agreement), or
if Mr. Worthing terminates his employment for Good Reason (as such term is
defined in the employment agreement), Mr. Worthing will be entitled to (a) 150%
of his annualized base salary, plus (b) an incentive compensation award equal to
42% of the amount specified in (a) above, payable over a period of 18 months
following cessation of employment.
Ms. Fein Zawel is employed by the Company pursuant to an employment
agreement that provides she be paid a salary at the annual rate of $170,512,
adjusted as of January 1, 2001 to $200,000, and participate in all life
insurance, medical, retirement, pension or profit sharing, disability or other
employee benefit plans generally made available to other executive officers of
the Company. The employment agreement terminates on February 28, 2003, unless
Ms. Fein Zawel's employment is terminated prior thereto by the Company for
cause. Pursuant to the employment agreement, Ms. Fein Zawel is eligible to
receive annual discretionary salary increases and cash bonuses as may be granted
by the Company's Board of Directors. In the event that the Company terminates
the employment of Ms. Fein Zawel without cause (as such term is defined in the
employment agreement), or if Ms. Fein Zawel terminates her employment for Good
Reason (as such term is defined in the employment agreement), Ms. Fein Zawel
will be entitled to (a) 150% of her annualized base salary, plus (b) an
incentive compensation award equal to 34% of the amount specified in (a) above,
payable over a period of 18 months following cessation of employment.
On March 7, 2001, the Company entered into an agreement with Steel Partners
II, L.P. ("Steel"), a 10.50% shareholder of the Company, Warren Lichtenstein and
James Henderson, pursuant to which the Company agreed that Mr. Lichtenstein
would be nominated as a director at the Company's 2001 Annual Meeting and that
Mr. Henderson could attend Board meetings as an observer for a period of three
years, provided that Mr. Lichtenstein is a director, Steel has no more than one
affiliate or representative on the Board and Steel owns at least 5% of the
Company's outstanding stock.
RETIREMENT BENEFITS
All employees of the Company and its subsidiaries are eligible to
participate in the UIC Retirement Plan, a cash balance plan (the "Retirement
Plan") upon commencement of employment. In accordance with the Retirement Plan,
a participant's accrued benefit includes the actuarial equivalent of the
participant's accrued benefit under the applicable predecessor defined benefit
plan as of December 31, 1994 plus annual allocations based upon a percentage of
salary and interest earned on such participant's account thereafter. The
Retirement Plan also has options for early retirement and alternative forms of
payment, including lump sum benefits and benefits for surviving spouses. The
estimated annual benefit to be provided by the UIC Retirement Plan and payable
to Messrs. Erkeneff, Perry and Worthing and Ms. Fein Zawel, commencing at normal
retirement age, are $10,176, $18,101, $18,701 and $15,294, respectively.
7
UNITED INDUSTRIAL CORPORATION HEALTH-CARE PLAN FOR RETIRED DIRECTORS
The Company has implemented the United Industrial Corporation Health-Care
Plan for Retired Directors (the "Plan"), which was adopted by the Company's
Board of Directors on December 18, 1995. The Board may, in its sole discretion,
amend, suspend or terminate the Plan, at any time, with or without prior notice.
A director of the Company is eligible to participate in the Plan if he or she:
(i) ceases to be a member of the Board; (ii) has served as a member of the Board
for 15 full years; (iii) has attained the age of 65; (iv) is eligible for
Medicare Part A; and (v) has enrolled in both Medicare Part A and Medicare Part
B and any other available supplemental medical or hospitalization coverage by
reason of entitlement under any government entitlement, including, without
limitation, that provided under Title XVIII of the Social Security Act. A
director who participates in the Plan is entitled to coverage under the group
medical plan available to the executive officers of the Company on the same
terms and conditions as such coverage is available to such executive officers
and their spouses and dependents. If a director who participates in the Plan
resides outside the service area of the Company's group medical plan, such
director and his or her spouse and dependents will receive medical benefit
coverage under a medical plan or health insurance policy which provides benefits
that are reasonably comparable to the benefits under the Company's group medical
plan; however, if no such coverage is reasonably available (whether due to
geography or the physical condition of the director or his or her spouse or
dependents), then the Company will reimburse such director for any reasonable
expense that would have been covered under the Company's group medical plan.
Benefits provided under the Plan will be secondary to any benefits under any
other hospitalization or major medical plan or arrangement provided to such
director under government entitlements or provided to such director (either
directly or indirectly through such director's spouse) by any other personal or
employer-provided health-care plan or health insurance policy.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for establishing and reviewing
the salaries, compensation plans and other remuneration of the officers of the
Company. The programs adopted by the Committee link compensation to the
Company's financial performance and to growth in shareholder value.
COMPENSATION PHILOSOPHY: The Company's compensation program applicable to
all of the executive officers is based on three primary elements:
o Base salary compensation
o Annual cash incentive compensation
o Long-term incentive compensation
The Company's executives receive no other form of compensation other than
customary benefits.
BASE SALARY COMPENSATION: The base salaries for the executive officers are
determined based upon the responsibilities of the position, the experience level
of the individual and the competitive conditions within the industry. The
Company and the Committee consider the compensation paid to executive employees
of other companies in the defense industry and related industries. These
companies are broader than the peer group of publicly-traded defense companies
used for comparison of five-year cumulative return in this Proxy Statement. When
adjusting base salaries for individual executive officers in 2001, the Committee
considered the financial performance of the Company in 2000, the performance of
the individual executive officer, any changed duties and responsibilities and
the base salaries paid to individuals in comparable positions in other
companies.
ANNUAL INCENTIVE COMPENSATION: In fiscal 1996, the Committee approved the
Performance Sharing Plan ("PSP") which provides annual incentive awards to
executive officers and other key employees. The PSP provides a bonus pool based
on Company and/or subsidiary performance against performance measures set for
each respective unit. These measures include, but are not limited to, profit,
return on net assets, cash flow and quality improvement. Awards for individuals
are based on a combination of business unit and individual performance.
Participants are assigned a target award percentage (stated as a percentage of
base salary) reflecting his or her level of responsibility.
LONG-TERM INCENTIVE COMPENSATION: Both the Company's management and the
Compensation Committee believe that significant stock ownership in the Company
links the economic interests of shareholders and management and therefore is a
major incentive for management. The Company's long-term incentive plan is
designed to provide the recipient with a proprietary interest in the growth and
performance of the Company and the value of its shares.
8
The Compensation Committee recommends grants of stock options to executive
officers and other key employees under the Company's 1994 Stock Option Plan. All
options are granted at fair market value and generally become exercisable in
three equal portions at one, two and three years following the date of grant,
with the exception of options granted to Mr. Erkeneff pursuant to his employment
agreement.
The Compensation Committee determines the size of any option grant under
the Plan based upon the Committee's perceived value of the grant to motivate and
retain the individual executive, the level of long-term incentive practices
within comparable companies and the individual executive's responsibilities and
overall performance. Although the Committee supports and encourages stock
ownership in the Company by its executive officers, it has not promulgated any
standards regarding levels of ownership by executive officers.
CEO COMPENSATION: Mr. Erkeneff was elected President and Chief Executive of
the Company in January 1996. Pursuant to his employment agreement, his salary
was set at $440,000. The Compensation Committee believes that this rate of
annual salary reflects the prevailing competitive marketplace for similar
companies, as confirmed in an opinion provided by an independent outside
compensation consultant.
Mr. Erkeneff was eligible for an annual cash incentive award of up to 50%
of his annual base salary. For 2000, the Compensation Committee reviewed the
performance of the Company and Mr. Erkeneff relative to financial and strategic
goals established for the year, and determined not to award him a bonus for 2000
at its meeting in February 2001.
The Committee believes strongly that stock option awards emphasize the
importance of increasing shareholder value. Mr. Erkeneff's employment agreement
provides for an option grant of 100,000 shares, of which 50,000 shares may be
purchased when the fair market value of Common Stock is, for a period of not
less than sixty (60) consecutive days, not less than $16.00; and the remaining
50,000 shares may be purchased when the fair market value of Common Stock is,
for a period of not less than sixty (60) consecutive days, not less than $18.00.
* * *
Section 162(m) of the Internal Revenue Code of 1986 limits a publicly-held
corporation's deduction for compensation paid to certain executive officers in
excess of $1 million per executive per taxable year, unless the compensation
qualifies as "performance based" compensation. Stock options currently granted
under the 1994 Stock Option Plan (as amended) will not qualify for this
exception. As of today, annual cash compensation for any executive officer has
been far below the $1 million threshold. The Compensation Committee will address
the deductibility at an appropriate time in the future.
COMPENSATION COMMITTEE
HAROLD S. GELB, CHAIRMAN
EDWARD C. ALDRIDGE, Jr.
JOSEPH S. SCHNEIDER
E. DONALD SHAPIRO
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the audited financial
statements contained in the 2000 Annual Report on Form 10-K with the Company's
management and the Company's independent auditors, Ernst & Young LLP. The
Company's management is responsible for the financial statements and the
reporting process, including the system of internal controls. The independent
auditors are responsible for expressing an opinion on the conformity of those
audited financial statements with accounting principles generally accepted in
the United States.
In addition, the Audit Committee has discussed with the independent
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61, COMMUNICATION WITH AUDIT COMMITTEES. Further, the Audit Committee has
received the written disclosures and the letter from the independent auditors
required by Independence Standards Board Standard No. 1, INDEPENDENCE
DISCUSSIONS WITH AUDIT COMMITTEES, and has discussed with the independent
auditors the auditors' independence from the Company and its management.
9
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
E. DONALD SHAPIRO, CHAIRMAN
EDWARD C. ALDRIDGE, JR.
JOSEPH S. SCHNEIDER
PERFORMANCE GRAPH
The graph below compares the total returns which an investor would have
earned assuming the investment of $100 on December 31, 1995 in the Common Stock,
the Russell 2000 Value Index ("Russell 2000") and a constructed peer group
index. The constructed peer group consists of Cubic Corporation, EDO
Corporation, Sparton Corporation, DRS Technologies, Inc. and Engineered Support
Systems, Inc. Stanford Telecommunications, Tech-Sym Corp. and Comptek Research,
Inc. have been sold and therefore removed from the constructed peer group used
by the Company in the previous fiscal year. DRS Technologies, Inc. and
Engineered Support Systems, Inc. have been added to the peer group used by the
Company in the previous fiscal year. The constructed peer group index has been
weighted in accordance with the stock market capitalization of each of the
component corporations.
TOTAL SHAREHOLDER RETURN
[Figures below represent line graph in printed piece.]
RUSSELL
UIC 2000 VALUE PEER GROUP
------ ---------- ----------
1995 $100 $100 $100
1996 105.79 121.37 143.5
1997 202.49 159.94 126.89
1998 189.74 149.62 70.8
1999 185.07 147.4 97.2
2000 233.97 181.04 131.25
OTHER COMPENSATION
Directors received $20,000 per year and $1,000 for each meeting attended,
and a fee of $500 for each committee meeting attended. In lieu of such fees, Mr.
Gelb, Chairman of the Board, received $10,000 per month. In addition, Messrs.
Aldridge and Schneider also served as directors of AAI, for which they received
compensation of $2,000 per meeting.
All current directors are eligible to participate in the medical plan
available to the executive officers of the Company. The Company also has a
medical plan for retired directors as described above. Nonemployee directors
also participate in the Company's 1996 Stock Option Plan for Nonemployee
Directors (the "1996 Plan"). Pursuant to the 1996 Plan, each Eligible Director
(as defined in the 1996 Plan) is granted an option to purchase 15,000 shares of
Common Stock upon their initial appointment to the Board of Directors,
exercisable at the market price
10
of the Company's Common Stock on the date of grant. The options granted under
the 1996 Plan expire ten years after the date of grant and become exercisable
(i) as to one-third of the total number of shares subject to the grant on the
date of grant (the "First Vesting Date"), (ii) as to an additional one-third of
the total number of shares subject to the grant on the date of the next annual
shareholders' meeting after the First Vesting Date (the "Second Vesting Date"),
and (iii) as to the remaining one-third of the total number of shares subject to
the grant on the date of the next annual shareholders' meeting after the Second
Vesting Date (the "Final Vesting Date"). On the date of the annual shareholders'
meeting which takes place during the calendar year in which the first
anniversary of the Final Vesting Date occurs, each Eligible Director shall
automatically be granted an option to purchase 15,000 shares of Common Stock,
provided such grantee is an Eligible Director in office immediately following
such annual meeting.
ADDITIONAL INFORMATION
The Board of Directors of the Company had a total of fourteen meetings
during 2000.
Among its standing committees, the Company has an Audit Committee, a
Nominating Committee and a Compensation Committee. The Audit Committee is
responsible for overseeing the Company's financial reporting process on behalf
of the Board, and as part of its duties it recommends to the Board the
engagement and discharge of independent auditors for the Company, analyzes the
reports of such auditors, and makes such recommendations to the Board with
respect thereto as such committee may deem advisable. The Audit Committee has
considered whether the independent auditors' provision of non-audit services to
the Company is compatible with maintaining the auditors' independence. There
were four Audit Committee meetings held in 2000. The members are E. Donald
Shapiro, Edward C. Aldridge, Jr. and Joseph S. Schneider, each of whom is
"independent" under the listing standards of the New York Stock Exchange. The
Board has adopted a written charter for the Audit Committee, which is included
as Appendix A to this Proxy Statement.
The Nominating Committee acts primarily as a selection committee to
recommend candidates for election to the Board of Directors. The committee met
once in 2000. The members consist of all of the current directors.
The Nominating Committee will consider nominees for directors recommended
by shareholders. Any shareholder may make such a recommendation by writing to:
Secretary, United Industrial Corporation, 570 Lexington Avenue, New York, New
York 10022.
The Compensation Committee makes recommendations to the Board of Directors
regarding the compensation structure of the Company as applied to executive
personnel. There were two Compensation Committee meetings held in 2000. The
members are Harold S. Gelb, Edward C. Aldridge, Jr., Joseph S. Schneider and E.
Donald Shapiro.
There are no family relationships between any nominee, director or
executive officer of the Company.
SECTION 16(a BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and any persons who own more than ten percent of the
Company's Common Stock to file reports of initial ownership of the Company's
Common Stock and subsequent changes in that ownership with the Securities and
Exchange Commission and the New York Stock Exchange. Such persons are also
required to furnish the Company with copies of all Section 16(a) forms they
file. Based solely upon a review of the copies of the forms furnished to the
Company, or written representations from certain reporting persons that no Form
5's were required, the Company believes that during 2000 all Section 16(a)
filing requirements were complied with, except that a report for one transaction
occurring during 1999 was filed late by each of Richard R. Erkeneff, Susan Fein
Zawel, James H. Perry, Robert W. Worthing, Edward C. Aldridge, Jr., Harold S.
Gelb and E. Donald Shapiro, and a report for one transaction occurring during
2000 was filed late by each of Susan Fein Zawel, James H. Perry and Robert W.
Worthing.
II. APPOINTMENT OF AUDITORS
It is proposed that the shareholders ratify the appointment of Ernst &
Young LLP as independent auditors of the Company for the year ending December
31, 2001. Ernst & Young LLP have been the independent auditors of the Company
since 1962. It is expected that a representative of Ernst & Young LLP will be
present at the Annual Meeting with the opportunity to make a statement if he
desires to do so and will be available to respond to appropriate questions.
11
AUDIT FEES
Ernst & Young LLP billed the Company $480,500 for professional services
rendered in connection with the audit of the Company's annual financial
statements for the year ended December 31, 2000 and the reviews of the financial
statements included in the Company's Forms 10-Q for that fiscal year.
FINANCIAL INFORMATION SYSTEM DESIGN AND IMPLEMENTATION FEES
Ernst & Young LLP rendered no professional services to the Company during
the year ended December 31, 2000 with respect to financial information systems
design and implementation.
ALL OTHER FEES
Ernst & Young LLP billed the Company $399,100 for all services rendered to
the Company during the year ended December 31, 2000 other than those set forth
above, which included $232,500 for audit related services and $166,600 for other
services.
The Board of Directors recommends that the accompanying Proxy be voted in
favor of the appointment of Ernst & Young LLP as independent auditors of the
Company for the year ending December 31, 2001. A favorable vote of a majority of
the shares present at the meeting in person or by proxy is required for
approval.
III. MISCELLANEOUS
The Board of Directors knows of no business to come before the meeting
other than as stated in the Notice of Annual Meeting of Shareholders. Should any
business other than that set forth in said Notice properly come before the
meeting, it is the intention of the persons named in the accompanying Proxy to
vote said Proxy in accordance with their judgment on such matters.
A list of the Company's shareholders as of the record date for the meeting
will be available for examination by any shareholder, for purposes germane to
the meeting, during ordinary business hours, for ten days prior to the date of
the meeting at the offices of the Company.
All shares represented by the accompanying Proxy given prior to the meeting
will be voted in the manner specified therein. Proxy cards returned without
specification will be voted in accordance with the recommendation of the Board
of Directors. The shares of shareholders who have properly withheld authority to
vote for the nominees proposed by the Board of Directors (including broker
non-votes) will not be counted toward achieving a plurality. As to any matters
which may come before the meeting other than those specified above, the Proxy
holders will be entitled to exercise discretionary authority. The holders of a
majority of the outstanding shares of Common Stock present in person or
represented by proxy will constitute a quorum at the Annual Meeting.
For purposes of this meeting, except for the election of directors, which
requires a plurality vote, the affirmative vote of the majority of shares
present in person or represented by proxy at the meeting for a particular matter
is required for the matter to be deemed an act of the shareholders. With respect
to abstentions, the shares are considered present at the meeting for the
particular matter, but since they are not affirmative votes for the matter, they
will have the same effect as votes against the matter. With respect to broker
non-votes, the shares are not considered present at the meeting for the
particular matter as to which the broker withheld its vote. Consequently, broker
non-votes are not counted in respect of the matter, but they do have the
practical effect of reducing the number of affirmative votes required to achieve
a majority for such matter by reducing the total number of shares from which the
majority is calculated.
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the next Annual
Meeting of Shareholders must be received by the Company no later than November
20, 2001 to be considered for inclusion in the Company's Proxy Statement and
form of Proxy relating to that meeting. Such proposals should be addressed to
Susan Fein Zawel, Secretary, United Industrial Corporation, 570 Lexington
Avenue, New York, New York 10022.
12
The Company's by-laws provide that any shareholder entitled to vote for the
election of directors at a meeting may nominate persons for election as
directors only if written notice of such shareholder's intent to make such
nomination is given, either by personal delivery or by mail to the Secretary of
the Company (i) with respect to an election to be held at an annual meeting of
shareholders, not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting of shareholders; and (ii)
with respect to an election to be held at a special meeting of shareholders for
the election of directors, not earlier than the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board to be selected at such meeting. Similar notice
provisions apply with respect to any other proposal which a shareholder intends
to bring before a meeting of shareholders. A copy of the pertinent by-law
provision, which sets forth additional requirements with respect to such notice,
is available on request to the Secretary of the Company at the address set forth
above.
EXPENSES OF SOLICITATION
The Company will bear the cost of the solicitation of Proxies. In addition
to the use of the mails, proxies may be solicited by the executive employees and
directors of the Company personally, by telephone or by telecopy. The Company
has retained Innisfree M&A Incorporated to assist in the solicitation of proxies
for a fee of $6,500, plus reimbursement of out-of-pocket expenses. Brokers,
nominees, fiduciaries and other custodians will be requested to forward
soliciting material to the beneficial owners of shares and will be reimbursed
for their expenses.
UNITED INDUSTRIAL CORPORATION WILL FURNISH A COPY OF ITS ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000, WITHOUT EXHIBITS, WITHOUT CHARGE
TO EACH PERSON WHO FORWARDS A WRITTEN REQUEST THEREFOR, INCLUDING A
REPRESENTATION THAT SUCH PERSON WAS A BENEFICIAL HOLDER OF COMMON STOCK OF
UNITED INDUSTRIAL CORPORATION ON MARCH 22, 2001, TO SUSAN FEIN ZAWEL, SECRETARY,
UNITED INDUSTRIAL CORPORATION, 570 LEXINGTON AVENUE, NEW YORK, NEW YORK 10022.
Dated March 30, 2001 By Order of the Board of Directors
Susan Fein Zawel
SECRETARY
13
APPENDIX A
UNITED INDUSTRIAL CORPORATION
AUDIT COMMITTEE CHARTER
PURPOSE. The primary purpose of the Audit Committee (the "Committee") of
the Board of Directors of United Industrial Corporation (the "Company") is to
assist the Board of Directors in fulfilling its responsibility to oversee
management's conduct of the Company's financial reporting process, including by
overviewing the financial reports and other financial information provided by
the Company to any governmental or regulatory body, the public or other users
thereof, the Company's systems of internal accounting and financial controls,
and the annual independent audit of the Company's financial statements. In
discharging its oversight role, the Committee is empowered to investigate any
matter brought to its attention with full access to all books, records,
facilities and personnel of the Company and the power to retain outside counsel,
auditors or other experts for this purpose.
KEY RESPONSIBILITIES. The Committee shall, as its primary duties:
1. Provide an open avenue of communication among the independent
auditor, management, and the Board of Directors.
2. Recommend the selection of the independent auditor for approval by
the Board of Directors and ratification by the stockholders of the
Company, and approve the compensation of the independent auditor.
3. Review the proposed scope and approach of the audit conducted by the
independent auditor, and review the performance of the independent
auditor.
4. Ensure (x) its periodic receipt from the independent auditor of a
formal written statement delineating all relationships between the
independent auditor and the Company, consistent with Independence
Standards Board Standard 1, (y) that it actively engage in a dialogue
with the independent auditor with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the independent auditor, and (z) that it recommend
that the full Board of Directors take appropriate action in response
to the independent auditor's report to satisfy itself of the
auditor's independence.
5. Ensure that the independent auditor acknowledges its ultimate
accountability to the Board of Directors and the Committee, as
representatives of the stockholders.
6. Acknowledge, and ensure that the Board of Directors acknowledges, as
representatives of the stockholders, their ultimate authority and
responsibility to select, evaluate, and where appropriate, replace
the independent auditor (or to nominate the independent auditor to be
proposed for stockholder approval in any proxy statement).
7. Discuss with management and the independent auditor the quality and
adequacy of the Company's internal controls.
8. Ensure that management and the independent auditor discuss with the
Committee their qualitative judgments about the appropriateness, not
just the acceptability of, accounting principles and financial
disclosure practices used or proposed to be adopted by the Company.
9. Direct the special attention of the independent auditor and
management to specific matters or areas deemed by the Committee or
the independent auditor to be of special significance.
10. Review (i) audited annual financial statements and the independent
auditors' opinion rendered with respect to such financial statements,
and (ii) interim financial statements with the independent auditor
and discuss with the independent auditor all matters required to be
discussed by Statement of Auditing Standards No. 61.
11. Perform such other functions as are consistent with this Charter as
the Committee or the Board of Directors deems appropriate, including,
if necessary, any special investigations with the power to retain
outside counsel for this purpose.
14
12. Regularly update and make recommendations to the Board of Directors
about Committee activities.
MEMBERSHIP. The membership of the Committee shall consist of at least three
directors, each of whom shall be independent and shall serve at the pleasure of
the Board of Directors. Each of such directors shall be able to read and
understand fundamental financial statements, including a company's balance
sheet, income statement, and cash flow statement. In addition, at least one
member of the Committee shall have past employment experience in finance or
accounting, requisite professional certification in accounting, or any other
comparable experience or background which results in such member's financial
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight
responsibilities. For purposes of the foregoing, the term "independent director"
shall mean a person who has no relationship to the Company that may interfere
with the exercise of his or her independence from management and the Company.
15
UNITED INDUSTRIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P
R PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS MAY 8, 2001
O
X The undersigned hereby appoints Harold S. Gelb, Richard R. Erkeneff
Y and E. Donald Shapiro or any of them, attorneys and proxies with full
power of subsititution in each of them, in the name, place and stead
of the undersigned to vote as proxy all the stock of the undersigned
in United Industrial Corporation.
The shares represented by this proxy will be voted for proposals 1 and
2 and in accordance with item 3 if no instruction to the contrary is
indicated, or if no instruction is given.
------------
SEE REVERSE
SIDE
------------
|
| X | PLEASE MARK YOUR | 0000
VOTES AS IN THIS |_____
EXAMPLE.
FOR WITHHELD
1. Election of Directions [ ] [ ]
FOR, except vote WITHHELD from the following nominee(s):
- ------------------------------------
NOMINEES: Warren G. Lichtenstein
and Joseph s. Schneider
FOR AGAINST ABSTAIN
2. To consider and act upon a proposal [ ] [ ] [ ]
to ratify the appointment of Ernst &
Young LLP as independent auditors of
the Company for 2001.
3. In their discretion, to act upon such [ ] [ ] [ ]
other matters as may properly come
before the meeting or any adjournment
thereof.
Note: Please sign exactly as your name appears hereon.
Executors, administrators, trustees, etc. should so
indicate when signing, giving full title as such. If
signer is a corporation, execute in full corporate
name by authorized officer. If shares held in the name
of two or more persons, all should sign.
DATE ---------------------------------------------, 2001
SIGNATURE(S) (if held jointly)--------------------------
--------------------------------------------------------