<PAGE>
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] 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:
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>
MFRI, INC.
7720 Lehigh Avenue
Niles, Illinois 60714
June 1, 1998
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 Tuesday, June 30, 1998, 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 30, 1998 and at
any adjournment thereof. Only stockholders of record at the close of business
on May 7, 1998 will be entitled to notice of and to vote at the meeting. The
Company had outstanding 4,981,004 shares of common stock as of the close of
business on March 31, 1998. 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
<PAGE>
to be brought before the meeting other than those referred to in the
accompanying notice of annual 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.
The Company's fiscal years ended January 31, 1998, 1997 and 1996 are
referred to herein as 1997, 1996 and 1995, respectively.
This Proxy Statement and the form of proxy are first being mailed on June 1,
1998 to stockholders of the Company.
PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of March 31, 1998, 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 of the Company, 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
OF BENEFICIAL AMOUNT AND NATURE PERCENT
OWNER OF BENEFICIAL OWNERSHIP OF CLASS
------------- ----------------------- --------
<S> <C> <C>
David Unger ............................... 560,536(/1/) 11.3%
7720 Lehigh Avenue
Niles, IL 60714
Henry M. Mautner........................... 462,688(/2/) 9.3%
7720 Lehigh Avenue
Niles, IL 60714
Ryback Management Corporation.............. 409,500(/3/) 8.2%
Adviser to the Lindner Funds
7711 Carondelet Avenue
P.O. Box 16900
St. Louis, MO 63105
Heartland Advisors, Inc.................... 548,500(/4/) 11.0%
790 North Milwaukee Street
Milwaukee, WI 53202
</TABLE>
- --------
(1) Includes 38,750 shares that are subject to stock options granted by the
Company that were exercisable on March 31, 1998 or which became
exercisable within 60 days thereafter. Includes
2
<PAGE>
18,500 shares held in joint tenancy with Reporting Person's spouse, 9,250
of which the Reporting Person disclaims beneficial ownership of. Also
includes 12,859 shares owned by the Reporting Person's spouse all of which
the Reporting Person disclaims beneficial ownership of.
(2) Includes 38,750 shares that are subject to stock options granted by the
Company that were exercisable on March 31, 1998 or which became
exercisable within 60 days thereafter. Includes 3,000 shares held in joint
tenancy with Reporting Persons' spouse, 1,500 of which the Reporting
Person disclaims beneficial ownership of.
(3) According to a Schedule 13G dated January 23, 1998, Ryback Management is
an investment adviser to several investment companies including Lindner
Growth Fund (formerly Lindner Fund, Inc.). Of the 409,500 shares
beneficially owned by Ryback Management 341,000 shares are held by Lindner
Growth Fund, a registered investment company.
(4) According to a Schedule 13G dated January 29, 1998, held in investment
advisory accounts of Heartland Advisors, Inc. 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.
The following table sets forth certain information concerning the ownership
of securities of the Company 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 COMMON
STOCK OF THE COMPANY
BENEFICIALLY OWNED AT PERCENT OF
NAME MARCH 31, 1998(/1/) CLASS
---- --------------------- ----------
<S> <C> <C>
David Unger................................ 560,536 11.3%
Henry M. Mautner........................... 462,688 9.3%
Gene K. Ogilvie............................ 53,772 1.1%
Fati A. Elgendy............................ 42,544 *
Don Gruenberg.............................. 7,337 *
Bradley E. Mautner......................... 177,023 3.6%
Arnold F. Brookstone....................... 14,250 *
Eugene Miller.............................. 13,250 *
Stephen B. Schwartz........................ 8,950 *
Joel Tyler Headley, III.................... 33,750 *
All directors and executive officers as a
group (17 persons)........................ 1,441,621 28.9%
</TABLE>
- --------
*Less than 1%.
(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. Includes shares subject to stock
options which were exercisable on March 31, 1998 or which became
exercisable within 60 days thereafter.
3
<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS
Nine directors are to be elected at the meeting to hold office until the
annual meeting of stockholders in 1999 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
IN
WHICH OCCUPATION IS CARRIED ON, OFFICES,
AND FIRST BECAME A DIRECTOR
POSITIONS, IF ANY, HELD WITH THE COMPANY; OF THE COMPANY OR A
NAME AND AGE PREDECESSOR
- ---- ------------------------------------------ -----------------------
<S> <C> <C>
David Unger............. Director, Chairman of the Board, President 1989
and Chief Executive Officer of the Company;
Age 63
Henry M. Mautner........ Director and Vice Chairman of the Board of 1989
the Company; Age 71
Gene K. Ogilvie......... Vice President and Director of the Company; 1989
President and Chief Operating Officer of
Midwesco Filter Resources, Inc.; Age 58
Fati A. Elgendy......... Vice President and Director of the Company; 1994
President and Chief Operating Officer of
Perma-Pipe, Inc.; Age 49
Bradley E. Mautner...... Vice President and Director of the Company; 1995
Age 42
Don Gruenberg........... Vice President and Director of the Company; 1997
President of Thermal Care Division; Age 55
Arnold F. Brookstone.... Director of the Company; Retired Executive 1990
Vice President and Chief Financial and
Planning Officer of Stone Container
Corporation; Age 68
Eugene Miller........... Director of the Company; Executive-In- 1990
Residence and Adjunct Professor of Florida
Atlantic University; Age 72
Stephen B. Schwartz..... Director of the Company; Retired Senior 1995
Vice President of IBM Corporation; Age 63
</TABLE>
David Unger has been employed by the Company and its predecessors in various
executive and administrative capacities since 1958, served as President of
Midwesco, Inc. ("Midwesco") from 1972 through January 1994, and was Vice
President from February 1994 through December 1996. He was also a director of
Midwesco from 1972 through December 1996 and served that company in various
executive and administrative capacities from 1958 until the consummation of
the Merger (as defined herein). He is a director and Vice President of the
company formed to succeed to the non-Thermal Care business of Midwesco.
Henry M. Mautner has been employed by the Company and its predecessors in
various executive capacities since 1972, was the Chairman of Midwesco from
1972 through December 1996, and served that company in various executive and
administrative capacities since 1949. Since the consummation of the Merger, he
has served as the Chairman of the company formed to succeed to the non-Thermal
Care business of Midwesco. Mr. Mautner is the father of Bradley E. Mautner.
Gene K. Ogilvie has been employed by the Company and its predecessors in
various executive capacities since 1969. He has been general manager of
Midwesco Filter Resources, Inc. ("Midwesco Filter") (a wholly owned subsidiary
of the Company) or its predecessor since 1980 and President and Chief
Operating Officer of Midwesco Filter since 1989. From 1982 until the
consummation of the Merger in December 1996, he served as Vice President of
Midwesco.
4
<PAGE>
Fati A. Elgendy, who was associated with Midwesco since 1978, was Vice
President, Director of Sales of the Perma-Pipe Division of Midwesco 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 by the Company
to form Perma-Pipe, Inc. on January 28, 1994. In March 1995, Mr. Elgendy
became President and Chief Operating Officer of Perma Pipe, Inc. (a wholly-
owned subsidiary of the Company).
Bradley E. Mautner has served as Vice President of the Company since
December 1996 and has been a director of the Company since 1995. From 1994 to
the consummation of the Merger, he served as President of Midwesco and since
December 30, 1996 he has served as President of the company formed to succeed
to the non-Thermal Care business of Midwesco. In addition, since February
1996, he has served as the Chief Executive Officer of Midwesco Services, Inc.
(formerly known as Mid Res, Inc.). From February 1988 to January 1996, he
served as the President of Mid Res, Inc. Bradley E. Mautner is the son of
Henry M. Mautner.
Don Gruenberg has been employed by the Company and its predecessors in
various executive capacities since 1974, with the exception of a period in
1979-1980. He has been general manager of Thermal Care or its predecessors
since 1980, and was named President of Thermal Care in 1988. He has been a
Vice President and Director of the Company since December 1996.
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; Abitibi Consolidated
Corporation, a manufacturer of paper products; and Venepal SACA, a
manufacturer 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 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. Mr. Miller is
currently Executive-In-Residence and Adjunct Professor of Florida Atlantic
University. He also 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 1,000 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 will be 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.
5
<PAGE>
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.
The Board of Directors of the Company held meetings four times during 1997.
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. Grants under the 1994 Stock Option Plan are determined
by the Committee of Disinterested Directors, consisting of Arnold F.
Brookstone, Eugene Miller and Stephen B. Schwartz. The Compensation Committee
held one meeting during 1997.
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 1997.
6
<PAGE>
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 years ended
January 31, 1998 to the Company's Chief Executive Officer and to each of the
four most highly compensated executive officers other than the Chief Executive
Officer who was serving as an executive officer of the Company at the end of
1997 whose salary and bonus for 1997 exceeded $100,000.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------- ------------
NAME AND SECURITIES
PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OTHER(/1/) OPTIONS/SARS(#) COMP.(/2/)
--------- ---- ------ ----- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
David Unger 1997 $ 170,000 $ 97,552 $3,198 10,000 $20,000
Chairman and 1996 125,000 114,280 2,887 5,000 20,000
Chief 1995 125,000 60,291 1,548 5,000 --
Executive Offi-
cer
Henry M. Mautner 1997 $ 125,000 $ 97,552 $2,351 10,000 $20,000
Vice Chairman 1996 70,000 114,280 1,734 5,000 20,000
1995 70,000 60,291 1,491 5,000 --
Gene K. Ogilvie 1997 $125,000 $193,199 $4,588 10,000 $15,000
Vice President, 1996 110,000 218,360 4,588 5,000 15,000
President, 1995 110,000 195,240 2,600 5,000 --
Midwesco
Filter Re-
sources, Inc.
Don 1997 $120,000 $153,357 $3,192 10,000 $15,000
Gruenberg(/3/) 1996 8,333 9,725 266 -- --
Vice President 1995 -- -- -- -- --
President,
Thermal Care
Division
Joel Tyler 1997 $105,000 $112,965 $4,378 10,000 $10,000
Headley, III 1996 95,000 127,696 4,378 5,000 10,000
Vice Presi- 1995 95,000 114,405 2,985 5,000 --
dent--
Marketing and
Sales
</TABLE>
- --------
(1) Represents contributions made by the Company to the Named Executive
Officer's account under the 401(k) Plan.
(2) Represents accrual of non-qualified deferred compensation.
(3) Don Gruenberg, Vice President of the Company, was employed by the Thermal
Care Division of Midwesco prior to the merger of Midwesco with and into
MFRI, Inc. on December 30, 1996. His compensation prior to the Merger (as
defined herein) was not borne by the Company and, accordingly, is not
included in the Summary Compensation Table.
1997 OPTION GRANTS
The following table sets forth certain information regarding option grants
to the Named Executive Officers during 1997.
<TABLE>
<CAPTION>
POTENTIAL
PERCENT REALIZABLE
OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED APPRECIATION FOR
UNDERLYING IN OPTION TERM
OPTIONS FISCAL EXERCISE EXPIRATION ----------------
NAME GRANTED YEAR PRICE DATE 5% 10%
---- ---------- ------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
David Unger............. 10,000 4.69% $6.94 04/30/07 $43,645 $110,606
Henry M. Mautner........ 10,000 4.69 6.94 04/30/07 43,645 110,606
Gene K. Ogilvie......... 10,000 4.69 6.94 04/30/07 43,645 110,606
Don Gruenberg........... 10,000 4.69 6.94 04/30/07 43,645 110,606
Joel Tyler Headley, III. 10,000 4.69 6.94 04/30/07 43,645 110,606
</TABLE>
7
<PAGE>
1997 YEAR-END UNEXERCISED STOCK OPTIONS
The following table sets forth information relating to stock options held by
the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR OPTIONS AT FISCAL YEAR
END END
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David Unger................ 33,750 16,250 $43,894 $33,856
Henry M. Mautner........... 33,750 16,250 43,894 33,856
Gene K. Ogilvie............ 33,750 16,250 43,894 33,856
Don Gruenberg.............. 2,000 10,000 2,500 16,850
Joel Tyler Headley, III.... 28,750 16,250 40,769 33,856
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On December 30, 1996, The Company acquired its Thermal Care Division
("Thermal Care") and certain other specified assets and liabilities of
Midwesco by the merger of Midwesco with and into MFRI (the "Merger").
Immediately prior to the effectiveness of the Merger, Midwesco contributed all
of its assets and liabilities to a new subsidiary, except certain specified
assets and liabilities. From and after the effective time of the Merger (the
"Effective Time"), MFRI agreed to bear all costs and expenses of the three
lawsuits that Midwesco or one of its affiliates was a party to ("Pending
Suits"), except for amounts paid from a special escrow. The shareholders of
Midwesco, including Messrs. Unger, H. Mautner, B. Mautner, Ogilvie, Elgendy,
Gruenberg, Bennett and Sturm, placed 66,890 shares of MFRI common stock into a
special escrow ("Special Escrow") which shall terminate at termination of all
of the Pending Suits. After MFRI has spent an aggregate of $400,000 on the
costs and expenses of the Pending Suits, including, but not limited to, any
judgments or settlement costs (the "Expenses"), all such Expenses will be paid
from the Special Escrow until the Special Escrow is expended. Upon the
disposition or termination of the Pending Suits, any shares in the Special
Escrow will be distributed to the shareholders of Midwesco as of the Effective
Time, prorata to their interests in Midwesco at the Effective Time. During
1997, costs of these lawsuits, including the settlements of two of the
lawsuits, exceeded the $400,000 by approximately $177,000, which will be
reimbursed from the Special Escrow.
Pursuant to the Merger, the shareholders of Midwesco placed an aggregate of
300,000 shares of MFRI Common Stock received by them in the Merger into an
escrow account to support Midwesco's indemnification obligations pursuant to
the Merger (the "Indemnification Escrow"). The Indemnification Escrow
terminates three years after the Effective Time. No claims have been made on
the Indemnification Escrow.
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. Prior
to the Merger, Messrs. Unger and Mautner also served on the Board of Directors
of Midwesco and Mr. Unger serves on the Board of Directors of Midwesco
Services, Inc. (formerly known as Mid Res, Inc.), a 50%-owned affiliate of the
company formed to succeed to the non-Thermal Care business of Midwesco. Henry
M. Mautner is Chairman and director of the company formed to succeed to the
non-Thermal Care business of Midwesco. David Unger is Vice President and
director of the company formed to succeed to the non-Thermal Care business of
Midwesco. Michael D. Bennett, Vice President and Chief Financial Officer of
the Company, is Vice President and director of Midwesco Services, Inc. and
Vice President of the company formed to succeed to the non-Thermal Care
business of Midwesco. Bradley E. Mautner, Vice President and director of the
Company, is President of the company formed to succeed to the non-Thermal Care
business of Midwesco and Chief Executive Officer and a director of Midwesco
Services, Inc.
8
<PAGE>
The Company provides certain services and facilities to companies primarily
owned by Messrs. Unger and H. Mautner and those companies provide certain
services to the Company at cost pursuant to a Services Agreement. Any material
change to the terms of the Services Agreement must be approved by a majority
of the directors, including a majority of the independent directors. During
1997, the Company received $587,000 and paid $100,000 under the Services
Agreement.
The Company leases its primary building from Messrs. Unger and H. Mautner
under a lease agreement. During 1997, the Company paid $567,000 under this
agreement. Any material change to the terms of the lease agreement must be
approved by a majority of the directors, including a majority of the
independent directors.
Midwesco Simtech, Inc. ("Simtech"), an 80.6% owned subsidiary of the company
formed to succeed to the non-Thermal Care business of Midwesco, has an
exclusive agreement with a third party to import thermoplastic piping (such as
polypropylene and polyvinylidene fluoride) used by the Company. The Company
purchases such thermoplastic piping and related products from Simtech,
generally for actual cost plus 10%. During 1997 the Company made payments to
Simtech aggregating approximately $509,000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
For 1997, each of Fati Elgendy, a director and executive officer of the
Company, and Billy Ervin, an executive officer of the Company, filed one
report required by Section 16(a) of the Securities Exchange Act of 1934 on an
untimely basis, resulting in two transactions, in the case of Mr. Elgendy, and
one transaction, in the case of Mr. Ervin, that were not reported on a timely
basis.
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 profit in excess of a threshold amount of the
Company or of the Company's subsidiary in which the officer or key
employee is employed;
. Stock options; and
. Non-qualified deferred compensation.
The Company also makes annual contributions to the accounts of eligible
employees in the 401(k) Employee Savings and Protection 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, 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 2% 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
9
<PAGE>
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 1,188,346. 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 profitability, 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.
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. Mr. Unger's annual bonus in 1996 increased
significantly based upon the increase in the Company's pretax earnings. His
annual bonus decreased significantly in 1997 based upon the decrease 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. Mr. Mautner's annual bonus in 1996
increased significantly based upon the increase in the Company's pretax
earnings. His annual bonus decreased significantly in 1997 based upon the
decrease in the Company's pretax earnings.
Gene K. Ogilvie, Vice President of the Company and President of Midwesco
Filter, receives annual compensation consisting of a base salary 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 in 1996 increased
significantly from the preceding year, in line with Midwesco Filter's changes
in profitability. Mr. Ogilvie's bonus in 1997 decreased significantly as
profitability of Midwesco Filter decreased significantly compared to the
threshold amount.
Don Gruenberg, Vice President of the Company and President of Thermal Care
Division, receives annual compensation consisting of a base salary and an
annual bonus. Mr. Gruenberg's bonus is calculated on the same basis as that of
Thermal Care's other officers. His compensation prior to the Merger on
December 30, 1996, was not borne by the Company and, accordingly, is not
included in the Summary Compensation Table.
The cash compensation for Joel Tyler Headley, III, Vice President of the
Company and of Midwesco Filter, increased significantly in 1996 and decreased
significantly in 1997, in line with Midwesco Filter's changes in
profitability.
Arnold F. Brookstone
Henry M. Mautner
Eugene Miller
Stephen B. Schwartz
David Unger
Members of the Compensation
Committee
10
<PAGE>
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"), the
Russell 2000 Index and a selected peer group of companies consisting of Air &
Water Technologies Corp.; BHA Group Holdings, Inc.; Environmental Elements
Corp.; ITEQ, Inc.; Shaw Group, Inc.; Synalloy Corporation and Total
Containment, Inc. (the "Old Peer Group"). Because the Company is now in three
distinctly different businesses, there is no similar industry "peer" group
with which to compare. Thus, beginning in the current year, the Company has
selected as the most appropriate comparison the Russell 2000 Index, which is
an index of companies with similar market capitalizations. The comparison
assumes $100 investments on February 1, 1993 in the Company's common stock,
the Nasdaq Index, the Russell 2000 Index and the Old Peer Group, and further
assumes reinvestment of dividends.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG MFRI, INC.,
NASDAQ MARKET INDEX, RUSSELL 2000 INDEX AND OLD PEER GROUP
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
JANUARY 31,
--------------------------------------------
1993 1994 1995 1996 1997 1998
---- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
MFRI, Inc.......................... $100 $ 93.55 $ 64.52 $ 79.03 $101.21 $111.29
Nasdaq Market Index................ 100 125.97 119.05 166.69 219.37 258.39
Old Peer Group..................... 100 79.86 45.79 56.33 67.31 61.42
Russell 2000 Index................. 100 118.62 111.50 145.03 172.51 203.65
</TABLE>
ASSUMES $100 INVESTED ON FEB. 1, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JAN. 31, 1998
11
<PAGE>
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 1999 must be received by the Company by January 31, 1999 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.
12
<PAGE>
- -
PROXY PROXY
MFRI, INC.
FOR SHARES OF COMMON STOCK SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD ON JUNE 30, 1998
The undersigned hereby appoints DAVID UNGER, HENRY M. MAUTNER and MICHAEL D.
BENNETT, and each of them, proxies with power of substitution and revocation,
acting by majority of those present and voting, or if only one is present and
voting then that one, to vote, as designated on the reverse side hereof, all of
the shares of stock of MFRI, INC. which the undersigned is entitled to vote, at
the annual meeting of stockholders to be held at The Standard Club, 320 South
Plymouth Court, Chicago, Illinois on June 30, 1998 at 10:00 a.m. Chicago time,
and at any adjournment thereof, with all the powers the undersigned would
possess if present.
PLEASE VOTE, SIGN, AND DATE ON REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
(Continued and to be signed on reverse side.)
- -
- --------------------------------------------------------------------------------
MFRI, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [_]
[ ]
1. Election of Directors
Nominees: David Unger, Henry M. Mautner, Gene K. Ogilvie, Fati A. Elgendy,
Bradley E. Mautner, Don Gruenberg, Arnold F. Brookstone, Eugene Miller,
Stephen B. Schwartz.
For All
For Withheld Except
[_] [_] [_]
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW AND MARK THE OVAL "FOR ALL
EXCEPT")
-----------------------------------------------------------------------------
2. In accordance with their discretion upon all other matters that may properly
come before said meeting and any adjournment thereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATIONS MADE. IF NO CHOICES
ARE INDICATED, THIS PROXY WILL BE VOTED FOR EACH OF THE NOMINEES LISTED UNDER
ITEM 1.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
such shares at said meeting or at any adjournment thereof.
Dated: ____________________________________ , 1998
Signature
-----------------------------------------------------------------------
Signature
-----------------------------------------------------------------------
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. FOR JOINT ACCOUNTS, BOTH OWN-
ERS SHOULD SIGN. WHEN SIGNING AS EXECUTOR, ADMINISTRATOR, ATTORNEY, TRUSTEE OR
GUARDIAN, ETC., PLEASE SIGN YOUR FULL TITLE.
A VOTE FOR ITEM IS RECOMMENDED BY THE BOARD OF DIRECTORS.
