FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-37915
OFFERING CIRCULAR - PROSPECTUS
INDUSTRIAL HOLDINGS, INC.
OFFER TO EXCHANGE ONE CLASS B REDEEMABLE WARRANT AND $10.00
CASH FOR ONE SHARE OF COMMON STOCK, ONE CLASS C REDEEMABLE
WARRANT AND ONE CLASS D REDEEMABLE WARRANT
- --------------------------------------------------------------------------------
THIS OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE ON
JANUARY 19,1998 AT 5:00 P.M., NEW YORK CITY
TIME, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
Industrial Holdings, Inc. (the "Company") hereby offers to the holders
of its 1,254,414 issued and outstanding Class B Redeemable Common Stock Purchase
Warrants ("Class B Warrants") the opportunity to exchange each Class B Warrant
and cash for one share of the Company's Common Stock, $.01 par value ("Common
Stock"), one Class C Redeemable Common Stock Purchase Warrant ("Class C
Warrant") and one Class D Redeemable Common Stock Purchase Warrant ("Class D
Warrant") beginning on the date hereof and ending on January 19, 1998, unless
extended on the terms hereinafter described.
This offer is being made on the following terms (SEE "The Offer" for a
more complete description of the terms of this Offer):
THE SHARES OF COMMON STOCK, CLASS C WARRANTS AND CLASS D WARRANTS
OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 13.
AN EXCHANGING CLASS B WARRANTHOLDER ("WARRANTHOLDER") WHO TENDERS CLASS
B WARRANTS AND PAYS TEN DOLLARS ($10.00) PER CLASS B WARRANT (THE "WARRANT
EXERCISE PRICE") WILL RECEIVE FOR EACH CLASS B WARRANT TENDERED ONE SHARE OF
COMMON STOCK, ONE CLASS C WARRANT AND ONE CLASS D WARRANT.
(CONTINUED ON NEXT PAGE)
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS OFFERING CIRCULAR-PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------------
The date of this Offering Circular-Prospectus is December 18, 1997.
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EACH CLASS C WARRANT TO BE ISSUED WILL ENTITLE THE HOLDER THEREOF TO
PURCHASE ONE SHARE OF THE COMPANY'S COMMON STOCK AT AN EXERCISE PRICE OF $15.00
PER SHARE THROUGH AND INCLUDING JANUARY 14, 2000. THE TERMS OF CURRENTLY
OUTSTANDING CLASS C WARRANTS, WHICH ARE EXERCISABLE THROUGH AND INCLUDING
JANUARY 14, 1999, WILL AFTER THE EXPIRATION DATE, AUTOMATICALLY BE EXTENDED TO
JANUARY 14, 2000. EACH CLASS D WARRANT TO BE ISSUED WILL ENTITLE THE HOLDER TO
PURCHASE ONE SHARE OF THE COMPANY'S COMMON STOCK AT AN EXERCISE PRICE OF $22.50
PER SHARE THROUGH AND INCLUDING JANUARY 14, 2000. THE COMPANY MAY REDEEM THE
CLASS C AND CLASS D WARRANTS AT $.05 PER WARRANT UPON 30 DAYS PRIOR WRITTEN
NOTICE IF THE CLOSING BID PRICE OF THE COMPANY'S COMMON STOCK EQUALS OR EXCEEDS
$20.00 AND $25.00, RESPECTIVELY, FOR 20 CONSECUTIVE TRADING DAYS. THE EXERCISE
PRICES OF THE CLASS C AND CLASS D WARRANTS WERE ARBITRARILY DETERMINED BY THE
COMPANY'S BOARD OF DIRECTORS AND ARE NOT NECESSARILY RELATED TO THE COMPANY'S
ASSETS, EARNINGS, BOOK VALUE OR OTHER GENERALLY ACCEPTED CRITERIA OF VALUE.
The exercise of the Class B Warrants pursuant to this Offer may be
withdrawn prior to 5:00 p.m., New York City time, on January 19, 1998 (the
"Expiration Date") (or the latest time and date at which this Offer, as extended
by the Company, shall expire). Thereafter, such exercises are irrevocable,
except that they may be withdrawn after January 19, 1998 unless theretofore
accepted for exercise as provided in this Offering Circular-Prospectus. This
Offer is subject to a number of customary conditions, any or all of which may be
waived by the Company, but is not conditioned upon the exercise of a minimum
number of Class B Warrants. The Company also reserves the right to extend this
Offer. SEE "The Offer--Expiration Date; Extensions" and "--Conditions of the
Offer."
Warrantholders who desire to exercise their Class B Warrants should (a)
complete and submit the accompanying Letter of Transmittal and their Class B
Warrant Certificate, together with (i) a certified or official bank check in the
amount of the aggregate Warrant Exercise Price made payable to Industrial
Holdings, Inc.; or (ii) a wire transfer to ChaseMellon Shareholder Services (the
"Exchange Agent") in the amount of the aggregate Warrant Exercise Price for the
benefit of the Company, and any other required documents to the Exchange Agent,
or (b) request a broker or bank to effect the transaction for him or her.
Holders of Class B Warrants registered in the name of a broker, dealer, bank,
trust or nominee should instruct such institutions to exercise their Class B
Warrants. The Company does not intend to pay broker-dealers solicitation fees
for the exercise of its Class B Warrants. SEE "The Offer--Procedure for
Tendering Class B Warrants."
If a holder of Class B Warrants does not want to tender his Class B
Warrants pursuant to the terms of this Offer, he may exercise such Class B
Warrants under the present terms of the Class B Warrants. Each Class B Warrant
entitles the registered holder to purchase one share of Common Stock at an
exercise price of $10.00 per share through and including January 14, 1999, after
which date unexercised Class B Warrants will expire.
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The Common Stock, Class B Warrants and Class C Warrants are currently
traded on the Nasdaq National Market under the symbols "IHII," "IHIIZ," and
"IHIIL," respectively. On December 10, 1997, the closing sale prices of the
Common Stock, Class B and Class C Warrants were $13.94, $7.00 and $2.19,
respectively. The Company has applied for listing of the Class D Warrants on the
Nasdaq National Market.
Questions and requests for assistance or for additional copies of this
Offering Circular-Prospectus may be made by calling Christine A. Smith, Vice
President of the Company, at (713) 747-1025, or by writing to Industrial
Holdings, Inc., 7135 Ardmore, Houston, Texas 77054.
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports and
other information may be inspected or copies obtained by mail upon payment of
the Commission's prescribed rates at the public reference facilities maintained
by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission:
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, New York, New York 10048. Copies of such material
may also be obtained at the prescribed rates from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, the Company is required to file electronic versions of these
documents with the Commission through the Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a
World Wide Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The Common Stock, the Class B Warrants and
the Class C Warrants are listed on the Nasdaq National Market, and reports,
proxy statements and other information filed by the Company can be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, Washington, D.C.
The Company has filed with the Commission a Registration Statement on
Form S-2 (together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Common Stock, Class C Warrants
and Class D Warrants to be offered hereby, as well as a Schedule 13E-4 Issuer
Tender Offer Statement (the "Schedule 13E-4") under the Exchange Act. This
Offering Circular-Prospectus does not contain all information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, or the Schedule 13E-4 and the
exhibits thereto, to which reference is made. The Registration Statement, the
Schedule 13E-4 and any amendments thereto, including exhibits filed as a part
thereof, are available for inspection and copying as set forth above. Statements
contained in this Offering Circular-Prospectus as to the contents of any
contract or other document referred to herein are not necessarily complete, and
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, such statement being qualified in all
respects by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commissioner
pursuant to the Exchange Act are incorporated by reference into this Offering
Circular-Prospectus:
(1) the Company's Annual Report on Form 10-K for the year ended
December 31, 1996;
(2) the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996;
(3) the Company's Quarterly Reports on Form 10-Q for the Quarter ended
March 31, 1997, June 30, 1997 and September 30, 1997;
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<PAGE>
(4) the Company's Current Report on Form 8-K/A dated January 27, 1997
amending its Current Report on Form 8-K dated November 27, 1996;
(5) the Company's Current Report on Form 8-K/A dated April 18, 1997
amending its Current Report on Form 8-K dated February 18, 1997;
(6) the Company's Current Report on Form 8-K dated May 14, 1997;
(7) the Company's Current Report on Form 8-K/A dated June 12, 1997
amending its Current Report on Form 8-K dated April 14, 1997;
(8) the Company's Current Report on Form 8-K dated September 5, 1997;
and
(9) the Company's Current Report on Form 8-K dated December 2, 1997.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Offering Circular-Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
is also incorporated by reference herein modifies or supercedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Offering Circular-
Prospectus.
The Company shall provide without charge, to each person to whom a copy
of this Offering Circular-Prospectus is delivered, upon oral or written request,
a copy (without exhibits, unless such exhibits are specifically incorporated by
reference into the information that this Offering Circular-Prospectus
incorporates) of any and all information that has been incorporated by reference
in this Offering Circular-Prospectus. Requests should be directed to Christine
A. Smith, Vice President and Chief Financial Officer, 7135 Ardmore, Houston,
Texas 77054, telephone number (713) 747-1025.
This Offering Circular-Prospectus is accompanied by a copy of the
Company's 1996 Annual Report on Form 10-K, the Annual Report on Form 10/K-A for
the year ended December 31, 1996 and the Quarterly Report on Form 10-Q for the
Quarter ended September 30, 1997.
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<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED ELSEWHERE AND
INCORPORATED BY REFERENCE IN THIS OFFERING CIRCULAR-PROSPECTUS.
THE COMPANY
Industrial Holdings, Inc. (including its subsidiaries, the "Company")
was incorporated in Texas in August 1989. The Company's principal executive
offices are located at 7135 Ardmore, Houston, Texas 77054, and its telephone
number is (713) 747-1025.
The Company's business is organized into two divisions: the Fastener
Manufacturing and Sales Division, comprised of Landreth Engineering Company
("Landreth"), Connecticut Rivet ("CRivet"), American Rivet Company, Inc.
("American") (collectively, "LEC"), LSS-Lone Star-Houston, Inc. ("Lone Star")
and Bolt Manufacturing Co., Inc. ("WALKER") and the Energy Products and Services
Division, comprised of (i) the Valve and Supplies Sales Group which includes
Pipeline Valve Specialty ("PVS"), Manifold Valve Services, Inc. ("MVS") and
Industrial Municipal Supply Company ("IMSCO"); (ii) the New Machine Sales and
Services Group which includes Regal Machine Tools ("Regal") and Rex Machinery
Movers ("RMM"); (iii) the Export Crating Group which includes U.S. Crating
("USC"); and (iv) the Used Machine Sales Group which includes Rex/Paul's Machine
Sales ("RPMS"). Regal, RMM, USC and RPMS comprise the Rex Group, Inc. ("REX").
The Fastener Manufacturing and Sales Division manufactures industrial
metal fasteners, including special cold-formed fasteners and threaded fastener
products, for sale primarily to manufacturers in the home furniture, home
appliance and automotive industries and to the petrochemical and energy
industries. In the Energy Products and Services Division, the Valve and Supplies
Sales Group remanufactures pipeline valves and high pressure valves that are
used primarily in oil and gas drilling applications and distributes pipe,
valves, fittings and other products primarily to the petrochemical, chemical and
petroleum refining industries and to the pipeline transportation and product
storage industries. The New Machine Sales and Services Group sells new machine
tools and conducts a machine moving operation. The Export Crating Group provides
international export crating services. The Used Machine Sales Group sells used
machine tools.
The Company's strategy is to identify and pursue acquisitions within
the lines of business in which the Company currently operates. The Company
believes that it is a leading manufacturer of semi-tubular rivets and
cold-headed specials with pro forma revenues for that segment (excluding Lone
Star and WALKER) for the twelve months ended December 31, 1996 of approximately
$30,222,000. The Company's growth strategy includes an emphasis on the continued
acquisition of fastener manufacturing companies and valve remanufacturing
companies with a particular emphasis on expansion into new customer bases and
geographical markets.
Since its inception, the Company has expanded its business through
acquisition.
YEAR
NAME LOCATION ACQUIRED DESCRIPTION
---- -------- -------- -----------
IMSCO Baytown, Texas 1989 pipe, valves and fittings
distributor
PVS Houston, Texas 1992 valve remanufacturing
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Landreth Houston, Texas 1992 rivet manufacturing
REX Houston, Texas 1993 machine tool distributor
CRivet Waterbury, Connecticut 1995 rivet manufacturing
American Chicago, Illinois 1996 rivet manufacturing
Lone Star Houston, Texas 1997 stud bolt manufacturing
MVS Jennings, Louisiana 1997 valve remanufacturing
WALKER Houston, Texas 1997 stud bolt manufacturing
The Company has financed these acquisitions with cash provided by operations,
borrowings under its credit agreements and public and private financings. The
Company anticipates that future acquisitions, if any, will be similarly
financed.
7
<PAGE>
RECENT DEVELOPMENTS
In February 1997, the Company acquired all the capital stock of Lone
Star for a purchase price of $6 million, including estimated transaction
expenses. Lone Star, with revenues of $15.5 million in 1996, is a leading
manufacturer and distributor of fasteners to the petrochemical and energy
industries, and is a specialty provider of custom in-house coating services. Its
53,000 square foot manufacturing facility is located in Spring, Texas.
The purchase was financed through an $800,000 term loan secured by the
machinery and equipment of Lone Star, a $900,000 mortgage note secured by the
real estate of Lone Star, a $500,000 term note payable to the former shareholder
of Lone Star, 84,211 shares of Common Stock, a $1.4 million increase in the
Company's demand note and line of credit facility payable to Comerica Bank -
Texas ("Demand Note") and $1.8 million cash.
In March 1997, the Company acquired all the outstanding capital stock
of MVS for 600,000 shares of Common Stock and a term note in the amount of
$442,500, payable to the selling shareholder in six monthly installments. MVS,
operating from a 25,000 square foot leased manufacturing facility in Jennings,
Louisiana, sells and repairs high pressure valves that are used primarily in oil
and gas drilling applications. MVS' revenues in 1996 were $6.4 million, with one
customer comprising 18% of its total 1996 revenues.
In November 1997, the Company acquired all of the outstanding capital
stock of Bolt Manufacturing Co., Inc. doing business as WALKER BOLT
Manufacturing Co. ("WALKER") for a purchase price of $5 million plus the
repayment at closing of $1 million in shareholder notes payable by Walker. The
purchase price was funded through an increase in the Company's Demand Note
secured by the inventory and receivables of the Company and a term note ("Term
Note") secured by certain equipment of the Company. The Company anticipates that
it will use the estimated $12,400,000 net proceeds from the exercise of the
Class B Warrants to repay a portion of the Company's Demand Note and Term Note.
SEE "Use of Proceeds."
WALKER, located in Houston, Texas, manufactures and distributes
specialty bolts and nuts to the petrochemical and energy industries through the
United States and Canada. Net sales of WALKER were $6,452,216 for its fiscal
year ended December 31, 1996 and $5,419,698 for the nine months ended September
30, 1997. WALKER will operate within the Fastener Manufacturing and Sales
Division. SEE "Pro Forma Condensed Consolidated Financial Statements
(unaudited)."
The Company has entered into a preliminary agreement to purchase
Belleli Energy srl, an Italian company which manufactures high pressure vessels
and heat exchangers for the petrochemical industry worldwide. The agreement is
subject to significant conditions. Given these conditions, there can be no
assurance that the acquisition will be consummated. If and when it is
consummated, the acquisition is expected to be financed through an increase in
the Company's existing credit facilities and seller financing.
THE OFFER
The Offer.............. Each holder of Class B Warrants may exchange one Class B
Warrant and $10.00 cash (the "Warrant Exercise Price")
for one share of the Company's Common Stock, one Class C
Redeemable Common Stock Purchase Warrant ("Class C
Warrant") and one Class D Redeemable Common Stock
Purchase Warrant ("Class D Warrant").
Expiration Date........ 5:00 p.m., New York City time, on January 19, 1998,
unless extended (the "Expiration Date"). SEE "The
Offer-- Expiration Date; Extensions."
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<PAGE>
Withdrawal Rights...... Acceptance of the Offer may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. Thereafter, such exercises are
irrevocable, except that they may be withdrawn after
January __, 1998 unless theretofore accepted for
exercise as provided in this Offering Circular-
Prospectus.
Risk Factors........... Class B Warrantholders (the "Warrantholders") who
elect to exercise their Class B Warrants and receive
Common Stock, Class C and Class D Warrants should
consider certain factors regarding the Company. SEE
"Risk Factors."
Warrant Terms.......... Each Class C and Class D Warrant will entitle the holder
to purchase one share of Common Stock at $15.00 per
share and $22.50 per share, respectively, through and
including January 14, 2000.
Effect of the Offer
on Non-Exercising
Warrantholders...... THE CLASS B WARRANTS ARE EXERCISABLE THROUGH AND
INCLUDING JANUARY 14, 1999, AFTER WHICH DATE THEY WILL
EXPIRE. IN ADDITION, PRIOR TO THEIR EXPIRATION, THE
REDUCED NUMBER OF OUTSTANDING CLASS B WARRANTS AS A
RESULT OF THE ACCEPTANCE OF THE OFFER MAY LIMIT THE
TRADING MARKET FOR THE CLASS B WARRANTS AND MAY
ADVERSELY AFFECT THEIR LIQUIDITY AND MARKET PRICE. THE
CLASS B WARRANTS MAY BE REDEEMED BY THE COMPANY AT $.05
PER WARRANT, ON NOT LESS THAN 30 DAYS' WRITTEN NOTICE,
IF THE CLOSING PRICE OF THE COMMON STOCK FOR A PERIOD OF
20 CONSECUTIVE TRADING DAYS EQUALS OR EXCEEDS $12.00 PER
SHARE. AS OF DECEMBER 18, 1997, THE CLOSING PRICE OF
COMMON STOCK HAD EQUALED OR EXCEED $12.00 PER SHARE FOR
20 CONSECUTIVE TRADING DAYS. THEREFORE, THE CLASS B
WARRANTS MAY BE REDEEMED BY THE COMPANY AT ANY TIME UPON
NOT LESS THAN 30 DAYS WRITTEN NOTICE. THE COMPANY HAS NO
PRESENT PLANS TO REDEEM THOSE CLASS B WARRANTS NOT
EXERCISED IN CONNECTION WITH THIS OFFER, BUT RESERVES
THE RIGHT TO DO SO IN THE FUTURE.
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Use of Proceeds....... It is anticipated that the net proceeds of the Offer of
up to $12,400,000 will be used by the Company to repay a
portion of the Demand Note and the Term Note. SEE "Use
of Proceeds."
Acceptance of the
Class B Warrants... The Company will accept all Class B Warrants duly
exercised and not properly withdrawn on the Expiration
Date, subject to certain conditions. SEE "The
Offer--Conditions of the Offer."
Conditions of the
Offer.............. The Offer is subject to a number of customary
conditions, any or all of which may be waived by the
Company. SEE "The Offer--Acceptance of the Class B
Warrants; Delivery of Common Stock, Class C Warrants and
Class D Warrants" and "--Conditions of the Offer."
How to Tender the
Class B Warrants... Any holder of Class B Warrants desiring to accept the
Offer should either (a) complete and submit the
accompanying Letter of Transmittal and his Class B
Warrant certificate and forward same together with (i) a
certified or official bank check in the amount of the
aggregate Warrant Exercise Price made payable to
Industrial Holdings, Inc.; or (ii) a wire transfer to
ChaseMellon Shareholder Services (the "Exchange Agent")
in the amount of the Warrant Exercise Price and any
other required documents to the Exchange Agent; or (b)
request a broker or bank to effect the transaction for
him or her. Holders of Class B Warrants registered in
the name of a broker, dealer, bank or nominee should
instruct such institutions to accept the Offer. SEE "The
Offer--Procedure for Tendering Class B Warrants."
Certain Income Tax
Consequences....... The tax consequences of the Offer are uncertain under
federal income tax law, and Warrantholders are urged to
consult their own tax advisors regarding this matter.
The recognition of income or gain characterized as
capital gain or ordinary income could result from the
acceptance of the Offer by a Warrantholder. SEE "The
Offer--Certain Federal Income Tax Consequences."
Delivery of
Securities......... The Exchange Agent will deliver the certificates for
shares of Common Stock, Class C and Class D Warrants as
soon as practicable after the Expiration Date. SEE "The
Offer--Acceptance of the Class B Warrants; Delivery of
Common Stock, Class C Warrants and Class D Warrants."
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<PAGE>
Common Stock
Outstanding........ There are presently 50,000,000 authorized shares of
Common Stock, and as of December 10, 1997, there were
6,489,368 shares of Common Stock, 1,254,414 Class B
Warrants and 621,914 Class C Warrants outstanding.
Assuming the acceptance of the Offer by all
Warrantholders, there will be 7,743,782 shares of Common
Stock outstanding.
Market Prices......... As of December 10, 1997, the last reported sales prices
of the Common Stock, Class B and Class C Warrants on the
Nasdaq National Market were $13.94, $7.00, and $2.19,
respectively. The Company has applied for listing of the
Class D Warrants on the Nasdaq National Market. SEE
"Price Range of Common Stock and Warrants."
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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
The selected financial data presented below are derived from and should
be read in conjunction with the Company's Consolidated Financial Statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" incorporated by reference in this Offering
Circular-Prospectus. The unaudited pro forma income statement data for the nine
months ended September 30, 1997 are presented as if, at the beginning of the
period, the acquisition of WALKER and MVS had taken place. (Lone Star is not
included in the pro forma results of operations due to the insignificance of the
period from January 1, 1997 to the date of acquisition. However, the pro forma
earnings per share calculation has been calculated as if the issuance of the
shares in conjunction with the acquisition had occurred on January 1, 1997.) The
unaudited pro forma income statement data for the year ended December 31, 1996
assumes that the acquisitions of American, Lone Star, MVS, and WALKER had taken
place at the beginning of the period. The unaudited pro forma balance sheet data
at September 30, 1997 are presented as if, at such date, the WALKER Acquisition
had taken place. The unaudited pro forma data should be read in conjunction with
the unaudited pro forma condensed consolidated financial statements incorporated
by reference in this Offering Circular-Prospectus.
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
PRO FORMA HISTORICAL PRO FORMA
NINE MONTHS NINE MONTHS ENDED YEAR ENDED HISTORICAL
ENDED SEPT. 30, SEPTEMBER 30, DECEMBER 31, YEARS ENDED DECEMBER 31,
------------ ------------------ ----------- --------------------------------------------
1997 1997 1996 1996 1996 1995 1994 1993 1992
------ ---- ------ ------ ------ ------ ------ ------ -----
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales........................ $ 66,658 $ 59,642 $38,498 $ 86,234 $ 51,423 $ 38,983 $34,730 $35,113 $20,769
Cost of sales................ 49,737 44,953 30,435 66,312 40,849 31,111 27,485 27,377 15,882
Gross profit................. 16,921 14,689 8,063 19,922 10,574 7,872 7,245 7,736 4,887
Selling, general &
administrative............. 11,712 10,438 6,019 14,542 8,002 6,401 6,569 6,198 4,523
Operating income............ 5,209 4,251 2,044 5,380 2,572 1,471 676 1,538 364
Other income (expense)....... (1,260) (878) (869) (2,348) (1,037) (824) (575) (666) (261)
Income before income taxes... 3,949 3,373 1,175 3,032 1,535 647 101 872 103
Income tax expense (benefit) 1,535 1,363 413 1,023 408 102 69 109 (279)
Net income................... 2,414 2,010 762 2,009 1,127 545 32 763 382
Earnings per share........... .35 .30 .19 .39 .26 .17 .01 .27 .17
Weighted average common and
common equivalent shares
outstanding(1)............... 6,987 6,783 4,102 5,099 4,379 3,150 3,030 2,829 2,102
(UNAUDITED) (UNAUDITED)
PRO FORMA HISTORICAL HISTORICAL
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
------------ ---------- --------------------------------------------
1997 1997 1996 1995 1994 1993 1992
------ ---- ------ ------ ------ ------ -----
BALANCE SHEET DATA:
Working capital.............. $ 5,022 $ 5,077 $ 3,101 $ 1,459 $ 2,254 $ 1,164 $ 1,551
Total assets................. 66,591 59,815 43,690 27,494 20,848 20,819 13,972
Long-term obligations(2)..... 11,132 6,045 7,326 5,891 3,568 3,229 3,242
Total liabilities............ 36,722 29,946 27,135 19,891 13,965 14,386 9,312
Common stock with put
redemption option.......... 6,000 6,000
Shareholders' equity......... 23,869 23,869 16,554 7,603 6,883 6,433 4,660
- ------------------------------
</TABLE>
(1) Calculated on the basis of the weighted average number of common and
common equivalent shares outstanding pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83.
(2) Excludes deferred income taxes and deferred compensation.
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RISK FACTORS
THE SHARES OF COMMON STOCK, CLASS C AND CLASS D WARRANTS OFFERED HEREBY
INVOLVE MATERIAL RISKS. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS
OFFERING CIRCULAR-PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS BEFORE MAKING A DECISION TO EXERCISE THEIR CLASS B
WARRANTS AND PURCHASE ANY SHARES OF COMMON STOCK, CLASS C WARRANTS AND CLASS D
WARRANTS.
LIMITED CAPITAL; RISKS RELATED TO BUSINESS STRATEGY AND ACQUISITIONS.
The Company's ability to effect its business plan depends on its ability to
raise funds to consummate acquisitions and provide necessary working capital.
The Company's future growth through acquisitions will require substantial
capital expenditures. While the Company evaluates business opportunities on a
regular basis, there can be no assurance that the Company will be successful in
identifying any additional acquisitions or will have sufficient financial
resources with which to make additional acquisitions. In the event that the
Company is unable to obtain cash in order to effect additional acquisitions, the
Company may issue additional shares, and further dilution to shareholders may
result. In addition, many companies compete with the Company for acquisitions.
Many of these competitors have greater financial resources than the Company. As
the Company effects acquisitions and expands its operations, it will be subject
to all of the risks inherent in an expanding business, including integrating
financial reporting, establishing satisfactory budgetary and other financial
controls, funding increased capital needs and overhead expenses, obtaining
management personnel required for expanded operations, and funding cash flow
shortages that may occur if anticipated sales and revenues are not realized or
are delayed, whether by general economic or market conditions.
At September 30, 1997, the Company had working capital of $5,078,171,
long-term debt of $6,045,388, shareholders' equity of $23,869,406 and
availability of $2,302,957 under its credit facilities with Comerica Bank -
Texas. The credit facilities are secured by substantially all the assets of the
Company. The Company anticipates that its operating cash needs for fiscal 1997
can be met with cash generated from operations and borrowings under its credit
facilities with Comerica Bank-Texas. Any future acquisition of companies in
connection with the Company's acquisition strategy will require additional
financing, which likely would include a combination of debt and equity
financing. There can be no assurance that the Company will be able to obtain
such financing on terms acceptable to it, if at all.
COMPETITION. The industries in which the Company and its subsidiaries
operate are highly competitive. Many of these competitors have greater financial
and other resources than the Company. Competitive factors for the Company's
subsidiaries include price sensitivity and customer service. The industries in
which the Company's subsidiaries operate are highly fragmented and dominated by
privately-owned businesses. Management's marketing strategy is to institute
centralized inventory controls, reduce personnel costs and achieve greater
buying power through expansion. Management believes that these strategies will
allow the Company and its subsidiaries to be more competitive. However, there
can be no assurance that the Company will be able to successfully compete
against presently known or future competitors.
FOREIGN SUPPLIERS. Certain of the Company's subsidiaries purchase
products from United States manufacturing companies operating abroad and from
foreign manufacturers. Accordingly, the Company is subject to the risks of doing
business abroad, including fluctuations in currency exchange rates, changes in
import duties or quotas, transportation costs, labor disputes and strikes. The
occurrence of any one or more of the foregoing events could materially adversely
affect the Company's product supply. The Company does
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not currently hedge nor does it presently plan to hedge its currency risks.
Since all transactions are in U.S. dollars, the Company believes the currency
risks associated with these transactions is not material.
DEPENDENCE ON KEY PERSONNEL. The success of the Company is dependent
on, among other things, the services of Robert E. Cone, President and Chief
Executive Officer, James H. Brock, Jr., President - Energy Products and Services
Division and Thomas C. Landreth, President - Fastener Manufacturing and Sales
Division. The Company has entered into employment agreements with Messrs. Cone,
Brock and Landreth. The loss of the services of any of these officers, for any
reason, may have a material adverse effect on the business and prospects of the
Company.
VOTING CONTROL BY CERTAIN SHAREHOLDERS. Directors, officers and
affiliates of the Company own approximately 25% of the Company's outstanding
shares and are therefore able to influence the election of a majority of the
Company's Board of Directors and to influence the conduct of the business and
affairs of the Company. After the Offer is consummated (assuming the exercise of
all of the Class B Warrants), such officers, directors and affiliates will own
approximately 21% of the Company's then outstanding shares, and will continue to
have the ability to influence the conduct of the business and affairs of the
Company.
LACK OF CONTRACTUAL SUPPLY AGREEMENTS. The Company's subsidiaries
purchase products from various sources of supply. The Company does not maintain
firm contractual agreements with any of its suppliers with respect to the
product purchases. Instead, the Company purchases its products from suppliers on
the most favorable terms that can be negotiated. Since product purchases are
negotiated on a continuing basis, the Company's supply stream may not be as
reliable as if it were negotiated pursuant to a long-term contract. The
Company's inability to obtain sufficient product from its suppliers would have a
material adverse effect on its business and operations.
DIVIDENDS NOT LIKELY. The Company has never paid cash dividends on its
Common Stock and does not anticipate paying cash dividends for the foreseeable
future. It is anticipated that any earnings that may be generated from the
Company's operations will be used to finance the Company's growth. SEE "Dividend
Policy."
FUTURE SALES OF COMMON STOCK. Of the Company's currently outstanding
6,489,368 shares, 1,598,922 are "restricted securities" within the meaning of
Rule 144 promulgated under the Securities Act ("Restricted Shares"). All of the
Restricted Shares are currently eligible for public sale in accordance with the
requirements of Rule 144. The remaining 4,890,446 shares are freely tradeable
without restrictions or further registration under the Securities Act, except
for shares held by "affiliates" of the Company, which will be subject to resale
limitations of Rule 144. In addition, the Company has filed registration
statements on Form S-3 under the Securities Act relating to 722,482 shares of
Common Stock issued or issuable upon the exercise of warrants and offered by
certain selling securityholders. Such shares of Common Stock are (or if not
issued, will be when issued) freely tradeable without restriction or further
registration under the Securities Act, except for shares held by "affiliates" of
the Company, which shares will be subject to the resale limitations of Rule 144.
The Company has also filed a registration statement under the Securities Act to
register the shares of Common Stock issuable under its stock option plans.
Shares issued under such plans, other than shares issued to affiliates of the
Company, will be freely tradeable in the public market.
The Company is unable to predict the effect that sales made under Rule
144 or otherwise may have on the then-prevailing market price of the Common
Stock. The issuance of a significant number of additional securities, or even
the possibility thereof, could depress the market price of such securities.
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POSSIBLE INABILITY TO EXERCISE CLASS C AND CLASS D WARRANTS. The Class
C or Class D Warrants to be issued in the Offer may not be exercised unless at
the time of exercise there is a current prospectus under an effective
registration statement covering shares of Common Stock issuable upon exercise of
such warrants and such shares have been registered or qualified or deemed to be
exempt under the securities laws of the state of residence of the holder. The
Company will use its best efforts to have a current registration statement in
effect and to have all such shares so registered or qualified at any time when
the holders thereof may exercise their warrants. While it is the Company's
intention to do so, there is no assurance that it will be able to do so.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF CLASS C AND CLASS D WARRANTS.
The Class C and Class D Warrants to be issued in the Offer may be redeemed by
the Company at any time prior to their expiration, at a price of $.05 per
warrant upon at least 30 days notice if the closing bid price of the Common
Stock has equaled or exceeded $20.00 and $25.00 per share, respectively, for a
period of 20 consecutive trading days. Redemption of the warrants could force
the holders to exercise the warrants and pay the exercise price at a time when
it may be disadvantageous for the holders to do so, to sell the warrants at the
then-current market price when they might otherwise wish to hold the warrants,
or to accept the redemption price, which is likely to be substantially less than
the market value of the warrants at the time of redemption.
ADVERSE EFFECT OF OFFER ON NON-EXERCISING CLASS B WARRANTHOLDERS. The
effect of the Offer on non-exercising Class B Warrantholders will be
significant. First, the Class B Warrants are exercisable through and including
January 14, 1999, after which date they expire. In addition, prior to their
expiration, to the extent that the Offer is accepted and Class B Warrants are
exercised, the trading market for unexercised Class B Warrants will become more
limited, and their price is likely to be adversely affected. The Class B
warrants may be redeemed by the Company at $.05 per warrant, on not less than 30
days' written notice, if the closing price of the Common Stock for a period of
20 consecutive trading days equals or exceeds $12.00 per share. As of December
18, 1997, the closing price of Common Stock had equaled or exceed, $12.00 per
share for 20 consecutive trading days. Therefore, the Class B warrants may be
redeemed by the Company at any time upon not less than 30 days written notice.
The Company has no present plans to redeem those Class B Warrants not exercised
in connection with this offer, but reserves the right to do so in the future.
ANTI-TAKEOVER EFFECT. The provisions of the Amended and Restated
Articles of Incorporation ("Amended Articles") may be deemed to have an
anti-takeover effect or may delay, defer or prevent a tender offer or takeover
attempt that a shareholder might consider in such shareholder's best interest,
including those attempts that might result in a premium over the market price
for the shares held by a shareholder. Pursuant to the Amended Articles, the
Board of Directors may, by resolution, establish one or more series of preferred
stock, having such number of shares, designation, relative voting rights,
dividend rates, liquidation or other rights, preferences and limitations as may
be fixed by the Board of Directors without any further shareholder approval.
Such rights, preferences, privileges and limitations as may be established could
have the effect of impeding or discouraging the acquisition of control of the
Company.
LIMITATION OF DIRECTOR LIABILITY. Texas law authorizes a Texas
corporation to eliminate or limit the personal liability of a director to the
Company and its shareholders for monetary damages for breach of certain
fiduciary duties as a director. The Company believes that such a provision is
beneficial in attracting and retaining qualified directors, and accordingly, its
Amended Articles include a provision eliminating a director's liability for
monetary damages for any breach of fiduciary duty as a director, except in
certain specified instances. The foregoing provision of the Amended Articles may
reduce the likelihood of derivative litigation against directors and may
discourage or deter shareholders or management from bringing
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a lawsuit against directors for breaches of their fiduciary duties, even though
such an action, if successful, might otherwise have benefitted the Company and
its shareholders.
GOVERNMENTAL REGULATION. The Company's business is affected by
governmental regulations relating to its industry segments in general, as well
as environmental and safety regulations that have specific application to the
Company's business. While the Company is not aware of any proposed or pending
legislation, there can be no assurance that future legislation will not have an
adverse effect on the Company's business or competitive position. The Company
believes that it disposes of environmentally sensitive materials in accordance
with present rules and regulations. In the event the Company is required to
adopt additional environmental measures, the cost may be substantial.
THE OFFER
TERMS OF THE OFFER
The Company hereby offers to the holders of its issued and outstanding
Class B Warrants the opportunity to exchange each Class B Warrant and $10.00
cash for one share of the Company's Common Stock, $.01 par value, one Class C
Warrant and one Class D Warrant beginning on the date hereof and ending at 5:00
p.m., New York City time, on January 19, 1998 (the "Expiration Date") unless
extended, subject to the terms and conditions set forth herein. The Offer
applies to all of the outstanding Class B Warrants, and the Company's obligation
to consummate the Offer is not subject to the exercise of any minimum number of
Class B Warrants.
In accordance with this Offer, the Company will issue Common Stock,
Class C Warrants and Class D Warrants for Class B Warrants effectively
exercised, and not withdrawn, on the Expiration Date or as soon as practicable
after such Expiration Date, subject to certain conditions set forth herein. SEE
"Conditions of the Offer" below.
AN EXCHANGING WARRANTHOLDER WHO TENDERS CLASS B WARRANTS AND PAYS TEN
DOLLARS ($10.00) PER CLASS B WARRANT WILL RECEIVE FOR EACH CLASS B WARRANT
TENDERED ONE SHARE OF COMMON STOCK, ONE CLASS C WARRANT AND ONE CLASS D WARRANT.
EACH CLASS C WARRANT TO BE ISSUED WILL ENTITLE THE HOLDER THEREOF TO
PURCHASE ONE SHARE OF THE COMPANY'S COMMON STOCK AT A PURCHASE PRICE OF $15.00
THROUGH AND INCLUDING JANUARY 14, 2000. THE TERMS OF CURRENTLY OUTSTANDING CLASS
C WARRANTS, WHICH ARE EXERCISABLE THROUGH AND INCLUDING JANUARY 14, 1999, WILL
AFTER THE EXPIRATION DATE, AUTOMATICALLY BE EXTENDED TO JANUARY 14, 2000. EACH
CLASS D WARRANT TO BE ISSUED WILL ENTITLE THE HOLDER TO PURCHASE ONE SHARE OF
THE COMPANY'S COMMON STOCK AT AN EXERCISE PRICE OF $22.50 PER SHARE THROUGH AND
INCLUDING JANUARY 14, 2000. THE COMPANY MAY REDEEM THE CLASS C AND CLASS D
WARRANTS AT $.05 PER WARRANT UPON 30 DAYS PRIOR WRITTEN NOTICE IF THE CLOSING
BID PRICE OF THE COMPANY'S COMMON STOCK EQUALS OR EXCEEDS $20.00 AND $25.00,
RESPECTIVELY, FOR 20 CONSECUTIVE TRADING DAYS. THE EXERCISE PRICES OF THE CLASS
C AND CLASS D WARRANTS WERE ARBITRARILY DETERMINED BY THE COMPANY'S BOARD OF
DIRECTORS AND ARE NOT
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NECESSARILY RELATED TO THE COMPANY'S ASSETS, EARNINGS, BOOK VALUE OR OTHER
GENERALLY ACCEPTED CRITERIA OF VALUE.
If a holder of Class B Warrants does not want to tender his Class B
Warrants pursuant to the terms of this Offer, he may exercise such Class B
Warrants under the present terms of the Class B Warrants. Each Class B Warrant
entitles the registered holder to purchase one share of Common Stock at an
exercise price of $10.00 per share through and including January 14, 1999.
EXPIRATION DATE; EXTENSIONS
Subject to the terms and conditions as set forth herein, the Company
will accept all Class B Warrants tendered under the terms of this Offer which
are not withdrawn prior to 5:00 p.m., New York City time, on the Expiration
Date. The Company at its sole option may extend this Offer for an additional
period of time by giving written notification of such extension to the Exchange
Agent. In addition, the Company may at its election cause notice of any
extension of the Offer to be published in the "New York Times," the "Wall Street
Journal" or any other newspaper selected by the Company.
The Company has no present intention to extend this Offer beyond the
Expiration Date. If, however, the Company does extend this Offer beyond such
date, the Company intends that such extension will not exceed an additional 10
business days. Any extension or expiration of the Offer will be followed as soon
as practicable, but in no event later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date, by public
announcement thereof, and any amendment of the Offer will be followed as soon as
practicable by public announcement. Without limiting the manner by which the
Company may choose to make such public announcement, the Company shall not,
unless otherwise required by law, have any obligation to publish, advertise or
otherwise communicate any such public announcement other than by making a
release to the Dow Jones News Service.
If the Company decides to waive, modify or amend a material provision
of the Offer, it may do so at any time, provided that it gives notice thereof in
the manner specified above and extends such Offer to the extent required by the
Exchange Act. With respect to an increase or decrease in the percentage of the
class of securities being tendered for or a change in the consideration offered,
Rule 13e-4(f)(1) of the Exchange Act generally requires that a tender offer
remain open for at least 10 business days from the date the notice of such
change is first published or sent or given to security holders. The minimum
period during which an offer must remain open following other material changes
in the terms of the offer will depend on the facts and circumstances, including
the relative materiality of the change in the terms of information concerning
the Offer. Any amendment to the Offer will apply to all Class B Warrants
exercised pursuant thereto, regardless of when or in what order the Class B
Warrants are exercised.
PROCEDURE FOR TENDERING CLASS B WARRANTS
To accept the Offer and tender the Class B Warrants, the accompanying
Letter of Transmittal ("Letter of Transmittal") must be completed and executed
as indicated thereon and the Letter of Transmittal and the Class B Warrants must
be accompanied by payment of the aggregate Warrant Exercise Price by certified
or official bank check made payable to Industrial Holdings, Inc. or by wire
transfer to the Exchange Agent for the benefit of the Company, together with any
other required documents. The foregoing materials must be delivered to and
received by the Exchange Agent at one of its addresses set forth on the back
cover of this Offering Circular-Prospectus on or before the Expiration Date.
However, in lieu of the foregoing, a
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Warrantholder may either (i) exercise the Class B Warrants pursuant to the
procedure for book-entry exercise set forth below (and a confirmation of such
book-entry exercise must be received by the Exchange Agent on or before the
Expiration Date) or (ii) comply with the guaranteed delivery procedure set forth
below. The beneficial holders of Class B Warrants that are held by or registered
in the name of a broker, dealer, commercial bank, trust Company or other nominee
or custodian are urged to contact such entity promptly if they wish to accept
the Offer. LETTERS OF TRANSMITTAL, PAYMENT OF THE AGGREGATE EXERCISE PRICE AND
CLASS B WARRANTS SHOULD NOT BE SENT TO THE COMPANY.
THE METHOD OF DELIVERY OF LETTERS OF TRANSMITTAL, CLASS B WARRANTS, THE
AGGREGATE WARRANT EXERCISE PRICE AND ALL OTHER REQUIRED DOCUMENTS TO THE
EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER, BUT IF SUCH DELIVERY
IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN
ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR
PRIOR TO THE EXPIRATION DATE.
Within two business days after the date hereof, the Exchange Agent will
establish accounts with respect to the Class B Warrants at each of The
Depository Trust Company and Philadelphia Depository Trust Company (each a
"Book-Entry Transfer Facility" and collectively referred to as "Book-Entry
Transfer Facilities") for purposes of the Offer. Any financial institution that
is a participant in a Book-Entry Transfer Facility's system may make book-entry
delivery of Class B Warrants by causing the Book-Entry Transfer Facility to
transfer the same into the Exchange Agent's account at such Book-Entry Transfer
Facility in accordance with such Book-Entry Transfer Facility's procedure for
such transfer and to confirm such transfer to the Exchange Agent in writing.
Although delivery of the Class B Warrants may be effected through book-entry
transfer, either (i) a properly completed Letter of Transmittal (or facsimile
thereof) executed by the holder of record, together with the proper signature
guarantees, and the certified or official bank check made payable to Industrial
Holdings, Inc. or a wire transfer for the benefit of the Company, together with
all other documents required, must be transmitted to and received by the
Exchange Agent at one of its addresses set forth on the back cover page of this
Offering Circular-Prospectus on or before the Expiration Date or (ii) the
guaranteed delivery procedure set forth below must be complied with. Delivery of
documents to a Book-Entry Transfer Facility in accordance with such Book-Entry
Transfer Facility's procedure does not constitute delivery to the Exchange
Agent.
Except as otherwise provided below, each signature on the Letter of
Transmittal, Class B Warrant certificate or instrument of transfer must be
guaranteed by a firm or other entity that is a member in good standing of the
Security Transfer Agent's Medallion Program, the New York Stock Exchange
Medallion Program or the Stock Exchange Medallion Program (singularly, an
"Eligible Institution"). Signatures on a Letter of Transmittal need not be
guaranteed (i) if the Letter of Transmittal is signed by the registered holder
of the Class B Warrants tendered and the holder has not completed the box titled
"Special Payment Instructions" or "Special Issuance Instructions" on the Letters
of Transmittal; or (ii) if such Class B Warrants are tendered for the account of
an Eligible Institution.
If the certificates for Class B Warrants are registered in the name of
a person other than the person exercising such Class B Warrants, or if Class B
Warrants that are not accepted for exercise pursuant to the Offer are to be
returned to a person other than the registered owner, then the certificates for
such Class B Warrants must be endorsed or accompanied by an appropriate
instrument of transfer, signed exactly as the name of the registered owner
appears on the certificates, with the signatures on the certificates or
instruments of transfer guaranteed by an Eligible Institution.
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The issuance of Common Stock in exchange for Class B Warrants exercised
pursuant to the Offer will be made only after timely receipt by the Exchange
Agent of the Letters of Transmittal and certificates for such Class B Warrants
(or a confirmation of a book-entry transfer of such Class B Warrants into the
Exchange Agent's account at one of the Book-Entry Transfer Facilities as
described above) and the certified or official bank check or the wire transfer,
together with all other documents required. If less than the number of Class B
Warrants evidenced by a submitted certificate are to be exercised, the
exercising Warrantholder should indicate on the Letter of Transmittal the number
of Class B Warrants being exercised. The number of Class B Warrants represented
by the certificates for Class B Warrants delivered to the Exchange Agent and
accompanied by a Letter of Transmittal and the aggregate Warrant Exercise Price
will be deemed to have been exercised.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of the Class B Warrants or payments of the aggregate
Warrant Exercise Price tendered will be determined by the Company, which
determination shall be final and binding. The Company reserves the absolute
right to reject any or all tenders of any particular Class B Warrants and
payments of the aggregate Warrant Exercise Price not properly tendered or the
acceptance of which would, in the opinion of the Company, be unlawful. The
Company also reserves the right to waive any irregularities or conditions of
tender as to any particular Class B Warrants, and the Company's interpretation
of the terms and conditions of this Offer (including the instructions and Letter
of Transmittal) shall be final and binding. Any irregularities in connection
with the tenders, unless waived, must be cured within such time as the Company
shall determine, which time may be extended beyond the Expiration Date. Neither
the Company nor the Exchange Agent shall be under any duty to give notification
of defects in such tenders or incur any liability for failure to give such
notification. Tenders of the Class B Warrants and payments of the aggregate
Warrant Exercise Price received by the Exchange Agent that are not properly
tendered and as to which the irregularities have not been cured or waived will
be returned (without interest on the cash payment or deduction therefrom) by the
Exchange Agent to the appropriate Warrantholder as soon as practicable.
GUARANTEED DELIVERY PROCEDURE
If a holder of Class B Warrants desires to exercise such Class B
Warrants pursuant to the Offer but is unable either to (i) deliver his
certificates, the certified or official bank check or the wire transfer and all
other required documents to the Exchange Agent on or before the Expiration Date
or (ii) comply with the procedure for book-entry exercise on a timely basis,
such Class B Warrants may nevertheless be exercised pursuant to the Offer,
provided that all of the following conditions are satisfied:
(i) such exercises are made by or through an Eligible
Institution;
(ii) prior to the Expiration Date, a properly completed and
duly executed Notice of Guaranteed Delivery (by telegram,
telex, facsimile transmission, mail or hand delivery) setting
forth the name and address of the Warrantholder and the number
of Class B Warrants exercised, stating that the exercise is
being made thereby and guaranteeing that within three trading
days after the Expiration Date, the Class B Warrants and the
certified or official bank check or the wire transfer,
together with all other documents required, will be deposited
by the Eligible Institution with the Exchange Agent; and
(iii) the certificates for all exercised Class B Warrants in
proper form for transfer (or a written confirmation of
book-entry transfer into the Exchange Agent's account at a
Book-
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Entry Transfer Facility as described above), a properly
completed and duly executed Letter of Transmittal and the
certified or official bank check or the wire transfer,
together with all other documents required, are received by
the Exchange Agent within three trading days after the
Expiration Date.
WITHDRAWAL RIGHTS
Any exercise of Class B Warrants pursuant to the Offer may be withdrawn
subject to the procedures described below, at any time prior to the Expiration
Date. Thereafter, such exercises are irrevocable, except that they may be
withdrawn after January 19, 1998 unless theretofore accepted for exercise as
provided in this Offering Circular-Prospectus. If the Company extends the period
of time during which the Offer is open, is delayed in its acceptance of the
Class B Warrants for exercise or is unable to accept the Class B Warrants for
exercise for any reason, then, without prejudice to the Company's rights under
the Offer, the Exchange Agent may, on behalf of the Company, retain all Class B
Warrants exercised, and such Class B Warrants may not be withdrawn except as
provided herein, subject to Rule 13E-4(f)(5) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), which provides that the person making
an issuer exchange offer shall either pay the consideration offered or return
tendered securities, promptly after the termination or withdrawal of the Offer.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must (i) be timely received by the Exchange
Agent at one of its addresses on the back cover of this Offering
Circular-Prospectus before the Exchange Agent receives notice of acceptance by
the Company of the Class B Warrants, (ii) set forth the name of the tendering
Warrantholder, (iii) if the Class B Warrants have been deposited with or
otherwise identified to the Exchange Agent, contain the description of the Class
B Warrants to be withdrawn and indicate the certificate numbers shown on the
certificates evidencing such Class B Warrants (except in the case of book-entry
exercise), and (iv) be executed by the Warrantholder in the same manner as the
original Class B Warrant certificate tendered or be accompanied by evidence
satisfactory to the Company that the person withdrawing the exercise pursuant to
this Offer has succeeded to the beneficial ownership of the Class B Warrants. In
the case of Class B Warrants tendered by book-entry transfer, a notice of
withdrawal must specify, in lieu of certificate numbers, the name and number of
the account at one of the Book-Entry Transfer Facilities to be credited with the
withdrawn Class B Warrants. All questions as to the validity (including the time
of receipt) of notices of withdrawal will be determined by the Company, whose
determination shall be final and binding. Class B Warrants and payments
withdrawn in the manner specified above will not be considered to have been duly
tendered. However, withdrawn Class B Warrants may be re-exercised at any time
prior to the Expiration Date.
No interest shall be paid on any amount returned to a Warrantholder
pursuant to a proper withdrawal or otherwise, regardless of any delay in the
Offer.
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ACCEPTANCE OF CLASS B WARRANTS; DELIVERY OF COMMON STOCK, CLASS C WARRANTS AND
CLASS D WARRANTS
Upon the terms and subject to the conditions of this Offer, Class B
Warrants tendered for exercise and not properly withdrawn will be accepted for
exercise on the Expiration Date. For purposes of this Offer, the Company will be
deemed to have accepted for exercise properly tendered Class B Warrants when, as
and if the Company has given oral or written notice thereof to the Exchange
Agent. All exercising warrantholders will be deemed to have waived any right to
receive notice of the acceptance of their Class B Warrants.
The Exchange Agent will act as agent for the exercising holders of
Class B Warrants for the purposes of receiving from the Company the Common
Stock, Class C Warrants and Class D Warrants and Class B Warrants not accepted
for exercise and transmitting such securities to the holders. Tendered Class B
Warrants not accepted for exercise by the Company will be returned (or, in the
case of Class B Warrants exercised by book-entry transfer through a Book-Entry
Transfer Facility, will be credited to an account maintained with such
Book-Entry Transfer Facility) without expense to the exercising holders as
promptly as practicable following the Expiration Date.
If the Company extends the period during which the Offer is open, is
delayed in its acceptance for exercise or is unable to accept for exercise any
Class B Warrants pursuant to the Offer for any reason, then, without prejudice
to the Company's rights hereunder, the Exchange Agent, at the request of the
Company, may nevertheless retain Class B Warrants exercised together with any
certified or official bank check or wire transfer and any other required
documents subject to the withdrawal rights of holders thereof as set forth
herein and applicable securities laws.
Delivery of the Common Stock, Class C Warrants and Class D Warrants in
exchange for Class B Warrants and payments validly tendered and accepted by the
Company will be made as soon as practicable after the Expiration Date. All
deliveries will be made through the Exchange Agent.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain of the
anticipated federal income tax consequences of the acceptance of the Offer. No
discussion is included regarding any applicable state, local or foreign tax
laws.
This summary is limited to Warrantholders who hold the Class B Warrants
as "capital assets" (generally, property held for investment) within the meaning
of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code").
The tax consequences to any particular Warrantholder may be affected by matters
not discussed below. In addition, the Company has not sought a ruling from the
Internal Revenue Service or an opinion of counsel with respect to such tax
consequences. Accordingly, each Warrantholder is advised to consult with his or
her own tax advisor regarding the tax consequences of holding or exercising the
Class B Warrants.
ACCEPTANCE OF THE OFFER. It is possible that the acceptance of the
Offer would require the recognition of income by a Warrantholder, as the Class C
and Class D Warrants received by any Warrantholder accepting the Offer
constitute new and independent value (in the form of an inducement to exercise
the Class B Warrants), which is in addition to the original rights granted under
the Class B Warrants. Thus, those Warrantholders who accept the Offer may
recognize income to the extent of the extra value received,
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measured by the fair market value of the Class C and D Warrants. The character
of the income will be either capital gain realized from the exchange of a Class
B Warrant for Common Stock and the Class C and Class D Warrant or ordinary
income in the form of a taxable receipt of intangible property. Each
Warrantholder who exercises his Class B Warrants pursuant to this Offer will
have an adjusted basis in the Common Stock received equal to the aggregate
Warrant Exercise Price paid, plus the basis of the Class B Warrant and Class C
and Class D Warrants received equal to the amount of income reported on receipt
thereof.
EXERCISE OF THE CLASS C AND CLASS D WARRANTS. If a Warrantholder who
accepts the Offer reports income upon the receipt of the Class C and Class D
Warrants based upon their fair market value, he will not report income to that
extent when he subsequently exercises the Warrants. The character of the income
will depend upon whether the Class C and Class D Warrants are properly
considered to have been received in a capital transaction (which would result in
capital gain) or are characterized as intangible property (which would result in
ordinary income), as discussed above. The adjusted tax basis of the Common Stock
received in exchange for the Class C and Class D Warrants would be equal to the
amount reported as income (whether upon acceptance of the Offer or later) plus
the amount paid upon exercise of the Class C and Class D Warrants. The holding
period for the Class C and D Warrants will begin on the date this Offer is
consummated.
TAX CONSEQUENCES TO THE COMPANY. No gain or loss will be recognized to
the Company as a result of the Offer or the acceptance of the Offer by the
Warrantholders.
Pursuant to Section 382 of the Code, utilization of net operating loss
("NOL") carryforwards is limited if there has been a change in control of the
Company during a specified time period. The Company's issuance of Common Stock
in its initial public offering in January 1992 has previously resulted in
limitations under Section 382 with respect to the Company's ability to use NOL
carryforwards. In addition, the Company issued Common Stock in private offerings
in 1996 and 1997. However, the Company has determined that the exercise of the
Class B Warrants under this Offer, when added to the 1996 and 1997 Common Stock
issuances, will not create an additional change in control under Section 382 and
an additional limitation on the Company's NOL carryforwards.
EFFECT ON NON-EXERCISING CLASS B WARRANTHOLDERS
THE EFFECT OF THE OFFER ON NON-EXERCISING CLASS B WARRANTHOLDERS WILL
BE SIGNIFICANT. FIRST, THE CLASS B WARRANTS WILL EXPIRE AFTER JANUARY 14, 1999.
IN ADDITION, PRIOR TO THEIR EXPIRATION, TO THE EXTENT THAT THE OFFER IS ACCEPTED
AND CLASS B WARRANTS ARE EXERCISED, THE TRADING MARKET FOR UNEXERCISED CLASS B
WARRANTS WILL BECOME MORE LIMITED, AND THEIR PRICE IS LIKELY TO BE ADVERSELY
AFFECTED. THE CLASS B WARRANTS MAY BE REDEEMED BY THE COMPANY AT $.05 PER
WARRANT, ON NOT LESS THAN 30 DAYS' WRITTEN NOTICE, IF THE CLOSING PRICE OF THE
COMMON STOCK FOR A PERIOD OF 20 CONSECUTIVE TRADING DAYS EQUALS OR EXCEEDS
$12.00 PER SHARE. AS OF DECEMBER 18, 1997, THE CLOSING PRICE OF COMMON STOCK HAD
EQUALED OR EXCEEDED $12.00 PER SHARE FOR 20 CONSECUTIVE TRADING DAYS. THEREFORE,
THE CLASS B WARRANTS MAY BE REDEEMED BY THE COMPANY AT ANY TIME UPON NOT LESS
THAN 30 DAYS WRITTEN NOTICE. THE COMPANY HAS NO PRESENT PLANS TO REDEEM THOSE
CLASS B WARRANTS NOT EXERCISED IN CONNECTION WITH THIS OFFER, BUT RESERVES THE
RIGHT TO DO SO IN THE FUTURE.
22
<PAGE>
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, the Company may
cancel, modify or terminate the Offer and is not required to accept for exercise
any Class B Warrants pursuant to the Offer if prior to the Expiration Date:
(i) there shall be pending, instituted or threatened any legal
action or administrative proceeding before any court or governmental
agency, by any governmental agency or any other person, prohibiting,
restricting or delaying the Offer;
(ii) any statute, rule or regulation shall have been enacted,
or any action shall have been taken by any governmental authority,
which would prohibit or materially restrict or delay consummation of
the Offer; or
(iii) there shall have occurred (and the adverse effect of
such occurrence will be continuing): (a) any general suspension of, or
limitation on prices for trading on, the Nasdaq National Market or in
the other over-the-counter markets; (b) a declaration of a banking
moratorium by United States or New York authorities; or (c) a
commencement of a war, armed hostilities or other international or
national calamity directly or indirectly involving the United States of
America which would reasonably be expected to affect materially and
adversely (or to delay materially) the consummation of the Offer.
If the Company terminates the Offer pursuant to any of the conditions
set forth above, the Exchange Agent will promptly return the applicable Class B
Warrants and funds for the aggregate Warrant Exercise Price to the holders
thereof.
The Company reserves the absolute right to waive satisfaction of any
conditions and compliance with any terms of the Offer. The Company further
reserves the absolute right to reject any and all exercises not in proper form.
On the Expiration Date, the Company will accept any and all Class B Warrants
which are properly exercised, subject to the conditions stated herein.
LISTING OF THE CLASS D WARRANTS
The Company has applied for listing of the Class D Warrants on the
Nasdaq National Market. However, even if initially listed, there can be no
assurance that the Class D Warrants will meet the requirements for continued
inclusion and continue to be listed on the Nasdaq National Market. Failure to
continue to be listed may adversely affect the market value and liquidity of the
Class D Warrants.
POSITION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company believes the Company will benefit
from the receipt of net cash proceeds of up to $12,400,000 received pursuant to
this Offer and the possible receipt of additional financing in the future from
the exercise of the Class C Warrants and subsequently from the Class D Warrants
of up to $56,369,235 in the aggregate. However, the Board of Directors is not
making any recommendations to the holders of the Class B Warrants as to whether
they should exchange or refrain from exchanging any or all of their Class B
Warrants. Each Warrantholder must make his or her own decision as to whether to
exchange all or any portion of the Class B Warrants owned.
23
<PAGE>
PAYMENT OF FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent a fee of $7,500 to act
in such capacity reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The Company will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this Offering Circular-Prospectus and related documents to the
beneficial owners of the Class B Warrants, and in handling or forwarding tenders
for their customers. However, the Company will not make any other payments to
brokers, dealers or others soliciting tenders of Class B Warrants. Employees of
the Company may solicit tenders of Class B Warrants, for which they will receive
no additional compensation.
MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES
Any Warrantholder whose Class B Warrant certificates have been
mutilated, lost, stolen or destroyed should contact the Company at its address
set forth below for further information.
REQUESTS FOR ASSISTANCE
Requests for additional copies of this Offering Circular-Prospectus or
the Letter of Transmittal or assistance in completing an exchange should be made
by calling Christine A Smith, Vice-President of the Company, at (713) 747-1025,
or by mail to the Company as follows:
Industrial Holdings, Inc.
7135 Ardmore
Houston, Texas 77054
24
<PAGE>
USE OF PROCEEDS
The Company estimates that the net proceeds from the exercise of the
Class B Warrants assuming the exercise of all outstanding Class B Warrants
(after deducting the estimated expenses of the Offer payable by the Company)
will be $12,400,000. The Company anticipates that it will use the estimated
$12,400,000 net proceeds from the exercise of the Class B Warrants to repay its
Demand Note and Term Note.
PRICE RANGE OF COMMON STOCK AND WARRANTS
The Common Stock, Class B Warrants and Class C Warrants are traded on
the Nasdaq National Market under the symbols "IHII," "IHIZ" and "IHIIL,"
respectively. The following table sets forth the high and low closing sales
prices of the Common Stock, Class B Warrants and Class C Warrants for the
periods indicated below:
COMMON STOCK CLASS B WARRANT CLASS C WARRANT
PRICE RANGE PRICE RANGE PRICE RANGE
--------------- -------------- --------------
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
1995
First Quarter $ 4.00 $ 3.25 $0.22 $0.13
Second Quarter 3.63 2.88 0.34 0.19
Third Quarter 4.75 3.00 0.38 0.19
Fourth Quarter 4.38 3.31 0.38 0.28
1996
First Quarter $ 6.75 $ 3.75 $0.53 $0.31
Second Quarter 10.50 6.50 2.13 0.53
Third Quarter 10.13 7.00 3.25 1.50
Fourth Quarter 11.25 9.25 3.25 2.38 $1.50 $ .75
1997
First Quarter $14.00 $10.63 $4.50 $3.25 $1.88 $1.13
Second Quarter 11.25 9.88 3.94 2.88 1.63 1.06
Third Quarter 15.88 10.88 9.00 3.63 3.50 1.50
All of the foregoing prices reflect interdealer quotations, without
retail mark-up, mark-downs or commissions and may not necessarily represent
actual transactions in the Common Stock, Class B Warrants or Class C Warrants.
On November 25, 1997, the last reported sales prices of the Common
Stock, Class B Warrants and Class C Warrants as quoted by the Nasdaq National
Market, were $13.94, $7.00, and $2.19 per share or warrant, respectively. On
December 10, 1997 there were approximately 472, 97 and 48 record holders of the
Common Stock, Class B Warrants and Class C Warrants, respectively.
25
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company at
September 30, 1997; (ii) such capitalization as adjusted to reflect the
acquisition of WALKER, the exercise of all 1,254,414 outstanding Class B
Warrants, the issuance of 1,254,414 shares of Common Stock and the application
of the estimated $12,400,000 in net proceeds therefrom. This table should be
read in conjunction with the Company's Consolidated Financial Statements and
notes thereto which are incorporated by reference in this Offering
Circular-Prospectus and "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
(in thousands)
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(2)
------ --------------
<S> <C> <C>
Short-term debt............................................. $11,727 $ 2,028
======= ========
Long-term debt.............................................. $ 6,045 $ 9,533
Common stock with put redemption option $ 6,000 $ 6,000
Shareholders' equity:
Common stock, $.01 par value; 50,000,000 shares
authorized, 5,829,845 shares issued and
outstanding (1) and 7,084,259 shares issued
and outstanding, pro forma as adjusted (2)....... 58 $ 71
Additional paid-in capital......................... 20,656 33,043
Retained earnings.................................. 3,155 3,155
------- ---------
Total shareholders' equity................ $23,869 $36,269
------- -------
Total capitalization........................................ $47,641 $53,830
======= =======
</TABLE>
- ---------------------
(1) As of September 30, 1997, excludes (i) 1,254,414 shares underlying the
outstanding Class C Warrants; (ii) an aggregate of 711,750 shares of
Common Stock issuable upon the exercise of options granted to directors
or employees under the Company's 1994 Amended and Restated Incentive
Plan and 1995 Non-Employee Director Stock Option Plan (the "Plans") and
exercisable at an average exercise price of $6.06 per share of Common
Stock ("Shareholders' Options"), and an additional 100,000 shares that
may be granted in the future under the Plans; (iii) an aggregate of
756,397 shares of Common Stock issuable upon the exercise of warrants
other than the outstanding Class B and Class C Warrants and exercisable
at an average exercise price of $6.41 per share of Common Stock ("Other
Warrants").
(2) Pro Forma as adjusted gives effect to the acquisition of WALKER and
exercise of all 1,254,414 outstanding Class B Warrants.
26
<PAGE>
DIVIDEND POLICY
The Company has never paid dividends on its Common Stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company
presently intends to retain future earnings to support the Company's operations
and growth. Any payment of cash dividends in the future will be dependent on the
amount of funds legally available therefor, the Company's earnings, financial
condition, capital requirements and other factors that the Board of Directors
may deem relevant.
27
<PAGE>
DESCRIPTION OF SECURITIES
Pursuant to the Company's Amended Articles, the authorized capital
stock of the Company consists of 50,000,000 shares of Common Stock, par value
$.01 per share, and 7,500,000 shares of preferred stock, par value $.01 per
share (the "Preferred Stock"). The following description of certain of the
Company's securities is a summary, does not purport to be complete or to give
effect to applicable statutory or common law and is subject in all respects to
the applicable provisions of the Company's Amended Articles.
COMMON STOCK
At December 10, 1997, 6,489,368 shares of Common Stock were issued and
outstanding. Holders of Common Stock are entitled, among other things, to one
vote per share on each matter submitted to a vote of shareholders and, in the
event of liquidation, to share ratably in the distribution of assets remaining
after payment of liabilities. Holders of Common Stock have no cumulative voting
rights, and, accordingly, the holders of a majority of the outstanding shares
have the ability to elect all of the directors. Holders of Common Stock have no
preemptive or other rights to subscribe for shares and are entitled to such
dividends as may be declared by the Board of Directors out of funds legally
available therefor.
PREFERRED STOCK
None of the authorized shares of Preferred Stock have been issued or
are outstanding. The Board of Directors has the authority to cause the Company
to issue up to the authorized number of shares of Preferred Stock in one or more
series, to designate the number of shares constituting any series, and to fix
the rights, preferences, privileges and restrictions thereof, including dividend
rights, voting rights, redemption and conversion rights and liquidation
preferences of such series, without further action by the shareholders. Because
the Board is authorized to issue Preferred Stock with such preferences and
rights as it determines, it may afford the holders of any series of Preferred
Stock preferences, rights or voting powers superior to those of holders of
Common Stock. The Company has no present plan to issue any shares of Preferred
Stock.
WARRANTS
At December 10, 1997 there were 1,254,414 Class B Warrants and 621,914
Class C Warrants outstanding.
Each currently outstanding Class B Warrant and Class C Warrant entitles
the registered holder thereof to purchase from the Company one share of Common
Stock at an exercise price of $10.00 and $15.00 per share, respectively. The
Class B and Class C Warrants may be exercised through and including January 14,
1999. The Class B and Class C Warrants may be redeemed by the Company at $.05
per warrant, on not less than 30 days' written notice, if the closing price of
the Common Stock for a period of 20 consecutive trading days equals or exceeds
$12.00 and $20.00 per share, respectively. As of November 25, 1997, the closing
price of Common Stock had equaled or exceeded $12.00 per share for 20
consecutive trading days. Therefore, the Class B Warrants may be redeemed by the
Company at any time upon not less than 30 days written notice.
The Class C Warrants and Class D Warrants to be issued in connection
with the Offer (together with the currently outstanding Class B and Class C
Warrants, (the "Warrants")), will entitle the registered holder
28
<PAGE>
thereof to purchase one share of Common Stock at an exercise price of $15.00 and
$22.50 per share, respectively, and may be exercised through and including
January 14, 2000. The term of currently outstanding Class C Warrants, which are
exercisable through and including January 14, 1999, will, after the Expiration
Date, automatically be extended to January 14, 2000. The Company may redeem each
of the Class C Warrants and the Class D Warrants to be issued in the Offer at
$.05 per Warrant if the closing bid price of the Common Stock shall have equaled
or exceeded at least $20.00 and $25.00 per share, respectively, for a period of
20 consecutive trading days. Notice of any redemption must be mailed to all
holders of Warrants at least 30 days but no more than 60 days before the date on
which the Warrants have been called for redemption.
The holders of Warrants do not have any voting or any other rights of
shareholders of the Company and are not entitled to receive dividends. In the
event of an adjustment in the number of shares issuable on exercise of the
Warrants, the Company will not issue fractional shares, but will, instead, pay
to the holder of the Warrants at the time of such exercise an amount in cash
equal to the same fraction of the current market value of a share of Common
Stock.
The exercise price and the number and kind of shares or other
securities purchasable on exercise of any Warrants and the number of Warrants
are subject to adjustment on the occurrence of certain events, including stock
dividends, reclassifications, reorganizations, consolidations and mergers. No
adjustment in the exercise price is required until cumulative adjustments amount
to one percent or more of the exercise price. If the Company effects any capital
reorganization, certain reclassifications of the Common Stock, any consolidation
or merger (other than a consolidation or merger which does not result in any
reclassification or change in the outstanding shares), or sells all or
substantially all its properties and assets, the Warrants become exercisable
only for the number of shares of stock or other securities, assets, or cash to
which a holder of the number of shares of the Company purchasable (at the time
of such reorganization, reclassification, consolidation, merger or sale) on
exercise of such Warrants would have been entitled on such reorganization,
reclassification, consolidation, merger, or sale.
The Warrants are not exercisable by a holder if (i) the shares issuable
on exercise of such Warrants have not been registered under the securities or
blue sky laws of the state of residence of such holder or (ii) a current
prospectus meeting the requirements of the laws of such state cannot be lawfully
delivered by or on behalf of the Company. Pursuant to the terms of the
respective Warrant agreements, the Company has agreed to use reasonable efforts
to register such shares in states in which holders of Warrants are known to
reside and to maintain a current prospectus relating thereto.
SPECIAL PROVISIONS OF THE ARTICLES OF INCORPORATION AND TEXAS LAW
ANTI-TAKEOVER EFFECT. The provisions of the Amended Articles summarized
in the succeeding paragraphs, may be deemed to have an anti-takeover effect or
may delay, defer or prevent a tender offer or takeover attempt that a
shareholder might consider in such shareholder's best interest, including those
attempts that might result in a premium over the market price for the shares
held by a shareholder.
Pursuant to the Amended Articles, the Board of Directors may, by
resolution, establish one or more series of preferred stock, having such number
of shares, designation, relative voting rights, dividend rates, liquidation or
other rights, preferences and limitations as may be fixed by the Board of
Directors without any further shareholder approval. Such rights, preferences,
privileges and limitations as may be established could have the effect of
impeding or discouraging the acquisition of control of the Company.
29
<PAGE>
LIMITATION OF DIRECTOR LIABILITY. Texas law authorizes a Texas
corporation to eliminate or limit the personal liability of a director to the
Company and its shareholders for monetary damages for breach of certain
fiduciary duties as a director. The Company believes that such a provision is
beneficial in attracting and retaining qualified directors, and accordingly, its
Amended Articles include a provision eliminating a director's liability for
monetary damages for any breach of fiduciary duty as a director, except: (i) for
any breach of the duty of loyalty to the Company or its shareholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) for any transaction from which the director
derived an improper personal benefit; or (iv) for certain other actions. Thus,
pursuant to Texas law, the Company's directors are not insulated from liability
for breach of their duty of loyalty (requiring that, in making a business
decision, directors act in good faith and in the honest belief that the action
was taken in the best interest of the Company), or for claims arising under the
federal securities laws. The foregoing provision of the Company's Amended
Articles may reduce the likelihood of derivative litigation against directors
and may discourage or deter shareholders or management from bringing a lawsuit
against directors for breaches of their fiduciary duties, even though such an
action, if successful, might otherwise have benefitted the Company and its
shareholders.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. To the maximum extent
permitted by law, the Amended Articles and the Bylaws provide for mandatory
indemnification of directors, officers, employees and agents of the Company
against all expense, liability and loss to which they may become subject or
which they may incur as a result of being or having been a director, officer,
employee or agent of the Company. In addition, the Company must advance or
reimburse directors and officers and may advance or reimburse employees and
agents for expenses incurred by them in connection with indemnifiable claims.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and Warrants and
the Warrant Agent for the Warrants is ChaseMellon Shareholder Services, Stock
Transfer Department, 85 Challenger Road, Overpeck Centre, Ridgefield Park, New
Jersey 07660.
LEGAL MATTERS
Certain legal matters with respect to the issuance of the securities
offered hereby will be passed upon for the Company by Porter & Hedges, L.L.P.,
Houston, Texas.
30
<PAGE>
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT:
ChaseMellon Shareholder Services
Stock Transfer Department
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
TABLE OF CONTENTS
PAGE PAGE
---- ----
Available Information.... 4 Price Range of Common
Incorporation of Stock and Warrants....... 25
Certain Information Capitalization............. 26
By Reference........... 4 Dividend Policy............ 27
Summary.................. 6 Description of
Summary Consolidated Securities............... 28
Financial Data......... 12 Legal Matters.............. 30
Risk Factors............. 13
The Offer................ 16
Use of Proceeds.......... 25
NO DEALER, SALESPERSON, REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
OFFERING CIRCULAR-PROSPECTUS AND THE LETTER OF TRANSMITTAL AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS OFFERING CIRCULAR-PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS OFFERING
CIRCULAR-PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
