SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
INDUSTRIAL HOLDINGS, INC.
(Name of Registrant as specified in its Charter)
INDUSTRIAL HOLDINGS, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
INDUSTRIAL HOLDINGS, INC.
7135 ARDMORE
HOUSTON, TEXAS 77054
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 30, 1997
------------------------
Notice is hereby given that the annual meeting of the shareholders of
Industrial Holdings, Inc. (the "Company") will be held at the Company's
principal offices at 7135 Ardmore, Houston, Texas 77054, at 10:00 a.m., Houston
time, on Monday, June 30, 1997, for the following purposes:
1. To elect three Class III directors, who will serve until the third
annual meeting of shareholders following their election or until their
successors are elected and qualified;
2. To consider and act upon a proposal to increase the number of shares
available for issuance under the Company's 1994 Amended and Restated Incentive
Stock Option Plan (the "Employee Plan") from the presently authorized 250,000 to
500,000;
3. To consider and act upon a proposal to increase the number of shares
available for issuance under the Company's 1995 Non-Employee Director Stock
Option Plan (the "Director Plan") from the presently authorized 105,000 to
210,000;
4. To adopt an amendment to the Company's Articles of Incorporation that
provides for an increase in the number of authorized shares of Common Stock from
20,000,000 shares to 50,000,000 shares; and
5. To consider and act upon such other business as may properly come
before the meeting.
A record of shareholders has been taken as of the close of business on May
19, 1997 and only those shareholders of record on that date will be entitled to
notice of and to vote at the meeting. A shareholders' list will be available
commencing May 30, 1997, and may be inspected during normal business hours prior
to the annual meeting at the offices of the Company, 7135 Ardmore, Houston,
Texas 77054.
Your participation in the Company's affairs is important. To ensure your
representation if you do not expect to be present at the meeting, please sign
and date the enclosed proxy and return it promptly in the enclosed stamped
envelope. The prompt return of proxies will ensure a quorum and save the Company
the expense of further solicitation.
By Order of the Board of Directors
ROBERT E. CONE
Chairman of the Board,
May 27, 1997 President and Chief Executive Officer
<PAGE>
INDUSTRIAL HOLDINGS, INC.
7135 ARDMORE
HOUSTON, TEXAS 77054
PROXY STATEMENT
This proxy statement is being mailed to shareholders on or about May 27,
1997, in connection with the solicitation of proxies by the Board of Directors
of Industrial Holdings, Inc. (the "Company") for use at the annual meeting of
Shareholders of the Company to be held at the Company's principal offices at
7135 Ardmore, Houston, Texas 77054, at 10:00 a.m., Houston time, on Monday, June
30, 1997, and at any adjournments thereof (the "Annual Meeting"), for the
purpose of considering and voting on the matters set forth in the accompanying
Notice of Annual Meeting of Shareholders. All shares represented by properly
executed proxies, unless such proxies previously have been revoked, will be
voted at the annual meeting in accordance with the directions on such proxies.
If no direction is indicated, the shares will be voted for the election of each
of the nominees named herein to the board of directors and for the other
proposals set forth in the Notice. A shareholder may revoke a proxy by (a)
delivering to the Company written notice of revocation, (b) delivering to the
Company a signed proxy bearing a later date or (c) voting in person at the
Annual Meeting.
At the close of business on May 19, 1997, the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting and any adjournment thereof (the "record date"), there were issued,
outstanding and entitled to vote 6,009,273 shares of the Company's common stock,
par value $.01 per share ("Common Stock"). The presence, in person or by proxy,
of a majority of the shares of Common Stock outstanding on the record date is
necessary to constitute a quorum at the Annual Meeting. Assuming such a quorum
is present, the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock is required to approve the amendments to the Employee
Plan and the Director Plan and the affirmative vote of the holders of 662/3% of
the outstanding shares of Common Stock is required to adopt the amendment to the
Articles of Incorporation. The three nominees for election as directors who
receive the greatest number of votes of the holders of the outstanding shares of
Common Stock will be duly elected Class III Directors. Each share of Common
Stock is entitled to one vote on all questions requiring a shareholder vote at
the Annual Meeting. Abstentions and broker non-votes will be treated as present
for purposes of determining a quorum. Abstentions will have the same legal
effect as votes against a proposal and broker non-votes will be disregarded.
ELECTION OF DIRECTORS
At the Annual Meeting, three Class III Directors are to be elected, each
to hold office until the third Annual Meeting of Shareholders following his
election.
The persons named in the accompanying proxy have been designated by the
Board of Directors and unless authority is withheld, they intend to vote for the
election of the nominees named below to the Board of Directors as Class III
Directors. All of the nominees for Class III Directors previously have been
elected by the shareholders to serve as members of the Company's Board of
Directors. Although the Board of Directors of the Company does not contemplate
that any of the nominees will become unavailable for election, if such a
situation arises prior to the Annual Meeting, the persons named in the enclosed
proxy will vote for the election of such other person(s) as may be nominated by
the Board of Directors or the Board may be reduced accordingly.
1
<PAGE>
Common Stock
Beneficially Owned
April 27, 1997(1)
------------------
Principal Position Director
Name with the Company Age Since Shares Percent
---- ---------------- --- ----- ------ -------
CLASS I DIRECTORS WHOSE TERM WILL EXPIRE IN 1998
Charles J. Anderson Director 74 1991 72,000(2) 1.2%
James W. Kenney Director 55 1992 25,000(3) *
CLASS II DIRECTORS WHOSE TERM WILL EXPIRE IN 1999
John P. Madden Director 55 1992 149,373(4) 2.5%
John L. Thompson Director 37 1997 5,000(5) *
CLASS III DIRECTORS WHOSE TERM (IF RE-ELECTED) WILL EXPIRE IN 2000
Robert E. Cone Chairman of the Board; 45 1989 379,548(6) 6.2%
President and Chief
Executive Officer; Director
James H. Brock, Jr. Executive Vice President; 58 1991 115,000(7) 1.9%
Director
Barbara S. Shuler Secretary; Director 51 1991 82,393(2) 1.4%
- ---------------
* Less than 1%.
(1) Subject to community property laws where applicable, each person has sole
voting and investment power with respect to the shares listed, except as
otherwise specified. Each person is a United States citizen. This table is
based upon information supplied by officers, directors and principal
shareholders and Schedules 13D and 13G, if any, filed with the Securities
and Exchange Commission.
(2) Includes 15,000 shares that may be acquired upon the exercise of stock
options.
(3) Includes 25,000 shares that may be acquired upon the exercise of stock
options.
(4) Includes 20,000 shares that may be acquired upon the exercise of stock
options. Excludes 178,609 shares owned by persons related to Mr. Madden,
but as to which Mr. Madden disclaims beneficial ownership.
(5) Includes 5,000 shares that may be acquired upon the exercise of stock
options. Excludes 765,000 shares and 620,000 warrants owned by St. James
Capital Partners, L.P. of which Mr. Thompson is a director and president
of the General Partner and may be deemed to share voting and investment
power with respect to such shares.
(6) Includes 165,000 shares that may be acquired upon the exercise of stock
options.
(7) Includes 65,000 shares that may be acquired upon the exercise of stock
options.
(8) Includes 20,000 shares that may be acquired upon the exercise of stock
options.
Set forth below is certain information with respect to each of the
nominees for the office of director, each director whose term of office will
continue after the 1997 Annual Meeting of Shareholders, and each other executive
officer.
2
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
ROBERT E. CONE founded the Company in 1989 and has served as President,
Chief Executive Officer and Director of the Company since then. Mr. Cone is a
director of Herlin Industries, Inc., a holding company engaged in energy
services.
JAMES H. BROCK, JR. has served as Executive Vice President and Director of
the Company since September 1991 and as President of the Energy Products and
Services Division since June 1996. Mr Brock previously served as Chief Operating
Officer and Chief Financial Officer. From 1988 to 1990, Mr. Brock served as
Executive Vice President and Chief Financial Officer of DRCA Medical
Corporation, a health care company specializing in the rehabilitation of injured
workers. Prior to 1988, Mr. Brock served as Vice President-Finance of National
Healthcare Alliance, a full-service managed health care service company and
Chairman of the Board of Directors of Quality Fasteners, Inc., a distributor of
construction supplies, and of Olde Time Ice, Inc., a manufacturer and
distributor of packaged ice. Mr. Brock is a Certified Public Accountant.
BARBARA S. SHULER has served as Secretary of the Company since February
1992 and as a Director of the Company since September 1991. Since 1974, Ms.
Shuler has been self-employed in auction management, marketing, advertising and
promotional aspects of the equine industry, serving as President of Shuler, Inc.
CHARLES J. ANDERSON has served as a Director of the Company since
September 1991. Since 1985, Mr. Anderson has been engaged in private business
investments. Prior to 1985, Mr. Anderson served as Senior Sales Vice President
and Director of Sales and was a partner of the Delaware Management Company, the
manager of the Delaware Group of Mutual Funds and certain other private pension
funds.
JAMES W. KENNEY has served as a Director of the Company since October
1992. Since October 1993, Mr. Kenney has served as Executive Vice President of
San Jacinto Securities, Inc. From February 1992 to September 1993, he served as
the Vice President of Renaissance Capital Group, Inc. Prior to that time, Mr.
Kenney served as Senior Vice President for Capital Institutional Services, Inc.
and in various executive positions with major southwest regional brokerage
firms, including Rauscher Pierce Refsnes Inc. and Weber, Hall, Sale and
Associates, Inc. Mr. Kenney is a director of AmeriShop Corporation, a company
that provides services to the retail industry; Consolidated Health Care
Associates, Inc., a company that operates physical rehabilitation centers;
Scientific Measurement Systems, Inc., a developer of industrial digital
radiography and computerized tomography; Tecnol Medical Products, Inc., which
designs, manufactures and markets more than 300 disposable medical products; and
Tricom Corporation, a company that develops products and services for the
telecommunication industry.
JOHN P. MADDEN has served as a Director of the Company since October 1992.
From January 1992 to April 1993, Mr. Madden served as Chairman of the Board of
The Rex Group, Inc. ("REX") and as its President and Chief Executive Officer
from June 1963 to January 1992 and from December 1992 to April 1993. REX, a
private company based in Houston, Texas, which was acquired by the Company in
March 1993, is a distributor of new and used machine tool equipment, conducts a
machine moving operation and is engaged in the international export crating
business.
3
<PAGE>
JOHN L. THOMPSON has served as a Director of the Company since February
1997 when he was appointed to fill the unexpired term of a retiring director.
Mr. Thompson is a director and President of St. James Capital Corp., a
Houston-based merchant banking firm. St. James Capital Corp. also serves as the
General Partner of St. James Capital Partners L.P., an investment limited
partnership specializing in merchant banking related investments. Additionally,
he is Chairman of the Board of Herlin Industries, Inc., a publicly- held holding
company engaged in energy services. Prior to co-founding St. James, Mr. Thompson
served as a Managing Director of Corporate Finance at Harris Webb & Garrison, a
regional investment banking firm with a focus on mergers and acquisitions,
financial restructuring and private placements of debt and equity issues.
OTHER EXECUTIVE OFFICERS
THOMAS C. LANDRETH has served as Executive Vice President since September
1996. Mr. Landreth has served as President of Landreth Engineering Company
("LEC") since 1977 and as President of the Fastener Manufacturing and Sales
Division since the Company's divisional reorganization in June 1996. Mr.
Landreth has worked in all technical areas of LEC since 1967 and is responsible
for numerous cold heading machine designs and improvements as well as numerous
innovative tool and die designs.
CHRISTINE A. SMITH has served as Chief Financial Officer of the Company
since January 1995. From April 1989 through December 1994, Ms. Smith was a
Principal at The Spinnaker Group, an investment banking firm providing services
primarily to manufacturing and distribution companies. Prior to joining The
Spinnaker Group, Ms. Smith, a Certified Public Accountant, was a Senior Manager
with Ernst & Young.
BOARD AND COMMITTEE ACTIVITY: STRUCTURE AND COMPENSATION
The Company's operations are managed under the broad supervision of the
Board of Directors, which has ultimate responsibility for the establishment and
implementation of the Company's general operating philosophy, objectives, goals
and policies. During 1996, the Board of Directors convened on two regular
occasions. Each director attended all of the meetings held by the Board or
meetings of Board committees of which he was a member during his tenure in 1996,
except for Charles J. Anderson who attended no Board of Directors meetings and
all Committee meetings of which he was a member. During 1996, directors received
no cash compensation for attendance at Board or Committee meetings. Directors
are, however, entitled to reimbursement for reasonable travel expenses incurred
in attending such meetings. In 1996, each non-employee director (Messrs.
Anderson, Kenney and Madden and Ms. Shuler) was awarded under the Company's 1995
Non-Employee Director Stock Option Plan (the "Director Plan") options to
purchase 5,000 shares of the Company's Common Stock at $4.06 per share. Employee
directors are eligible to participate in the Company's 1994 Amended and Restated
Incentive Stock Plan (the "Employee Plan"). Non-employee directors are entitled
to participate in the Director Plan.
Pursuant to delegated authority, various Board functions are discharged by
the standing committees of the Board. The Audit Committee of the Board of
Directors, currently composed of Messrs. Brock and Anderson and Ms. Shuler,
makes recommendations to the Board of Directors concerning the selection and
engagement of the Company's independent public accountants and reviews the scope
of the annual audit, audit fees and results of the audit. The Audit Committee
also reviews and discusses with management and the Board of Directors such
matters as accounting policies, internal accounting controls and procedures for
preparation of financial statements. The Audit Committee convened on one
occasion in 1996. The Compensation Committee sets the compensation for
executive, managerial and technical personnel of the Company and
4
<PAGE>
administers the Company's stock option and other compensation plans. The
Compensation Committee was composed of Mr. Madden, Ms. Shuler and Mr. Anderson
and met on one occasion in 1996.
APPROVAL
The three nominees for election as directors at the Annual Meeting who
receive the greatest number of votes cast for election by the holders of Common
Stock entitled to vote at the Annual Meeting, shall be the duly elected Class
III Directors (as set forth in the accompanying proxy) upon completion of the
vote tabulation at the Annual Meeting, provided a majority of the outstanding
shares as of the record date are present in person or by proxy at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES LISTED ABOVE.
5
<PAGE>
PROPOSAL TO ADOPT AMENDMENT TO THE 1994 AMENDED
AND RESTATED INCENTIVE STOCK PLAN
On June 15, 1996, the Board of Directors approved an amendment to the 1994
Amended and Restated Incentive Stock Plan (the "Employee Plan") to increase the
shares of Common Stock under the Employee Plan from 500,000 to 750,000 shares.
Prior to the adoption of this amendment, there are no shares available under the
Employee Plan. The Board of Directors is submitting this amendment to the
Employee Plan for approval of the Company's shareholders at the Annual Meeting.
The amendment to the Employee Plan appears as Exhibit A to this proxy statement.
APPROVAL
The affirmative vote of the holders of a majority of shares of Common
Stock entitled to vote at the Annual Meeting represented in person or by proxy,
is required to approve the adoption of this amendment to the Employee Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE AMENDMENT.
6
<PAGE>
PROPOSAL TO ADOPT AMENDMENT TO THE 1995 NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN
On June 15, 1996, the Board of Directors approved an amendment to the 1995
Non-Employee Director Stock Option Plan (the "Director Plan") to increase the
Common Stock available under the plan from 105,000 to 210,000 shares and to
provide for annual option grants to eligible directors in an amount to be
periodically set by the Board of Directors. Prior to the adoption of this
Amendment, there are no shares available for issuance under this Plan. At this
date, the Board of Directors has set this annual grant for each non-employee
director at 5000 options. The amendment to the Director Plan appears as Exhibit
B to this proxy statement.
APPROVAL
The affirmative vote of the holders of a majority of shares of Common
Stock entitled to vote at the Annual Meeting represented in person or by proxy,
is required to approve the adoption of this Amendment to the Directors Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE AMENDMENT.
7
<PAGE>
PROPOSAL TO ADOPT AMENDMENT TO THE ARTICLES OF INCORPORATION TO
INCREASE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
On April 24, 1997, the Board of Directors unanimously adopted resolutions
approving a proposal to amend the Articles of Incorporation of the Company to
increase the number of authorized shares of the Company's Common Stock from
20,000,000 to 50,000,000 (the "Amendment"). The text of the Amendment is set
forth in Exhibit C to this Proxy Statement.
The Certificate of Incorporation currently authorizes the issuance of
20,000,000 shares of Common Stock, $.01 par value, 5,917,248 of which were
issued and outstanding as of April 27, 1997, and 7,500,000 shares of Preferred
Stock, $.01 par value, none of which were issued and outstanding as of April 27,
1997.
If the Amendment is adopted, the number of authorized shares of Common
Stock will be increased from 20,000,000 to 50,000,000 as of the date on which
the Amendment is filed with the Secretary of State of the State of Texas. The
additional 30,000,000 authorized shares would be part of the existing class of
Common Stock, and, if and when issued, would have the same rights and privileges
as the shares of Common Stock presently issued and outstanding. If adopted,
neither the number of authorized shares nor the par value of the Preferred Stock
will be affected by the Amendment.
If adopted, the Amendment would result in an increase in the number of
shares of Common Stock available from 14,082,752 to 44,082,752 shares. Of the
14,082,752 currently available shares, only 9,932,573 are available for
issuance, as a total of 4,150,179 shares have been reserved for issuance upon
the conversion of debt and the exercise of various outstanding warrants and
options issued and issuable pursuant to the Company's stock option plans.
The Board of Directors believes that the increase in the authorized number
of shares of Common Stock will increase the Company's flexibility in meeting
possible future financing requirements, effecting future transactions such as
acquisitions and meeting other corporate needs as they arise. However, the
Company has no current arrangements, agreements, understandings or plans for the
issuance of shares of Common Stock in connection with an offering or an
acquisition.
The affirmative vote of 662/3% of the outstanding shares of Common Stock
of the Company is required to approve the adoption of Amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE AMENDMENT.
8
<PAGE>
OTHER INFORMATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information regarding the beneficial
ownership of Common Stock at April 27, 1997 by (i) each person known to the
Company to beneficially own more than 5% of its Common Stock, (ii) each
director, (iii) each executive officer and (iv) all directors and executive
officers as a group.
Name and Address of Number of Shares Percentage of
Beneficial Owner Beneficially Owned(1) Class
---------------- --------------------- -----
St. James Capital Partners, L.P.
1980 Post Oak Blvd., Suite 2030
Houston, Texas 77056................ 1,385,000(2) 21.2%
Directors and Executive Officers:
Robert E. Cone....................... 379,548(3) 6.4%
James H. Brock, Jr................... 115,000(4) 1.9%
Thomas C. Landreth................... 68,445(5) 1.2%
Christine A. Smith................... 55,071(6) *
Charles J. Anderson.................. 72,000(7) 1.2%
James W. Kenney...................... 25,000(8) *
John P. Madden....................... 149,373(9) 2.5%
Barbara S. Shuler.................... 82,393(10) 1.4%
John L. Thompson..................... 5,000(11) *
All officers and directors
as a group (9 persons) (3) - (11).. 951,830 15.1%
- ------------------------
* Less than one percent.
(1) Subject to community property laws where applicable, each person has sole
voting and investment power with respect to the shares listed, except as
otherwise specified. Each person is a United States citizen. This table is
based upon information supplied by officers, directors and principal
shareholders and Schedules 13D and 13G, if any, filed with the Securities
and Exchange Commission.
(2) Includes 620,000 shares that may be acquired upon the exercise of
currently exercisable warrants.
(3) Includes 165,000 shares that may be acquired upon the exercise of
currently exercisable stock options.
(4) Includes 65,000 shares that may be acquired upon the exercise of currently
exercisable stock options.
(5) Includes 10,000 shares that may be acquired upon the exercise of currently
exercisable stock options.
(6) Includes 45,000 shares that may be acquired upon the exercise of currently
exercisable stock options.
(7) Includes 15,000 shares that may be acquired upon the exercise of currently
exercisable stock options.
(8) Includes 25,000 shares that may be acquired upon the exercise of currently
exercisable stock options.
(9) Includes 20,000 shares that may be acquired upon the exercise of currently
exercisable stock options. Excludes 178,609 shares owned by persons
related to Mr. Madden, but as to which Mr. Madden disclaims beneficial
ownership.
(10) Includes 20,000 shares that may be acquired upon the exercise of currently
exercisable options.
(11) Includes 5,000 shares that may be acquired upon the exercise of currently
exercisable stock options. Excludes 765,000 shares and 620,000 warrants
owned by St. James Capital Partners, L.P., of which Mr. Thompson is a
director and president of the General Partner and may be deemed to share
voting and investment power with respect to such shares.
9
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table provides certain summary
information covering compensation paid or accrued during the fiscal years ended
December 31, 1996, 1995 and 1994 to the Company's Chief Executive Officer and
the other executive officers, whose annual compensation, determined as of the
end of the last fiscal year, exceeds $100,000.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------------------ --------
Option Exercise
Name and principal position Year Salary Bonus Other(1) Awards Price
- ---------------------------------------- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Cone ......................... 1996 $160,000 $ 10,000 150,000 $4.06-5.50
President and ........................ 1995 $160,000 -- -- -- --
Chief Executive Officer .............. 1994 $146,250 -- -- 65,000 $ 2.375
James H. Brock, Jr ..................... 1996 $150,000 $ 10,000 -- -- --
Executive Vice President and ........ 1995 $150,000 -- -- -- --
President - Energy Products and ..... 1994 $135,000 -- -- 20,000 $ 2.375
Services Division
Thomas C. Landreth ..................... 1996 $120,000 $ 24,518 $ 4,745 30,000 $ 4.06
Executive Vice President and ........ 1995 $120,000 $ 54,430 $103,932 -- --
President - Fastener Manufacturing .. 1994 $120,000 $ 41,350 $ 32,430 -- --
and Sales Division
Christine A. Smith
Vice President and .................. 1996 $ 95,000 $ 30,000 -- 30,000 $ 4.06
Chief Financial Officer ............. 1995 $ 85,000 -- -- 25,000 $ 3.31
</TABLE>
(1) Additional payments under the terms of the Landreth Engineering Company
purchase agreement.
STOCK COMPENSATION TABLE. The following table provides certain information
with respect to options granted to the executive officers during the fiscal year
ended December 31, 1996 under the Company's stock option plans:
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------
Number Of Potential Realizable
Shares Of Value At Assumed
Common Percent Of Annual Rates Of Stock
Stock Total Options Price Appreciation For
Underlying Granted To Option Terms(3)
Options Employees In Exercise Expiration -----------------------
Name Granted Fiscal Year Price Date 5% 10%
- ------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Cone ............... 150,000(2) 64% $4.25-5.50 02/19/06 $ 457,835 $1,160,245
President and
Chief Executive Officer
Thomas C. Landreth ........... 30,000(1) 13% $ 4.06 02/19/06 76,599 194,118
Executive Vice President
and President - Fastener
Manufacturing and Sales
Division
Christine A. Smith ........... 30,000(1) 13% $ 4.06 02/19/06 76,599 194,118
Vice President and
Chief Financial Officer
</TABLE>
10
<PAGE>
- ----------------
(1) 20,000 of these options were fully vested at December 31, 1996.
(2) 50,000 of these options were fully vested at December 31, 1996.
(3) These calculations are based on the market value of the Common Stock on
the date of grant. The market value is calculated by averaging the closing
bid and ask price for the stock as quoted by NMS on the date of grant. The
exercise price is determined by the same method which is equal to the
market value on the date of grant.
OPTION EXERCISES AND YEAR END VALUES
The following table sets forth information with respect to the unexercised
options to purchase shares of Common Stock which were granted to the executive
officers in 1996 or prior years under the Company's stock option plans. Thomas
C. Landreth exercised options for 10,000 shares at $4.06 per share under the
Company's stock option plans during the fiscal year ended December 31, 1996.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
HELD AT FISCAL YEAR END YEAR END(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------ ------------ ------------ ------------
Robert E. Cone ..... 165,000 100,000 $ 1,301,250 $ 584,500
James H. Brock, Jr . 65,000 -- $ 520,000 --
Thomas C. Landreth . 10,000 10,000 $ 70,620 $ 70,620
Christine A. Smith . 45,000 10,000 $ 336,615 $ 70,620
(1) Represents the difference between the average of the closing bid and ask
price for the Common Stock as quoted by NMS on December 31, 1996 and any
lesser exercise price.
11
<PAGE>
PLAN BENEFITS
The following table provides information concerning options granted under
the Company's Employee Plan and Director Plan during 1996:
NAME AND POSITION OPTIONS GRANTED (#) EXERCISE PRICE
- ------------------------------------- --------------- -----------
EMPLOYEE PLAN:
Robert E. Cone, President and
Chief Executive Officer ........ 150,000 $ 4.25-5.50
Thomas C. Landreth, Executive
Vice President ................. 30,000 $ 4.06
Christine A. Smith, Vice
President and Chief
Financial Officer .............. 30,000 $ 4.06
Executive Officers as a
group (4 persons) .............. 210,000 $ 4.06-5.50
All employees who are not
officers as a group ............ 23,000 $ 4.06-9.25
DIRECTOR PLAN:
James W. Kenney, Director ........... 5,000 $ 4.06
John P. Madden, Director ............ 5,000 $ 4.06
Barbara S. Shuler, Secretary
and Director ................... 5,000 $ 4.06
Charles J. Anderson, Director ....... 5,000 $ 4.06
All non-employee directors
as a group ..................... 20,000 $ 4.06
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
For the fiscal year ended December 31, 1996, Mr. Madden, Mr. Anderson and
Ms. Shuler served on the Compensation Committee of the Board of Directors (the
"Committee"). Ms. Shuler has served as the Company's Secretary since February
1992.
EMPLOYMENT AGREEMENTS
Effective July 1, 1991, the Company entered into employment agreements
with Messrs. Cone and Brock, which agreements were subsequently amended and
extended. Mr. Cone's amended employment agreement provides for a 1997 base
salary of $185,000 and a base salary of $200,000 for 1998 through 2000. Mr.
Brock's amended employment agreement provides for a 1997 base salary of
$170,000, a 1998 base salary of $180,000 and a base salary of $150,000 for 1999
and 2000.
12
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the performance of the Company's
Common Stock to the National Association of Securities Dealers Automated
Quotation System Composite Index and to the Index of Non-Financial Companies.
The graph covers the period from January 16, 1992 (the date on which the
Company's Common Stock was registered under Section 12(g) of the Securities
Exchange Act of 1934, as amended) to December 31, 1996.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
Nasdaq Nasdaq
Stock Mkt. Non-financial IHII
---------- ------------- ----
Jan. 16, 1992 100.000 100.000 100.000
Jan. 31, 1992 99.602 99.483 89.189
Dec. 31, 1992 110.567 103.898 86.486
Dec. 31, 1993 126.925 119.966 89.189
Dec. 31, 1994 124.070 114.970 77.038
Dec. 31, 1995 175.321 158.082 89.189
Dec. 31, 1996 215.803 195.424 240.541
13
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation for 1996:
Under the supervision of the Committee, the Company has developed and
implemented compensation policies, plans and programs designed to enhance the
profitability of the Company, and therefore shareholder value, by aligning
closely the financial interests of the Company's senior executives with those of
its shareholders. The Committee has adopted the following objectives as
guidelines for making its compensation decisions:
- Provide a competitive total compensation package that enables the
Company to attract and retain key executives.
- Integrate all compensation programs with the Company's annual and
long-term business objectives and strategy and focus executive
behavior on the fulfillment of those objectives.
- Provide variable compensation opportunities that are directly linked
to the performance of the Company and that align executive
remuneration with the interests of shareholders.
Executive base compensation for senior executives is intended to be
competitive with that paid in comparably situated industries and to provide a
reasonable degree of financial security and flexibility to those individuals who
the Board of Directors regards as adequately performing the duties associated
with the various senior executive positions. In furtherance of this objective,
the Committee periodically, though not necessarily annually, reviews the salary
levels of a sampling of companies that are regarded by the Committee as having
sufficiently similar financial and operational characteristics to provide a
reasonable basis for comparison. Although the Committee does not attempt to
specifically tie executive base pay to that offered by any particular sampling
of companies, the review provides a useful gauge in administering the Company's
base compensation policy. In general, however, the Committee considers the
credentials, length of service, experience, and consistent performance of each
individual senior executive when setting compensation levels.
To ensure retention of qualified management, the Company has entered into
employment agreements with its key management personnel. The employment
agreements establish annual base salary amounts that the Committee may increase
based on the foregoing criteria. Pursuant to his employment agreement the annual
base salary of the Chief Executive Officer was increased from $160,000 in 1995
to $175,000 in 1996; however, Mr. Cone declined this increase in base
compensation. During 1996, $10,000 in cash bonuses and 150,000 stock options
were awarded to the Chief Executive Officer. See " -- Employment Agreements."
The Plan is intended to provide key employees, including the Chief
Executive Officer and other executive officers of the Company and its
subsidiaries, with a continuing proprietary interest in the Company, with a view
to increasing the interest in the Company's welfare of those personnel who share
the primary responsibility for the management and growth of the Company.
Moreover, the Plan provides a significant non-cash form of compensation that is
intended to benefit the Company by enabling it to continue to attract and to
retain qualified personnel.
The Compensation Committee is authorized to make incentive equity awards
("Incentive Awards") under the Plan to key employees, including officers
(whether or not they are also directors), of the Company
14
<PAGE>
and its subsidiaries. Although the Incentive Awards are not based on any one
criterion, the Committee will direct particular attention to management's
ability to implement the Company's strategy of geographic expansion through
acquisition followed by successful integration and assimilation of the acquired
companies. In making Incentive Awards, the Committee will also consider margin
improvements achieved through management's realization of operational
efficiencies, as well as revenue and earnings growth.
1996 COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Charles J. Anderson
John P. Madden, Chair
Barbara S. Shuler
CERTAIN TRANSACTIONS
The Company enters into transactions with related parties only with the
approval of a majority of the independent and disinterested directors and only
on terms the Company believes to be comparable to or better than those that
would be available from unaffiliated parties. In the Company's view, all of the
transactions described below meet that standard.
In connection with the purchase of Landreth Engineering Co. ("Landreth")
in 1992, the Company entered into a lease agreement with Scranton Acres, a
general partnership of which Mr. Tom Landreth is a partner, for the Landreth
facility. The lease expire in 2002. Rental payments are $106,800 annually.
In connection with the purchase of Landreth, the former Landreth
Shareholders, including Mr. Tom Landreth, are entitled to additional
consideration based upon the level of Landreth's pretax profits through 1997,
not to exceed $500,000 in the aggregate. For fiscal 1996, 1995 and 1994, the
Company paid Mr. Landreth $14,745, $103,932 and $32,430.
Mr. John Thompson, a director of the Company since February 1997, is also
a director and President of St. James Capital Corp. ("St. James Capital"), a
merchant banking firm. St. James Capital serves as General Partner of St. James
Capital Partners, L.P. ("St. James"). During 1995, St. James provided $1,000,000
in short-term financing to the Company in connection with an acquisition. In
1996, $804,100 of principal of this note was converted by St. James into 215,000
shares of the Company's common stock. The remaining principal and $65,995 in
interest was repaid by the Company to St. James. In 1996, St. James provided
$1.9 million in short term financing in connection with an acquisition and
acquired 540,000 warrants to purchase the Company's common stock at an exercise
price of $7.00 per share. Additionally, St. James Capital received $180,600 in
investment banking fees. In 1996, the Company received $100,000 in fees from St.
James in connection with consulting services provided to certain investee
companies of St. James.
COST OF SOLICITATION
The Company will bear the costs of the solicitation of proxies from its
shareholders. In addition to the use of mail, proxies may be solicited by
directors, officers and regular employees of the Company in person or by
telephone or other means of communication. The directors, officers and employees
of the Company will not be compensated additionally for such solicitation but
may be reimbursed for out-of-pocket expenses in
15
<PAGE>
connection with the solicitation. The Company is also making arrangements with
brokerage houses and other custodians, nominees and fiduciaries for the delivery
of solicitation material to the beneficial owners of Common Stock and the
Company will reimburse the brokers, custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses in connection with such services.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes of ownership with the Commission. Officers, directors and
greater than 10% shareholders are required to furnish the Company with copies of
all Section 16(a) reports they file. Based solely on its review of the forms
received by it, the Company believes that during the year ended December 31,
1996 Messrs. Cone, Madden, Anderson and Kenney and Ms. Shuler and Ms. Smith were
late in filing a form 4 report of an exempt transaction. The Company believes
that these failures to file reports on a timely basis were inadvertent and has
implemented routine procedures designed to periodically remind its officers and
directors of the filing requirements.
SHAREHOLDER PROPOSALS
Proposals by shareholders intended to be presented at the 1998 Annual
Meeting of Shareholders must be received by the Company for inclusion in the
Company's proxy statement and form of proxy relating to that meeting not later
than January 20, 1998.
OTHER MATTERS
The annual report to shareholders covering the fiscal year ended December
31, 1996 has been mailed to each shareholder entitled to vote at the Annual
Meeting.
Price Waterhouse LLP, the Company's independent accountant for the fiscal
year ended December 31, 1996, is not expected to be present at the Annual
Meeting.
Management is not aware of any other matters to be presented for action at
the Annual Meeting. However, if any other matter is properly presented, it is
the intention of the persons named in the enclosed proxy form to vote in
accordance with their best judgment on such other matters.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT E. CONE
Chairman of the Board
May 27, 1997
16
<PAGE>
EXHIBIT A
AMENDMENT TO THE
1994 AMENDED AND RESTATED INCENTIVE STOCK PLAN
Set forth below is the text of the second paragraph of Section 3 of the
Company's 1994 Amended and Restated Incentive Stock Plan as proposed to be
amended (bracketed information has been deleted and underlined information has
been added):
Section 3. Stock Subject to the Plan.
The Committee may grant Options, shares of Restricted Stock,
shares of Phantom Stock and Stock Bonuses under the Plan with
respect to [500,000] 750,000 shares of Common Stock. The grant of a
Cash Bonus shall not reduce the number of shares of Common Stock
with respect to which Options, shares of Restricted Stock, shares of
Phantom Stock, or Stock Bonuses may be granted pursuant to the Plan.
<PAGE>
EXHIBIT B
AMENDMENT TO THE 1995 NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN
Set forth below is the text of Section 3 and Section 4 the Company's 1995
Non-Employee Director Stock Option Plan as proposed to be amended (bracketed
information has been deleted and underlined information has been added):
3. STOCK RESERVED FOR THE PLAN. The maximum number of shares of
Common Stock that may at any time be subject to outstanding options issued
under the Plan is [105,000] 210,000. The Company shall reserve for
issuance pursuant to this Plan such number of shares of Common Stock as
may from time to time be subject to options granted pursuant to this Plan.
Should any option expire or be canceled prior to its exercise in full, the
shares theretofore subject to such option may again be made subject to an
option under the Plan.
4. GRANT OF OPTIONS. Each director of the Company who (A) is not
appointed or elected to the Board in connection with or as a result of the
completion of a financing or acquisition transaction in which the
appointment or election of such person, or the execution of an agreement
obligating the parties thereto to vote in favor of the appointment or
election of such person, is a condition to the obligation of any party to
the transaction to complete the transaction and (B) is not otherwise an
employee of the Company or any of the Company's subsidiaries (as defined
in Section 3401 of the Internal Revenue Code of 1986, as amended)
(hereinafter referred to as an "Eligible Director") shall be granted
annually, [on the Date of Grant (as defined below)], a non-qualified
option [to acquire 15,000 shares of Common Stock (a "Non-Qualified
Option")] IN AN AMOUNT ESTABLISHED BY THE BOARD OF DIRECTORS AS A WHOLE.
The exercise price per share of Common Stock of the Non-Qualified Option
granted to an Eligible Director shall be the Fair Market Value of the
Common Stock on the Date of Grant (the "Exercise Price").
<PAGE>
EXHIBIT C
AMENDMENT TO THE INDUSTRIAL HOLDINGS, INC.
ARTICLES OF INCORPORATION
Set forth below is the text of paragraph (A) of Article IV of the
Company's Articles of Incorporation as proposed to be amended (bracketed
information has been deleted and underlined information has been added):
"ARTICLE IV
(A) The maximum number of shares of all classes of stock which the
Corporation is authorized to have outstanding at any one time is [27,500,000]
57,500,000 shares, [20,000,000] 50,000,000 of which shall be common stock, $.01
par value per shares ("Common Stock") and 7,500,000 of which shall be preferred
stock, $.01 par value per share ("Preferred Stock"), issuable in one or more
series. All or any part of the Common Stock and the Preferred Stock may be
issued by the Corporation from time to time and for such consideration as the
Board of Directors may determine. All of such shares, if and when issued, and
upon receipt of such consideration by the Corporation, shall be fully paid and
nonassessable."
<PAGE>
INDUSTRIAL HOLDINGS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 30, 1997
The undersigned shareholder of Industrial Holdings, Inc. (the "Company")
hereby appoints Robert E. Cone and Christine A. Smith., or any one or both 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
Shareholders of INDUSTRIAL HOLDINGS, INC. to be held at the Company's principal
offices at 7135 Ardmore, Houston, Texas, 77054, on June 30, 1997, at 10:00 a.m.
(Houston 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 Class III directors of
Robert E. Cone, James H. Brock, Jr., and Barbara Shuler. Instruction:
to withhold authority to vote for any individual nominee, write that
nominee's name on the line provided below.
______________________________________________________________________
___ WITHHOLD AUTHORITY to vote for all nominees listed above:
2. ___ For ___ Against ___ Abstain The proposal to increase the number
shares available under the 1994 Amended
and Restated Incentive Stock Option Plan
from the presently authorized 250,000 to
500,000.
3. ___ For ___ Against ___ Abstain The proposal to increase the number of
shares available for issuance under the
1995 Non-Employee Director Stock Option
Plan from the presently authorized
105,000 to 210,000.
4. ___ For ___ Against ___ Abstain The adoption of the amendment to the
Articles of Incorporation that provides
for an increase in the number of
authorized shares of common stock from
20,000,000 shares to 50,000,000 shares.
5. In their discretion, on such other matters as may properly come before the
meeting; hereby revoking any proxy or proxies heretofore given by the
undersigned.
(PLEASE SIGN ON REVERSE SIDE)
================================================================================
<PAGE>
(CONTINUED FROM OTHER SIDE)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS ABOVE AND IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR SUCH PROPOSALS.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders and the Proxy Statement furnished herewith.
Dated ________________________________________, 1997
Shareholder's Signature _____________________________________________________
Shareholder's Signature _____________________________________________________
Signature should agree with 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.
Attorneys should submit powers of attorney.
PLEASE SIGN AND RETURN IN THE ENCLOSED ENVELOPE
================================================================================
