EXHIBIT 4.3 - FORM OF WARRANT

THE SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND, ACCORDINGLY, THE
SECURITIES REPRESENTED BY THIS WARRANT MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN
ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS.

                                    WARRANTS

                           to Purchase Common Stock of

                            INDUSTRIAL HOLDINGS, INC.

                            Expiring on June 30, 2005

      This Warrant to Purchase Common Stock (the "Warrant") certifies that for
value received, SJMB, L.P., a Delaware limited partnership (the "Holder") or its
assigns, is entitled to subscribe for and purchase from the Company (as
hereinafter defined), in whole or in part, 300,000 shares of duly authorized,
validly issued, fully paid and non-assessable shares of Common Stock (as
hereinafter defined), at an initial Exercise Price (as hereinafter defined),
subject, however, to the provisions and upon the terms and conditions
hereinafter set forth. The number of shares of Common Stock purchasable
hereunder and the Exercise Price therefor are subject to adjustment as
hereinafter set forth. This Warrant and all rights hereunder shall expire at
5:00 p.m., Houston, Texas time, on June 30, 2005.

      As used herein, the following terms shall have the meanings set forth
below:

      "COMPANY" shall mean  Industrial  Holdings,  Inc., a Texas  corporation,
and shall also include any successor  thereto with respect to the  obligations
hereunder, by merger, consolidation or otherwise.

      "COMMON STOCK" shall mean and include the Company's Common Stock, par
value $.01 per share, authorized on the date of the original issue of this
Warrant and shall also include (i) in case of any reorganization,
reclassification, consolidation, merger, share exchange or sale, transfer or
other disposition of assets of the character referred to in Section 3.5 hereof,
the stock, securities provided for in such Section 3.5, and (ii) any other
shares of common stock of the Company into which such shares of Common Stock may
be converted.

      "EXERCISE PRICE" the initial purchase price for each share of Common Stock
payable upon exercise of the Warrants shall be $1.25. The Exercise Price shall
be adjusted from time to time pursuant to the provisions hereof.

      "MARKET PRICE" for any day, when used with reference to Common Stock,
shall mean the price of said Common Stock determined as follows: (i) the last
reported sale price for the Common Stock on such day on the principal securities
exchange on which the Common Stock is listed or admitted to trading or if no
such sale takes place on such date, the average of the closing bid and asked
prices thereof as officially reported, or, if not so listed or admitted to
trading on any securities exchange, the last sale price for the Common Stock on
the National Association of Securities Dealers National Market System or Small
Cap Market on such date, or, if there shall have been no trading on such date or
if the Common Stock shall not be listed on such system, the average of the
closing bid and asked prices in the over-the-counter market as furnished by any
NASD member firm selected from time to time by the Company for such purpose, in
each such case, unless otherwise provided herein, averaged over a period of ten
(10) consecutive Trading Days prior to the date as of which the determination is
to be made; or (ii) if the Common Stock shall not be listed or admitted to
trading or the closing bid and asked prices are unable to be furnished by an
NASD member firm, as provided in clause (i) above, the fair market value of the
Common Stock as determined in good faith by the Board of Directors of the
Company.

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      "OUTSTANDING," when used with reference to Common Stock, shall mean
(except as otherwise expressly provided herein) at any date as of which the
number of shares thereof is to be determined, all issued shares of Common Stock,
except shares then owned or held by or for the account of the Company.

      "PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.

      "SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

      "TRADING DAYS" shall mean any days during the course of which the
principal securities exchange on which the Common Stock is listed or admitted to
trading is open for the exchange of securities.

      "WARRANT SHARES" shall mean the shares of Common Stock purchased or
purchasable by the holder hereof upon the exercise of the Warrants.

                                    ARTICLE I
                              EXERCISE OF WARRANTS

      1.1 METHOD OF EXERCISE. The Warrants represented hereby may be exercised
by the holder hereof, in whole or in part, at any time and from time to time on
or after the date hereof until 5:00 p.m., Houston, Texas time, on June 30, 2005.
To exercise the Warrants, the holder hereof shall deliver to the Company, at the
Warrant Office designated in Section hereof, (i) a written notice in the form of
the Subscription Notice attached as an exhibit hereto, stating therein the
election of such holder to exercise the Warrants in the manner provided in the
Subscription Notice; (ii) payment in full of the Exercise Price (A) in cash or
by bank check for all Warrant Shares purchased hereunder, or (B) through a
"cashless" or "net-issue" exercise of each such Warrant ("Cashless Exercise");
the holder shall exchange each Warrant subject to a Cashless Exercise for that
number of Warrant Shares determined by multiplying the number of Warrant Shares
issuable hereunder by a fraction, the numerator of which shall be the difference
between (x) the Market Price and (y) the Exercise Price for each such Warrant,
and the denominator of which shall be the Market Price; the Subscription Notice
shall set forth the calculation upon which the Cashless Exercise is based, or
(C) a combination of (A) and (B) above; and (iii) this Warrant. The Warrants
shall be deemed to be exercised on the date of receipt by the Company of the
Subscription Notice, accompanied by payment for the Warrant Shares and surrender
of this Warrant, as aforesaid, and such date is referred to herein as the
"Exercise Date". Upon such exercise, the Company shall, as promptly as
practicable and in any event within ten (10) business days, issue and deliver to
such holder a certificate or certificates for the full number of the Warrant
Shares purchased by such holder hereunder, and shall, unless the Warrants have
expired, deliver to the holder hereof a new Warrant representing the number of
Warrants, if any, that shall not have been exercised, in all other respects
identical to this Warrant. As permitted by applicable law, the Person in whose
name the certificates for Common Stock are to be issued shall be deemed to have
become a holder of record of such Common Stock on the Exercise Date and shall be
entitled to all of the benefits of such holder on the Exercise Date, including
without limitation, the right to receive dividends and other distributions for
which the record date falls on or after the Exercise Date and the right to
exercise voting rights.

      1.2 EXPENSES AND TAXES. The Company shall pay all expenses and taxes
(including, without limitation, all documentary, stamp, transfer or other
transactional taxes) other than income taxes attributable to the preparation,
issuance or delivery of the Warrants and of the shares of Common Stock issuable
upon exercise of the Warrants.

      1.3 RESERVATION OF SHARES. The Company shall reserve at all times so long
as the Warrants remain outstanding, free from preemptive rights, out of its
treasury Common Stock or its authorized but unissued shares of Common Stock, or
both, solely for the purpose of effecting the exercise of the Warrants, a
sufficient number of shares of Common Stock to provide for the exercise of the
Warrants.

      1.4 VALID ISSUANCE. All shares of Common Stock that may be issued upon
exercise of the Warrants will, upon issuance by the Company, be duly and validly
issued, fully paid and nonassessable and free from all

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taxes, liens and charges with respect to the issuance thereof and, without
limiting the generality of the foregoing, the Company shall take no action or
fail to take any action which will cause a contrary result (including, without
limitation, any action that would cause the Exercise Price to be less than the
par value, if any, of the Common Stock).

      1.5 AGREEMENT. The Warrants represented hereby are part of a duly
authorized issuance and sale of warrants to purchase Common Stock issued and
sold pursuant to that certain Letter Agreement dated as of June 30, 2000, among
the Company, OF Acquisition, L.P., Philform, Inc. and Holder (the "Agreement").
The holder hereof shall be entitled to registration rights with respect to the
underlying shares of Common Stock under the Securities Act and any applicable
state securities or blue sky laws to the extent set forth in the Registration
Rights Agreement between Holder and the Company dated as of June 30, 2000, as
amended or modified (the "Registration Rights Agreement").

      1.6 ACKNOWLEDGMENT OF RIGHTS. At the time of the exercise of the Warrants
in accordance with the terms hereof and upon the written request of the holder
hereof, the Company will acknowledge in writing its continuing obligation to
afford to such holder any rights (including, without limitation, any right to
registration of the Warrant Shares) to which such holder shall continue to be
entitled after such exercise in accordance with the provisions of this Warrant;
PROVIDED, HOWEVER, that if the holder hereof shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.

      1.7 NO FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If more than
one Warrant shall be presented for exercise at the same time by the same holder,
the number of full shares of Common Stock which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number of whole shares
of Common Stock purchasable on exercise of the Warrants so presented. If any
fraction of a share of Common Stock would, except for the provisions of this
Section , be issuable on the exercise of this Warrant, the Company shall pay an
amount in cash calculated by it to be equal to the Market Price of one share of
Common Stock at the time of such exercise multiplied by such fraction computed
to the nearest whole cent.

                                   ARTICLE II
                                    TRANSFER

      2.1 WARRANT OFFICE. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's offices at 7135 Ardmore, Houston, Texas 77054 and may
subsequently be such other office of the Company or of any transfer agent of the
Common Stock in the continental United States as to which written notice has
previously been given to the holder hereof. The Company shall maintain, at the
Warrant Office, a register for the Warrants in which the Company shall record
the name and address of the Person in whose name this Warrant has been issued,
as well as the name and address of each permitted assignee of the rights of the
registered owner hereof.

      2.2 OWNERSHIP OF WARRANTS. The Company may deem and treat the Person in
whose name the Warrants are registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Article II. Notwithstanding the foregoing, the Warrants
represented hereby, if properly assigned in compliance with this Article II, may
be exercised by an assignee for the purchase of Warrant Shares without having a
new Warrant issued.

      2.3 RESTRICTIONS ON TRANSFER OF WARRANTS. The Company agrees to maintain
at the Warrant Office books for the registration and transfer of the Warrants.
Subject to the restrictions on transfer of the Warrants in this Section 2.3, the
Company, from time to time, shall register the transfer of the Warrants in such
books upon surrender of this Warrant at the Warrant Office properly endorsed or
accompanied by appropriate instruments of transfer and written instructions for
transfer satisfactory to the Company. Upon any such transfer and upon payment by
the holder or its transferee of any applicable transfer taxes, new Warrants
shall be issued to the transferee and the transferor (as their respective
interests may appear) and the surrendered Warrants shall be canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes
and income taxes) and all other expenses and charges payable in connection with
the transfer of the Warrants pursuant to this Section .

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      2.3.1 RESTRICTIONS IN GENERAL. The holder of the Warrants agrees that it
will not transfer the Warrants unless registration of such Warrant Shares under
the Securities Act and any applicable state securities or blue sky laws has
become effective or the holder has provided to the Company an opinion of counsel
acceptable to the Company that such registration is not required. Prior to any
transfer (other than the grant of a security interest) as provided herein, the
transferor shall provide written notice to the Company and an opinion of counsel
to the effect that the proposed transfer is exempt from registration under all
applicable securities laws, all in form and substance reasonably satisfactory to
the Company. Any lender or lenders to which the Holder grants a security
interest in the Warrants shall be entitled to exercise all remedies to which it
is entitled by contract or by law, including (without limitation) transferring
the Warrants into its own name or into the name of any purchaser at any sale
undertaken in connection with enforcement by such lender of its remedies.

      2.4 COMPLIANCE WITH SECURITIES LAWS. Subject to the terms of the
Registration Rights Agreement, and notwithstanding any other provisions
contained in this Warrant except Section 2.3.1, the holder hereof understands
and agrees that the following restrictions and limitations shall be applicable
to all Warrant Shares and to all resales or other transfers thereof pursuant to
the Securities Act:

            2.4.1 The holder hereof agrees that the Warrant Shares shall not be
      sold or otherwise transferred unless the Warrant Shares are registered
      under the Securities Act and applicable state securities or blue sky laws
      or are exempt therefrom.

            2.4.2 A legend in substantially the following form will be placed on
      the certificate(s) evidencing the Warrant Shares:

                  "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
            REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
            "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
            ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT
            BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
            EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT
            FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH
            ANY OTHER APPLICABLE SECURITIES LAWS."

            2.4.3 Stop transfer instructions may be imposed with respect to the
      Warrant Shares so as to restrict resale or other transfer thereof, subject
      to this Section.

                                   ARTICLE III
                                  ANTI-DILUTION

      3.1 ANTI-DILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as hereinafter provided.

      3.2   ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF COMMON STOCK.

            3.2.1 (A) If and whenever after the date hereof the Company shall
      issue or sell any Common Stock for no consideration or for a consideration
      per share less than the Exercise Price, issue convertible securities other
      than this Warrant, including other warrants, grant stock options, or issue
      any other common stock equivalent, then, forthwith upon such issue or
      sale, the Exercise Price shall be reduced (but not increased), to the
      price (calculated pursuant to this Section 3.2 to the nearest one-tenth of
      a cent) determined by dividing (x) an amount equal to the sum of (1) the
      aggregate number of shares of Common Stock outstanding immediately prior
      to such issue or sale multiplied by the then existing Exercise Price plus
      (2) the consideration received by the Company upon such issue or sale by
      (y) the aggregate number of shares of Common Stock outstanding immediately
      after such issue or sale (calculated to the nearest one-tenth of a cent).

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            (B) Notwithstanding the provisions of this Section, no adjustment
      shall be made in the Exercise Price in the event that the Company issues,
      in one or more transactions, (i) Common Stock or convertible securities
      upon exercise of any options issued to officers, directors or employees of
      the Company pursuant to a stock option plan or an employment, severance or
      consulting agreement as now or hereafter in effect, in each case approved
      by the Board of Directors (provided that the aggregate number of shares of
      Common Stock which may be issuable, including options issued prior to the
      date hereof, under all such employee plans and agreements shall at no time
      exceed the number of such shares of Common Stock that are issuable under
      currently effective employee plans and agreements); (ii) Common Stock upon
      exercise of the Warrants or any other warrant issued pursuant to the terms
      of the Agreement or otherwise issued to the Holder; (iii) Common Stock
      upon exercise of any stock purchase warrant or option (other than the
      options referred to in clause (i) above) or other convertible security
      outstanding on the date hereof; (iv) Common Stock upon conversion of any
      obligation of the Company to the Holder; (v) Common Stock issued as
      consideration in acquisitions (including warrants, options or convertible
      securities issued as consideration for an acquisition or to officers,
      directors or employees of the acquired entity in conjunction therewith);
      or (vi) warrants or convertible notes pursuant to the transactions
      contemplated by that certain Amended and Restated Letter of Intent dated
      June 12, 2000, among Holder, the Company and St. James Capital Partners,
      L.P. or Common Stock upon exercise of such warrants or conversion of such
      convertible notes. In addition, for purposes of calculating any adjustment
      of the Exercise Price as provided in this Section , all of the shares of
      Common Stock issuable pursuant to any of the foregoing shall be assumed to
      be outstanding prior to the event causing such adjustment to be made.

            3.2.2 For purposes of this Section, the following Sections to
      inclusive, shall be applicable:

            (A) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time after the
      date hereof the Company shall in any manner grant (whether directly or by
      assumption in a merger or otherwise) any rights to subscribe for or to
      purchase, or any options for the purchase of, Common Stock or any stock or
      securities convertible into or exchangeable for Common Stock (such
      convertible or exchangeable stock or securities being herein called
      "Convertible Securities") (other than warrants, options or convertible
      securities issued as consideration for or assumed in conjunction with an
      acquisition or to officers, directors or employees of the acquired entity
      in conjunction therewith), whether or not such rights or options or the
      right to convert or exchange any such Convertible Securities are
      immediately exercisable, and the price per share for which shares of
      Common Stock are issuable upon the exercise of such rights or options or
      upon conversion or exchange of such Convertible Securities (determined by
      dividing (i) the total amount, if any, received or receivable by the
      Company as consideration for the granting of such rights or options, plus
      the minimum aggregate amount of additional consideration, if any, payable
      to the Company upon the exercise of such rights or options, or plus, in
      the case of such rights or options that relate to Convertible Securities,
      the minimum aggregate amount of additional consideration, if any, payable
      upon the issue or sale of such Convertible Securities and upon the
      conversion or exchange thereof, by (ii) the total maximum number of shares
      of Common Stock issuable upon the exercise of such rights or options or
      upon the conversion or exchange of all such Convertible Securities
      issuable upon the exercise of such rights or options) shall be less than
      the Exercise Price in effect as of the date of granting such rights or
      options, then the total maximum number of shares of Common Stock issuable
      upon the exercise of such rights or options or upon conversion or exchange
      of all such Convertible Securities issuable upon the exercise of such
      rights or options shall be deemed to be outstanding as of the date of the
      granting of such rights or options and to have been issued for such price
      per share, with the effect on the Exercise Price specified in Section
      hereof. Except as provided in Section hereof, no further adjustment of the
      Exercise Price shall be made upon the actual issuance of such Common Stock
      or of such Convertible Securities upon exercise of such rights or options
      or upon the actual issuance of such Common Stock upon conversion or
      exchange of such Convertible Securities.

            (B) CHANGE IN OPTION PRICE OR CONVERSION RATE. If: (i) the purchase
      price provided for in any right or option, (ii) the additional
      consideration, if any, payable upon the conversion or exchange of any
      Convertible Securities or (iii) the rate at which any Convertible
      Securities are convertible into or exchangeable for Common Stock shall be
      decreased (other than under or by reason of provisions designed to protect
      against dilution), the Exercise Price then in effect shall be decreased to
      the Exercise Price that

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<PAGE>
      would have been in effect had such rights, options or Convertible
      Securities provided for such changed purchase price, additional
      consideration or conversion rate at the time initially issued.

            (C) CONSIDERATION FOR STOCK. In case at any time Common Stock or
      Convertible Securities or any rights or options to purchase any such
      Common Stock or Convertible Securities shall be issued or sold for cash,
      the consideration therefor shall be deemed to be the amount received by
      the Company therefor. In case at any time any Common Stock, Convertible
      Securities or any rights or options to purchase any such Common Stock or
      Convertible Securities shall be issued or sold for consideration other
      than cash, the amount of the consideration other than cash received by the
      Company shall be deemed to be the fair value of such consideration, as
      determined reasonably and in good faith by the Board of Directors of the
      Company. In case at any time any Common Stock, Convertible Securities or
      any rights or options to purchase any Common Stock or Convertible
      Securities shall be issued in connection with any merger or consolidation
      in which the Company is the surviving corporation, the amount of
      consideration received therefor shall be deemed to be the fair value, as
      determined reasonably and in good faith by the Board of Directors of the
      Company, of such portion of the assets and business of the nonsurviving
      corporation as such Board of Directors may determine to be attributable to
      such Common Stock, Convertible Securities, rights or options as the case
      may be. In case at any time any rights or options to purchase any shares
      of Common Stock or Convertible Securities shall be issued in connection
      with the issuance and sale of other securities of the Company, together
      consisting of one integral transaction in which no consideration is
      allocated to such rights or options by the parties, such rights or options
      shall be deemed to have been issued with consideration.

            (D) RECORD DATE. In the case the Company shall take a record of the
      holders of its Common Stock for the purpose of entitling them (i) to
      receive a dividend or other distribution payable in Common Stock or
      Convertible Securities, or (ii) to subscribe for or purchase Common Stock
      or Convertible Securities, then such record date shall be deemed to be the
      date of the issuance or sale of the Common Stock or Convertible Securities
      deemed to have been issued or sold as a result of the declaration of such
      dividend or the making of such other distribution or the date of the
      granting of such right of subscription or purchase, as the case may be.

            (E) TREASURY SHARES. The number of shares of Common Stock
      outstanding at any given time shall not include shares owned directly by
      the Company in treasury, and the disposition of any such shares shall be
      considered an issuance or sale of Common Stock for the purpose of this
      Section .

      3.3 STOCK DIVIDENDS. In case the Company shall declare a dividend or make
any other distribution upon any shares of the Company, payable in Common Stock
or Convertible Securities, any Common Stock or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.

      3.4 STOCK SPLITS AND REVERSE SPLITS. In the event that the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
purchasable pursuant to this Warrant immediately prior to such subdivision shall
be proportionately increased, and conversely, in the event that the outstanding
shares of Common Stock shall at any time be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination shall
be proportionately increased and the number of Warrant Shares purchasable upon
the exercise of this Warrant immediately prior to such combination shall be
proportionately reduced. Except as provided in this Section , no adjustment in
the Exercise Price and no change in the number of Warrant Shares purchasable
shall be made under this Article III as a result of, or by reason of, any such
subdivision or combination.

      3.5 REORGANIZATIONS AND ASSET SALES. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation,
merger or share exchange of the Company with another Person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another Person shall be effected in such a way that a holder of Common Stock of
the Company shall be entitled to receive capital stock, securities or assets
with respect to or in exchange for their shares, then the following provisions
shall apply:

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            3.5.1 As a condition of such reorganization, reclassification,
      consolidation, merger, share exchange, sale, transfer or other disposition
      (except as otherwise provided below in this Section ), lawful and adequate
      provisions shall be made whereby the holder of Warrants shall thereafter
      have the right to purchase and receive upon the terms and conditions
      specified in this Warrant and in lieu of the Warrant Shares immediately
      theretofore receivable upon the exercise of the rights represented hereby,
      such shares of capital stock, securities or assets as may be issued or
      payable with respect to or in exchange for a number of outstanding shares
      of such Common Stock equal to the number of Warrant Shares immediately
      theretofore so receivable had such reorganization, reclassification,
      consolidation, merger, share exchange or sale not taken place, and in any
      such case appropriate provision reasonably satisfactory to such holder
      shall be made with respect to the rights and interests of such holder to
      the end that the provisions hereof (including, without limitation,
      provisions for adjustments of the Exercise Price and of the number of
      Warrant Shares receivable upon the exercise) shall thereafter be
      applicable, as nearly as possible, in relation to any shares of capital
      stock, securities or assets thereafter deliverable upon the exercise of
      Warrants.

            3.5.2 In the event of a merger, share exchange or consolidation of
      the Company with or into another Person as a result of which a number of
      shares of Common Stock or its equivalent of the successor Person greater
      or lesser than the number of shares of Common Stock outstanding
      immediately prior to such merger, share exchange or consolidation are
      issuable to holders of Common Stock, then the Exercise Price in effect
      immediately prior to such merger, share exchange or consolidation shall be
      adjusted in the same manner as though there were a subdivision or
      combination of the outstanding shares of Common Stock.

            3.5.3 The Company shall not effect any such consolidation, merger,
      share exchange, sale, transfer or other disposition unless prior to or
      simultaneously with the consummation thereof the successor Person (if
      other than the Company) resulting from such consolidation, share exchange
      or merger of the Person purchasing or otherwise acquiring such assets
      shall have assumed by written instrument executed and mailed or delivered
      to the holder hereof at the last address of such holder appearing on the
      books of the Company the obligation to deliver to such holder such shares
      of capital stock, securities or assets as, in accordance with the
      foregoing provisions, such holder may be entitled to receive, and all
      other liabilities and obligations of the Company hereunder. Upon written
      request by the holder hereof, such successor Person will issue a new
      warrant revised to reflect the modifications in this Warrant effected
      pursuant to this Section .

            3.5.4 If a purchase, tender or exchange offer is made to and
      accepted by the holders of 50% or more of the outstanding shares of Common
      Stock, the Company shall not effect any consolidation, merger, share
      exchange or sale, transfer or other disposition of all or substantially
      all of the Company's assets with the Person having made such offer or with
      any affiliate of such Person, unless prior to the consummation of such
      consolidation, merger, share exchange, sale, transfer or other disposition
      the holder hereof shall have been given a reasonable opportunity to then
      elect to receive upon the exercise of the Warrants either the capital
      stock, securities or assets then issuable with respect to the Common Stock
      or the capital stock, securities or assets, or the equivalent, issued to
      previous holders of the Common Stock in accordance with such offer.

      3.6 ADJUSTMENT FOR ASSET DISTRIBUTION. If the Company declares a dividend
or other distribution payable to all holders of shares of Common Stock in
evidences of indebtedness of the Company or other assets of the Company
(including, cash (other than regular cash dividends declared by the Board of
Directors), capital stock (other than Common Stock, Convertible Securities or
options or rights thereto) or other property), the Exercise Price in effect
immediately prior to such declaration of such dividend or other distribution
shall be reduced by an amount equal to the amount of such dividend or
distribution payable per share of Common Stock, in the case of a cash dividend
or distribution, or by the fair value of such dividend or distribution per share
of Common Stock (as reasonably determined in good faith by the Board of
Directors of the Company), in the case of any other dividend or distribution.
Such reduction shall be made whenever any such dividend or distribution is made
and shall be effective as of the date as of which a record is taken for the
purpose of such dividend or distribution or, if a record is not taken, the date
as of which holders of record of Common Stock entitled to such dividend or
distribution are determined.

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      3.7 DE MINIMIS ADJUSTMENTS. No adjustment in the number of shares of
Common Stock purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one share of Common Stock
purchasable upon an exercise of each Warrant and no adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least $0.01 in the Exercise Price; provided, however, that any
adjustments which by reason of this Section are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations shall be made to the nearest full share or nearest one hundredth of
a dollar, as applicable.

      3.8 NOTICE OF ADJUSTMENT. Whenever the Exercise Price or the number of
Warrant Shares issuable upon the exercise of the Warrants shall be adjusted as
herein provided, or the rights of the holder hereof shall change by reason of
other events specified herein, the Company shall compute the adjusted Exercise
Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare an Officer's Certificate setting forth the
adjusted Exercise Price and the adjusted number of Warrant Shares issuable upon
the exercise of the Warrants or specifying the other shares of stock, securities
or assets receivable as a result of such change in rights, and showing in
reasonable detail the facts and calculations upon which such adjustments or
other changes are based, and shall obtain an opinion of the Company's
independent accountants as to the correctness of such adjustments and
calculations and to the effect that such adjustments and calculations have been
made in accordance with the terms hereof. The Company shall cause to be mailed
to the holder hereof copies of such Officer's Certificate and an independent
accountants' opinion together with a notice stating that the Exercise Price and
the number of Warrant Shares purchasable upon exercise of the Warrants have been
adjusted and setting forth the adjusted Exercise Price and the adjusted number
of Warrant Shares purchasable upon the exercise of the Warrants.

      3.9 NOTIFICATIONS TO HOLDERS. In case at any time the Company proposes:

            (i) to declare any dividend upon its Common Stock payable in capital
      stock or make any special dividend or other distribution (other than cash
      dividends) to the holders of its Common Stock;

            (ii) to offer for subscription pro rata to all of the holders of its
      Common Stock any additional shares of capital stock of any class or other
      rights;

            (iii) to effect any capital reorganization, or reclassification of
      the capital stock of the Company, or consolidation, merger or share
      exchange of the Company with another Person, or sale, transfer or other
      disposition of all or substantially all of its assets; or

            (iv)  to   effect  a   voluntary   or   involuntary   dissolution,
      liquidation or winding up of the Company,

then, in any one or more of such cases, the Company shall give the holder hereof
(a) at least 10 days' (but not more than 90 days') prior written notice of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining rights
to vote in respect of such issuance, reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer, disposition, dissolution,
liquidation or winding up, and (b) in the case of any such issuance,
reorganization, reclassification, consolidation, merger, share exchange, sale,
transfer, disposition, dissolution, liquidation or winding up, at least 10 days'
(but not more than 90 days') prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause (a) shall
also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled thereto,
and such notice in accordance with the foregoing clause (b) shall also specify
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock, as the case may be, for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
share exchange, sale, transfer, disposition, dissolution, liquidation or winding
up, as the case may be.

      3.10 COMPANY TO PREVENT DILUTION. If any event or condition occurs as to
which other provisions of this Article III are not strictly applicable or if
strictly applicable would not fairly protect the exercise or purchase rights of
the Warrants evidenced hereby in accordance with the essential intent and
principles of such provisions, or that might materially and adversely affect the
exercise or purchase rights of the holder hereof under any provisions of this
Warrant, then the Company shall make such adjustments in the application of such
provisions, in accordance

                                      F-8
<PAGE>
with such essential intent and principles, so as to protect such exercise and
purchase rights as aforesaid, and any adjustments necessary with respect to the
Exercise Price and the number of Warrant Shares purchasable hereunder so as to
preserve the rights of the holder hereunder. In no event shall any such
adjustment have the effect of increasing the Exercise Price as otherwise
determined pursuant to this Article III except in the event of a combination of
shares of the type contemplated in Section hereof, and then in no event to an
amount greater than the Exercise Price as adjusted pursuant to Section hereof.

                                   ARTICLE IV
                                  MISCELLANEOUS

      4.1 ENTIRE AGREEMENT. This Warrant, together with the Agreement and the
Registration Rights Agreement, contains the entire agreement between the holder
hereof and the Company with respect to the Warrant Shares purchasable upon
exercise hereof and the related transactions and supersedes all prior
arrangements or understandings with respect thereto.

      4.2   GOVERNING  LAW.  This warrant  shall be governed by and  construed
in accordance with the laws of the State of Texas.

      4.3 WAIVER AND AMENDMENT. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of the holder hereof and the Company, except that any waiver of any
term or condition, or any amendment or supplementation, of this Warrant shall be
in writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Warrant shall not in any way effect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with every
term or condition of this Warrant.

      4.4 ILLEGALITY. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.

      4.5   COPY OF WARRANT.  A copy of this Warrant  shall be filed among the
records of the Company.

      4.6 NOTICE. Any notice or other document required or permitted to be given
or delivered to the holder hereof shall be in writing and delivered at, or sent
by certified or registered mail to such holder at, the last address shown on the
books of the Company maintained at the Warrant Office for the registration of
this Warrant or at any more recent address of which the holder hereof shall have
notified the Company in writing. Any notice or other document required or
permitted to be given or delivered to the Company, other than such notice or
documents required to be delivered to the Warrant Office, shall be delivered at,
or sent by certified or registered mail to, the offices of the Company at 7135
Ardmore, Houston, Texas 77054 or such other address within the continental
United States of America as shall have been furnished by the Company to the
holder of this Warrant.

      4.7 LIMITATION OF LIABILITY; NOT STOCKHOLDERS. No provision of this
Warrant shall be construed as conferring upon the holder hereof the right to
vote, consent, receive dividends or receive notices (other than as herein
expressly provided) in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such holder for the purchase price of any shares of Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.

      4.8 EXCHANGE, LOSS, DESTRUCTION, ETC. OF WARRANT. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
this Warrant, and in the case of any such loss, theft or destruction upon
delivery of a bond of indemnity or such other security in such form and amount
as shall be reasonably satisfactory to the Company, or in the event of such
mutilation upon surrender and cancellation of this Warrant, the Company will
make and deliver a new warrant of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Warrant. Any warrant issued under the provisions of this
Section in lieu of any Warrant alleged to be

                                      F-9
<PAGE>
lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute
an original contractual obligation on the part of the Company. This Warrant
shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange or replacement. The Company shall pay all taxes
(other than securities transfer taxes or income taxes) and all other expenses
and charges payable in connection with the preparation, execution and delivery
of warrants pursuant to this Section.

      4.9 REGISTRATION RIGHTS. The Warrant Shares shall be entitled to such
registration rights under the Securities Act and under applicable state
securities laws as are specified in the Registration Rights Agreement.

      4.10 HEADINGS. The Article and Section and other headings herein are for
convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.

      IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name as of June 30, 2000.

                                    INDUSTRIAL HOLDINGS, INC.

                                    By:   _____________________________________
                                          Michael N. Marsh,
                                          President and Chief Executive Officer

                                      F-10
<PAGE>
                             SUBSCRIPTION NOTICE

      The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented thereby for, and to purchase thereunder,
_______ shares of the Common Stock covered by such Warrant through a "cashless"
or "net issue" exercise of such Warrant ("Cashless Exercise") pursuant to
Section 1.1 of such Warrant, and requests that certificates for such shares (and
any other securities or other property issuable upon such exercise) be issued in
the name of, and delivered to ________________.

The calculation upon which the Cashless Exercise is based is as follows:

(No. of Warrants) ((Market Price - Exercise Price)/Market Price) = No. of
 shares of Common Stock

      - OR -

      The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented thereby for, and to purchase thereunder,
_______ shares of the Common Stock covered by such Warrant, and herewith makes
payment in full for such shares, and requests (a) that certificates for such
shares (and any other securities or other property issuable upon such exercise)
be issued in the name of, and delivered to ________________, and (b) if such
shares shall not include all of the shares issuable as provided in such Warrant,
that a new Warrant of like tenor and date for the balance of the shares issuable
thereunder be delivered to the undersigned.

Signature:   _____________________________________

Date:   __________________________________________

                                      F-11
<PAGE>
                                  ASSIGNMENT

      For value received, _______________________, hereby sells, assigns, and
transfers unto _________________________ the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ________________________ attorney, to transfer such Warrant on the books
of the Company, with full power of substitution.

                                      ____________________________________

Date:_________________________________

                                      F-12