sec document

PREC14A 1 formprec14a01874_08202002.htm sec document

SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )

Filed by the Registrant / /

Filed by a Party other than the Registrant /X/

Check the appropriate box:

/X/ Preliminary Proxy Statement

/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))

/ / Definitive Proxy Statement

/ / Definitive Additional Materials

/ / Soliciting Material Under Rule 14a-12

UNITED INDUSTRIAL CORPORATION
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

STEEL PARTNERS II, L.P.
WARREN G. LICHTENSTEIN
JAMES R. HENDERSON
GLEN M. KASSAN
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(Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.

(1) Title of each class of securities to which transaction
applies:

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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:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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STEEL PARTNERS II, L.P.

August 20, 2002

Dear Fellow Stockholder:

Steel Partners II, L.P. ("Steel") is the beneficial owner of
1,310,250 shares of Common Stock of United Industrial Corporation representing
approximately ___% of the outstanding Common Stock. We do not believe that the
current Board of Directors is acting in your best interests, and we are
therefore seeking your support for the election of our two nominees to the Board
of Directors of United Industrial at the annual meeting of stockholders
scheduled to be held on October 4, 2002.

We urge you to carefully consider the information contained in the
attached Proxy Statement and then support the efforts of Steel to maximize value
for all stockholders by signing, dating and returning the enclosed GOLD proxy
today.

If you have already voted for the incumbent management slate you
have every right to change your vote by signing and returning a later dated
proxy.

If you have any questions or require any assistance with your vote
please contact MacKenzie Partners, Inc., which is assisting us, at their address
and toll-free numbers below.

Thank you for your support,

Warren G. Lichtenstein
On behalf of Steel Partners II, L.P.

[MACKENZIE LOGO]

PRELIMINARY COPY SUBJECT TO COMPLETION
DATED AUGUST 20, 2002

ANNUAL MEETING OF STOCKHOLDERS
OF
UNITED INDUSTRIAL CORPORATION

-------------------------

PROXY STATEMENT
OF
STEEL PARTNERS II, L.P.

-------------------------

PLEASE MAIL THE ENCLOSED GOLD PROXY CARD

Steel Partners II, L.P. ("Steel") is the second largest stockholder
of United Industrial Corporation, a Delaware corporation ("UIC" or the
"Company"). Steel is writing to you in connection with the election of two
directors to UIC's Board of Directors at the annual meeting of stockholders
scheduled to be held on October 4, 2002, including any adjournments or
postponements thereof and any meeting which may be called in lieu thereof (the
"Annual Meeting"). Steel has nominated its slate of directors in opposition to
UIC's incumbent director nominees, Richard Erkeneff and E. Donald Shapiro, whose
terms expire at the Annual Meeting. Steel believes that recent actions of the
Board of Directors of UIC (the "UIC Board") have not been in the best interests
of UIC's stockholders. As further described herein, Steel believes that a more
thorough investigation of strategic alternatives, a greater dedication to
maximizing stockholder value and improving corporate governance policies, will
be best achieved through the election of Steel's slate.

This proxy statement (the "Proxy Statement") and the enclosed GOLD
proxy card are being furnished to stockholders of UIC by Steel in connection
with the solicitation of proxies from UIC's stockholders to be used at the
Annual Meeting to elect Steel's nominees, James R. Henderson and Glen M. Kassan
(the "Nominees"), to the UIC Board. As Nominees for director, Messrs. Henderson
and Kassan are deemed to be participants in this proxy solicitation. As members
of the soliciting group, Steel and Warren Lichtenstein, the managing member of
the general partner of Steel, are also deemed to be participants in this proxy
solicitation. Mr. Lichtenstein has been a director of UIC since May 2001. This
Proxy Statement and the GOLD proxy card are first being furnished to UIC's
stockholders on or about August __, 2002.

UIC has set the record date for determining stockholders entitled to
notice of and to vote at the Annual Meeting as of August 26, 2002 (the "Record
Date"). The principal executive offices of UIC are located at 570 Lexington
Avenue, New York, New York 10022. Stockholders of record at the close of
business on the Record Date will be entitled to vote at the Annual Meeting.
According to UIC, as of the Record Date, there were _________ shares of common
stock, $1.00 par value per share (the "Shares"), outstanding and entitled to

vote at the Annual Meeting. Steel, along with all of the participants in this
solicitation, are the beneficial owners of an aggregate of 1,320,250 Shares
which represents approximately ____% of the Shares outstanding (based on
information publicly disclosed by UIC). The participants in this solicitation
intend to vote such Shares for the election of the Nominees.

THIS SOLICITATION IS BEING MADE BY STEEL AND NOT ON BEHALF OF THE BOARD OF
DIRECTORS OR MANAGEMENT OF UIC. STEEL IS NOT AWARE OF ANY OTHER MATTERS TO BE
BROUGHT BEFORE THE ANNUAL MEETING [OTHER THAN THE RATIFICATION OF THE
APPOINTMENT OF THE COMPANY'S AUDITORS]. SHOULD OTHER MATTERS, WHICH STEEL IS NOT
AWARE OF A REASONABLE TIME BEFORE THIS SOLICITATION, BE BROUGHT BEFORE THE
ANNUAL MEETING, THE PERSONS NAMED AS PROXIES IN THE ENCLOSED GOLD PROXY CARD
WILL VOTE ON SUCH MATTERS IN THEIR DISCRETION.

WE URGE YOU TO SIGN, DATE AND RETURN THE GOLD PROXY CARD IN FAVOR OF THE
ELECTION OF OUR NOMINEES DESCRIBED IN THIS PROXY STATEMENT.

IF YOU HAVE ALREADY SENT A __________ PROXY CARD TO THE UIC BOARD, YOU MAY
REVOKE THAT PROXY AND VOTE AGAINST THE ELECTION OF UIC'S NOMINEES BY SIGNING,
DATING AND RETURNING THE ENCLOSED GOLD PROXY CARD. THE LATEST DATED PROXY IS THE
ONLY ONE THAT COUNTS. ANY PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE ANNUAL
MEETING BY DELIVERING A WRITTEN NOTICE OF REVOCATION OR A LATER DATED PROXY FOR
THE ANNUAL MEETING TO STEEL, C/O MACKENZIE PARTNERS, INC. WHO IS ASSISTING IN
THIS SOLICITATION, OR TO THE SECRETARY OF UIC, OR BY VOTING IN PERSON AT THE
ANNUAL MEETING.

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IMPORTANT

Your vote is important, no matter how many or how few Shares you
own. Steel urges you to sign, date, and return the enclosed GOLD proxy card
today to vote FOR the election of the Nominees.

The Nominees are committed, subject to their fiduciary duty to UIC's
stockholders, to giving all UIC's stockholders the opportunity to receive the
maximum value for their Shares. A vote FOR the Nominees will enable you - as the
owners of UIC - to send a message to the UIC Board that you are committed to
maximizing the value of your Shares.

o If your Shares are registered in your own name, please sign and date
the enclosed GOLD proxy card and return it to Steel, c/o MacKenzie
Partners, Inc., in the enclosed envelope today.

o If any of your Shares are held in the name of a brokerage firm,
bank, bank nominee or other institution on the Record Date, only it
can vote such Shares and only upon receipt of your specific
instructions. Accordingly, please contact the person responsible for
your account and instruct that person to execute on your behalf the
GOLD proxy card. Steel urges you to confirm your instructions in
writing to the person responsible for your account and to provide a
copy of such instructions to Steel, c/o MacKenzie Partners, Inc.,
who is assisting in this solicitation, at the address and telephone
numbers set forth below, and on the back cover of this proxy
statement, so that we may be aware of all instructions and can
attempt to ensure that such instructions are followed.

IF YOU HAVE ANY QUESTIONS REGARDING YOUR PROXY,
OR NEED ASSISTANCE IN VOTING YOUR SHARES, PLEASE CALL:

[MACKENZIE LOGO]

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PROPOSAL I - ELECTION OF DIRECTORS

REASONS FOR THE SOLICITATION

We are asking you to elect our Nominees in order to:

o remove two incumbent directors;

o elect nominees that support actions that we believe would give
stockholders the greatest opportunity to maximize the value of
their Shares; and

o elect two clearly independent directors.

As further described below, Steel believes that the election of the
Nominees represents the best means for UIC's stockholders to maximize the value
of their Shares. Steel, as the second largest stockholder of UIC, has a vested
interest in the maximization of the value of the Shares. Additionally, Steel
believes that the Nominees have extensive experience in private and public
investment, corporate governance and business management. If elected to the
Board, the Nominees will use their collective experience to explore alternatives
to maximize stockholder value including, but not limited to, the sale of all or
substantially all of UIC on a tax efficient basis.

WE BELIEVE THAT ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF UIC MUST BE SOLD ON A
TAX EFFICIENT BASIS AS SOON AS POSSIBLE

In Steel's opinion, maximum stockholder value will only be achieved
through a prompt sale of all or substantially all of UIC. The Nominees are
committed to working with the other members of the UIC Board to encourage the
sale of all or substantially all of UIC. UIC announced on April 8, 2002 that it
had been working with Wachovia Securities for a year to explore alternatives to
enhance stockholder value, including a possible sale of UIC. Steel questions the
timing of this announcement and believes that its one-year delay may indicate
UIC's lack of intent to commit to a sale of the Company. While UIC has taken
steps to divest certain of its businesses and assets during the past two years,
Steel believes that these divestitures have been insignificant in amount and
that the UIC Board is not truly committed to a sale of all or substantially all
of the Company.

We do not believe that the UIC Board is moving quickly enough to
maximize stockholder value. While stockholders have waited patiently for the UIC
Board to further enhance stockholder value, UIC's financial performance this
year has taken a turn for the worse, as evidenced by UIC's Form 10-Q for the six
months ended June 30, 2002 (the "June 30 10-Q"). We believe, UIC's financial
performance will languish as long as UIC continues to operate as it has
historically.

o According to the June 30 10-Q, UIC realized net losses of
approximately $10.7 million for the three month period ended
June 30, 2002 compared to net income of approximately $1.9
million for the comparable period in 2001.

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o According to the June 30 10-Q, UIC realized net losses of
approximately $22.0 million for the six month period ended
June 30, 2002 compared to net income of approximately $4.5
million for the comparable period in 2001.

o This represents a stunning decrease in net income of
approximately 463% and 389% during the three and six month
periods, respectively.

WE BELIEVE THAT UIC SHOULD ADOPT CRITICAL CORPORATE GOVERNANCE POLICIES
INCLUDING CAUSING A MAJORITY OF THE BOARD TO BE COMPOSED OF INDEPENDENT
DIRECTORS AND DECLASSIFYING THE UIC BOARD

We believe that UIC should respond to the sweeping legislation
enacted by Congress and rules being adopted by the New York Stock Exchange
("NYSE") which are promoting greater accountability to stockholders.
Specifically, we believe that UIC must cause its Board of Directors to be
composed of a majority of clearly independent directors which we believe will
shortly be a listing requirement for all NYSE companies. Under proposed Section
303A of the NYSE listing standards, listed companies will be required to have a
majority of independent directors. According to UIC's Form 10-K for the fiscal
year ended December 31, 2001 (the "2001 Form 10-K"), the UIC Board is currently
composed of six directors, two of whom are also executive officers of UIC, as
follows:

NAME POSITION
---- --------

Harold Gelb Chairman of the Board

Richard Erkeneff President and Director

Susan Fein Zawel Vice President Corporate Communications,
Associate General Counsel and Secretary

Joseph Schneider Director

E. Donald Shapiro Director

Warren Lichtenstein Director

We do not believe that a majority of the UIC Board is independent
under either the existing or proposed NYSE standards.

o According to the 2001 Form 10-K, Richard Erkeneff and Susan
Zawel are UIC employees and collected salaries, bonuses and
other compensation in the aggregate of $608,171 and $229,436,
respectively, during 2001.

o According to the 2001 Form 10-K, Mr. Gelb has a special
compensation arrangement with UIC under which he received
compensation of $137,500 during 2001 and will receive $150,000
during 2002 for his services as Chairman of the Board. The

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other UIC directors receive only $20,000 per year and other
fees for attending Board and committee meetings. UIC also
maintains a New York office, a primary purpose of which is to
provide Mr. Gelb with his sole business office.

o As three of the current six UIC Board members are employees of
UIC and/or collect six-figure salaries and other compensation
for their services and receive other benefits, we question the
collective Board's ability to exercise independent judgment in
carrying out its responsibilities.

The election of our Nominees to the Board of Directors will cause a
majority of the Board to be clearly independent in compliance with Section 303A
of the NYSE listing standards. We believe that a majority of independent
directors will increase the quality of oversight over the UIC Board, lessen the
possibility of conflicts of interest and allow the UIC Board to most effectively
exercise its fiduciary duties to the stockholders.

If elected, the Nominees would also attempt to work with the UIC
Board to take other measures to improve UIC's corporate governance, including
declassifying the Board and removing the "staggered board" provision. A
classified board of directors limits the ability of stockholders to elect all
directors on an annual basis. We believe that the annual election of directors
is the primary means for stockholders to influence corporate governance policies
and to hold management accountable for its implementation of those policies.
Steel and the Nominees view classified boards as having the effect of insulating
directors from being accountable to the corporation's stockholders.

WE BELIEVE THAT THE UIC BOARD MUST PROMPTLY EXPLORE OTHER ALTERNATIVES TO
MAXIMIZE STOCKHOLDER VALUE INCLUDING A SALE OF THE ENTIRE COMPANY

We believe that the election of the Nominees represents an
opportunity for stockholders to maximize the present value of their Shares.
James Henderson and Glen Kassan have extensive experience providing management
and advisory services to public and private companies and currently serve as
executive officers and directors of various public companies. See "The
Nominees." If elected, the Nominees will, subject to their fiduciary duties of
the highest standards, explore all available alternatives to maximize
stockholder value including, but not limited to:

o working with the UIC Board to sell the entire company by means
of a merger, tender offer or otherwise, or to divest assets of
the Company on a tax efficient basis;

o working with the UIC Board to respond to new corporate
governance legislation and NYSE listing standards, and take
other measures to improve corporate governance, including
declassifying the organization of the UIC Board; and

o working with the UIC Board to reduce unnecessary expenses by,
among other things, closing UIC's New York office.

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Subject to their fiduciary duties, the Nominees' priority would be
to maximize stockholder value by pursuing a sale of UIC. Although the Nominees
would seek to sell UIC to the highest bidder, the Nominees' priority would be to
negotiate and consummate a transaction on the most favorable terms available to
the UIC stockholders. The Nominees would work to solicit bids from potential
acquirors, including competitors of UIC. In accordance with the Nominees'
fiduciary duties to enter into a sale transaction that would have the greatest
benefit to UIC stockholders, bids would be carefully evaluated based on, among
other things, the value of the consideration offered, the ability of the bidder
to finance the bid, the quality of any non-cash consideration offered (including
the financial condition of any bidder offering non-cash consideration), and the
timing and likelihood of consummation of the proposed transaction in light of
any required financing or regulatory approvals. This process could result in the
Nominees' decision to accept a proposal to acquire UIC for a purchase price that
is not necessarily the highest price offered.

We wish to provide the stockholders, the true owners of UIC, with
the opportunity to elect directors that are unaffiliated with the existing
Board. Your vote to elect the Nominees does not constitute a vote in favor of
our value enhancing plans including pursuing a sale of UIC. Your vote to elect
the Nominees will have the legal effect of replacing two incumbent directors
with our Nominees. If the Nominees are elected to the Board and a transaction
involving the sale of UIC is proposed by the Board, stockholders will have an
opportunity to vote on such transaction to the extent required by law.

Neither we (nor to our knowledge, any other person on our behalf)
has made or undertaken any analysis or reports as to whether stockholder value
will be maximized as a result of this solicitation or obtained reports from
consultants or other outside parties as to whether the proposals presented
herein would have an effect on stockholder value. There can be no assurance that
stockholder value will be maximized as a result of this solicitation or the
election of the Nominees.

THE NOMINEES

The following information sets forth the name, business address,
present principal occupation, and employment and material occupations,
positions, offices, or employments for the past five years of the Nominees. This
information has been furnished to Steel by the Nominees. Where no date is given
for the commencement of the indicated office or position, such office or
position was assumed prior to August 1, 1997. Each person listed below is a
citizen of the United States.

JAMES R. HENDERSON (44) has been a Vice President of Steel Partners,
Ltd., a management and advisory company, since March 2002. Steel Partners, Ltd.
has provided management services to Steel and other affiliates of Steel since
March 2002. Mr. Henderson served as a Vice President of Steel Partners Services,
Ltd., a management and advisory company, from August 1999 through March 2002.
Steel Partners Services, Ltd. provided management services to Steel and other
affiliates of Steel until March 2002, when Steel Partners, Ltd. acquired the
rights to provide certain management services from Steel Partners Services Ltd.
He has also served as Vice President of Operations of WebFinancial Corporation,
a commercial and consumer lender, since September 2001. Mr. Henderson has served

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as President of Gateway Industries, Inc., a provider of database development and
Web site design and development services, since December 2001. Mr. Henderson is
a director of SL Industries, Inc., a manufacturer and marketer of Power and Data
Quality systems and equipment for industrial, medical, aerospace and consumer
applications. From 1996 to July 1999, Mr. Henderson was employed in various
positions with Aydin Corporation, a defense-electronics manufacturer, which
included a tenure as president and Chief Operating Officer from October 1998 to
June 1999. Prior to his employment with Aydin Corporation, Mr. Henderson was
employed as an executive with UNISYS Corporation, an e-business solutions
provider. Mr. Henderson is a director of ECC International Corp., a manufacturer
and marketer of computer-controlled simulators for training personnel to perform
maintenance and operator procedures on military weapons. As of the date hereof,
Mr. Henderson did not beneficially own any Shares. Mr. Henderson has not
purchased or sold any Shares during the past two years. The business address of
Mr. Henderson is c/o Steel Partners, Ltd., 150 East 52nd Street, 21st Floor, New
York, New York 10022.

GLEN M. KASSAN (59) has been an Executive Vice President of Steel
Partners, Ltd., a management and advisory company, since March 2002. Steel
Partners, Ltd. has provided management services to Steel and other affiliates of
Steel since March 2002. Mr. Kassan served as Executive Vice President of Steel
Partners Services, Ltd., a management and advisory company, from June 2001
through March 2002 and Vice President from October 1999 through May 2001. Steel
Partners Services, Ltd. provided management services to Steel and other
affiliates of Steel until March 2002, when Steel Partners, Ltd. acquired the
rights to provide certain management services from Steel Partners Services, Ltd.
He has also served as Vice President, Chief Financial Officer and Secretary of
WebFinancial Corporation, a commercial and consumer lender, since June 2000. Mr.
Kassan has served as Vice Chairman of the Board of Directors of Caribbean
Fertilizer Group Ltd., a private company engaged in the production of
agricultural products in Puerto Rico and Jamaica, since June 2000. Mr. Kassan is
a director and has served as President of SL Industries, Inc., a manufacturer
and marketer of Power and Data Quality systems and equipment for industrial,
medical, aerospace and consumer applications, since January 2002 and February
2002, respectively. From June 2000 to April 2002, Mr. Kassan served as Vice
President, Chief Financial Officer and Secretary of Gateway Industries, Inc., a
provider of database development and Web site design and development services.
From 1997 to 1998, Mr. Kassan served as Chairman and Chief Executive Officer 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. Mr. Kassan is currently a director of Tandycrafts,
Inc., a manufacturer of picture frames and framed art, Puroflow Incorporated, a
designer and manufacturer of precision filtration devices, and the Chairman of
the Board of US Diagnostic Inc., an operator of outpatient diagnostic imaging.
As of the date hereof, Mr. Kassan did not beneficially own any Shares. Mr.
Kassan has not purchased or sold any Shares during the past two years. The
business address of Mr. Kassan is c/o Steel Partners, Ltd., 150 East 52nd
Street, 21st Floor, New York, New York 10022.

The Nominees will not receive any compensation from Steel for their
services as directors of UIC. On March 7, 2001, James Henderson entered into an
Agreement (the "Agreement") with UIC, Steel and Warren Lichtenstein, pursuant to
which, among other things, Mr. Henderson has been allowed to attend all meetings

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of the UIC Board in a non-voting observer capacity. The Agreement is attached to
Amendment No. 5 to the Schedule 13D filed by Steel and Warren Lichtenstein with
respect to UIC and is incorporated herein by reference.

On March 20, 2002, James Henderson and Steel entered into a
Reimbursement Agreement (the "Henderson Reimbursement Agreement") in which Steel
agreed to bear all expenses incurred by Mr. Henderson in connection with his
nomination to the UIC Board, including approved expenses incurred by Mr.
Henderson in the solicitation of proxies or written consents from UIC
stockholders. The Henderson Reimbursement Agreement is attached to Amendment No.
6 to the Schedule 13D filed by Steel, Warren Lichtenstein and the Nominees with
respect to UIC and is incorporated herein by reference.

On March 20, 2002, Glen Kassan and Steel entered into a
Reimbursement Agreement (the "Kassan Reimbursement Agreement") in which Steel
agreed to bear all expenses incurred by Mr. Kassan in connection with his
nomination to the UIC Board, including approved expenses incurred by Mr. Kassan
in the solicitation of proxies or written consents from UIC stockholders. The
Kassan Reimbursement Agreement is attached to Amendment No. 6 to the Schedule
13D filed by Steel, Warren Lichtenstein and the Nominees with respect to UIC and
is incorporated herein by reference.

Other than as stated above, there are no arrangements or
understandings between Steel and each Nominee or any other person or persons
pursuant to which the nominations described herein are to be made, other than
the consent by each of the Nominees to serve as a director of UIC if elected as
such at the Annual Meeting. The Nominees have not been convicted in any criminal
proceedings (excluding traffic violations or similar misdemeanors) over the past
ten years. None of the Nominees is a party adverse to UIC or any of its
subsidiaries or has a material interest adverse to UIC or any of its
subsidiaries in any material pending legal proceedings.

Steel does not expect that the Nominees will be unable to stand for
election, but, in the event that such persons are unable to serve or for good
cause will not serve, the Shares represented by the enclosed GOLD proxy card
will be voted for substitute nominees. In addition, Steel reserves the right to
nominate substitute persons if UIC makes or announces any changes to its Bylaws
or takes or announces any other action that has, or if consummated would have,
the effect of disqualifying the Nominees. In any such case, Shares represented
by the enclosed GOLD proxy card will be voted for such substitute nominees.

The UIC Board is divided into three classes serving staggered
three-year terms. Two directors are to be elected at the Annual Meeting to hold
office until 2005 and until their successors are duly elected and qualify. Steel
has no reason to believe any of the Nominees will be disqualified or unable or
unwilling to serve if elected.

YOU ARE URGED TO VOTE FOR THE ELECTION OF THE NOMINEES ON THE ENCLOSED GOLD
PROXY CARD.

-9-

[PROPOSAL 2 - APPOINTMENT OF INDEPENDENT AUDITORS

Steel has no objection to the ratification of the appointment of
Ernst & Young LLP as independent accountants for UIC for the fiscal year ending
December 31, 2002. Please see UIC's Proxy Statement for the Annual Meeting for a
description of this proposal.]

VOTING AND PROXY PROCEDURES

Only stockholders of record on the Record Date will be entitled to
notice of and to vote at the Annual Meeting. Each Share is entitled to one vote.
Stockholders who sell Shares before the Record Date (or acquire them without
voting rights after the Record Date) may not vote such Shares. Stockholders of
record on the Record Date will retain their voting rights in connection with the
Annual Meeting even if they sell such Shares after the Record Date. Based on
publicly available information, Steel believes that the only outstanding class
of securities of UIC entitled to vote at the Annual Meeting are the Shares.

Shares represented by properly executed GOLD proxy cards will be
voted at the Annual Meeting as marked and, in the absence of specific
instructions, will be voted FOR the election of the Nominees to the Board, FOR
the proposal to ratify the appointment of Ernst & Young LLP as independent
accountants of UIC for the fiscal year ending December 31, 2002, and in the
discretion of the persons named as proxies on all other matters as may properly
come before the Annual Meeting.

Directors are elected by a plurality of the votes cast and the
nominees who receive the most votes will be elected (assuming a quorum is
present). [To be approved, the proposal to ratify the appointment of auditors
must receive a majority of the votes cast (assuming a quorum is present).]
Stockholders have cumulative voting rights with respect to the election of
directors. Under cumulative voting, each stockholder 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 stockholder 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 with a signed proxy to either Steel in care of
MacKenzie Partners, Inc. at the address set forth on the back cover of this
Proxy Statement or to UIC at 570 Lexington Avenue, New York, New York 10022 or
any other address provided by UIC. Broker non-votes, described below, and
abstentions will be counted only for the purpose of determining whether a quorum
is present at the Annual Meeting. An abstention from voting will be tabulated as
a vote withheld on the election, but will not be considered in determining
whether each of the nominees has received a plurality of the votes cast at the
Annual Meeting [and will not be counted either "for" or "against" the
ratification of auditors]. Proxies relating to "street name" Shares that are
voted by brokers only on some of the proposals will not be entitled to vote on
any proposal which the broker does not have discretionary voting power and has
not received instructions from the beneficial owner ("broker non-votes").

Stockholders of UIC may revoke their proxies at any time prior to
exercise by attending the Annual Meeting and voting in person (although
attendance at the Annual Meeting will not in and of itself constitute revocation
of a proxy) or by delivering a written notice of revocation. The delivery of a
subsequently dated proxy which is properly completed will constitute a
revocation of any earlier proxy. The revocation may be delivered either to Steel

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in care of MacKenzie Partners, Inc. at the address set forth on the back cover
of this Proxy Statement or to UIC at 570 Lexington Avenue, New York, New York
10022 or any other address provided by UIC. Although a revocation is effective
if delivered to UIC, Steel requests that either the original or photostatic
copies of all revocations be mailed to Steel in care of MacKenzie Partners, Inc.
at the address set forth on the back cover of this Proxy Statement so that Steel
will be aware of all revocations and can more accurately determine if and when
proxies have been received from the holders of record on the Record Date of a
majority of the outstanding Shares.

IF YOU WISH TO VOTE FOR THE ELECTION OF THE NOMINEES TO THE UIC BOARD, PLEASE
SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED GOLD PROXY CARD IN THE POSTAGE-PAID
ENVELOPE PROVIDED.

SOLICITATION OF PROXIES

The solicitation of proxies pursuant to this Proxy Statement is
being made by Steel. Proxies may be solicited by mail, facsimile, telephone,
telegraph, in person and by advertisements. Steel will not solicit proxies via
the Internet.

Steel has entered into an agreement with MacKenzie Partners, Inc.
for solicitation and advisory services in connection with this solicitation, for
which MacKenzie Partners, Inc. will receive a fee not to exceed $__________,
together with reimbursement for its reasonable out-of-pocket expenses, and will
be indemnified against certain liabilities and expenses, including certain
liabilities under the federal securities laws. MacKenzie Partners, Inc. will
solicit proxies from individuals, brokers, banks, bank nominees and other
institutional holders. Steel has requested banks, brokerage houses and other
custodians, nominees and fiduciaries to forward all solicitation materials to
the beneficial owners of the Shares they hold of record. Steel will reimburse
these record holders for their reasonable out-of-pocket expenses in so doing. It
is anticipated that MacKenzie Partners, Inc. will employ approximately [__]
persons to solicit UIC's stockholders for the Annual Meeting.

The entire expense of soliciting proxies is being borne by Steel. If
the Nominees are elected to the UIC Board, Steel intends to seek reimbursement
of the costs of this solicitation from UIC. Unless otherwise required by law,
Steel does not currently intend to submit the question of reimbursement of the
costs of this solicitation to a stockholder vote. Costs of this solicitation of
proxies are currently estimated to be approximately $_________. Steel estimates
that through the date hereof, its expenses in connection with this solicitation
are approximately $__________.

PARTICIPANT INFORMATION

Along with the Nominees, Warren Lichtenstein and Steel are
participants in this solicitation. Warren Lichtenstein is Chairman of the Board,
Secretary and the Managing Member of Steel Partners, L.L.C. ("Steel LLC"), a
Delaware limited liability company. Steel LLC is the general partner of Steel.
The principal business of Mr. Lichtenstein, Steel LLC and Steel is investing in
the securities of small-cap companies. The principal business address of Mr.
Lichtenstein, Steel LLC and Steel is 150 East 52nd Street, 21st Floor, New York,
New York 10022. Mr. Lichtenstein has been a director of UIC since May 2001.

-11-

James Henderson and Glen Kassan are Vice Presidents of Steel Partners, Ltd., an
affiliate of Steel. As of the date hereof, Steel is the beneficial owner of
1,310,250 Shares. Steel LLC does not beneficially own any Shares on the date
hereof, except by virtue of its role in Steel. Mr. Lichtenstein beneficially
owns 10,000 Shares underlying options exercisable within 60 days of the date of
this Proxy Statement and may be deemed to beneficially own the 1,310,250 Shares
of UIC owned by Steel by virtue of his positions with Steel. For information
regarding purchases and sales of Shares during the past two years by Steel, see
Schedule I.

CERTAIN TRANSACTIONS BETWEEN STEEL AND UIC

Except as set forth in this Proxy Statement (including the Schedules
hereto), neither Steel nor any of the other participants in this solicitation,
or any of their respective associates: (i) directly or indirectly beneficially
owns any Shares or any securities of UIC; (ii) has had any relationship with UIC
in any capacity other than as a stockholder, or is or has been a party to any
transactions, or series of similar transactions, or was indebted to UIC during
the past year with respect to any Shares of UIC; or (iii) knows of any
transactions during the past year, currently proposed transactions, or series of
similar transactions, to which UIC or any of its subsidiaries was or is to be a
party, in which the amount involved exceeds $60,000 and in which any of them or
their respective affiliates had, or will have, a direct or indirect material
interest. In addition, other than as set forth herein, there are no contracts,
arrangements or understandings entered into by Steel or any other participant in
this solicitation or any of their respective associates within the past year
with any person with respect to any of UIC's securities, including, but not
limited to, joint ventures, loan or option arrangements, puts or calls,
guarantees against loss or guarantees of profit, division of losses or profits,
or the giving or withholding of proxies.

Except as set forth in this Proxy Statement (including the Schedules
hereto), neither Steel nor any of the other participants in this solicitation,
or any of their respective associates, has entered into any agreement or
understanding with any person with respect to (i) any future employment by UIC
or its affiliates or (ii) any future transactions to which UIC or any of its
affiliates will or may be a party. However, Steel has reviewed, and will
continue to review, on the basis of publicly available information, various
possible business strategies that it might consider in the event that the
Nominees are elected to the Board.

OTHER MATTERS AND ADDITIONAL INFORMATION

Steel is unaware of any other matters to be considered at the Annual
Meeting [other than the ratification of the appointment of the Company's
auditors]. However, should other matters, which Steel is not aware of a
reasonable time before this solicitation, be brought before the Annual Meeting,
the persons named as proxies on the enclosed GOLD proxy card will vote on such
matters in their discretion.

See Schedule II for information regarding persons who beneficially
own more than 5% of the Shares and the ownership of the Shares by the management
of UIC.

The information concerning UIC contained in this Proxy Statement and
the Schedules attached hereto has been taken from, or is based upon, publicly
available information.

-12-

STEEL PARTNERS II, L.P.

_______, 2002

-13-

SCHEDULE I
----------

TRANSACTIONS IN THE SHARES DURING THE PAST TWO YEARS
----------------------------------------------------

Shares of Common Stock Price Per Date of
Purchased Share ($) Purchase
--------- --------- --------

STEEL PARTNERS II, L.P.
-----------------------

20,000 9.84410 8/28/00
5,000 9.95500 8/29/00
20,300 10.02380 8/30/00
7,000 10.82000 9/06/00
500 11.29000 9/13/00
6,000 11.27960 9/19/00
600 11.05000 9/20/00
3,400 11.10250 9/21/00
5,000 10.91500 9/22/00
10,200 10.21820 10/18/00
9,000 10.17500 10/19/00
4,200 10.41610 10/20/00
11,000 10.56140 10/23/00
5,000 10.48750 10/24/00
6,000 10.50830 10/25/00
1,700 10.67500 10/27/00
5,000 10.67000 10/30/00
1,000 10.81000 10/31/00
3,000 10.42500 11/02/00
900 10.42500 11/03/00
2,500 10.67500 11/06/00
3,600 10.67500 11/22/00
10,800 10.79650 11/27/00
8,720 10.80000 11/28/00
11,000 10.67500 11/29/00

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Shares of Common Stock Price Per Date of
Purchased Share ($) Purchase
--------- --------- --------

STEEL PARTNERS II, L.P.
-----------------------

300 10.72500 12/04/00
500 10.67500 12/06/00
5,500 11.05000 12/27/00
14,400 11.09340 12/28/00
9,000 11.10500 12/29/00
2,000 11.17500 1/03/01
6,600 11.12570 1/04/01
17,600 13.50920 3/12/01
4,700 13.47000 3/13/01
5,000 13.30000 3/14/01
3,400 13.53000 3/15/01
10,000 13.30000 3/16/01
11,300 13.20260 3/19/01

-15-

WARREN G. LICHTENSTEIN
----------------------

NONE(1)

JAMES R. HENDERSON
------------------

NONE

GLEN M. KASSAN
--------------

NONE

--------
(1) By virtue of his position with Steel Partners II, L.P., Mr. Lichtenstein
has the power to vote and dispose of UIC Shares owned by Steel Partners
II, L.P. Accordingly, Mr. Lichtenstein may be deemed the beneficial owner
of the UIC Shares owned by Steel Partners II, L.P.

-16-

SCHEDULE II

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following is based solely on information provided in the Form 10-K:

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

On March 22, 2002, there were outstanding and entitled to vote
12,976,718 shares of Common Stock. At March 22, 2002, more than 5% of the
Company's outstanding voting securities was beneficially owned by each of the
persons named in the following table, except that the information as to Kennedy
Capital Management, Inc., Dimensional Fund Advisors Inc., Elaine Fein and J.P.
Morgan Chase & Co. is as of December 31, 2001 and is based upon information
furnished to the Company by such persons in Schedules 13G, and the information
as to Steel Partners II, L.P. is based upon information furnished by such entity
in a Schedule 13D and a Form 4.

Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
-------------- ---------------- -------------------- ----------------

Common Stock Kennedy Capital Management, Inc. 1,509,450(1) 11.63%
10829 Olive Boulevard
St. Louis, Missouri 63141

Common Stock Steel Partners II, L.P. 1,310,250 10.10%
150 East 52 Street
New York, New York 10022

Common Stock Dimensional Fund Advisors Inc. 1,059,440(2) 8.16%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401

Common Stock Elaine Fein 983,747(3) 7.58%
P.O. Box 99
Scarsdale, New York 10583

Common Stock J.P. Morgan Chase & Co. 914,551(4) 7.05%
270 Park Avenue
New York, New York 10017

(1) Kennedy Capital Management, Inc., a registered investment advisor,
has sole voting power as to 1,496,400 shares of Common Stock and
sole dispositive power as to 1,509,450 shares.

(2) Dimensional Fund Advisors Inc. ("Dimensional"), an investment
advisor registered under Section 203 of the Investment Advisors Act
of 1940, is deemed to have beneficial ownership of 1,059,440 shares
of Common Stock. Dimensional furnishes investment advice to four
investment companies registered under the Investment Company Act of
1940, and serves as investment manager to certain other commingled
group trusts and separate accounts (collectively, the "Funds"). In
its role as investment advisor or manager, Dimensional possesses
voting and/or investment power over the securities of the Company
that are owned by the Funds. Dimensional disclaims beneficial
ownership of such securities.

-17-

(3) Includes 912,551 shares of Common Stock owned by The Estate of
Bernard Fein, of which Ms. Fein is an executor, and 71,196 shares
owned by The Fein Foundation, of which Ms. Fein is a trustee.

(4) Includes 912,551 shares of Common Stock owned by The Estate of
Bernard Fein, of which J.P. Morgan Chase & Co. is an executor.

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth, as of March 1, 2002, the number of
shares of Common Stock of the Company beneficially owned by each director of the
Company, each executive officer named in the Summary Compensation Table above,
and by all directors and executive officers of the Company as a group. Except as
otherwise indicated all shares are owned directly.

Amount and
Nature of Beneficial Percent
Name or Group Ownership(1)(2) of Class
------------- --------------- --------

Richard R. Erkeneff 596,000 4.44%
Harold S. Gelb 35,000 (3)
Warren G. Lichtenstein 1,315,250(4) 10.14%
James H. Perry 82,843 (3)
Joseph S. Schneider 25,000 (3)
E. Donald Shapiro 45,000 (3)
Robert W. Worthing 80,419(5) (3)
Susan Fein Zawel 386,954(6) 2.97%
All directors and executive officers as a group,
consisting of 8 persons 2,566,466 18.72%

(1) The information as to securities owned by directors and executive
officers was furnished to the Company by such directors 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, 460,000 shares; Mr. Gelb, 30,000 shares; Mr. Lichtenstein,
5,000 shares; Mr. Perry, 77,000 shares; Mr. Schneider, 20,000
shares; Mr. Shapiro, 30,000 shares; Mr. Worthing, 71,000 shares; Ms.
Fein Zawel, 55,000 shares; and all directors and executive officers
as a group, 748,000 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.

-18-

IMPORTANT

Tell your Board what you think! Your vote is important. No matter
how many Shares you own, please give Steel your proxy FOR the election of the
Nominees by taking three steps:

o SIGNING the enclosed GOLD proxy card,

o DATING the enclosed GOLD proxy card, and

o MAILING the enclosed GOLD proxy card TODAY in the envelope
provided (no postage is required if mailed in the United
States).

If any of your Shares are held in the name of a brokerage firm,
bank, bank nominee or other institution, only it can vote such Shares and only
upon receipt of your specific instructions. Accordingly, please contact the
person responsible for your account and instruct that person to execute the GOLD
proxy card representing your Shares. Steel urges you to confirm in writing your
instructions to Steel in care of MacKenzie Partners, Inc. at the address
provided below so that Steel will be aware of all instructions given and can
attempt to ensure that such instructions are followed.

If you have any questions or require any additional information
concerning this Proxy Statement, please contact MacKenzie Partners, Inc. at the
address set forth below.

[MACKENZIE LOGO]

-19-

PRELIMINARY COPY SUBJECT TO COMPLETION
DATED AUGUST 20, 2002

UNITED INDUSTRIAL CORPORATION ANNUAL MEETING OF STOCKHOLDERS

THIS PROXY IS SOLICITED ON BEHALF OF STEEL PARTNERS II, L.P.

The undersigned appoints Warren G. Lichtenstein and Glen M. Kassan, and each of
them, attorneys and agents with full power of substitution to vote all shares of
common stock of United Industrial Corporation (the "Company") which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders of the Company, and including at any adjournments or
postponements thereof and at any meeting called in lieu thereof, as follows:

1. ELECTION OF DIRECTORS:
FOR ALL WITHHOLD ALL FOR ALL
except nominee
Nominees: James R. Henderson and written below
Glen M. Kassan [ ] [ ] [ ]

---------

[2. RATIFICATION OF APPOINTMENT FOR AGAINST ABSTAIN
OF INDEPENDENT AUDITORS: [ ] [ ] [ ]]

3. In their discretion with respect to any other matters as may
properly come before the Annual Meeting.

-20-

The undersigned hereby revokes any other proxy or proxies heretofore
given to vote or act with respect to the shares of Common Stock of the Company
held by the undersigned, and hereby ratifies and confirms all action the herein
named attorneys and proxies, their substitutes, or any of them may lawfully take
by virtue hereof. If properly executed, this proxy will be voted as directed
above. IF NO DIRECTION IS INDICATED WITH RESPECT TO THE ABOVE PROPOSALS, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES, OR ANY SUBSTITUTIONS
THERETO, [AND FOR THE RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS].

This proxy will be valid until the sooner of one year from the date
indicated below and the completion of the Annual Meeting.

DATED: ____________________________

PLEASE SIGN EXACTLY AS NAME APPEARS ON THIS PROXY.

------------------------------------
(Signature)

------------------------------------
(Signature, if held jointly)

------------------------------------
(Title)

WHEN SHARES ARE HELD JOINTLY, JOINT OWNERS SHOULD EACH SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, ETC., SHOULD INDICATE THE CAPACITY IN WHICH SIGNING.

IMPORTANT: PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY!

-21-