T-3 ENERGY SERVICES INC
STOCK PURCHASE AGREEMENT
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>10
<FILENAME>h93136ex10-5.txt
<DESCRIPTION>STOCK PURCHASE AGREEMENT
<TEXT>
<PAGE>
                                                                    Exhibit 10.5









                            STOCK PURCHASE AGREEMENT


                                  BY AND AMONG


                            INDUSTRIAL HOLDINGS, INC.


                                       AND


                              GHX ACQUISITION CORP.








                                   DATED AS OF

                                NOVEMBER 14, 2001


















STOCK PURCHASE AGREEMENT                                          EXECUTION COPY
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                                Table of Contents

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1.         SALE AND PURCHASE OF THE STOCK; CLOSING.............................1
  1.1.     SALE AND PURCHASE...................................................1
  1.2.     PURCHASE PRICE......................................................1
  1.3.     POST-CLOSING ADJUSTMENT OF PURCHASE PRICE...........................1
  1.4.     CLOSING.............................................................2
  1.5.     DELIVERIES AT CLOSING...............................................3

2.         REPRESENTATIONS AND WARRANTIES OF IHI...............................4
  2.1.     ORGANIZATION AND GOOD STANDING......................................4
  2.2.     AUTHORIZATION AND ENFORCEABILITY....................................4
  2.3.     CAPITALIZATION......................................................5
  2.4.     NO CONFLICTS........................................................5
  2.5.     FINANCIAL STATEMENTS................................................6
  2.6.     LIABILITIES AND OBLIGATIONS.........................................6
  2.7.     FURNITURE, FIXTURES, MACHINERY AND EQUIPMENT........................7
  2.8.     LEGAL PROCEEDINGS...................................................7
  2.9.     TITLE TO ASSETS; LIENS..............................................7
  2.10.    REAL PROPERTY.......................................................7
  2.11.    SUBSIDIARIES, ETC...................................................7
  2.12.    EMPLOYEE BENEFIT PLANS..............................................7
  2.13.    TAX MATTERS.........................................................9
  2.14.    LEASED REAL PROPERTY................................................9
  2.15.    INTELLECTUAL PROPERTY RIGHTS........................................9
  2.16.    BROKERS' FEES......................................................10
  2.17.    LIMITATION ON REPRESENTATIONS; DEFINITION OF KNOWLEDGE.............10

3.         REPRESENTATIONS AND WARRANTIES OF BUYER............................10
  3.1.     ORGANIZATION AND STANDING..........................................10
  3.2.     AUTHORIZATION AND ENFORCEABILITY...................................10
  3.3.     NO VIOLATION OF LAW, ETC...........................................10
  3.4.     BROKERS' FEES......................................................11
  3.5.     BUYER'S KNOWLEDGE..................................................11

4.         PRE-CLOSING ACTIONS................................................11
  4.1.     CONDUCT OF BUSINESS................................................11
  4.2.     BUYER'S ACCESS.....................................................11
  4.3.     ACCURACY OF REPRESENTATIONS AND WARRANTIES.........................11

5.         CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS AT THE CLOSING.........12
  5.1.     COMPLIANCE WITH THIS AGREEMENT.....................................12
  5.2.     ACCURACY OF REPRESENTATIONS........................................12
  5.3.     NO MATERIAL ADVERSE CHANGE.........................................12
  5.4.     SATISFACTION OF CONDITIONS TO MERGER...............................12
  5.5.     DELIVERY OF CLOSING DOCUMENTS AND ITEMS............................12
  5.6.     CERTIFICATE REGARDING CONDITIONS PRECEDENT.........................12


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                                Table of Contents
                                   (continued)

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6.         CONDITIONS PRECEDENT TO THE OBLIGATIONS OF IHI AT THE CLOSING......12
  6.1.     COMPLIANCE WITH THIS AGREEMENT.....................................12
  6.2.     ACCURACY OF REPRESENTATIONS........................................13
  6.3.     SATISFACTION OF CONDITIONS TO MERGER...............................13
  6.4.     DELIVERY OF CLOSING DOCUMENTS AND ITEMS............................13
  6.5.     CERTIFICATE REGARDING CONDITIONS PRECEDENT.........................13

7.         NONCOMPETITION.....................................................13
  7.1.     PROHIBITED ACTIVITIES..............................................13
  7.2.     DAMAGES............................................................13
  7.3.     REASONABLE RESTRAINT...............................................14
  7.4.     SEVERABILITY; REFORMATION..........................................14

8.         INDEMNIFICATION....................................................14
  8.1.     SURVIVAL OF REPRESENTATIONS AND WARRANTIES.........................14
  8.2.     INDEMNIFICATION BY IHI.............................................14
  8.3.     INDEMNIFICATION BY BUYER...........................................15
  8.4.     PROCEDURE FOR INDEMNIFICATION; THIRD-PARTY CLAIMS..................15
  8.5.     PROCEDURE FOR INDEMNIFICATION; OTHER THAN THIRD-PARTY CLAIMS.......16
  8.6.     SPECIAL PROVISIONS REGARDING LIABILITY.............................16
  8.7.     REMEDIES...........................................................16

9.         POST-CLOSING MATTERS...............................................16
  9.1.     FURTHER ASSURANCES.................................................16
  9.2.     BOOKS AND RECORDS..................................................17
  9.3.     THE COMPANY'S DEBT.................................................17
  9.4.     TAX MATTERS........................................................17

10.        TERMINATION........................................................21
  10.1.    MANNER OF TERMINATION..............................................21
  10.2.    EFFECT OF TERMINATION..............................................21

11.        MISCELLANEOUS......................................................21
  11.1.    ENTIRE AGREEMENT...................................................21
  11.2.    NOTICES............................................................21
  11.3.    AMENDMENT AND WAIVERS..............................................22
  11.4.    ASSIGNMENT.........................................................23
  11.5.    GOVERNING LAW; VENUE...............................................23
  11.6.    SEVERABILITY.......................................................23
  11.7.    ARBITRATION........................................................23
  11.8.    MULTIPLE COUNTERPARTS..............................................24
  11.9.    EXPENSES...........................................................24
  11.10.   WAIVER OF BREACH...................................................24
  11.11.   CONSTRUCTION.......................................................24


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                                Table of Contents
                                   (continued)

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  11.12.   PUBLIC ANNOUNCEMENTS...............................................24
  11.13.   FACSIMILE SIGNATURES...............................................25


STOCK PURCHASE AGREEMENT              iii                         EXECUTION COPY
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SCHEDULES AND EXHIBITS

EXHIBIT A        Form of Subordinated Promissory Note
EXHIBIT B        Form of Sublease Agreement
EXHIBIT C        Form of Security Agreement
SCHEDULE 2.2     Authorization
SCHEDULE 2.5     Financial Statements
SCHEDULE 2.7     Furniture, Fixtures, Machinery and Equipment
SCHEDULE 2.8     Legal Proceedings
SCHEDULE 2.9     Title to Assets; Liens
SCHEDULE 2.10    Real Property
SCHEDULE 2.12    Employee Benefit Plans
SCHEDULE 2.14    Leased Real Property
SCHEDULE 2.15    Intellectual Property Rights


STOCK PURCHASE AGREEMENT               iv                         EXECUTION COPY
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                            STOCK PURCHASE AGREEMENT

        THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of November
14, 2001, by GHX ACQUISITION CORP. ("Buyer"), and INDUSTRIAL HOLDINGS, INC., a
Texas corporation ("IHI").

                                   BACKGROUND

A.      IHI owns 100% of the outstanding capital stock (the "Stock") of GHX,
        Incorporated, a Texas corporation (the "Company"), and desires to sell
        the Stock to Buyer on the terms and subject to the conditions in this
        Agreement. In connection with the sale and purchase of the Stock, the
        Company, IHI and Buyer will enter into certain related agreements, the
        forms of which are attached to this Agreement as exhibits ("Exhibits").

B.      IHI acquired all of the capital stock of the Company from, among others,
        Ben B. Andrews ("Andrews") and Daniel D. Ahuero ("Ahuero"), the
        President of the Buyer, in March 1998. Since that time, Ahuero has been
        the President of the Company, and Andrews has served in a management
        capacity at IHI. The parties therefore hereby acknowledge that the Buyer
        is in many cases as knowledgeable as IHI regarding the Company's
        business and the financial statements.

                                   AGREEMENTS

1.      SALE AND PURCHASE OF THE STOCK; CLOSING.

1.1.    SALE AND PURCHASE. At the Closing, IHI will sell, assign, transfer and
        deliver to Buyer, and Buyer will purchase, an aggregate of 31,666 shares
        of common stock, $0.01 par value per share, of the Company (the
        "Stock").

1.2.    PURCHASE PRICE. The purchase price ("Purchase Price") for the Stock will
        be $4,959,000 (the "Purchase Price"), to be paid to IHI as follows:

        (a)     $3,459,000 in cash (the "Cash Consideration"); and

        (b)     a subordinated promissory note in the original principal amount
                of $1,500,000, made payable by Buyer to the order of IHI, in
                substantially the form attached hereto as EXHIBIT A (the
                "Note").

1.3.    POST-CLOSING ADJUSTMENT OF PURCHASE PRICE.

        (a)     Within 30 calendar days following the Closing Date, IHI shall
                cause to be prepared and delivered to the Buyer a Statement of
                Net Working Capital of the Company as of the Closing Date (such
                statement, the "Closing Date Statement"). The Closing Date
                Statement shall be prepared in accordance with generally
                accepted accounting principles, consistently applied ("GAAP").
                The Buyer shall give IHI and its representatives reasonable
                access to the books, records and personnel of the business for
                the purpose of preparing and auditing the Closing Date
                Statement. The Buyer


STOCK PURCHASE AGREEMENT                                          EXECUTION COPY
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                shall have a period of 30 calendar days after the delivery to it
                of the Closing Date Statement, and during such time the Buyer
                shall have access to all workpapers and other relevant
                documents, to review the foregoing and to deliver in writing to
                IHI any objections to the Closing Date Statement that the Buyer
                may have. If Buyer does not deliver in writing any objections to
                IHI within the 30-day period, the Closing Date Statement shall
                be deemed to be accepted and approved by the Buyer. If Buyer
                delivers within the 30-day period written objections to IHI,
                then the Buyer and IHI shall attempt to resolve the matter or
                matters in dispute. The Buyer shall quantify its objections to
                the extent reasonably practicable in all written objections
                delivered to IHI with respect to the Closing Date Statement.

        (b)     If such disputes cannot be resolved by the Buyer and IHI within
                20 calendar days after the delivery of the objections to the
                Closing Date Statement, then the specific matters in dispute
                shall be submitted to Deloitte & Touche, LLP, 333 Clay Street,
                Suite 2300, Houston, Texas 77002 (the "Independent
                Accountants"), which firm shall render its opinion as to such
                matters. Based on that opinion, the Independent Accountants
                shall then send to the Buyer and to IHI a written determination
                of the matters in dispute and a written determination of the
                Purchase Price as adjusted based upon such opinion, whereupon
                the confirmed or revised Closing Date Statement shall be final
                and binding upon the Buyer and IHI. All costs, fees and expenses
                charged or incurred by the Independent Accountants, if any,
                shall be borne equally by IHI and the Buyer.

        (c)     For purposes hereof, "Net Working Capital" means, as of the date
                of the Closing Date Statement and based thereon, an amount equal
                to the Company's net accounts receivable, net inventories
                (valued at average cost), notes receivable and other current
                assets (excluding in all cases cash and cash equivalents), minus
                the Company's trade accounts payable and current accrued
                payables. Notwithstanding the foregoing, Net Working Capital
                shall not include any amounts for intercompany payables to IHI
                or intercompany receivables from IHI. The Purchase Price shall
                be increased by the amount by which the Net Working Capital
                contained in the Closing Date Statement is greater than
                $4,600,000, and shall be decreased by the amount by which the
                Net Working Capital contained in the Closing Date Statement is
                less than $4,600,000 (whether an increase to or decrease from
                the Purchase Price, the "Purchase Price Adjustment"). The
                Purchase Price Adjustment shall be paid by IHI to Buyer, or
                Buyer to IHI, as the case may be, within 5 days of the
                determination of the Purchase Price Adjustment. If IHI is
                obligated to pay the Purchase Price Adjustment to Buyer and if
                payment is not made within 5 days of the determination of the
                Purchase Price Adjustment, Buyer shall have the option (but not
                the obligation) to set off the Purchase Price Adjustment against
                the Note.

1.4.    CLOSING. The purchase and sale and related transactions this Agreement
        provides for (the "Closing") will occur at the offices of Jackson
        Walker, L.L.P., 1100 Louisiana Street, Suite 4200, Houston, Texas 77002,
        on the date on which the proposed merger between IHI and T-3 Energy
        Services, Inc. (such entity, "T-3", and the proposed Merger, the
        "Merger") shall occur, or at such other time or place as the parties
        shall mutually agree (the "Closing Date").


STOCK PURCHASE AGREEMENT               2                          EXECUTION COPY
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1.5.    DELIVERIES AT CLOSING.

        (a)     DELIVERIES BY IHI. IHI or the other indicated parties shall have
                executed and delivered to Buyer the following:

                (1)     the Sublease Agreement attached hereto as EXHIBIT B (the
                        "Sublease Agreement"), executed by an authorized
                        representative of The Rex Group, Inc., a Texas
                        corporation and a wholly-owned subsidiary of IHI;

                (2)     a Security Agreement granting a lien in favor of IHI on
                        the Company's assets that is subordinate to the Buyer's
                        primary secured lender, in substantially the form
                        attached as EXHIBIT C (the "Security Agreement");

                (3)     either (y) UCC-termination statements as are required to
                        terminate and release all liens on the Company's and the
                        Subsidiary's assets and equipment (including without
                        limitation the Liens disclosed on SCHEDULE 2.9), or (z)
                        letters of creditors indicating that such liens, and
                        that certificates evidencing IHI's ownership of the
                        Stock and the Company's ownership of the Subsidiary
                        Stock, shall be released on payment of identified
                        amounts payable, in each case except for Permitted
                        Encumbrances and the permitted liens ("Permitted Liens")
                        listed on SCHEDULE 2.9;

                (4)     the Company's corporate records, including its Articles
                        of Incorporation, Bylaws and corporate minute book;

                (5)     a certificate executed by IHI representing and
                        warranting to Buyer that each of IHI's representations
                        and warranties in this Agreement is accurate in all
                        material respects as of the Closing Date;

                (6)     certificates, dated as of a date no earlier than 10 days
                        before the Closing Date, duly issued by the appropriate
                        governmental authority in Texas and in any state in
                        which the Company is authorized to do business, showing
                        the Company is in good standing and authorized to do
                        business;

                (7)     copies certified by IHI's Secretary of resolutions duly
                        adopted by the board of directors of IHI authorizing and
                        approving the execution and delivery of this Agreement,
                        including the exhibits hereto, and the transactions
                        contemplated hereby; and

                (8)     such other documents, instruments and certificates
                        necessary or appropriate in connection with the IHI's
                        sale and transfer of the Stock.

        (b)     DELIVERIES BY BUYER. Buyer or the other indicated parties shall
                have executed and delivered to IHI the following:

                (1)     the Cash Consideration;

                (2)     the Note;


STOCK PURCHASE AGREEMENT               3                          EXECUTION COPY
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                (3)     the Sublease Agreement;

                (4)     the Security Agreement;

                (5)     a certificate executed by Buyer representing and
                        warranting to Buyer that each of Buyer's representations
                        and warranties in this Agreement is accurate in all
                        material respects as of the Closing Date;

                (6)     certificates dated as of a date no earlier than 10 days
                        before the Closing Date, duly issued by the appropriate
                        governmental authority in its state of organization and
                        in any state in which Buyer is authorized to do
                        business, showing Buyer is in good standing and
                        authorized to do business;

                (7)     copies certified by Buyer's Secretary (or the holder of
                        a similar office) of resolutions duly adopted by the
                        board of directors of Buyer authorizing and approving
                        the execution and delivery of this Agreement, including
                        the exhibits hereto, and the transactions contemplated
                        hereby; and

                (8)     such other documents, instruments and certificates
                        necessary or appropriate in connection with the Buyer's
                        purchase of the Stock.

2.      REPRESENTATIONS AND WARRANTIES OF IHI. IHI represents and warrants to
        Buyer that the statements in this Section 2 are true and correct as of
        the date of this Agreement and will be true and correct on the Closing
        Date as if made on the Closing Date (except to the extent any
        representation or warranty is made as of another date, which is hereby
        made as of such other date).

2.1.    ORGANIZATION AND GOOD STANDING.

        (a)     The Company is a corporation duly incorporated, validly existing
                and in good standing under the laws of the State of Texas. The
                Company is duly qualified and in good standing in every
                jurisdiction in which it is required by the nature of its
                business or lease of its properties to so qualify, except where
                the failure to so qualify does not or is not reasonably expected
                to have a material adverse effect on the Company or its
                operations.

        (b)     The Company's wholly-owned subsidiary, GHX, Incorporated of
                Louisiana, a Louisiana corporation (the "Subsidiary"), is a
                corporation duly organized, validly existing and in good
                standing under the laws of the State of Louisiana. The
                Subsidiary is duly qualified and in good standing in every
                jurisdiction in which it is required by the nature of its
                business or lease of its properties to so qualify, except where
                the failure to so qualify does not or is not reasonably expected
                to have a material adverse effect on the Subsidiary or its
                operations.

2.2.    AUTHORIZATION AND ENFORCEABILITY. IHI has all requisite power and
        authority to execute and deliver this Agreement and all other agreements
        to be executed and delivered by it in connection with this Agreement
        that are identified in Section 1.5(a) of this Agreement (such


STOCK PURCHASE AGREEMENT               4                          EXECUTION COPY
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        other agreements, collectively, the "Related Agreements"), and to
        perform its obligations under this Agreement and the Related Agreements.
        IHI has duly executed and delivered this Agreement, and it is IHI's
        legal, valid and binding obligation, enforceable against it in
        accordance with its terms, except as its enforcement may be limited by
        bankruptcy, insolvency moratorium, or similar laws relating to the
        enforcement of creditors' rights and by general principals of equity
        (regardless of whether such enforceability is considered in a proceeding
        at law or in equity) (collectively, the "Exceptions"). When IHI executes
        and delivers the Related Agreements, the Related Agreements will be
        IHI's legal, valid and binding obligations, enforceable against it in
        accordance with their respective terms, except as the enforcement
        thereof may be limited by the Exceptions. Except as disclosed on
        SCHEDULE 2.2, IHI is not required to obtain any consent, approval or
        authorization of, or registration, declaration or filing with any
        Governmental Authority or third party to authorize its execution,
        delivery or performance of its obligations under this Agreement or the
        Related Agreements.

        "GOVERNMENTAL AUTHORITY" means any foreign governmental authority, the
        United States of America, any state of the United States, and any
        political subdivision of any of the foregoing, and any agency,
        department, commission, board, bureau or court of any of the foregoing
        having jurisdiction over the respective party or their assets.

2.3.    CAPITALIZATION.

        (a)     The Company's authorized equity securities consist of (a)
                100,000 shares of common stock, $0.01 par value per share,
                31,666 shares of which are issued and outstanding and owned of
                record and beneficially by IHI and constitute the Stock, and (b)
                2,500 shares of preferred stock, par value $100.000 per share,
                none of which are issued and outstanding. Except as disclosed on
                SCHEDULE 2.2, IHI owns all of the Stock, free and clear of all
                liens, claims, encumbrances, equities, voting trusts and
                agreements, and proxies. The Stock is all of the outstanding
                capital stock of the Company. Each outstanding share of the
                Stock has been duly authorized and validly issued and is fully
                paid and non-assessable. There are no options, warrants,
                subscriptions, or other rights to purchase, or securities
                convertible into or exchangeable for, any of the Company's
                authorized or outstanding securities. None of the Stock has been
                issued or disposed of in violation of the preemptive rights of
                any of the Company's present or former stockholders.

        (b)     The Subsidiary's authorized equity securities consist of 500,000
                shares of common stock, no par value per share, 100,000 shares
                of which (the "Subsidiary Stock") are issued and outstanding.
                Each outstanding share of the Subsidiary Stock has been duly
                authorized and validly issued and is fully paid and
                non-assessable. Except as disclosed on SCHEDULE 2.2, the Company
                owns all of the Subsidiary Stock, free and clear of all liens,
                claims, encumbrances, equities, voting trusts and agreements,
                and proxies.

2.4.    NO CONFLICTS. Except as disclosed on SCHEDULE 2.2, IHI's execution,
        delivery and performance of this Agreement does not, and its execution,
        delivery and performance of the Related Agreements will not:


STOCK PURCHASE AGREEMENT               5                          EXECUTION COPY
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        (a)     conflict with, violate or constitute a material breach of or a
                material default under; or

        (b)     result in the creation or imposition of any lien upon any of the
                property or assets of IHI, the Company or the Subsidiary under
                the terms of:

                (1)     the Organizational Documents (as defined below) of IHI,
                        the Company or the Subsidiary; or

                (2)     any material credit or loan agreement, mortgage,
                        indenture, promissory note or any other material
                        agreement or instrument to which IHI, the Company or the
                        Subsidiary is a party or by which any of them or any of
                        their properties may be bound or affected.

        "ORGANIZATIONAL DOCUMENTS" means the Articles of Incorporation or
        Certificate of Incorporation, as applicable, and Bylaws of the
        referenced entity, each as amended and in effect on the date of this
        Agreement.

2.5.    FINANCIAL STATEMENTS. Attached as EXHIBIT 2.5 are copies of the
        Company's:

        (a)     unaudited consolidated balance sheet at December 31, 2000, and
                related unaudited income statement for the 12 months then ended
                (the December 31, 2000 Balance Sheet and Income Statement
                referred to as the "2000 Financial Statements"); and

        (b)     unaudited consolidated balance sheet at September 30, 2001 (the
                "Interim Balance Sheet") and related unaudited income statement
                for the nine months then ended (collectively, the "Interim
                Financial Statements").

        The 2000 Financial Statements and the Interim Financial Statements are
        referred to collectively as the "Financial Statements." The Financial
        Statements have been prepared from the Company's books and records in
        conformity with GAAP, subject to normal recurring year-end adjustments
        (the effect of which will not, individually or in the aggregate, be
        materially adverse) and the absence of notes to the Financial
        Statements. The Financial Statements present fairly in all material
        respects the Company's financial position at the dates indicated and the
        results of its operations for the periods then ended. For purposes of
        this Agreement, December 31, 2000 is referred to as the "2000 Financial
        Statement Date" and September 30, 2001 is referred to as the "Interim
        Financial Statement Date."

2.6.    LIABILITIES AND OBLIGATIONS. Except as and to the extent disclosed and
        adequately provided for on the Interim Balance Sheet, and except for
        liabilities and obligations that have arisen since the Interim Financial
        Statement Date in the Ordinary Course of Business (as that term is
        defined below), neither the Company nor the Subsidiary has incurred any
        material liabilities of a type required by GAAP to be reflected on a
        balance sheet.

        "Ordinary Course of Business" means actions of the Company or the
        Subsidiary that are:

        (a)     consistent with past practices taken in the course of its usual
                day-to-day operations;

        (b)     not required to be authorized by resolution of its board of
                directors; and


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        (c)     similar in nature and magnitude to actions customarily taken,
                without authorization by the boards of directors in the ordinary
                course of usual day-to-day operations of other companies of
                similar size in the same line of business.

2.7.    FURNITURE, FIXTURES, MACHINERY AND EQUIPMENT. SCHEDULE 2.7 is a list of
        all of the material items of the Company's and the Subsidiary's
        furniture, fixtures, machinery and equipment, which constitutes
        substantially all the material fixtures, machinery and equipment used in
        the conduct of each's business. SCHEDULE 2.7 also identifies any such
        equipment that is leased.

2.8.    LEGAL PROCEEDINGS. Except as disclosed on SCHEDULE 2.8, there are no
        actions, suits or proceedings pending, or known to be threatened,
        against the Company or the Subsidiary or either of their properties, at
        law or in equity, or before or by any Governmental Authority.

2.9.    TITLE TO ASSETS; LIENS. The Company and the Subsidiary each has good and
        marketable title to its assets and properties (not taking into account
        personal property the Company or the Subsidiary leases) other than the
        leased real property described in SCHEDULE 2.10. Such assets are not
        subject to any liens, claims, demands, equity interests, pledges or
        security interests ("Liens"), except as disclosed on SCHEDULE 2.9 and
        except for: (a) liens for taxes not yet due and payable or being
        contested in good faith by appropriate proceedings; and (b) statutory
        liens not yet due and payable. When Buyer pays to the applicable
        creditor, at IHI's direction, the amounts identified in the creditor
        payoff letters that will be delivered to Buyer at the Closing pursuant
        to Section 1.5(a)(iii), IHI shall obtain a release of all Liens except
        those Permitted Liens identified on SCHEDULE 2.9.

2.10.   REAL PROPERTY. SCHEDULE 2.10 includes a legal description of all real
        property that the Company owns. The Subsidiary owns no real property.
        The Company has good and indefeasible fee simple title to all such real
        property, free and clear of all material easements, restrictions, liens,
        encumbrances or other matters affecting its title, use or occupancy,
        except for: (a) liens for real property taxes, assessments and charges
        not yet due and payable; and (b) such easements, liens and encumbrances
        as do not materially detract from or interfere with the present use of
        such real property ("Permitted Encumbrances").

2.11.   SUBSIDIARIES, ETC. Except for the Subsidiary, the Company (a) has no
        subsidiaries; (b) is not a co-venturer in any joint venture or a partner
        in any partnership; and (c) owns no interest in any other corporation,
        business enterprise or other entity.

2.12.   EMPLOYEE BENEFIT PLANS.

        (a)     SCHEDULE 2.12 discloses all pension, profit-sharing, bonus,
                incentive, deferred compensation, stock purchase, stock, stock
                appreciation right, group insurance, severance pay, retirement
                and other employee benefit plans, agreements or arrangements of
                the Company and the Subsidiary or to which either of them is
                required to contribute. Except as disclosed on SCHEDULE 2.12,
                neither the Company nor the Subsidiary sponsors, maintains nor
                contributes to any plan, program, fund or arrangement that
                constitutes an employee pension benefit plan, and neither has
                any obligation to contribute to or accrue or pay any benefits
                under any deferred


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<PAGE>
                compensation or retirement funding arrangement on behalf of any
                employee or employees (such as, for example, and without
                limitation, any individual retirement account or annuity, any
                "excess benefit plan" (within the meaning of Section 3(36) of
                the Employee Retirement Income Security Act of 1974, as amended
                ("ERISA")) or any non-qualified deferred compensation
                arrangement. For the purposes of this SECTION 2.12, the term
                "employee pension benefit plan" has the same meaning given that
                term in Section 3(2) of ERISA.

        (b)     No employee benefit plan listed on SCHEDULE 2.12 is either (i) a
                "multiemployer plan" (as defined in Section 3 (37) of ERISA), or
                (ii) a defined benefit pension plan subject to Title IV of
                ERISA.

        (c)     All employee benefit plans listed on SCHEDULE 2.12 that are
                intended to qualify (each such plan, a "Qualified Plan") under
                Section 401(a) of the Internal Revenue Code of 1986, as amended,
                (the "Code") have been so qualified. All reports and other
                documents required to be filed with any governmental agency or
                distributed to plan participants or beneficiaries (including,
                but not limited to, actuarial reports, audits or tax returns)
                have been timely filed or distributed, and copies of the most
                recent annual reports for such plans are included as part of
                SCHEDULE 2.12. Neither IHI, any plan listed in SCHEDULE 2.12,
                the Company or the Subsidiary has engaged in any transaction
                prohibited and not exempted under Section 4975 of the Code or
                Sections 406 and 408 of ERISA; no plan listed in SCHEDULE 2.12
                has incurred an accumulated funding deficiency, as defined in
                Section 412(a) of the Code and Section 302(1) of ERISA; and
                neither the Company nor the Subsidiary has incurred any
                liability for excise tax or penalty due to the Internal Revenue
                Service or any liability to the Pension Benefit Guaranty
                Corporation ("PBGC").

        (d)     There have been no terminations, partial terminations or
                discontinuance of contributions to any such Qualified Plan
                intended to qualify under Section 401(a) of the Code without
                notice to and approval by the Internal Revenue Service; no plan
                listed in SCHEDULE 2.12 subject to the provisions of Title IV of
                ERISA has been terminated; there have been no "reportable
                events" (as that term is defined in Section 4043 of ERISA) with
                respect to any such plan listed in SCHEDULE 2.12; neither
                Company nor the Subsidiary has incurred liability under Section
                4062 of ERISA; and no circumstances exist under which the
                Company or the Subsidiary could have any direct or indirect
                liability whatsoever (including, but not limited to, any
                liability to any multiemployer plan or the PBGC under Title IV
                of ERISA or to the Internal Revenue Service for any excise tax
                or penalty, or being subject to any statutory lien to secure
                payment of any such liability) with respect to any plan now or
                previously maintained or contributed to by any entity other than
                the Company or the Subsidiary that is, or at any time was, along
                with the Company and the Subsidiary considered a single employer
                under Sections 414(b), (c), (m) or (o) of the Code.

        (e)     With respect to any employee benefit plan that is subject to the
                continuation requirements of Sections 601-608 of ERISA and
                Section 4980B of the Code or the continuation requirements of
                any applicable state or local law, each of the Company


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<PAGE>
                and the Subsidiary has complied with all such applicable laws
                and regulatory requirements with which it is required to comply.

2.13.   TAX MATTERS.

        (a)     "Tax" or "Taxes" shall mean all of the Company's and the
                Subsidiary's federal, state, county, local, and other taxes
                relating to all periods before the Closing Date (including,
                without limitation, income taxes; premium taxes; single-business
                taxes; excise taxes; sales taxes; use taxes; value-added taxes;
                gross receipts taxes; franchise taxes; ad valorem taxes; real
                estate taxes; severance taxes; capital levy taxes; transfer
                taxes; stamp taxes; employment, unemployment, and
                payroll-related taxes; withholding taxes; and governmental
                charges and assessments, and including all transfer taxes), and
                include interest, additions to tax, and penalties.

        (b)     Each of the Company and the Subsidiary has duly and timely filed
                all Tax returns and reports it is required to file by any
                Governmental Authority. Each of the Company and the Subsidiary
                has paid or established adequate reserves for all Taxes
                (including penalties and interest) that have or may become due
                under such returns and any assessments that have been received
                by it or otherwise. All such Tax returns or reports fairly
                reflect the Taxes of the Company and the Subsidiary for the
                periods covered thereby.

        (c)     Neither the Company nor the Subsidiary is delinquent in the
                payment of any Tax assessment or governmental charge and there
                are no Tax deficiencies or delinquencies asserted against either
                of them. No Internal Revenue Service audit of the Company or the
                Subsidiary is pending or threatened, and the results of any
                completed audits are properly reflected in the Financial
                Statements. Neither the Company nor the Subsidiary has granted
                to any taxing authority any extension of the limitation period
                during which any Tax liability may be asserted. All amounts of
                money the Company and the Subsidiary are required to withhold
                from employees or collect from customers for Taxes, social
                security and unemployment insurance, and the portion of any such
                Taxes the Company and the Subsidiary are required to pay to any
                Governmental Authority, have been collected or withheld and
                either paid to the respective Governmental Authority or set
                aside in accounts for such purpose, or such monies have been
                reserved against and entered on the Company's or the
                Subsidiary's books.

2.14.   LEASED REAL PROPERTY. Disclosed on SCHEDULE 2.14 is a list by legal
        description of all leased real property that the Company or the
        Subsidiary leases (the "Leased Property"). SCHEDULE 2.14 also discloses
        the owner of the Leased Property.

2.15.   INTELLECTUAL PROPERTY RIGHTS. To IHI's knowledge, no patents, processes,
        inventions, trademarks, trade names, copyrights, licenses, information
        and proprietary rights (collectively, "Intellectual Property Rights")
        being used by the Company or the Subsidiary in the conduct of their
        business infringe upon or are in conflict with the rights of others.
        SCHEDULE 2.15 is a summary of all Intellectual Property Rights.


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<PAGE>
2.16.   BROKERS' FEES. Neither the Company nor IHI is obligated (contingently or
        otherwise) under any contract or other agreement, and there are no
        outstanding claims against either of them for the payment of any
        broker's or finder's fee or agent's commission or other similar payment
        in connection with the origin, negotiation, execution or performance of
        this Agreement or the Related Agreements.

2.17.   LIMITATION ON REPRESENTATIONS; DEFINITION OF KNOWLEDGE. All
        representations and warranties of IHI in this Section 2 are being made
        to its "knowledge" (as that term is defined below) except for those
        representations and warranties made in Sections 2.2, 2.3, 2.5, 2.6, 2.9
        and 2.13. When any representation or warranty in this Section 2 is
        qualified to IHI's "knowledge," it means the actual knowledge of its
        executive officers.

3.      REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants
        to IHI that the statements in this Section 3 are true and correct as of
        the date of this Agreement and will be true and correct on the Closing
        Date as if made on the Closing Date (except to the extent any
        representation or warranty is made as of another date, which are hereby
        made as of such other date):

3.1.    ORGANIZATION AND STANDING. The Buyer is a corporation duly incorporated,
        validly existing, and in good standing under the laws of the State of
        Texas. Buyer is duly qualified and in good standing in every
        jurisdiction in which it is required by the nature of its business or
        the ownership or lease of its properties to so qualify, except where the
        failure to so qualify does not or is not reasonably expected to have a
        material adverse effect on the Buyer.

3.2.    AUTHORIZATION AND ENFORCEABILITY. Buyer has full power and authority to
        execute and deliver this Agreement, the Related Agreements and the Note,
        and to perform its obligations hereunder and thereunder. Buyer has duly
        authorized the execution, delivery and performance of this Agreement,
        and it is Buyer's legal, valid and binding obligation, enforceable
        against it in accordance with its terms, except for the Exceptions. When
        Buyer executes and delivers the Related Agreements and the Note, each
        will have been duly executed and delivered by Buyer and will constitute
        its legal, valid and binding obligations, except as the enforcement
        thereof may be limited by the Exceptions. Buyer is not required to
        obtain any consent, approval or authorization of, or registration,
        declaration or filing with any Governmental Authority or third party to
        authorize the execution and delivery of, the performance of its
        obligations under this Agreement, the Related Agreements, or the Note.

3.3.    NO VIOLATION OF LAW, ETC. Buyer's execution, delivery and performance of
        this Agreement does not, and its execution, delivery and performance of
        the Related Agreements and the Note will not:

        (a)     conflict with, violate or constitute a breach of or a default
                under; or

        (b)     result in the creation or imposition of any lien upon any of the
                assets or properties of Buyer under the terms of:

                (1)     if Buyer is other than a natural person, the
                        Organizational Documents of Buyer; or


STOCK PURCHASE AGREEMENT               10                         EXECUTION COPY
<PAGE>
                (2)     any credit or any loan agreement, mortgage, indenture,
                        promissory note or other agreement or instrument to
                        which Buyer is a party or by which it or any of its
                        properties may be bound or affected.

3.4.    BROKERS' FEES. Buyer is not obligated (contingently or otherwise) under
        any contract or other agreement, and there are no outstanding claims
        against Buyer for the payment of any broker's or finder's fee or agent's
        commission or other similar payment in connection with the origin,
        negotiation, execution or performance of this Agreement or the Related
        Agreements.

3.5.    BUYER'S KNOWLEDGE. Neither Andrews nor Ahuero has knowledge of any facts
        or circumstances that would indicate that any of the representations or
        warranties of IHI contained in this Agreement are inaccurate or untrue
        in any material respect. For purposes of this Agreement, Andrews' and
        Ahuero's knowledge of a fact or circumstance shall in all cases be
        attributed to the Buyer.

4.      PRE-CLOSING ACTIONS.

4.1.    CONDUCT OF BUSINESS. Except as otherwise provided in this Section 4.1,
        from the date of this Agreement to the Closing Date, IHI shall cause the
        Company to carry on and conduct its operations only in the Ordinary
        Course of Business, including the collection of its accounts receivable,
        payment of trade account and other-payables, and maintenance of
        inventory levels, without any change in the policies, practices, and
        methods that the Company pursued before the date of this Agreement. As
        an exception to the foregoing sentence, immediately before the Closing
        (a) the Company shall transfer to IHI, and shall no longer have access
        to, all of the Company's bank accounts, and the cash, temporary cash
        investments and instruments representing the same and all other cash
        equivalents contained therein; and (b) IHI shall forgive all
        intercompany amounts recorded in the Company's financial records as a
        payable due to IHI, and the Company shall forgive all intercompany
        amounts recorded on IHI's financial records as a payable to the Company.
        Subject in all cases to the above required actions that will be taken
        before the Closing, IHI will use its reasonable commercial efforts to
        preserve the business organizations of the Company intact; to preserve
        the relationships with Company's customers, suppliers, and others having
        business dealings with the Company.

4.2.    BUYER'S ACCESS. IHI and the Company shall permit Buyer and its
        representatives to make a full business, financial, accounting, and
        legal investigation of the Company, its operations, properties and
        equipment. IHI and the Company shall take all reasonable steps necessary
        to cooperate with Buyer in undertaking any investigation which they deem
        necessary.

4.3.    ACCURACY OF REPRESENTATIONS AND WARRANTIES. IHI will promptly advise
        Buyer in writing if (a) any of its representations or warranties are
        untrue or incorrect in any material respect or (b) IHI becomes aware of
        the occurrence of any event or of any state of facts that results in any
        of the representations and warranties of IHI being untrue or incorrect
        in any material respect as if IHI were then making them. IHI will use
        its reasonable commercial efforts to cause all conditions within its
        control that are set forth in Section 5 to be satisfied as promptly as
        practicable under the circumstances.


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<PAGE>
5.      CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS AT THE CLOSING. Buyer's
        obligation to purchase the Stock on the Closing Date is subject to the
        satisfaction, by the Closing Date, of the conditions of this Section 5.
        If any such condition is not satisfied or waived, then Buyer shall have
        no obligation to purchase the Stock.

5.1.    COMPLIANCE WITH THIS AGREEMENT. By the Closing Date, IHI and the Company
        shall have performed, and complied with all agreements and conditions
        contained in this Agreement that each are required to perform or comply
        with.

5.2.    ACCURACY OF REPRESENTATIONS.

        (a)     All of the representations and warranties of IHI in this
                Agreement (considered collectively), and each of these
                representations and warranties (considered individually), must
                have been accurate, in light of the circumstance under which
                they were made, in all material respects as of the date of this
                Agreement, and must be accurate in all material respects as of
                the Closing Date as if made on the Closing Date.

        (b)     Buyer must not have discovered any material error, misstatement
                or omission in the representations and warranties made by IHI in
                this Agreement, the Financial Statements, or in any Exhibit,
                schedule or other disclosure made hereunder.

5.3.    NO MATERIAL ADVERSE CHANGE. Between the date of this Agreement and the
        Closing Date, there must not have occurred any material adverse change
        in the Company's financial condition or results of operations (on a
        consolidated basis)

5.4.    SATISFACTION OF CONDITIONS TO MERGER. All of the conditions precedent to
        the Merger shall have been satisfied and performed.

5.5.    DELIVERY OF CLOSING DOCUMENTS AND ITEMS. IHI shall have delivered or
        caused to have been delivered to Buyer the documents, certificates and
        general instruments of transfer enumerated in Section 1.5(a) of this
        Agreement.

5.6.    CERTIFICATE REGARDING CONDITIONS PRECEDENT. IHI shall have delivered to
        Buyer a certificate of IHI certifying that as of the Closing Date all of
        the conditions set forth in this Section 5 have been satisfied.

6.      CONDITIONS PRECEDENT TO THE OBLIGATIONS OF IHI AT THE CLOSING. IHI's
        obligation to sell the Stock to Buyer on the Closing Date is subject to
        the satisfaction, by the Closing Date, of the conditions set forth in
        this Section 6. If any such condition is not satisfied or waived, then
        IHI shall have no obligation to sell the Stock to Buyer.

6.1.    COMPLIANCE WITH THIS AGREEMENT. By the Closing Date, Buyer shall have
        performed and complied with all agreements and conditions contained in
        this Agreement that it is required to perform or comply with.


STOCK PURCHASE AGREEMENT               12                         EXECUTION COPY
<PAGE>
6.2.    ACCURACY OF REPRESENTATIONS.

        (a)     All of Buyer's representations and warranties in this Agreement
                (considered collectively), and each of its representations and
                warranties in this Agreement (considered individually), must
                have been accurate, in light of the circumstance under which
                they were made, in all material respects as of the date of this
                Agreement and must be accurate in all material respects as of
                the Closing Date as if made on the Closing Date.

        (b)     IHI must not have discovered any material error, misstatement or
                omission in the representations and warranties Buyer made in
                this Agreement or in any Exhibit, schedule or other disclosure
                hereunder.

6.3.    SATISFACTION OF CONDITIONS TO MERGER. All of the conditions precedent to
        the Merger shall have been satisfied and performed.

6.4.    DELIVERY OF CLOSING DOCUMENTS AND ITEMS. Buyer have delivered or caused
        to have been delivered to IHI the documents, certificates and general
        instruments of transfer enumerated in Section 1.5(b) of this Agreement.

6.5.    CERTIFICATE REGARDING CONDITIONS PRECEDENT. The Buyer shall have
        delivered to IHI a certificate of the Buyer certifying that as of the
        Closing Date all of the conditions set forth in Section 6 have been
        satisfied.

7.      NONCOMPETITION.

7.1.    PROHIBITED ACTIVITIES. IHI will not, for a period of two years after the
        Closing Date, directly or indirectly, for itself or on behalf of or in
        conjunction with any other person, persons, company, partnership,
        corporation or business of whatever nature:

        (a)     engage in the design, manufacture, sale, marketing or assembly
                of industrial gaskets and hoses to the process industries and
                turbine manufacturing industries (the "GHX Business"); or

        (b)     contact or solicit any person or entity which is, at that time,
                or which has been, within two years before the Closing Date, a
                customer of the Company or (a "Protected Customer"), in order to
                divert the Protected Customer to any other company or entity in
                the GHX Business.

        Notwithstanding the above, the foregoing covenants shall not prohibit
        IHI from (i) continuing to engage in the design, manufacture,
        fabrication, assembly or sale of any equipment, parts or component parts
        as IHI, T-3, or either of their subsidiaries or affiliates currently
        engages; or (ii) acquiring as an investment no more than 1% of the
        capital stock of a competing business whose stock is traded on a
        national securities exchange or in the over-the-counter market.

7.2.    DAMAGES. Because of the difficulty of measuring economic losses to Buyer
        as a result of a breach of any of the foregoing covenants, and because
        of the immediate and irreparable


STOCK PURCHASE AGREEMENT               13                         EXECUTION COPY
<PAGE>
        damage that will result to Buyer for which it would have no other
        adequate remedy, IHI agrees that the foregoing covenant may be enforced
        by Buyer if there is a breach by IHI, by injunctive relief, restraining
        orders, or other extraordinary relief to be cumulative to, but not in
        limitation of, any other remedies to which Buyer may be entitled.

7.3.    REASONABLE RESTRAINT. The parties agree that the covenants in this
        Section 7 impose a reasonable restraint on IHI in light of the
        activities and business of the Company as of the date of this Agreement.

7.4.    SEVERABILITY; REFORMATION. The covenants in this Section 7 are severable
        and separate, and the unenforceability of any specific covenant shall
        not affect the provisions of any other covenant. If any court of
        competent jurisdiction determines that the scope, time or territorial
        restrictions are unreasonable, the parties intend that such restrictions
        be enforced to the fullest extent the court deems reasonable, and the
        Agreement shall thereby be reformed.

8.      INDEMNIFICATION.

8.1.    SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The parties'
        representations, warranties, covenants, agreements and indemnities in
        this Agreement shall survive the Closing, the consummation of the
        transactions evidenced by this Agreement, and any investigation with
        respect thereto for a period of one year after the Closing Date (the
        "Expiration Date"). Notwithstanding the foregoing, any representation,
        warranty, covenant, agreement or indemnity in respect to which indemnity
        may be sought, shall survive the time at which it would otherwise
        terminate if notice of the inaccuracy or breach thereof shall have been
        given to the party against whom such indemnity may be sought before such
        time.

8.2.    INDEMNIFICATION BY IHI.

        (a)     Subject to the provisions of this Section 8, IHI agrees to
                protect, indemnify and hold harmless Buyer and its stockholders,
                officers, directors, agents and attorneys, (the "Buyer
                Indemnitees"), from and against any demand, claim, action, cause
                of action, suit, proceeding, investigation, liability,
                obligation, judgment, loss, damage, cost or expense (excluding
                in all cases consequential and punitive damages, but including
                reasonable attorneys' fees) (collectively, "Damages") as they
                are incurred or suffered by any of them and caused by or arising
                out of:

                (1)     IHI's or the Company's breach or default in the
                        performance of any covenant or agreement in this
                        Agreement or in any IHI Related Agreement; and

                (2)     IHI's breach of or inaccurate or erroneous
                        representation or warranty made in this Agreement; and

                (3)     Any liability under any Environmental Laws (as defined
                        below) occurring or existing for events or circumstances
                        existing prior to December 1, 2000, the date of the
                        Company's occupancy of the leased property located at
                        7111 Ardmore, Houston, Texas 77054 (the "Company
                        Occupancy Date") and arising out of or related to (i)
                        any conduct, operation or activity at the leased


STOCK PURCHASE AGREEMENT               14                         EXECUTION COPY
<PAGE>
                        property located at 7111 Ardmore, Houston, Texas 77054
                        prior to the Company Occupancy Date; or (ii) any
                        condition of the leased property located at 7111
                        Ardmore, Houston, Texas 77054 existing on or prior to
                        the Company Occupancy Date.

        "ENVIRONMENTAL LAWS" means all federal, state, county, municipal and
        local, foreign, and other statutes, laws, regulations, and ordinances
        that relate to human health or Environment, all as may be amended from
        time to time.

        "ENVIRONMENT" means soil, land surface or subsurface strata, surface
        water (including navigable water), ground waters, drinking water supply,
        stream sediments, ambient air (including indoor air), plant life, animal
        life, and any other similar medium or natural resource.

8.3.    INDEMNIFICATION BY BUYER. Subject to the provisions of this Section 8,
        Buyer agrees to protect, indemnify and hold harmless IHI and its
        stockholders, officers, directors, agents, attorneys and assigns (the
        "IHI Indemnitees") from and against any Damages as they are incurred or
        suffered by any of them and caused by or arising out of:

        (a)     Buyer's breach or default in the performance of any covenant or
                agreement in this Agreement, or in any Related Agreements or the
                Note; and

        (b)     Buyer's breach of or inaccurate or erroneous representation or
                warranty made in this Agreement.

8.4.    PROCEDURE FOR INDEMNIFICATION; THIRD-PARTY CLAIMS.

        (a)     Within 15 days after receipt of notice of commencement of any
                action by any third party evidenced by service of process or
                other legal pleading, or with reasonable promptness after the
                assertion in writing of any claim by a third party, the party
                entitled to indemnification hereunder ("Indemnified Person")
                shall give the party obligated to provide indemnification under
                Section 8.2 or 8.3 hereof (the "Indemnifying Person") written
                notice thereof, together with a copy of such claim, process or
                other legal pleading. The failure to so notify the Indemnifying
                Person within the above time frame will not relieve the
                Indemnifying Person of any liability it may have to the
                Indemnified Person, except to the extent the Indemnifying Person
                demonstrates that the defense of such action is unduly
                prejudiced by the Indemnified Person's failure to give such
                notice, or except if such notice is not delivered before the
                time specified in Section 8.1. The Indemnifying Person shall
                have the right to undertake the defense, settlement, compromise
                or other disposition thereof at its own expense and through a
                legal representative of its own choosing. The Indemnified Person
                and its counsel shall have the right to be present at the
                negotiation, defense and settlement of such action or claim, and
                any settlement or compromise of any such action or claim shall
                be subject to the approval of the Indemnified Person, which
                approval shall not be unreasonably withheld.


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<PAGE>
        (b)     If the Indemnifying Person, by the 30th day after receipt of
                notice of any such claim (or, if earlier, by the 10th day
                immediately preceding the day on which an answer or other
                pleading must be served in order to prevent judgment by default
                in favor of the person asserting such claim), has not notified
                the Indemnified Person of its election to defend against such
                claim, the Indemnified Person shall have the right to undertake
                the defense, compromise or settlement of such claim through
                counsel of its choice on behalf of and for the account and risk
                of the Indemnifying Person, at the cost and expense of the
                Indemnifying Person. In such event, the Indemnifying Party and
                its counsel shall have the right to be present at the
                negotiation, defense and settlement of such action or claim, and
                any settlement or compromise of any such action or claim shall
                be subject to the approval of the Indemnifying Person, which
                approval shall not be unreasonably withheld.

8.5.    PROCEDURE FOR INDEMNIFICATION; OTHER THAN THIRD-PARTY CLAIMS. Any claim
        for indemnification for any matter not involving a third-party claim
        shall be asserted by written notice, which specifies in reasonable
        detail the factual basis of such claim, delivered to the Indemnifying
        Person on or before the Expiration Date.

8.6.    SPECIAL PROVISIONS REGARDING LIABILITY.

        (a)     No claim for indemnification shall be made hereunder unless
                asserted by a written notice given to the Indemnifying Person,
                on or before the Expiration Date.

        (b)     No claim for indemnification shall be made hereunder with
                respect to any matter (i) unless and until the total amount of
                Damages exceeds $50,000 in the aggregate ("Minimum Damages"),
                and then only for the amount by which such Damages exceeds
                Minimum Damages; and (ii) to the extent that the total amount of
                Damages exceeds the Cash Consideration.

        (c)     The Indemnified Person shall act in good faith and in a
                commercially reasonable manner to mitigate any Damages for which
                it may seek indemnification under this Section 8.

        (d)     An indemnity payment for Damages otherwise due and payable under
                this Section 8 shall be decreased to the extent of any (i) net
                reduction of tax liability the Indemnified Party actually
                realizes as a result of such indemnifiable loss, and (ii)
                insurance proceeds the Indemnified Party actually collects in
                connection with the indemnifiable loss.

8.7.    REMEDIES. The remedies of the Buyer and the Buyer Indemnitees set forth
        in this Section 8 shall be the exclusive post-Closing remedies available
        to them with respect to the actual or alleged breach by IHI of any
        provision of this Agreement or the Related Agreements.

9.      POST-CLOSING MATTERS.

9.1.    FURTHER ASSURANCES. From time to time after the Closing Date, each party
        hereto will, at any other party's request, execute, acknowledge and
        deliver to such requesting party such


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<PAGE>
        other instruments and take such other actions and deliver such other
        documents as may be reasonably required to carry out the intent of this
        Agreement and the Related Agreements.

9.2.    BOOKS AND RECORDS. Insofar as IHI determines that any books and records
        may be needed or useful in connection with federal, state or local
        regulatory or tax matters, resolution of third party disputes or
        contract compliance issues, or other bona fide business purposes, for a
        period of seven years after the Closing Date, Buyer and the Company will
        use their best efforts to preserve and make available to IHI, at the
        location of such books and records in Buyer's and the Company's
        organization, access to and the right to copy such of the books and
        records as such they may then have in their possession or to which it
        may have access upon written request of IHI during normal business
        hours.

9.3.    THE COMPANY'S DEBT. After the Closing Date and until such time as the
        Note is paid in full, the Company shall not, without IHI's prior written
        approval, incur any additional debt other than (a) ordinary advances
        under the Company's revolving working capital line to be established by
        Buyer and (b) up to an additional $200,000 per calendar year in the
        aggregate for the purchase of new equipment in the Ordinary Course of
        Business and for necessary building improvements.

9.4.    TAX MATTERS.

        (a)     ALLOCATION OF LIABILITY FOR TAXES, TAX RETURNS AND TAX PAYMENTS.

                (1)     IHI and Buyer shall, to the extent permitted by
                        applicable law and except as otherwise provided herein,
                        elect with the relevant Governmental Authority to close
                        the taxable period of the Company and the Subsidiary at
                        the close of business on the Closing Date.

                (2)     IHI shall prepare or cause to be prepared and file or
                        cause to be filed any required Tax Returns for all
                        taxable periods or portions thereof ending on or before
                        the Closing Date, and shall pay all Taxes of the Company
                        for taxable periods or portions thereof ending on or
                        before the Closing Date.

                (3)     Buyer shall be liable for and indemnify IHI and its
                        affiliates against Taxes imposed on or incurred by the
                        Company, the Subsidiary, IHI or its affiliates for any
                        Pre-Closing Tax Period (as defined below) attributable
                        to any Section 338(h)(10) Election (as defined below).
                        Buyer shall be liable for and indemnify IHI and its
                        affiliates against Taxes imposed on or incurred by the
                        Company or the Subsidiary for any Straddle Period (as
                        defined below), including (A) any Taxes attributable to
                        any transactions that are properly allocable to the
                        portion of the Closing Date after the Closing, and (B)
                        any Taxes attributable to any Section 338(h)(10)
                        Election. Buyer shall pay all Taxes reported on Tax
                        returns for which Buyer has filing responsibility, and
                        all Taxes resulting from adjustments to any Tax returns
                        of the Company or the Subsidiary other than a Tax return
                        that includes the assets and activities of the Company
                        or the Subsidiary with the assets or activities of IHI
                        or any affiliate of IHI (other than the Company and the
                        Subsidiary). Buyer will not


STOCK PURCHASE AGREEMENT               17                         EXECUTION COPY
<PAGE>
                        file any amended return, carryback claim, or other
                        adjustment request relating to the Company or the
                        Subsidiary for any Tax period that includes or ends on
                        or before the Closing Date unless such action is
                        required by law, or Buyer has obtained IHI's written
                        consent, which consent shall not be unreasonably
                        withheld.

                (4)     If Buyer or any of its affiliates (including the Company
                        and the Subsidiary) makes any payment of Tax for which
                        IHI is liable under Section 9.4(a)(2), or if IHI or any
                        of its affiliates (other than the Company or the
                        Subsidiary) makes any payment of any Tax for which Buyer
                        is liable under Section 9.4(a)(3), then the Person
                        liable for the Tax under Section 9.4(a) shall pay the
                        amount of the Tax to the Person making the payment
                        within 10 days following written notice from the Person
                        making the payment that payment of such amounts to the
                        appropriate Governmental Authority is due, provided that
                        the Person liable for the Tax shall not be required to
                        make any payment earlier than the day it is due to the
                        appropriate Governmental Authority.

                (5)     Any reimbursement payment due under Section 9.4(a)(4)
                        and not made by required date shall bear interest on the
                        amount of the payment from the last date provided for
                        such payment until the date paid. The interest payable
                        shall be computed at an interest rate equal to the
                        Federal short-term rate determined under Code Section
                        6621(b) plus 0.5 percentage point (i.e., the interest
                        rate paid by the Internal Revenue Service on large
                        corporate overpayments).

                (6)     Any payments pursuant to Section 9.4(a)(4) shall be
                        reported by the parties as adjustments to the Purchase
                        Price, except as otherwise required by the Code or any
                        Tax law. If, contrary to the intent of the parties, any
                        such payment is treated other than as an adjustment to
                        the Purchase Price, then the payment will be adjusted to
                        take into account any Tax applicable to the payment to
                        fully compensate the recipient on an after-Tax basis.
                        Any payments of interest pursuant to Section 9.4(a)(5)
                        shall be treated as payments of interest (and not as
                        additional Purchase Price), and shall not be adjusted to
                        take into account any Tax applicable to the receipt of
                        such interest.

                (7)     The Buyer shall cooperate fully, as and to the extent
                        reasonably requested by IHI in connection with the
                        filing of Tax Returns (including the Section 338 Forms,
                        as defined below) pursuant to this Section 9.4 and any
                        audit, litigation, or other proceeding with respect to
                        Taxes. Such cooperation shall include the retention and
                        (upon IHI's request) the provision of records and
                        information which are reasonably relevant to any such
                        audit, litigation or other proceeding and making
                        employees available on a mutually convenient basis to
                        provide additional information and explanation of any
                        material provided hereunder. Buyer agrees (i) to retain
                        all books and records with respect to Tax matters
                        pertinent to the Company relating to any Tax period
                        beginning before the Closing Date until the expiration
                        of any applicable


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<PAGE>
                        statutes of limitations (including, to the extent
                        notified by IHI) of the respective Tax periods, and to
                        abide by all record retention agreements entered into
                        with any Tax authority, and (ii) to give IHI reasonable
                        written notice prior to transferring, destroying, or
                        discarding any such books and records and, if IHI shall
                        request, the Buyer shall allow IHI to take possession of
                        such books and records. Should any audit, litigation or
                        other proceeding with respect to Taxes potentially give
                        rise to a payment obligation by IHI or the Company,
                        Buyer will allow IHI and its counsel to review and
                        comment on written responses provided to the IRS or Tax
                        authority, if it so elects, at its own expense in the
                        defense of such audit, litigation, or other proceeding.

        (b)     SECTION 338 ELECTIONS.

                (1)     At Buyer's option, Buyer and IHI shall join, and shall
                        cause their respective affiliates to join with each
                        other as applicable, in making a Section 338(h)(10)
                        Election with respect to Buyer's purchase of the Stock
                        pursuant to this Agreement, and with respect to Buyer's
                        deemed purchase of the stock of the Subsidiary resulting
                        from any Section 338(h)(10) Election. Any such elections
                        shall be made in accordance with applicable laws and
                        under any comparable provision of domestic state or
                        local law for which a separate election is permissible
                        and as set forth herein.

                (2)     The Purchase Price, liabilities of the Company and the
                        Subsidiary, and other relevant items shall be allocated
                        in accordance with Code Sections 338(b)(5) and 1060 (as
                        applicable) and the Treasury Regulations thereunder as
                        set forth on a schedule (the "Allocation Statement").
                        The Allocation Statement will be prepared by Buyer and
                        provided to IHI within 120 days after the Closing Date.
                        IHI shall have 30 days after receipt of the Allocation
                        Statement to object to any allocation set forth therein.
                        Any such objection shall provided to Buyer in a written
                        notice setting forth each disputed item in the
                        Allocation Statement, specifying the amount of each
                        disputed item and describing in reasonable detail the
                        basis for such dispute. If Buyer and IHI cannot agree on
                        the final form of the Allocation Statement, any disputed
                        items shall be resolved in accordance with the
                        procedures set forth in Section 1.3(b).

                (3)     Buyer shall prepare all Section 338 Forms in accordance
                        with the Allocation Statement and shall deliver such
                        Section 338 Forms to IHI as soon as practical after the
                        finalization of the Allocation Statement, and in any
                        event at least 30 days prior to the due date for filing
                        such forms. Buyer and IHI shall take all reasonable
                        actions or refrain from taking any actions, as the case
                        may be, necessary to give effect to the Section
                        338(h)(10) Elections. Buyer and IHI shall report the
                        transactions contemplated by this Agreement on any
                        Section 338 Forms, any statement required under Code
                        Section 1060, and any other Tax returns consistent with
                        the Allocation Statement, and shall take no position
                        contrary thereto unless required to do so by applicable
                        tax law pursuant to a determination (as that term is
                        defined in Code Section 1313(a)).


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<PAGE>
        (c)     MISCELLANEOUS.

                (1)     Each party and its affiliates shall bear their own
                        expenses incurred in connection with preparation of Tax
                        returns and other matters related to Taxes under the
                        provisions of this Agreement.

                (2)     The rights and obligations under this Section 9.4 shall
                        survive the Closing until six months after the
                        expiration of any applicable period of limitations on
                        assessments, giving effect to any waiver, mitigation, or
                        extension thereof.

                (3)     If there is any conflict between the provisions of this
                        Section 9.4 and any other provisions of the Agreement as
                        applied to any liability for any Tax or any other matter
                        relating to Taxes, the provisions of this Section 9.4
                        shall control.

As used in this Section 9.4:

"PERSON" means any individual, corporation, partnership, joint venture, trust,
association, organization, governmental authority, or other entity.

"POST-CLOSING TAX PERIOD" means any Tax period beginning after the Closing Date.

"PRE-CLOSING TAX PERIOD" means any Tax period ending on or before the Closing
Date.

"SECTION 338(h)(10) ELECTION" means an election described in Code Section
338(h)(10) and applicable Treasury Regulations with respect to Buyer's purchase
of the Stock pursuant to this Agreement, or with respect to Buyer's deemed
purchase of the stock of the Subsidiary resulting from any Code Section
338(h)(10) election. Section 338(h)(10) Election shall include any corresponding
election under any Tax law pursuant to which a separate election is permissible
(i.e., a state election that ignores the actual or deemed sale of stock of the
Company or the Subsidiary and instead treats the applicable Company or
Subsidiary as having sold all of its assets to a Buyer subsidiary followed by a
distribution of the proceeds of such sale in a complete liquidation in which no
gain or loss is recognized under a state provision corresponding to Code Section
332).

"SECTION 338 FORMS" means all returns, documents, statements, and other forms
that are required to be submitted to any federal, state, county or other local
Governmental Authority in connection with a Section 338 Election. Section 338
Forms shall include any "statement of section 338 election" and IRS Form 8023
(together with any schedules or attachments thereto) that are required pursuant
to Treasury Regulations Section 1.338-1 or Treasury Regulations Section
1.338(h)(10)-1 or any successor provisions.

"STRADDLE PERIOD" means any Tax period that begins on or before the Closing Date
and ends after the Closing Date.


STOCK PURCHASE AGREEMENT               20                         EXECUTION COPY
<PAGE>
10.     TERMINATION.

10.1.   MANNER OF TERMINATION. This Agreement may be terminated at any time
        before the Closing Date as follows:

        (a)     By Buyer and IHI in a written instrument signed by each of them.

        (b)     By Buyer or IHI if the Closing does not occur on or before
                December 31, 2001 (the "Termination Date").

        (c)     By Buyer or IHI if there has been a material breach of any of
                the representations or warranties set forth in this Agreement on
                the part of the other, and this breach by its nature cannot be
                cured before the Termination Date.

        (d)     By Buyer or IHI if there has been a material breach of any of
                the covenants or agreements set forth in this Agreement on the
                part of the other, and this breach is not cured by the
                Termination Date.

10.2.   EFFECT OF TERMINATION. If terminated as provided in Section 10.1, this
        Agreement shall forthwith become void and have no effect, except for
        Section 11.9 and Section 11.12, and except that no party shall be
        relieved or released from any liabilities or damages arising out of the
        party's breach of any provision of this Agreement.

11.     MISCELLANEOUS.

11.1.   ENTIRE AGREEMENT. This Agreement, including the Exhibits and schedules
        hereto, constitutes the entire agreement between the parties with
        respect to the subject matter hereof and no party shall be liable or
        bound to any other party in any manner by any warranties,
        representations or covenants except as specifically set forth herein or
        therein. This Agreement supersedes all letters, memoranda and term
        sheets previously prepared in connection with the negotiations
        surrounding the subject matter hereof. The terms and conditions of this
        Agreement shall inure to the benefit of and be binding upon the parties'
        respective successors and permitted assigns. Nothing in this Agreement,
        express or implied, is intended to confer upon any third party any
        rights, remedies, obligations or liabilities under or by reason of this
        Agreement, except as expressly provided in this Agreement.

11.2.   NOTICES. Any notices permitted or required to be given under the terms
        of this Agreement shall be in writing and shall be deemed given if
        delivered to the party to be notified at the address specified below, by
        first class mail, overnight courier or fax with hard copy being sent by
        first class mail or overnight courier. Such notice shall be deemed
        received 24 hours after it is sent via fax (with receipt confirmed) or
        overnight courier. Any notice given in any other manner shall be
        effective only if and when received.


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<PAGE>
        (a)     if to Buyer, at:

                       GHX Acquisition Corp.
                       7111 Ardmore
                       Houston, Texas  77054
                       Attn:  Daniel D. Ahuero
                       Telephone No.: (713) 222-2231
                       Facsimile No.: (713) 222-8347


                with a copy (which shall not constitute notice) to:

                       Stumpf, Craddock, Massey & Pullman, PC
                       1400 Post Oak Blvd.
                       Suite 400
                       Houston, Texas  77056
                       Attn:  Lawrence J. Fontana
                       Telephone No.: (713) 871-0919
                       Facsimile No.: (713) 871-0408


        (b)     if to IHI, at:

                       Industrial Holdings, Inc.
                       7135 Ardmore
                       Houston, Texas 77054
                       Attn: Christine A. Smith
                       Telephone No.  (713) 747-1025
                       Facsimile No.: (713) 749-9642


                with a copy (which shall not constitute notice) to:

                       Jackson Walker L.L.P.
                       1100 Louisiana, Suite 4200
                       Houston, Texas 77002
                       Attn: Sabrina A. McTopy
                       Telephone No.  (713) 752-4265
                       Facsimile No.: (713) 752-4221

        or at such other address or facsimile number that the parties may
        designate in writing.

11.3.   AMENDMENT AND WAIVERS. This Agreement may be amended, modified or
        supplemented only by a written instrument designated as an "amendment"
        to this Agreement and signed by the parties hereto. The observance of
        any term of this Agreement may be waived (either generally or in a
        particular instance and either retroactively or prospectively) only by a
        written instrument signed by the person specifically waiving such
        observance.


STOCK PURCHASE AGREEMENT               22                         EXECUTION COPY
<PAGE>
11.4.   ASSIGNMENT. This Agreement shall inure to the benefit of and be binding
        upon the parties hereto and their respective legal representatives,
        successors (including the successor to IHI in the Merger) and permitted
        assigns; provided, however, that no party may assign this Agreement
        without the prior written consent of the other party, which consent
        shall be not unreasonably withheld.

11.5.   GOVERNING LAW; VENUE. This Agreement shall be governed by, construed
        under, enforced and interpreted in accordance with the internal
        substantive laws of the State of Texas that apply to agreements to be
        made and performed solely within such state, without giving effect to
        any conflicts or choice of laws principles that might otherwise apply.
        The parties hereto agree that any dispute arising in connection with
        this Agreement shall be resolved by arbitration in accordance with
        Section 11.7 of this Agreement; provided, however, to the extent a party
        exercises its rights under Section 7 of this Agreement; venue shall lie
        with a court of competent jurisdiction in Harris County, Texas.

11.6.   SEVERABILITY. If any provision of this Agreement is declared
        unenforceable by any court of competent jurisdiction, such provision
        shall be enforced to the greatest extent permitted by law, and such
        declaration shall not affect the validity of any other provision of this
        Agreement.

11.7.   ARBITRATION.

        (a)     Any dispute, controversy, or claim arising out of or relating to
                this Agreement or relating to the breach, termination, or
                invalidity of this Agreement, whether arising in contract, tort,
                or otherwise, shall at the request of any party be resolved in
                binding arbitration. Any arbitration shall proceed in accordance
                with Title 9 of the United States Code, as it may be amended or
                recodified from time to time ("Title 9"), and the current
                Commercial Arbitration Rules (the "Arbitration Rules") of the
                American Arbitration Association ("AAA") to the extent that
                Title 9 and the Arbitration Rules do not conflict with any
                provision of this Section 11.7.

        (b)     No provision of or the exercise of any rights under this Section
                11.7 shall limit the right of any party to seek and obtain
                provisional or ancillary remedies (such as injunctive relief,
                attachment, or the appointment of a receiver) from any court
                having jurisdiction before, during, or after the pendency of an
                arbitration proceeding under this Section. The institution and
                maintenance of any such action or proceeding shall not
                constitute a waiver of the right of any party (including the
                party taking the action or instituting the proceeding) to submit
                a dispute, controversy, or claim to arbitration under this
                Section.

        (c)     Any award, order, or judgment made pursuant to arbitration shall
                be deemed final and may be entered in any court having
                jurisdiction over the enforcement of the award, order, or
                judgment. Each party agrees to submit to the jurisdiction of any
                court for purposes of the enforcement of the award, order, or
                judgment.

        (d)     The arbitration shall be held before one neutral, disinterested
                arbitrator knowledgeable in the general subject matter of the
                dispute, controversy, or claim and


STOCK PURCHASE AGREEMENT               23                         EXECUTION COPY
<PAGE>
                selected by AAA in accordance with the Arbitration Rules, except
                that any arbitration in which the disputed, controverted, or
                claimed amount (as reflected on the demand for arbitration, as
                the same may be amended) exceeds $500,000.00 shall be held
                before three arbitrators, one arbitrator being selected by
                Buyer, one by IHI, and the third by the other two from a panel
                of persons identified by AAA who are knowledgeable in the
                general subject matter of the dispute, controversy, or claim.

        (e)     The arbitration shall be held at the office of AAA located in
                Harris County, Texas (as the same may be from time to time
                relocated), or at another place the parties agree on.

        (f)     In any arbitration proceeding under this Section 11.7, subject
                to the award of the arbitrator(s), each party shall pay all its
                own expenses, an equal share of the fees and expenses of the
                arbitrator, and, if applicable, the fees and expenses of its own
                appointed arbitrator. The arbitrator(s) shall have the power to
                award recovery of costs and fees (including reasonable attorney
                fees, administrative and AAA fees, and arbitrators' fees) among
                the parties as the arbitrators determine to be equitable under
                the circumstances.

        (g)     The interpretation and construction of this Section 11.7,
                including, but not limited to, its validity and enforceability,
                shall be governed by Title 9 of the U.S. Code, notwithstanding
                the choice of law set forth in Section 11.5 of this Agreement.

11.8.   MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple
        counterparts, each of which shall be deemed an original but all of which
        shall constitute one instrument.

11.9.   EXPENSES. Except as provided in the next sentence of this Section 11.9,
        IHI and Buyer are each solely responsible for and will bear all of their
        own respective expenses, including, without limitation, expenses of
        legal counsel, investment bankers, brokers, consultants, accountants and
        other advisors, incurred at any time in connection with this Agreement,
        the Related Agreements, the Note, and the transactions contemplated
        hereby and thereby, and no such expenses shall be borne by the Company.
        Notwithstanding the foregoing, IHI shall pay Buyer's expenses incurred
        in connection with this Agreement in an amount not to exceed $25,000,
        whether or not the Closing occurs.

11.10.  WAIVER OF BREACH. No waiver of any provision of this Agreement shall
        constitute a waiver of any other provision of this Agreement, nor shall
        such waiver constitute a waiver of any subsequent breach of such
        provision.

11.11.  CONSTRUCTION. The headings contained in this Agreement are for reference
        purposes only and shall not affect this Agreement in any manner
        whatsoever. Wherever required by the context, any gender shall include
        any other gender, the singular shall include the plural, and the plural
        shall include the singular.

11.12.  PUBLIC ANNOUNCEMENTS. The parties agree to advise and confer with each
        other prior to the issuance of any public reports, statements or press
        releases pertaining to this Agreement and the transactions contemplated
        hereby. Each party will use its best efforts to maintain in strict


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<PAGE>
        confidence the existence and terms of this Agreement and the
        transactions contemplated hereby. Unless otherwise required by law or as
        set forth above, no party shall make any public announcement or
        disclosure concerning this Agreement, except as mutually agreed. The
        financial terms of the Agreement are to be kept confidential, except to
        the extent that the disclosure is required under law. Nothing in the
        foregoing is intended to prevent IHI from making any filings required
        with the Securities and Exchange Commission.

11.13.  FACSIMILE SIGNATURES. The parties acknowledge that signatures on this
        Agreement may be delivered by facsimile in lieu of an original signature
        and the parties agree to treat such signatures as original signatures
        and shall be bound thereby.


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<PAGE>
DATED NOVEMBER 14, 2001.

                                       INDUSTRIAL HOLDINGS, INC.


                                       By: /s/ ROBERT E. CONE
                                           ------------------------------------
                                           Name:  Robert E. Cone
                                           Title: President

                                       BUYER


                                       GHX ACQUISITION CORP.


                                       By: /s/ DANIEL D. AHUERO
                                           ------------------------------------
                                            Daniel D. Ahuero, President


STOCK PURCHASE AGREEMENT               26                         EXECUTION COPY

</TEXT>
</DOCUMENT>
