SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11 or Rule 14a-12
INDUSTRIAL HOLDINGS, INC.
(Name of Registrant as Specified in its Charter)
__________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
__________________________________________
(2) Aggregate number of securities to which transaction applies:
__________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
determined):
__________________________________________
(4) Proposed maximum aggregate value of transaction:
__________________________________________
(5) Total fee paid:
__________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
__________________________________________
(2) Form, Schedule or Registration Statement no.:
__________________________________________
(3) Filing Party:
__________________________________________
(4) Date Filed:
__________________________________________
<PAGE>
INDUSTRIAL HOLDINGS, INC.
7135 ARDMORE
HOUSTON, TEXAS 77054
------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 30, 1999
------------------------------------
The Annual Meeting of Shareholders of Industrial Holdings, Inc. (the
"Company") will be held at the Company's offices at 7135 Ardmore, Houston, Texas
77054, at 10:00 a.m., Houston time, on June 30, 1999, for the following
purposes:
1. To elect two Class II directors to serve until the third Annual
Meeting of Shareholders following this meeting; and
2. To consider and act upon such other business as may properly come
before the meeting.
A record of shareholders has been taken as of the close of business on
April 28, 1999 and only those shareholders of record on that date will be
entitled to notice of and to vote at the meeting. A shareholders' list will be
available commencing May 12, 1999, and may be inspected during normal business
hours for at least 10 days prior to the annual meeting at the offices of the
Company, 7135 Ardmore, Houston, Texas 77054.
Your participation in the Company's affairs is important. To ensure
your representation if you do not expect to be present at the meeting, please
sign and date the enclosed proxy and return it promptly in the enclosed stamped
envelope. The prompt return of proxies will ensure a quorum and save the Company
the expense of further solicitation.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT E. CONE
Chairman of the Board,
President and Chief Executive Officer
May 26, 1999
<PAGE>
INDUSTRIAL HOLDINGS, INC.
7135 ARDMORE
HOUSTON, TEXAS 77054
PROXY STATEMENT
This proxy statement is being mailed to shareholders on or about May
26, 1999, in connection with the solicitation of proxies by the Board of
Directors of Industrial Holdings, Inc. (the "Company") for use at the Annual
Meeting of Shareholders of the Company to be held at the Company's principal
offices at 7135 Ardmore, Houston, Texas 77054, at 10:00 a.m., Houston time, on
June 30, 1999, and at any adjournments thereof (the "Annual Meeting"), for the
purpose of considering and voting on the matters set forth in the accompanying
Notice of Annual Meeting of Shareholders. All shares represented by properly
executed proxies, unless such proxies previously have been revoked, will be
voted at the Annual Meeting in accordance with the directions on such proxies.
If no direction is indicated, the shares will be voted for the election of each
of the nominees named herein to the board of directors and for the other
proposals set forth in the Notice. A shareholder may revoke a proxy by (a)
delivering to the Company written notice of revocation, (b) delivering to the
Company a signed proxy bearing a later date or (c) voting in person at the
Annual Meeting.
At the close of business on April 28, 1999, the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting (the "record date"), there were issued, outstanding and entitled to vote
14,764,202 shares of the Company's common stock, par value $.01 per share
("Common Stock"). The presence, in person or by proxy, of a majority of the
shares of Common Stock outstanding on the record date is necessary to constitute
a quorum at the Annual Meeting. The two nominees for election as directors who
receive a plurality of the votes cast by the holders of Common Stock entitled to
vote at the Annual Meeting will be duly elected Class II Directors. Each share
of Common Stock is entitled to one vote on all questions requiring a shareholder
vote at the Annual Meeting. Abstentions and broker non-votes will be treated as
present for purposes of determining a quorum. A broker non-vote occurs when a
nominee holding shares of Common Stock for a beneficial owner does not vote on a
particular proposal because the nominee does not have discretionary voting power
with respect to the particular item under consideration and has not received
instructions from the beneficial owner. Abstentions and broker non-votes will
not be included in the tabulation of the voting results with respect to the
election of directors and therefore will not have any effect on such vote. With
respect to any other matter properly brought before the Annual Meeting,
abstentions and broker non-votes are not deemed to be votes duly cast, but
abstaining votes are deemed to be entitled to vote while broker non-votes are
not deemed to be entitled to vote.
ELECTION OF DIRECTORS
At the Annual Meeting, two Class II Directors are to be elected, each
to hold office until the third Annual Meeting of Shareholders following his
election.
The persons named in the accompanying proxy have been designated by the
Board of Directors and unless authority is withheld, the members of the Board of
Directors intend to vote for the election of the nominees named below to the
Board of Directors as Class II Directors. All of the nominees for Class II
Directors previously have been elected by the shareholders to serve as members
of the Company's Board of Directors. Although the Board of Directors of the
Company does not contemplate that any of the nominees will become unavailable
for election, if such a situation arises prior to the Annual Meeting, the
persons named in the enclosed proxy will vote for the election of such other
person(s) as may be nominated by the Board of Directors or the size of the Board
may be reduced accordingly.
1
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL POSITION DIRECTOR
NAME WITH THE COMPANY AGE SINCE
---- ---------------- --- -----
<S> <C> <C>
CLASS II DIRECTORS WHOSE TERM (IF RE-ELECTED) WILL EXPIRE IN 2002
John P. Madden Director 56 1992
John L. Thompson Director 38 1997
CLASS III DIRECTORS WHOSE TERM WILL EXPIRE IN 2000
Robert E. Cone Chairman of the Board, President 47 1989
and Chief Executive Officer
James H. Brock, Jr. Director 60 1991
Barbara S. Shuler Secretary and Director 52 1991
CLASS I DIRECTORS WHOSE TERM WILL EXPIRE IN 2001
Charles J. Anderson Director 75 1991
James W. Kenney Director 56 1992
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information with respect to each of the
nominees for the office of director, each director whose term of office will
continue after the 1999 Annual Meeting of Shareholders and each other executive
officer.
NOMINEES FOR DIRECTORS
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
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 in August 1995, 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.
2
<PAGE>
OTHER DIRECTORS
ROBERT E. CONE founded the Company in 1989 and has served as Chairman
of the Board, President and Chief Executive Officer of the Company since then.
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.
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.
OTHER EXECUTIVE OFFICERS
THOMAS C. LANDRETH has served as Executive Vice President since
September 1996. Mr. Landreth has served as President of Landreth Engineering
Company 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.
3
<PAGE>
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.
APPROVAL
The two nominees for election as directors at the Annual Meeting who
receive a plurality of the votes cast for election by the holders of Common
Stock entitled to vote at the Annual Meeting, shall be the duly elected Class II
Directors, provided a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF
THE NOMINEES LISTED ABOVE.
4
<PAGE>
OTHER INFORMATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information regarding the beneficial
ownership of Common Stock at April 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.
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS
---------------- --------------------- -------------
<S> <C> <C> <C>
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%
</TABLE>
- ------------------------------------
*Less than one percent.
(1) Subject to community property laws where applicable, each person has
sole voting and investment power with respect to the shares listed,
except as otherwise specified. Each person is a United States citizen.
This table is based upon information supplied by officers, directors
and principal shareholders and Schedules 13D and 13G, if any, filed
with the Securities and Exchange Commission.
(2) Includes 857,994 shares that may be acquired on or before July 25, 1999
upon the exercise of warrants.
(3) Includes 340,000 shares that may be acquired on or before July 25, 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 July 25, 1999
upon the exercise of warrants and stock options.
(5) Includes 118,750 shares that may be acquired on or before July 25, 1999
upon the exercise of stock options.
(6) Includes 20,000 shares that may be acquired on or before July 25, 1999
upon the exercise of stock options.
(7) Includes 15,000 shares that may be acquired on or before July 25, 1999
upon the exercise of stock options.
(8) Includes 25,000 shares that may be acquired on or before July 25 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 July 25, 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.
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table provides certain
summary information covering compensation paid or accrued during the fiscal
years ended December 31, 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 $19,533 $ 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.
6
<PAGE>
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
SHARES OF VALUE AT ASSUMED
COMMON PERCENT OF ANNUAL RATES OF STOCK
STOCK TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERMS(2)
OPTIONS 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 $167,343
</TABLE>
- ----------------
(1) None of these options were fully vested at December 31, 1998.
(2) These calculations are based on the market value of the Common Stock on
the date of grant. The market value is calculated by averaging the
closing bid and ask price for the stock as quoted by The Nasdaq
National Market System on the date of grant. The exercise price is
determined by the same method which is equal to the market value on the
date of grant.
OPTION EXERCISES DURING 1998 AND YEAR END OPTION VALUES. The following
table sets forth information on options exercised by the executive officers
during 1998 and unexercised options and the value of in-the-money, unexercised
options held by the executive officers at December 31,1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT FISCAL YEAR END FISCAL YEAR END(1)
ACQUIRED ON VALUE ------------------------------ ----------------------------
NAME EXERCISE (#) REALIZED($) 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.
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.
7
<PAGE>
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.
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.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
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
8
<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
9
<PAGE>
companies. In making Incentive Awards, the Committee will also consider margin
improvements achieved through management's realization of operational
efficiencies, as well as revenue and earnings growth.
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
CERTAIN TRANSACTIONS
The Company enters into transactions with related parties only with the
approval of a majority of the independent and disinterested directors and only
on terms the Company believes to be comparable to or better than those that
would be available from unaffiliated parties. In the Company's view, all of the
transactions described below meet that standard.
In connection with the purchase of Landreth Engineering Co.
("Landreth") in 1992, the Company entered into a lease agreement with Scranton
Acres, a general partnership of which Mr. Tom Landreth is a partner, for the
Landreth facility. The lease 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.
10
<PAGE>
COST OF SOLICITATION
The Company will bear the costs of the solicitation of proxies from its
shareholders. In addition to the use of mail, proxies may be solicited by
directors, officers and regular employees of the Company in person or by
telephone or other means of communication. The directors, officers and employees
of the Company will not be compensated additionally for such solicitation but
may be reimbursed for out-of-pocket expenses in connection with the
solicitation. The Company is also making arrangements with brokerage houses and
other custodians, nominees and fiduciaries for the delivery of solicitation
material to the beneficial owners of Common Stock and the Company will reimburse
the brokers, custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in connection with such services.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes of ownership with the 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.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Deloitte & Touche LLP served as the independent auditors of the Company
for the fiscal year ended December 31, 1998 and has been selected to serve as
the independent auditor of the Company for the 1999 calendar year. A
representative of Deloitte & Touche LLP is not expected to be present at the
Annual Meeting.
SHAREHOLDER PROPOSALS
Proposals by shareholders intended to be presented at the 2000 Annual
Meeting of Shareholders must be received by the Company at 7135 Ardmore,
Houston, Texas 77054, Attention Barbara S. Shuler, for inclusion in the
Company's proxy statement and form of proxy relating to that meeting not later
than January 20, 2000, in accordance with the Securities and Exchange
Commission's Rule 14a-8.
A shareholder who wishes to make a proposal at the 2000 Annual Meeting
of Shareholders without complying with the requirements of Rule 14a-8 (and
therefore without including the proposal in the Company's proxy materials) must
notify the Company of that proposal by April 12, 2000. If a shareholder fails to
timely give notice, then the persons named as proxies in the proxy cards
solicited by the Company's Board of Directors for that meeting will be entitled
to vote the proxy cards held by them regarding that proposal, if properly raised
at the meeting, in their discretion or as directed by the Company's management.
OTHER MATTERS
Management is not aware of any other matters to be presented for action
at the Annual Meeting. However, if any other matter is properly presented, it is
the intention of the persons named in the enclosed proxy form to vote in
accordance with their best judgment on such other matters.
11
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ANNUAL REPORT AND FINANCIAL INFORMATION
A copy of the Company's 1998 Annual Report to Shareholders, which
includes a copy of the Company's annual report on Form 10-K for the year ended
December 31, 1998, accompanies this Proxy Statement.
Nothing contained in the Annual Report to Shareholders is to be
regarded as proxy soliciting material or as a communication by means of which a
solicitation of proxies is to be made.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT E. CONE
Chairman of the Board, President
and Chief Executive Officer
May 26, 1999
12
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INDUSTRIAL HOLDINGS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 30, 1999
The undersigned shareholder of Industrial Holdings, Inc. (the "Company")
hereby appoints Robert E. Cone and Christine A. Smith, or either one or both of
them, attorneys and proxies of the undersigned, each with full power of
substitution, to vote on behalf of the undersigned at the Annual Meeting of
Shareholders of INDUSTRIAL HOLDINGS, INC. to be held at the Company's principal
offices at 7135 Ardmore, Houston, Texas, 77054, on June 30, 1999, at 10:00 a.m.
(Houston time), and at any adjournments of said meeting, all of the shares of
common stock in the name of the undersigned or which the undersigned may be
entitled to vote.
1. [ ] The election as Class II directors of John P. Madden and John L.
Thompson. Instruction: to withhold authority to vote for any individual
nominee, write that nominee's name on the line provided below.
__________________________________________________________________
[ ] FOR all nominees listed above (except as marked to the contrary)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above
2. In their discretion, on such other matters as may properly come before
the meeting; hereby revoking any proxy or proxies heretofore given by
the undersigned.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(PLEASE SIGN ON REVERSE SIDE)
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(CONTINUED FROM OTHER SIDE)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS ABOVE AND IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR SUCH PROPOSALS.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders and the Proxy Statement furnished herewith.
Dated ___________________________________________, 1999
Shareholder's Signature _______________________________________________________
Shareholder's Signature _______________________________________________________
Signature should agree with name printed hereon. If
stock is held in the name of more than one person,
EACH joint owner should sign. Executors, administrators,
trustees, guardians, and attorneys should indicate the
capacity in which they sign. Attorneys should submit
powers of attorney.
PLEASE SIGN AND RETURN IN THE ENCLOSED ENVELOPE
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