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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[X] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
INDUSTRIAL DATA SYSTEMS CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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INDUSTRIAL DATA SYSTEMS CORPORATION
April 30, 2002
Dear Stockholder:
We invite you to attend the 2002 Annual Meeting of Stockholders ("Annual
Meeting") of Industrial Data Systems Corporation to be held at 2 p.m. on
Thursday, June 6, 2002, at the corporate offices of the Company, in Houston,
Texas. At the meeting, you will be asked to vote on several matters including
proposals more fully described in the Notice and the Proxy Statement on the
following pages. The proxy statement tells you more about the agenda and
meeting procedures. It also describes how the Board operates and gives personal
information about our director candidates.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU CAST YOUR VOTE IN
FAVOR OF EACH OF THE PROPOSALS DESCRIBED IN THE PROXY STATEMENT.
Whether or not you attend the Annual Meeting, please vote your shares by
marking, signing, dating, and returning your proxy card in the enclosed
envelope as soon as possible. Your stock will be voted in accordance with the
instructions you have given in your proxy card. You may, of course, attend the
Annual Meeting and vote in person even if you have previously returned your
proxy card.
We hope you will be able to attend the meeting and look forward to seeing
you at the meeting on June 6th.
Sincerely,
/s/ Michael L. Burrow
Michael L. Burrow
Chairman and Chief Executive Officer
IMPORTANT
A proxy card is enclosed. We urge you to complete and mail the proxy card
promptly. The enclosed envelope for return of the proxy card requires no
postage. Any stockholder attending the Annual Meeting may personally vote on
all matters that are considered, in which event the signed proxy will be
revoked.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF INDUSTRIAL DATA SYSTEMS CORPORATION
To the Stockholders of
Industrial Data Systems Corporation
DATE AND TIME:
June 6, 2002, at 2:00 p.m., Central Daylight Saving Time
PLACE:
600 Century Plaza Drive
Building 140
Houston, Texas 77073-6033
PURPOSE:
. To elect directors;
. To ratify the appointment of Hein + Associates LLP as independent
auditors;
. To vote on a proposal to amend the Articles of Incorporation
changing the name of the Company from Industrial Data Systems
Corporation to ENGlobal Corporation, and
. To transact other business that is properly raised before the Annual
Meeting or any adjournment thereof.
Only stockholders of record on April 8, 2002 will be entitled to notice of and
to vote at the meeting. A stockholders list will be available at the offices of
the Company commencing May 27, 2002 and may be inspected during the normal
business hours before or during the Annual Meeting.
YOUR VOTE IS IMPORTANT. PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED TO ENSURE YOUR
REPRESENTATION. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY
SIGNING AND RETURNING A LATER-DATED PROXY WITH RESPECT TO THE SAME SHARES, BY
FILING WITH THE SECRETARY OF INDUSTRIAL DATA SYSTEMS CORPORATION A WRITTEN
REVOCATION BEARING A LATER DATE OR BY ATTENDING AND VOTING IN PERSON AT THE
ANNUAL MEETING. STOCKHOLDERS ATTENDING THE ANNUAL MEETING MAY VOTE IN PERSON
EVEN IF THEY HAVE PREVIOUSLY SENT IN A PROXY CARD.
By Order of the Board of Directors,
/s/ Hulda L. Coskey
Hulda L. Coskey
Secretary
Houston, Texas
Date: April 30, 2002
TABLE OF CONTENTS
Page
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General Information....................................................... 1
ITEM 1--Election of Directors............................................. 3
Information Regarding Director Nominees and Executive Officers.......... 3
Director Compensation................................................... 5
Board of Directors Meetings and Committees.............................. 6
Security Ownership Of Certain Beneficial Owners And Management.......... 7
Section 16(a) Beneficial Ownership Reporting Compliance................. 9
Executive Compensation.................................................. 9
Compensation Committee Report........................................... 13
Compensation Committee Interlocks and Insider Participation............. 13
Certain Relationships and Related Party Transactions.................... 13
Comparison of Cumulative Total Return................................... 14
Audit Committee Report.................................................. 15
Audit Information....................................................... 16
ITEM 2--Ratification of Independent Auditors.............................. 16
ITEM 3--Proposal to Amend Articles of Incorporation to Change of Name of
the Company.............................................................. 16
Other Matters............................................................. 18
Additional Information.................................................... 18
Appendix A--Resolution of the Board of Directors of Industrial Data
Systems Corporation Regarding Proposed Amendments to the Articles of
Incorporation............................................................ A-1
Appendix B--Audit Committee Charter....................................... B-1
Proxy/Voting Instruction Card
i
INDUSTRIAL DATA SYSTEMS CORPORATION
600 Century Plaza Drive, Building 140
Houston, Texas 77073-6033
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PROXY STATEMENT
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GENERAL INFORMATION ABOUT THIS PROXY STATEMENT
We have sent you these proxy materials because the Board of Directors of
Industrial Data Systems Corporation ("Industrial Data", "IDS", or "the
Company") is soliciting your proxy to vote your shares at the Annual Meeting of
IDS which will be held on Thursday, June 6, 2002 at 2:00 p.m. at IDS' principal
executive offices, which are located at 600 Century Plaza Drive, Building 140,
Houston, Texas. This Proxy Statement provides information required to be
provided to you under the rules of the Securities and Exchange Commission
("SEC") and is designed to assist you in voting your shares. On May 13, 2002 we
will begin mailing these proxy materials to all stockholders of record at the
close of business on April 8, 2002.
Who May Vote
Stockholders of IDS, as recorded in our stock register at the close of
business on April 8, 2002, may vote at the meeting. Each share of Industrial
Data is entitled to one vote. As of April 8, 2002, there were 22,861,199 shares
of Common Stock outstanding and entitled to vote.
How To Vote
You may vote in person at the meeting or by proxy. We recommend you vote by
proxy even if you plan to attend the meeting. You can always change your vote
at the meeting, in which case your proxy will be revoked. Stockholders are not
entitled to cumulative voting.
How Proxies Work
Industrial Data's Board of Directors is asking for your proxy to be voted by
mail. You may vote your proxy by mail by signing, dating and mailing the
enclosed proxy card.
Giving us your proxy means you authorize us to vote your shares at the
meeting in the manner you direct. If you sign your proxy but do not give voting
instructions, we will vote your shares in favor of our director candidates; in
favor of the ratification of the independent auditors; and in favor of the
proposal to amend the Articles of Incorporation to change the name of the
Company from Industrial Data Systems Corporation to ENGlobal Corporation. For
any other matters that may properly come before the meeting, your shares will
be voted at the discretion of the proxy holders. You may vote for all, any or
none of our director candidates. You may also vote for or against the other
proposals, or you may abstain from voting.
The Company intends to solicit proxies principally by the use of the mails
and will bear all expenses in connection with such solicitations. In addition,
some of the directors, officers and regular employees of the Company may,
without extra compensation, solicit proxies by telephone, telegraph, facsimile
and personal interview. Arrangements have been made with banks, brokerage
houses and other custodians and nominees to forward copies of the Proxy
Statement and the Company's Annual Report for the fiscal year ended
December 31, 2001, to persons for whom they hold stock of the Company and to
request authority for the execution of proxies. The Company will reimburse the
foregoing persons for their reasonable expenses, upon request.
1
You may receive more than one voting or proxy card depending on how you hold
your shares. If you hold shares through someone else, such as a broker, you may
also get material from them asking how you want to vote. You should complete
and return each proxy or other voting instruction request provided to you. If
you hold your shares through a broker or other nominee, and you wish to vote in
person at the meeting, you will need to obtain a proxy form from the
institution that holds your shares.
Revoking A Proxy
You may revoke your executed proxy at any time before it is exercised by
submitting a new proxy bearing a later date or by filing with the Secretary of
the Company, at the following address, a written notice of revocation:
Industrial Data Systems Corporation, Corporate Secretary, 600 Century Plaza
Drive, Suite 140, Houston, Texas 77073-6033.
The execution of the enclosed proxy will not affect your right to vote in
person, should you find it convenient to attend the meeting and desire to vote
in person. Attendance at the meeting will not in and of itself constitute the
revocation of a proxy. Any written notice of revocation sent to us must include
the stockholder's name and must be received prior to the meeting to be
effective.
Quorum
A quorum for the meeting is based on the number of votes that can be cast
rather than the number of actual shares that are represented, because each
share has one vote per share. To have a quorum, we need more than 50% of the
votes, which are entitled to be cast, to be present, in person or by proxy.
Votes which withhold authority, shares abstaining, and broker non-votes (where
a broker submits a proxy but does not have authority to vote a customer's
shares on one or more matters)--on any proposal--are all considered present at
the meeting for purposes of establishing a quorum at the meeting. Each will be
tabulated separately.
Votes cast by proxy will be tabulated by an automated system administered by
Computershare Investor Services, our transfer agent. The independent persons
appointed by the Company to act as election inspectors for the meeting will
count votes cast by proxy or in person at the meeting.
Votes Needed
Directors are elected by a plurality of shares present at the meeting,
meaning that if a quorum is present, directors are elected by a majority of the
votes cast by the shares entitled to vote.
Any action to be taken by stockholders of the Company at the meeting
requires the vote or concurrence of the holders of a majority of the
outstanding shares, either by proxy or in person, entitled to vote on such
matters. Abstentions have the same effect as a vote against a matter because
they are present for purposes of the meeting and entitled to vote on such
matter, but are not a vote for such matter.
Broker non-votes will have no effect on the vote on any matter, except that
they have the same effect as a vote against the proposals to change the name of
the Company and to amend the Company's Articles of Incorporation because broker
non-votes are counted in the total number of outstanding shares but are not
voted for these proposals.
Attending In Person
Only stockholders, their proxy holders and Industrial Data's guests may
attend the meeting. If you plan to attend, please bring identification and, if
you hold shares in street name, you should bring your bank or broker statement
showing your beneficial ownership of Industrial Data's stock for admittance to
the meeting.
2
ITEM ONE
ELECTION OF DIRECTORS
INFORMATION REGARDING DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The Board of Directors of the Company presently consists of seven members.
Seven Directors are to be elected at the Annual Meeting, each for a term
expiring at the next Annual Meeting. Executive officers are elected annually
and serve at the discretion of the Board of Directors.
The Board of Directors has designated the persons named in the accompanying
proxy and, unless authority is withheld, they intend to vote for the election
of the nominees named below to the Board of Directors. If any nominee should
become unavailable for election, the proxy may be voted for a substitute
nominee selected by the persons named in the proxy; however, the Board of
Directors is not aware of any circumstances likely to render any nominee
unavailable. No nominees will be recognized other than those that are nominated
in accordance with the provisions contained in the By-laws of the Company. No
nominees, other than those proposed by the Board, were presented for the 2002
Annual Meeting.
The Board of Directors proposes the election of the following nominees as
directors:
Michael L. Burrow, P.E.
William A. Coskey, P. E.
Hulda L. Coskey
David W. Gent, P.E.
Jimmie N. Carpenter, P.E.
David C. Roussel
Randall B. Hale
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ELECTION OF EACH NOMINEE FOR
DIRECTOR.
Following is statistical information and a brief biography of each director
nominee and certain executive officers. You will find information on their
holdings of Industrial Data stock in the "Security Ownership of Certain
Beneficial Owners and Management" section.
Director
Name Age Since Position(s) Held
---- --- -------- ----------------
Michael L. Burrow, P.E. (1)...... 54 2001 Chairman of the Board, Chief
Executive Officer, Director
William A. Coskey, P.E. (2)...... 49 1985 Chief Operating Officer and
President, Director
Robert W. Raiford................ 57 -- Chief Financial Officer,
Treasurer, and Assistant
Secretary
Hulda L. Coskey (2).............. 47 1985 Chief Governance Officer,
Secretary, Director
David W. Gent, P.E. (2) (5)...... 49 1994 Director
Jimmie N. Carpenter, P.E. (1).... 60 2001 Director
David C. Roussel (3) (5)......... 52 2001 Director
Randall B. Hale (4) (5).......... 39 2001 Director
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(1) Director nominee designated by certain former shareholders of Petrocon
Engineering, Inc. pursuant to a Voting Agreement entered into at the
closing of the merger of Petrocon into a subsidiary of IDS (the
"IDS/Petrocon Merger").
(2) Director nominee designated by Alliance pursuant to a Voting Agreement
entered into at the closing of the IDS/Petrocon Merger.
(3) Director nominee designated by mutual agreement between Alliance and
certain former shareholders of Petrocon pursuant to a Voting Agreement
entered into at the closing of the IDS/Petrocon Merger.
(4) Director nominee designated by Equus II Incorporated pursuant to a Voting
Agreement entered into at the closing of the IDS/Petrocon Merger.
(5) Member of Audit and Compensation Committees.
3
On December 21, 2001, in conjunction with the IDS/Petrocon Merger, Equus,
Alliance, and certain Petrocon shareholders entered into a Voting Agreement
requiring the parties to vote in the election of directors in favor of three
designees of Alliance, two designees of certain former shareholders of
Petrocon, and one designee of Equus. In addition, the parties agree to vote in
favor of one independent director who is acceptable both to Alliance and to
certain former shareholders of Petrocon.
Michael L. Burrow, P.E. has served as Chairman of the Board, Chief Executive
Officer, and director of the Company since the IDS/Petrocon Merger in December
2001. He also serves in the following capacities for IDS subsidiaries: Chairman
of the Board of Petrocon Engineering, Inc., Petrocon Systems, Inc., RPM
Engineering, Inc., Triangle Engineers and Constructors, Inc., Petrocon
Construction Resources, Inc., Petrocon Technologies, Inc., Petrocon Engineering
of Louisiana, Inc., and Alliance Engineering Associates, Inc.; Chairman of the
Board and Chief Executive Officer of Petrocon FSC, Ltd.; President and Director
of Industrial Data Systems, Inc.; and Director of IDS Engineering, Inc.,
Thermaire, Inc., and Constant Power Manufacturing, Inc. Mr. Burrow founded
Petrocon, Inc. in 1977 and Petrocon Engineering, Inc. in 1988. From the
formation of Petrocon Engineering, Inc. until the IDS/Petrocon Merger, he
served as Chairman of the Board, Chief Executive Officer and President of
Petrocon, except for the period from April 1999 through March 2000 when he
served as Chairman and Manager of Corporate Marketing. Mr. Burrow received a
Bachelor of Science in Mechanical Engineering from Louisiana Tech University in
1969 and did post graduate studies in engineering and business administration
at Lamar University. He is a Registered Professional Engineer in Texas and
Louisiana, a member of ASME and NSPE and serves or has served on the boards of
United Way, Beaumont Chamber of Commerce, Partnership of Southeast Texas, Lamar
University Advisory Council, and Texas Hazardous Waste Research Council, among
others.
William A. Coskey, P.E. serves as President and Chief Operating Officer of
IDS. Mr. Coskey is the founder of IDS and, until the IDS/Petrocon Merger in
December 2001, had served as Chairman of the Board, Chief Executive Officer and
President. Mr. Coskey also serves in the following capacities for IDS
subsidiaries: Chairman of the Board, Chief Executive Officer and President of
IDS Engineering, Inc., Thermaire, Inc., and Constant Power Manufacturing, Inc.;
Chairman of the Board and Chief Executive Officer of Industrial Data Systems,
Inc.; Chief Executive Officer and Director of Petrocon Engineering, Inc.,
Petrocon Systems, Inc., RPM Engineering, Inc., Triangle Engineers and
Constructors, Inc., Petrocon Construction Resources, Inc., Petrocon
Technologies, Inc., Petrocon Engineering of Louisiana, Inc., and Alliance
Engineering, Inc.; and President and Director of Petrocon FSC, Ltd. Mr. Coskey,
an honors graduate, received a Bachelor of Science in Electrical Engineering
from Texas A&M University in 1975. He is a Registered Professional Engineer and
a member of the Instrument Society of America. Mr. Coskey has served on the
Texas A&M University Electrical Engineering Department Advisory Council since
1999. William A. Coskey is the spouse of Hulda L. Coskey.
Robert W. Raiford serves as Chief Financial Officer, Treasurer, and
Assistant Secretary of IDS and as Chief Financial Officer and Treasurer of each
of its subsidiaries in addition to his position as Executive Vice President of
Petrocon Engineering, Inc. Mr. Raiford has management responsibility for the
Company's administrative service functions including Accounting and Financial
Reporting, Cash Management, Human Resources, and Risk Management. From the time
he joined Petrocon in 1979 until the IDS/Petrocon Merger in December 2001, he
served in numerous officer positions and as a director of the various Petrocon
subsidiaries. He received an MBA in 1974 and a BBA in Business Management in
1968 from Lamar University.
Hulda L. Coskey serves as Chief Governance Officer, Secretary and Director
of the Company. From June 1994 until the IDS/Petrocon Merger in December 2001,
Mrs. Coskey served as Chief Financial Officer, Secretary/Treasurer and Director
of IDS. During her 17 years with IDS and its predecessors, Mrs. Coskey has
served as a director and in various corporate officer positions for the
Company's subsidiaries. She currently serves as Secretary and Director for each
of the IDS subsidiaries. Her primary responsibilities include investor
relations, SEC compliance, and corporate governance functions. She is a member
of National Investor Relations Institute and American Society of Corporate
Secretaries. Mrs. Coskey majored in Accounting at the University of Houston.
Hulda L. Coskey is the spouse of William A. Coskey.
4
David W. Gent, P.E. has served as a director of IDS since June 1994 and is a
member of the Audit Committee and the Compensation Committee. Since September
1991, Mr. Gent has held the position of Director of International Engineering
and Chief Information Officer of Bray International, Inc., located in Houston,
Texas, with the responsibility of overseeing several departments that include
Engineering, Information Services, and Quality Control. Mr. Gent founded
SofTest Designs Corporation, a privately held electronic test equipment
company, in 1980, and has served as a director since its inception and as its
President from 1986 to 1991. Mr. Gent, an honors graduate, received a Bachelor
of Science in Electrical Engineering from Texas A&M University in 1975 and an
MBA from Houston Baptist University. He is a Registered Professional Engineer
and a senior member of the Instrument Society of America. Mr. Gent serves on
the Texas A&M University Electrical Engineering Department Advisory Council,
the Bray International, Inc. 401(k) committee and as a Bray representative on
various councils including Fieldbus Foundation and the Open DeviceNet Vendors
Association. He also holds several patents in the field of industrial flow
controls.
Jimmie N. Carpenter, P.E. has served as a director of the Company since the
IDS/Petrocon Merger in December 2001. He also serves as Executive Vice
President of Petrocon Engineering, Inc. and as President and Director of
Triangle Engineers and Constructors, Inc., Petrocon Construction Resources,
Inc., and Petrocon Technologies, Inc. From 1978 until the IDS/Petrocon Merger,
Mr. Carpenter was employed by Petrocon and served as project manager and
manager of various operations. He is a registered Professional Engineer and a
graduate of Texas A&M University with a Bachelor of Science degree in
Mechanical Engineering.
David C. Roussel has served as a director of the Company since the
IDS/Petrocon Merger in December 2001 and is a member of the Audit Committee and
the Compensation Committee. Since September 1998, Mr. Roussel's primary
occupation has been an independent business consultant. From 1994 until
September 1998, Mr. Roussel served as Vice President of Sterling Consulting
Group, where he performed various strategy design, alliance structuring and
benchmarking projects for several major U.S. oil companies. Mr. Roussel served
as President of a nationally recognized gas processing company from 1989
through 1994, where he was responsible for gathering systems, gas processing
plants, chemical facilities, international business development, acquisitions,
joint venture management, and strategic planning and implementation. Mr.
Roussel was an officer, director and sole shareholder of Cyclone Landscaping,
Inc. which filed for protection under Chapter 7 of the U.S. Bankruptcy Code;
bankruptcy proceedings were finalized in November 2000. Mr. Roussel received a
Bachelor of Science degree in Mechanical Engineering from Iowa State University
in 1971 and completed the Harvard Advanced Management Program in 1992. He has
also served as Vice President, director and as a member of the Executive and Ad
Hoc Committees of the board of directors of the Gas Processors Association.
Randall B. Hale has served as a director of IDS since the IDS/Petrocon
Merger in December 2001 and is a member of the Audit Committee and the
Compensation Committee. Mr. Hale has been a Vice President of Equus Capital
Management Company since November 1992, and a director since February 1996.
Equus Capital Management Company is the financial advisor to Equus II
Incorporated, which is one of the Company's lenders. See "Certain Relationships
and Related Transactions". Mr. Hale is also a director of several privately
owned companies in which Equus has an investment. Mr. Hale received a BBA in
Business Administration from Texas A&M University in 1985 and is a certified
public accountant.
DIRECTOR COMPENSATION
Directors of the Company do not receive any cash compensation for board
meetings attended, nor do they receive cash compensation for committee meetings
attended. The Company reimburses out-of-pocket expenses incurred by independent
directors to attend board and committee meetings. Under the Industrial Data
Systems Corporation 1998 Incentive Plan (the "Incentive Plan"), non-employee
directors are eligible to receive non-statutory stock options and employees of
the Company and its majority owned subsidiaries are eligible to receive
incentive or non-qualified options. In recognition of the services provided by
its Board of Directors, independent directors have received, for each year of
service, options to purchase 5,000 shares of the Company's common stock at an
exercise price at least equal to or above fair market value on the date of the
grant.
5
On December 1, 2001, Messrs. Gent and Wingate were each awarded options to
purchase 5,000 shares in recognition of the services provided as members of the
Board of Directors in 2001. These stock options were issued at an exercise
price of $1.00 and vest over a five-year period with an expiration date of
November 21, 2011. The following options have been awarded for director
services provided in prior years: Mr. Gent (35,000 shares), Mr. Wingate (15,000
shares) and Mr. Hedrick (10,000 shares). In addition to the shares awarded for
director service, Mr. Hedrick was also awarded 20,000 shares of stock options
for his services as a key employee to the Company. All stock options issued in
1999 were at an exercise price of $1.25 and vest over a five-year period with
an expiration date of December 12, 2009; options issued in 2000 were at an
exercise price of $1.00 and vest over a five-year period with an expiration
date of November 21, 2010. The stock options awarded to directors represent
19.2% of all stock options issued to directors and key employees, not including
replacement options granted to former Petrocon directors in connection with the
IDS/Petrocon Merger. As of April 30, 2002, no options have been exercised under
the Incentive Plan. All options issued to Messrs. Hedrick and Wingate, who
resigned from the board in 2001, were canceled unexercised subsequent to
provisions of the Incentive Plan. However, in March 2002, the Board of
Directors authorized the issuance of options to purchase 20,000 shares of
Common Stock to Mr. Wingate in recognition of his prior service on the board.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
Last year, the Board held 7 meetings. Each member was able to attend at
least 75% of the board and committee meetings on which he served. The board
establishes committees to help it carry out its duties. Board Committees work
on key issues in greater detail than would be possible at full Board meetings.
Each committee reviews the results of its meetings with the full Board, and all
members of the Board are invited to attend all Committee meetings.
The Board of Directors has established a standing Audit Committee and
Compensation Committee. Additionally, the Board has the power to appoint
additional committees, as it deems necessary. The Board does not currently have
an Executive Committee or a Nominating Committee. The President and Chief
Executive Officer has determined compensation for the past several years for
the Company's executive officers and employees. Beginning in 2002, the Board of
Directors will determine compensation for the Company's executive officers.
Employment agreements have been entered into with a number of its executive
officers. See "Employment Agreements".
Audit Committee. The Audit Committee serves as an independent and objective
party to monitor the Company's financial reporting process and internal control
system, reviews and appraises the audit efforts of the Company's independent
accountants, and provides an open avenue of communication among the independent
accountants, financial and senior management and the Board of Directors. The
members of this Committee are Messrs. David W. Gent, David C. Roussel, and
Randall B. Hale, all whom are independent directors as defined in the American
Stock Exchange listing standards. Until December 21, 2001, the committee
consisted of Mr. Gent and Mr. Gordon Wingate (who resigned from the Board on
December 21, 2001 pursuant to conditions of the IDS/Petrocon Merger). The
committee met four times during 2001. The Committee meets separately with the
independent auditors, outside the presence of company management or other
employees, to discuss matters of concern, to receive recommendations or
suggestions for change and to exchange relevant views and information. The
Audit Committee and the Board of Directors are ultimately responsible for the
selection, evaluation and replacement of the independent auditors. The Audit
Committee is governed by a written charter approved by the Board of Directors,
a copy of which is attached as Appendix B to this Proxy Statement.
Compensation Committee. The Compensation Committee is responsible for
administering the Company's Incentive Stock Plan and granting stock options and
other awards under the Plan. The Company anticipates expanding the duties of
the Compensation Committee following the IDS/Petrocon Merger to include
oversight of salary and performance evaluations of its executive officers. The
members of this Committee are Messrs. David W. Gent, David C. Roussel, and
Randall B. Hale, all whom are independent directors. In 2001, the Compensation
Committee consisted of Messers. Gent and Wingate. The committee met one time
during 2001.
6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the common stock that each director, director
nominee and executive officer named in the Summary Compensation Table owned on
March 1, 2002. Unless otherwise noted, the listed persons have sole voting and
dispositive powers with respect to the shares of Common Stock shown as
beneficially owned by them, subject to community property laws, if applicable.
The directors and officers of the Company are not aware of any person or
company that beneficially owns, directly or indirectly, or exercises control or
direction over, shares carrying more than five percent of the voting rights
attached to the Common Stock of the Company at the close of business on March
1, 2002, other than:
Number of Percentage of
Shares(1) Outstanding Shares
---------- ------------------
Michael L. Burrow (2)(3)........................ 1,845,034 8.07
3155 Executive Blvd.
Beaumont, TX 77705
Alliance 2000, Ltd. (2)(4)...................... 9,530,100 41.69
William A. Coskey
Hulda L. Coskey
600 Century Plaza Dr.
Building 140
Houston, TX 77073
David W. Gent (5)............................... 20,624 *
600 Century Plaza Dr.
Building 140
Houston, TX 77073
Equus II Incorporated (2)(6).................... 2,276,178 9.52
Randall B. Hale
600 Century Plaza Dr.
Building 140
Houston, TX 77073
Jimmie N. Carpenter (2)(7)...................... 455,083 1.99
3155 Executive Blvd.
Beaumont, TX 77705
Robert W. Raiford (2)(8)........................ 354,440 1.69
3155 Executive Blvd.
Beaumont, TX 77705
All executive officers and directors as a group
(8 persons).................................... 14,516,448 60.11
--------
* Less than 1%
(1) Based on 22,861,200 shares of Common Stock outstanding as of March 1, 2002
and options to be exercisable on or before June 30, 2002.
(2) Parties to a Voting Agreement pursuant to which the shareholders agree to
vote in favor of three directors designated by Alliance, two members
designated by certain former shareholders of Petrocon, one member
designated by Equus, and one member designated by agreement between
Alliance and certain former shareholders of Petrocon.
(3) Includes 1,830,731 shares of Common Stock held by a family limited
partnership; options to acquire 4,170 shares of Common Stock at $4.26 per
share which are exercisable within 60 days of the date of this proxy
statement, and options to acquire 10,133 shares of Common Stock at $0.96
per share, which are exercisable within 60 days of the date of this proxy
statement. Does not include options to acquire 3,909 shares of Common
Stock at $0.96 per share, which will not be exercisable within 60 days of
the date of
7
this proxy statement, nor does it include options to acquire 300,000 shares
of Common Stock at exercise prices ranging from $0.75 to $1.25 which become
vested and are exercisable only under certain conditions set forth in the
Option Pool Agreement between the Company and Alliance 2000, Ltd. Mr.
Burrow is the Shareholder Representative under a Voting Agreement pursuant
to which holders of 2,737,473 shares of Common Stock, acting by majority
vote, nominate two directors for election to the Company's Board of
Directors. Mr. Burrow is the beneficial owner of 540,006 of those shares.
(4) Includes 9,500,000 shares of Common Stock held in the name of Alliance
2000, Ltd., a Texas limited partnership in which William A. Coskey and
Hulda L. Coskey are general partners. Of these shares, 2,600,000 are held
subject to an Option Pool Agreement pursuant to which options may be
granted to certain employees of IDS and its subsidiaries, and 200,000 are
subject to the Equus Call Agreement, pursuant to which Equus has the
right to acquire the shares under certain circumstances. Also includes
100 shares of IDS Common Stock owned by William A. Coskey, purchased on
June 16, 1998 at the time IDS became listed with the American Stock
Exchange; and 30,000 shares of Common Stock held in the name of William
A. Coskey as custodian for his children.
(5) Includes options held by Mr. Gent to acquire 18,750 shares of Common
Stock at $1.25 per share and 1,874 shares of Common Stock at $1.00 per
share, which are exercisable within 60 days of the date of this proxy
statement. Does not include options to acquire 11,250 shares of Common
Stock at $1.25 per share, or options to acquire 8,126 shares of Common
Stock at $1.00 per share, which will not be exercisable within 60 days of
the date of this proxy statement.
(6) Includes 1,225,758 shares of Common Stock held by Equus and 1,050,420
shares of Common Stock into which the IDS preferred stock is convertible.
Does not include 200,000 shares of Common Stock held by Alliance 2000,
Ltd. which Equus has the right to acquire under certain circumstances
described in the Option Pool Agreement. Mr. Hale is a director of IDS and
an Investment Officer of Equus II Incorporated, which is one of the
Company's lenders.
(7) Includes 442,335 shares of Common Stock held by a family limited
partnership; options held by Mr. Carpenter to acquire 8,578 shares of
Common Stock at $0.96 per share which are exercisable within 60 days of
the date of this proxy statement, and options held by Mr. Carpenter to
acquire 4,170 shares of Common Stock at $4.26 per share, which are
exercisable within 60 days of the date of this proxy statement. Does not
include options held by Mr. Carpenter to acquire 5,212 shares of Common
Stock at $0.96 per share, which will not be exercisable within 60 days of
the date of this proxy statement; nor does it include options to acquire
100,000 shares of Common Stock at exercise prices ranging from $0.75 to
$1.25 which become vested and are exercisable only upon certain
conditions described in the Option Pool Agreement between the Company and
Alliance 2000, Ltd.
(8) Includes 200,646 shares of Common Stock held by Mr. Raiford, and options
to acquire 9,246 shares of Common Stock at $0.96 per share, options to
acquire 99,351 shares of Common Stock at $4.26 per share, and options to
acquire 80,186 shares of Common Stock at $6.24 per share, all of which
are exercisable within 60 days of the date of this proxy statement. Does
not include options to acquire 5,212 shares of Common Stock at $0.96 per
share or options to acquire 64,149 shares of Common Stock at $6.24 per
share, none of which will be exercisable within 60 days of the date of
this proxy, nor does it include options to acquire 230,000 shares of
Common Stock at exercise prices ranging from $0.75 to $1.25 which become
vested and are exercisable only upon certain conditions related to the
Option Pool Agreement between the Company and Alliance 2000, Ltd.
8
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors, executive officers and 10% beneficial owners ("insiders") to file
with the United States Securities and Exchange Commission reports of ownership
and change in ownership of equity securities of the Company. Based solely on
its review of Forms 3 and 4 and amendments thereto furnished to the Company
under Rule 16a-3(e) during its most recent fiscal year and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, the Company believes that during the year ended December 31, 2001,
the Company's Directors and officers complied with all of the filing
requirements of Section 16.
EXECUTIVE COMPENSATION
Compensation Summary
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by, or paid to, the Company's
Chief Executive Officer, and the most highly compensated executive officers of
the Company whose aggregate cash compensation exceeded $100,000 (the "Named
Executive Officers") during the years ended December 31, 1999, 2000 and 2001.
SUMMARY COMPENSATION TABLE
Annual
Compensation
---------------
Name and Principal Position Year Salary ($)
--------------------------- ---- ----------
Michael L. Burrow, P.E., Chairman of the Board.............. 2001 250,249
and Chief Executive Officer (1) 2000 249,968
1999 260,789
William A. Coskey, P.E., Chief Operating Officer,........... 2001 114,858
President and Director (2) 2000 111,040
1999 109,224
Robert W. Raiford, Chief Financial Officer,................. 2001 160,078
Treasurer, and Assistant Secretary (1) 2000 175,819
1999 153,183
--------
(1) Messrs. Burrow and Raiford were not affiliated with IDS prior to December
21, 2001; therefore, annual compensation shown above for 1999 and 2000 was
from Petrocon. Compensation shown above for 2001 includes compensation
from Petrocon and IDS.
(2) Mr. Coskey served as Chairman of the Board, Chief Executive Officer and
President during 1999, 2000 and until December 21, 2001.
Key Man Insurance
William A. Coskey is a key executive of the Company and the loss of Mr.
Coskey's services could adversely affect the Company's business. The Company
maintains, and is the beneficiary of, a life insurance policy on the life of
Mr. Coskey. The face amount of such policy is $600,000. The continuance of such
policy is at the discretion of the Board of Directors and the policy may or may
not be maintained in the future. The Company does not carry insurance on the
life of Michael L. Burrow. Mr. Burrow is a key executive of the Company and the
loss of his services could adversely affect the Company's business.
9
Employment Agreements
The Company entered into employment agreements with its executive officers
named in the Summary Compensation Table under the section titled "Executive
Compensation" and with other officers of the Company or its subsidiaries. The
employment agreements are for three-year terms all of which expire in December
2004 unless extended by the Company pursuant to certain terms in the agreement.
Such agreements provide for minimum annual base salary levels and other
compensation which may be in the form of cash bonuses, incentive compensation,
stock options, stock appreciation rights, restricted stock awards as the Board
of Directors may, in its discretion, approve. The aggregate commitment for
future salaries at December 31, 2001, excluding bonuses, was approximately $4.6
million.
The agreements also provide for certain severance payments and benefits in
the case of termination of employment. If employment ends because of death,
generally salary is paid for three months. In the case of disability, salary
and benefits generally maintained by the Company on behalf of the executive are
paid for up to six months of disability and for a period of six months
following the date of termination. At the option of the Company, severance
payments and benefits may be extended for an additional six-month period
following the initial severance period. Additionally, health and life insurance
benefits are paid in accordance with the terms of the Company's benefit plans.
If the Company terminates the executive's employment for "cause," as defined
in the employment agreements, and in the case of Messrs. Burrow and Coskey,
upon the affirmative vote of no less than five members of the Board of
Directors, the Company will pay any accrued but unpaid salary, expenses
required to be reimbursed, vacation and any earned but unpaid bonuses for prior
periods. Company benefits will be paid in accordance with the terms of the
Company's benefit plans and all unvested options or other awards will be
cancelled in accordance with conditions defined in the Company's Incentive
Plan.
If the Company terminates the executive's employment without "cause", as
defined in the employment agreements, the Company will continue to pay the
executive for a period of six months following the date of termination and at
the option of the Company, severance payment and benefits may be extended for
an additional six-month period following the initial severance period.
The employment agreements also include covenants not to compete for a six-
month to three-year period following termination of employment depending on
basis for termination, as well as confidentiality provisions as are customary,
in nature and scope, for such agreements.
IDS 1998 Incentive Plan
Following is a summary of the material terms and conditions of the IDS 1998
Incentive Plan. A total of 1,400,000 shares of Common Stock have previously
been reserved for issuance, pursuant to the Incentive Plan.
The Incentive Plan provides for the grant to employees, including officers
of IDS, incentive stock options, non-statutory stock options, stock
appreciation rights and restricted stock. In addition, non-employee directors
and consultants are eligible to receive non-statutory stock options.
The Incentive Plan provides that awards may be granted to employees,
consultants and directors of IDS and its majority-owned subsidiaries. To the
extent that the aggregate fair market value of the shares with respect to which
options designated as incentive stock options are exercisable for the first
time by any optionee during any calendar year exceeds $100,000, such options
will be reclassified as non-statutory stock options in accordance with the
Code. The Incentive Plan is not a qualified deferred compensation plan under
Section 401(a) of the Code and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
10
The Board of Directors has delegated the Plan administration to the
Compensation Committee. The Compensation Committee selects persons to whom
awards may be granted and the type of award to be granted and determines, as
applicable, the number of shares to be subject to each award, the exercise
price and terms of vesting. In making such determination, the Compensation
Committee takes into account the grantee's present and potential contributions
to the success of IDS and other relevant factors.
All incentive stock options granted under the Incentive Plan are at an
exercise price at least equal to the fair market value of the shares of Common
Stock on the date of grant. With respect to any participant who owns stock
representing more than 10% of the voting rights of IDS' outstanding capital
stock, the exercise price of any incentive stock option granted under the
Incentive Plan is at least equal to 110% of the fair market value of the shares
of Common Stock subject to such option on the date of grant.
Options granted under the Incentive Plan vest pursuant to terms determined
by the Compensation Committee. The terms of all incentive stock options and
non-statutory stock options granted under the Incentive Plan may not exceed 10
years. However, the terms of all incentive stock options granted to an optionee
who, at the time of grant, owns stock representing more than 10% of the voting
rights of IDS' outstanding capital stock, may not exceed five years.
Options may be granted to outside directors under the Incentive Plan upon
such terms as are approved by the Compensation Committee.
Restricted Common Stock may be granted to employees pursuant to terms
determined by the Compensation Committee. Restricted Common Stock may not be
transferred until the restrictions are removed or have expired. Conditions to
the removal of restrictions may include, but are not required to be limited to,
continuing employment or service to IDS or achievement of certain performance
objectives.
Stock appreciation rights may be granted to employees, either independent
of, or in connection with options. Stock appreciation rights are exercisable in
the manner, and pursuant to terms, determined by the Compensation Committee.
Terms to be determined by the Compensation Committee include the number of
shares to which the stock appreciation right applies, the vesting schedule for
the exercise of such right and the expiration date of the right. Upon exercise
of a stock appreciation right, the holder shall receive payment in cash, stock
or a combination of both at the discretion of the Compensation Committee in an
amount equal to the product of (i) the fair market value of a share of IDS
Common Stock as of the date of exercise, minus the fair market value of a share
of IDS Common Stock as of the date the stock appreciation right was granted,
multiplied by (ii) the number of shares as to which the stock appreciation
right is being exercised. The exercise of stock appreciation rights granted in
connection with options requires the holder to surrender the related options
(or any portion thereof, to the extent unexercised). No stock appreciation
right granted under the Incentive Plan is transferable by the employee other
than by will or the laws of descent and distribution and each stock
appreciation right is exercisable during the lifetime of the employee only by
such employee.
In the event of certain changes in IDS' capitalization, including as a
result of a stock split or stock dividend, which results in a greater or lesser
number of shares of outstanding Common Stock, appropriate adjustment would be
made in the number of shares available under the Incentive Plan, the exercise
price of outstanding options, and the number of shares subject to options,
outstanding shares of restricted common stock and stock appreciation rights.
Award agreements may, as determined by the Compensation Committee, provide
that, in the event of a change in control of IDS, the following will occur: the
holder of a stock option will be granted a corresponding stock appreciation
right; all outstanding stock appreciation rights and stock options will become
immediately
11
and fully vested and exercisable in full; and the restriction period on any
restricted Common Stock will be accelerated and the restrictions will expire.
In general, a change in control of IDS occurs in any of five situations:
(1) a person (other than (a) IDS, (b) certain named affiliates or
affiliated companies or benefit plans, or (c) a company, a majority of
which is owned directly or indirectly by the stockholders of IDS)
becomes the beneficial owner of 50% or more of the voting power of
IDS' outstanding voting securities;
(2) a majority of the Board of Directors is not comprised of the members
of the Board of Directors at the effective date of the Incentive Plan
and persons whose elections as directors were approved by those
original directors or their approved successors;
(3) a person described in clause (1) above announces a tender offer for
50% or more of IDS' outstanding voting securities and the Board of
Directors approves or does not oppose the tender offer;
(4) IDS merges or consolidates with another corporation or partnership, or
IDS' stockholders approve such a merger or consolidation, other than
mergers or consolidations in which IDS' voting securities are
converted into securities having the majority of voting power in the
surviving company; or
(5) IDS liquidates or sells all or substantially all of its assets, or
IDS' stockholders approve such a liquidation or sale, except sales to
corporations having substantially the same ownership as IDS.
If a restructuring of IDS occurs that does not constitute a change in
control of IDS, the Compensation Committee may, but need not, cause IDS to take
any one or more of the following actions: accelerate in whole or in part the
time of vesting and exercisability of any outstanding stock options and stock
appreciation rights to permit those stock options and stock appreciation rights
to be exercisable before, upon, or after the completion of the restructure;
grant each of the restrictions on any restricted common stock; if the
restructuring involves a transaction in which IDS is not the surviving entity,
cause the surviving entity to assume in whole or in part any one or more of the
outstanding incentive awards upon such terms and provisions as the board of
directors or its designated committee deems desirable; or redeem in whole or in
part any one or more of the outstanding incentive awards, whether or not then
exercisable, in consideration of a cash payment as adjusted for withholding
obligations. A restructuring generally is any merger of IDS or the direct or
indirect transfer of all or substantially all of IDS' assets in one transaction
or a series of transactions.
401(k) Plans
On January 1, 1993, the Company adopted a Section 401(k) Profit Sharing Plan
and Trust (the "Plan"). The Plan is intended to qualify for tax exemption under
Section 401(k) of the Code and is subject to the Employee Retirement Income
Security Act of 1974. Management of the Company administers the Plan and all of
the Company's employees who elect to do so are allowed to participate, subject
to certain eligibility requirements. Eligible employees may contribute up to
15% of their annual compensation up to the maximum dollar amount allowed by
law, which is matched by the Company under a defined formula. In addition, the
Company may make discretionary contributions to the Plan, for the benefit of
all participants, at the election of the Board of Directors. Employee
contributions are fully vested at all times and contributions by the Company
vest on a schedule of 25% per year over a four-year period, commencing with the
second year of employment. The Company made contributions to the Plan of
approximately $120,000, $127,000 and $194,000, respectively, for the years
ended December 31, 1999, 2000 and 2001, respectively.
Petrocon has adopted a Section 401(k) Profit Sharing Plan and Trust (the
"Plan"). The Plan is intended to qualify for tax exemption under Section 401(k)
of the Code and is subject to the Employee Retirement Income Security Act of
1974. Management of Petrocon administers the Plan and all of Petrocon's
employees who elect to do so are allowed to participate, subject to certain
eligibility requirements. Eligible employees may contribute up to 20% of their
annual compensation up to the maximum dollar amount allowed by law. In
addition, Petrocon may make discretionary contributions to the Plan, for the
benefit of all participants, at the election of the Board of Directors.
Petrocon made no contributions to the Plan for the years 1998 through 2001.
12
Each of the separate 401(k) plans is currently being evaluated and in 2002
the Company may adopt one plan that will cover all employees of its various
subsidiaries.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors ("Committee") is made
up of only outside directors and oversees the Company's long-term incentives
such as the Company's 1998 Incentive Plan ("Plan"). The Committee consults
periodically with the Company's executive management regarding overall
individual targets and awards. Annually, the Committee makes recommendations to
the Board of Directors for approval but has the discretion to make
recommendations, as it deems necessary throughout the year. The granting of
options under the Plan is designed and utilized to:
. Attract, motivate, and retain executives of exceptional ability and
potential, who are critical to both the short-term and long-term success
of the Company
. Reinforce strategic performance objectives
. Create a mutuality of interest between executives and stockholders to
share the rewards and risks of strategic decision-making; and
. Provide executives with the opportunity to hold substantial stock
options in IDS, to more closely align executives' interests with those
of the stockholders.
The Committee sets a target range for options to be granted to each
individual executive based primarily on the level of responsibilities. The
actual number of options granted is based on performance against annual
corporate, subsidiary, and individual goals. When evaluating the performance of
the Chief Executive Officer, the Committee consults with the Board of
Directors. When evaluating the performance of executives other than the Chief
Executive Officer, the Committee consults with the Chief Executive Officer and
others in management, as applicable. Generally, executive performance is
reviewed and evaluated by the Committee during the fourth quarter each fiscal
year. In an effort to attract and retain highly qualified executives and other
employees, the Committee may also grant stock options to newly hired executives
and other employees as an inducement to accept employment with the Company.
Compensation Committee
David W. Gent
Randall B. Hale
David C. Roussel
April 15, 2002
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2001, the Compensation Committee of the IDS Board of Directors
consisted of Messrs. Gent and Wingate. Neither of these individuals was an
officer or employee of the Company at any time during fiscal 2001. During
fiscal 2001, no executive officer of the Company served as a member of the
board of directors or compensation committee of any entity that has or has had
one or more executive officers serving as a member of the IDS Board of
Directors or Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Board of Directors has adopted a policy requiring that all transactions
between the Company and its officers, directors, principal stockholders and
their affiliates be on terms no less favorable to the Company than could be
obtained from unrelated third parties and that any such transactions be
approved by a majority of the disinterested members of the Company's board.
13
Michael L. Burrow, the Chief Executive Officer and a member of the Board of
Directors of IDS since the IDS/Petrocon Merger, owns a one-third interest in a
joint venture that owns the office building in which Petrocon's executive
offices are located. Petrocon, also a one-third owner in the joint venture,
leases a portion of the building from the joint venture. Each partner receives
approximately $30,000 annually under this lease arrangement.
In exchange for options to buy back Company common stock as part of the
Option Pool Agreement, which terminates in 2006, and in conjunction with the
IDS/Petrocon Merger, the Company forgave a note receivable due from Alliance
2000 Ltd., a significant stockholder of the Company, with principal and accrued
interest totaling $196,500. The note receivable was unsecured, due on demand
with an interest rate of 9% per annum. During the year ended December 31, 2000,
the Company recognized interest income of approximately $13,500 on these notes.
Randall B. Hale, a member of the Board of Directors of IDS since the
IDS/Petrocon Merger, is an executive officer of Equus. Equus holds a $3,000,000
note from Petrocon, which is guaranteed by all of the subsidiaries of IDS,
including the subsidiaries of Petrocon, and which is further secured by a lien
on substantially all of the assets of IDS and each of its subsidiaries,
including Petrocon and its subsidiaries. In addition, Equus owns 2,500,000
shares of IDS convertible preferred stock.
SynchroNet, Inc., an information technology consulting firm owned by Gordon
R. Wingate, a former board member who resigned from the board in December 2001,
performs consulting services for the Company and was paid approximately
$106,000 in 2001.
COMPARISON OF CUMULATIVE TOTAL RETURN
The following graph compares the cumulative total stockholder return on our
Common Stock for the five-year period ended December 31, 2001, with the AMEX US
Index and the S&P 600 SmallCap Index, over the same period. This comparison
assumes the investment of $100 on December 31, 1996 and the reinvestment of all
dividends. The stockholder return set forth on the chart below is not
necessarily indicative of future performance.
[GRAPH]
S&P 600
AMEX US SmallCap IDS Total
Year Index Index Return Performance
---- ------- -------- ------------------
1996 100.000 100.000 100.000
1997 125.318 125.460 86.538
1998 134.492 123.790 125.000
1999 176.810 139.020 12.500
2000 165.724 155.390 7.692
2001 150.808 165.480 10.923
14
AUDIT COMMITTEE REPORT
The responsibilities of the Audit Committee include providing oversight to
the Company's financial reporting process through periodic meetings with the
Company's independent auditors and management to review accounting, auditing,
internal controls and financial reporting matters. The management of the
Company is responsible for the preparation and integrity of the financial
reporting information and related systems of internal controls. The Audit
Committee, in carrying out its role, relies on the Company's senior management,
including senior financial management, and its independent auditors.
We have reviewed and discussed with senior management the Company's audited
financial statements included in the 2001 Annual Report to Stockholders.
Management has confirmed to us that such financial statements (i) have been
prepared with integrity and objectivity and are the responsibility of
management and (ii) have been prepared in conformity with generally accepted
accounting principles. The Committee believes that management maintains an
effective system of internal controls which results in fairly presented
financial statements.
We have discussed with Hein + Associates LLP, our independent auditors, the
matters required to be discussed by SAS 61 (Communications with Audit
Committee). SAS 61 requires our independent auditors to provide us with
additional information regarding the scope and results of their audit of the
Company's financial statements, including information with respect to (i) their
responsibility under generally accepted auditing standards, (ii) significant
accounting policies, (iii) management judgments and estimates, (iv) any
significant audit adjustments, (v) any disagreements with management, and (vi)
any difficulties encountered in performing the audit.
We have received from Hein + Associates LLP a letter providing the
disclosures required by Independence Standards Board Standard No. 1.
(Independence Discussions with Audit Committees) with respect to any
relationships between Hein + Associates LLP and the Company, that in their
professional judgment, may reasonably be thought to bear on independence. Hein
+ Associates LLP has discussed its independence with us, and has confirmed in
such letter that, in its professional judgment, it is independent of the
Company within the meaning of the federal securities laws.
Based on the review and discussions described above with respect to the
Company's audited financial statements included in the Company's 2001 Annual
Report to Stockholders, we have recommended to the Board of Directors that such
financial statements be included in the Company's Annual Report on Form 10-K
for filing with the Securities and Exchange Commission.
As specified in the Audit Committee Charter, it is not the duty of the Audit
Committee to plan or conduct audits or to determine that the Company's
financial statements are complete and accurate and in accordance with generally
accepted accounting principles. That is the responsibility of management and
the Company's independent auditors. In giving our recommendation to the Board
of Directors, we have relied on (i) management's representation that such
financial statements have been prepared with integrity and objectivity and in
conformity with generally accepted accounting principles, and (ii) the report
of the Company's independent auditors with respect to such financial
statements.
David W. Gent
Randall B. Hale
David C. Roussel
April 15, 2002
15
AUDIT INFORMATION
Audit Fees. The aggregate fees billed for professional services rendered by
Hein + Associates LLP for the audit of IDS' annual financial statements for
fiscal year 2001 and the reviews of IDS' financial statements included in IDS'
Forms 10-Q for fiscal year 2001 totaled approximately $124,315.
Financial Information Systems Design and Implementation Fees. No
professional services for financial information systems design and
implementation were provided by Hein + Associates LLP for fiscal year 2001.
All Other Fees. The aggregate fees billed for services rendered in year 2001
by Hein + Associates LLP, other than the services covered in the paragraphs
above headed Audit Fees and Financial Information Systems Design and
Implementation Fees totaled approximately $100,859 which primarily consisted of
audit related fees which included benefit plan audits, acquisition due
diligence, registration statements, comfort letters and consents, and tax
services.
Audit Committee Consideration
IDS' Audit Committee considered whether Hein + Associates LLP's provision of
Financial Information Systems Design and Implementation Fees and All Other Fees
as reported above is compatible with maintaining Hein + Associates LLP's
independence as IDS' principal independent accounting firm.
Work Performed by Principal Accountant's Full Time, Permanent Employees
Hein + Associates LLP's work on IDS' audit was performed by full time,
permanent employees and partners of Hein + Associates LLP.
ITEM TWO
RATIFICATION OF INDEPENDENT AUDITORS
APPOINTMENT OF AUDITORS
The Board of Directors recommends, and unless otherwise directed the
designated persons named in the enclosed form of proxy will vote for, the
appointment of Hein + Associates LLP, 5075 Westheimer, Suite 970, Houston,
Texas 77056, as auditors of the Company to hold office until the next Annual
Meeting of Stockholders and to authorize the Directors to fix the remuneration
of the auditors so appointed. Hein + Associates LLP has been the Company's
auditors since 1994. The auditors will be present at the meeting to make such
comments as they deem appropriate and to answer any appropriate questions.
ITEM THREE
PROPOSAL TO AMEND ARTICLES OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY FROM INDUSTRIAL DATA SYSTEMS CORPORATION TO
ENGlobal CORPORATION
The Board of Directors has approved, subject to stockholder approval, an
amendment to the Articles of Incorporation to change the name of the Company
from Industrial Data Systems Corporation to ENGlobal Corporation. The text of
the proposed amendment to the Articles of Incorporation is set forth in
Appendix A to this Proxy Statement.
Purpose of the Name Change
Since the Company's inception, the Company has utilized the name Industrial
Data Systems Corporation with respect to its corporate affairs. Although IDS is
proud of its name, over the years and particularly
16
following its recent merger with Petrocon Engineering, Inc., the Company's
business focus has been directed away from the manufacture of industrial
computer products; therefore, the existing IDS name is no longer consistent
with the Company's primary current and anticipated business. Engineering
consulting, control systems, field inspection, plant maintenance and project
management services have strategically become the Company's core business
activity. The Company, through its various subsidiaries, provides its services
primarily to the energy industry extending to all facets of refining,
petrochemical, production, gas processing and pipeline.
The Company is hopeful that a new and more descriptive name reflective of
its broader capabilities and vision for future growth, will provide a common
identity with which to build name recognition and credibility among its
existing and potential clients as well as with the public stock sector, which
is vital as the Company seeks to build shareholder value. Upon approval of a
new name, it is anticipated that for the short term, each of the Company's
subsidiaries would adopt the new name coupled with its separate existing name
and over time gradually migrate from its existing name.
The name change proposal, if approved by our stockholders, would have the
effect of changing the legal name of the Company. If the name change is not
approved, the Company's legal name will continue to be "Industrial Data Systems
Corporation".
Effects of the Name Change
The change in the Company's name will not affect the status of the Company
or the rights of any stockholder with respect to the transferability of share
certificates presently outstanding. The currently outstanding share
certificates evidencing shares of the Company's securities bearing the name
"Industrial Data Systems Corporation" will continue to be valid and represent
shares of ENGlobal Corporation following the name change. In the future, new
share certificates will be issued bearing the new name, but this in no way will
affect the validity of your current share certificates.
In connection with the name change, if approved, the Company intends to
apply for a new trading symbol for its common shares with the American Stock
Exchange to a symbol more readily associated with the new name.
If the stockholders approve the proposal, the name change will become
effective upon the filing of the amended Articles of Incorporation with the
Secretary of State of the State of Nevada. The Company intends to file the
amended Articles of Incorporation promptly after the stockholders approve the
name change. The Company would seek a change in the trading symbol of the
Company's common shares as soon as practicable following stockholder approval
of the proposal.
Required Vote; Recommendation of the Board of Directors
Approval of the amendment to the Articles of Incorporation to change the
Company's name requires the affirmative vote of a majority of the shares
present at the Meeting.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
AMEND THE ARTICLES OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY FROM
INDUSTRIAL DATA SYSTEMS CORPORATION TO ENGlobal CORPORATION.
17
OTHER MATTERS
To the best of the knowledge, information and belief of the Directors, there
are no other matters which are to be acted upon at the Annual Meeting. If such
matters arise, the form of proxy provides that discretionary authority is
conferred on the designated persons in the enclosed form of proxy to vote with
respect to such matters.
The Company has received no notice of any other items submitted for
consideration at the meeting and except for reports of operations and
activities by Management, which are for informational purposes only and require
no action of approval or disapproval, and consideration of the minutes of the
preceding annual meeting for approval, which may involve technical corrections
to the text where actions taken were incorrectly recorded, but which require no
action of approval or disapproval of the subject matter, Management neither
knows of nor contemplates any other business that will be presented for action
by the stockholders at the meeting. If any further business is properly
presented at the meeting, the persons named as proxies will act in their
discretion on behalf of the stockholders they represent.
The 2003 annual meeting of stockholders is expected to be in June 2003. The
Company must receive by March 15, 2003 any stockholder proposal intended to be
presented at the next annual meeting of stockholders for inclusion in the
Company's proxy materials.
ADDITIONAL INFORMATION
A copy of the Company's 2001 Annual Report is being mailed with this Proxy
Statement to each stockholder of record. Stockholders not receiving a copy of
the Annual Report may obtain one without charge by contacting Hulda L. Coskey,
Chief Governance Officer, 600 Century Plaza Drive, Building 140, Houston, Texas
77073-6033, (281) 821-3200, or by email at idscorp@inddata.com.
APPROVAL OF THE BOARD OF DIRECTORS
The contents of the Proxy Statement have been approved and the Board of
Directors of the Company has authorized the mailing thereof to the stockholders
of the Company.
DATED at Houston, Texas, the 30th day of April, 2002.
By Order of the Board of Directors,
/s/ Hulda L. Coskey
Hulda L. Coskey
Secretary
18
APPENDIX A
RESOLUTION OF THE BOARD OF DIRECTORS OF
INDUSTRIAL DATA SYSTEMS CORPORATION
REGARDING PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION
WHEREAS, the Board of Directors of Industrial Data Systems Corporation (the
"Company"), has unanimously voted in favor of the proposed amendment to the
Company's Articles of Incorporation; and
WHEREAS, the proposed amendment provides for a change in the Company's name
from Industrial Data Systems Corporation to ENGlobal Corporation, and
WHEREAS, the Board of Directors has determined that the proposed amendment
is in the best interests of the Company and its stockholders;
NOW, THEREFORE, IT IS HEREBY RESOLVED, that Article l of the Company's
Articles of Incorporation be amended to read as follows:
ARTICLE l The name of said corporation shall be: ENGlobal Corporation.
BE IT FURTHER RESOLVED, that this resolution be submitted to a vote of the
stockholders of the Corporation at the annual meeting on June 6, 2002.
Dated this 30th day of April, 2002.
The Board of Directors
INDUSTRIAL DATA SYSTEMS CORPORATION
IN TESTIMONY WHEREOF, WITNESS the hand of the Secretary of Industrial Data
Systems Corporation.
/s/ Hulda L. Coskey
Hulda L. Coskey, Secretary
A-1
APPENDIX B
INDUSTRIAL DATA SYSTEMS CORPORATION
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
General
The role of the Audit Committee is to assist the Board of Directors in
fulfilling its oversight responsibilities by:
. Serving as an independent and objective party to monitor the
Corporation's financial reporting process and internal control system.
. Reviewing and appraising the audit efforts of the Corporation's
independent accountants.
. Providing an open avenue of communication among the independent
accountants, financial and senior management and the Board of Directors.
Composition
The Audit Committee shall consist of three or more directors as determined
by the Board, each of whom shall be independent directors, and free from any
relationship that, in the opinion of the Board, would interfere with the
exercise of his or her independent judgment as a member of the Committee. In
determining whether any director is independent, the Board shall take into
consideration the requirements of the principal exchange or system on which the
Corporation's common stock is traded. Directors who are affiliates of the
Company, or officers or employees of the Company or its subsidiaries, will not
be considered independent. Notwithstanding the first sentence of this
paragraph, until June 14, 2001, the Committee may consist of two or more
directors meeting the qualifications of this section.
All members of the Committee must be able to read and understand fundamental
financial statements, including the corporation's balance sheet, income
statement, and cash flow statement or become able to do so within a reasonable
period of time after his or her appointment to the Committee, and at least one
member of the Committee must have past employment experience in finance or
accounting, requisite professional certification in accounting, or any other
comparable experience or background which results in the member's financial
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight
responsibilities.
The members of the Committee are to be elected by the Board and shall serve
until their successors are duly elected and qualified. Unless a Chair is
elected by the full Board, the members of the Committee may designate a Chair
by majority vote of the full Committee membership.
Meetings
The Committee shall hold regular meetings as may be necessary and special
meetings as may be called by the Chairman of the Committee. As part of its job
to foster open communication, the Committee should meet at least annually with
management and the independent accountants in separate executive sessions to
discuss any matters that the Committee or either of these groups believe should
be discussed privately. In addition, the Committee or its Chair should meet
with the independent accountants and management quarterly to review the
Corporation's financial statements.
B-1
Relationship with Independent Accountants
The Corporation's independent accountants are to be ultimately accountable
to the Board and the Committee, and the Committee and the Board shall have the
ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the independent accountants (or nominate the outside
auditor to be proposed for stockholder approval in any proxy statement).
Responsibilities and Duties
To fulfill its responsibilities and duties, the Audit Committee shall:
Documents/Reports Review
1. Review and assess the adequacy of this Charter at least annually, and
otherwise as conditions dictate.
2. Review the Corporation's quarterly and annual financial statements and any
reports or other financial information submitted to the Securities and
Exchange Commission or the public, including any certification, report,
opinion, or review rendered by the independent accountants.
3. Review with financial management and the independent accountants the
Corporation's filings with the Securities and Exchange Commission on Form
10-Q and Form 10-K prior to their filing or prior to the release of
earnings. The Chair of the Committee may represent the entire Committee
for purposes of this review.
Independent Accountants
4. Recommend to the Board the selection of the independent accountants,
considering independence and effectiveness, and approve the fees and other
compensation to be paid to the independent accountants.
5. On an annual basis, obtain from the independent accountants, and review
and discuss with the independent accountants, a formal written statement
delineating all relationships that the independent accountants have with
the Corporation, consistent with Independence Standards Board Standard 1,
and actively engage in a dialogue with the independent accountants with
respect to any disclosed relationships or services that may impact the
objectivity and independence of the independent accountants.
6. Recommend to the Board any appropriate action to oversee the independence
of the independent accountants.
7. Review the performance of the independent accountants and approve any
proposed discharge of the independent accountants when circumstances
warrant.
8. Periodically consult with the independent accountants outside of the
presence of management about internal controls and the fullness and
accuracy of the Corporation's financial statements.
Financial Reporting Processes
9. In consultation with the independent accountants, review the integrity of
the organization's financial reporting processes, both internal and
external.
10. Consider the independent accountant's judgments about the quality and
appropriateness of the Corporation's accounting principles as applied in
its financial reporting.
11. Consider and approve, if appropriate, major changes to the Corporation's
auditing and accounting principles and practices as suggested by the
independent accountants or management.
B-2
12. Establish regular and separate reporting to the Committee by each of
management and the independent accountants regarding any significant
judgments made in management's preparation of the financial statements and
the view of each as to appropriateness of such judgments.
13. Following completion of the annual audit, review separately with each of
management and the independent accountants any significant difficulties
encountered during the course of the audit, including any restrictions on
the scope of work or access to required information.
14. Review any significant disagreement among management and the independent
accountants in connection with the preparation of the financial
statements.
15. Review with the independent accountants and management the extent to which
changes or improvements in financial or accounting practices, as approved
by the Committee, have been implemented.
Ethical and Legal Compliance
16. Establish, review and update periodically a Code of Conduct and ensure
that management has established a system to enforce this Code.
17. Review, with the Corporation's counsel, any legal matter that could have a
significant impact on the Corporation's financial statements.
18. Perform any other activities consistent with this Charter, the
Corporation's bylaws and governing law, as the Committee or the Board
deems necessary or appropriate.
Adopted by Resolution of the Board
of Directors
June 6, 2000
B-3
INDUSTRIAL DATA SYSTEMS CORPORATION (IDS)
THE BOARD OF DIRECTORS SOLICITS THIS PROXY FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 6, 2002
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Industrial Data Systems Corporation (the
"Company") hereby appoints Michael L. Burrow, Hulda L. Coskey and/or any of
them, attorneys and proxies of the undersigned, each with full power of
substitution, to vote on behalf of the undersigned at the Annual Meeting of
Stockholders of Industrial Data Systems Corporation to be held at the corporate
offices located at 600 Century Plaza Drive, Building 140, Houston, Texas 77073-
6033, Thursday, June 6, 2002 at 2:00 p.m. Central Daylight Saving Time, and at
any adjournments of said meeting, all of the shares of Common Stock in the name
of the undersigned or which the undersigned may be entitled to vote.
1. [ ] FOR the election (except as indicated below) as directors of [ ] WITHHOLD AUTHORITY to vote on
Michael L. Burrow, P.E., William A. Coskey, P.E., Hulda L. Coskey, all nominees for directors listed.
David W. Gent, P.E., Jimmie N. Carpenter, P.E., David C. Roussel,
and Randall B. Hale
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S NAME ON THE LINE
PROVIDED BELOW:
_____________________________________________________________________________
2. For the appointment of Hein + Associates LLP as the Company's independent auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. For a proposal to amend the Articles of Incorporation to change the name of the Company from
Industrial Data Systems Corporation to ENGlobal Corporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Please sign on other side)
(Continued from front)
4. In their discretion, upon such other matters as may properly come before the meeting; hereby
revoking any proxy or proxies heretofore given by the undersigned.
The board of directors recommends a vote FOR the nominees named on reverse and if no specification
is made, the shares will be voted for such nominees.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
the Proxy Statement furnished herewith.
Dated: _____________________________________, 2002
________________________________________________
Stockholder's Signature
________________________________________________
Stockholder's Signature
SIGNATURE SHOULD AGREE WITH THE NAME PRINTED HEREON.
IF STOCK IS HELD IN THE NAME OF MORE THAN ONE
PERSON, EACH JOINT OWNER SHOULD SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, GUARDIANS AND ATTORNEYS
SHOULD INDICATE THE CAPACITY IN WHICH THEY SIGN.
PERSONS ACTING PURSUANT TO POWER OF ATTORNEY SHOULD
SUBMIT POWERS OF ATTORNEY.
PLEASE SIGN AND RETURN IN THE ENCLOSED SELF ADDRESSED, STAMPED ENVELOPE