<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
MFRI, INC.
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------
(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
------
(4) Proposed maximum aggregate value of transaction:
------
(5) Total fee paid:
------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
$------
(2) Form, schedule or registration statement no.:
------
(3) Filing party:
------
(4) Date filed:
------
<PAGE> 2
[MFRI LOGO]
June 1, 1999
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 30, 1999, 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, 1999 and at any
adjournment thereof. Only stockholders of record at the close of business on May
7, 1999 will be entitled to notice of and to vote at the meeting. The Company
had outstanding 4,922,364 shares of common stock as of the close of business on
March 31, 1999. 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 meeting. If, however, any other matters properly come before
the meeting, it is intended that proxies
<PAGE> 3
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 year ends January 31. Years described as 1998, 1997
and 1996 are the fiscal years ended January 31, 1999, 1998 and 1997,
respectively.
This Proxy Statement and the form of proxy are first being mailed on June
1, 1999 to stockholders of the Company.
2
<PAGE> 4
PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of March 31, 1999, 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 AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OUTSTANDING SHARES
------------------- ----------------------- ------------------
<S> <C> <C>
David Unger 553,455(1) 11.2%
7720 Lehigh Avenue
Niles, IL 60714
Henry M. Mautner 458,216(2) 9.3%
7720 Lehigh Avenue
Niles, IL 60714
Heartland Advisors, Inc. 982,000(3) 19.9%
790 North Milwaukee Street
Milwaukee, WI 53202
</TABLE>
- ------------
(1) Includes 45,000 shares that are subject to stock options granted by the
Company that were exercisable on March 31, 1999 or which became exercisable
within 60 days thereafter. Includes 21,500 shares held in joint tenancy with
Reporting Person's spouse, 10,750 of which the Reporting Person disclaims
beneficial ownership of. Also includes 12,454 shares owned by the Reporting
Person's spouse all of which the Reporting Person disclaims beneficial
ownership of.
(2) Includes 45,000 shares that are subject to stock options granted by the
Company that were exercisable on March 31, 1999 or which became exercisable
within 60 days thereafter. Includes 5,500 shares held in joint tenancy with
Reporting Persons' spouse, 2,750 of which the Reporting Person disclaims
beneficial ownership of.
(3) According to a Schedule 13G dated January 28, 1999, such securities are 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.
3
<PAGE> 5
The following table sets forth as of March 31, 1999, 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>
AMOUNT AND NATURE PERCENT OF
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OUTSTANDING SHARES
------------------------ ----------------------- ------------------
<S> <C> <C>
David Unger............................ 553,455(1) 11.2%
Henry M. Mautner....................... 458,216(2) 9.3%
Gene K. Ogilvie........................ 59,675(3) 1.2%
Fati A. Elgendy........................ 48,107(4) *
Don Gruenberg.......................... 11,029(5) *
Bradley E. Mautner..................... 170,780(6) 3.5%
Arnold F. Brookstone................... 15,250(7) *
Eugene Miller.......................... 14,250(8) *
Stephen B. Schwartz.................... 12,450(9) *
Dennis Kessler......................... -- *
Thomas A. Benson....................... 6,250(10) *
All directors and executive officers as
a group (17 persons)................. 1,469,894 29.9%
</TABLE>
- ------------
* Less than 1%
(1) Includes 45,000 shares that are subject to stock options granted by the
Company that were exercisable on March 31, 1999 or which became exercisable
within 60 days thereafter. Includes 21,500 shares held in joint tenancy with
Reporting Person's spouse, 10,750 of which the Reporting Person disclaims
beneficial ownership of. Also includes 12,454 shares owned by the Reporting
Person's spouse all of which the Reporting Person disclaims beneficial
ownership of.
(2) Includes 45,000 shares that are subject to stock options granted by the
Company that were exercisable on March 31, 1999 or which became exercisable
within 60 days thereafter. Includes 5,500 shares held in joint tenancy with
Reporting Person's spouse, 2,750 of which the Reporting Person disclaims
beneficial ownership of.
(3) Includes 45,000 shares that are subject to stock options granted by the
Company that were exercisable on March 31, 1999 or which became exercisable
within 60 days thereafter. Includes 500 shares owned by the Reporting
Person's mother over which the Reporting Person has power of attorney, all
of which the Reporting Person disclaims beneficial ownership of.
(4) Includes 43,500 shares that are subject to stock options granted by the
Company that were exercisable on March 31, 1999 or which became exercisable
within 60 days thereafter.
(5) Includes 8,250 shares that are subject to stock options granted by the
Company that were exercisable on March 31, 1999 or which became exercisable
within 60 days thereafter. Includes 1,000 shares held in joint tenancy with
Reporting Person's spouse, 500 of which the Reporting Person disclaims
beneficial ownership of.
(6) Includes 9,375 shares that are subject to stock options granted by the
Company that were exercisable on March 31, 1999 or which became exercisable
within 60 days thereafter. Includes 200 shares held as custodian for the
Reporting Person's minor children, all of which the Reporting Person
disclaims beneficial ownership of.
(7) Includes 12,250 shares that are subject to stock options granted by the
Company that were exercisable on March 31, 1999 or which became exercisable
within 60 days thereafter. Includes 3,000 shares held in a trust of which
the Reporting Person is trustee.
(8) Includes 12,250 shares that are subject to stock options granted by the
Company that were exercisable on March 31, 1999 or which became exercisable
within 60 days thereafter. Includes 2,000 shares held in a trust of which
the Reporting Person is trustee.
(9) Includes 12,250 shares that are subject to stock options granted by the
Company that were exercisable on March 31, 1999 or which became exercisable
within 60 days thereafter. Includes 200 shares held in a trust of which the
Reporting Person is trustee.
(10) Includes 6,250 shares that are subject to stock options granted by the
Company that were exercisable on March 31, 1999 or which became exercisable
within 60 days thereafter.
4
<PAGE> 6
NOMINEES FOR ELECTION AS DIRECTORS
Ten directors are to be elected at the meeting to hold office until the
annual meeting of stockholders in 2000 and until their respective successors are
elected and qualified. All of the nominees, except Dennis Kessler, were
previously elected directors by the stockholders.
<TABLE>
<CAPTION>
FIRST BECAME A
DIRECTOR OF THE
OFFICES AND POSITIONS, IF ANY, COMPANY OR A
NAME HELD WITH THE COMPANY; AND AGE PREDECESSOR
---- ------------------------------ ---------------
<S> <C> <C>
David Unger Director, Chairman of the Board, President and Chief 1989
Executive Officer of the Company; Age 64
Henry M. Mautner Director and Vice Chairman of the Board of the 1989
Company; Age 72
Gene K. Ogilvie Director and Vice President of the Company; President 1989
and Chief Operating Officer of Midwesco Filter
Resources, Inc.; Age 59
Fati A. Elgendy Director and Vice President of the Company; President 1994
and Chief Operating Officer of Perma-Pipe, Inc.;
Age 50
Bradley E. Mautner Director and Vice President of the Company; Age 43 1995
Don Gruenberg Director and Vice President of the Company; President 1997
of Thermal Care Division; Age 56
Arnold F. Brookstone Director of the Company; Age 69 1990
Eugene Miller Director of the Company; Age 73 1990
Stephen B. Schwartz Director of the Company; Age 64 1995
Dennis Kessler Director of the Company; Age 60 1998
</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.
Fati A. Elgendy, who has been 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).
5
<PAGE> 7
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. Mr.
Brookstone is a director of Donnelly Corporation, a manufacturer of automotive
products and Abitibi-Consolidated, Inc., a manufacturer of paper products. He is
also a trustee of the ABN AMRO 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. Mr.
Miller is a director of IMX Pharmaceuticals, Inc., a marketer of over-the-
counter drug products. 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. From 1957 to 1990, Mr. Schwartz served
in various capacities for IBM Corporation. Mr. Schwartz is currently a director
of Niagara Mohawk Power Company, an electric and gas utility company.
Dennis Kessler has been President of Kessler Management Consulting, LLC
since February 1998. Prior to February 1998, Mr. Kessler was Co-President of
Fel-Pro Incorporated, which manufactured and distributed gaskets, engine parts
and industrial chemicals. Mr. Kessler served in various capacities with Fel-Pro
since 1964. Mr. Kessler is currently a director of Universal Automotive
Industries, Inc., a manufacturer and distributor of brake rotors, drums, disc
brake pads, relined brake shoes, wheel cylinders and brake hoses for the
automotive aftermarket. He also serves as a director of a privately held
company.
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, and an option to purchase 1,000 shares of common stock
is granted each May 1 thereafter. 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.
6
<PAGE> 8
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 1998.
The Board of Directors has standing compensation and audit committees; it does
not have a standing nominating committee. In addition, the Board of Directors
has a Committee of Independent Directors.
The Compensation Committee, consisting of Stephen B. Schwartz (Chairman),
David Unger, Henry M. Mautner, Arnold F. Brookstone, Eugene Miller, and Dennis
Kessler, 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 1998.
The Audit Committee, consisting of Arnold F. Brookstone (Chairman), Eugene
Miller, Stephen B. Schwartz and Dennis Kessler, 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 three
meetings during 1998.
Grants under the 1994 Stock Option Plan are determined by the Committee of
Independent Directors, consisting of Eugene Miller (Chairman), Arnold F.
Brookstone, Stephen B. Schwartz and Dennis Kessler. The Committee of Independent
Directors held one meeting during 1998.
7
<PAGE> 9
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, 1999 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 1998 whose
salary and incentive compensation for 1998 exceeded $100,000.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
------------------------------------ SECURITIES
INCENTIVE UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OTHER(1) OPTIONS/SARS(#) COMP.(2)
- --------------------------- ---- ------ ------------ -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
David Unger 1998 $180,000 $ 27,705 $3,200 5,000 $20,000
Chairman and Chief 1997 170,000 97,552 3,198 10,000 20,000
Executive Officer 1996 125,000 114,280 2,887 5,000 20,000
Don Gruenberg(3) 1998 $120,000 $124,277 $3,200 5,000 $15,000
Vice President, 1997 120,000 153,357 3,192 10,000 15,000
President, Thermal Care 1996 8,333 9,725 266 -- --
Division
Fati A. Elgendy 1998 $125,000 $ 93,516 $3,200 5,000 $15,000
Vice President, 1997 125,000 55,081 3,233 10,000 15,000
President, 1996 110,000 151,820 3,233 5,000 15,000
Perma-Pipe, Inc.
Gene K. Ogilvie 1998 $125,000 $ 91,189 $3,200 5,000 $15,000
Vice President, 1997 125,000 193,199 4,588 10,000 15,000
President, Midwesco 1996 110,000 218,360 4,588 5,000 15,000
Filter Resources, Inc.
Thomas A. Benson(4) 1998 $102,835 $ 82,655 $3,007 5,000 $10,000
Vice President, 1997 98,359 100,005 3,189 10,000 10,000
Vice President -- Sales 1996 8,145 6,828 266 -- --
and Marketing, Thermal
Care Division
</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 the
Company on December 30, 1996. His compensation prior to the merger was not
borne by the Company and, accordingly, is not included in the Summary
Compensation Table.
(4) Thomas A. Benson, Vice President of the Company, was employed by the Thermal
Care Division of Midwesco prior to the merger of Midwesco with and into the
Company on December 30, 1996. His compensation prior to the merger was not
borne by the Company and, accordingly, is not included in the Summary
Compensation Table.
8
<PAGE> 10
1998 OPTION GRANTS
The following table sets forth certain information regarding option grants
to the Named Executive Officers during 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL APPRECIATION FOR
UNDERLYING OPTIONS OPTION TERM
OPTIONS GRANTED IN EXERCISE EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
---- ---------- ----------- -------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
David Unger 5,000 4.24% $8.10 04/30/08 $25,470 $64,547
Don Gruenberg 5,000 4.24 8.10 04/30/08 25,470 64,547
Fati A. Elgendy 5,000 4.24 8.10 04/30/08 25,470 64,547
Gene K. Ogilvie 5,000 4.24 8.10 04/30/08 25,470 64,547
Thomas A. Benson 5,000 4.24 8.10 04/30/08 25,470 64,547
</TABLE>
1998 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 END OPTIONS AT FISCAL YEAR END
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David Unger 38,750 16,250 $ 4,913 $1,638
Don Gruenberg 4,500 12,500 -- --
Fati A. Elgendy 35,600 17,900 11,397 3,799
Gene K. Ogilvie 38,750 16,250 4,913 1,638
Thomas A. Benson 2,500 12,500 -- --
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On December 30, 1996, the Company acquired the 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"), the Company 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 to be 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 the Company's Common Stock into a
special escrow ("Special Escrow") which would terminate at the termination of
all of the Pending Suits. After the Company had 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 would be
paid from the Special Escrow until the Special Escrow was expended. During 1997
and 1998, the Company settled all of the Pending Suits. The Expenses exceeded
the $400,000 reserve established by the Company and the Special Escrow by
$223,000 and, accordingly, the Company called all 66,890 shares from the Special
Escrow.
Pursuant to the Merger, the shareholders of Midwesco placed an aggregate of
300,000 shares of the Company's 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").
9
<PAGE> 11
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.
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 1998,
the Company received $465,000 and paid $369,000 under the Services Agreement.
The Company leases its primary building from Messrs. Unger and H. Mautner
under a lease agreement. During 1998, the Company paid $565,000 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 1998 the Company made payments to Simtech
aggregating approximately $169,000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company called from the Special Escrow and retired 66,890 shares of its
Common Stock. Such shares included 35,352 shares which had been beneficially
owned by persons required by Section 16(a) of the Securities Act of 1934 to
report their decrease in beneficial ownership. The reports were filed on an
untimely basis by each of the following persons: David Unger, Henry M. Mautner,
Gene K. Ogilvie, Fati A. Elgendy, Don Gruenberg, Bradley E. Mautner, Michael D.
Bennett and Herbert J. Sturm.
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 incentive compensation 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.
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<PAGE> 12
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 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 1,081,709. 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, incentive
compensation (which varies directly with the Company's operating profitability),
and stock options (the ultimate value of which is determined by future share
price growth), constitutes an executive compensation program which encourages
enhancement of 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 incentive compensation
decreased significantly in 1998 and 1997 based on the decrease in the Company's
pretax earnings.
Don Gruenberg, Vice President of the Company and President of Thermal Care
Division, receives annual compensation consisting of a base salary and incentive
compensation. Mr. Gruenberg's incentive compensation is calculated on a basis
similar to that of the Company's other officers. Mr. Gruenberg's incentive
compensation decreased significantly in 1998 as profitability of Thermal Care
decreased significantly compared to the threshold amount. 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.
Fati A. Elgendy, Vice President of the Company and President of Perma-Pipe,
receives annual compensation consisting of a base salary and incentive
compensation. Mr. Elgendy's incentive compensation is calculated on a basis
similar to that of the Company's other officers. Mr. Elgendy's annual incentive
compensation decreased in 1997 and increased in 1998 as a result of the
application of the then applicable incentive formulas to the actual operating
results.
Gene K. Ogilvie, Vice President of the Company and President of Midwesco
Filter, receives annual compensation consisting of a base salary and incentive
compensation. Mr. Ogilvie's incentive compensation is calculated on a basis
similar to that of the Company's other officers. Mr. Ogilvie's annual incentive
compensation in 1998 and 1997 decreased significantly as the profitability of
Midwesco Filter decreased significantly compared to the threshold amount.
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<PAGE> 13
Thomas A. Benson, Vice President of the Company, receives annual
compensation consisting of a base salary and incentive compensation. Mr.
Benson's incentive compensation is calculated on a basis similar to that of the
Company's other officers. Mr. Benson's incentive compensation decreased
significantly in 1998, in line with Thermal Care's change in profitability. 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.
Stephen B. Schwartz, Chairman
Arnold F. Brookstone
Dennis Kessler
Henry M. Mautner
Eugene Miller
David Unger
Members of the Compensation Committee
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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") and the
Russell 2000 Index. The Company has selected the Russell 2000 Index, which is an
index of companies with similar market capitalizations to the Company, as the
most appropriate comparison, because the Company has three distinctly different
businesses and no industry "peer" group is comparable to the Company. The
comparison assumes $100 investments on February 1, 1994 in the Company's common
stock, the Nasdaq Index and the Russell 2000 Index, and further assumes
reinvestment of dividends.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG MFRI, INC.,
NASDAQ MARKET INDEX AND RUSSELL 2000 INDEX
[STOCK PRICE PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MFRI, Inc. $100.00 $68.97 $ 84.48 $108.19 $118.97 $ 79.31
- -----------------------------------------------------------------------------------------------
Russell 2000 Index 100.00 94.00 122.26 145.43 171.68 171.68
- -----------------------------------------------------------------------------------------------
Nasdaq Market Index 100.00 94.51 132.32 174.14 205.11 320.12
- -----------------------------------------------------------------------------------------------
</TABLE>
ASSUMES $100 INVESTED ON FEBRUARY 1, 1994
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JANUARY 31, 1999
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<PAGE> 15
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
appropriate 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 2000 must be received by the Company by February 2, 2000 in
order to be eligible for inclusion in the proxy statement and proxy form
relating to such meeting. In addition, if any business should properly come
before such annual meeting other than that which is stated in such proxy
statement, then, if the Company does not receive notice of such matter by April
17, 2000, the persons designated in such proxy form will have discretionary
authority to vote or refrain from voting on any such proposal.
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.
14
<PAGE> 16
<TABLE>
<CAPTION>
MFRI, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
[ ]
WITHHOLD FOR all nominees,
AUTHORITY except vote
FOR all to vote for withheld for those
nominees all nominees named below:
<S> <C>
1. Election of Directors
NOMINEES: DAVID UNGER, HENRY M. MAUTNER, [ ] [ ] [ ] 2. In accordance with their discretion upon
GENE K. OGILVIE, FATI A. ELGENDY, BRADLEY all other matters that may properly
E. MAUTNER, DON GRUENBERG, ARNOLD F. come before said meeting and any
BROOKSTONE, EUGENE MILLER, STEPHEN B. adjournment thereof.
SCHWARTZ, DENNIS KESSLER.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO
VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THIS PROXY WILL BE VOTED IN ACCORDANCE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED WITH SPECIFICATIONS MADE. IF NO CHOICES
AT THE RIGHT AND MARK THE OVAL "FOR ALL --------------------------- ARE INDICATED, THIS PROXY WILL BE VOTED
EXCEPT") Nominee Exceptions FOR EACH OF THE NOMINEES LISTED UNDER
ITEM 1.
Dated: ___________________, 1999
_______________________________________
Signature
_______________________________________
Signature
NOTE: PLEASE SIGN EXACTLY AS NAME
APPEARS HEREON. FOR JOINT ACCOUNTS, BOTH
OWNERS SHOULD SIGN. WHEN SIGNING AS
EXECUTOR, ADMINISTRATOR, ATTORNEY,
TRUSTEE OR GUARDIAN, ETC., PLEASE SIGN
YOUR FULL TITLE.
THE UNDERSIGNED HEREBY REVOKES ANY PROXY
OR PROXIES HERETOFORE GIVEN TO VOTE SUCH
SHARES AT SAID MEETING OR AT ANY
ADJOURNMENT THEREOF.
- ------------------------------------------------------------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
</TABLE>
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, 1999
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, 1999 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.
