UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-12
United Industrial Corporation
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:__________________________________________________________
UNITED INDUSTRIAL CORPORATION
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS OCTOBER 8, 2003
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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
October, 2003, at 10:00 A.M., for the following purposes:
1. To elect two (2) directors to serve until the Annual Meeting of
Shareholders in 2006.
2. To consider and act upon a proposal to amend the Company's 1994
Stock Option Plan, as amended, and approve the compensation provided for
thereunder.
3. To consider and act upon a proposal to ratify the appointment of
Ernst & Young LLP as independent auditors of the Company for 2003.
4. 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 August 29, 2003 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
September 5, 2003
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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 OCTOBER 8, 2003
This Proxy 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 October 8,
2003, at 10:00 A.M. Shareholders of record at the close of business on August
29, 2003 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 either giving written notice of such revocation to the Secretary of
the Company or by attending the meeting and voting in person. 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 124 Industry Lane, Hunt Valley, Maryland 21030. 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 September 5, 2003. The Annual Report of the
Company for the year ended December 31, 2002, including audited financial
statements, has been sent to each shareholder.
VOTING RIGHTS
On August 29, 2003, there were outstanding and entitled to vote 13,413,018
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
August 29, 2003. 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 our outstanding Common Stock was
beneficially owned by each of the persons named in the following table, except
that the information as to Kennedy Capital Management, Inc. is as of December
31, 2002 and is based upon information furnished to us by such entity in a
Schedule 13G, and the information as to Steel Partners II, L.P. is based upon
information furnished to us by such entity in a Schedule 13D.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
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Common Stock Kennedy Capital Management, Inc. 1,595,450(1) 11.9%
10829 Olive Boulevard
St. Louis, Missouri 63141
Common Stock Steel Partners II, L.P. 1,582,050 11.8%
590 Madison Avenue
32nd Floor
New York, New York 10022
- ----------
(1) Kennedy Capital Management, Inc., a registered investment advisor, has sole
voting power as to 1,550,650 shares of Common Stock and sole dispositive
power as to 1,595,450 shares.
1
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of August 29, 2003, the number of shares
of our Common Stock beneficially owned by each of our directors, each nominee
for director, each executive officer named in the Summary Compensation Table
below, and by all of our directors and executive officers 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
------------- -------------------- --------
Thomas A. Corcoran ......................... 0 0%
Richard R. Erkeneff ........................ 646,000 4.75%
Harold S. Gelb ............................. 40,000 (3)
Paul J. Hoeper ............................. 7,000 (3)
Glen M. Kassan ............................. 10,000 (3)
General Paul X. Kelley ..................... 0 0%
Warren G. Lichtenstein ..................... 1,597,050(4) 11.89%
James H. Perry ............................. 101,425 (3)
Joseph S. Schneider ........................ 35,000 (3)
Frederick M. Strader ....................... 96,666 (3)
Robert W. Worthing ......................... 99,014(5) (3)
Susan Fein Zawel ........................... 409,709(6) 3.04%
All directors and executive officers
as a group, consisting of 10 persons ..... 3,041,864 21.68%
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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. Erkeneff, 175,000
shares; Mr. Gelb, 35,000 shares; Mr. Hoeper, 5,000 shares; Mr. Kassan,
10,000 shares; Mr. Lichtenstein, 15,000 shares; Mr. Perry, 95,333 shares;
Mr. Schneider, 30,000 shares; Mr. Strader, 96,666 shares (assuming, with
respect to 41,666 of such shares, shareholder approval of the proposed
amendment to the stock option plan); Mr. Worthing, 89,333 shares; Ms. Fein
Zawel, 63,666 shares; and all directors and executive officers as a group,
614,998 shares.
(3) Less than 1%.
(4) All of such shares are owned by Steel Partners II, L.P. ("Steel") (other
than Mr. Lichtenstein's stock options). 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 2006 and until their successors are elected and qualified.
The nominees unanimously recommended by the Board of Directors of the Company
are Thomas A. Corcoran and General Paul X. Kelley, each of whom has consented to
be so named in this Proxy Statement and to serve as directors if elected. 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. Neither Mr. Corcoran nor Mr.
Kelley 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 any one or more of the
nominees for director is withheld, it is the intention of the persons named in
the accompanying Proxy to cumulatively vote the Proxies in such manner as will
elect as directors as many of the persons who have been nominated by the Board
of Directors as possible. If you withhold your vote for an individual nominee,
all of your cumulative votes will be voted for the other nominee.
The following table sets forth certain information with respect to the
nominees and each director whose term does not expire in 2003. 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 AUGUST 1, 2003) PRINCIPAL OCCUPATION DIRECTOR
---- --------------- -------------------- --------
NOMINEES FOR ELECTION TO SERVE UNTIL THE ANNUAL MEETING OF SHAREHOLDERS IN 2006
Thomas A. Corcoran ..... 59 President of Corcoran
Enterprises, LLC, a
management consulting firm
(since January 2001); Chief
Executive Officer of Gemini
Air Cargo, Inc., a global
air cargo company (since
January 1,2001); President
and Chief Executive Officer
of Allegheny Technologies
Incorporated, a specialty
materials producer
(September 1999 to December
2000); President and Chief
Operating Officer of the
Space and Strategic Missiles
sector of Lockheed Martin
Corporation, an advanced
technology company
(September 1998 to September
1999); President and Chief
Operating Officer of the
Electronics sector of
Lockheed Martin (April 1995
to September 1998);
President of the Electronics
Group of Martin Marietta
Corporation, a predecessor
of Lockheed Martin (1993 to
1995); various management
positions, including Vice
President and General
Manager, with the Aerospace
segment of General Electric
Company (1983 to 1993);
Director of L-3
Communications Holdings,
Inc., REMEC, Inc., and a
member of the Board of
Trustees of Stevens
Institute of Technology and
the Wings Club.
3
AGE (AT BECAME
NAME AUGUST 1, 2003) PRINCIPAL OCCUPATION DIRECTOR
---- --------------- -------------------- --------
General Paul X. Kelley ... 74 Chairman of American Battle
Monuments Commission, an
independent agency of the
Executive Branch of the
Federal Government (since
2001); Partner of J.F.
Lehman & Company, an
investment firm (since
1998); Commandant of the
Marine Corps and member of
the Joint Chiefs of Staff
(1983 to 1987); Director of
Saul Centers, Inc., Sturm
Ruger & Company, Inc., and
OAO Technology Solutions,
Inc.
INCUMBENT DIRECTORS WHOSE TERM OF OFFICE EXPIRES IN 2004
Warren G. Lichtenstein ... 38 Chairman of the Board, 2001
Secretary and Managing
Member of Steel Partners,
L.L.C., the general partner
of Steel Partners II, L.P.,
a private investment firm
("Steel") (since January
1996); Chairman and a
director of Steel Partners,
Ltd. ("Old Ltd."), the
general partner of Steel
Partners Associates, L.P.,
which was the general
partner of Steel (from 1993
to December 1995);
acquisition/risk arbitrage
analyst at Ballantrae
Partners, L.P., a private
investment partnership
formed to invest in risk
arbitrage, special
situations and undervalued
companies (from 1988 to
1990); director (since 1994
and Chairman of the Board
since 1995) and the Chief
Executive Officer (since
1995) of Gateway Industries,
Inc. ("Gateway"), a provider
of database development and
Web site design and
development services;
director of WebFinancial
Corporation
("WebFinancial"), a consumer
and commercial lender (since
1996) and its President and
Chief Executive Officer
(since December 1997);
director and the President
and Chief Executive Officer
of Steel Partners Ltd. ("New
Ltd."), a management and
advisory company that
provides management services
to Steel and other
affiliates of Steel (since
June 1999) and its Secretary
and Treasurer (since May
2001); President of Steel
Partners Services, ("SPS"),
a management and advisory
company (from October 1999
to March 2002); SPS provided
management services to Steel
and other affiliates of
Steel until March 2002, when
New Ltd. acquired the rights
to provide certain
management services from
SPS; Chairman of the Board
4
AGE (AT BECAME
NAME AUGUST 1, 2003) PRINCIPAL OCCUPATION DIRECTOR
---- --------------- -------------------- --------
of Directors of Caribbean
Fertilizer Group Ltd.
("Caribbean Fertilizer"), a
private company engaged in
the production of
agricultural products in
Puerto Rico and Jamaica
(since June 2000); director
of ECC International Corp.
("ECC"), a manufacturer and
marketer of
computer-controlled
simulators for training
personnel to perform
maintenance and operator
procedures on military
weapons; Chairman of the
Board (since January 2002),
director (from 1993 to 1997)
and Chief Executive Officer
(since February 2002) of SL
Industries Inc., a designer
and manufacturer of power
electronics.
Joseph S. Schneider ..... 51 President of JSA Partners, 1998
Inc., a 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).
5
AGE (AT BECAME
NAME AUGUST 1, 2003) PRINCIPAL OCCUPATION DIRECTOR
---- --------------- -------------------- --------
INCUMBENT DIRECTORS WHOSE TERM OF OFFICE EXPIRES IN 2005
Richard R. Erkeneff ..... 67 Former President and Chief 1995
Executive Officer of the
Company and AAI Corporation,
a subsidiary of the Company
("AAI") (retired as of
August 1, 2003); 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.
Glen M. Kassan .......... 60 Executive Vice President of 2002
New Ltd. (since March 2002);
Executive Vice President of
SPS (from June 2001 to March
2002) and Vice President
(from October 1999 to May
2001); Vice Chairman of the
Board of Directors of
Caribbean Fertilizer (since
June 2000); Vice President,
Chief Financial Officer and
Secretary of WebFinancial
(since June 2000); Chairman
and Chief Executive Officer
(from 1997 to 1998) of Long
Term Care Services, Inc., a
privately owned healthcare
services company which Mr.
Kassan co-founded in 1994
and initially served as Vice
Chairman and Chief Financial
Officer; director (since
January 2002) and President
(since February 2002) of SL
Industries Inc.
6
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.
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, 2002, 2001 and 2000 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 ............ 2002 528,000 369,116 -- 30,618
President and Chief 2001 484,000 96,871 -- 27,300
Executive Officer of the 2000 440,000 -- -- 21,238
Company and AAI, retired*
James H. Perry ................. 2002 262,600 246,021 10,000 23,045
Vice President, Chief 2001 250,120 10,468 10,000 20,157
Financial Officer and 2000 200,720 -- 21,000 14,652
Treasurer of the Company
and AAI
Robert W. Worthing ............. 2002 275,558 259,033 10,000 32,309
Vice President and General 2001 265,158 11,097 10,000 27,316
Counsel of the Company 2000 220,043 -- 21,000 20,821
and AAI
Susan Fein Zawel ............... 2002 200,000 190,444 5,000 25,837
Vice President Corporate 2001 200,000 8,370 5,000 21,066
Communications, Secretary 2000 170,512 -- 9,000 15,063
and Associate General
Counsel of the Company
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* Mr. Erkeneff retired as President and Chief Executive Officer of the
Company and AAI effective August 1, 2003. Mr. Erkeneff was succeeded by
Frederick M. Strader as of such date.
(1) The aggregate amount of other compensation represents perquisites that
exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for such executive officer.
(2) All amounts under this heading represent employer match contributions made
to the Company's 401(k) plan and contributions to the Company's Retirement
Plan.
7
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth certain information concerning options
granted during 2002 to the named executives.
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE --------------------
NAME GRANTED FISCAL YEAR ($/SHARE) EXPIRATION DATE 5% ($) 10% ($)
- ------------ ---------- ------------ ----------- ---------------- ------- -------
James H. Perry ............ 10,000 8 19.05 March 1, 2012(1) 119,825 303,657
Robert W. Worthing ........ 10,000 8 19.05 March 1, 2012(1) 119,825 303,657
Susan Fein Zawel .......... 5,000 4 19.05 March 1, 2012(1) 59,912 151,829
- ----------
(1) One-third of the options are exercisable upon the first anniversary of the
date of grant, which was March 1, 2002, 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 0 510,000(E) 3,385,625(E)
-0- (U) -0- (U)
James H. Perry .............. 0 0 77,000(E) 522,450(E)
32,000(U) 102,900(U)
Robert W. Worthing .......... 0 0 71,000(E) 508,200(E)
32,000(U) 102,900(U)
Susan Fein Zawel ............ 0 0 55,000(E) 393,550(E)
15,000(U) 48,350(U)
EMPLOYMENT AGREEMENTS AND RELATED TRANSACTIONS
Mr. Erkeneff retired as President and Chief Executive Officer of the
Company and AAI, effective as of August 1, 2003, the date upon which his
employment agreement expired. Mr. Erkeneff's employment agreement dated December
8, 1998 and amended as of June 1, 2001 and as of December 20, 2002 provided that
he be paid a salary at the annual rate of $792,000 commencing January 1, 2003
(increased from an annual rate of $528,000 for 2002), and participate in all
life insurance, medical, retirement, pension, disability and other employee
benefit plans generally made available to other executive officers of the
Company or AAI. The employment agreement provided that it could have been
terminated prior July 31, 2003 by the Company for cause or by Mr. Erkeneff with
good reason, and also provided the Company with the right to extend the term of
the agreement for up to five months upon 60 days prior written notice. Pursuant
to the employment agreement, Mr. Erkeneff received a cash bonus of $369,116 for
2002 pursuant to the Company's Performance Sharing Plan. Mr. Erkeneff will not
be eligible to receive a bonus for 2003. On January 4, 1999, in accordance with
his employment agreement, Mr. Erkeneff 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 (the "Stock Option Plan"), at $9 13/16 per share, the fair
market value of the Common Stock as of the grant date, terminating on June 30,
2003. This option has fully vested and was fully exercised. The employment
agreement provided that, in the event that the Company terminated the employment
of Mr. Erkeneff without cause (as such term is defined in the employment
agreement) or Mr. Erkeneff terminated
8
his employment for good reason (as such term is defined in the employment
agreement), Mr. Erkeneff would have been entitled to continue to receive his
salary through July 31, 2003. Mr. Erkeneff has agreed to resign as a director of
the Company upon the request of the Board at any time after the termination of
his employment.
Mr. Frederick M. Strader is employed as President and Chief Executive
Officer of the Company and AAI pursuant to an employment agreement dated June
18, 2003 that provides he be paid a salary at the annual rate of $340,000 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 is
effective as of August 1, 2003 and terminates on August 1, 2004, subject to
automatic renewal for up to two (2) additional one (1) year terms unless either
party gives notice of non-renewal to the other in accordance with the employment
agreement. The agreement may be terminated prior thereto by the Company for
cause or by Mr. Strader with good reason. Pursuant to the employment agreement,
Mr. Strader is eligible to receive annual cash bonuses pursuant to the Company's
Performance Sharing Plan, plus incentive compensation of up to 100% of his base
salary (with a target of 50%) or such greater amount as the Board may determine
in its discretion). On August 1, 2003, in accordance with his employment
agreement, Mr. Strader received, conditioned upon the approval by our
shareholders pursuant to this proxy statement, an option to acquire 125,000
shares of the Company's Common Stock pursuant to the terms of the Stock Option
Plan, at $16.76 per share, the fair market value of the Common Stock as of the
date of the conditional grant. One-third of the stock options vested immediately
on August 1, 2003 and one-third shall vest on each of the first and second
anniversaries thereof (such that the stock options shall be fully vested on
August 1, 2005). The Company's Board of Directors has proposed and recommended a
resolution for shareholder approval of an increase in the number of shares
authorized for issuance under the Stock Option Plan and the compensation
provided for thereunder. Approval of such increase in the number of shares is
necessary because there are currently not enough authorized shares of Common
Stock to satisfy the grant of 125,000 options to Mr. Strader or to grant options
to the other employees. If approval of the amendment to the Stock Option Plan
and the compensation provided for thereunder is not obtained, then such grant of
stock options (including those already past their vesting date) shall be null
and void. In the event that the Company terminates the employment of Mr. Strader
without Cause (as such term is defined in the employment agreement) or Mr.
Strader terminates his employment for Good Reason (as such term is defined in
the employment agreement), Mr. Strader will be entitled to (a) one hundred fifty
percent (150%) of his annualized base salary, plus (b) an incentive compensation
award equal to 50% of the amount specified in (a) above, payable over a period
of eighteen months following the termination date of the employment agreement
(or, at Mr. Strader's option following a change of control, a lump sum).
Pursuant to his employment agreement, Mr. Strader will be entitled to receive on
the closing date of a Change of Control of the Company (as defined in the
employment agreement) an amount equal to 50% of his base salary.
Mr. Perry is employed by the Company pursuant to an employment agreement,
amended as of January 2, 2003, that provides he be paid a salary at the annual
rate of $200,720, adjusted as of January 1, 2002 to $262,600, 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 (and at least equal to those provided to Mr. Perry in
2002). The employment agreement terminates on February 28, 2004, 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. This provision survives the expiration
of the employment agreement. Pursuant to an agreement dated as of April 10,
2002, Mr. Perry will be entitled to receive on the closing date of a Change of
Control of the Company (as defined in the agreement) an amount equal to 50% of
his base salary.
Mr. Worthing is employed by the Company pursuant to an employment
agreement, amended as of January 2, 2003, that provides he be paid a salary at
the annual rate of $220,043, adjusted as of January 1, 2002 to $275,558, and
participate in all life insurance, medical, retirement, pension or profit
sharing, disability or other
9
employee benefit plans generally made available to other executive officers of
the Company (and at least equal to those provided to Mr. Worthing in 2002). The
employment agreement terminates on February 28, 2004, 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. This provision survives the expiration of the
employment agreement. Pursuant to an agreement dated as of April 10, 2002, Mr.
Worthing will be entitled to receive on the closing date of a Change of Control
of the Company (as defined in the agreement) an amount equal to 50% of his base
salary.
Ms. Fein Zawel is employed by the Company pursuant to an employment
agreement, amended as of January 2, 2003, 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 (and at least equal to those provided to
Ms. Fein Zawel in 2002). The employment agreement terminates on February 28,
2004, 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. This provision survives the expiration of the employment
agreement.
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, Strader and Worthing and Ms. Fein Zawel, commencing
at normal retirement age, are $15,061, $22,512, $3,449, $21,456 and $18,813,
respectively.
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
10
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 AND STOCK OPTION COMMITTEE REPORT
The Compensation and Stock Option 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
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 2003, the Committee
considered the financial performance of the Company in 2002, 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 for the annual setting of yearly
incentive awards to executive officers and other key employees. The PSP provides
a financial pool based upon the extent to which the Company and/or subsidiary
meets or exceeds performance against performance measures set for each
respective unit. These measures generally include, but are not limited to,
return on investment, profit, cash flow and quality improvement. Awards for
individuals generally 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 and Stock Option 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.
The Compensation and Stock Option Committee recommends grants of stock
options to executive officers and other key employees under the Stock Option
Plan. All options are granted, from time to time, 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 and Stock Option Committee determines the size of any
option grant under the Stock Option 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.
11
CEO COMPENSATION: Mr. Erkeneff was elected President and Chief Executive of
the Company in January 1996, and has retired effective August 1, 2003. Mr.
Erkeneff was eligible for an annual cash incentive award of up to 50% of his
annual base salary. For 2002, the Compensation and Stock Option Committee
reviewed the performance of the Company and Mr. Erkeneff relative to financial
and strategic goals established for the year, and determined that he had earned
an incentive bonus of $369,116 for 2002 at its meeting in March 2003. Pursuant
to his employment agreement, his salary was set at $528,000 and amended as of
December 20, 2002 to $792,000 effective January 1, 2003 in lieu of his salary
plus a variable incentive. The Compensation and Stock Option 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.
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.
This option has fully vested and has been fully exercised.
Mr. Strader replaced Mr. Erkeneff as President and Chief Executive Officer,
effective as of August 1, 2003. Pursuant to his employment agreement, his salary
was set at $340,000. Mr. Strader is also eligible to receive incentive
compensation of up to 100% of his base salary (or such greater amount as the
Board may determine) pursuant to the Company's Performance Sharing Plan. The
Compensation and Stock Option Committee believes that this rate of annual salary
and incentive compensation reflects the prevailing competitive marketplace for
similarly experienced executives at similar companies, as confirmed in an
opinion provided by an independent outside compensation consultant.
Mr. Strader's employment agreement provides for, conditioned upon the
approval by our shareholders pursuant to this Proxy Statement, an option grant
of 125,000 shares of the Company's Common Stock pursuant to the terms of the
Stock Option Plan, at $16.76 per share, an exercise price equal to the fair
market value of the Common Stock as of the date of the conditional grant.
One-third of the stock options vested immediately on August 1, 2003 and
one-third shall vest on each of the first and second anniversaries thereof (such
that the stock options shall be fully vested on August 1, 2005). The Company's
Board of Directors has proposed and recommended a resolution for shareholder
approval of an increase in the number of shares authorized for issuance under
the Stock Option Plan. Approval of such increase in the number of shares is
necessary because there is currently not enough authorized shares of Common
Stock to satisfy the grant of 125,000 options to Mr. Strader or to grant options
to other employees. If approval of the amendment to the Stock Option Plan and
the compensation provided for thereunder is not obtained, then such grant of
stock options (including those already past their vesting date) shall be null
and void.
* * *
With certain exceptions, Section 162(m) of the Internal Revenue Code of
1986 (the "Code") limits the Company's deduction for compensation paid (in any
form, including compensation treated as paid through the Stock Option Plan) to
certain executive officers in excess of $1 million per executive per taxable
year. One exception to this limit on deductibility applies to certain
performance based compensation, provided that such compensation has been
approved by shareholders in a separate vote (such as pursuant to this proxy
statement) and certain other requirements are met. If the Stock Option Plan is
approved and amended by the shareholders pursuant to this proxy statement, the
Company believes that options granted under the amended Stock Option Plan
(including the stock options conditionally granted to Mr. Strader), at a time
when the Option Committee consists solely of two or more outside directors
(within the meaning of Section 162(m) of the Code), should qualify for this
exception.
COMPENSATION AND STOCK OPTION COMMITTEE
PAUL J. HOEPER, CHAIRMAN
HAROLD S. GELB
WARREN G. LICHTENSTEIN
JOSEPH S. SCHNEIDER
12
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the audited financial
statements contained in the 2002 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.
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, 2002 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
JOSEPH S. SCHNEIDER, CHAIRMAN
HAROLD S. GELB
PAUL J. HOEPER
GLEN M. KASSAN
PERFORMANCE GRAPH
The graph below compares the total returns which an investor would have
earned assuming the investment of $100 on December 31, 1997 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. The constructed peer group index has been weighted in accordance
with the stock market capitalization of each of the component corporations.
COMPARATIVE FIVE-YEAR TOTAL RETURNS*
UNITED INDUSTRIAL CORPORATION, RUSSELL 2000 VALUE, PEER GROUP
(Performance results through 12/31/2002)
[Table below represents a line chart in the original report.]
UIC R2000 Value Peer Group
----- ----------- ----------
1997 $100.00 $100.00 $100.00
1998 93.45 93.55 70.80
1999 91.15 92.16 68.81
2000 115.23 113.19 90.31
2001 178.06 129.07 215.46
2002 172.62 114.32 223.92
Assumes $100 invested at the close of trading on the last trading day preceding
the first day of the fifth preceding fiscal year in United Industrial
Corporation common stock, Russell 2000 Value, and Peer Group.
*Cumulative total return assumes reinvestment of dividends.
[Source: Russell/Mellon Analytical Services]
13
OTHER COMPENSATION
Directors receive $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 $12,500 per month and a $10,000 per year
automobile allowance. In addition, Messrs. Hoeper and Schneider also serve as
directors of AAI, for which they receive compensation of $2,000 per meeting.
Effective January 1, 2003, directors (other than Mr. Gelb, whose
compensation as indicated above will remain the same) will receive $23,000 per
year and $1,150 for each meeting attended and a fee of $575 for each committee
meeting attended. Mr. Schneider and Mr. Hoeper will receive a $5,000 fee as
Chairman of the Audit and Compensation/Stock Option Committees, respectively.
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 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 17 meetings during
2002.
Among its standing committees, the Company has an Audit Committee, a
Nominating and Corporate Governance Committee and a Compensation and Stock
Option 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 appoints and discharges the independent auditors for the Company,
approves any audit and non-audit services by the independent auditors, analyzes
the reports of such auditors, and makes 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 2002. The members since October 2002
were Paul J. Hoeper, Glen M. Kassan, Harold S. Gelb 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, a
copy of which is attached hereto as Annex A.
The Nominating and Corporate Governance Committee acts primarily as a
selection committee to recommend candidates for election to the Board of
Directors. The committee met once in 2002. The members since October 2002
consist of Harold S. Gelb, Paul J. Hoeper, Joseph S. Schneider and Warren G.
Lichtenstein.
The Nominating and Corporate Governance Committee will consider nominees
for directors recommended by shareholders. Any shareholder may make such a
recommendation by writing to: Secretary, United Industrial Corporation, 124
Industry Lane, Hunt Valley, Maryland 21030.
14
The Compensation and Stock Option Committee makes recommendations to the
Board of Directors regarding the compensation structure of the Company as
applied to executive personnel. There were four Compensation and Stock Option
Committee meetings held in 2002. The members were Harold S. Gelb, Warren G.
Lichtenstein, Joseph S. Schneider and Paul J. Hoeper.
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 2002 all Section 16(a)
filing requirements were complied with, except that Harold S. Gelb, Susan Fein
Zawel, James H. Perry and Robert W. Worthing filed late reports for separate
single transactions occurring during 2002, and a report for one transaction
occurring during 2001 was filed late by Joseph S. Schneider.
15
II. PROPOSAL TO AMEND THE COMPANY'S
1994 STOCK OPTION PLAN, AS AMENDED, AND APPROVE
THE COMPENSATION PROVIDED FOR THEREUNDER
PROPOSED AMENDMENT
On July 30, 2003, the Company's Board of Directors adopted, subject to
shareholder approval, an amendment to the Company's 1994 Stock Option Plan, as
amended (the "Stock Option Plan"), to increase the number of shares of the
Company's Common Stock available for issuance pursuant to awards thereunder from
2,400,000 to 2,700,000.
The purpose of the Stock Option Plan is to provide certain key employees of
the Company and its subsidiaries an opportunity to acquire an ownership interest
in the Company and thereby create in such employees an increased interest in and
greater concern for the welfare of the Company, to retain their continued
employment, and to secure and retain the services of persons capable of filling
key positions with the Company and its subsidiaries.
Pursuant to the Stock Option Plan, from time to time, the Company may grant
Options with respect to an aggregate of up to 2,400,000 shares (2,700,000 if
amended) of Common Stock, with no individual optionee to receive in excess of
750,000 shares of Common Stock upon exercise of options granted under the Stock
Option Plan. Options granted pursuant to the Stock Option Plan may be either
incentive stock options ("ISOs") or non-qualified stock options ("NQSOs").
Shares of Common Stock subject to options may be either authorized and unissued
shares, or previously issued shares acquired or to be acquired by the Company
and held in its treasury.
The Board of Directors believes that stock options have been, and will
continue to be, an important compensation element in attracting and retaining
key employees. The Board of Directors believes that the increase in authorized
shares is necessary because of the need to continue to make awards under the
Stock Option Plan to attract and retain key employees.
If the proposed amendments to the Stock Option Plan are approved by the
Company's shareholders, it will be effective on the date of the meeting. If the
proposed amendments to the Stock Option Plan are not approved, the amendment
adopted by the Board will not take effect.
In addition, on August 1, 2003, in accordance with his employment
agreement, Mr. Strader received an option to acquire 125,000 shares of the
Company's Common Stock pursuant to the terms of the Stock Option Plan. Approval
of the proposed amendments is necessary because there are currently not enough
authorized shares of Common Stock to satisfy the grant of 125,000 options to Mr.
Strader or to grant options to other employees. If approval of the amendment to
the Stock Option Plan is not obtained, then such grant of stock options (in its
entirety) shall be null and void.
The Board of Directors recommends that the accompanying Proxy be voted in
favor of the adoption of the proposed amendments to the Stock Option Plan and
approval of the compensation provided for thereunder. A favorable vote of a
majority of the votes cast is required for approval, provided that the total
votes cast is at least equal to a majority of the outstanding shares.
SUMMARY OF THE STOCK OPTION PLAN
ADMINISTRATION. The Stock Option Plan is administered by an option
committee of the Board of Directors of the Company, which is comprised of
"Non-Employee Directors" within the meaning of Rule 16b-3 under Section 16(b) of
the Exchange Act (the "Option Committee"). The members of the Option Committee
are Paul J. Hoeper, Harold S. Gelb, Warren G. Lichtenstein and Joseph S.
Schneider. Any or all powers and functions of the Option Committee may be
exercised at any time and from time to time by the Board of Directors or an
executive committee of the Board of Directors (the "Executive Committee"),
provided all of the members of the Board or the Executive Committee are
"Non-Employee Directors" within the meaning of Rule 16b-3. (References in this
discussion to the "Committee" include the Option Committee, the Board of
Directors and the Executive Committee to the extent any of the foregoing
administers the Stock Option Plan.) The authority of the Committee includes,
among other things, determining the persons to whom options are granted, the
timing of any grants, the number of shares subject to each option, the period of
exercisability, the designation of options as ISOs or NQSOs and the other terms
and provisions thereof.
16
Officers subject to Section 16(a) of the Exchange Act may not, and the
Committee also has the authority to require, as a condition to any grant, that
any other grantee also may not, sell or otherwise dispose of shares acquired
pursuant to the exercise of an option within six months of the date an option is
granted.
ELIGIBILITY. Options may be granted only to salaried key employees of the
Company or any subsidiary or parent corporation of the Company now existing or
subsequently formed or acquired.
GRANT, TERMS AND CONDITIONS OF OPTIONS. The Company will not receive any
monetary consideration for granting options.
The exercise price for each share subject to an option will be an amount
that the Committee determines, in its good faith judgment, to be not less than
100% of the fair market value of the Common Stock on the date the Option is
granted. In the case of ISOs, however, the exercise price per share of ISOs
granted to any holder of capital stock of the Company (or any subsidiary or
parent corporation) representing 10% or more of the voting power of the Company
(or any subsidiary or parent corporation) will be in an amount that the
Committee determines, in its good faith judgment, to be not less than 110% of
the fair market value of the Common Stock on the date the ISO is granted.
Under the Stock Option Plan, fair market value per share means:
(1) if the shares are listed on a national securities exchange or
reported on the NASDAQ Stock Market-National Market System ("NASDAQ-NMS"),
the last reported sale price per share on such exchange or such system on
the date the option is granted or, if the shares are not traded or reported
on such date, then on the closest preceding date on which such shares were
traded or reported; or
(2) if the shares are not listed on a national securities exchange or
reported on NASDAQ-NMS but are quoted in the over-the-counter market, the
average of the closing bid and ask quotations in such market for such
shares on the date the option is granted or, if there are no such
quotations on such date, then on the closest preceding date on which such
quotations are available; provided, however, that if, in the judgment of
the Committee, there is not a regular, active public market for the shares,
fair market value per share shall be determined by the Committee in its
good faith judgment. The determination by the Committee of fair market
value will be conclusive and binding.
Payment for shares purchased upon the exercise of options may be in cash
or, if the terms of an option so provide, with other shares of Common Stock or
an executed promissory note on such terms and conditions as the Committee shall
determine.
Options granted under the Stock Option Plan are exercisable at such times,
in such amounts and during such period or periods as the Committee may determine
at the date the option is granted. ISOs, however, are not exercisable after ten
years from the date of grant and, in the case of a person who at the date of
grant owns capital stock of the Company (or any subsidiary or parent
corporation) representing 10% or more of the voting power of the Company (or any
subsidiary or parent corporation), are not exercisable after five years from the
date of grant. Except as otherwise provided under the Internal Revenue Code of
1986, as amended (the "Code"), if the aggregate fair market value of shares
subject to ISOs (under any plan of the Company or any subsidiary or parent
corporation of the Company) exercisable for the first time in any calendar year
exceeds $100,000, such options will be treated as NQSOs.
In addition, the Committee has the right to accelerate, in whole or in
part, from time to time, conditionally or unconditionally, the right to exercise
any option granted under the Stock Option Plan.
In the event of retirement, termination by the Company of employment with
or without cause, termination of employment by an optionee with or without good
reason or upon death or disability, special rules will apply regarding the
exercisability of options.
Options may not be transferred except by will or the laws of descent or
distribution. Options are only exercisable during the lifetime of a holder by
such holder.
In the event of a "change in control" of the Company, all then outstanding
options shall immediately become exercisable. The Committee, in its sole
discretion, may determine that, upon the occurrence of a "change in
17
control," each option outstanding under the Stock Option Plan shall terminate
within a specified number of days after notice to the holder, and such holder
shall receive, with respect to each share subject to such option, an amount in
cash or other property, or any combination thereof, equal to the excess of the
aggregate fair market value at the time of such transaction of the shares
subject to such option over the aggregate exercise price therefor. The foregoing
provision does not apply to options granted to officers subject to Section 16(a)
of the Exchange Act within six months prior to a change-in-control, unless an
exemption from liability under Section 16(b) of the Exchange Act is otherwise
available.
EFFECT OF CHANGE IN COMMON STOCK. In the event of any change in the Common
Stock through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, split-up, split-off, spin-off, combination of shares,
exchange of shares, or other like change in capital structure of the Company, an
adjustment will be made to each outstanding option so that such option
thereafter is exercisable for such securities, cash and/or property as would
have been received had such option been exercised in full immediately prior to
such transaction and been exchanged in such transaction. An adjustment will be
made successively each time any such change occurs.
AMENDMENT OR TERMINATION. The Board of Directors of the Company may at any
time amend or terminate the Stock Option Plan, provided that no such action
affects or impairs the rights of an optionee under any previously granted
option. Notwithstanding the foregoing, without the approval of the Company's
shareholders, no amendment or change may be made (a) increasing the total number
of shares of Common Stock reserved for options under the Stock Option Plan
(other than an increase resulting from an adjustment) , (b) reducing the
exercise price of any ISO, (c) modifying the provisions of the Stock Option Plan
relating to eligibility or (d) materially increasing the benefits accruing to
participants under the Stock Option Plan.
The Board of Directors recommends that the accompanying Proxy be voted in
favor of the adoption of the proposed amendment to the Stock Option Plan. A
favorable vote of a majority of the votes cast is required for approval,
provided that the total votes cast is at least equal to a majority of the
outstanding shares.
EQUITY COMPENSATION PLAN INFORMATION
(AS OF DECEMBER 31, 2002)
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE ISSUANCE UNDER
TO BE ISSUED UPON WEIGHTED-AVERAGE EQUITY COMPENSATION
EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (A))
------------- -------------------- -------------------- -----------------------
(a) (b) (c)
Equity compensation plans
approved by security holders 1,523,000 $11.22 105,000
The Company has no equity compensation plans not approved by security
holders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The statements in the following paragraphs are based on federal income tax
law and interpretational authorities as of the date of this Proxy Statement,
which are subject to change at any time. The law is technical and complex and
the statements represent only a general summary of some of the applicable
provisions.
INCENTIVE STOCK OPTIONS
ISOs granted under the Stock Option Plan are intended to meet the
definitional requirements of Section 422(b) of the Code for "incentive stock
options."
Under the Code, the grantee of an ISO generally is not subject to federal
income tax upon the grant of such ISO. Similarly, the exercise of an ISO
generally does not give rise to federal income tax to the employee, provided
that (i) the federal alternative minimum tax, which depends on the employee's
particular tax situation, does not apply and (ii) the employee is employed by
the Company or any subsidiary or parent corporation of the Company from the date
of grant of the option until three months prior to the exercise thereof, except
where such employment terminates by reason of disability (where the three-month
period is extended to one year) or death (where this requirement does not
apply). If an employee exercises an ISO after the requisite periods referred to
in clause (ii) above, the ISO will be treated as an NQSO and will be subject to
the rules set forth below under the
18
caption "Non-Qualified Options." Further, if after exercising an ISO, an
employee disposes of the shares of Common Stock so acquired after the longer of
two years from the date of grant or one year from the date of transfer of shares
of Common Stock pursuant to the exercise of such ISO (the "applicable holding
period"), the employee will normally recognize a capital gain or loss equal to
the difference, if any, between the amount received for the shares of Common
Stock over the exercise price. Assuming the applicable holding period
requirement is satisfied, the capital gain or loss will be long-term capital
gain or loss. If, however, an employee does not hold the shares of Common Stock
so acquired for the applicable holding period, thereby making a "disqualifying
disposition," the employee would recognize ordinary income in the year of the
disqualifying disposition equal to the excess of the fair market value of the
shares at the time the ISO was exercised over the exercise price, and the
balance, if any, will be long-term or short-term capital gain depending on the
employee's holding period (which begins on the date of exercise of the
underlying options). If the disqualifying disposition is a sale or exchange that
would permit a loss to be recognized under the Code (were a loss in fact to be
realized), and the sales proceeds are less than the fair market value of the
shares on the date of exercise, the employee's ordinary income therefrom would
be limited to the gain (if any) realized on the sale.
An employee who exercises an ISO by delivering shares previously acquired
pursuant to the exercise of an ISO is treated as making a "disqualifying
disposition" of such shares if the employee delivers such shares before the
expiration of the applicable holding period with respect to such shares. Upon
the exercise of an ISO with previously acquired shares as to which no
disqualifying disposition occurs, the employee would not recognize gain or loss
with respect to such previously acquired shares.
A deduction will not be allowed to the Company for federal income tax
purposes with respect to the grant or exercise of an ISO or the disposition,
after the applicable holding period, of the shares of Common Stock acquired upon
exercise of an ISO. In the event of a disqualifying disposition, a federal
income tax deduction will be allowed to the Company in an amount equal to the
amount included in ordinary income by the employee, provided that such amount
constitutes an ordinary and necessary business expense to the Company, is
reasonable and the limitations of Sections 280G and 162(m) of the Code
(described below) do not apply.
NON-QUALIFIED OPTIONS
An NQSO is an option that does not qualify as an "incentive stock option"
under Section 422(b) of the Code. An individual who receives an NQSO will not
recognize any taxable income upon the grant of such NQSO. Generally, upon
exercise of an NQSO, an individual will be treated as having received ordinary
income in an amount equal to the excess of the fair market value of the shares
of Common Stock at the time of exercise over the exercise price.
Any optionee who is an officer of the Company or a beneficial owner of more
than ten percent (l0%) of any class of registered equity securities of the
Company should consult with his or her tax advisor as to whether, as a result of
Section 16(b) of the Exchange Act and the rules and regulations thereunder that
are related thereto, the timing of income recognition is deferred for any period
following the exercise of an NQSO (i.e., the "Deferral Period"). If there is a
Deferral Period, absent a written election (pursuant to Section 83(b) of the
Code) filed with the Internal Revenue Service within 30 days after the date of
transfer of the shares of Common Stock pursuant to the exercise of the option to
include in income, as of the transfer date, the excess (on such date) of the
fair market value of such shares of Common Stock over their exercise price,
recognition of income by the individual will be deferred until the expiration of
the Deferral Period, at which time the optionee would recognize ordinary taxable
income equal to the excess, at such time, of the fair market value of such
shares of Common Stock over their exercise price.
The ordinary income recognized with respect to the transfer of shares of
Common Stock upon exercise of an NQSO under the Stock Option Plan will be
subject to both wage withholding and employment taxes. In addition to the
customary methods of satisfying the withholding tax liabilities that arise upon
the exercise of an NQSO, an individual may satisfy the liability in whole or in
part by directing its employer corporation to withhold shares of Common Stock
from those that would otherwise be issuable to the individual or by tendering
other shares of Common Stock owned by the individual. The withheld shares of
Common Stock and other tendered shares will be valued at their fair market value
as of the date that the tax obligation arises. Individuals who, by virtue of
their positions with the Company or otherwise, are subject to Section 16(b) of
the Exchange Act may elect this method
19
of satisfying the withholding obligation only during certain restricted periods.
An individual's tax basis in the shares of Common Stock received on
exercise of an NQSO will be equal to the exercise price, plus the amount of
ordinary income recognized by such individual as a result of the receipt of such
shares of Common Stock. The holding period for such shares would begin just
after the transfer of shares of Common Stock or, in the case of any officer or
beneficial owner of more than 10% of any class of registered equity securities
of the Company who, as discussed above, has a Deferral Period, and who does not
elect to be taxed as of the exercise date, just after the expiration of the
Deferral Period, if any. A deduction for federal income tax purposes generally
will be allowed to the Company in an amount equal to the amount included in
ordinary income by the individual, provided that such amount constitutes an
ordinary and necessary business expense, is reasonable and the limitations of
Sections 280G and 162(m) of the Code do not apply.
If an individual exercises an NQSO by delivering shares to the Company,
other than shares previously acquired pursuant to the exercise of an ISO which
is treated as a "disqualifying disposition" as described above, the individual
will not recognize gain or loss with respect to the exchange of such shares,
even if their then fair market value is different from the individual's tax
basis. The individual, however, will be taxed as described above with respect to
the exercise of the NQSO as if he or she had paid the exercise price in cash,
and the Company likewise generally will be entitled to an equivalent tax
deduction. So long as the individual receives a separate identifiable stock
certificate therefor, the tax basis and the holding period for that number of
shares of Common Stock received on such exercise that is equal to the number of
shares surrendered on such exercise will be equal to the tax basis and include
the holding period of those shares surrendered. The individual's tax basis and
holding period for the additional shares received on exercise of an NQSO paid
for, in whole or in part, with shares will be the same as if the individual had
exercised the NQSO solely for cash.
CHANGE IN CONTROL
As described above, upon a "change in control" of the Company, all the then
outstanding options shall immediately become exercisable. In general, if the
total amount of payments to optionees that are contingent upon a "change of
control" of the Company (as defined in Section 280G of the Code), including
payments under the Stock Option Plan that vest upon a "change in control,"
equals or exceeds three times the recipient's "base amount" (generally, such
recipient's average annual compensation for the five years preceding the change
in control), then, subject to certain exceptions, the payments may be treated as
"parachute payments" under the Code, in which case a portion of such payments
would be non-deductible to the Company and the recipient would be subject to a
20% excise tax on such portion of the payments.
CERTAIN LIMITATIONS ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION
With certain exceptions, Section 162(m) of the Code limits the Company's
deduction for compensation paid (in any form, including compensation treated as
paid through the Stock Option Plan) to certain executive officers in excess of
$1 million per executive per taxable year (including any deduction with respect
to the exercise of an NQSO or the disqualifying disposition of stock purchased
pursuant to an ISO). One exception to this limit on deductibility applies to
certain performance based compensation, provided that such compensation has been
approved by shareholders in a separate vote (such as pursuant to this proxy
statement) and certain other requirements are met. If the Stock Option Plan is
approved as amended by the shareholders pursuant to this proxy statement, the
Company believes that options granted under the amended Stock Option Plan, at a
time when the Option Committee consists solely of two or more outside directors
(within the meaning of Section 162(m) of the Code), should qualify for this
exception.
20
III. 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, 2003. 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.
AUDIT FEES
Ernst & Young LLP billed the Company $662,100 for professional services
rendered in connection with the audit of the Company's annual financial
statements for the year ended December 31, 2002 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, 2002 with respect to financial information systems
design and implementation.
ALL OTHER FEES
Ernst & Young LLP billed the Company $534,660 for all services rendered to
the Company during the year ended December 31, 2002 other than those set forth
above, which included $65,600 for audit related services and $469,060 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, 2003. A favorable vote of a majority of
the shares present at the meeting in person or by proxy is required for
approval.
IV. 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 the 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 principal office of the Company. The list will also be
produced and kept at the time and place of the meeting during the whole time
thereof. and may be inspected by any shareholder who is present.
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, (i) a plurality vote is required for the
election of directors, (ii) the affirmative vote of a majority of the votes cast
is required for the adoption of the amendment to the Stock Option Plan and
approval of the compensation provided for thereunder, provided that the total
votes cast is at least equal to a majority of the outstanding shares, and (iii)
the affirmative vote of the majority of shares present in person or represented
by proxy at the meeting is required for the ratification of the appointment of
the independent auditors. 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.
21
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the next Annual
Meeting of Shareholders must, to be considered for inclusion in the Company's
Proxy Statement and form of Proxy relating to that meeting, be received by the
Company within a reasonable time before the Company begins to print and mail its
proxy materials. The Company will inform shareholders of such date either in a
report filed with the Securities and Exchange Commission on Form 8-K, 10-Q or
10-K and/or a press release. Such proposals should be addressed to Secretary,
United Industrial Corporation, 124 Industry Lane, Hunt Valley, Maryland 21030.
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 (or, if the
date of the annual meeting is advanced by more than 30 days prior to or delayed
by more than 60 days after such anniversary date, not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made); 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.
If any stockholder wishes to present a proposal to the Company's 2004
Annual Meeting that is not included in the Company's proxy statement for that
meeting and fails to submit such proposal within a reasonable time before the
Company mails its proxy materials, then the persons named as proxies in the
Company's proxy card accompanying the proxy statement for the 2004 Annual
Meeting will be allowed to use their discretionary voting authority when the
proposal is raised at the Annual Meeting, without any discussion of the matter
in the Company's proxy statement for the 2004 Annual Meeting.
EXPENSES OF SOLICITATION
In addition to the solicitation of proxies by use of the mails, proxies may
also be solicited by the Company and its directors, officers and employees (who
will receive no compensation therefor in addition to their regular salaries) by
telephone, telegram, facsimile transmission and the internet or personal
interview. The Company will reimburse banks and brokers who hold shares of the
Company's stock in their name or custody, or in the name of nominees for others,
for their out-of-pocket expenses incurred in forwarding copies of the proxy
materials to those persons for whom they hold such shares.
The Company has retained Innisfree M&A Incorporated ("Innisfree") to assist
in the solicitation of proxies. Pursuant to the Company's agreement with
Innisfree, they will provide various proxy advisory and solicitation services
for the Company at a cost of $8,500 plus reasonable out-of-pocket expenses.
UNITED INDUSTRIAL CORPORATION WILL FURNISH A COPY OF ITS ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002, 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 AUGUST 29, 2003, TO SECRETARY, UNITED
INDUSTRIAL CORPORATION, 124 INDUSTRY LANE, HUNT VALLEY, MARYLAND 21030. THE
COMPANY HAS PREVIOUSLY MAILED TO SHAREHOLDERS ITS 2002 ANNUAL REPORT. IF YOU DID
NOT RECEIVE A COPY OR WOULD LIKE ANOTHER COPY, PLEASE CONTACT THE SECRETARY OF
THE COMPANY.
September 5, 2003 By Order of the Board of Directors
Susan Fein Zawel
SECRETARY
22
ANNEX A
UNITED INDUSTRIAL CORPORATION
AUDIT COMMITTEE CHARTER
This Audit Committee Charter was adopted by the Board of Directors (the
"Board") of United Industrial Corporation (the "Company") on August 18, 2003.
I. PURPOSE
The Audit Committee (the "Committee") shall assist the Board of Directors
(the "Board") in fulfilling its responsibility to oversee management regarding:
(i) the conduct of the Company's financial reporting process, including overview
of the integrity of the financial reports and other financial information
provided by the Company to any governmental or regulatory body, the public or
other users thereof; (ii) the functioning of the Company's systems of internal
accounting and financial controls; (iii) the qualifications, engagement,
compensation, independence and performance of the Company's independent
auditors, their conduct of the annual audit, and their engagement for any other
services; (iv) the preparation of the audit committee report required by SEC
rules to be included in the Company's annual proxy statement; (v) the Company's
legal and regulatory compliance; and (vi) the Company's code of ethics as
proposed by management and approved by the Board.
In discharging its responsibilities, the Committee is empowered to
investigate any matter brought to its attention with access to all books,
records, facilities and personnel of the Company. The Committee has the power to
retain outside counsel, auditors or other experts and will receive adequate
funding from the Company to engage such advisors. The Committee shall have the
sole authority to retain, compensate, terminate and oversee the independent
auditors, who shall be accountable ultimately to the Committee.
II. COMMITTEE MEMBERSHIP
The Committee shall consist of three or more members of the Board, each of
whom has been determined by the Board to be "independent" in accordance with
applicable rules of the Securities and Exchange Commission ("SEC") and the New
York Stock Exchange. All members of the Committee shall meet the financial
literacy requirements of the New York Stock Exchange and at least one member
shall be an "audit committee financial expert" as such term is defined under
applicable SEC rules. No member of the Committee may serve on the audit
committee of more than three public companies, including the Company, unless the
Board of Directors has determined that such simultaneous service would not
impair the ability of such member to effectively serve on the Committee. Such
determinations shall be disclosed in the annual proxy statement, if required.
Any member of the Committee may be removed, with or without cause, by the Board
of Directors at any time.
III. COMMITTEE MEETINGS
The Committee shall meet on a regularly-scheduled basis at least four times
per year or more frequently as circumstances dictate. The Committee shall meet
at least quarterly with the internal auditor and the independent auditors in
separate executive sessions to provide the opportunity for full and frank
discussion without members of senior management present.
IV. KEY RESPONSIBILITIES
The Committee's role is one of oversight. The Company's management is
responsible for preparing the Company's financial statements and the independent
auditors are responsible for auditing those financial statements. The Committee
recognizes that Company management including the internal audit staff and the
independent auditors have more time, knowledge and detailed information about
the Company than do Committee members. Consequently, in carrying out its
oversight responsibilities, the Committee is not providing any expert or special
assurance as to the Company's financial statements or any professional
certification as to the independent auditors' work.
A-1
The following responsibilities are set forth as a guide with the
understanding that the Committee may diverge as appropriate given the
circumstances. The Committee is authorized to carry out these and such other
responsibilities assigned by the Board from time to time, and take any actions
reasonably related to the mandate of this Charter.
To fulfill its purpose, the Committee shall:
1. appoint (and if appropriate dismiss), evaluate, compensate and oversee
the work of the independent auditors, who shall report directly to the
Committee; and resolve any disagreements between management and the
independent auditors regarding financial reporting;
2. review and pre-approve any auditing and non-auditing services provided
by the Company's independent auditors (and disclose non-auditing
services provided, as appropriate in the Company's periodic public
filings);
3. review and discuss with management and the independent auditors: (i)
the adequacy of the Company's internal and disclosure controls and
procedures, including computerized information system disclosure
controls and procedures and security; (ii) any significant
deficiencies in the design or operation of the Company's internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data; (iii) any fraud, whether
or not material, that involves management or other employees who have
a significant role in the Company's internal controls; and (iv)
related findings and recommendations of the independent auditors
together with management's responses;
4. review and discuss with management, including the Chief Financial
Officer, the independent auditors and the internal auditor: (i) any
significant findings during the year, including the status of previous
audit recommendations; (ii) any audit problems or difficulties
encountered in the course of audit work, including any restrictions on
the scope of activities or access to required information; (iii) any
changes required in the scope of the audit plan; (iv) the audit budget
and staffing; and (v) the coordination of audit efforts in order to
monitor completeness of coverage, reduction of redundant efforts, and
the effective use of audit resources;
5. review and discuss with management, including the Chief Financial
Officer, and the independent auditors any significant financial risks
or exposures and assess the steps management has taken to minimize
such risks; and discuss with management, including the Chief Financial
Officer and the independent auditors, and oversee the Company's
underlying policies with respect to risk assessment and risk
management;
6. establish and maintain procedures for the receipt, retention and
treatment of complaints regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous
submission by employees of concerns regarding questionable accounting
or auditing matters;
7. review and concur in the appointment, reassignment, replacement,
compensation or dismissal of the Chief Financial Officer and head of
internal audit;
8. inquire as to independent auditors' view of the accounting treatment
related to significant new transactions or other significant matters
or events not in the ordinary course of business;
9. review periodically with the General Counsel: (i)legal and regulatory
matters that may have a material impact on the Company's financial
statement; and (ii) the scope and effectiveness of compliance policies
and programs;
10. review periodically with management the provisions of any code of
business conduct and ethics (including the Company's policies and
procedures concerning trading in Company securities and use in trading
of proprietary or confidential information) applicable to directors
and senior officers (including financial officers), including any
waivers sought under such code; any waiver granted by the Committee
shall be reported by the Committee to the Board and approval of the
Board shall be required to grant any such waiver to any officer who is
a member of the Board;
A-2
11. review and discuss with management and the independent auditors
accounting policies that may be viewed as critical; review and discuss
significant changes in Company accounting policies and any accounting
and financial reporting proposals that may have a significant impact
on the Company's financial reports; and inquire as to the independent
auditors' views about whether Company accounting principles as applied
are conservative, moderate, or aggressive from the perspective of
income, asset, and liability recognition, and whether or not those
principles reflect common or minority practices;
12. review and discuss with management and the independent auditors any
material financial or non-financial arrangements that do not appear on
the financial statements of the Company;
13. review, discuss with management and the independent auditors, and
approve any transactions or courses of dealing with related parties
(E.G., including significant shareholders of the Company, directors,
corporate officers or other members of senior management or their
family members) that are significant in size or involve terms or other
aspects that differ from those that would likely be negotiated with
independent parties;
14. review and discuss with the independent auditors: (i) any accounting
adjustments that were noted or proposed by the auditors but were
"passed" (as immaterial or otherwise), (ii) any communications between
the audit team and the independent auditors' national office
respecting auditing or accounting issues presented by the engagement
and (iii) any "management" or "internal control" letter issued, or
proposed to be issued, by the independent auditors to the Company.
15. review the Company's financial statements, including: (i) prior to
public release, reviewing and discussing with management and the
independent auditors the Company's annual and quarterly financial
statements to be filed with the SEC, including (a) the Company's
disclosures under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," (b) any certifications regarding
the financial statements or the Company's internal accounting and
financial controls and procedures and disclosure controls or
procedures filed with SEC by the Company's senior executive and
financial officers and (c) the matters required to be discussed with
the independent auditors by Statement of Auditing Standards Nos. 61,
90 and 100; (ii) with respect to the independent auditors' annual
audit report and certification, before release of the annual audited
financial statements, meeting separately with the independent auditors
without any management member present and discussing the adequacy of
the Company's system of internal accounting and financial controls and
the appropriateness of the accounting principles used in and the
judgments made in the preparation of the Company's audited financial
statements and the quality of the Company's financial reports; (iii)
meeting separately, periodically, with management, with the internal
auditor or other personnel responsible for the internal audit function
and with the independent auditors; (iv) making a recommendation to the
Board of Directors regarding the inclusion of the audited annual
financial statements in the Company's Annual Report on Form 10-K to be
filed with the SEC; and (v) prior to submission to any governmental
authority of any financial statements of the Company that differ from
the financial statements filed by the Company with the SEC, reviewing
such financial statements and any report, certification or opinion
thereon provided by the independent auditors;
16. at least annually, review a report by the independent auditors
describing: (i) the firm's internal quality-control procedures; (ii)
any material issues raised by the most recent internal qualify-control
review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities, within the
preceding five years, regarding one or more independent audits carried
out by the firm, and any steps taken to deal with any such issues; and
(iii) all relationships between the independent auditors and the
Company (to be set out in the formal written statement described
below);
17. on an annual basis: (i) review a formal written statement from the
independent auditors delineating all relationships between the
independent auditors and the Company, consistent with Independence
Standards Board Standard No. 1, actively engage in a dialogue with the
independent auditors with respect to any disclosed relationships or
services that may impact the objectivity and independence of the
independent auditors and take appropriate action in response to the
independent auditors' report to satisfy itself of the auditors'
independence; (ii) consider whether, in the interest of assuring
continuing
A-3
independence of the independent auditors, the Company should regularly
rotate its independent auditors; and (iii) set clear hiring policies
for employees or former employees of the independent auditors;
18. prepare a report to be included in the Company's annual proxy
statement stating whether or not the Committee: (i) has reviewed and
discussed the audited financial statements with management; (ii) has
discussed with the independent auditors the matters required to be
discussed by SAS Nos. 61 and 90; (iii) has received the written
disclosure and letter from the independent auditors (delineating all
relationships they have with the Company) and has discussed with them
their independence; and (iv) based on the review and discussions
referred to above, the members of the Committee recommended to the
Board that the audited financials be included in the Company's Annual
Report on Form 10-K for filing with the Securities and Exchange
Commission;
19. discuss with management and the independent auditors, as appropriate,
earnings press releases and financial information and earnings
guidance provided to analysts and to rating agencies;
20. conduct an annual self-evaluation of the performance of the Committee,
including its effectiveness and compliance with this Charter;
21. review and reassess the adequacy of this Charter annually; and
22. report regularly to the Board on Committee findings and
recommendations (including on any issues that arise with respect to
the quality or integrity of the Company's financial statements, the
Company's compliance with legal or regulatory requirements, the
performance and independence of the independent auditors or the
performance of the internal audit function) and any other matters the
Committee deems appropriate or the Board requests, and maintain
minutes or other records of Committee meetings and activities.
23. review internal financial statements to ensure their usefulness in
managing the Company as well as oversight of the Company by the
directors.
A-4
PROXY
UNITED INDUSTRIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS - OCTOBER 8, 2003
The undersigned hereby appoints Harold S. Gelb, Joseph S. Schneider and Richard
R. Erkeneff or any of them, attorneys and proxies with full power of
substitution 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.
This proxy, when properly executed, will be voted in the manner directed herein.
With respect to the election of directors (Proposal 1), where no vote is
specified, or where the box for all nominees is marked, the cumulative votes
represented by a proxy will be cast at the discretion of the proxies named
herein in order to elect as many nominees as believed possible under the then
prevailing circumstances. If you withhold your vote for an individual nominee,
all of your cumulative votes will be voted for the other nominee. With respect
to Proposals 2 and 3, where no vote is specified, this proxy will be voted for
each such proposal. The individuals named above are authorized to vote in their
discretion on any other matters that properly come before the meeting, if no
instruction to the contrary is indicated.
(To be signed on the Reverse Side.)
SEE REVERSE
SIDE
Please mark your 0000
[X] votes as in this
example.
FOR WITHHELD
1. Election of [ ] [ ] NOMINEES: Thomas A. Corcoran and
Directions General Paul X. Kelley
FOR, except vote WITHHELD from the following nominee(s):
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FOR AGAINST ABSTAIN
2. To consider and act upon a proposal
to amend the Company's 1994 Stock [ ] [ ] [ ]
Option Plan, as amended, and approve
the compensation provided for
thereunder.
3. To consider and act upon a proposal
to ratify the appointment of Ernst & [ ] [ ] [ ]
Young LLP as independent auditors of
the Company for 2003.
4. 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.
DATE ___________________________________________________, 2003
SIGNATURE(S) (if held jointly)________________________________
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