DEF 14A 1 irp14a.txt NOTICE OF ANNUAL MEETING & PROXY 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) 92)) [x] Definitive proxy statement [ ] Definitive additional materials [ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12 Industrial Rubber Products, Inc. ------------------------------------------------------ (Name of Registrant as Specified in Its Charter) ----------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of filing fee (Check the appropriate box): [x] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6 (i) (1) and 0-11. (1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------ (2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ----------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ---------------------------------------------------------------------- (5) Total fee paid: ------------------------------------------------------------------------ [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11 (a) (2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount previously paid: ------------------------------ (2) Form, schedule or registration statement no.: ---------------------------------------------- (3) Filing party: ---------------------------------------------- (4) Date filed: ---------------------------------------------- Industrial Rubber Products, Inc. 3516 East 13th Avenue Hibbing, Minnesota 55746 April 7, 2003 NOTICE OF ANNUAL MEETING and PROXY STATEMENT For the Annual Meeting of Stockholders of Industrial Rubber Products, Inc. To Be Held on May 22, 2003 NOTICE OF ANNUAL MEETING To be held Thursday, May 22, 2003 To the Stockholders: The Annual Meeting of the Stockholders of Industrial Rubber Products, Inc., a Minnesota Corporation will be held on Thursday, May 22, 2003 at 10:00 a.m., Central Time, at the Hibbing Park Hotel, Hibbing, MN for the following purposes: (1) To elect six directors of the Company to serve for the ensuing year, and (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors recommends a vote IN FAVOR of each of the director nominees. The Board of Directors set April 10, 2003 as the record date for the determination of stockholders entitled to vote at the Annual Meeting of Stockholders. Only Stockholders of record at the close of business on that date will be entitled to receive notice of and to vote at the meeting. All stockholders are cordially invited and encouraged to attend the meeting in person. Even if you expect to attend the meeting, you are requested to sign the enclosed proxy and return it promptly in the accompanying envelope. Stockholders who execute proxies retain the right to revoke them at any time before they are voted. The Company's Annual Report for 2002 is being mailed to the stockholders with this Notice. By Order of the Board of Directors, Christopher M. Liesmaki Secretary Hibbing, Minnesota April 7, 2003 Industrial Rubber Products, Inc. 3516 East 13th Avenue Hibbing, Minnesota 55746 PROXY STATEMENT GENERAL The Annual Meeting of Stockholders of Industrial Rubber Products, Inc. ("Company") will be held on May 22, 2003 at 10:00 a.m. Central Time at the Hibbing Park Hotel, Hibbing, Minnesota for the purposes set out in the Notice of Annual Meeting of Shareholders. This Proxy Statement, form of Proxy and Annual Report are first being mailed to stockholders on or about April 17, 2003. The only business that the Board of Directors intends to present or knows will be presented is the election of directors. The proxy also confers discretionary authority upon the persons named therein, or their substitutes, to vote on any other business that may properly come before the meeting. OUTSTANDING SHARES AND VOTING RIGHTS The enclosed proxy is solicited by the Board of Directors of the Company and will be voted at the Annual Meeting and any adjournment of the meeting. The enclosed proxy when properly signed, dated and returned to the Company, will be voted by the proxies at the annual meeting as directed. Signed proxy cards returned without direction about business to be transacted at the meeting will be voted in favor of the election of Daniel O. Burkes, Paul A. Friesen, Christopher M. Liesmaki, James D. Mackay, John R. Ryan, Jr. and Gabriel Berczely. Unless contrary instructions are indicated on the proxy, all shares represented by valid proxies will be voted "FOR" the election of all nominees for director named herein. Each shareholder will be entitled to cast one vote in person or by proxy for each share of Common Stock held by the shareholder. Only shareholders of record at the close of business on April 10, 2003, the record date, will be entitled to vote at the meeting. Common Stock, $.001 par value per share, of which there were 5,437,205 shares outstanding on the record date, is the only class of outstanding voting securities issued by the Company. Each share is entitled to cast one vote on each proposal before the meeting. There is no right of cumulative voting. Votes cast by proxy or in person at the Annual Meeting will be tabulated by the election inspectors appointed for the meeting and will determine whether or not a quorum is present. The election inspectors will treat abstentions as shares that are present and entitled to vote for purposes of determining the presence of a quorum but as unvoted for purposes of determining the approval of any particular matter submitted to the shareholders for a vote. If a broker indicates on the form of proxy that the broker does not have discretionary authority as to certain shares to vote on a particular matter, those shares will be considered to be present for the purpose of determining whether a quorum is present, but will not be considered as present and entitled to vote with respect to that particular matter. REVOCABILITY OF PROXY The proxy may be revoked at any time before it is exercised by delivering a written revocation to the Secretary of the Company. Execution of the enclosed form of proxy will not affect a stockholder's right to attend the meeting and vote in person. Any stockholder giving a proxy may also revoke it at any time before it is exercised by attending the meeting and voting in person. Stockholders may vote all their eligible shares if they are personally present at the meeting. When a stockholder votes at the meeting, his or her vote will revoke any proxy previously granted by the stockholder. EXPENSE AND MANNER OF SOLICITATION The cost of preparing and mailing this proxy statement and the solicitation of proxies will be paid by the Company. Solicitations will be made by mail but in some cases may also be made by telephone or personal call of officers, directors or regular employees of the Company who will not be specially compensated for such solicitation. The Company will also pay the cost of supplying necessary additional copies of the solicitation material and the Company's Annual Report for 2002 to the beneficial owners of shares of stock held of record by brokers, dealers, banks and voting trustees, and their nominees. Upon request, the Company will also pay reasonable expenses of record holders for mailing such materials to the beneficial owner. ELECTION OF DIRECTORS Six directors of the Company are to be elected at the Annual Meeting to hold office until the next annual meeting, until their successors are duly elected and qualified, or until their earlier resignation or removal. Unless otherwise directed, proxies will be voted at the meeting for the election of the persons listed below or, in event of an unforeseen contingency, for different persons as substitutes. The Board of Directors is recommending this slate of nominees. Set forth below are the name, age, principal occupation and other information concerning each nominee. Nominees may be contacted through the headquarters of the Company. DANIEL O. BURKES, Director since 1986, Age 51 Mr. Burkes has been the President, Chief Executive Officer, and a Director of the Company since he founded it in 1986. Prior to founding the Company, Mr. Burkes was the Sales and Marketing Director of Irathane Systems Incorporated, a subsidiary of Illinois Tool Works, Inc. Mr. Burkes serves on the Compensation Committee of the Board. PAUL A. FRIESEN, Director since 1998, Age 62 Mr. Friesen is the retired owner of Friesen's Inc. which manufactures, markets and services speciality equipment for mining and other heavy industries. Mr. Friesen serves on the Audit and Compensation Committees of the Board. CHRISTOPHER M. LIESMAKI, Director since 1998, Age 45 Mr. Liesmaki has been with the Company since 1989 and is presently the Vice President and Secretary. He has previously held the positions of Sales Engineer, Quality Assurance Coordinator, Sales and Marketing Manager and General Manager. Mr. Liesmaki is married to a sister-in-law of Daniel O. Burkes. JAMES D. MACKAY, Director since 1998, Age 55 Mr. Mackay is the President of Copper State Specialties, Inc. a mining industry manufacturing and distribution firm located in Globe, Arizona that he founded over 12 years ago. Besides distributing mining supplies, Copper State Specialities manufactures high pressure cleaning equipment. Mr. Mackay serves on the Audit Committee of the Board. JOHN R. RYAN, Jr., Director since 1998, Age 52 Mr. Ryan is a Partner and Chartered Financial Consultant with Ryan-Kasner-Ryan Financial Services, Inc., a financial services and retirement planning firm in Hibbing, Minnesota. Ryan-Kasner-Ryan is an affiliate of CIGNA Financial Advisors, Inc. a broker/dealer and registered investment advisors. Mr. Ryan serves on the Board of Directors of Security Financial Services, Inc. and its wholly owned subsidiary, the Security State Bank of Hibbing. Mr. Ryan serves on the Audit and Compensation Committees of the Board. GABRIEL BERCZELY, Director since 2001, Age 48 Mr. Berczely is currently the Chief Executive Officer of Acotec SA, Chile, which is a licensee of Irathane Systems, Inc. He is a Certified Public Accountant and earned an MBA from Imede, Lausanne, Switzerland. He was previously the Dean of the Business School of Adolfo Ibanez University in Chile. He is currently a board member for several companies in Chile, Agentina, Bolivia and Brazil. OWNERSHIP OF THE COMPANY'S COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding ownership of the Company's Common Stock as of April 7, 2003 by each director and nominee for director; by each of the named Executive Officers; by directors, nominees and Executive Officers as a group; and by other persons who, to the knowledge of the Company, own of record or beneficially more than 5% of the outstanding Common Stock of the Company.
NAME and ADDRESSES OF AMOUNT AND NATURE OF PERCENT OF BENEFICIAL OWNER OR GROUP BENEFICIAL OWNERSHIP CLASS Directors (other than Executive Officers) Paul A. Friesen 21,750(1) * Route 1 Box 436A Detroit Lakes, MN 56501 James D. Mackay 18,750(1) * 2000 Highway 88 Globe, AZ 85501 John R. Ryan, Jr. 23,750(1) * 302 E. Howard St. Hibbing, MN 55746 Gabriel Berczely 51,250(1) * 7701 Parque Empresarial Aconcagua Quillicura Santiago, Chile Executive Officers Daniel O. Burkes 4,225,450(3)(4)(5)(6) 77.71% 3516 East 13th St. Hibbing, MN 55746 Christopher M. Liesmaki 33,300(2) * 3516 East 13th Avenue Hibbing, MN 55746 Directors and all Executive Officers, as a Group (8 persons) 4,374,250(1) 80.45% Five Percent and Greater Shareholders Nancy J. Burkes 4,225,450(7) 77.71% 3804 East 13th St. Hibbing, MN 55746 Trustees of the Daniel O. Burkes 1999 Irrevocable Stock Trust fbo Rian Burkes 700,000 12.87% 3516 East 13th Avenue Hibbing, MN 55746 fbo Nicole C. Burkes 700,000 12.87% 3516 East 13th Avenue Hibbing, MN 55746 *Less than 1%
(1) Includes the following options exercisable within 60 days to acquire shares of common stock: Mr. Friesen 18,750; Mr. Mackay 18,750; Mr. Ryan 18,750; Mr. Berczely 51,250 and all Directors and Executive Officers as a group 130,000. (2) Includes 8,800 shares granted to Mr. Liesmaki on December 30, 1999 under the Company's 1999 Stock Bonus Plan and issued on February 17, 2000 and 22,500 options exercisable within 60 days to acquire shares of common stock for Mr. Liesmaki. (3) Includes 1,400,000 shares held by the trustees of the Daniel O. Burkes 1999 Irrevocable Stock Trust as to which Mr. and Mrs. Burkes disclaim beneficial ownership. (4) Includes 600 shares owned by Nicole C. Burkes, Mr. and Mrs. Burkes' daughter, as to which they disclaim beneficial ownership. (5) Includes 260,000 shares owned by Nelson Roofing, Inc., a Minnesota Corporation wholly owned by Mr. Burkes, and as to which Mr. Burkes has voting and investment power. (6) Includes 1,280,850 shares held by the trustees of the Company's 401K trust, of which Mrs. Burkes does not have the power to vote but does have the power to control the disposition of 207,500 shares of the stock and of which Mr. Burkes has the power to vote and the power to control the disposition of 1,073,350 shares of the stock. (7) Comprised of shares owned directly and indirectly by Daniel O. Burkes, Mrs. Burkes' husband and includes 207,500 shares held by the trustees of the Company's 401K trust of which Mrs. Burkes does not have the power to vote but does have the power to control the disposition of the stock. Because of his holdings individually, and through Nelson Roofing, Inc., Daniel O. Burkes is deemed to be a "controlling" person of the Company within the meaning of Securities Act of 1933, as amended. COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS The Board of Directors of the Company met two times during 2002. Each director attended all of the meetings of the Board during 2002 with the exception of Mr. Berczely who did not attend one meeting. The Board has established two committees, an Audit Committee consisting of Messrs Friesen, Mackay and Ryan and a Compensation Committee consisting of Messrs Burkes, Friesen and Ryan. The Audit Committee has reviewed and discussed the audited financial statements with management and has recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-KSB for filing with the Commission. The Audit Committee has discussed with McGladrey & Pullen, LLP (the Company's independent auditors), all matters required to be discussed by SAS 61. The Audit Committee has received from McGladrey & Pullen, LLP, the written disclosures and letter required by Independence Standards Board Standard No. 1, and have discussed with McGladrey & Pullen, LLP their independence. The Board of Directors had adopted, during the year 2000, a written charter for the audit committee. A copy of the charter is included in Appendix I of this Proxy Statement. It is the opinion of the Company's Board of Directors that all members of the Audit Committee meet the definition of "independent directors" as outlined in the National Association of Securities Dealers (NASD) listing standards Rule 4200(a)(14). The Audit Committtee met one time during 2002. All Committee members participated in all of the meetings. The Compensation Committee is responsible for administrating the Company's compensation plans and approving compensation levels for executive officers and directors. This committee met once during 2002. DIRECTORS' COMPENSATION Compensation for Non-employee Directors has two components, the first being paid in cash, and the second being tied to the Company's Common Stock. Each Non-employee Director receives a fee of $400.00 per day for each Board of Directors' meeting and committee meeting attended. In addition, the Non-employee Directors' compensation is linked directly with the interests of the stockholders through periodic awards of options to purchase Common Stock. The Non-employee Directors' options are issued pursuant to the January 30, 1998 Stock Option Plan. The plan provides for the automatic grant of a non-qualified option to purchase 10,000 shares of common stock, which vests over five years, to each Non-employee Director at the time of the Director's initial election to the Board of Directors, and an automatic grant of a non-qualified option to purchase 2,500 shares of Common Stock at the end of each year during which such non-employee serves as a Director of the Company. The plan authorizes the Board of Directors to increase or decrease the 10,000 share and 2,500 share amounts. All such options are to be granted at an exercise price equal to the fair market value of the Common Stock on the date of the grant. The three Non-employee Directors, Mr. Friesen, Mr. Mackay and Mr. Ryan were granted the 1998 Stock Options for 10,000 shares. By Board action taken on March 25, 1999, the share amounts of the options for the year ending December 31, 1998 were set at 1,250 and options were issued on October 12, 1999. On December 30, 1999, the Board of Directors re-priced the 1998 Stock Options. The re-pricing became effective on February 1, 2000. By Board action taken on October 24, 2000, the share amounts of the options for the year ending December 31, 1999, were set at 2,500 and options were issued on November 29, 2000. By Board action taken on April 1, 2002, the share amounts of the options for the year ending 2000 and 2001 were both set at 2,500 shares. Also on April 1, 2002 50,000 options were issued to Mr. Berczely for joining the Board and an additional 1,250 shares were issued for his membership on the Board for the year 2001. EXECUTIVE COMPENSATION Compensation Committee. The purpose of the Compensation Committee of the Board of Directors is to oversee compensation of directors, officers, and key employees of the Company. The Committee's policy is to insure that compensation programs contribute directly to the success of the Company, including enhanced share value. The Company's Compensation Committee is comprised of two outside directors and Mr. Burkes. Mr. Burkes did not participate in those portions of the Committee's meetings involving his compensation. Executive Compensation Policies and Programs. The Company's non-union compensation programs are designed to attract and retain qualified employees and to motivate them to maximize shareholder value by achieving the Company's strategic goals. There are three basic components to the Company's non-union compensation program: base pay, annual incentive bonus, and long-term, equity-based incentive compensation in the form of stock options and stock bonuses. Each component is established in light of Company and individual performance, compensation levels at comparable companies, equity among employees, and cost effectiveness. In addition, employees are eligible to participate in the Company's 401(k) plan and certain insurance plans. Base Pay. Base pay is designed to be competitive as compared to salary levels for equivalent positions at comparable companies. Actual salary within this competitive framework will depend on the individual's performance, responsibilities, experience, leadership, and potential future contribution. Base pay is administered to remain competitive with the market, yet allow for significant emphasis on incentive bonus compensation in proportion to total annual cash compensation. Annual Incentive Bonus. In addition to base pay, certain non-union employees are eligible to receive an annual cash bonus based on a mix of the Company's and the individual's performance. Performance targets are intended to motivate the Company's employees by providing bonus payments for the achievement of specific financial goals within the Company's business plan. No annual incentive bonuses were paid to any executive officers with respect to fiscal 2001 performance. Christopher Liesmaki received a $5,000 bonus for 2002 performance. Long-Term, Equity-Based Incentive Compensation. The long-term, equity-based compensation program is tied directly to shareholder return. Long-term incentive compensation consists of a Stock Bonus Plan adopted in 1999 and stock options issued under the 1998 Stock Option Plan. Savings and Investment Plan; Benefits. The Company maintains various pension plans for its employees. The executive officers are included in a 401(k) Plan that covers certain Company non-union employees in Minnesota. The 401(k) Plan has minimum eligibility requirements and provides for discretionary contributions by the Company which are distributed based on the Plan's formula. In addition, the Company provides medical and other miscellaneous benefits to its employees, including annual physicals for the executive officers. Annual Reviews. Each year the Compensation Committee reviews its executive compensation policies and programs and determines what changes, if any, are appropriate for the following year. In addition, the Committee reviews the performance of the Chief Executive Officer. With the assistance of the Chief Executive Officer, the Committee reviews the individual performance of the other executive officers. The Committee makes recommendations to the Board of Directors for final approval of all material compensation matters. Chief Executive Officer. Mr. Burkes received a base salary of $175,000 in fiscal 2001, and $175,000 in fiscal 2002. Mr. Burkes was awarded a bonus of $45,200 in 2001 and $60,393 in 2002. Effective January 30, 2003, the Company renewed its employment agreement with Mr. Burkes and set his salary at an annual rate of $175,000. The new base salary was determined at the time of entering into the renewal employment agreement with Mr. Burkes when the Committee considered compensation programs of comparable companies, Mr. Burkes' individual performance and salary history, and the Company's historical and planned performance. Mr. Burkes' renewed agreement provides for the opportunity to earn up to $156,500 in bonuses, subject to the Company achieving certain quarterly and annual financial (operating income) goals. For the fiscal year ending December 31, 2002, Mr. Burkes earned $60,393 in quarterly bonuses and no annual bonus. With respect to stock options and stock bonuses, Mr. Burkes is not compensated with stock. Mr. Burkes is required by his employment agreement to maintain confidentiality of all Company trade secrets and upon termination of employment will be prohibited from participating in a competing venture for a period of two years. The renewed agreement ends on June 30, 2003 unless sooner terminated in accordance with the provisions of the agreement. Tax Deductibility of Executive Compensation. Section 162(m) of the Internal Revenue Code of 1986, as amended, should not affect the deductibility of compensation paid to the Company's executive officers for the foreseeable future. The table below summarizes the compensation of the Chief Executive Officer and the other two Executive Officers of the Company.
SUMMARY COMPENSATION Annual Compensation Long-Term Compensation Payouts Awards ------- ------ Name Other Securities and Restricted Annual Underlying Principal Salary(1) Bonus(1) Stock Comp.(2)(5) Options Position Year ($) ($) Awards ($) (#) -------------------------------------------------------------------------------------------------- Daniel O. Burkes 2000 175,000 60,000 None 5,724 None Chairman and Chief 2001 175,000 45,200 None 6,913 None Executive Officer 2002 175,000 60,393 None 11,190 None Christopher M. Liesmaki 2000 100,022 None None 3,777 None Vice-President and 2001 100,022 None None 3,551 None Chief Operating Officer 2002 100,022 5,000 None 6,266 None
(1) Actual salary and bonus earned. (2) Perquisites and other personal benefits, securities or property do not in the aggregate exceed the threshold reporting level of the lesser of either $60,000 or 10% of total salary and bonus reported for the named Executive Officer. (3) The Company has a salary savings plan and trust (401(K) Plan) which covers the named Executives and certain other employees of the Company. The amounts shown in 2000, 2001 and 2002 for additional compensation include the following Company contributions to the 401(K) Plan for the named Executive Officers: Daniel O. Burkes $4,912, 2000; $6,193, 2001; $10,450, 2002. Christopher M. Liesmaki $3,120, 2000; $3,551, 2001; $ 5,526, 2002. The Company did not grant any options to Executive Officers during the fiscal year ending December 31, 2002. The table below sets forth information as to number and unexercised options as of December 31, 2002, for the Executive Officers listed in the Summary Compensation Table. Based on the closing price of $.25 for the Company's Common Stock on December 31, 2002 the exercise price of all options that have been granted to Executive Officers was in excess of the market price of the underlying stock.
AGGREGATED OPTION EXERCISES IN 2002 AND FISCAL YEAR-END OPTION VALUES Number of Securities Value of Unexercisable Underlying Unexercised In-the-Money Shares Options at Year End (#) Options at Year End Acquired Value Exercisable/ Exercisable/ Name on Exercise Realized Unexercisable Unexercisable ($) ---------------------------------------------------------------------------------------------------- Daniel O. Burkes N/A N/A N/A N/A Christopher M. Liesmaki -0- -0- 22,500/30,000 N/A
As described above, the Board of Directors on December 30, 1999 determined to re-price the Stock Options granted during 1998. Options for a total of 166,800 shares were re-priced. Of those re-priced options, options for 30,000 shares had been issued to Non-employee Directors and the balance, 136,800, represented options for shares issued to employees. The re-pricing became effective on February 1, 2000. As of April 7, 2002 there were a total of 199,900 stock options outstanding. The following table summarizes the repricing of those options for the Executive Officers:
OPTION REPRICING Length of Number of original securities option term underlying Market price remaining at options of stock at Exercise New date of repriced or time of price at time Exercise repricing or Name Date amended repricing ($) of repricing ($) Price ($) amendment Daniel O. Burkes N/A N/A N/A N/A N/A N/A Christopher M. Liesmaki February 1, 2000 30,000 1.05 4.50 2.00 3 years
CERTAIN TRANSACTIONS Since August 1992, the Company has had an ongoing business relationship with Nelson Roofing, Inc. a corporation owned by Daniel O. Burkes, the majority stockholder of the Company. The Company had no payables or receivables as of December 31, 2001 and December 31, 2002. Under the terms of its agreement with Nelson Roofing, Inc. the Company provides management and administrative services based upon actual employee cost plus overhead and receives a management fee for such services. Management fees received from Nelson Roofing, Inc. amounted to approximately $83,000 in 2001, and there were no fees in 2002. The Company paid $7,158 in 2001 and $9,642 in 2002, respectively, to Nelson Roofing, Inc. for construction services. The Company rents warehouse space from Capio Management Group, Inc., a corporation owned by Daniel O. Burkes which amounted to $6,000 in 2001 and $9,400 in 2002. The Company employs Richard H. Glad, a brother in law of Daniel O. Burkes as a salesman. Mr. Glad's compensation for the year 2002 was $55,880. The Company employs Nancy J. Burkes, the wife of Daniel O. Burkes in the Human Resources Department. Mrs. Burkes compensation for the year 2002 was $31,640. The Company employs Nicole Burkes, the daughter of Daniel O. Burkes as a Quality Insurance Coordinator and translator. Ms. Burkes compensation for the year 2002 was $14,000. The Company employs Rian Burkes, the son of Daniel O. Burkes as a Production Supervisor trainee. Mr. Burkes compensation for the year 2002 was $13,308. The Company has for a number of years used the services and products provided by insurance companies that Ryan-Kasner-Ryan Financial Services represent. Mr. John R. Ryan, Jr., a Director, is a partner with Ryan-Kasner-Ryan Financial Services. Effective January 1, 2000, the Company, through its wholly owned subsidiary, Irathane Systems, Inc. entered into a lease with Daniel O. Burkes for the lease of the building then occupied by Irathane Systems, Inc. and formerly owned by Mesaba Realty Company, Inc. The terms of the Lease between Burkes and Irathane Systems, Inc. are identical to the previous lease with the following modifications: the amount of space in the building leased was increased from approximately 70% to approximately 75%, the rent was changed from $9,062 a month to $9,090 a month and Irathane Systems was given an option to purchase the building at any time during the three year term for $650,000, the price that Mr. Burkes had paid for the building. The previous lease had no purchase option. On June 30, 2000, the Company entered into a lease addendum agreement with Daniel O. Burkes, extending the term of the lease on the Hibbing Irathane facility for an additional seven years, through December 31, 2009. The addendum also extended the option to purchase. In addition, since January 1, 2002 the Company has been leasing the remaining 25% of the building on a month to month basis in the amount of $3,060 plus 25% of the real estate taxes, pursuant to a second addendum to the lease. The Company accrued unpaid salary and other expenses to the majority stockholder of $11,700 and $90,242 as of December 31, 2002 and 2001, respectively. The Company had advances to the majority stockholder of $39,947 and $112,000 as of December 31, 2002 and 2001, respectively. No new advances or loans have been made to the President since the passage of the Sarbanes-Oxley Act of 2002. Management believes that all of these transactions and relationships during 2002 were on terms that were reasonable and competitive. Additional transactions and relationships of this nature may be expected to take place in the ordinary course of business in the future. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that the Company's Executive Officers, Directors and Beneficial Owners of 10% or more of the Company's Common Stock file initial reports of ownership and of changes in ownership with the Securities and Exchange Commission. Executive Officers and Directors and 10% Beneficial Owners are required by securities regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to the Company and written representations from the Company's Executive Officers and Directors, the Company believes that all filing requirements were met by the Company's Executive Officers, 10% Beneficial Owners, and Directors during 2002. Based on the Company's review of the forms, all transactions involving the Executive Officers, 10% Beneficial Owners and Directors have been reported on a timely basis. INCORPORATION BY REFERENCE Certain information provided under Committees and Meetings of the Board of Directors, Executive Compensation, and Independent Public Accountants (including the report of the actions of the Audit Committee, the independence of the Audit Committee Members and the report of the Compensation Committee's review of the Chief Executive Officer's salary) are not deemed filed with the Securities and Exchange Commission and shall not be deemed incorporated by reference in to any prior or future filings made by the Company under the 1933 Act or the 1934 Act, except to the extent that the Company specifically incorporates such information by reference. STOCKHOLDER PROPOSALS AND NOMINATIONS Any shareholder proposal intended to be considered for including in the Proxy Statement for presentation at the Annual Meeting to be held in 2004 must be received by the Company by December 26, 2003. The proposal must be in accordance with the provisions of Rule 14a-8 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934. It is suggested the proposal be submitted by certified mail, return receipt requested. Shareholders who intend to present a proposal at the Annual Meeting to be held in 2004 without including such proposal in the Company's proxy statement must provide the Company notice of such proposal no later than March 8, 2004. The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. INDEPENDENT PUBLIC ACCOUNTANTS McGladrey & Pullen, LLP has been the Company's independent public accounting firm since 1989. During 2002 the Company engaged McGladrey & Pullen, LLP to examine and report on the Company's annual financial statements, and related matters. The Board of Directors has engaged McGladrey & Pullen, LLP to act in similar capacities for 2003. A representative of McGladrey & Pullen, LLP is not expected to be present at the Annual Meeting either to respond to questions or to make any comments. The aggregate fees for professional services rendered by McGladrey & Pullen, LLP and associated entities for 2002 are as follows: Audit and Review of quarterly 10-QSB's $ 63,500 Financial Information System Design and Implementation Fees 0 All Other Fees $ 12,000 The Audit Committee of the Board of Directors did consider the services provided by McGladrey & Pullen, LLP and associated entities, other than with respect to the audit fees, in considering the independence of the auditors. By Order of the Board of Directors Christopher M. Liesmaki Secretary Hibbing, Minnesota April 7, 2003 IN THE INTEREST OF DISCLOSURE AND EFFICIENCY THE COMPANY HAS FURNISHED WITH ITS 2002 ANNUAL REPORT, WHICH IS BEING PROVIDED WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS SOLICITED AND TO EACH PERSON REPRESENTING THAT AS OF THE RECORD DATE FOR THE MEETING HE OR SHE WAS A BENEFICIAL OWNER OF THE SHARES ENTITLED TO BE VOTED AT THE MEETING, A COPY OF THE COMPANY'S 2002 ANNUAL REPORT (FORM 10-KSB) TO THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE SCHEDULES THERETO. ANY REQUEST FOR ADDITIONAL COPIES OF THE FORM 10-KSB SHOULD BE DIRECTED TO CHRISTOPHER M. LIESMAKI, SECRETARY, AT THE ADDRESS SET FORTH ON THE FIRST PAGE OF THIS PROXY STATEMENT. APPENDIX I Industrial Rubber Products, Inc. Board of Directors Audit Committee Charter Organization There shall be a committee of the Board of Directors to be known as the Audit Committee. The Audit Committee shall be composed of directors who are independent of the management of the corporation and are free of any relationship that, in the opinion of the Board of Directors, would interfere with their exercise of independent judgment as a committee member. Statement of Policy The Audit Committee shall provide assistance to the corporate directors in fulfilling their responsibility to the shareholders, potential shareholders, and investment community relating to corporate accounting, reporting practices of the corporation, and the quality and integrity of the financial reports of the corporation. In so doing, it is the responsibility of the Audit Committee to maintain free and open means of communication between the directors, the independent auditors, and the financial management of the corporation. Responsibilities In carrying out its responsibilities, the Audit Committee believes its policies and procedures should remain flexible, in order to best react to changing conditions and to ensure to the directors and shareholders that the corporate accounting and reporting practices of the corporation are in accordance with all requirements and are of the highest quality. In carrying out these responsibilities, the Audit Committee will: o Review and recommend to the directors the independent auditors to be selected to audit the financial statements of the corporation and its divisions and subsidiaries. o Meet with the independent auditors and financial management of the corporation to review the scope of the proposed audit for the current year and the audit procedures to be utilized, and at the conclusion thereof review such audit, including any comments or recommendations of the independent auditors. o Review with the independent auditors, and financial and accounting personnel, the adequacy and effectiveness of the accounting and financial controls of the corporation, and elicit any recommendations for the improvement of such internal control procedures or particular areas where new or more detailed controls or procedures are desirable. Particular emphasis should be given to the adequacy of such internal controls to expose any payments, transactions, or procedures that might be deemed illegal or otherwise improper. Further, the Audit Committee periodically should review corporate policy statements to determine their adherence to the code of conduct. o Review the financial statements contained in the annual report to shareholders with management and the independent auditors to determine that the independent auditors are satisfied with the disclosure and content of the financial statements to be presented to the shareholders. Any changes in accounting principles should be reviewed. o Provide sufficient opportunity for the independent auditors to meet with the members of the Audit Committee without members of management present. Among the items to be discussed in these meetings are the independent auditors' evaluation of the corporation's financial, accounting, and auditing personnel, and the cooperation that the independent auditors received during the course of the audit. o Review accounting and financial human resources and succession planning within the company. o Submit the minutes of all minutes of the Audit Committee to, or discuss the matters discussed at each committee meeting with, the Board of Directors. o Investigate any matter brought to its attention within the scope of its duties, with the power to retain outside counsel for this purpose if, in its judgment, that is appropriate. INDUSTRIAL RUBBER PRODUCTS, INC. ANNUAL MEETING OF STOCKHOLDERS May 22, 2003 10:00 a.m. Hibbing Park Hotel 1402 East Howard Street Hibbing, MN 55746 Industrial Rubber Products, Inc. 3516 East 13th Avenue, Hibbing, Minnesota 55746 PROXY -------------------------------------------------------------------------------- This proxy is solicited on behalf of the Board of Directors. The undersigned stockholder of Industrial Rubber Products, Inc. hereby appoints John R. Ryan, Jr. and Christopher M. Liesmaki, or any of them with full power of substitution to act as proxies at the Annual Meeting of Stockholders of the Company to be held at Hibbing, Minnesota on May 22, 2003 with authority to vote as directed by this Proxy at the meeting, and any adjournments of the meeting, all shares of the common stock of the Company registered in the name of the undersigned. IMPORTANT - THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE. See reverse for voting instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we've provided or return it to Industrial Rubber Products, Inc. c/o Shareowner Services, P.O. Box 64873, St. Paul, MN 55164-0873. Please detach here -------------------------------------------------------------------------------- The Board of Directors recommends a Vote FOR Item 1. 1. Election of directors Nominees: 01 Daniel O. Burkes 04 James D. Mackay [ ]Vote FOR [ ]Vote WITHHELD 02 Paul A. Friesen 05 John R. Ryan, Jr. all nominees from all nominees 03 Christopher M. Liesmaki 06 Gabriel Berczely (except as marked) (Instructions: To withhold authority to vote for any indicated nominee, [ ] write the number(s) of the nominee(s) in the box provided to the right.) [ ] 2. In their discretion, upon such matters as may properly come before the meeting. [ ] Vote FOR [ ] Vote WITHHELD THE PROXY WILL BE VOTED AS DIRECTED. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1, WHICH IS THE MANNER IN WHICH THIS PROXY WILL BE VOTED IF NO DIRECTION IS MADE. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. Address change? Mark Box [ ] Date , 2003 indicate changes below: ------------------------------------------ [ ] [ ] Signature(s) in Box Please sign exactly as your name or names appear. If jointly held, each owner must sign. Executor, administrators, trustees, officers, etc. should give full title as such.