SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
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 Section 240.14a-11(c) or Section
240.14a-12
KMG Chemicals, Inc.
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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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/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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previously. Identify the previous filing by registration statement number,
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KMG CHEMICALS, INC.
10611 HARWIN, SUITE 402
HOUSTON, TEXAS 77036
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
The Annual Meeting of Shareholders of KMG Chemicals, Inc., a Texas
corporation (the "Company"), will be held at The Houstonian Hotel, 111 North
Post Oak Lane, Houston, Texas 77024 on November 22, 1999 at 10:00 a.m.:
1. To elect five (5) directors to hold office until the next annual
meeting of shareholders or until their respective successors have been duly
elected and qualified;
2. To ratify the appointment of Deloitte & Touche LLP as independent
accountants and auditors for the Company for fiscal year 2000; and
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Shareholders of record at the close of business on October 15, 1999 are
entitled to notice of and to vote at this Annual Meeting of Shareholders or any
adjournment or postponement thereof.
All shareholders are cordially invited and urged to attend the Annual
Meeting of Shareholders in person. EVEN IF YOU PLAN TO ATTEND THE MEETING, YOU
ARE REQUESTED TO COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED
ADDRESSED ENVELOPE. A return of a blank proxy will be deemed a vote in favor of
the proposals contained in the Proxy Statement. If you attend, you may vote in
person if you wish, even though you have sent in your proxy.
By Order of the Board of Directors,
Fred C. Leonard III, Secretary
October 26, 1999
KMG CHEMICALS, INC.
10611 HARWIN, SUITE 402
HOUSTON, TEXAS 77036
PROXY STATEMENT
This Proxy Statement and the accompanying form of proxy are being
furnished to the shareholders of KMG Chemicals, Inc., a Texas corporation (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the Annual Meeting of Shareholders (the
"Annual Meeting") to be held on November 22, 1999, at 10:00 a.m., at The
Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas 77024, and any
adjournment or postponement thereof.
The matters to be considered and acted upon at the Annual Meeting are
described in the foregoing Notice of Annual Meeting and this Proxy Statement.
This Proxy Statement and the related form of proxy are being mailed on or about
October 29, 1999 to all shareholders of record as of October 15, 1999 (the
"Record Date"). Shares of the Company's common stock, par value $.01 per share
(the "Common Stock"), represented by proxies will be voted as described in this
Proxy Statement or as otherwise specified by a shareholder. With respect to the
election of directors, a shareholder may, by checking the appropriate box on the
proxy: (i) vote for all director nominees as a group; (ii) withhold authority to
vote for all director nominees as a group; or (iii) vote for all director
nominees as a group except those nominees identified by the shareholder in the
appropriate area. With respect to the other proposals contained herein, a
shareholder may, by checking the appropriate box on the proxy: (i) vote for the
proposal; (ii) vote against the proposal; or (iii) abstain from voting on the
proposal.
Any shareholder who executes and delivers a proxy may revoke it at any
time prior to its use by (i) giving written notice of revocation to the
Secretary of the Company, (ii) executing and delivering a proxy bearing a later
date or (iii) appearing at the Annual Meeting and voting in person.
If the proxy in the accompanying form is properly executed and not
revoked, the shares represented by the proxy will be voted in accordance with
the instructions thereon. If no instructions are given on the matters to be
acted upon, the shares represented by the proxy will be voted: (i) for election
of the directors nominated herein; (ii) for the ratification of the appointment
of Deloitte & Touche LLP as independent accountants and auditors for the Company
for fiscal year 2000; and (iii) in the discretion of the proxy holders as to any
business that may properly come before the Annual Meeting or any adjournment or
postponement thereof.
VOTING RIGHTS
Only holders of record of outstanding shares of Common Stock at the
close of business on the Record Date are entitled to one vote for each share
held on all matters coming before the Annual Meeting or any adjournment or
postponement thereof. There were 7,000,169 shares of Common Stock outstanding
and entitled to vote on the Record Date.
VOTING REQUIREMENTS
To be elected, each director must receive the affirmative vote of the
holders of a plurality of the issued and outstanding shares of Common Stock
entitled to vote and represented at the Annual Meeting in person or by proxy. To
ratify the appointment of Deloitte & Touche LLP as independent accountants and
auditors for the Company, the affirmative vote of a majority of the issued and
outstanding shares of Common Stock entitled to vote and represented at the
Annual Meeting in person or by proxy is required.
ELECTION OF DIRECTORS
NOMINEES FOR DIRECTOR
The nominees for directors are the current directors. Each director of
the Company will serve until the next annual meeting of shareholders or until
his successor is elected and qualified. Set forth below is a description of the
backgrounds of the nominees for director.
DAVID L. HATCHER, age 56, has served as a director and President of the
Company since its acquisition of KMG-Bernuth, Inc. ("KMG") in October 1996. Mr.
Hatcher has also served as a director and President of KMG since 1985. Mr.
Hatcher has worked in the wood treating industry since 1980 for predecessors and
affiliates of KMG in various capacities, including engineer, general manager and
President. Mr. Hatcher is also an officer and director of KMG de Mexico, S.A. de
C.V., KMG's subsidiary.
BOBBY D. GODFREY, age 60, has served as a director and Vice President
of the Company since its acquisition of KMG in October 1996. Mr. Godfrey has
also served as a director and Vice President of KMG since 1985.
CHARLES M. NEFF, JR., age 53, has served as a director of the Company
since its acquisition of KMG in October 1996. Mr. Neff also served as a director
of KMG from 1991 until 1997 and served as Treasurer of KMG from 1993 until 1997.
Mr. Neff served as the Chief Executive Officer and President of Houston National
Bank, N.A. from 1988 to 1998 and is currently a director and Chief Executive
Officer of Sterling Bank-Bayou Bend and President of National Health Capital,
Ltd.
FRED C. LEONARD III, age 54, has served as a director and Secretary of
the Company since its acquisition of KMG in October 1996. Mr. Leonard also
served as a director of KMG from 1992 until 1997 and served as the Secretary of
KMG since 1993. Mr. Leonard has served as the Chairman of the Board, Chief
Executive Officer and President of Valves Incorporated of Texas, Inc., a
manufacturing company located in Houston, Texas since 1972. Mr. Leonard also
currently serves as the Chairman of the Board and Treasurer of Agrimpex, Inc., a
company that acts as a manufacturers' representative promoting sales of
equipment and services in Turkey, and as Secretary of North Star Tours, Inc., a
travel agency specializing in tours to Turkey.
GEORGE W. GILMAN, age 55, has served as a director of the Company since
its acquisition of KMG in October 1996 and also served as a director of KMG from
1995 until 1997. Mr. Gilman has served as the Chief Executive Officer, President
and as a director of Commerce Securities
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Corporation, a National Association of Securities Dealers, Inc. member firm,
since 1982. He practiced law with the law firm of George Gilman, P.C. from
1986 to 1998 and since 1998 has practiced with the law firm of Wilbanks and
Gilman, P.C.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES FOR DIRECTOR.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has two committees, an Audit Committee and a
Compensation Committee, each composed of at least two independent directors. The
Audit Committee, composed of Messrs. Leonard, Neff and Gilman, makes
recommendations to the Board of Directors regarding the independent public
accountants of the Company and the annual audit of the Company's financial
statements and accounts. The Compensation Committee, composed of Messrs.
Leonard, Neff and Hatcher, makes recommendations to the Board of Directors
regarding compensation for the Company's executive officers, directors,
employees and agents. During fiscal 1999, the Audit Committee held two meetings
and the Compensation Committee held one meeting.
COMPENSATION OF DIRECTORS
Each director, including directors who were employees of the Company,
received a fee in fiscal 1999 for attending meetings of the Board of Directors.
The fee was $400 for each monthly meeting until February 1999 when the fee
changed to $500 for each meeting. The fee for the annual meeting was $1,000.
Directors of KMG also received a fee of $350 for each meeting. Directors are
reimbursed for out-of-pocket expenses incurred in attending meetings and for
other expenses incurred in performing in their capacity as directors. During
fiscal 1999 the Board of Directors of the Company held twelve meetings and the
board of directors of KMG held one meeting. The Board of Directors has
determined that in fiscal 2000 it will meet quarterly and that a fee of $1,500
will be paid for attending those meetings.
MANAGEMENT
Set forth below is a description of the backgrounds of certain
significant employees of the Company and KMG in addition to Messrs. Hatcher and
Godfrey, whose backgrounds are described above.
THOMAS H. MITCHELL, age 55, has served as KMG's Vice President since
1994. Mr. Mitchell has been employed by KMG since 1988 in various capacities,
including general sales manager and since July, 1998 General Manager.
JACK VERNIE, age 55, has served as Controller of the Company since its
acquisition of KMG in October 1996. Mr. Vernie has also served as Controller of
KMG since 1994. Prior to his employment with KMG, Mr. Vernie served as
Controller of Golden West Refining Company, a petroleum refining company
located in Santa Fe Springs, California, from 1983 to 1993.
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EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation paid
to its chief executive officer, its other most highly compensated executive
officer and an executive officer of a subsidiary of the Company for the fiscal
years ended July 31, 1999, 1998 and 1997. None of the Company's other officers
or directors received cash or non-cash compensation in excess of $100,000 for
the fiscal year ended July 31, 1999.
SUMMARY COMPENSATION TABLE
SHARES
ANNUAL UNDERLYING
NAME AND COMPENSATION (1) OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS GRANTED COMPENSATION (2)
David L. Hatcher.............. 1999 276,350 181,363 22,017
President 1998 276,250 147,300 30,150
1997 274,625 147,000 31,891
Bobby D. Godfrey.............. 1999 82,750 6,000 3,308
Vice President 1998 81,250 148,281 1,000 14,869
1997 84,241 2,000 12,325
Thomas H. Mitchell............ 1999 125,000 63,171 15,000 5,027
Vice President (KMG 1998 97,950 28,000 7,500 5,492
only) 1997 95,687 17,000 2,819
(1) Salary includes directors' fees paid to each of Mr. Hatcher and Mr.
Godfrey for serving as directors of the Company and KMG.
(2) Includes payments made by the Company under its 401(k) Profit
Sharing Plan and for David L. Hatcher the economic benefit of premiums paid by
the Company under certain split dollar life insurance agreements. In fiscal
1999, the economic benefit of the split dollar agreements for Mr. Hatcher was
$15,957.
OPTION GRANTS IN FISCAL YEAR 1999
SHARES OF
COMMON STOCK PERCENT OF TOTAL
UNDERLYING GRANTED TO EXERCISE PRICE EXPIRATION
NAME OPTIONS GRANTED EMPLOYEES ($/SH) DATE
Thomas H. Mitchell............ 15,000 60.0% 5.125 (1)
(1) Options expire ten years after becoming vested. Vesting is twenty
percent of the total shares per year and the vesting period begins on the date
of grant, September 16, 1998.
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AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1999 AND FISCAL YEAR-END VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS FY99: OPTIONS:
SHARES ACQUIRED ON (#) EXERCISABLE/ ($) EXERCISABLE/
NAME EXERCISE (#) UNEXERCISABLE UNEXERCISABLE
Bobby D. Godfrey................... 0 1,000/0 $500/$0
Thomas H. Mitchell................. 0 45,171/21,000 $209,086/$375
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 30,
1999 with regard to the beneficial ownership of Common Stock by (i) each person
known to the Company to be the beneficial owner of 5% or more of its
outstanding Common Stock, (ii) the executive officers and directors of the
Company individually and (iii) the officers and directors of the Company as a
group. All addresses are in care of the Company, 10611 Harwin Drive, Suite
402, Houston, Texas 77036.
NUMBER OF
NAME SHARES OWNED PERCENT
David L. Hatcher.................................. 5,073,003 72.47
Bobby D. Godfrey (2).............................. 434,497 6.21
Fred C. Leonard III (1) (2)....................... 954,500 13.63
George W. Gilman (2) ............................. 2,000 .03
Charles M. Neff, Jr.(2)........................... 23,237 .33
Thomas H. Mitchell (KMG executive
officer) (2) ..................................... 48,171 .68
Directors and executive officers as a group
(6 persons) ...................................... 6,535,408 92.67
(1) Includes shares held by Valves Incorporated of Texas, Inc., a
company in which Mr. Leonard is an officer and a principal shareholder.
(2) The ownership shown in the table includes shares of Common Stock
that may be acquired within 60 days on the exercise of outstanding stock options
under the Company's 1996 Stock Option Plan as follows: Mr. Godfrey - 1,000
shares, Mr. Leonard - 1,000 shares, Mr. Gilman - 1,000 shares, Mr. Neff - 1,000
shares and Mr. Mitchell - 48,171 shares; and for the entire group - 52,171
shares.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company, the Company knows of no failure in Section 16(a)
beneficial ownership reporting compliance except that due to an inadvertent
administrative oversight Mr. Neff's Form 4 for August, October and December 1998
reporting five purchases and Mr. Godfrey's Form 5 reporting six previously
unreported gifts were filed late.
TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS AND OTHERS
In August, 1998, the Company purchased for $200 thousand a
participation in a loan by Sterling Bank to National Health Capital, Ltd.
("NHC"), a limited partnership engaged in purchasing medical receivables. In
November, 1998, the Company made a further loan of $200 thousand to NHC. At
the time of these transactions, Messrs. Hatcher, Neff and Gilman were
directors of the general partner of NHC, Messrs. Hatcher and Neff each 8%
limited partners in NHC and Mr. Neff was president of NHC. NHC ceased
operations in 1999 and is now in the process of recovering on its assets and
winding up its business. Both loans have been modified and renewed. The
participation loan bears no interest and is due on August 20, 2000. The
second loan bears interest at 12% per annum and is due on September 30, 2000.
The participation loan has been partially guaranteed by Mr. Neff and both the
participation loan and the second loan have been guaranteed by Mr. Hatcher.
At the end of fiscal 1999, the aggregate balance owing on the two loans was
$325 thousand.
The Company loaned $200 thousand to David L. Hatcher in fiscal 1998.
That indebtedness was renewed, extended and modified as of May, 1999 and is
payable in seven annual installments of approximately $29 thousand plus interest
at eight percent (8%) per annum. As of the end of fiscal 1999, accrued interest
on the note was approximately $21 and the principal balance was $200 thousand.
The Company also loaned $218 thousand to Mr. Hatcher in fiscal 1992.
That indebtedness plus advances in subsequent fiscal years is evidenced by an
unsecured promissory note dated July 15, 1994 in the principal amount of
approximately $253 thousand. The promissory note provides for semimonthly
payments of $1 thousand, including interest at 6.5% per year, beginning on
January 15, 1995. The amount owing under the promissory note was approximately
$237 thousand and $245 thousand at the end of fiscal years 1999 and 1998,
respectively.
In February 1998, the split dollar insurance agreement between the
Company and Mr. Godfrey was terminated. The Company released the collateral
assignment of the insurance policy bought under the plan on Mr. Godfrey and he
signed a non interest bearing promissory note payable to the Company for
$170,899.54, the amount of insurance premiums paid on behalf of Mr. Godfrey by
the Company under the split dollar insurance plan. Premiums of approximately $39
thousand and $77 thousand were paid by the Company in fiscal years 1999 and
1998, respectively.
Mr. Godfrey entered into an employment agreement with the Company in
February 1998 having a term of seven years and containing a covenant not to
compete.
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PROPOSAL TO RATIFY THE APPOINTMENT
OF INDEPENDENT AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP as
independent accountants and auditors to conduct the annual audit of the
Company's accounts for the fiscal year 2000. Although action by the shareholders
in this matter is not required, the Board of Directors believes that it is
appropriate to seek shareholder ratification of this appointment in light of the
important role played by the independent auditors in maintaining the
integrity of the Company's financial controls and reporting. If ratification
of the appointment is not approved, the Board of Directors will reconsider
the appointment.
Representatives of Deloitte & Touche LLP will be present at the Annual
Meeting and will have an opportunity to make a statement if they desire. They
will be available to respond to appropriate questions from shareholders at the
Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT ACCOUNTANTS AND AUDITORS.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any shareholder who intends to present a proposal at the 2000 Annual
Meeting of Shareholders must file such proposal with the Company by June 30,
2000, for possible inclusion in the Company's proxy statement and form of proxy
relating to that meeting.
OTHER MATTERS
The Board of Directors knows of no matters other than those stated
above which are to be brought before the Annual Meeting. However, if any such
other matters should be presented for consideration and voting, the persons
named in the proxy to vote thereon will do so in accordance with their judgment.
By Order of the Board of Directors,
Fred C. Leonard III
Secretary