SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO.1 TO
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-19580
INDUSTRIAL HOLDINGS, INC.
(exact name of registrant as specified in its charter)
TEXAS 76-0289495
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7135 ARDMORE, HOUSTON, TEXAS 77054 (Address of principal
executive offices, including zip code)
(713) 747-1025
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
COMMON STOCK, $.01 PAR VALUE
CLASS B REDEEMABLE WARRANT
CLASS C REDEEMABLE WARRANT
CLASS D REDEEMABLE WARRANT
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of common stock held by non-affiliates of the
registrant was $99,623,010 at March 26, 1999. At that date, there were
14,758,765 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information concerning the directors and executive officers of the
Company is set forth below:
PRINCIPAL POSITION DIRECTOR
NAME WITH THE COMPANY AGE SINCE
---- ---------------- --- -----
Robert E. Cone Chairman of the Board, President, 47 1989
Chief Executive Officer and
Director
John P. Madden Director 56 1992
John L. Thompson Director 38 1997
James H. Brock, Jr. Director 60 1991
Barbara S. Shuler Secretary and Director 52 1991
Charles J. Anderson Director 75 1991
James W. Kenney Director 56 1992
Christine A. Smith Executive Vice President 46
and Chief Financial Officer
Thomas C. Landreth Executive Vice President 50
Messrs. Madden's and Thompson's terms as directors expire on the date of
the Company's 1999 Annual Meeting. Messrs. Cone's and Brock's and Ms. Shuler's
terms as directors expire on the date of the Company's 2000 Annual Meeting.
Messrs. Anderson's and Kenney's terms as directors expire on the date of the
Company's 2001 Annual Meeting
ROBERT E. CONE founded the Company in 1989 and has served as President,
Chief Executive Officer and Director of the Company since then.
THOMAS C. LANDRETH has served as Executive Vice President since September
1996. Mr. Landreth has served as President of Landreth Engineering Company since
1977 and as President of the Fastener Manufacturing and Sales Division of the
Company since 1996.
CHRISTINE A. SMITH has served as Executive Vice President and 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.
JAMES H. BROCK, JR. has served as a Director of the Company since 1991. He
served as President of the Rex Group from 1993 to April 1999, as Executive Vice
President of the Company from 1991 to 1997, as President of the Company's Energy
Products and Services Division from 1997 to 1998 and as Chief Operating Officer
and Chief Financial Officer of the Company from 1989 to 1994. Mr. Brock is a
certified public accountant.
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. (the "Rex Group"), which was purchased by the Company in
1992. Mr. Madden is Chairman and Chief Executive Officer of Ashburn
<PAGE>
Industries, Inc., a metalworking fluids manufacturer, and Mr. Madden is engaged
in private industrial commercial real estate activity.
JOHN L. THOMPSON has served as a Director of the Company since 1997. Mr.
Thompson is a director and President of St. James Capital Corp., a Houston-based
merchant banking firm. St. James Capital Corp. is the general partner of St.
James Capital Partners L.P., an investment limited partnership specializing in
merchant banking related investments. 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
issuances.
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 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; and Tricom Corporation, a company that
develops products and services for the telecommunication industry.
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 Securities and Exchange 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, 1998, each of Messrs. Cone, Brock, Madden, Anderson,
Thompson and Kenney and Ms. Shuler and Smith did not timely file a Form 5,
which was due on February 15, 1999. The Company believes that these failures to
file a Form 5 on a timely basis were inadvertent.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table provides certain summary
information covering compensation paid or accrued during the fiscal years ended
December 31, 1998, 1997 and 1996 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 AWARDS PRICE
- ---------------------------------------------------------------- ---- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Cone ................................................. 1998 $237,920 $ 16,000 $ 4,800(1) 400,000 $ 12.50
President and 1997 $185,000 -- $ 4,000(1) -- --
Chief Executive Officer 1996 $160,000 $ 10,000 -- 150,000 $4.06-$5.50
James H. Brock, Jr ............................................. 1998 $180,000 $ 16,000 -- -- --
President - The Rex Group 1997 $168,333 -- -- -- --
1996 $150,000 $ 10,000 -- -- --
Thomas C. Landreth ............................................. 1998 $175,780 $ 19,553 $ 11,000(1) 10,000 $ 10.50
Executive Vice President and 1997 $132,455 $ 7,070 $ 12,000(1) 25,000 $ 10.00
President - Fastener Manufacturing 1996 $120,000 $ 24,518 $ 4,745(2) 30,000 $ 4.06
and Sales Division
Christine A. Smith ............................................. 1998 $165,000 $ 16,000 $ 6,000(1) 200,000 $ 12.50
Executive Vice President and 1997 $111,833 -- $ 6,000(1) 25,000 $ 10.00
Chief Financial Officer 1996 $ 95,000 $ 30,000 -- 30,000 $ 4.06
</TABLE>
(1) Fringe benefits.
(2) Additional payments under the terms of the Landreth Engineering Company
purchase agreement.
OPTION GRANTS IN 1998. The following table provides certain information
with respect to options granted to the executive officers during the fiscal year
ended December 31, 1998 under the Company's stock option plans:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE
SHARES OF AT ASSUMED ANNUAL RATES OF
COMMON STOCK PERCENT OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERMS(2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
- --------------------------- ------------ ---------------- --------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Robert E. Cone............. 400,000(1) 47.5% $12.50 3/17/08 $3,144,473 $7,968,712
Christine A. Smith......... 200,000(1) 23.7% $12.50 3/17/08 $1,572,237 $3,984,356
Thomas C. Landreth......... 10,000(1) 1.2% $10.50 9/18/08 $66,034 $167,343
</TABLE>
(1) None of these options were fully vested at December 31, 1998.
(2) These calculations are based on the market value of the Common Stock on
the date of grant. The market value is calculated by averaging the closing
bid and ask price for the stock as quoted by The Nasdaq National Market
System on the date of grant. The exercise price is determined by the same
method which is equal to the market value on the date of grant.
4
<PAGE>
OPTION EXERCISES DURING 1998 AND YEAR-END OPTION VALUES. The following
table sets forth information on options exercised by the executive officers
during 1998 and unexercised options and the value of in-the-money, unexercised
options held by the executive officers at December 31,1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED ON VALUE ------------------------------ ------------------------------
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Cone....... 33,000 $307,313 140,000 410,000 $542,500 $32,500
James H Brock, Jr.... 33,000 $307,313 -- -- -- --
Thomas C. Landreth... 16,250 $94,761 18,750 10,000 -- --
Christine A. Smith... 61,250 $490,919 18,750 200,000 -- --
</TABLE>
(1) Represents the difference between the average of the closing bid and ask
price for the Common Stock as quoted by The Nasdaq National Market System
on December 31, 1998 and any lesser exercise price.
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 1998, the Board of Directors convened on two 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 1998, except for
Mr. Anderson, who was unable to attend any of the meetings. During 1998, outside
directors received $500 for attendance at Board meetings, as well as
reimbursement for reasonable travel expenses incurred in attending such
meetings. In 1998, each non-employee director (Messrs. Anderson, Kenney, Madden
and Thompson 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 $12.25 to $12.50 per share. All
directors are eligible to participate in the Company's 1998 Incentive Plan (the
"Incentive 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, composed of Messrs. Brock and Kenney 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 two
occasions in 1998. The Compensation Committee sets the compensation for
executive, managerial and technical personnel of the Company and administers the
Company's stock option and other compensation plans. The Compensation Committee
is composed of Messrs. Madden, Thompson and Kenney and met on two occasions in
1998. The Board of Directors does not have a Nominating Committee.
5
<PAGE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation for 1998:
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 $185,000 in 1997
to $250,000 in 1998. See "- Employment Agreements."
The Incentive 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 Incentive 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 Incentive Plan to key employees, including
officers (whether or not they are also directors), of the Company 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.
6
<PAGE>
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.
CHIEF EXECUTIVE OFFICER COMPENSATION
The chief executive officer's salary was reviewed in February 1998 based
upon his responsibilities, experience, and performance with respect to the
progress made in achieving the Company's strategic objectives. After considering
the chief executive officer's performance over 1997 and the increase in the size
of the Company due to strategic acquisitions and internal growth, the Committee
recommended a salary increase of $65,000 effective April 1, 1998. To provide
increased long-term incentives to Mr. Cone, during 1998 he was awarded stock
options to purchase 400,000 shares of Common Stock.
1998 COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
John P. Madden, Chair
John L. Thompson
James W. Kenney
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the fiscal year ended December 31, 1998, Messrs. Madden, Thompson and
Kenney served on the Compensation Committee of the Board of Directors. No member
of the Compensation Committee has served as an officer of the Company.
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 base salary of
$250,000 for 1999 and 2000. Mr. Brock's amended employment agreement provides
for a base salary of $150,000 for 1999 and 2000.
7
<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 for U.S. Companies and to the Index of
Non-Financial Companies. The graph covers the period from December 31, 1993 to
December 31, 1998.
Nasdaq Nasdaq
STOCK MKT. NON-FINANCIAL IHI
---------- ------------- ---
Dec. 31, 1993 100.000 100.000 100.000
Dec. 31, 1994 97.752 96.163 86.376
Dec. 31, 1995 138.265 134.033 100.000
Dec. 31, 1996 170.032 162.843 269.697
Dec. 31, 1997 208.277 190.692 300.000
Dec. 31, 1998 293.484 279.462 212.121
[Graph]
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information regarding the beneficial
ownership of Common Stock at April 22, 1999, 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.
NUMBER OF SHARES
NAME OF BENEFICIALLY PERCENTAGE OF
BENEFICIAL OWNER OWNED(1) CLASS
---------------- ---------------- -------------
St. James Capital Partners, L.P.
777 Post Oak Blvd., Suite 950
Houston, Texas 77056(2)........... 1,873,544 12.0%
Directors and Executive Officers:
Robert E. Cone(3).................. 519,785 3.4%
Thomas C. Landreth(4).............. 98,445 *
Christine A. Smith(5).............. 214,416 1.4%
Charles J. Anderson(6)............. 77,000 *
James H. Brock, Jr................. 115,000 *
James W. Kenney(7)................. 15,000 *
John P. Madden(8).................. 257,946 1.7%
Barbara S. Shuler(7)............... 71,795 *
John L. Thompson(9)................ 10,000 *
All directors and executive officers
as a group (9 persons) (3) - (9). 1,365,887 9.0%
- --------------
*Less than one percent.
8
<PAGE>
(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 107,994 shares that may be acquired on or before June 20, 1999
upon the exercise of warrants.
(3) Includes 340,000 shares that may be acquired on or before June 20, 1999
upon the exercise of stock options. Also includes 13,500 shares held in
trust for persons related to Mr. Cone for which Mr. Cone is the executor
of the trusts and for which Mr. Cone is deemed to have beneficial
ownership.
(4) Includes 26,750 shares that may be acquired on or before June 20, 1999
upon the exercise of warrants and stock options.
(5) Includes 118,750 shares that may be acquired on or before June 20, 1999
upon the exercise of stock options.
(6) Includes 20,000 shares that may be acquired on or before June 20, 1999
upon the exercise of stock options.
(7) Includes 15,000 shares that may be acquired on or before June 20, 1999
upon the exercise of stock options.
(8) Includes 25,000 shares that may be acquired on or before June 20, 1999
upon the exercise of stock options. Excludes 44,325 shares owned by
persons related to Mr. Madden, but as to which Mr. Madden disclaims
beneficial ownership.
(9) Includes 10,000 shares that may be acquired on or before June 20, 1999
upon the exercise of stock options. Excludes 1,015,550 shares and 857,994
warrants owned by St. James Capital Partners, L.P., of which Mr. Thompson
is a director and president of its general partner and may be deemed to
share voting and investment power with respect to such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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 expires in 2002. Rental payments are $106,800 annually.
In 1998, the Company paid St. James Capital Corp., $1 million in
investment advisory fees in connection with acquisitions of various companies.
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 Corp. serves
as the general partner of St. James Capital Partners, L.P.
In connection with the Company's acquisition of GHX in 1998, Christine
Smith, one of the executive officers of the Company who was also a minority
shareholder of GHX, received 24,345 shares of Common Stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INDUSTRIAL HOLDINGS, INC.
ROBERT E. CONE
Chairman of the Board, President and
Chief Executive Officer
April 28, 1999
9
