<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant / /
Filed by a party other than the registrant /X/
Check the appropriate box:
/ / Preliminary
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MFRI, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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:
Common Stock, par value $.01 per share
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
Not Applicable
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
Not Applicable
- - --------------------------------------------------------------------------------
/ / 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:
- - --------------------------------------------------------------------------------
<PAGE> 2
[MFRI, INC. LOGO]
7720 LEHIGH AVENUE
NILES, ILLINOIS 60714
June 6, 1996
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of MFRI,
Inc. will be held at The Standard Club, 320 South Plymouth Court, Chicago,
Illinois on Wednesday, June 26, 1996, at 10:00 a.m., Chicago time, for the
following purposes:
1. to elect directors; and
2. to transact such other business as may properly come before the meeting.
By order of the Board of Directors,
MICHAEL D. BENNETT
Secretary
------------------
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of MFRI, Inc. (the "Company") for
use at the annual meeting of stockholders to be held on June 26, 1996 and at any
adjournment thereof. Only stockholders of record at the close of business on May
10, 1996 will be entitled to notice of and to vote at the meeting. The Company
had outstanding 4,524,376 shares of common stock as of the close of business on
May 10, 1996. There are no other voting securities. Each stockholder is entitled
to one vote per share for the election of directors, as well as on other
matters. If the accompanying proxy form is signed and returned, the shares
represented thereby will be voted; such shares will be voted in accordance with
the directions on the proxy form, or in the absence of direction as to any
proposal, they will be voted for such proposal; and it is intended that they
will be voted for the nominees named herein, except to the extent authority to
vote is withheld. The stockholder may revoke the proxy at any time prior to the
voting thereof by giving written notice of such revocation to the Company, by
executing and duly delivering a subsequent proxy or by attending the meeting and
voting in person.
In case any nominee named herein for election as a director is not
available when the election occurs, proxies in the accompanying form may be
voted for a substitute as well as for the other persons named herein. The
Company expects all nominees to be available and knows of no matters to be
brought before the meeting other than those referred to in the accompanying
notice of annual
<PAGE> 3
meeting. If, however, any other matters properly come before the meeting, it is
intended that proxies in the accompanying form will be voted thereon in
accordance with the judgment of the persons voting such proxies.
The presence at the annual meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of common stock of the Company ("Common
Stock") shall constitute a quorum. Abstentions will be treated as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum but as unvoted for purposes of determining the approval of any matter
submitted to the stockholders for a vote. If a broker indicates on the proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
A plurality of the votes of the shares present in person or represented by
proxy at the meeting will be required to elect the directors.
In addition to the use of the mails, proxies may be solicited by directors,
officers, or regular employees of the Company in person, by telegraph, by
telephone or by other means. The cost of the proxy solicitation will be paid by
the Company.
PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of December 31, 1995, with respect to any
person who is known to the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock, the name and address of such owner, the
number of shares of Common Stock beneficially owned, the nature of such
ownership, and the percentage such ownership is of the outstanding shares of
Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
---------------------------------------------- ----------------------- --------
<S> <C> <C>
Midwesco, Inc. 1,717,666(1) 38.0%
7720 Lehigh Avenue
Niles, IL 60714
Ryback Management Corporation 375,000(2) 8.3%
Adviser to the Lindner Funds
7711 Carondelet Avenue
P.O. Box 16900
St. Louis, MO 63105
Heartland Advisors, Inc. 300,000(3) 6.6%
790 North Milwaukee Street
Milwaukee, WI 53202
</TABLE>
- - ------------
(1) Midwesco, Inc. has sole investment and voting power with respect to all of
the shares shown as beneficially owned by it. 850,000 of the shares owned by
Midwesco, Inc. (18.8%) have been pledged to Harris Trust and Savings Bank as
collateral for a revolving credit facility.
(2) According to a Schedule 13G dated January 25, 1996, Ryback Management
Corporation is the beneficial owner of the shares as a result of acting as
investment adviser to several investment companies which directly own such
shares, including Lindner Fund, Inc., which owns 341,000 shares.
(3) According to a Schedule 13G dated February 9, 1996, Heartland Advisors, Inc.
("Heartland") has sole voting and dispositive power with respect to the
shares shown as beneficially owned by it. All of such shares are held in
investment advisory accounts of Heartland. As a result, various persons have
the right to receive or the power to direct the receipt of dividends from,
or the proceeds from the sale of, the securities. The interests of one such
account, Heartland Value fund, a series of Heartland Group, Inc., a
registered investment company, relates to more than 5% of the class.
2
<PAGE> 4
The following table sets forth certain information concerning the ownership
of securities of the Company and of Midwesco, Inc. of each director, nominee and
executive officer named in the Summary Compensation Table hereof ("Named
Executive Officers") and all directors and executive officers of the Company as
a group:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF SHARES OF APPROXIMATE NUMBER OF SHARES OF
COMMON STOCK OF THE COMPANY STOCK OF MIDWESCO, INC.
BENEFICIALLY OWNED AT BENEFICIALLY OWNED AT
NAME MARCH 31, 1996 (1)(2) MARCH 31, 1996 (1)(3)
- - ----------------------------------- ------------------------------- -------------------------------
<S> <C> <C>
David Unger........................ 43,250(4) 5,050
Henry M. Mautner................... 29,250(4) 2,286
Gene K. Ogilvie.................... 30,750 60
Fati A. Elgendy.................... 12,575 54
Bradley E. Mautner................. 2,300 928
Arnold F. Brookstone............... 10,500 --
Eugene Miller...................... 9,500 --
Stephen B. Schwartz................ 2,700 --
Joel Tyler Headley III............. 21,250 --
All directors and executive
officers as a group (14
persons)......................... 186,500 8,415
</TABLE>
- - ------------
(1) Includes shares, if any, held by spouse; held in joint tenancy with spouse;
held by or for the benefit of the named person or one or more members of his
immediate family; with respect to which the named person has or shares
voting or investment powers; or in which the named person otherwise has a
beneficial interest.
(2) None of the named persons owns beneficially more than 1% of the outstanding
shares of common stock of the Company. All directors and officers as a group
beneficially own an aggregate of 186,500 shares (4.1%), of which 151,625
shares (including 26,250 shares for each of Messrs. Unger, Ogilvie and Henry
M. Mautner, 21,250 shares for Mr. Headley, 10,875 shares for Mr. Elgendy,
2,000 shares for Bradley E. Mautner, 7,500 shares for each of Messrs.
Brookstone and Miller and 2,500 shares for Mr. Schwartz) are subject to
stock options granted by the Company which were exercisable on March 31,
1996 or which have or will become exercisable within 60 days thereafter.
(3) None of the named persons owns beneficially more than 1% of the outstanding
shares of stock of Midwesco, Inc. except Mr. Unger, who owns 43.7%, Henry M.
Mautner, who owns 19.8%, and Bradley E. Mautner who owns 8.0%. All directors
and officers of the Company as a group beneficially own an aggregate of
8,415 shares of stock of Midwesco, Inc. (72.8%). In addition, as of March
31, 1996, Messrs. Ogilvie, Elgendy and Headley and the other officers of the
Company and other employees of Midwesco, Inc. (other than David Unger, Henry
M. Mautner and Bradley E. Mautner) had the right to purchase in the
aggregate 6,227 shares, but not more than 1,285 shares per person, of
Midwesco, Inc. common stock at book value pursuant to a Midwesco, Inc.
employee stock plan.
(4) Does not include the 1,717,666 shares of Common Stock owned by Midwesco,
Inc.
In addition to its investment in the Company, Midwesco, Inc. is engaged in
the businesses of (i) manufacturing industrial water chilling and heating
equipment primarily for the plastics industry; (ii) maintenance and renovation
services for heating, ventilation and air conditioning ("HVAC") equipment in the
Chicago market area; (iii) construction of HVAC systems for large commercial
buildings and industrial boiler plants and cogeneration plants in the Chicago
market area; and (iv) importing on an exclusive basis thermoplastic pipe, valves
and fittings for resale to others including the Company.
3
<PAGE> 5
NOMINEES FOR ELECTION AS DIRECTORS
Eight directors are to be elected at the meeting to hold office until the
annual meeting of stockholders in 1997 and until their respective successors are
elected and qualified. All of the nominees were previously elected directors by
the stockholders.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, NAME OF ORGANIZATION FIRST BECAME A
IN WHICH OCCUPATION IS CARRIED ON, DIRECTOR OF
OFFICES, AND POSITIONS, IF ANY, THE COMPANY OR
NAME HELD WITH THE COMPANY; AND AGE A PREDECESSOR
- - ---------------------- ----------------------------------------------------- --------------
<S> <C> <C>
David Unger Chairman of the Board, President and Chief Executive 1989
Officer of the Company; Age 61
Henry M. Mautner Chairman of the Board of Midwesco, Inc. and Vice 1989
Chairman of the Board of the Company; Age 68
Gene K. Ogilvie Vice President and Director of the Company; President 1989
and Chief Operating Officer of Midwesco Filter
Resources, Inc.; Age 56
Fati A. Elgendy Vice President and Director of the Company; President 1994
and Chief Operating Officer of Perma-Pipe, Inc.;
Age 47
Bradley E. Mautner Director of the Company; President and Chief 1995
Operating Officer of Midwesco, Inc.; Chief
Executive Officer of Mid Res, Inc.; Age 40.
Arnold F. Brookstone Director of the Company; Retired Executive Vice 1990
President and Chief Financial and Planning Officer
of Stone Container Corporation; Age 66
Eugene Miller Director of the Company; Chairman of the Board and 1990
Chief Executive Officer of Ideon Group, Inc.; Age
70.
Stephen B. Schwartz Director of the Company; Retired Senior Vice 1995
President of IBM Corporation; Age 61
</TABLE>
David Unger was the President of Midwesco, Inc. from 1972 through January
1994, and has been Vice President since February 1994. He has also been a
director of Midwesco, Inc. since 1972 and has served that company in various
executive and administrative capacities since 1958.
Henry M. Mautner has been Chairman of Midwesco, Inc. since 1972 and has
served that company in various executive and administrative capacities since
1949. Mr. Mautner is the father of Bradley E. Mautner.
Gene K. Ogilvie has been employed by the Company or its predecessor in
various executive capacities since 1969. He has been a Vice President of
Midwesco, Inc. since 1982 and General Manager of Midwesco Filter Resources, Inc.
("Midwesco Filter"), or its predecessor since 1980 and President and Chief
Operating Officer of Midwesco Filter since 1989. Midwesco Filter is a
wholly-owned subsidiary of the Company.
Fati A. Elgendy, who has been associated with Midwesco, Inc. since 1978,
was Vice President, Director of Sales of the Perma-Pipe Division of Midwesco,
Inc. from 1990 to 1991. In 1991, he became Executive Vice President of the
Perma-Pipe Division, a position he continued to hold after the acquisition of
the division by the Company (the "Acquisition") on January 28, 1994. In March of
1995, Mr. Elgendy became President and Chief Operating Officer of Perma-Pipe,
Inc. ("Perma-Pipe"). Perma-Pipe is a wholly-owned subsidiary of the Company.
4
<PAGE> 6
Bradley E. Mautner is the President of Midwesco, Inc., a position he has
held since April 1994. In addition, since February 1996, he has served as the
Chief Executive Officer of Mid Res, Inc., a 50% owned affiliate of Midwesco,
Inc. From February 1988 to January 1996, he served as the President of Mid Res,
Inc.
Arnold F. Brookstone served as Executive Vice President and Chief Financial
and Planning Officer of Stone Container Corporation, an international pulp and
paper manufacturer, from January 1991 until his retirement in January 1996. From
1981 to January 1991, he was Senior Vice President and Chief Financial and
Planning Officer of that company. Mr. Brookstone is a director of Donnelly
Corporation, a manufacturer of automotive products, and of Stone-Consolidated
Corporation, Venepal, and Florida Coast Paper Company, all of which are
manufacturers of paper products. He is also a trustee of the Rembrandt Funds, a
family of mutual and money-market funds and a director of several privately held
companies.
Eugene Miller has been Chairman of the Board of Directors and Chief
Executive Officer of Ideon Group, Inc., a credit card enhancement company, since
February 5, 1996. He served as Vice Chairman of the Board of Directors and Chief
Financial Officer of USG Corporation, a building materials holding company, from
March 1987 until his retirement as of May 31, 1991. On March 17, 1993, USG
Corporation filed a petition in bankruptcy to effectuate a prepackaged plan of
reorganization for that corporation which became effective on May 6, 1993. He
also served as Vice Chairman of the board of directors of Ideon Group, Inc. from
December, 1993 until February 5, 1996, and serves as a director of several
privately held companies.
Stephen B. Schwartz served as a senior vice president of IBM Corporation
from 1990 until his retirement in 1992. Mr. Schwartz is currently a director of
Niagara Mohawk Power Company, an electric and gas utility company. From 1957 to
1992, Mr. Schwartz served in various capacities for IBM Corporation.
BOARD OF DIRECTORS
Directors who are not employees of the Company or a parent or subsidiary of
the Company are compensated by a fee of $2,000 for each day of attendance at
Board meetings and a $200 fixed fee per hour for engagement in any other
activity on behalf of the Company authorized by the Board of Directors and are
reimbursed for expenses.
Pursuant to the Company's 1990 Independent Directors Stock Option Plan, as
amended (the "Directors Plan"), an option to purchase 10,000 shares of common
stock of the Company is granted automatically to each director who is not an
employee of the Company, any of its subsidiaries, any parent of the Company or
any of such parent's subsidiaries on the date he or she is first elected as a
director of the Company. Option exercise prices are at the fair market value of
the Common Stock on the date of grant. Options granted under the Directors Plan
are not intended to be "incentive stock options." The aggregate number of shares
which may be sold pursuant to the Directors Plan may not exceed 100,000. Such
options may be exercised for periods of up to ten years from the date of grant.
The Company has entered into indemnification agreements with each person
who is currently a member of the Board of Directors of the Company and expects
to enter into such agreements with persons who may in the future become
directors of the Company. In general, such agreements provide for
indemnification against any and all expenses incurred in connection with, as
well as any and all judgments, fines, and amounts paid in settlement resulting
from, any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, by reason of the fact that
such director is or was a director, officer, employee or agent of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, or
other enterprise.
5
<PAGE> 7
The Board of Directors of the Company held meetings or acted by written
consent four times during fiscal 1996 (the fiscal year ended January 31, 1996).
The Board of Directors has standing compensation and audit committees; it does
not have a standing nominating committee.
The Compensation Committee, consisting of David Unger, Henry M. Mautner,
Arnold F. Brookstone, Eugene Miller and Stephen B. Schwartz, reviews the
compensation paid to the officers of the Company, reports to the stockholders
with respect to the compensation paid to the officers of the Company, approves
material departures from the Company's past compensation policies, determines
the optionees and grant amounts under the Company's 1989 and 1993 Stock Option
Plans and makes recommendations to the Board with respect to the Company's
compensation policies. The Compensation Committee held one meeting during fiscal
1996.
The Audit Committee, consisting of Arnold F. Brookstone, Eugene Miller and
Stephen B. Schwartz, recommends independent public accountants for appointment
by the Board of Directors as auditors of the Company, reviews and makes
recommendations to the Board with respect to the scope of the annual audit of
the Company, reviews recommendations made by the auditors with respect to the
accounting methods used and the adequacy of the Company's system of internal
control and advises the Board with respect to such recommendations, and approves
non-audit services. The Audit Committee held one meeting during fiscal 1996.
6
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid by the Company during each of the Company's last three fiscal years to the
Company's Chief Executive Officer and to each other person who was serving as an
executive officer of the Company at the end of fiscal 1996 whose salary and
bonus for fiscal 1996 exceeded $100,000.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
NAME AND PRINCIPAL FISCAL -------------------------------- SECURITIES UNDERLYING
POSITION YEAR SALARY BONUS OTHER(1) OPTIONS (#)
- - ----------------------------------- ------ -------- -------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
David Unger(2) 1996 $125,000 $ 60,291 $1,548 5,000
Chairman, President and 1995 125,000 29,835 3,534 --
Chief Executive Officer 1994 25,000 15,868 -- 10,000
Henry M. Mautner 1996 $ 70,000 $ 60,291 $1,491 5,000
Vice Chairman 1995 70,000 29,835 1,626 --
1994 25,000 15,868 -- 10,000
Gene K. Ogilvie 1996 $110,000 $195,240 $2,600 5,000
Vice President of the Company 1995 90,000 99,193 3,761 --
President, Midwesco Filter 1994 90,000 150,632 3,596 10,000
Fati A. Elgendy(3) 1996 $110,000 $ 30,000 $2,931 11,600
Vice President of the Company 1995 100,000 30,000 3,373 11,900
President, Perma-Pipe 1994 -- -- -- 10,000
Joel Tyler Headley III 1996 $ 77,000 $114,405 $2,985 5,000
Vice President of the Company 1995 77,000 61,254 1,533 --
Vice President Marketing and 1994 77,000 92,838 1,749 10,000
Sales, Midwesco Filter
</TABLE>
- - ------------
(1) Represents contributions made by the Company to the named executive
officer's account under the Midwesco, Inc. 401(k) Plan and the Midwesco,
Inc. Profit Sharing Plan.
(2) Upon consummation of the Acquisition on January 28, 1994, Mr. Unger became a
full-time employee of the Company.
(3) Fati A. Elgendy, Vice President of the Company, was employed by the
Perma-Pipe Division of Midwesco, Inc. prior to the Acquisition on January
28, 1994. His annual compensation prior to the Acquisition was not borne by
the Company and, accordingly, is not included in the Summary Compensation
Table.
7
<PAGE> 9
FISCAL 1996 STOCK OPTION GRANTS
The following table sets forth certain information regarding option grants
to the named Executive Officers during fiscal 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5%($) 10%($)
- - ----------------------- ---------- ------------- -------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
David Unger 5,000 5.77% $ 4.44 04/30/05 13,961 35,381
Henry M. Mautner 5,000 5.77% $ 4.44 04/30/05 13,961 35,381
Gene K. Ogilvie 5,000 5.77% $ 4.44 04/20/05 13,961 35,381
Fati A. Elgendy 11,600 13.39% $ 4.44 04/30/05 32,391 82,084
Joel Tyler Headley III 5,000 5.77% $ 4.44 04/30/05 13,961 35,381
</TABLE>
FISCAL 1996 YEAR-END UNEXERCISED STOCK OPTIONS
The following table sets forth information relating to stock options held
by the Named Executive Officers at fiscal 1996 year-end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT JANUARY 31, 1996 OPTIONS AT JANUARY 31, 1996
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ----------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David Unger 25,000 10,000 0 $ 8,425
Henry M. Mautner 25,000 10,000 0 $ 8,425
Gene K. Ogilvie 25,000 10,000 0 $ 8,425
Fati A. Elgendy 7,975 25,525 0 $19,546
Joel Tyler Headley III 20,000 10,000 0 $ 8,425
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
David Unger, Chairman of the Board and Chief Executive Officer of the
Company, and Henry M. Mautner, Vice Chairman of the Board of the Company, serve
on the Compensation Committee of the Company's Board of Directors. Messrs. Unger
and Mautner also serve on the Board of Directors of Midwesco, Inc. and Mr. Unger
serves on the Board of Directors of Mid Res, Inc., a 50%-owned affiliate of
Midwesco, Inc. Michael D. Bennett, Vice President and Chief Financial Officer of
the Company is a director of Mid Res, Inc.
Pursuant to the Amended and Restated Management Services Agreement dated as
of January 28, 1994 ("Services Agreement"), the Company provides certain
services to Midwesco, Inc. and Midwesco, Inc. provides certain facilities and
services to the Company. The Services Agreement provides for the allocation of
costs of the shared employees, services and facilities (including the Niles,
Illinois facility of Midwesco, Inc. which is owned by Messrs. Mautner and Unger
and has been leased to Midwesco, Inc. since 1977) between the Company and
Midwesco, Inc. based upon the cost accounting method utilized by the Company and
Midwesco, Inc. A limited number of persons, including Michael D. Bennett, are
employed by both Midwesco, Inc. and the Company; the respective compensation
expense for such employees are divided between the companies based upon the
level of services performed by such employees for each company. Independent
auditors will review the appropriateness of the annual allocation of the costs
of the shared employees, services and facilities. Any material change to the
terms of the Services Agreement must be approved by a majority of the directors,
including a majority of Independent Directors. Pursuant to
8
<PAGE> 10
the Services Agreement, the Company reimbursed Midwesco, Inc. $564,000
(including occupancy costs of $360,000) during fiscal 1996.
Simtech, Inc. ("Simtech"), an 80.6% owned subsidiary of Midwesco, Inc., has
exclusive agreements with third parties to import thermoplastic pipe, valves and
fittings (such as polypropylene and polyvinylidene fluoride), some of which are
used by the Company. As of January 28, 1994, the Company began to purchase such
thermoplastic piping and related products from Simtech, generally for actual
cost plus 10%. During fiscal 1996 the Company made payments to Simtech
aggregating approximately $444,000.
In 1989, as amended in 1994, Midwesco Filter agreed, at its expense, to
file a registration statement under the Securities Act of 1933, as amended (the
"Securities Act") on no more than two occasions with respect to all or a portion
of the shares of common stock of Midwesco Filter owned by Midwesco, Inc. upon
the request of Midwesco, Inc. and include all or a portion of said shares, in
the event of the filing of a registration statement under the Securities Act
with respect to other shares of Common Stock.
REPORT OF COMPENSATION COMMITTEE OF BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Company considers the following general guidelines in determining the
compensation of its officers and key employees:
- Salary set at levels sufficient to attract and retain employees capable
of contributing materially to the Company's long-term success;
- Annual bonus related to operating profit in excess of a predefined amount
of the Company or of the Company's subsidiary in which the officer or key
employee is employed; and
- Stock options.
The Company also makes annual contributions to the accounts of eligible
employees in the Midwesco, Inc. sponsored 401(k) Employee Savings and Protection
Plan and Profit Sharing Plan.
The Company's 1989 Stock Option Plan (the "1989 Plan"), the 1993 Stock
Option Plan ("1993 Plan") and the 1994 Stock Option Plan ("1994 Plan")
(collectively, the "Plans") were adopted in order to provide officers and other
key employees with long-term incentives in order to create an interest in the
Company parallel to that of the Company's public stockholders. Option exercise
prices will be no less than fair market value of the Common Stock on the date of
grant. Under the Plans, options may be granted to key employees (including
officers, whether or not directors) of the Company, its subsidiaries, Midwesco,
Inc., and its affiliates. The options granted under the Plans may be exercised
for periods of up to ten years from the date of grant. Under the 1989 Plan and
1993 Plan, 250,000 shares of common stock of the Company are reserved for
issuance upon the exercise of options granted thereunder. Under the 1994 Plan,
250,000 shares of common stock of the Company are reserved for issuance upon the
exercise of options granted thereunder, which number shall be increased by the
number equal to 1% of the aggregate number of shares of common stock outstanding
as of the last day of the most recently ended fiscal year of the Company.
Provided the Company does not issue any additional shares of its common stock,
the maximum number of shares which may be sold to all optionees pursuant to the
1994 Plan during the term of the 1994 Plan will be 703,739. The Committee
believes additional incentive compensation should be made available to officers
and other key employees which will increase the effectiveness of the Company's
executive compensation program.
The Committee believes that the combination of salary, annual bonus
directly variable with the Company's operating profit, and stock options, the
ultimate value of which is determined by future share price growth, are
important factors in the executive compensation program designed to enhance
Company profitability and stockholder value.
9
<PAGE> 11
The compensation of David Unger, Chairman of the Board and Chief Executive
Officer of the Company, reflected in the Summary Compensation Table, was based
on his contribution to the Company, with consideration given to his compensation
from Midwesco, Inc., which was not borne by the Company and, accordingly, was
not included in the Summary Compensation Table. Upon consummation of the
Acquisition, Mr. Unger became a full-time employee of the Company and,
accordingly, his cash compensation from the Company increased significantly in
fiscal 1995. Mr. Unger's annual bonus in fiscal 1996 increased significantly
based upon the increase in the Company's pretax earnings.
The compensation of Henry M. Mautner, Vice Chairman of the Board of the
Company, reflected in the Summary Compensation Table, was based on his
contribution to the Company, with consideration given to his compensation from
Midwesco, Inc., which was not borne by the Company and, accordingly, was not
included in the Summary Compensation Table. Upon consummation of the
Acquisition, Mr. Mautner devoted a larger portion of his time to the Company
and, accordingly, his cash compensation from the Company increased significantly
in fiscal 1995. Mr. Mautner's annual bonus in fiscal 1996 increased
significantly based upon the increase in the Company's pretax earnings.
Gene K. Ogilvie, Vice President of the Company and President of Midwesco
Filter, receives annual compensation consisting of base salary of $110,000 and
an annual bonus. Mr. Ogilvie's bonus is calculated on the same basis as that of
Midwesco Filter's other officers. Mr. Ogilvie's annual bonus decreased
significantly in fiscal 1995 and increased significantly in fiscal 1996, in line
with Midwesco Filter's changes in profitability compared with predefined
amounts.
Fati A. Elgendy, Vice President of the Company and President of Perma-Pipe,
receives annual compensation consisting of base salary of $110,000 and an annual
bonus. Mr. Elgendy's bonus is calculated on the same basis as that of
Perma-Pipe's other officers.
The cash compensation for Joel Tyler Headley III, Vice President of the
Company and of Midwesco Filter, decreased significantly in fiscal 1995 and
increased significantly in fiscal 1996, in line with Midwesco Filter's changes
in profitability compared with predefined amounts.
Arnold F. Brookstone
Henry M. Mautner
Eugene Miller
Stephen B. Schwartz
David Unger
Members of the Compensation Committee
10
<PAGE> 12
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph compares the yearly percentage change in
the Company's cumulative total stockholder return on its Common Stock with the
cumulative total returns of the Nasdaq Market Index (the "Nasdaq Index"); a
selected peer group of companies consisting of Air & Water Technologies Corp.,
BHA Group, Inc., Natec Resources, Inc., NOXSO Corporation, Shaw Group, Inc.
(included in the current year for the first time as a company similar to
Perma-Pipe), and Wahlco Environmental Systems, Inc. (the "Selected Peer Group");
and the same peer group excluding Shaw Group, Inc. (the "Old Peer Group"). The
comparison assumes $100 investments on January 31, 1991 in the Company's common
stock, the Nasdaq Index, the Selected Peer Group and the Old Peer Group, and
further assumes reinvestment of dividends.
<TABLE>
<CAPTION>
Measurement Period Nasdaq Market Old Peer Selected Peer
(Fiscal Year Covered) MFRI, Inc. Index Group Group
<S> <C> <C> <C> <C>
1991 100 100 100 100
1992 88.89 123.52 106.63 106.63
1993 137.78 123.10 73.93 73.93
1994 128.89 155.07 55.62 55.62
1995 88.89 146.55 30.23 26.45
1996 108.89 205.20 34.95 32.86
</TABLE>
AUDITORS
Representatives of Deloitte & Touche LLP, the Company's auditors, are
expected to be present at the meeting and will be available to respond to
questions and may make a statement if they so desire.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder intends to present at the annual meeting
of stockholders in 1997 must be received by the Company by February 6, 1997 in
order to be eligible for inclusion in the proxy statement and proxy form
relating to such meeting.
IMPORTANT
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
IF YOU CANNOT BE PRESENT AT THE MEETING, PLEASE SIGN AND DATE THE ENCLOSED
PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE. NO POSTAGE
NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
11
<PAGE> 13
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CORPORATE TRUST
-------------------
OPERATIONS DIVISION
NO POSTAGE
NECESSARY
IF
MAILED
IN
THE
----
UNITED
STATES
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BUSINESS REPLY MAIL
55272110
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FIRST
CLASS PERMIT NO. 1406 CHICAGO IL
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POSTAGE WILL BE PAID BY
ADDRESSEE
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MFRI INC
C/O HARRIS TRUST & SAVINGS BANK
PO BOX A3800
CHICAGO IL 60690-9608
