FRIEDMAN INDUSTRIES, INCORPORATED

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To the Shareholders of Friedman Industries, Incorporated:

      The Annual Meeting of Shareholders of Friedman Industries, Incorporated will be held in the offices of Fulbright & Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston, Texas, on September 8, 2005, at 11:00 a.m. (local time), for the following purposes:

      The Board of Directors has fixed the close of business on July 15, 2005, as the record date for the determination of shareholders entitled to receive this notice and to vote at the meeting.

      All shareholders are cordially invited to attend the meeting.

July 29, 2005

Houston, Texas

IMPORTANT

      Whether or not you expect to attend the meeting, please sign and date the enclosed proxy card and mail it in the enclosed envelope to assure representation of your shares. If you attend the meeting, you may vote either in person or by your proxy.

FRIEDMAN INDUSTRIES, INCORPORATED

PROXY STATEMENT

For Annual Meeting of Shareholders

To Be Held on September 8, 2005

       This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of Friedman Industries, Incorporated (the “Company”), 4001 Homestead Road, Houston, Texas 77028 (telephone number 713-672-9433) to be used at the Annual Meeting of Shareholders to be held at 11:00 a.m. on Thursday, September 8, 2005 (the “Annual Meeting”), in the offices of Fulbright & Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston, Texas, for the purposes set forth in the foregoing notice of the meeting. Properly executed proxies received in time for the meeting will be voted as directed therein, unless revoked in the manner provided hereinafter. As to any matter for which no choice has been specified in a proxy, the shares represented thereby will be voted by the persons named in the proxy (i) for the election as director of the nominees listed herein and (ii) in the discretion of such persons, in connection with any other business that may properly come before the meeting. If the enclosed form of proxy is executed and returned, it may nevertheless be revoked by the shareholder at any time before it is exercised pursuant to either the shareholder’s execution and return of a subsequent proxy or the shareholder’s voting in person at the Annual Meeting.

      At the close of business on July 15, 2005, there were 7,139,747 shares of Common Stock, $1.00 par value, of the Company (“Common Stock”) outstanding. Holders of record of Common Stock on such date will be entitled to one vote per share on all matters to come before the Annual Meeting.

      The holders of a majority of the total shares of Common Stock issued and outstanding on the record date, whether present in person or represented by proxy, will constitute a quorum for the transaction of business at the Annual Meeting. The shares held by each shareholder who signs and returns the enclosed form of proxy will be counted for purposes of determining the presence of a quorum at the Annual Meeting.

      The Company’s Annual Report to Shareholders for the fiscal year ended March 31, 2005, including financial statements, is enclosed with this proxy statement. The Annual Report to Shareholders does not constitute a part of the proxy soliciting materials. This proxy statement is being mailed on or about July 29, 2005, to shareholders of record as of July 15, 2005.

ELECTION OF DIRECTORS

      The persons who are elected directors will hold office until the next Annual Meeting of Shareholders and until their successors are elected and shall qualify. The Board of Directors currently consists of eight members.

      It is intended that the persons appointed as proxies to act on behalf of shareholders in the enclosed proxy will vote for the election of the eight nominees named below. The management of the Company does not contemplate that any of such nominees will become unavailable to serve as a director. However, should any nominee be unable to serve as a director or become unavailable for any reason, proxies which do not withhold authority to vote for that nominee may be voted for another nominee to be selected by the Nominating Committee of the Board of Directors.

      The enclosed form of proxy provides a means for shareholders to vote for all of the nominees for director listed therein, to withhold authority to vote for one or more of such nominees or to withhold authority to vote for all of such nominees. Each director nominee receiving a plurality of votes cast will be elected director. The withholding of authority by a shareholder, abstentions and broker non-votes will be considered as not voted and will have no effect on the results of the election of those nominees.

      The following table sets forth the names of the nominees for election to the Board of Directors, the principal occupation or employment of each of the nominees, the period during which each nominee has served as a director of the Company and the age of each nominee:

BOARD OF DIRECTORS

      The business and affairs of the Company are managed under the direction of the Board of Directors. In addition to regular Board meetings, the Board of Directors of the Company has established a program for the independent directors to meet at regularly scheduled executive sessions without management present as often as necessary, but not less than once in each fiscal year. Mr. Weaver shall be the presiding director for each executive session.

Director Qualifications

      As set forth in the Charter of the Nominating Committee, a majority of the members of the Board of Directors must qualify as independent directors in accordance with the applicable provisions of the Securities Exchange Act of 1934 (the “Exchange Act”), and the rules promulgated thereunder, and the applicable rules of the American Stock Exchange. In addition, the nominating committee shall consider the following qualifications in assessing director candidates: (a) an understanding of business and financial affairs and the complexities of a business organization; (b) a record of competence and accomplishments through leadership in industry, education, the professions or government; (c) a genuine interest in representing all of the shareholders and the interest of the Company overall; (d) a willingness to maintain a committed relationship with the Company as a director; (e) a willingness and ability to spend the necessary time required to function effectively as a director; (f) a reputation for honesty and integrity; and (g) such other additional qualifications as the nominating committee may establish from time to time, taking into account the composition and expertise of the entire Board of Directors.

Identifying and Evaluating Nominees for Directors

      The nominating committee utilizes a variety of methods for identifying and evaluating nominees for director. The nominating committee assesses the appropriate size of the Board, and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the nominating committee will consider various potential candidates for director. Candidates may come to the attention of the nominating committee through current Board members, professional search firms, shareholders or other persons. These candidates will be evaluated at regular or special meetings of the nominating committee, and may be considered at any point during the year. In evaluating such nominations, the nominating committee seeks to achieve a balance of knowledge, experience and capability on the Board.

Board of Directors Independence

      The Board of Directors has affirmatively determined that all members of the Board, with the exception of Messrs. J. Friedman, H. Friedman and Crow, are independent and have no material relationship with the Company that would interfere with the exercise of independent judgment.

Attendance at the Annual Meeting of Shareholders

      The Company’s Board of Directors holds a regular meeting in conjunction with the Annual Meeting of Shareholders. Therefore, the directors are encouraged to and generally attend the Company’s Annual Meeting of Shareholders. All eight directors attended the 2004 Annual Meeting of Shareholders.

Communications with the Board

      Shareholders may contact the Company’s directors, a committee of the Board of Directors, the Board of Directors’ independent directors as a group or the Board of Directors generally, by mailing the communication to Friedman Industries, Incorporated, Shareholder Communications, P.O. Box 21147, Houston, Texas 77226, to the attention of the Corporate Secretary. Communications that are intended specifically for the independent directors should be sent to the same address, to the attention of the Presiding Director of the Executive Sessions.

      Proposals submitted by shareholders for inclusion in the Company’s annual proxy statement will not be considered shareholder communications under this policy and should be handled in accordance with the rules and regulations promulgated from time to time by the Securities and Exchange Commission and the procedures described below in this proxy statement.

Director Compensation

      With the exception of directors who are employees of the Company, directors are currently paid $1,000 per quarter and receive annually 400 shares of Common Stock pursuant to the Company’s 2000 Non-Employee Director Stock Plan. In addition, the chairman of the audit committee and members of such committee receive $1,000 and $750, respectively, for each committee meeting attended. Directors who are employees of the Company receive no compensation for serving as director.

Board of Directors Affiliations

      Messrs. Harold Friedman and Jack Friedman are brothers. Mr. Hall is associated with Fulbright & Jaworski L.L.P., legal counsel for the Company. Mr. Williams is Managing Director of Accordia of Texas, Inc. which provides various insurance services to the Company.

Agreements with Harold Friedman

      In December 2004, the Company entered into two agreements with Harold Friedman, former Vice Chairman of the Board and a director of the Company. Pursuant to one of the agreements, a Stock Purchase Agreement, the Company purchased 624,207 shares of common stock of the Company from Mr. Friedman for an aggregate purchase price of $2,767,734, or approximately $4.434 per share. Pursuant to the other agreement, a Service Agreement, effective as of December 31, 2004, Mr. Friedman resigned as Vice Chairman of the Board and retired as a full-time employee of the Company. The Service Agreement provides that Mr. Friedman will remain a part-time employee of the Company at an annual salary of $13,200 for an initial term beginning January 1, 2005, and ending December 31, 2009 (subject to earlier termination upon certain specified events), and, thereafter, for automatically renewing successive one-year terms (subject to earlier termination upon such specified events and the Company’s right to terminate the agreement as of the end of any such one-year term).

Compensation Committee Interlocks and Insider Participation

      No member of the compensation and stock option committee of the Board of Directors of the Company was, during fiscal 2005, an officer or employee of the Company or its subsidiary, or was formerly an officer of the Company or its subsidiary, or had any relationships requiring disclosure by the Company under Item 404 of Regulation S-K.

      During fiscal 2005, no executive officer of the Company served as (i) a member of the compensation committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served on the compensation and stock option committee of the Board of Directors, (ii) a director of another entity, one of whose executive officers served on the compensation and stock option committee of the Board of Directors, or (iii) a member of the compensation committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served as a director of the Company.

Committees of the Board of Directors and Meeting Attendance

      During fiscal 2005, the Board met seven times. Messrs. H. Friedman, Crow, Rich, Weaver and Williams attended all of the meetings. Messrs. J. Friedman and Rauch attended six of the meetings. Mr. Hall attended five of the meetings.

      The Board of Directors has an audit committee which currently consists of Messrs. Rauch, Weaver and Williams. The audit committee discusses with the independent accountants and management the Company’s

financial statements and the scope of the audit examinations, reviews with the independent accountants the audit budget, receives and reviews the audit report submitted by the independent accountants, reviews with the independent accountants internal accounting and control procedures and engages the Company’s independent auditors. The audit committee’s responsibilities to the Board of Directors are further detailed in the Second Amended and Restated Charter of the Audit Committee. The audit committee met five times in fiscal 2005, and Messrs. Rauch, Weaver and Williams attended all of the meetings.

      The Board of Directors has a compensation and stock option committee composed of Messrs. Rauch, Rich and Williams. The compensation and stock option committee considers and recommends for approval by the Board of Directors adjustments to the compensation of the executive officers of the Company and the implementation of any compensation program. In addition, the compensation and stock option committee administers any stock option or stock plan of the Company pursuant to the terms of such plan. The compensation and stock option committee met two times in fiscal 2005. Messrs. Rauch and Williams attended both meetings and Mr. Rich attended one of the meetings.

      The Board has a nominating committee composed of Messrs. Hall, Rauch, Rich, Weaver and Williams, each of whom is independent in accordance with the applicable rules of the American Stock Exchange. Board of Directors nominees are proposed by the nominating committee. The nominating committee’s responsibilities to the Board of Directors are further detailed in the Charter of the Nominating Committee, which is not available on the Company’s website but was attached as Appendix A to the proxy statement filed in connection with the Company’s annual meeting of shareholders held on September 9, 2004. The nominating committee normally does not consider unsolicited director nominees put forth by shareholders because the need for a new director generally only occurs on limited occasions when a director position becomes open as a result of a decision to increase in the size of the Board or if a director retires or resigns. If and when such an event might occur, the Board of Directors believes that it is in the best interest of the Company to focus the Company’s resources on evaluating candidates at the appropriate time and who come to the Company through reputation or a relationship which initially validates the reasonableness of the person as a candidate or through professional search processes that do the same. The nominating committee met one time in fiscal 2005. Messrs. Hall, Rich, Weaver and Williams attended this meeting. Mr. Rauch did not attend this meeting.

      The Board formed a special committee comprised of Messrs. Hall, Rauch, Rich, Weaver and Williams to consider the purchase of 624,207 shares of Common Stock from Harold Friedman for approximately $4.434 per share or a total of $2,767,734. This special committee met eight times in fiscal 2005. Messrs. Rauch, Rich and Weaver attended all of the meetings. Messrs. Hall and Williams attended seven of the meetings.

      During the fiscal year ended March 31, 2005, no director attended fewer than 75% of all meetings of the Board of Directors and of any committee of which such director was a member.

Audit Committee Qualifications

      The Board has affirmatively determined that all members of the audit committee are independent in accordance with the applicable rules of the American Stock Exchange and Rule 10A-3(b)(1) of the Exchange Act. The Board also has determined that each of the members of the audit committee is able to read and understand fundamental financial statements and that Mr. Weaver meets the financial sophistication requirements set forth in the applicable rules of the American Stock Exchange. In addition, the Board has determined that certain members of the audit committee possess the attributes of an “audit committee financial expert,” as that term is defined in the rules promulgated by the Securities and Exchange Commission pursuant to the Sarbanes-Oxley Act of 2002; however, no member acquired such attributes through the specific means required under that Act to meet such definition.

EXECUTIVE COMPENSATION

      The following table sets forth the aggregate amount of cash compensation paid by the Company for the three fiscal years ended March 31, 2005, 2004 and 2003 to each of the Company’s executive officers, including the Chief Executive Officer (collectively, the “Named Executive Officers”).

Summary Compensation Table

      There were no option grants to the Named Executive Officers during the fiscal year ended March 31, 2005.

      The following chart summarizes certain information relating to options exercised by the Named Executive Officers during the fiscal year ended March 31, 2005 as well as the value of options held by the Named Executive Officers at March 31, 2005.

Aggregated Option/SAR Exercises in Fiscal 2005 and Value Table

at March 31, 2005

Section 16(a) Beneficial Ownership Reporting Compliance

      Under the Exchange Act, the Company’s directors, executive officers and 10% shareholders must report to the Securities and Exchange Commission certain transactions involving Common Stock. Based solely on a review of the copies of the reports required pursuant to Section 16(a) of the Exchange Act that have been furnished to the Company and written representations that no other reports were required, the Company believes that these filing requirements have been satisfied for the fiscal year ended March 31, 2005.

Report of the Compensation and Stock Option Committee of the Board of Directors

With Respect to Compensation of Executive Officers

      Historically, the profits of the Company have been a principal factor in determining the compensation of the Company’s executive officers. The Committee believes that the Company’s net profit constitutes a significant measure of the performance of the Company and should have a significant effect on executive officer compensation. Accordingly, each of the Company’s executive officers, including the Chief Executive Officer, receives a base salary that the Committee believes is modest in comparison to salaries received by persons holding similar offices with other publicly held companies, plus a quarterly cash bonus based on a percentage of the Company’s quarterly net income. During fiscal 2005, no increases in the executive officers’ base salaries or bonus percentages were made.

      The Committee also believes that it is important for the Company’s senior executive officers to have a significant equity interest in the Company in order to further align their interests with those of the Company’s shareholders and, therefore, compensation in the form of equity securities is appropriate. Accordingly, the Company maintains various stock option plans in which its executive officers, other than the Chief Executive Officer, and other key employees participate. Because the Chief Executive Officer already has significant equity interests in the Company, the Committee believes that his interests are already aligned with those of the Company’s shareholders, and, therefore, compensation solely in the form of cash, rather than cash and equity securities, is appropriate.

      Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a limitation on deductions that can be taken by a publicly held corporation for compensation paid to certain of its executive officers. Under Section 162(m), a deduction is denied for compensation paid in a tax year beginning on or after January 1, 1994, to the Company’s executive officers to the extent that such compensation exceeds $1 million per individual. Stock option grants pursuant to the Company’s employee benefit plans may be exempt from the deduction limit if certain requirements are met.

      The Committee has considered the effect of Section 162(m) on the Company’s existing compensation program. Although certain grants of stock options to the Company’s executive officers may not be exempt from the Section 162(m) deduction limitation, the Committee believes that for the foreseeable future, the compensation received by its covered executives will be within the limits of deductibility.

Audit Committee Report

      The Board of Directors has adopted an Audit Committee charter. All members of the Audit Committee of the Board of Directors are “independent” in accordance with Section 121(A) of the American Stock Exchange Constitution & Rules and Rule 10A-3(b)(1) of the Exchange Act.

      The Committee has reviewed and discussed with the Company’s management and Ernst & Young LLP (“E&Y”), the Company’s independent auditors, the audited financial statements of the Company contained in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2005. The Committee has also discussed with the Company’s independent auditors the matters required to be discussed pursuant to SAS 61 (Codification of Statements on Auditing Standards, Communication with Audit Committees).

      The Committee received and has discussed the written disclosures and the letter from E&Y required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committee), and has discussed with E&Y its independence in connection with its audit of the Company’s most recent financial statements. The Committee has also considered whether the provision of non-audit services to the Company by E&Y is compatible with maintaining that firm’s independence.

      Based on the review and discussions referred to above, the Committee approved, ratified and confirmed the inclusion of the audited financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2005.

      The information in the foregoing four paragraphs shall not be deemed to be soliciting material, or be filed with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Exchange Act or to liabilities under Section 18 of the Exchange Act nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the Company specifically incorporates these paragraphs by reference.

Performance Graph

      The following graph compares the percentage change in the Company’s cumulative total shareholder return on the Common Stock with the total cumulative return on the American Stock Exchange Composite Index (“ACI”) and the Steel & Iron Index per Microsoft Network (“SII”) for each fiscal year indicated. The graph is based on the assumption that $100 is invested in the Common Stock of the Company, the ACI and the SII in March 2000 and that all dividends are reinvested.

Comparison of Five-Year Cumulative Return

      The foregoing graph is based on historical data and is not necessarily indicative of future performance. This graph shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulations 14A or 14C under the Exchange Act or to the liabilities of Section 18 under such Act.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

      The following table sets forth certain information concerning the beneficial ownership of Common Stock by each director, nominee for director, Named Executive Officer and officers and directors as a group and persons who owned of record more than 5% of Common Stock as of July 15, 2005:

 *       Less than 1%.

RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS

      E&Y served as the Company’s principal independent public accountants for fiscal year 2005. The audit committee typically engages the principal accountant for the audit of the Company’s financial statements during the latter part of the fiscal year to which such financial statements relate and, therefore, has not yet engaged a principal public accountant for such services at this time. Representatives of E&Y are expected to be present at the Annual Meeting, will have the opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

      Regarding fiscal year 2005 and 2004, the Company retained E&Y to provide services and paid fees therefor as indicated in the following table:

      The audit committee has considered whether non-audit services provided by E&Y to the Company are compatible with maintaining E&Y’s independence.

      The audit committee has implemented pre-approval policies and procedures for all audit and non-audit services to be provided by the Company’s independent public accountants to the Company. The audit committee has authorized the Company, without any further approval on the part of the audit committee, to engage E&Y to provide the following permissible non-audit services to the Company during the fiscal year ended March 31, 2006:

Thereafter, with regard to (i) all permissible non-audit services not included in the preceding sentence and (ii) those services described in the preceding sentence which exceed the annual threshold amounts stated therein, to be provided to the Company during the fiscal year ended March 31, 2006, the audit committee has designated the Chairman of the audit committee to approve in advance the provision by the independent public accountants of such services. There were no services approved by the audit committee pursuant to the de minimus exception in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X during fiscal 2005.

PROPOSALS OF SHAREHOLDERS

      Proposals of shareholders intended to be included in the Company’s proxy statement and form of proxy for the 2006 Annual Meeting of Shareholders must be received at the Company’s principal executive offices at 4001 Homestead Road, Houston, Texas 77028 on or before March 31, 2006.

GENERAL

      Management knows of no other matter to be presented at the meeting. If any other matter should be presented upon which a vote may properly be taken, it is intended that shares represented by the proxies in the accompanying form will be voted with respect thereto in accordance with the best judgment of the person or persons voting such shares.

      The cost of solicitation of proxies in the accompanying form will be paid by the Company. In addition to solicitation by use of the mails, certain directors, officers and regular employees of the Company may solicit the return of proxies by telephone, facsimile or personal interviews.

 

 

 

 

 

 

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF ALL OF THE NOMINEES FOR DIRECTOR.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x

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(Continued and to be signed on the reverse side)